Novavax, Inc. — Q3 2018 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2018. Novavax is a clinical-stage biotechnology company developing vaccines, including ResVax for RSV and NanoFlu for seasonal influenza. Financial amounts below are in U.S. dollars; millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $7.7 | $8.4 | $28.2 | $20.8 |
| Research and development expense | $41.3 | $41.9 | $130.4 | $118.8 |
| General and administrative expense | $8.3 | $8.1 | $25.2 | $25.9 |
| Operating loss | $(41.9) | $(41.6) | $(127.4) | $(123.9) |
| Net loss | $(44.6) | $(44.6) | $(135.4) | $(132.9) |
| Net loss per share | $(0.12) | $(0.15) | $(0.37) | $(0.47) |
- Revenue was primarily grant revenue, particularly reimbursement under the Bill & Melinda Gates Foundation (BMGF) agreement. Q3 revenue declined 7%, which the company attributed to completion of Prepare trial enrollment; nine-month revenue increased 36%, reflecting greater Prepare-related and Novavax AB activity.
- Research and development expense rose 10% for the nine-month period, mainly due to increased ResVax development. The company reported no product sales revenue; operating and net losses continued. Gross margin is not presented as a meaningful metric in the filing.
- Operating cash use was $139.6 million for the first nine months, versus $101.1 million a year earlier. Investing activities used $19.7 million; financing provided $98.9 million. Cash, cash equivalents and restricted cash decreased by $60.4 million to $75.0 million.
- At September 30, cash and cash equivalents were $56.5 million, marketable securities $70.6 million and restricted cash $18.5 million, totaling $145.6 million. Working capital was $113.8 million. Restricted cash is not freely available for general use.
- Convertible notes had $325 million principal and $318.8 million carrying value, mature February 1, 2023, and bear a 3.75% coupon. Nine-month interest expense was $10.2 million. Total liabilities were $377.2 million, exceeding total assets of $250.5 million; stockholders’ deficit was $126.7 million.
Changes versus comparable periods
- Q3 net loss was nearly unchanged year over year, while loss per share improved from $0.15 to $0.12, principally alongside a larger weighted-average share count.
- Nine-month net loss increased $2.5 million as higher R&D spending more than offset increased grant revenue and lower G&A expense. Loss per share improved from $0.47 to $0.37 as weighted-average shares rose from 284.8 million to 365.2 million.
- Cash used in operations increased $38.5 million. The company cited grant payment timing and reimbursements, higher ResVax development costs, and one-time payments including a lease termination fee, a Wyeth milestone and an annual bonus.
- The company raised approximately $54 million net in an April public offering and $42.6 million net from at-the-market stock sales in the first nine months. Common shares issued increased substantially; further equity financing could dilute existing holders.
Outlook, commentary and risks
- Going concern: Management stated there was substantial doubt about the company’s ability to continue as a going concern for one year from issuance of the financial statements without additional financing or another funding arrangement. It had no committed additional funding source and expected negative operating cash flows over the next 12 months.
- Management planned to seek capital through equity or debt financings, collaborations, strategic alliances, and marketing, distribution or licensing arrangements. Financing may not be available on acceptable terms or at all; failure to raise funds could force delays, reductions or elimination of programs, or organizational downsizing.
- Top-line results from the final efficacy analysis of the Phase 3 Prepare trial of ResVax and the Phase 2 NanoFlu trial were expected in Q1 2019. Subject to successful results, Novavax expected to file ResVax applications in the U.S. and Europe by Q1 2020. The NanoFlu Phase 2 trial enrolled approximately 1,375 older adults; the company planned FDA discussions on a potential accelerated-approval pathway in the first half of 2019. These are forward-looking expectations, not assured outcomes.
- The company expected 2018 R&D expense to exceed 2017 levels, primarily due to ResVax and NanoFlu development; G&A expense was expected to be consistent with 2017. It expected 2018 BMGF revenue to be slightly higher than 2017.
- Unusual items included a $5.3 million payment to terminate a facility lease, with $0.9 million total related expense recorded in Q1, and a Wyeth license milestone paid in Q1 2018. The Wyeth license was terminated in July because no current programs used it.
- Additional risks cited include vaccine trial and regulatory uncertainty, dependence on external financing, potential costs and liabilities from cybersecurity or privacy breaches (including GDPR compliance), and uncertainty about the effects of U.S. tax reform.
Most important facts for investors to verify
- Whether Novavax secured sufficient financing to address the disclosed going-concern uncertainty and fund the next 12 months of operations.
- Prepare and NanoFlu trial results, subsequent regulatory feedback, and any changes to filing or development timelines.
- Actual unrestricted liquidity and cash burn, distinguishing cash and marketable securities from restricted grant funds.
- Terms and dilution effects of subsequent equity, debt, collaboration or licensing transactions, and the status of the $42.2 million remaining capacity under the December 2017 sales agreement.
- Whether reported estimates, contingencies or program plans changed after September 30, 2018; this filing’s interim results do not necessarily indicate future results.