Novavax, Inc. — 2018 Form 10-K
Business context and period: Novavax is a clinical-stage biotechnology company developing recombinant nanoparticle vaccines and adjuvants. This annual report covers the year ended December 31, 2018; quarterly results below are unaudited. No vaccine candidate had received regulatory approval by the filing date.
Financial results and liquidity
| Metric | 2018 | 2017 | Change |
|---|---|---|---|
| Revenue | $34.3 million | $31.2 million | Up 10% |
| Research and development expense | $173.8 million | $168.4 million | Up 3% |
| General and administrative expense | $34.4 million | $34.5 million | Approximately flat |
| Operating loss | $173.9 million | $171.7 million | Loss increased |
| Net loss | $184.7 million | $183.8 million | Loss increased $1.0 million |
| Net loss per share | $0.50 | $0.63 | Loss per share narrowed |
| Net cash used in operations | $184.8 million | $144.5 million | Cash use increased $40.3 million |
Revenue was primarily grant-related, especially reimbursement under the Bill & Melinda Gates Foundation (BMGF) agreement. Operating expenses substantially exceeded revenue; operating and net margins were deeply negative. No positive profitability or commercial product revenue was reported.
At year-end, cash and cash equivalents were $70.2 million, marketable securities $22.0 million, and restricted cash $11.8 million, totaling $103.9 million. Working capital was $73.7 million. Cash, cash equivalents and restricted cash reported in the cash-flow statement totaled $82.0 million, excluding marketable securities. Total assets were $208.0 million and stockholders’ deficit was $167.9 million.
Convertible senior notes had $325.0 million principal outstanding, a 3.75% cash coupon and a February 2023 maturity; their balance-sheet carrying amount was $319.2 million. Interest expense was $13.6 million. The company reported $29.6 million in operating lease commitments. It raised approximately $100.1 million net through common-stock sales in 2018.
Fourth quarter: Revenue was $6.1 million versus $10.4 million in Q4 2017; net loss was $49.3 million versus $50.8 million, and loss per share was $0.13 versus $0.16.
Material changes and developments
- Annual revenue rose 10%, while net loss was nearly unchanged. Loss per share narrowed amid a substantial increase in weighted-average shares, reflecting equity issuance.
- Operating cash use rose about 28% year over year. Management attributed the increase to lower BMGF cash receipts, increased ResVax and NanoFlu development activity, vendor-payment timing and $11.3 million of one-time payments, including a lease termination fee and a Wyeth milestone.
- Cash, marketable securities and restricted cash fell from $186.4 million at year-end 2017 to $103.9 million at year-end 2018.
- The 2016 Phase 3 RSV trial in older adults failed its primary and secondary efficacy objectives. In February 2019, the maternal-immunization Prepare Phase 3 trial also missed its prespecified primary endpoint, although it showed efficacy on the secondary endpoint of RSV lower-respiratory-tract-infection hospitalizations.
- Novavax reported positive top-line Phase 2 NanoFlu results in January 2019, including enhanced immune responses with Matrix-M and superior antibody responses against wild-type A(H3N2) strains versus Fluzone High-Dose.
Outlook, risks and unusual items
- Going concern: Management and the auditor disclosed substantial doubt about the company’s ability to continue as a going concern through one year after the financial statements were issued, absent additional financing or another funding arrangement. The company had no committed additional funding at December 31, 2018 and expected further losses and negative operating cash flows.
- Management expected 2019 BMGF-related revenue to be significantly lower as the Prepare trial concluded. It expected R&D and G&A expense to decrease overall, with planned NanoFlu Phase 3 spending partly offsetting reduced ResVax activity. No quantified earnings or cash-flow guidance was provided.
- Management planned FDA and EMA discussions in 2019 about potential ResVax filings in 2020, following the missed primary trial endpoint. It planned to discuss NanoFlu’s Phase 3 design and a possible accelerated-approval pathway with the FDA in the first half of 2019; a pivotal trial could start as early as the second half of 2019.
- Funding plans included equity or debt financing, partnerships, collaborations, licensing and strategic alliances. Additional equity could dilute shareholders; partnership arrangements could require surrendering product or technology rights. The company used its December 2017 sales agreement through March 12, 2019 and had a separate $100 million gross-proceeds sales agreement entered in December 2018.
- Key risks include clinical and regulatory failure, manufacturing scale-up and compliance, dependence on grants and partners, competition, limited cash runway, potential financing constraints, and the possibility that approved products may not obtain reimbursement or commercial acceptance.
- Unusual items included a $5.3 million lease termination payment and a $4.0 million Wyeth milestone payment in 2018. The company reported no material pending legal proceedings. The financial statements received an unqualified audit opinion, and the auditor also reported effective internal control over financial reporting; the audit report included a going-concern explanatory paragraph.
Most important facts for investors to verify
- Current unrestricted cash, financing raised since the filing, cash burn and the assumptions underlying management’s going-concern assessment.
- Regulatory feedback on whether ResVax results support any filing, and the clinical and commercial significance of the Prepare trial’s missed primary endpoint.
- FDA agreement on NanoFlu’s Phase 3 design and accelerated-approval pathway, plus trial timing, cost and funding.
- How much of reported liquidity is restricted, the timing and terms of future equity or debt financing, and resulting dilution.
- The filing’s auditor discussion refers to a working capital deficiency, while the selected financial data and balance sheet report positive working capital of $73.7 million; clarify this apparent inconsistency.