Novavax, Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2016; filed November 9, 2016. Figures below are in U.S. dollars. Novavax is a clinical-stage vaccine company with no approved commercial products, focused on recombinant nanoparticle vaccines and adjuvants. Its pipeline included clinical-stage RSV and Ebola candidates and preclinical Zika and influenza programs.
Financial performance and position
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $3.2 million | $6.5 million | $10.0 million | $30.4 million |
| Research and development expense | $53.0 million | $30.7 million | $186.8 million | $86.7 million |
| General and administrative expense | $13.6 million | $9.1 million | $38.2 million | $22.0 million |
| Operating loss | $63.3 million | $33.2 million | $215.1 million | $78.3 million |
| Net loss | $66.3 million | $33.1 million | $222.9 million | $78.1 million |
| Net loss per share | $0.24 | $0.12 | $0.82 | $0.30 |
- Revenue was primarily from government and collaboration arrangements. Nine-month revenue fell 67%, mainly reflecting lower activity and the September 2016 expiration of the HHS BARDA contract, along with a $7.7 million BARDA cost-rate settlement and $3.1 million of prior-year influenza-trial revenue in 2015. BMGF grant revenue partly offset the decline.
- R&D expense rose 115% over nine months, driven mainly by RSV clinical development and higher employee-related costs. The filing does not present a conventional gross margin; revenue is small relative to operating expenses.
- Operating cash use was $194.2 million for the first nine months, versus $71.3 million a year earlier. Capital expenditures were $15.0 million. Financing provided $279.1 million, principally from the convertible-note offering.
- At September 30, cash and cash equivalents were $119.9 million and marketable securities were $180.3 million, totaling $300.3 million. Restricted cash was an additional $33.2 million; working capital was $278.2 million.
- Convertible notes had $325 million principal and $316.0 million carrying value after unamortized issuance costs; they mature in 2023 and bear 3.75% interest. The company paid $38.5 million for capped calls intended to reduce potential conversion dilution, subject to a $9.73 cap price. Stockholders’ equity was $49.8 million, down from $292.7 million at year-end 2015.
Material changes and key developments
- In the Phase 3 Resolve trial in older adults, the RSV vaccine did not meet its primary or secondary efficacy objectives. RSV attack rates were unusually low (2.0% for symptomatic disease and 0.4% for moderate-severe lower respiratory tract disease). The vaccine was reported as well tolerated; the company said it was investigating possible reasons for the outcome.
- A Phase 2 rollover study showed immunogenicity, but a suggested efficacy result in the vaccine-vaccine arm was not statistically significant. Earlier Phase 2 results had shown efficacy, so the later Phase 3 outcome materially changes the evidence base.
- The maternal-immunization RSV Phase 3 Prepare trial continued, with 5,000–8,255 pregnant participants planned. The company was discussing a possible interim analysis with FDA for as early as late 2017; no decision had been made.
- After quarter-end, on November 9, management announced a restructuring, including an approximately 30% workforce reduction and reductions in pre-commercialization, capital, R&D and administrative spending. It estimated one-time fourth-quarter 2016 costs of $3–$4 million and a $70–$100 million reduction in 2017 cash burn relative to 2016.
- The stated post-restructuring priorities were continuing Prepare, initiating a dose-ranging Phase 2 RSV study in older adults, and initiating a Phase 1 Zika vaccine study in 2017. The company also expected to continue nanoparticle seasonal-influenza development and reported CPLB’s rabies candidate entered Phase 3 in October 2016.
Outlook, risks and contingencies
- Management expected 2016 revenue below 2015 because BARDA funding ended, while grant revenue was expected to increase as the maternal RSV trial progressed. Management forecast higher 2016 R&D, G&A and capital spending in its pre-restructuring discussion.
- Management said available cash and securities, expected BMGF grant revenue and other resources were adequate to fund operating plans for at least 12 months. It also warned additional capital may be needed; financing may be unavailable or dilutive, and programs could be delayed, reduced or discontinued.
- The BMGF grant is up to $89.1 million and carries global-access commitments, including affordable availability in certain low- and middle-income countries. BARDA indirect-cost billings remain subject to government audit; fiscal 2013 and 2014 audits were ongoing.
- Future non-cancelable lease payments totaled $83.1 million, including a new long-term Gaithersburg facility lease. A Wyeth milestone was accrued and is due in connection with a qualifying Phase 3 trial initiation, no later than December 31, 2017; seasonal influenza milestones could total up to $15 million.
- Key risks include clinical efficacy and safety uncertainty, regulatory and trial timing, financing needs, reliance on grant and contract revenue, potential dilution from convertible notes, and retaining staff following the announced workforce reduction. The filing reported disclosure controls were effective and no material change in internal control during the quarter.
Most important facts for investors to verify
- Resolve’s full dataset, low-season impact, ongoing root-cause analysis, and implications for RSV development and commercial prospects.
- Prepare enrollment, trial execution, FDA discussions on interim analysis, and whether the planned 2017 clinical milestones remain achievable.
- Actual post-restructuring cash savings, severance costs, staffing retention, and the effect of cuts on programs and trial timelines.
- Cash runway under updated spending assumptions, future financing needs, note conversion/dilution exposure, and the capped-call limitations above its cap price.
- BARDA audit outcomes, remaining BMGF grant funding and restrictions, lease commitments, and timing and amount of the Wyeth milestone.