INOVIO Pharmaceuticals, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. INOVIO is a clinical-stage biotechnology company developing DNA vaccines, immunotherapies, DNA-encoded monoclonal antibodies and electroporation delivery devices. It had no approved products and generated no product-sale revenue.
Financial results and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $0.27 million | $0.27 million | $0.64 million | $1.59 million |
| Research and development expense | $70.8 million | $22.4 million | $109.9 million | $41.5 million |
| General and administrative expense | $12.7 million | $11.1 million | $26.5 million | $18.5 million |
| Operating loss | $83.2 million | $33.2 million | $135.8 million | $58.4 million |
| Net loss attributable to INOVIO | $82.1 million | $128.7 million | $136.5 million | $161.2 million |
| Basic and diluted loss per share | $0.39 | $0.83 | $0.66 | $1.15 |
At June 30, 2021, cash and cash equivalents were $58.9 million and short-term investments were $384.8 million, totaling $443.7 million. Working capital was $490.7 million, compared with $429.5 million at December 31, 2020. Management said available cash and short-term investments were expected to fund operations for at least 12 months from issuance of the financial statements, while noting that additional capital would be needed to continue future development.
Operating cash outflow was $131.3 million for the first half of 2021, versus $52.6 million a year earlier. Investing cash outflow was $224.8 million, mainly reflecting purchases of short-term investments, and financing provided $164.3 million, including $162.1 million net proceeds from a January 2021 stock offering. Cash and cash equivalents declined by $191.8 million during the half-year; the increase in short-term investments partly reflects the reallocation of funds into investments.
Debt included $14.5 million carrying value of 6.5% convertible senior notes due 2024; contractual payments including interest were $19.6 million. The December 2019 convertible bonds were fully converted in March 2021. Operating lease liabilities totaled $19.3 million. The company reported no material change in interest-rate exposure and no off-balance-sheet arrangements. Operating margins were deeply negative; conventional profitability and margin comparisons are of limited usefulness given minimal revenue and the company’s development-stage operations.
Material changes versus prior period
- R&D expense rose substantially, primarily because of INO-4800 manufacturing scale-up, equipment acquisition and installation, clinical work, and CELLECTRA 3PSP device development. Grant funding recorded as a reduction of R&D expense was $17.2 million for Q2 and $31.0 million for the first half, compared with $9.1 million and $14.1 million, respectively, in 2020.
- Operating losses widened as spending increased. Net losses were lower than in 2020, but the comparison is materially affected by the 2020 non-cash derivative-liability charge of $97.8 million in Q2 and $111.0 million for the first half. That liability related to convertible bonds subsequently converted in 2020.
- First-half revenue fell from $1.59 million to $0.64 million, primarily because less milestone revenue was recognized from affiliated entity Plumbline Life Sciences.
- Common shares outstanding increased following the January offering of 20.4 million shares for $162.1 million net proceeds. The weighted-average share count for Q2 increased to 209.6 million from 155.8 million a year earlier.
Outlook, developments and principal risks
- INO-4800: The FDA had placed the planned U.S. Phase 3 trial on partial clinical hold; the company said it could not commence that U.S. trial until the hold was resolved. INOVIO was working to address FDA questions concerning the CELLECTRA 2000 device. In April 2021, the DoD discontinued funding for the Phase 3 segment of the U.S. trial while continuing to fund completion of the ongoing Phase 2 segment.
- Advaccine collaboration: The amended agreement provides for joint participation and equal sharing of global Phase 3 development costs, with Advaccine responsible for the trial and costs in Greater China and INOVIO responsible for costs arising solely from its U.S. activities. Potential milestone payments of up to $206 million and royalties are contingent on development, regulatory and commercial outcomes; no revenue was recognized from Advaccine in the first half of 2021.
- Funding and profitability: INOVIO reported an accumulated deficit of $1.0 billion, expected significant future losses, and dependence on external financing, grants and collaborations. Financing may be unavailable or dilutive; insufficient funds could force delays, reductions or suspension of programs.
- Clinical, market and operating risks: No candidate was approved for sale. Clinical outcomes and regulatory authorization, including any COVID-19 emergency authorization, were uncertain; COVID-19 disruptions had affected trial recruitment and data collection. The filing also cites competition from authorized COVID-19 vaccines, emerging virus variants, manufacturing capacity and compliance risks, and reliance on partners and government funding.
- Legal matters: Securities class-action litigation concerning statements about INO-4800 was in discovery, with a class-certification motion filed July 29, 2021. Related shareholder derivative actions remained stayed. Separate ongoing disputes involved VGXI’s supply agreement and GeneOne’s device-license agreement. The company stated it intended to defend the claims; the filing does not provide a clear quantified loss estimate.
Key facts for investors to verify
- Whether the FDA’s partial clinical hold is resolved and what that means for U.S. and global INO-4800 trial timing.
- How INOVIO’s clinical and manufacturing spending evolves, and whether grant reimbursements and the remaining DoD funding are received as expected.
- Cash runway relative to operating cash use, planned R&D commitments and the need for additional financing or further share issuance.
- Progress under the Advaccine collaboration and whether contingent milestones, cost-sharing and any future royalties become realizable.
- Developments and potential financial exposure in the securities, derivative, VGXI and GeneOne litigation.