Inovio Pharmaceuticals, Inc. — Q2 2019 Form 10-Q
Business context and reporting period. Clinical-stage biotechnology company developing synthetic DNA immunotherapies, vaccines, and delivery devices for cancer and infectious diseases. This unaudited quarterly report covers the three and six months ended June 30, 2019; comparisons are with the corresponding 2018 periods. The company reported no approved products and no product sales.
Financial performance and position
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $0.14 million | $24.45 million | $2.97 million | $25.98 million |
| Research and development expense | $22.49 million | $22.46 million | $46.88 million | $47.04 million |
| General and administrative expense | $5.85 million | $7.19 million | $12.83 million | $16.89 million |
| Operating loss | $28.20 million | $5.20 million | $56.74 million | $37.95 million |
| Net loss attributable to Inovio | $29.39 million | $6.64 million | $58.61 million | $38.99 million |
| Loss per share, diluted | $0.30 | $0.08 | $0.60 | $0.43 |
| Net cash used in operating activities | Not separately reported by quarter | $56.38 million | $31.60 million |
Gross margin is not meaningful because Inovio had no product sales. At June 30, 2019, cash and cash equivalents were $19.7 million, short-term investments were $86.2 million, and working capital was $86.4 million. The company also reported $8.5 million of long-term investments in affiliates. Total assets were $165.1 million, total liabilities $108.6 million, and stockholders’ equity $56.5 million; accumulated deficit was $679.0 million.
In February and March 2019, Inovio issued $78.5 million principal amount of 6.5% convertible senior notes due 2024, receiving approximately $75.7 million net. Their June 30 carrying amount was $62.8 million, reflecting debt discount and issuance costs; the liability component’s effective interest rate was 13.1%. Six-month financing cash flow was $80.2 million, largely reflecting the notes. Cash and cash equivalents declined by $4.0 million during the six months.
Material changes versus prior period
- Q2 revenue fell by $24.3 million year over year, principally because Q2 2018 included recognition of ApolloBio’s one-time $23.0 million upfront payment. Six-month revenue fell by $23.0 million.
- Six-month net loss increased by $19.6 million. Alongside lower revenue, 2019 included $2.9 million interest expense on the new notes; R&D expense was nearly flat and G&A expense declined.
- Cash and short-term investments rose from $81.2 million at December 31, 2018 to $106.0 million at June 30, 2019, primarily because of note proceeds. Operating cash use increased from $31.6 million to $56.4 million for the six-month period.
- Adoption of lease accounting in 2019 added operating lease right-of-use assets and liabilities. At June 30, lease liabilities totaled $23.4 million, including $1.9 million current.
Outlook, commentary, risks, and unusual items
- Management said cash, cash equivalents, and short-term investments were sufficient for at least 12 months from issuance of the financial statements. It expects continued losses and says additional capital will be needed over time; funding may come from collaborations, debt, equity, or the at-the-market program. Up to $69.7 million remained available under that program at June 30.
- After quarter-end, Inovio announced a restructuring to focus on late-stage HPV assets and faster-to-market candidates, reducing its workforce by approximately 28% and discontinuing the Phase 1/2 INO-5401 advanced bladder cancer study. It expected about $2.3 million in one-time personnel costs, primarily in Q3 2019.
- On August 1, 2019, the company issued approximately $15.0 million of Korean-won-denominated 1.0% convertible bonds due 2024 and announced plans to pursue a KOSDAQ listing using Korean Depositary Receipts. The bonds include conversion-price resets and holder repurchase rights, creating potential dilution and future cash obligations. Inovio also reported $1.1 million net proceeds from ATM share sales after June 30 through July 16.
- Management described a planned exploratory Phase 2 prostate cancer combination trial involving INO-5151, CDX-301, and nivolumab, conducted and funded by PICI; Inovio may contribute financially if the candidate reaches Phase 3.
- Key risks include clinical and regulatory failure or delay, manufacturing challenges, dependence on partners and grant funding, continuing operating losses, need for additional financing, and potential dilution or cash demands from convertible debt. The company cautioned that funding shortfalls could force program delays or reductions. It reported no material litigation and stated disclosure controls were effective as of June 30, 2019.
Most important facts for investors to verify
- Cash burn, the stated 12-month liquidity runway, and the timing and terms of future financing.
- Milestones, study progress, and partner commitments for late-stage HPV programs and other clinical candidates.
- Execution and savings from the 28% workforce reduction, discontinued INO-5401 study, and expected restructuring charge.
- Convertible-note and Korean-bond conversion, reset, interest, and repurchase terms, including dilution and potential cash settlement requirements.
- Reliance on a limited number of collaboration and grant sources; future milestone, grant, and royalty revenue is uncertain.