Novavax, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2011. The filing also presents unaudited fourth-quarter results. Novavax is a clinical-stage vaccine developer; it had no approved products or product sales during the period.
Financial performance and position
| Metric | 2011 | 2010 |
|---|---|---|
| Revenue | $14.7 million | $0.3 million |
| Operating loss | $21.6 million | $38.5 million |
| Net loss | $19.4 million ($0.17/share) | $35.7 million ($0.34/share) |
| Net cash used in operations | $23.6 million | $32.9 million |
| Cash and cash equivalents | $14.1 million | $8.1 million |
| Short-term investments | $4.2 million | $23.6 million |
| Working capital | $18.5 million | $23.1 million |
| Total debt | $0.32 million | $0.40 million |
2011 revenue was principally reimbursement and fees under the HHS BARDA influenza-development contract. Cost of contract revenue was $7.0 million; research and development expense was $17.9 million and general and administrative expense was $11.4 million. The filing reports no gross or operating margin; calculated operating margin was approximately negative 147% of revenue.
Fourth-quarter 2011 revenue was $5.845 million and net loss was $3.705 million, or $0.03 per share, compared with fourth-quarter 2010 revenue of $0.051 million and net loss of $6.286 million, or $0.06 per share.
Total assets were $66.6 million and stockholders’ equity was $53.8 million at year-end. Operating cash use improved year over year, but cash and investments combined fell to $18.3 million from $31.7 million. Short-term investments included auction-rate securities with $5.1 million par value and $4.2 million fair value; their liquidity is uncertain. Financing provided $11.1 million in 2011, primarily from common-stock issuance under the at-the-market program.
Changes and developments
- Revenue rose by $14.3 million year over year following the February 2011 BARDA award. Net loss narrowed by $16.3 million, reflecting BARDA revenue and lower internally funded R&D spending; the company remained loss-making.
- R&D expense declined 36%, partly because BARDA-supported work was recorded as contract costs and fewer clinical trials were underway. Total costs and expenses decreased to $36.3 million from $38.8 million.
- The BARDA contract provides up to $97 million for a 36-month base period and an $82 million option for 24 additional months, for a potential total of $179 million. It reimburses specified, authorized costs and fees; it is not an unconditional funding commitment.
- Novavax entered into leases for approximately 74,000 square feet of Gaithersburg facilities intended for manufacturing, research and offices. The company planned modifications and relocation in 2012; rent payments for the new space were scheduled to begin in 2014.
- The company sold 6.0 million shares under its ATM agreement in 2011 for net proceeds of $11.8 million. From inception of the agreement through March 8, 2012, it had sold 21.1 million shares for $42.1 million gross proceeds.
Outlook, risks and unusual items
- Management expected significant BARDA-related revenue in 2012, higher contract costs as additional clinical trials commenced, lower internally funded R&D expense, and moderately higher G&A and capital expenditures. It anticipated at least 12 months of operating resources based on year-end liquidity, expected BARDA revenue and possible ATM proceeds, while stating additional capital would be needed for later development.
- Planned development included H5N1 Phase I trials in 2012; RSV Phase II trials in older adults and women of childbearing age; a seasonal influenza dose-confirmatory Phase II trial in the second half of 2012; and a seasonal influenza Phase III trial expected to begin in late 2013. These are expectations, not assured milestones.
- RSV Phase I results reported in the filing included a 19-fold increase in antibody response in the highest-dose group at day 60 and no vaccine-related serious adverse events observed. Clinical success, regulatory approval and commercial viability remain uncertain.
- Key risks include continued operating losses and financing dependence; BARDA reimbursement, compliance and milestone conditions; clinical, regulatory and manufacturing scale-up risk; competition; and potential dilution or loss of product rights in future financing or partnerships. The company cited possible cancellation of the BARDA contract if milestones are not achieved.
- Contractual commitments included $31.6 million of operating lease obligations and $7.8 million of purchase obligations. The Cadila master services agreement could require a shortfall payment if services provided by March 2013 fall below $7.5 million; $0.2 million of services had been purchased through year-end.
- Unusual or judgment-sensitive items included a $2.5 million favorable change in warrant-liability fair value, which reduced reported loss but was non-cash and valuation-sensitive; $0.8 million of unrealized gains on auction-rate securities; and a $0.4 million foreign withholding-tax expense. The auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- BARDA’s authorized work, reimbursement status, milestones and any option-period funding; reconcile contract revenue, receivables and deferred revenue.
- Cash runway assumptions, subsequent ATM share issuance and dilution, and the actual liquidity or recoverable value of auction-rate securities.
- Progress and results of planned influenza and RSV trials, regulatory feedback on accelerated approval, and timing and cost of manufacturing-facility readiness.
- Potential Cadila shortfall payment, new facility lease and improvement-allowance terms, and any costs to retain or sublease the Rockville facility.
- Underlying operating cash burn and the effect of non-cash warrant remeasurement on reported earnings.