Novavax, Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Amounts below are U.S. dollars; financial statement figures are in millions unless otherwise noted.
Business context
Novavax is a clinical-stage vaccine company. Its main focus in 2020 was developing and manufacturing NVX-CoV2373, its COVID-19 vaccine candidate, supported by U.S. government and other funding. Other programs included NanoFlu and RSV candidates. The company acquired Novavax CZ, including a vaccine manufacturing facility in the Czech Republic, in May 2020.
Financial results and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $157.0 | $2.5 | $195.9 | $9.8 |
| Research and development | $294.1 | $18.6 | $345.8 | $84.5 |
| General and administrative | $56.9 | $7.9 | $84.0 | $26.2 |
| Net loss | $(197.3) | $(18.0) | $(240.7) | $(100.9) |
| Net loss per share | $(3.21) | $(0.74) | $(4.39) | $(4.43) |
Revenue was principally recognized for COVID-19 development and manufacturing activities under CEPI, Operation Warp Speed (OWS), and Department of Defense (DoD) arrangements. The filing does not report gross profit or operating margins; as a development-stage company, Novavax reported operating expenses rather than product cost of sales.
- R&D rose sharply with NVX-CoV2373 activity. It included a $187.2 million write-off of manufacturing-related right-of-use assets deemed to have no alternative future use, as well as increased employee costs and stock-based compensation.
- Q3 stock-based compensation was $65.7 million, compared with $2.6 million a year earlier. Nine-month expense was $77.6 million versus $12.8 million.
- At September 30, cash and cash equivalents were $334.2 million, marketable securities $169.9 million, and restricted cash $67.6 million: $571.6 million combined. Working capital was $432.0 million.
- Nine-month operating cash flow was positive $86.0 million, compared with cash used of $112.9 million in 2019, mainly reflecting funding receipts and payment timing. Investing used $346.7 million, including $164.2 million for the Novavax CZ acquisition; financing provided $580.2 million, primarily from stock and preferred-stock sales.
- Convertible notes had $325.0 million principal, with $321.7 million net carrying value, and mature in February 2023. The balance sheet also recorded $119.0 million of finance-lease liabilities, including $55.9 million current. The company reported total liabilities of $637.8 million.
Material changes versus prior period
- Nine-month revenue increased $186.1 million, while R&D increased $261.3 million and G&A increased $57.7 million. The larger loss primarily reflected accelerated COVID-19 program spending, the asset write-off, and compensation costs, partly offset by funding revenue.
- Q3 net loss widened by $179.3 million year over year. For the nine-month period, loss per share was slightly lower than in 2019 despite the larger total loss, reflecting a substantial increase in weighted-average shares outstanding.
- Common shares issued increased to 63.3 million from 32.4 million at year-end 2019. The company raised $447.1 million net from common-stock sales during the nine months and $199.8 million net through a preferred-stock placement. Preferred shares are convertible into approximately 4.39 million common shares.
- Total assets rose to $944.0 million from $173.0 million at year-end 2019, reflecting increased liquidity, the acquisition, and manufacturing-related assets and leases. The acquisition added preliminary goodwill of $70.7 million; purchase accounting remained subject to adjustment.
Outlook, commentary, and risks
- Management expected 2020 revenue to increase substantially, largely from OWS, CEPI, DoD, and other potential non-dilutive funding. It also expected R&D, G&A, and capital expenditures to rise significantly as COVID-19 development, manufacturing, and support activities expanded.
- At filing, the company said its available capital was expected to fund operating plans for at least 12 months from filing. It noted that further capital could be required and might involve equity or debt financing, partnerships, or licensing arrangements.
- Funding ceilings included up to $1.6 billion under OWS, up to $60 million under the DoD contract, and up to $399.5 million under the CEPI agreement. These arrangements carried conditions, spending limits, milestones, pricing or negotiation terms, and termination provisions; the full amounts were not assured.
- Management projected global NVX-CoV2373 manufacturing capacity above two billion annualized doses at full capacity, expected in mid-2021. This was an expectation, not an achieved capacity or guarantee of supply.
- The filing described ongoing Phase 3 testing in the UK and expected a U.S./Mexico Phase 3 trial to begin by the end of November 2020. It also reported positive preliminary Phase 1 immune-response and safety findings; efficacy and regulatory approval remained uncertain.
- Key risks included clinical-trial failure or delay, regulatory uncertainty, manufacturing scale-up and reliance on partners, competition, funding shortfalls or changing government priorities, pandemic-related disruption, and the possibility that the vaccine would not be commercially successful. Novavax had a history of losses and no approved commercial vaccine.
- Unusual items included the $187.2 million ROU-asset write-off, substantial noncash compensation, acquisition accounting still under review, and embedded manufacturing leases. The filing also disclosed an October 2020 UK purchase agreement for up to 60 million doses, subject to its terms and regulatory progress, and a long-term facility lease signed after quarter-end.
Important facts for investors to verify
- Whether COVID-19 clinical results support safety, efficacy, and regulatory authorization, and whether trial timelines and enrollment expectations are met.
- How much OWS, DoD, and CEPI funding is ultimately available, recognized, and collected, and whether contract pricing, milestones, or termination terms change.
- Whether manufacturing capacity, yields, quality, and partner supply chains reach management’s projected levels and support delivery commitments.
- Cash use and funding runway, including the distinction between unrestricted cash and securities and restricted cash, and potential additional financing or dilution.
- The final fair-value allocation for Novavax CZ, future lease obligations, and the scale and timing of stock-based compensation expense.