NOVAVAX INC quarterly report, Q2 FY2013

Novavax, Inc. — Form 10-Q Summary

Reporting period: Quarter and six months ended June 30, 2013. Novavax was a clinical-stage biopharmaceutical company developing recombinant protein nanoparticle vaccines; it had no commercial product revenue reported.

Financial performance and position

Metric	Q2 2013	Q2 2012	Six months 2013	Six months 2012
Revenue	$3.5 million	$7.1 million	$7.4 million	$11.7 million
Operating loss	$12.9 million	$5.9 million	$22.9 million	$13.3 million
Net loss	$12.6 million	$5.9 million	$22.6 million	$13.3 million
Net loss per share	$0.08	$0.05	$0.15	$0.11

• Revenue was primarily from the HHS BARDA influenza contract; PATH collaboration revenue was a smaller component in 2013.
• Research and development expense was $10.8 million in Q2 and $20.0 million for the first half, up 101% and 89%, respectively, year over year. Higher spending reflected RSV and H7N9 trials and employee-related costs.
• Cash used in operating activities was $18.2 million for the first half, versus $10.3 million in 2012. Capital expenditures were $3.2 million, compared with $1.1 million.
• At June 30, cash and cash equivalents were $2.6 million and investments were $38.0 million, totaling $40.6 million; working capital was $34.1 million. Total assets were $92.9 million and stockholders’ equity was $69.2 million.
• Debt included equipment-loan notes with $1.8 million of principal outstanding and capital leases. The equipment loans carry a stated minimum 12.1% interest rate. Total liabilities were $23.7 million.

Changes, outlook and material items

• First-half revenue fell 37% year over year, mainly because there were fewer externally funded influenza clinical-trial activities under BARDA. First-half net loss increased $9.4 million, chiefly from higher internally funded R&D.
• Management expected a slight 2013 revenue decrease, higher R&D expense, and higher G&A expense related in part to the Isconova tender offer. It expected capital expenditures to decrease late in 2013 as manufacturing-facility scale-up work was completed.
• Management stated that available resources, anticipated BARDA revenue and potential ATM proceeds were expected to fund operating plans into 2015. It cautioned that future development requires additional capital and that financing availability is uncertain; failure to obtain funding or collect BARDA reimbursements could force program delays, scope reductions or workforce reductions.
• The BARDA contract was valued at up to $179 million, including a $97 million three-year base period and an $82 million optional period. The company recognized about $6.5 million of BARDA revenue in the first half and about $41 million since contract inception. A government audit of 2011 costs was ongoing.
• About $2.9 million of outside costs for the 205 seasonal-influenza trial had been expensed but, based on BARDA discussions, could not be submitted for reimbursement or recognized as revenue until data were submitted with a future quadrivalent IND. The next Phase 2 trial was delayed while the company worked to improve seroconversion for one strain.
• RSV Phase 2 results in women of childbearing age were reported as generally well tolerated, with stronger antibody responses in adjuvanted groups. The company planned dose-confirmation work and reproductive toxicology studies before trials in pregnant women. PATH increased support by $0.3 million in August 2013 and extended the agreement to April 2014.
• Top-line elderly RSV Phase 1 results, announced in July 2013, indicated generally favorable tolerability and stronger immune responses with adjuvanted vaccine; these are preliminary company-reported results. The company expected H7N9 Phase 1 top-line results late in 2013.
• On July 31, 2013, Novavax announced it had acquired 97.4% of Isconova shares for approximately 15.1 million Novavax shares, along with all tendered warrants and options; it expected settlement in August and extended the offer period for remaining shares. The acquisition was subsequent to quarter-end and represents potential dilution. Isconova’s Matrix-M adjuvant was expected by management to complement vaccine programs.
• Other notable exposures include $4.9 million payable to outside clinical-service providers if contracted work is completed, subject to termination rights and payment for costs incurred; and a possible payment to Cadila if services under the master services agreement fall below $7.5 million by March 2014. At June 30, $1.8 million of services had been purchased under that agreement.

Investor verification priorities

• Track cash burn, financing needs and whether management’s stated runway into 2015 remains supportable; verify any subsequent equity issuance and dilution.
• Confirm the timing and collectability of the $2.9 million 205 Trial reimbursement, BARDA audit outcomes, and remaining BARDA contract funding and options.
• Assess clinical data and timelines for RSV, quadrivalent influenza and H7N9, including the delayed quadrivalent trial and the path to regulatory approval.
• Verify final Isconova transaction terms, shares issued, integration progress and any resulting costs or benefits.
• Monitor contingent provider and Cadila commitments, equipment-loan repayments, and the start of rent payments on the new facility in April 2014.