Novavax, Inc. — FY 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. This is an annual filing; it also reports unaudited fourth-quarter results. Novavax is a clinical-stage vaccine and adjuvant developer with no approved commercial vaccine products. Its pipeline includes RSV, seasonal and pandemic influenza, Ebola, and earlier-stage programs. Comparative results include Novavax AB only from its July 2013 acquisition date, so 2013 and 2014 are not fully comparable.
Financial performance and position
| Metric | FY 2014 | FY 2013 |
|---|---|---|
| Revenue | $30.7 million | $20.9 million |
| Operating expenses, including cost of government-contract revenue | $114.4 million | $73.3 million |
| Operating loss | $83.7 million | $52.4 million |
| Net loss | $82.9 million | $52.0 million |
| Basic and diluted loss per share | $0.37 | $0.31 |
| Cash used in operating activities | $67.0 million | $45.4 million |
- Revenue increased 47%, primarily from higher HHS BARDA activity and a full year of Novavax AB operations. Government contracts contributed $26.2 million, about 85% of total revenue; research and development collaborations contributed $4.4 million.
- Research and development expense rose 58% to $79.4 million, driven by RSV trials, the Ebola program, increased staffing and a $3.0 million Wyeth milestone accrual. General and administrative expense increased 34% to $19.9 million.
- Government-contract revenue cost was $15.0 million. The filing does not present a conventional consolidated gross margin measure.
- At year-end, cash and cash equivalents were $32.3 million and marketable securities $135.7 million, totaling $168.1 million, versus $133.1 million a year earlier. Working capital was $154.0 million. Total liabilities were $46.4 million; notes payable were $1.0 million, and the company described its debt as not material.
- Financing activities provided $109.7 million, principally from the June public offering, which raised approximately $108 million net. Capital expenditures were $7.3 million; management expected them to be significantly higher in 2015.
- Fourth-quarter 2014 revenue was $6.7 million, net loss $31.5 million and loss per share $0.13. In Q4 2013, revenue was $8.7 million, net loss $14.1 million and loss per share $0.07. The filing’s quarterly table does not explain the specific drivers of the sharp year-over-year increase in Q4 loss.
Material developments and outlook
- HHS BARDA exercised a two-year contract option in September 2014, extending the influenza development contract through September 2016 and adding $70 million of funding beyond the remaining base-period funding. Novavax recognized $26.0 million of BARDA revenue in 2014 and approximately $78 million since contract inception.
- Management expected significantly higher 2015 revenue and government-contract costs as influenza development activity increased. It also expected significantly higher R&D expense, higher G&A expense and increased capital spending.
- Management believed year-end cash and securities, anticipated BARDA revenue and other resources would fund operations for at least the next 12 months. It nevertheless expected to need additional capital over time; future equity financing could dilute shareholders.
- RSV: Phase 2 studies in older adults and pregnant women began in 2014; preliminary data were expected in Q3 2015. A Phase 1 pediatric study began in November 2014, with data expected late 2015 or H1 2016. FDA granted Fast Track designation for maternal immunization.
- Influenza: a Phase 2 seasonal quadrivalent trial began in November 2014, with preliminary data expected Q2 2015. Novavax planned to pursue traditional licensure for this seasonal candidate, including a clinical-endpoint efficacy trial that could add a year or more to the approval timeline. H7N9 Phase 1/2 results showed tolerability and Matrix-M-associated dose-sparing; the candidate received Fast Track designation.
- Ebola: GMP production began in Q4 2014; a Phase 1 trial started enrolling in February 2015, with preliminary data expected mid-2015. The reported 100% protection in a non-human-primate challenge study was preliminary animal evidence, not proof of human efficacy.
- CPLB, the 20%-owned Indian joint venture, completed enrollment in Phase 3 for seasonal influenza and Phase 1/2 for rabies during 2014. Results and regulatory authorization remained pending.
Risks, contingencies and unusual items
- The company has a long history of losses; its accumulated deficit was $493.1 million at year-end. Continued operations depend on external funding, collaborations and government-contract revenue, with no assurance of future financing or profitability.
- BARDA funding reimburses only specified, approved allowable activities and is subject to compliance requirements, audits and potential termination. Fiscal 2013 contract costs remained under audit; fiscal 2011 and 2012 audits produced no significant adjustments.
- All product candidates remained investigational. Clinical failure, regulatory delays, manufacturing scale-up, facility readiness, competition, supply constraints and commercialization or reimbursement challenges could materially affect prospects.
- The $3.0 million Wyeth milestone related to CPLB’s initiation of an influenza Phase 3 trial was accrued in 2014 and remained payable; Novavax was discussing restructuring it. Wyeth license terms may also entail future milestones and royalties.
- Contractual obligations totaled $35.8 million, including $28.3 million of operating leases, $1.8 million of remaining Cadila service commitments and the $3.0 million Wyeth milestone. The Cadila agreement also includes a potential shortfall payment if specified services do not reach $7.5 million by March 2016.
- Foreign currency translation reduced 2014 comprehensive income by $6.8 million. Management estimated a 10% decline in the U.S. dollar/Swedish krona exchange rate would reduce equity by approximately $3.1 million.
- Management reported effective disclosure controls and internal control over financial reporting; the independent auditor issued unqualified opinions on the financial statements and internal controls.
Key facts for investors to verify
- Whether 2015 RSV and seasonal-influenza trial data met stated expectations, and what they imply for Phase 3 design, efficacy and timing.
- BARDA contract performance, reimbursement eligibility, audit outcomes and availability of funding through September 2016.
- Cash consumption, capital spending and financing needs against the company’s stated minimum 12-month liquidity outlook.
- Status and settlement of the Wyeth milestone, Cadila commitments and any resulting license or collaboration economics.
- Progress on manufacturing readiness and the ability to scale production consistently and economically.
- Whether CPLB’s Indian trials produce positive data and lead to filings; the filing reports enrollment milestones, not final trial outcomes.