Novavax, Inc. — Q2 2016 Form 10-Q
Reporting period: Three and six months ended June 30, 2016; filed August 9, 2016. Novavax is a clinical-stage vaccine company developing recombinant nanoparticle vaccines and adjuvants. Amounts below are in U.S. dollars; financial statement figures are in millions unless stated otherwise.
Financial results and liquidity
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Revenue | $2.5 | $14.0 | $6.7 | $23.9 |
| Research and development expense | $64.9 | $27.7 | $133.9 | $56.1 |
| General and administrative expense | $14.1 | $7.1 | $24.6 | $12.9 |
| Net loss | $(79.4) | $(20.6) | $(156.6) | $(45.0) |
| Net loss per share | $(0.29) | $(0.08) | $(0.58) | $(0.18) |
| Operating cash used | — | — | $(131.9) | $(42.8) |
Q2 revenue fell 82% year over year; first-half revenue fell 72%. R&D expense rose 134% in Q2 and 139% for the first half, principally reflecting RSV vaccine trials and development, manufacturing, and staffing costs. G&A expense increased 99% in Q2 and 90% for the first half, including higher personnel and pre-commercialization costs. The company reported no operating profit or positive margins; operating loss was $76.5 million for Q2 and $151.8 million for the first half.
At June 30, cash and cash equivalents were $89.4 million and marketable securities were $277.0 million, totaling $366.4 million; working capital was $338.1 million. Cash and cash equivalents declined $3.7 million from year-end. First-half investing cash outflow was $150.5 million, including $11.0 million of capital expenditures and net purchases of marketable securities. Financing provided $278.6 million, primarily from the convertible-note offering. Management said available resources, anticipated BMGF grant revenue and other resources were expected to fund operating plans for at least 12 months.
Total liabilities were $414.9 million, including $315.6 million of convertible notes net of issuance costs. The notes have $325 million principal, mature in 2023, bear 3.75% interest, and are initially convertible at approximately $6.81 per share. The company paid $38.5 million for capped-call transactions intended to reduce dilution up to a $9.73 share-price cap. The notes are initially convertible into about 47.7 million shares. Shares outstanding were 270.9 million at June 30.
Material changes and business developments
- Revenue declined mainly because BARDA activity wound down and the prior-year period included a $7.7 million recovery of indirect costs; first-half 2015 also included $3.1 million related to a seasonal influenza trial. BMGF grant revenue partially offset the decrease.
- The BARDA influenza contract was scheduled to expire in September 2016. Novavax expected no significant further revenue under it through expiration. An audit of BARDA costs for fiscal 2013 and 2014 had begun but was not complete.
- The company reported Phase 3 RSV vaccine trials in older adults and pregnant women. It expected top-line Resolve trial data in Q3 2016 and rollover-trial data in the second half of 2016. The maternal-immunization trial was expected to take two to four years and was supported by a BMGF grant of up to $89.1 million.
- Novavax shifted its seasonal influenza development focus from VLP vaccines to nanoparticle-based vaccines and expected to begin a Phase 1 combination influenza/RSV trial in the first half of 2017.
- Capital expenditure was $11.0 million in the first half. The company expected 2016 capital expenditure to be significantly higher than in 2015, potentially rising further if older-adult RSV Phase 3 results were positive and commercialization preparation proceeded.
Outlook, risks and contingencies
Management expected 2016 revenue to be lower than 2015 as BARDA funding ended, while BMGF grant revenue was expected to increase with the maternal RSV trial. Management also expected higher R&D and G&A costs in 2016, driven by clinical development, staffing, facilities and commercialization preparation. The filing provides no specific full-year revenue, loss or cash-burn guidance.
Novavax remains dependent on external funding and expects significant ongoing research, clinical, manufacturing and commercialization spending. Management cautioned that additional capital may be needed and might not be available on acceptable terms; the company could have to delay, reduce or discontinue programs or downsize. Equity financing could dilute shareholders, and partnering could require giving up product or technology rights. Clinical outcomes, regulatory approval, trial timing and costs are uncertain. BARDA reimbursements remain subject to government audit and possible adjustment. The company also disclosed $84.7 million in future minimum lease payments, including a new long-term facility lease, and an accrued Wyeth milestone payable no later than December 31, 2017 under the amended arrangement. The filing reported no material change to previously disclosed risk factors.
Important facts for investors to verify
- Resolve Phase 3 results and the rollover-trial readout, including efficacy and safety findings.
- Prepare trial enrollment, costs, timing, grant reimbursements and progress toward any licensing or WHO prequalification.
- Actual BARDA contract wind-down revenue and the outcome of the 2013–2014 cost audit.
- Cash burn, capital expenditure and financing needs relative to management’s stated minimum 12-month funding outlook.
- Potential dilution from the convertible notes, stock-based compensation and any future equity financing; note the capped-call protection is limited above its cap price.
- Commercialization and manufacturing commitments, including lease obligations and the timing and amount of the Wyeth milestone.