INOVIO Pharmaceuticals, Inc. — Q3 2020 Form 10-Q
Business context and period. The unaudited report covers the quarter and nine months ended September 30, 2020. INOVIO is a clinical-stage biotechnology company developing DNA vaccines, immunotherapies and DNA-encoded antibodies, with its CELLECTRA delivery devices. It had no approved products and no product sales; revenue came primarily from collaborations and other arrangements.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $0.24 million | $0.87 million | $1.83 million | $3.83 million |
| Research and development expense | $26.5 million | $19.1 million | $67.9 million | $66.0 million |
| General and administrative expense | $10.1 million | $5.7 million | $28.6 million | $18.5 million |
| Operating loss | $36.3 million | $24.0 million | $94.7 million | $80.7 million |
| Net income (loss) attributable to INOVIO | $19.2 million | $(23.1) million | $(142.1) million | $(81.7) million |
| Basic EPS | $0.12 | $(0.23) | $(0.96) | $(0.83) |
| Net cash used in operating activities | Not separately presented by quarter | $126.8 million | $84.1 million |
- Q3 net income was not driven by operations: it included a $35.3 million gain from a decrease in the fair value of the August 2019 bond derivative liability and a $27.0 million gain on affiliated investments. It also included an $8.2 million loss on extinguishment of convertible bonds and $1.8 million of Geneos losses.
- Nine-month net loss included a $75.7 million increase in the derivative liability’s fair value, partly offset by a $36.3 million affiliated-investment gain and a $4.1 million gain on Geneos deconsolidation. These valuation and transaction items make reported earnings volatile.
- Revenue fell year over year, primarily reflecting lower AstraZeneca collaboration revenue, partly offset by milestone revenue from PLS. INOVIO reported no product revenue.
- R&D expense rose year over year in Q3, with increased manufacturing, device-engineering, compensation and COVID-19 consulting costs; grant funding recorded as a reduction of R&D expense partly offset those increases. Grants reduced R&D expense by $12.9 million in Q3 and $26.9 million for the nine-month period.
- At September 30, cash and cash equivalents were $178.7 million and short-term investments were $158.5 million, totaling $337.2 million, versus $89.5 million at December 31, 2019. Working capital was $335.8 million; accumulated deficit was $881.9 million. Management said available cash and investments were expected to fund operations for at least 12 months from issuance of the financial statements.
- Nine-month cash flows: $126.8 million used in operations, $55.1 million used in investing and $338.3 million provided by financing. Financing included $330.0 million of net common-stock proceeds. Prepayments for facilities, equipment and INO-4800 manufacturing contributed to increases in prepaid and other assets.
- At September 30, convertible senior notes had a $49.5 million carrying value and December 2019 convertible bonds had a $4.2 million carrying value. The August 2019 bonds had been fully converted. In October, holders converted an additional $10.0 million principal amount of senior notes into 1.86 million shares.
- Common shares issued increased from 101.4 million at year-end 2019 to 167.5 million at September 30, 2020, reflecting ATM issuance, debt conversions and other equity activity. The filing reported 169.4 million shares outstanding on November 5, 2020.
Material changes, outlook and risks
- INOVIO accelerated development of INO-4800, its COVID-19 vaccine candidate. The U.S. Phase 1 trial was underway, and the company reported positive interim data from its first two cohorts in June. Trials were also initiated in South Korea and China.
- The FDA had placed the planned U.S. Phase 2/3 INO-4800 trial on partial clinical hold pending resolution of items identified by the agency. INOVIO responded in October 2020; the filing said the FDA had up to 30 days to notify the company of its decision. The expanded Phase 1 trial could continue as authorized.
- Management’s stated goal was to produce up to one million INO-4800 doses by year-end 2020 and additional doses in 2021, contingent on development, manufacturing and regulatory progress. The filing provides no formal financial guidance.
- Funding support included CEPI grants, Gates funding and a DoD agreement. The filing describes approximately $54.5 million under the DoD prototype agreement and a separate $16.6 million procurement contract; it also refers to a $71 million DoD award in its discussion. These arrangements were generally recorded as reductions to R&D expense as eligible costs were incurred, rather than revenue.
- Manufacturing is a key execution risk. INOVIO said VGXI could not meet the targeted production schedule because of capacity limitations and had refused to transfer proprietary manufacturing methods. Litigation with VGXI includes INOVIO’s claims and VGXI’s counterclaims; no trial date had been set.
- Other material risks include clinical-trial uncertainty and delays, COVID-19 disruptions, dependence on third-party manufacturers and collaborators, future financing needs and potential shareholder dilution. The company disclosed securities class-action and derivative litigation concerning statements about its COVID-19 vaccine development. Loss amounts or outcomes for these cases are not clearly quantified in the filing.
- INOVIO sold its GeneOne shareholding in August for approximately $40.1 million net proceeds and deconsolidated Geneos in June after its ownership fell to 47% and it no longer controlled the entity. It retained a Geneos investment and continued to license technology to Geneos.
Key facts for investors to verify
- FDA’s decision on the partial hold and the timing and design of any INO-4800 Phase 2/3 trial.
- INO-4800 clinical results, including the distinction between interim findings and evidence required to establish safety and efficacy.
- Manufacturing capacity, transfer of methods from VGXI, alternate supplier readiness and progress toward the disclosed dose-production goals.
- Cash consumption, the duration of available funding, remaining ATM capacity and dilution from future equity sales or debt conversions.
- Reconciliation of the DoD funding and procurement amounts, eligible costs, and timing of grant or contract collections.
- Developments in the VGXI and shareholder litigation, including any material financial exposure or operational impact.