Inovio Pharmaceuticals, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Inovio is a clinical-stage biotechnology company developing DNA vaccines, immunotherapies, antibody candidates and delivery devices. It had no approved products or product sales; revenue came primarily from collaborations and grants.
Financial performance and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $0.27 million | $0.14 million | $1.59 million | $2.97 million |
| Research and development expense | $22.4 million | $22.5 million | $41.5 million | $46.9 million |
| General and administrative expense | $11.1 million | $5.9 million | $18.5 million | $12.8 million |
| Operating loss | $33.2 million | $28.2 million | $58.4 million | $56.7 million |
| Net loss attributable to Inovio | $128.7 million | $29.4 million | $161.2 million | $58.6 million |
| Basic and diluted loss per share | $0.83 | $0.30 | $1.15 | $0.60 |
Margins are not meaningful given the very low collaboration revenue and absence of product sales. Q2 net loss included a $97.8 million noncash loss from revaluing an embedded bond conversion feature; the six-month charge was $111.0 million. Inovio also recorded a $4.1 million gain on deconsolidating Geneos. The filing reported no income tax benefit or provision for 2020.
- Cash and investments: $371.7 million at June 30, comprising $215.4 million cash and equivalents and $156.2 million short-term investments, versus $89.5 million at December 31, 2019. Working capital was $344.1 million; accumulated deficit was $901.0 million.
- Cash flows, six months: $52.6 million used in operations, $94.2 million used in investing, and $340.0 million provided by financing. Financing included $330.0 million net proceeds from at-the-market stock sales.
- Debt and other obligations: Balance-sheet carrying amounts were $65.8 million for convertible senior notes and $13.7 million for convertible bonds. Contractual future payments on those instruments totaled $123.9 million, including interest and premiums. Operating lease liabilities totaled $21.5 million.
- Equity issuance: Inovio sold 55.2 million shares through ATM programs during the first half, including 12.0 million in Q2. It reported 158.8 million shares outstanding at June 30 and 167.5 million at August 7.
Material changes and unusual items
- Six-month revenue declined year over year, mainly because less revenue was recognized from AstraZeneca; milestone revenue from affiliate Plumbline Life Sciences partly offset the decline.
- R&D expense fell year over year, including as grant funding recorded against R&D increased to $14.1 million from $6.5 million for the six-month periods. Q2 G&A rose to $11.1 million from $5.9 million, primarily reflecting higher legal, corporate marketing and communications, and stock-compensation costs.
- In June, Inovio lost control of Geneos after its ownership fell to 47%, deconsolidated the subsidiary, and retained investments accounted for under different methods. The deconsolidation produced the $4.1 million gain noted above.
- After quarter-end, holders converted $19.1 million of senior notes into 3.55 million shares in July; all August 2019 bonds converted into 4.96 million shares in August. The related derivative liability was expected to be eliminated in Q3.
Outlook, commentary and risks
- Management said available cash, cash equivalents and short-term investments were sufficient to support operations for at least 12 months from issuance of the financial statements, while stating that additional capital will be needed to fund future R&D. Continued losses and dependence on external financing remain central risks.
- For COVID-19 vaccine candidate INO-4800, the company reported a Phase 1 trial underway in the United States and positive interim data from its first two cohorts. It had expanded the trial to older participants and planned a Phase 2/3 efficacy trial subject to FDA concurrence; trials were also underway or planned in South Korea and China.
- Management’s stated manufacturing goals were up to one million INO-4800 doses by year-end 2020 and 100 million in 2021, contingent on development, regulatory progress and manufacturing capacity. The DoD agreements provided approximately $54.5 million for device and related development/manufacturing work and $16.6 million for device procurement; no related grant expense offset or deferred funding was recorded in the quarter.
- Manufacturing execution is a significant risk. Inovio’s dispute with supplier VGXI concerns alleged breach of a supply agreement and access to manufacturing methods; VGXI filed counterclaims, including breach and trade-secret allegations. The preliminary injunction sought by Inovio was denied, and the litigation remained unresolved.
- Inovio also disclosed a shareholder securities class action and multiple related derivative suits alleging misleading COVID-19 vaccine statements. The company said it would defend the actions; potential losses were not quantified in the filing text provided.
- Other key risks include clinical and regulatory uncertainty, competition, reliance on collaborators and government funding, possible trial or manufacturing delays related to COVID-19, dilution from equity sales and debt conversions, and foreign-currency exposure on Korean-won bonds and investments. No formal financial guidance was provided.
Most important facts for investors to verify
- INO-4800 trial results, FDA feedback and whether the planned later-stage trial and manufacturing targets are achieved.
- Progress resolving the VGXI manufacturing dispute and securing dependable alternative production capacity.
- Cash burn, funding requirements, grant and contract milestones, and the basis for management’s stated 12-month liquidity runway.
- Further dilution from ATM sales, outstanding convertible debt and subsequent share conversions.
- Developments and any financial exposure from the securities, derivative and VGXI litigation.