Novavax, Inc. — Q2 2018 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2018. Financial amounts below are in U.S. dollars; figures are in millions unless stated otherwise. Novavax is a clinical-stage biotechnology company developing recombinant nanoparticle vaccines and adjuvants. It had no product sales reported; revenue was primarily grant and other revenue.
Financial results and liquidity
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $10.8 | $6.7 | $20.4 | $12.4 |
| Research and development expense | $44.5 | $39.3 | $89.1 | $76.9 |
| General and administrative expense | $8.2 | $8.9 | $16.9 | $17.8 |
| Operating loss | $(42.0) | $(41.5) | $(85.5) | $(82.3) |
| Net loss | $(44.5) | $(44.5) | $(90.8) | $(88.3) |
| Net loss per share | $(0.12) | $(0.16) | $(0.25) | $(0.32) |
- R&D spending rose mainly because of increased ResVax development activity. Management expected 2018 R&D expense to exceed 2017, primarily due to ResVax and NanoFlu. G&A expense declined, mainly due to lower employee-related costs.
- For the six months, operating cash use was $106.0 million, compared with $56.9 million in 2017. Investing cash use was $27.7 million; financing provided $97.9 million, principally from stock offerings and sales agreements. Cash, cash equivalents and restricted cash declined by $35.9 million to $99.6 million.
- At June 30, cash and cash equivalents were $88.5 million, marketable securities $78.6 million, and restricted cash $11.1 million: $178.2 million combined. Working capital was $151.3 million. Management said these resources, together with anticipated Grant Agreement revenue, were expected to fund operating plans for at least 12 months from the filing date; additional capital may be required.
- Convertible notes had $325 million principal and $318.5 million carrying value, net of unamortized issuance costs; they mature February 1, 2023. Six-month interest expense was $6.8 million. Current liabilities were $43.0 million versus current assets of $194.3 million.
- No gross margin was reported; the filing presents grant and other revenue, rather than product sales.
Material changes versus the prior comparable period
- Q2 revenue increased 60% year over year; six-month revenue increased 65%, reflecting more activity under the BMGF grant and at Novavax AB. R&D rose 13% for Q2 and 16% for the first half.
- Six-month net loss widened by $2.5 million, primarily from higher R&D expense, partly offset by higher grant revenue. Loss per share improved because weighted-average shares increased substantially following equity issuance.
- Operating cash use increased by $49.1 million year over year. The filing attributes this largely to a $25 million Grant Agreement payment received in the first half of 2017 but not in 2018, greater use of restricted grant cash for ResVax costs, and 2018 one-time payments.
- In April 2018, Novavax raised approximately $54 million net in a public offering. It also raised $42.6 million net through sales agreements during the first half; approximately $42.2 million remained available under the December 2017 agreement at June 30.
Outlook, programs and notable items
- ResVax: The Phase 3 Prepare trial had enrolled 4,636 pregnant women by May 2018. The planned efficacy analysis in Q1 2019 was agreed with FDA as the final analysis for supporting a potential BLA. If results are successful, the company expected to submit a BLA and EMA application by Q1 2020. The trial is supported by a BMGF grant of up to $89.1 million; Novavax recognized $18.0 million of grant revenue in the first half and expected 2018 grant revenue to be slightly above 2017.
- NanoFlu: Management reported positive Phase 1/2 results in older adults, including higher immune responses against several A(H3N2) strains than the active comparator. It expected to begin a Phase 2 quadrivalent trial in Q3 2018. FDA indicated that an accelerated approval pathway could be available, subject to applicable evidence and post-marketing commitments.
- Other pipeline: RSV programs for older adults and pediatrics remained in development; no older-adult RSV trial was expected to start in 2018. A Phase 3 rabies trial at the CPLB joint venture was expected to produce data in the second half of 2018. Ebola was in Phase 1; the influenza/RSV combination remained preclinical.
- Unusual expenses and agreements: Novavax paid a $5.3 million fee to terminate a facility lease in January; total related first-quarter expense was $0.9 million after other adjustments. It also paid the Wyeth license milestone in Q1; the filing describes the payment as up to $4 million. The Wyeth license was terminated in July 2018, after quarter-end.
- Funding and risks: Management expected to rely on cash and investments, grant revenue, and possible equity or debt financing, collaborations, or licensing. Financing may be unavailable on acceptable terms; equity issuance could dilute shareholders, while partnerships could require relinquishing rights. Failure to perform under the grant or raise capital could force program delays, reductions, or organizational downsizing. The filing also highlights cybersecurity and data-privacy risks, including GDPR exposure.
Key facts investors should verify
- Prepare trial efficacy results expected in Q1 2019, and whether findings support the anticipated regulatory filings.
- Actual cash burn, restricted grant cash availability, and receipt and terms of anticipated BMGF payments, including the expected $15 million Q3 2018 payment.
- Progress, cost and results of NanoFlu’s planned Phase 2 trial and the regulatory evidence required for any accelerated approval route.
- Future financing needs, remaining sales-agreement capacity, and potential dilution or partnership-related loss of product rights.
- Clinical and regulatory risks across the pipeline, including the implications of prior Phase 3 failure for the older-adult RSV program.