INOVIO Pharmaceuticals, Inc. — Q1 2020 Form 10-Q
Business context and reporting period: Unaudited results for the three months ended March 31, 2020, compared with Q1 2019. Inovio is a clinical-stage biotechnology company developing DNA vaccines, immunotherapies, DNA-encoded antibodies and delivery devices. It had no approved products and no product-sales revenue.
Key financial metrics
- Revenue: $1.33 million, down 53% from $2.83 million. Q1 2020 included about $1.1 million from affiliated entity Plumbline Life Sciences (PLS), $72,000 from AstraZeneca and other contract revenue. The decline primarily reflected lower AstraZeneca revenue, partly offset by PLS milestone revenue.
- Operating results: R&D expense was $19.1 million, down from $24.4 million; G&A was $7.4 million, up from $7.0 million. Operating loss was $25.2 million versus $28.5 million. Consolidated net loss was $33.1 million versus $29.3 million; net loss attributable to Inovio was $32.5 million versus $29.2 million. Basic and diluted loss per share was $0.26 versus $0.30.
- Notable non-operating items: $13.2 million noncash expense from revaluing the August 2019 bond conversion derivative; $13.2 million gain on investments in affiliates; and $5.1 million unrealized loss on available-for-sale equity securities. These volatile valuation items materially affected reported net loss.
- Cash flow: Operating cash use was $25.5 million, compared with $32.5 million in Q1 2019. Investing cash use was $51.8 million, primarily reflecting investment purchases. Financing provided $213.5 million, principally from common-stock sales. Cash and cash equivalents rose by $136.3 million to $158.4 million.
- Liquidity: Cash, cash equivalents and short-term investments totaled $270.0 million at quarter-end; working capital was $243.2 million. The filing says these resources were sufficient for at least 12 months from issuance of the statements, while also stating that further capital will be needed to fund future development.
- Debt and other obligations: Convertible senior notes and bonds had a combined carrying value of about $76.6 million. The filing lists $124.6 million of contractual payments through 2024, including interest and bond premiums. Lease liabilities totaled $22.0 million.
- Equity financing: In Q1, Inovio sold 43.1 million shares through its ATM program for $208.2 million net proceeds, increasing shares outstanding from 101.4 million at year-end to 145.9 million at March 31. By May 8, it had sold another 12.0 million shares under a new ATM agreement for $121.7 million net proceeds.
Material changes versus Q1 2019
- Revenue fell by $1.5 million, mainly because Q1 2019 included an AstraZeneca milestone payment.
- R&D expense declined by $5.3 million, attributed to lower employee compensation and clinical-trial costs and higher grant offsets. Grant contributions recorded as reductions of R&D expense were $5.0 million, versus $3.9 million.
- Interest expense increased to $2.8 million from $0.7 million, reflecting the notes and bonds issued during 2019. The derivative revaluation and investment marks also added substantial quarter-to-quarter earnings volatility.
- Net loss attributable to Inovio increased to $32.5 million from $29.2 million, while loss per share improved to $0.26 from $0.30, in part alongside a higher weighted-average share count.
Outlook, risks and unusual items
- Management expects substantial operating losses to continue and does not expect product-sales revenue for at least several years. It stated current liquidity should cover planned working-capital needs for at least 12 months from filing, but expects to rely on additional financing and collaborations.
- Inovio was advancing INO-4800, its COVID-19 vaccine candidate. CEPI awarded up to $9.0 million for development through Phase 1 human testing, and the Gates Foundation awarded $5.0 million for the CELLECTRA 3PSP delivery device. These grants support development but do not establish clinical efficacy or regulatory approval.
- COVID-19 could disrupt clinical-trial enrollment and conduct, manufacturing, collaborators and access to capital. The filing describes the duration and ultimate business impact as uncertain.
- Key risks include clinical and regulatory failure, manufacturing and supply constraints, dependence on grants and collaborators, future financing needs and dilution, and the possibility that debt conversion or repurchase obligations could pressure liquidity. The August 2019 bonds’ embedded conversion feature is remeasured at fair value and its value is sensitive to stock-price and volatility assumptions.
- Two purported shareholder lawsuits allege misleading statements concerning the coronavirus vaccine program; one was filed after quarter-end. Inovio said it intends to defend the actions. Potential damages were unspecified.
Important facts for investors to verify
- INO-4800 clinical progress, trial timing and results, and whether COVID-19 affects enrollment, manufacturing or regulatory review.
- Cash burn and investment liquidity relative to development plans, debt service and the stated 12-month funding horizon.
- Further ATM or other financing activity, resulting dilution, and the terms and potential conversion or repurchase obligations of the notes and bonds.
- The assumptions behind the $22.0 million derivative liability and the fair-value changes in affiliate and available-for-sale investments.
- Grant funding availability and milestone conditions, collaboration revenue timing, and developments in the shareholder litigation.