Inovio Pharmaceuticals, Inc. — Q2 2016 Form 10-Q
Business context and reporting period
Clinical-stage biotechnology company developing DNA immunotherapies and vaccines with electroporation delivery devices for cancers and infectious diseases. This unaudited report covers the quarter and six months ended June 30, 2016; comparisons are with the same 2015 periods. The company had no approved human products and reported no product-sale revenue.
Financial performance and liquidity
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Revenue | $6.2 million | $5.3 million | $14.3 million | $10.5 million |
| Operating loss | $18.2 million | $15.1 million | $33.7 million | $23.5 million |
| Net loss attributable to Inovio | $18.7 million | $6.2 million | $26.7 million | $16.8 million |
| Net loss per share, basic | $0.26 | $0.09 | $0.37 | $0.26 |
| Operating cash used | — | $29.0 million | $21.1 million |
At June 30, cash and cash equivalents were $28.5 million and short-term investments were $106.1 million, totaling $134.5 million, versus $163.0 million at December 31, 2015. Working capital was $112.5 million, down from $140.4 million. Total assets were $204.0 million and total liabilities $41.9 million. The filing does not provide a clear value for borrowings or identify outstanding debt. No gross margin is reported; product sales had not begun.
Six-month investing cash use was $2.7 million and financing cash provided was $2.5 million. The company said existing cash and short-term investments were sufficient for planned working-capital needs for at least the next 12 months. Its accumulated deficit was $387.8 million.
Material changes versus prior comparable periods
- Q2 revenue increased 17% and six-month revenue increased 37%. The principal driver was higher grant and miscellaneous revenue, including DARPA Ebola grant revenue of $3.7 million in Q2 and $8.2 million for six months.
- Collaborative R&D revenue declined year over year, principally because 2015 included a $3.0 million Roche milestone and revenue associated with Roche’s partial termination of its agreement. MedImmune collaboration revenue partly offset the decline.
- R&D expense rose to $19.6 million in Q2 and $37.8 million for six months, reflecting increased staffing, clinical study costs, contract labor, supplies and grant-related activity. G&A expense also increased.
- Net loss increased substantially in Q2, when the prior-year period included an $8.9 million gain on the GeneOne investment; the 2016 quarter recorded a $0.7 million loss on that investment. For six months, increased operating expenses were a key factor in the larger loss.
- Cash and short-term investments fell by $28.5 million from year-end, mainly due to operating expenditures. Operating cash use increased from $21.1 million to $29.0 million for the six-month period.
Outlook, management commentary, risks and unusual items
- Management expects substantial operating losses to continue as it funds research, clinical trials and regulatory work; it does not expect product-sale revenue for at least several years. It planned to launch a Phase III VGX-3100 study in 2016.
- On July 28, 2016, after quarter-end, Roche gave notice that it would discontinue development of INO-1800. Termination was to take effect 90 days after notice, with rights returning to Inovio. Management said it planned to continue the hepatitis B program and independently advance the Phase I study.
- In April, Inovio acquired Bioject assets for $5.5 million: $4.3 million in stock and $1.2 million in cash. The acquisition added needle-free injection technology and related intellectual property; purchase-price allocation was preliminary.
- In June, the company established an at-the-market offering program for up to $50 million gross. It sold 119,400 shares for $1.3 million net through June 30; it reported additional sales of 64,076 shares for $605,000 net through July 28.
- Key risks include clinical and regulatory uncertainty, manufacturing and trial execution, dependence on collaborators and government funding, future financing needs and potential shareholder dilution. The company reported no material litigation and stated its disclosure controls were effective.
- Operating lease commitments totaled $17.8 million. The filing also notes that indemnification obligations may arise, but their maximum potential payments cannot be estimated.
Important facts for investors to verify
- Whether cash burn and available liquidity remain consistent with management’s stated minimum 12-month funding outlook.
- Clinical progress, timing and costs for VGX-3100, INO-1800 and other development programs, including the implications of Roche’s termination.
- How much of the $50 million ATM capacity is used and the resulting share dilution.
- Timing and reliability of grant and collaboration revenue, including DARPA funding and MedImmune deliverables.
- Final Bioject purchase-price allocation and any effects of the acquisition on costs, assets or development plans.