Novavax, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2017. Filed August 8, 2017. Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions where appropriate.
Business context
Novavax is a clinical-stage biotechnology company developing recombinant nanoparticle vaccines and adjuvants. Its clinical-stage programs include RSV and Ebola; Zika, influenza and a combination respiratory vaccine were in preclinical development. The company had no commercial product sales, and revenue primarily came from research and development collaborations and grants.
Financial performance and liquidity
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $6.7m | $2.5m | $12.4m | $6.7m |
| Research and development expense | $39.3m | $64.9m | $76.9m | $133.9m |
| General and administrative expense | $8.9m | $14.1m | $17.8m | $24.6m |
| Operating loss | $41.5m | $76.5m | $82.3m | $151.8m |
| Net loss | $44.5m | $79.4m | $88.3m | $156.6m |
| Basic and diluted loss per share | $0.16 | $0.29 | $0.32 | $0.58 |
Revenue increased 169% year over year in Q2 and 85% in the first half, largely from greater activity and enrollment in the BMGF-supported Prepare RSV trial. First-half 2017 revenue also reflected the absence of $2.1m of BARDA revenue recorded in the comparable 2016 period; that contract expired in September 2016. No meaningful operating margin was reported given the company’s development-stage operations.
- At June 30, cash and cash equivalents were $75.8m and marketable securities were $111.5m, totaling $187.3m, versus $235.5m at December 31, 2016. Restricted cash was an additional $47.4m, including grant funds and lease collateral.
- Working capital was $169.9m. Total assets were $355.7m; total liabilities were $414.8m, leaving a $59.1m stockholders’ deficit.
- Six-month operating cash use was $69.4m, compared with $131.9m in 2016. Investing activities used $22.8m; financing provided $23.5m, primarily from common-stock sales. Cash and cash equivalents decreased by $68.6m during the period.
- Convertible notes had $325m principal outstanding, due February 2023, bearing 3.75% cash interest; carrying value was $317.1m. Six-month interest expense was $7.0m.
Material changes and operating developments
- First-half R&D expense fell 43% and G&A expense fell 28% year over year. Management attributed the reductions mainly to lower RSV trial and development costs, reduced employee-related costs and lower pre-commercialization spending. R&D headcount was 294 versus 445 a year earlier; G&A headcount was 52 versus 62.
- First-half common-stock sales under the at-market agreement generated $22.7m net proceeds at a weighted average price of $1.31 per share. By August 4, 2017, the company reported $29.4m of gross sales under the $75m facility, including post-quarter sales; this financing may dilute existing holders.
- The RSV Prepare Phase 3 maternal-immunization trial remained ongoing. Management said an informational analysis could help guide program decisions, but results would not be public.
- The completed Phase 3 Resolve trial in older adults failed its prespecified primary and secondary efficacy objectives. A subsequent Phase 2 trial in 300 older adults reported that adjuvanted formulations increased immune responses and were well tolerated. Management planned a Phase 2 efficacy trial in 2018 to evaluate COPD exacerbations as a prospective endpoint, based partly on post hoc analyses suggesting a reduction in COPD-related hospitalizations.
- Management reported August 2017 preclinical NanoFlu results and manufacturing improvements, and aimed to begin a Phase 1/2 trial in the second half of 2017. The filing also described a 2017 goal for a Phase 1 Zika trial.
Outlook, risks and contingencies
- Management expected 2017 BMGF grant revenue to be significantly higher than 2016 as Prepare enrollment increased. It expected R&D and G&A expenses and capital expenditures to be lower than 2016, reflecting reduced development and commercialization-related spending. No quantified full-year guidance was provided.
- Based on cash, investments and anticipated BMGF grant revenue, management believed resources were adequate to fund operating plans for at least 12 months from the filing date. It expected to rely on cash and investments and potentially equity or debt financing, collaborations, alliances, distribution or licensing arrangements. There was no assurance that financing would be available on acceptable terms; failure to secure funding or perform under the grant could require delaying or reducing programs or downsizing.
- A Wyeth license milestone, accrued in expenses, was due in connection with initiation of an applicable Phase 3 trial outside India and in any event no later than December 31, 2017. The filing states the milestone had been accrued; the amount is not clearly specified in the provided text.
- The filing identified potential dilution from future equity or convertible financings and possible loss of product rights in collaborations. It also added a risk that failure to meet Nasdaq’s $1 minimum bid-price or other listing requirements could lead to delisting and impair liquidity or capital raising.
- Management stated disclosure controls were effective at the reasonable-assurance level and reported no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Progress, enrollment, timing and any disclosed results of the Prepare Phase 3 trial, and the implications of its non-public informational analysis.
- Funding runway assumptions, actual BMGF grant receipts and eligible spending, and future cash burn relative to the $187.3m cash-and-investments balance.
- Potential dilution from the remaining at-market issuance capacity and other financing needs.
- Terms, timing and payment status of the Wyeth milestone, and any remaining government audit adjustments related to BARDA.
- Nasdaq bid-price compliance and the status of planned clinical trials, including the older-adult COPD endpoint and NanoFlu development.