Novavax, Inc. — Q3 2017 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017; filed November 7, 2017. Novavax is a clinical-stage biotechnology company developing recombinant nanoparticle vaccines and adjuvants. It reported no product sales; revenue primarily reflected research and development collaborations and grant funding.
Financial results and liquidity
Amounts below are in millions of U.S. dollars, except per-share data. Expenses and losses are shown as reported.
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $8.4 | $3.2 | $20.8 | $10.0 |
| Research and development expense | $41.9 | $53.0 | $118.8 | $186.8 |
| General and administrative expense | $8.1 | $13.6 | $25.9 | $38.2 |
| Operating loss | $(41.6) | $(63.3) | $(123.9) | $(215.1) |
| Net loss | $(44.6) | $(66.3) | $(132.9) | $(222.9) |
| Net loss per share | $(0.15) | $(0.24) | $(0.47) | $(0.82) |
| Net cash used in operating activities | Not presented by quarter | $(106.6) | $(194.2) |
- Cash and investments: $172.6 million at September 30, 2017, comprising $104.2 million cash and cash equivalents and $68.3 million marketable securities, versus $235.5 million at December 31, 2016. Working capital was $157.7 million. The company also reported $40.4 million of restricted cash, current and non-current.
- Cash flows: Nine-month investing activities provided $19.2 million, principally reflecting maturities net of purchases of marketable securities; financing activities provided $47.1 million, including $46.0 million net proceeds from common-stock sales. Cash and cash equivalents decreased $40.1 million during the period.
- Debt: Convertible senior unsecured notes had $325.0 million principal and a $317.4 million carrying amount, net of unamortized issuance costs. They bear 3.75% interest and mature February 1, 2023. Nine-month interest expense was $10.5 million.
- Margins: The filing reports no product gross margin; the company remained loss-making, with operating expenses substantially exceeding collaboration revenue.
Material changes versus comparable periods
- Q3 revenue rose 158% year over year, mainly because BMGF grant revenue increased with enrollment in the maternal RSV Phase 3 Prepare trial. Nine-month revenue rose 109%; increased BMGF revenue was partly offset by the expiration of the HHS BARDA contract in September 2016.
- Q3 R&D expense fell 21%; nine-month R&D fell 36%. Management attributed the reductions mainly to lower older-adult RSV development activity and employee-related costs. G&A expense declined 40% in Q3 and 32% for the nine-month period, reflecting lower pre-commercialization professional fees and staffing costs.
- Net loss narrowed by $21.6 million in Q3 and $89.9 million for the nine-month period, primarily due to lower R&D and employee costs. The nine-month reduction was partly offset by higher interest expense.
- Cash and cash equivalents plus marketable securities declined $62.9 million from year-end 2016. Common shares issued increased during the period; the company sold 37.9 million shares under its at-the-market agreement for $46.0 million net proceeds at a weighted average price of $1.25 per share.
Outlook, programs, and notable risks
- Management said cash, investments, and anticipated BMGF grant revenue were adequate to fund operating plans for at least 12 months from the filing date. It expected 2017 grant revenue to be significantly higher than in 2016, while R&D, G&A, and capital spending were expected to be lower than in 2016. No specific earnings or product-sales guidance was provided.
- The Prepare maternal-immunization RSV Phase 3 trial was ongoing, with enrollment expected to take three to four years. An informational analysis was planned for later in 2017; management said its results would not be public. The program was supported by a BMGF grant of up to $89.1 million, subject to global-access commitments.
- The RSV vaccine failed to meet the primary and secondary efficacy objectives in the older-adult Phase 3 Resolve trial. Management cited a lower attack rate than in an earlier trial and reported analyses suggesting a 61% reduction in COPD-exacerbation hospitalizations; further development plans were under evaluation. These analyses do not change the reported Phase 3 failure.
- A Phase 1/2 NanoFlu trial in older adults began in September 2017; data were expected before year-end 2017. Zika remained in preclinical development; Ebola was in Phase 1. The company disclosed that clinical development, regulatory approval, commercialization, and related revenue remained uncertain.
- Funding depends on available capital, grant performance, and potential future financings or partnerships. Management cautioned that financing may not be available on acceptable terms; equity or convertible financing could dilute shareholders, while collaborations could require relinquishing product or technology rights. Failure to secure funding or perform under the BMGF grant could force program delays, scope reductions, cancellations, or further downsizing.
- A Wyeth license milestone, accrued in expenses, was due in connection with a qualifying Phase 3 trial outside India, but no later than December 31, 2017. The filing describes the payment as approximately $3 million, increased slightly over time; verify the final amount and payment status.
- The filing added a risk that failure to meet Nasdaq listing requirements, including the $1 minimum closing bid-price requirement, could lead to delisting, harm liquidity and capital-raising ability, and trigger a fundamental-change provision under the notes.
Most important facts for investors to verify
- Current cash runway and subsequent financing needs, including the terms and dilution from at-the-market share sales after September 30, 2017.
- Prepare trial enrollment, timing, and any subsequent efficacy or safety updates; the planned informational analysis was not to be publicly disclosed.
- Implications of the Resolve Phase 3 failure and the evidence and design for any proposed higher-risk RSV studies.
- Performance conditions, remaining availability, and reimbursement timing under the BMGF grant, as well as any remaining HHS BARDA audit adjustments.
- Payment and final amount of the Wyeth milestone, and the company’s compliance with Nasdaq listing requirements.
- Convertible-note terms and potential share dilution: the notes were initially convertible into approximately 47.7 million shares, subject to their terms; diluted shares were excluded from reported loss per share as antidilutive.