Novavax, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2019. Unaudited consolidated financial statements; amounts below are in U.S. dollars.
Business context
Novavax is a late-stage biotechnology company developing vaccines, including ResVax for RSV and NanoFlu for seasonal influenza. The company reported no product-sales revenue; revenue primarily came from grants and other sources, particularly the Bill & Melinda Gates Foundation grant supporting ResVax.
Key financial metrics
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $3.4 million | $10.8 million | $7.3 million | $20.4 million |
| Research and development expense | $30.4 million | $44.5 million | $65.9 million | $89.1 million |
| General and administrative expense | $9.6 million | $8.2 million | $18.3 million | $16.9 million |
| Net loss | $39.6 million | $44.5 million | $82.8 million | $90.8 million |
| Basic and diluted loss per share | $1.69 | $2.37 | $3.77 | $5.10 |
| Net cash used in operating activities | Not stated for quarter | Not stated for quarter | $80.6 million | $106.0 million |
At June 30, cash and cash equivalents were $72.0 million, restricted cash was $6.2 million, and total cash, cash equivalents and restricted cash were $78.2 million. Working capital was $68.7 million. Total assets were $189.4 million; total liabilities were $374.9 million, including convertible notes with a $325.0 million principal balance ($319.9 million carrying value) due February 2023. Stockholders’ deficit was $185.5 million. The filing does not provide a product gross margin; revenue was grant and other revenue.
Six-month cash flows included $20.7 million provided by investing activities and $56.2 million provided by financing activities, principally common-stock sales. Cash, cash equivalents and restricted cash declined by $3.7 million from year-end 2018.
Material changes versus comparable periods
- Revenue decreased 69% in Q2 and 64% for the first half, primarily because enrollment in the ResVax Prepare trial had been completed in Q2 2018, reducing grant-supported activity.
- R&D expense declined 32% in Q2 and 26% for the first half, primarily due to lower ResVax clinical-development costs. Lower expenses more than offset the revenue decline, reducing reported net losses.
- G&A expense increased 17% in Q2 and 9% for the first half, mainly due to professional fees related to the Paragon transaction and stockholder meetings.
- First-half operating cash use fell by $25.4 million year over year. Management attributed the reduction to lower ResVax activity, reduced bonus payments and the absence of certain prior-year one-time payments.
- Common shares outstanding increased following equity sales. Novavax also effected a 1-for-20 reverse stock split in May 2019; share and per-share figures in the filing are retrospectively adjusted.
Outlook, commentary and risks
- Going concern: Management disclosed substantial doubt about the company’s ability to continue as a going concern for one year after issuance of the financial statements without additional financing or another funding arrangement. At June 30, it had no committed additional financing. Management planned to seek equity and debt financing, collaborations, strategic alliances, and marketing, distribution or licensing arrangements. Funding may not be available on acceptable terms or at all; without it, programs could be delayed, reduced or eliminated, or the organization downsized.
- Cash-use outlook: Management expected operating cash use to decrease significantly in the second half of 2019, reflecting Paragon-related savings and completion of Prepare activities, partly offset by the planned NanoFlu Phase 3 trial. No numerical cash-flow or earnings guidance was provided.
- Pipeline: The FDA was recommending an additional Phase 3 trial to confirm ResVax efficacy after the Prepare trial missed its primary endpoint, despite reported efficacy on a secondary hospitalization endpoint. Novavax planned to seek further regulatory advice and continued partner discussions. The company expected to begin a pivotal NanoFlu Phase 3 trial in Q3 2019, with top-line data expected in Q1 2020; FDA had acknowledged an accelerated-approval pathway could be available, subject to required evidence and confirmatory studies.
- Paragon transaction: The asset sale closed in July 2019, after quarter-end, for $18.0 million, including $1.5 million held in escrow for one year, plus approximately $0.3 million for laboratory supplies subject to adjustment. About 100 manufacturing and quality employees transferred, two facility leases were assigned, and Paragon agreed to provide specified manufacturing services. Novavax reported more than 200 employee reductions including related attrition since March 1.
- Execution and financing risks: Novavax depends on third parties for some laboratory testing and clinical trials and, after the Paragon transaction, all vaccine manufacturing. Delays, quality failures or regulatory issues at providers could disrupt development or prevent approval or manufacture. Its product candidates remain subject to clinical and regulatory uncertainty.
- Other items: Novavax regained Nasdaq’s minimum bid-price compliance in May following the reverse split, but said future noncompliance could threaten listing and affect liquidity, capital raising and its notes. The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Available cash and the timing, terms and sufficiency of new financing, given the disclosed going-concern uncertainty.
- Actual second-half cash use and realized savings from the Paragon transaction, including costs or obligations under the manufacturing-services arrangement.
- Regulatory feedback and any additional ResVax trial requirements following the Prepare trial’s missed primary endpoint.
- Whether the NanoFlu Phase 3 trial began on schedule and whether its results support the proposed regulatory pathway.
- Future dilution from at-the-market equity sales and the amount remaining under the sales agreement; the filing reported $79.9 million remaining as of August 2, 2019.