Novavax, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; balance-sheet comparisons are against December 31, 2018. Novavax is a clinical-stage vaccine developer, with lead programs ResVax for RSV and NanoFlu for seasonal influenza. Amounts below are in U.S. dollars; financial statement figures are unaudited.
Financial highlights
| Metric | Q1 2019 | Q1 2018 / prior date |
|---|---|---|
| Revenue | $4.0 million | $9.7 million |
| Research and development expense | $35.5 million | $44.5 million |
| General and administrative expense | $8.7 million | $8.7 million |
| Operating loss | $40.2 million | $43.5 million |
| Net loss / loss per share | $43.2 million / $0.11 | $46.4 million / $0.14 |
| Cash used in operating activities | $50.6 million | $66.1 million |
| Cash, cash equivalents and restricted cash | $106.2 million at March 31 | $82.0 million at December 31 |
| Cash, cash equivalents, marketable securities and restricted cash | $108.7 million at March 31 | $103.9 million at December 31 |
| Convertible notes payable | $319.5 million carrying value; $325 million principal | $319.2 million carrying value |
Revenue consisted mainly of grant-related work, principally under the Bill & Melinda Gates Foundation agreement. The filing does not report product sales or a gross margin measure. Current assets were $123.4 million and current liabilities were $31.5 million at March 31; management reported working capital of $91.9 million. The notes bear a 3.75% coupon and mature February 1, 2023.
Material changes and cash flows
- Revenue fell 59%, primarily because Prepare trial enrollment had been completed in Q2 2018. Novavax expected 2019 grant revenue to be significantly lower as the trial concluded.
- R&D expense declined 20%, mainly from lower ResVax clinical-trial and development costs. Management expected full-year R&D expense to decrease overall, partly offset by planned NanoFlu Phase 3 work. G&A expense was broadly unchanged.
- Net loss narrowed by $3.1 million, largely reflecting lower development costs, partly offset by lower grant revenue. Weighted-average shares rose to 408.8 million from 337.0 million.
- Operating cash use decreased by $15.5 million year over year. The filing attributes the change mainly to approximately $9.3 million of one-time payments in Q1 2018 and a lower bonus payout in Q1 2019. Financing provided $56.2 million, principally from common-stock sales; investing provided $18.7 million, mainly from security maturities.
- Novavax sold approximately 84.0 million shares during Q1 under ATM programs, raising $55.2 million net. It reported 469.5 million common shares outstanding as of April 25, 2019.
Outlook, risks and unusual items
- Going concern: Management disclosed substantial doubt about the company’s ability to continue as a going concern for one year after issuance without additional financing or another funding arrangement. It had no committed source of additional financing. Plans included equity or debt financing, collaborations, alliances, and licensing or commercial arrangements; funding might not be available on acceptable terms or at all. Failure to raise capital could require program delays, reductions, cancellations or downsizing.
- ResVax: The Phase 3 Prepare trial did not meet its prespecified primary efficacy endpoint. The company reported efficacy against RSV LRTI hospitalizations, a secondary objective, and described safety and tolerability as favorable. It planned regulatory discussions later in 2019 to assess possible U.S. and European applications in 2020; approval was not assured.
- NanoFlu: Phase 2 top-line results were reported as well tolerated, with immune responses across four strains and enhanced responses with Matrix-M. Novavax planned FDA protocol discussions in Q3 2019 and said a pivotal Phase 3 trial could begin as early as the second half of 2019.
- Nasdaq listing: Nasdaq notified Novavax that its share price had been below the $1 minimum bid for 30 consecutive business days. The initial compliance deadline was October 8, 2019. A proposed 1-for-20 reverse split was scheduled for a May 8, 2019 shareholder vote; delisting could affect share liquidity, price and the company’s ability to raise capital.
- Leases: Adoption of the new lease standard added about $12 million in right-of-use assets and about $22 million in lease liabilities at January 1, 2019. At March 31, operating lease liabilities totaled $20.9 million. In April, the company extended its Rockville facility lease through January 2024, at about $1.7 million annual base rent; this extension was not included in the March 31 liability.
- The filing reported no material off-balance-sheet arrangements. Management said disclosure controls were effective at the reasonable-assurance level and there was no material change in internal control over financial reporting during the quarter.
Key facts for investors to verify
- Whether Novavax secured sufficient financing to address the disclosed going-concern doubt, and how much of its cash was restricted or otherwise available.
- Regulatory feedback and any application plans arising from Prepare’s missed primary endpoint and secondary hospitalization result.
- Whether NanoFlu advanced to Phase 3, and the timing, cost and funding of that trial.
- Whether the company regained Nasdaq’s minimum bid-price compliance and the outcome of the proposed reverse split.
- Further dilution from ATM share sales, and the company’s ability to manage its convertible-note and lease obligations.