Inovio Pharmaceuticals, Inc. — Q3 2017 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2017. Interim financial statements are unaudited. Inovio is a clinical-stage biotechnology company developing DNA immunotherapies and vaccines with electroporation delivery; it had no product sales and reported no product-based gross margin.
Financial performance
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Total revenue | $2.6 million | $12.5 million | $33.4 million | $26.9 million |
| Research and development expense | $25.5 million | $27.0 million | $73.9 million | $64.8 million |
| General and administrative expense | $6.3 million | $5.8 million | $20.3 million | $16.9 million |
| Loss from operations | $29.2 million | $20.2 million | $60.8 million | $53.9 million |
| Net loss | $34.1 million | $20.8 million | $66.7 million | $47.5 million |
| Diluted net loss per share | $0.40 | $0.28 | $0.85 | $0.65 |
| Net cash used in operating activities | — | $49.3 million | $47.7 million |
- At September 30, cash and cash equivalents were $23.3 million and short-term investments were $118.6 million, totaling $141.9 million. Working capital was $121.2 million; total assets were $203.7 million and total liabilities $41.6 million.
- The balance sheet lists no conventional borrowings. It reports $39.5 million of future minimum operating lease payments; this is a contractual commitment, not reported debt.
- Financing provided $95.8 million in cash during the first nine months, including $70.1 million net proceeds from a July public offering and $24.2 million net proceeds from ATM share sales. Investing activities used $42.4 million, principally reflecting investment purchases and capital expenditures.
Material changes and drivers
- Q3 revenue fell $9.9 million year over year, primarily because DARPA Ebola grant revenue declined and no further Roche collaboration revenue was recognized after termination. Nine-month revenue increased $6.6 million, mainly because Inovio recognized $12.5 million of previously deferred MedImmune consideration in Q2 2017 after selection of a research collaboration candidate, as well as remaining Roche revenue upon termination.
- Nine-month R&D expense rose $9.1 million, driven principally by higher headcount and stock-based compensation, partly offset by lower DARPA and VGX-3100 trial costs. G&A expense increased $3.3 million, reflecting higher compensation, rent and depreciation.
- Net loss worsened in both comparisons. In Q3, a $5.8 million loss on the GeneOne investment’s fair value was a significant non-operating item. For the nine-month period, the GeneOne investment loss was $7.3 million, versus a $5.8 million gain in 2016.
- Operating cash use increased modestly year over year. The company attributed the increase in cash and investments since year-end primarily to equity financing, partly offset by operating and development spending.
Outlook, commentary and risks
- Inovio began the Phase 3 clinical program for VGX-3100 for HPV-related cervical precancer in June 2017 and said it was actively recruiting. The FDA had removed the clinical hold after the company provided requested information on its CELLECTRA 5PSP delivery device.
- Management stated that cash and short-term investments were sufficient for planned working-capital needs for at least 12 months from the report date. It also expects substantial future operating losses and may need additional funding to advance development and, if products are approved, to commercialize them.
- The ApolloBio license and equity agreements remained conditional on regulatory, currency and shareholder approvals. If effective, they could provide $15.0 million in license upfront payments and up to $35.0 million for stock, in addition to potential milestones and royalties. The filing warns that failure to satisfy closing conditions would mean these funds and the Greater China licensing arrangement would not be obtained.
- Key risks include clinical-trial and regulatory uncertainty, manufacturing and enrollment delays, reliance on collaborators and government funding, concentration of revenue among a limited number of partners and grants, potential dilution from equity financing, and the possibility that additional capital may not be available on acceptable terms.
- There was no material litigation reported. Management concluded disclosure controls were effective as of September 30, 2017, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- VGX-3100 Phase 3 recruitment progress, trial timing, and subsequent clinical or regulatory updates.
- Whether ApolloBio obtained the required approvals and closed the license and equity transactions; do not treat the contemplated proceeds as cash already received.
- Cash burn, investment balances and financing needs relative to management’s stated 12-month liquidity expectation.
- Revenue timing and concentration, including remaining collaboration, grant and milestone-related amounts, and the termination-related Roche recognition.
- Share-count changes and potential dilution from public and ATM offerings, outstanding equity awards and any future financing.