Novavax, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2015; filed August 10, 2015. Novavax is a clinical-stage vaccine company developing recombinant nanoparticle vaccines and adjuvants. Its candidates include RSV, seasonal and pandemic influenza, and Ebola vaccines. The financial statements are unaudited.
Financial performance
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $14.0 million | $8.3 million | $23.9 million | $15.7 million |
| Operating loss | $20.8 million | $17.9 million | $45.1 million | $32.2 million |
| Net loss | $20.6 million | $17.9 million | $45.0 million | $31.7 million |
| Net loss per share | $0.08 | $0.08 | $0.18 | $0.15 |
| Operating cash used | Not stated for quarter | Not stated for quarter | $42.8 million | $31.4 million |
- Revenue and unusual items: Revenue increased 69% in Q2 and 52% for the first half. It was mainly from the HHS BARDA influenza contract. The 2015 periods included a $7.7 million BARDA recovery of previously incurred indirect costs; first-half revenue also included $3.1 million for reimbursement of 2012 seasonal-influenza trial costs, recognized after collection became reasonably assured.
- Costs and loss: First-half R&D expense rose 71% to $50.8 million, principally due to RSV and Ebola trials and higher staffing. G&A increased 28% to $12.9 million. Government-contract costs fell 35% to $5.3 million as activity levels changed. The larger net loss reflected increased R&D and employee costs.
- Cash flow and investment: First-half operating cash use was $42.8 million; capital expenditures were $9.2 million, versus $1.8 million in the prior-year period. Financing provided $199.6 million, primarily from equity sales. Cash and cash equivalents increased by $135.0 million to $167.4 million.
- Liquidity and debt: At June 30, cash and cash equivalents were $167.4 million and marketable securities were $147.6 million, totaling $314.9 million; working capital was $305.9 million. Total liabilities were $37.1 million, including $0.7 million of notes payable. Management said available resources and anticipated BARDA revenue were adequate for at least 12 months. The company reported no material debt.
- Capital and dilution: The March public offering generated approximately $190 million net proceeds. The company also sold shares under its at-market agreement; the remaining $6.6 million was sold in July 2015, exhausting the agreement. Shares outstanding were 269.6 million as of July 31, 2015.
Material developments, outlook, and risks
- HHS BARDA’s influenza contract was extended through September 2016 and includes $70 million of additional funding beyond the remaining base-period funding; a June 2015 amendment added $7.7 million for prior indirect-cost settlements. The contract is subject to cost allowability audits; the fiscal 2013 audit had begun but was not complete.
- Management expected 2015 revenue to rise primarily due to the BARDA cost recovery, while government-contract costs were expected to decrease. R&D expense was expected to increase significantly, and G&A and capital expenditures were also expected to rise. The company did not provide project-level cost or completion estimates, citing development uncertainty.
- After quarter-end, Novavax reported positive top-line Phase 2 RSV vaccine efficacy data in older adults and anticipated regulatory discussions and a potential pivotal Phase 3 start as early as Q4 2015. July announcements also described preliminary seasonal influenza and Ebola trial results. These were interim developments, not reported as completed commercial or regulatory milestones.
- The RSV maternal program’s PATH agreement expired in April 2015. Discussions with the Bill & Melinda Gates Foundation were ongoing, with no assurance of an arrangement. Novavax retained global commercial rights to the RSV product.
- A $3.0 million Wyeth milestone related to CPLB’s initiation of a Phase 3 seasonal influenza trial remained accrued; Novavax was discussing a possible amendment to restructure payment. Under its Cadila services agreement, $0.8 million remained to meet a $7.5 million services threshold by March 2016; a shortfall could require payment of up to $2.0 million.
- Key risks include clinical, regulatory, manufacturing, and financing uncertainty; dependence in part on BARDA contract performance; potential dilution or loss of product rights if additional capital or partnerships are needed; and information-security breaches. Management warned that inadequate contract performance or financing could require programs to be delayed, reduced, or eliminated.
- Management stated disclosure controls were effective as of June 30, 2015, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Progress and timing of pivotal RSV and influenza trials, regulatory discussions, and the significance of post-quarter preliminary clinical findings.
- BARDA contract performance, remaining funding and term, and outcomes of outstanding cost audits or adjustments.
- Whether Novavax secures external support for the RSV maternal program after PATH funding ended.
- Cash consumption, rising R&D and capital spending, and the assumptions supporting management’s minimum 12-month liquidity estimate.
- Resolution and payment timing of the accrued Wyeth milestone and the Cadila services commitment.
- Potential future share issuance and dilution after the at-market agreement was fully utilized.