Novavax, Inc. — Form 10-Q Summary
Reporting period: Third quarter and nine months ended September 30, 2012. Novavax is a clinical-stage vaccine developer; its reported revenue was primarily from government research contracts, notably the HHS BARDA influenza-vaccine contract. Financial amounts below are in millions of dollars unless stated otherwise.
Financial results and liquidity
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Revenue | $5.8 | $5.0 | $17.5 | $8.8 |
| Operating loss | $(6.8) | $(4.0) | $(20.2) | $(17.3) |
| Net loss | $(7.2) | $(3.2) | $(20.5) | $(15.7) |
| Net loss per share | $(0.05) | $(0.03) | $(0.16) | $(0.14) |
- Nine-month revenue grew 98%, reflecting increased BARDA-funded development and clinical-trial activity. Q3 revenue grew 15% year over year.
- Nine-month costs and expenses rose to $37.7 million from $26.2 million. Government contract costs increased to $12.7 million from $3.8 million, and R&D expense rose to $16.6 million from $13.5 million. G&A declined to $8.3 million from $8.9 million.
- Losses widened as increased R&D and contract activity outweighed revenue growth; lower income from changes in warrant fair value also contributed. The filing does not present a conventional consolidated gross-margin measure.
- Cash and cash equivalents were $10.7 million and short-term investments were $17.7 million at September 30, totaling $28.4 million; working capital was $26.0 million. Cash and investments were $18.3 million at December 31, 2011.
- Nine-month operating cash use was $14.1 million, versus $20.8 million in 2011. Investing used $15.1 million, principally reflecting purchases of short-term investments and $2.2 million of capital expenditures. Financing provided $25.9 million, including $26.9 million of net stock-sale proceeds. Cash declined by $3.4 million during the period.
- Total liabilities were $19.2 million. Debt included $0.8 million of notes payable and $0.3 million of capital-lease obligations; the company also had a $0.8 million warrant liability. A GE equipment facility allows borrowing up to $2.0 million, with $0.5 million financed by quarter-end at 12.1%.
Material changes and developments
- The 205 seasonal-influenza trial included a quadrivalent candidate, but BARDA reimbursement of its outside trial costs was deferred until the data are submitted with the Quadrivalent IND. Approximately $2.8 million of the expected $3.1 million costs had been incurred by September 30; these costs were expensed rather than recognized as revenue pending submission.
- The next quadrivalent Phase II trial and the Quadrivalent IND filing were delayed to 2013. The 205 trial met safety and immunogenicity primary endpoints, but missed the stated seroconversion-rate criterion for one of four strains; the comparator licensed vaccine generally showed higher HAI levels.
- Two RSV dose-ranging trials began in October 2012. Top-line results were expected in Q1 2013 for the women-of-childbearing-age Phase II trial and in the first half of 2013 for the elderly-adult Phase I trial.
- In October 2012, after quarter-end, Novavax sold 12.4 million shares for approximately $26.9 million net proceeds. This followed 2012 share sales, including $14.0 million net proceeds under the prior at-the-market program and $12.1 million net proceeds from a May sale. These financings increased liquidity but diluted existing shareholders.
- The company reported positive October 2012 H5N1 Phase I trial results, including acceptable safety and an immune response from unadjuvanted vaccine; these results occurred after the reporting period.
Outlook, risks and contingencies
- Management said cash, investments, the October equity financing, expected BARDA revenue, potential at-the-market sales and current operations were expected to fund planned activity beyond 2013, described in MD&A as at least the next 24 months. Further capital will be required for clinical development, manufacturing and commercialization.
- Management expected significant 2012 BARDA revenue and increased government-contract costs from trials, process development and clinical-material manufacturing. It also expected higher R&D expense, partly due to RSV trials and the new facility, and increased capital spending for manufacturing scale-up. G&A was expected to decline slightly.
- BARDA reimbursements may be delayed or withheld, and contract revenue depends on performance and allowable costs. The government may terminate the contract; costs remain subject to audit. Failure to perform or raise additional capital could force delays or reductions in programs or staffing.
- A Cadila master-services agreement requires a payment if services purchased by March 2013 fall below $7.5 million. Only $0.4 million of services had been purchased through September 30; Novavax was seeking to reduce or extend the obligation and warned that an unresolved shortfall could consume a significant portion of available cash.
- Other commitments include $8.0 million unpaid under certain outside-provider agreements if services are completed in 2012, and future lease and equipment obligations. The company was renovating its Gaithersburg facility and remarketing its Rockville facility.
- Key business risks include clinical and regulatory failure, manufacturing scale-up, market acceptance, financing availability and potential dilution. Novavax stated there were no material changes to its previously disclosed risk factors. Disclosure controls were reported effective, with no material third-quarter change in internal control over financial reporting.
Most important facts for investors to verify
- Timing and collectability of BARDA reimbursement for the 205 trial costs, and the Quadrivalent IND filing and follow-on trial schedule.
- Cash runway assumptions, future financing needs and dilution from equity issuance or at-the-market sales.
- Potential Cadila service shortfall payment and the company’s ability to amend or extend that arrangement.
- Progress and complete clinical data for seasonal influenza, H5N1 and RSV candidates, including trial safety and efficacy outcomes.
- Manufacturing-facility spending, lease obligations, and any proceeds or costs associated with remarketing the Rockville facility.