Novavax, Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019; filed November 7, 2019. Dollar amounts below are in U.S. dollars. Novavax is a late-stage vaccine developer; its lead programs include NanoFlu and ResVax.
Financial performance and position
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $2.5 million | $7.7 million | $9.8 million | $28.2 million |
| Research and development | $18.6 million | $41.3 million | $84.5 million | $130.4 million |
| Net loss | $18.0 million | $44.6 million | $100.9 million | $135.4 million |
| Net loss per share | $0.74 | $2.33 | $4.43 | $7.42 |
- Revenue was primarily from the Bill & Melinda Gates Foundation (BMGF) grant and declined as the ResVax Prepare trial enrollment had been completed in 2018.
- Operating cash use for the first nine months was $112.9 million, versus $139.6 million a year earlier. Investing activities provided $38.7 million, including $18.3 million from Catalent; financing activities provided $68.2 million, mainly from stock sales.
- At September 30, cash and cash equivalents were $71.2 million and restricted cash was $4.8 million; combined cash, cash equivalents and restricted cash totaled $75.9 million. Working capital was $67.4 million. Marketable securities were zero at quarter-end.
- Convertible notes had $325 million principal and a $320.3 million carrying value; they bear 3.75% interest and mature February 2023. Interest expense was $10.2 million for the nine-month period.
- Stockholders’ deficit was $189.8 million. The filing reports no product-sales gross margin; costs are principally research and development and general and administrative expenses.
Material changes versus the prior comparable period
- Nine-month revenue fell 65% to $9.8 million; R&D expense fell 35% to $84.5 million. Management attributed lower R&D mainly to reduced ResVax clinical activity, lower employee costs and Catalent-related savings.
- Nine-month net loss narrowed to $100.9 million from $135.4 million, helped by lower development spending and a $9.0 million Catalent gain, partly offset by lower grant revenue. The loss per share also improved, while weighted-average shares increased to 22.8 million from 18.3 million.
- Novavax completed the Catalent asset sale in July, transferring approximately 100 manufacturing and quality employees and assigning two facility leases. Headcount reductions and related attrition exceeded 200 employees. Novavax also agreed to purchase $6.0 million of specified Catalent services through July 31, 2020.
- Novavax effected a 1-for-20 reverse stock split in May 2019. It raised $67.2 million net from stock sales during the first nine months; additional sales after quarter-end generated $5.0 million net through November 1.
Outlook, commentary and risks
- Management expected 2019 R&D expense to decline, reflecting completion of Prepare-related work and Catalent savings, partly offset by the NanoFlu Phase 3 trial. It expected G&A expense to be broadly consistent with 2018 and 2019 capital expenditures to increase slightly from 2018. Management also expected operating cash use to decline in the second half of 2019 versus the first half.
- Novavax initiated its NanoFlu Phase 3 trial in October 2019, completed enrollment of 2,652 older adults, and expected top-line results in Q1 2020. The FDA had acknowledged the potential accelerated approval pathway, subject to required evidence and confirmatory studies.
- ResVax’s Prepare trial did not meet its primary efficacy endpoint. The company reported positive findings on certain secondary and exploratory outcomes, but FDA and EMA recommended another Phase 3 trial to confirm efficacy. Commercial and regulatory pathways remained under discussion with potential partners.
- Going concern: Management concluded substantial doubt existed about the company’s ability to continue as a going concern for one year after issuance without additional financing or another arrangement. It had no committed additional funding source and forecast continued operating cash outflows. Financing may not be available on acceptable terms; absent funding, the company may delay, reduce or discontinue programs or downsize.
- Manufacturing now depends on third parties, including Catalent. The filing warns that service, compliance, quality or scheduling failures could delay or prevent development, regulatory approval or production. Other risks include clinical and regulatory uncertainty, the need for future capital, and potential Nasdaq listing deficiencies.
- The Catalent sale produced a $9.0 million accounting gain. No material off-balance-sheet arrangements were reported. Disclosure controls were deemed effective at the reasonable-assurance level.
Important facts for investors to verify
- Cash runway and financing plans, given the explicit going-concern warning and $112.9 million of operating cash use in nine months.
- NanoFlu Phase 3 results, timing of any BLA, and requirements for accelerated approval and confirmatory studies.
- Whether Novavax will pursue another ResVax Phase 3 trial, and the status and terms of prospective partnerships and market access.
- Actual savings and obligations arising from the Catalent transaction, including the $6.0 million services commitment and reliance on third-party manufacturing.
- Further equity issuance, dilution and Nasdaq compliance; outstanding shares were 26.6 million as of October 31, 2019.
- Debt repayment or refinancing plans for the $325 million notes due in February 2023.