INOVIO Pharmaceuticals, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; filed May 10, 2021. INOVIO is a clinical-stage biotechnology company developing DNA vaccines, immunotherapies, DNA-encoded monoclonal antibodies, and delivery devices. It had no approved products and reported no product sales.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total revenue | $0.37 million | $1.33 million |
| Research and development expense | $39.04 million | $19.11 million |
| General and administrative expense | $13.88 million | $7.45 million |
| Operating loss | $52.55 million | $25.23 million |
| Net loss attributable to INOVIO | $54.40 million | $32.54 million |
| Basic and diluted loss per share | $0.27 | $0.26 |
| Net cash used in operating activities | $52.87 million | $25.45 million |
Revenue fell 72% year over year, primarily due to lower milestone revenue from affiliated entity Plumbline Life Sciences. R&D expense more than doubled, reflecting higher INO-4800 manufacturing and clinical-trial costs, compensation, and CELLECTRA device development; grant contributions recorded as reductions to R&D expense rose to $13.8 million from $5.0 million. G&A expense increased, including higher stock-based compensation and legal costs. Revenue was too limited for margins to be a meaningful indicator of product economics.
At March 31, cash and cash equivalents were $83.6 million and short-term investments were $435.0 million, totaling $518.6 million, versus $411.6 million at year-end. Working capital was $546.9 million. Management said available cash and investments were expected to fund operations for at least 12 months from issuance of the statements, while noting a continuing need for additional capital and the possibility of dilution or program reductions if financing is unavailable.
Operating cash use was $52.9 million. Investing cash use was $275.1 million, mainly reflecting purchases of short-term investments; financing provided $160.9 million, including $162.1 million net proceeds from a January 2021 public offering. Cash declined during the quarter, but total cash and short-term investments increased as cash was moved into investments. The company reported total liabilities of $73.3 million, including $14.1 million carrying value of 6.5% convertible senior notes due 2024 and $19.8 million of operating lease liabilities. December 2019 convertible bonds were fully converted into 1,009,450 common shares in March.
Material changes and developments
- Net loss attributable to INOVIO increased to $54.4 million from $32.5 million. The prior-year comparison included a $13.2 million derivative-liability expense and a $13.2 million gain on affiliated investments; those items did not recur in Q1 2021. Lower interest expense partly offset the increased operating loss.
- Weighted-average shares rose to 202.4 million from 124.6 million, reflecting prior and current equity issuance. The January offering issued 20.4 million shares at $8.50 per share.
- In April 2021, the DoD notified INOVIO it would stop funding the U.S. Phase 3 segment of the INO-4800 trial but continue funding completion of Phase 2. INOVIO said it was working with potential funders and partners.
- In May 2021, INOVIO reported preliminary Phase 2 INO-4800 data as well-tolerated and immunogenic across tested age groups, selected a 2.0 mg dose, and said the planned Phase 3 trial would be predominantly outside the United States. The U.S. trial remained on partial FDA clinical hold pending resolution of questions about the CELLECTRA 2000 device.
Outlook, risks, and contingencies
Management expects substantial R&D spending and operating losses to continue, with no product revenue expected for at least several years. Future funding may come from collaborations, grants, or debt or equity financing; availability and terms are uncertain. The company may need to delay or reduce development programs if it cannot raise adequate capital.
- INO-4800 faces FDA partial-hold and trial-timing risk, uncertainty around Phase 3 funding, regulatory authorization, clinical outcomes, manufacturing capacity, and competition from already-authorized COVID-19 vaccines. Emerging virus variants may also affect effectiveness.
- Government funding is subject to uncertainty and termination; the DoD Phase 3 funding decision illustrates this exposure. Revenue is limited and may fluctuate with milestones, grants, and partner activity.
- INOVIO disclosed securities class-action and shareholder derivative litigation concerning alleged COVID-19 vaccine statements, as well as disputes with VGXI and GeneOne involving supply and license agreements. Outcomes and potential losses were not clearly quantified in the filing.
- COVID-19 could disrupt trials, enrollment, suppliers, and operations. The company also faces clinical, regulatory, intellectual-property, collaboration, competition, and additional-capital risks.
Investor verification points
- Verify the status and timing of FDA resolution of the CELLECTRA 2000 partial clinical hold and the design, funding, and progress of the planned global Phase 3 INO-4800 trial.
- Assess the quality and completeness of INO-4800 Phase 2 and subsequent clinical data; the May 2021 results were described as preliminary.
- Track quarterly cash burn, the composition and liquidity of short-term investments, and whether the stated 12-month funding runway remains adequate.
- Review future grant and government-contract funding, partner milestones, and any additional equity or debt financing and resulting dilution.
- Monitor developments and potential financial exposure in the securities, VGXI, and GeneOne litigation; the filing does not provide a clear quantified estimate of possible losses.