Inovio Pharmaceuticals, Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; financial statements are unaudited. Inovio is a clinical-stage biotechnology company developing DNA immunotherapies and vaccines with electroporation delivery. It reported no product sales and does not expect product revenue for at least several years.
Financial performance and position
- Revenue: $10.4 million, up 28% from $8.1 million in Q1 2016. Collaborative R&D revenue increased to $4.5 million from $1.9 million, primarily reflecting Roche termination-related revenue; grants and miscellaneous revenue were $5.9 million versus $6.2 million.
- Expenses and losses: R&D expense was $24.5 million, up from $18.2 million; general and administrative expense was $7.8 million, up from $5.4 million. Operating loss widened to $21.9 million from $15.5 million; net loss widened to $23.1 million from $8.0 million. Basic and diluted loss per share was $0.31 versus $0.11. Approximate operating and net margins were negative 211% and 223%, respectively; gross margin is not meaningful for this development-stage business.
- Drivers of year-over-year loss change: Higher R&D and G&A costs, including stock-based compensation, contributed to the wider operating loss. A $1.6 million loss on the GeneOne investment also contrasted with a $7.5 million gain in Q1 2016.
- Cash flow: Operating activities used $15.2 million, compared with $15.7 million in Q1 2016. Investing activities provided $18.2 million, mainly from investment maturities net of purchases; financing provided $0.8 million. Cash and cash equivalents increased to $22.9 million from $19.1 million at year-end.
- Liquidity: Cash and short-term investments totaled $89.7 million at March 31, down from $104.8 million at December 31, 2016. Working capital was $66.8 million, versus $80.8 million. Total assets were $153.3 million and total liabilities $47.4 million. No borrowings or debt balance are reported in the supplied financial statements. Management believes cash and short-term investments will fund planned working-capital needs for at least 12 months.
- Other balance-sheet items: Current liabilities were $40.0 million; deferred revenue totaled approximately $17.7 million across current and noncurrent balances. Future minimum operating lease payments were $25.7 million.
Material developments, outlook and risks
- VGX-3100 clinical hold: The FDA had placed the proposed Phase 3 program on clinical hold over questions about the CELLECTRA 5PSP device, including stability data for its disposable electrode array. The company submitted a response after quarter-end; the FDA then had 30 days to review it. The Phase 3 start was targeted for Q2 2017, subject to the hold being lifted.
- ApolloBio agreement: Inovio agreed to grant ApolloBio exclusive VGX-3100 rights in Greater China. The $15 million upfront payment and a separate equity investment of up to $35 million were contingent on the FDA hold being lifted and other conditions, including regulatory approvals. ApolloBio would fund regional development; potential additional payments include up to $20 million in milestones and double-digit royalties. These were not assured proceeds at quarter-end.
- Roche termination payment: Inovio received $8.5 million in February 2017 under the termination of Roche’s collaboration. The company recognized $4.0 million of Roche revenue in the quarter and reported $2.1 million of deferred revenue related to the agreement. $2.1 million of the payment is subject to clawback if 90 patients do not complete treatment in the ongoing Phase 1 hepatitis B trial.
- Funding and business risks: Inovio has operated at a loss since 1994 and had an accumulated deficit of $458.2 million. Management expects substantial future losses and may pursue further collaborations or financing. Key risks include clinical and regulatory failure or delay, manufacturing and enrollment challenges, dependence on grants and collaborators, potential dilution or difficulty raising capital, and the lack of approved products.
- Other items: The company reported no material litigation. It adopted stock-compensation guidance in January 2017, recording a $312,000 adjustment between accumulated deficit and additional paid-in capital. Disclosure controls were reported effective, with no material change in internal control over financial reporting.
Most important facts for investors to verify
- Whether the FDA lifted the VGX-3100 Phase 3 hold, and the resulting trial start timing and device requirements.
- Whether ApolloBio’s contingent upfront payment, equity investment and regional agreement conditions were completed.
- Progress and completion of the Roche hepatitis B trial, given the $2.1 million clawback condition.
- Cash burn, investment balances and financing needs relative to the stated 12-month liquidity outlook.
- Clinical-program progress, collaboration and grant funding continuity, and the effect of rising R&D and stock-based compensation costs.