Inovio Pharmaceuticals, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. Inovio is a clinical-stage biotechnology company developing DNA immunotherapies and vaccines; it reported no product sales and stated that all product candidates remain in research and development.
Financial performance and liquidity
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Revenue | $1.5 million | $10.4 million |
| Research and development expense | $24.6 million | $24.5 million |
| General and administrative expense | $9.7 million | $7.8 million |
| Operating loss | $32.7 million | $21.9 million |
| Net loss | $32.4 million | $23.1 million |
| Basic and diluted net loss per share | $0.36 | $0.31 |
| Net cash used in operating activities | $12.6 million | $15.2 million |
- At March 31, cash and cash equivalents were $37.5 million and short-term investments were $75.3 million, totaling $112.8 million. Working capital was $72.5 million, down from $103.0 million at December 31, 2017.
- Total assets were $173.7 million and total liabilities were $60.6 million. The balance sheet lists no debt balance.
- Operating cash use was partly offset by the $23.0 million ApolloBio upfront payment recorded as deferred revenue. Investing cash flow was positive $26.8 million, mainly reflecting investment maturities; it should not be read as operating cash generation.
- Management said existing cash and short-term investments were sufficient for planned working capital needs for at least 12 months from the filing date. The company had an accumulated deficit of $555.5 million and expected continued losses.
Material changes and unusual items
- Revenue fell by $8.8 million year over year, primarily because Q1 2017 included $4.0 million from Roche and $5.0 million of DARPA grant revenue. Q1 2018 included no Roche revenue.
- Inovio adopted Topic 606 on January 1, 2018. Government grant contributions are now recorded as a reduction of research and development expense rather than revenue; $2.2 million was recorded this way in Q1. Prior-period results were not restated, limiting direct revenue comparisons.
- The ApolloBio agreement produced a $23.0 million gross upfront payment for VGX-3100 rights in specified Asian territories. After $3.6 million in foreign taxes, net proceeds were $19.4 million. Because the license transfer had not occurred by quarter-end, the gross payment remained deferred revenue. The agreement also provides for up to $20.0 million in regulatory milestones and tiered royalties in the low-to-mid teens if the product is approved and sold.
- Q1 G&A included $1.4 million of foreign non-income taxes and $960,000 of advisory fees associated with ApolloBio. A $2.2 million income-tax provision related to foreign income taxes on that payment.
- A $2.4 million gain on affiliated investments contributed to results; the filing notes that fair-value changes in PLS are now recorded in earnings following adoption of ASU 2016-01.
Outlook, programs, and risks
- The Phase 3 VGX-3100 cervical dysplasia program remained open, with active REVEAL 1 recruitment at 60 sites. Inovio planned to open Phase 1/2 trials in Q2 2018 combining candidates with Genentech’s atezolizumab for bladder cancer and Regeneron’s cemiplimab for glioblastoma.
- Subsequent to quarter-end, Inovio announced CEPI agreements to develop Lassa fever and MERS vaccine candidates, with CEPI funding of up to $56 million over five years, tied to milestones.
- Management identified key uncertainties including clinical trial success, enrollment and timing; regulatory approval; manufacturing; collaborator performance and milestone payments; intellectual-property protection; and the availability of additional capital. Inovio has no approved human products and does not expect product-sale revenue for at least several years.
- Future minimum operating lease payments were $38.1 million as of March 31, 2018. The company reported no material litigation, and management concluded disclosure controls were effective at quarter-end.
Important facts for investors to verify
- Progress, enrollment, timing, and results of the VGX-3100 Phase 3 program and planned combination trials.
- How quickly the $112.8 million in cash and short-term investments is consumed, and whether management’s 12-month liquidity assessment remains valid.
- Revenue and expense comparability after Topic 606 adoption, including the treatment and timing of grant funding.
- Whether ApolloBio’s deferred upfront payment is recognized as revenue after license transfer, and whether milestone or royalty payments become achievable.
- Milestone conditions, funding schedule, and execution of the CEPI agreements, which were announced after the reporting date.