Inovio Pharmaceuticals, Inc. — Q3 2018 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2018. Financial statements are unaudited. Inovio is a clinical-stage biotechnology company developing DNA immunotherapies, vaccines and electroporation delivery devices; it had no approved products or product-sales revenue.
Financial performance and position
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Total revenue | $2.0 million | $2.6 million | $28.0 million | $33.4 million |
| Research and development expense | $21.9 million | $25.5 million | $68.9 million | $73.9 million |
| General and administrative expense | $6.8 million | $6.3 million | $23.7 million | $20.3 million |
| Operating loss | $26.6 million | $29.2 million | $64.6 million | $60.8 million |
| Net loss | $25.0 million | $34.1 million | $64.0 million | $66.7 million |
| Basic loss per share | $0.27 | $0.39 | $0.70 | $0.85 |
- For the nine months, net cash used in operating activities was $56.3 million, versus $49.3 million in 2017. Investing activities provided $35.2 million, primarily reflecting investment maturities and sales; financing activities provided $16.6 million.
- At September 30, cash and cash equivalents were $19.4 million and short-term investments were $66.1 million, totaling $85.5 million. Working capital was $65.6 million, compared with $103.0 million at year-end 2017.
- Total assets were $140.7 million and total liabilities were $37.0 million. The filing does not disclose material interest-bearing debt.
- Accumulated deficit was $587.1 million. The company reported continuing losses and expects substantial expenses and operating losses for the foreseeable future.
Changes versus the prior comparable period
- Reported nine-month revenue declined to $28.0 million from $33.4 million. The 2018 comparison is materially affected by a change in grant accounting: $6.7 million of grant funding was recorded as a reduction of R&D expense rather than revenue. On a basis without that adoption effect, 2018 nine-month revenue would have been $34.7 million.
- Nine-month collaborative revenue included a $23.0 million ApolloBio upfront license payment recognized in Q2. The increase from ApolloBio was partly offset by lower MedImmune revenue, including a prior-period milestone-related recognition, and no 2018 Roche revenue after termination of that collaboration.
- Reported R&D expense fell year over year, in part because grant funding reduced expense by $6.7 million. Higher employee, manufacturing and clinical-trial costs partly offset other program-cost reductions.
- Net loss improved year over year, including a more favorable gain/loss on affiliated investments. The nine-month operating loss increased despite lower reported R&D expense.
- Cash and short-term investments fell by $41.9 million from December 31, 2017. The company raised $14.9 million net through ATM equity sales during the nine-month period; 2017 financing included a $70.1 million net public offering.
Outlook, commentary and risks
- Management stated that cash, cash equivalents and short-term investments of $85.5 million, together with $12.7 million of long-term investments, were sufficient to support operations for at least 12 months from the filing date. The company also said it would need additional capital for future R&D and could delay, reduce or pause programs if adequate funding is unavailable.
- At September 30, up to $86.4 million remained available under the current ATM sales agreement. Subsequent to quarter-end, the company sold 1,059,591 shares for $5.7 million net proceeds. Equity financing may dilute existing shareholders.
- Pipeline activity included ongoing recruitment in the Phase 3 VGX-3100 cervical dysplasia program; first patients dosed in 2018 combination trials for glioblastoma and bladder cancer; and management anticipated interim results from both studies in 2019. These are expectations, not guaranteed outcomes.
- CEPI agreed to fund up to $56 million over five years for Lassa fever and MERS vaccine development, subject to milestones. The company recorded $2.0 million of CEPI funding in the first nine months and had $1.3 million of deferred grant funding at September 30.
- Key risks include clinical and regulatory uncertainty, patient recruitment and trial timing, manufacturing and supply constraints, dependence on collaborators and government funding, and the need for further financing. The company cautioned that trial results may not predict later-stage outcomes. It reported no material litigation and no off-balance-sheet arrangements.
- Future minimum operating lease payments were $36.5 million, including $831,000 for the remainder of 2018 and $3.8 million for 2019. These are contractual lease commitments, not reported debt.
- Disclosure controls were assessed as effective at the reasonable-assurance level as of September 30, 2018; no material change in internal control over financial reporting was reported.
Investor verification points
- Reconcile grant funding presentation under the 2018 accounting change when comparing revenue and R&D expense with prior periods.
- Track cash burn, liquidity, additional ATM issuance and the company’s stated 12-month funding runway.
- Monitor VGX-3100 Phase 3 recruitment and the anticipated 2019 interim results from the glioblastoma and bladder cancer trials.
- Verify whether ApolloBio regulatory milestones, CEPI funding milestones and other collaboration payments are achieved; they are contingent and not assured.
- Assess dilution from equity sales and the long-term cash requirements of clinical programs and operating leases.