Novavax, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016. Novavax is a clinical-stage vaccine company developing recombinant nanoparticle vaccines and adjuvants; it reported no commercial product sales in the period.
Financial performance and position
| Metric | Q1 2016 | Q1 2015 / prior period |
|---|---|---|
| Revenue | $4.2 million | $9.9 million; down 57% |
| Research and development expense | $69.0 million | $28.3 million; up 143% |
| General and administrative expense | $10.5 million | $5.8 million; up 80% |
| Operating loss | $75.3 million | $24.3 million |
| Net loss / loss per share | $77.3 million / $0.29 | $24.4 million / $0.10 |
| Operating cash used | $69.8 million | $30.5 million |
| Cash and marketable securities | $433.9 million | $230.7 million at December 31, 2015 |
| Working capital | $413.5 million | Prior comparable figure not provided |
Revenue was mainly from the HHS BARDA contract and the Bill & Melinda Gates Foundation grant. Lower BARDA activity and the absence of $3.1 million of prior-year revenue related to a seasonal influenza trial drove the decline; grant revenue partly offset it. The company remained loss-making, and reported no gross margin measure. R&D growth reflected RSV vaccine trials and development, staffing, and related costs; G&A growth included personnel and pre-commercialization spending.
At quarter-end, total assets were $592.5 million, total liabilities $407.1 million, and stockholders’ equity $185.4 million. The balance sheet included $315.3 million carrying value of convertible notes, versus no convertible notes at year-end 2015. Cash and cash equivalents were $132.2 million, and current and noncurrent restricted cash totaled $36.1 million.
Cash flow included $278.4 million provided by financing, principally from the convertible note issuance, and $169.4 million used in investing, largely reflecting purchases of marketable securities. The $69.8 million operating cash use is a more direct indicator of operating cash consumption than the investing cash flow. Capital expenditures were $5.5 million.
Material changes, outlook, and risks
- Financing and potential dilution: In Q1, Novavax issued $325 million of 3.75% senior unsecured convertible notes due February 2023, receiving approximately $315 million net proceeds before capped-call costs. Initial conversion price was about $6.81 per share, representing approximately 47.7 million shares at the initial conversion rate. The company spent $38.5 million on capped-call transactions intended to reduce dilution up to a $9.73 share price; dilution may remain above that cap.
- Cash outlook: Management said cash, marketable securities, expected BARDA and grant revenue, and other resources were sufficient to fund operating plans for at least 12 months. Further capital may be needed; financing may be unavailable or dilutive, and programs could be delayed, reduced, or discontinued.
- Spending and capital investment: Management expected significant increases in 2016 R&D expense and higher G&A expense, including costs supporting RSV development and anticipated commercialization. Capital expenditures were expected to be significantly higher than in 2015; positive older-adult Phase 3 data could prompt additional manufacturing investment.
- Development milestones: Top-line data from the RSV older-adult Phase 3 Resolve trial were expected in Q3 2016; top-line data from the older-adult rollover trial were expected in the second half of 2016. The maternal-immunization Phase 3 Prepare trial was underway, supported by a BMGF grant of up to $89.1 million, and was expected to take two to four years. A Phase 1 combination influenza/RSV trial was expected in the first half of 2017.
- Collaborator and contract exposure: The BARDA contract was scheduled to run through September 2016; continuation or extension was not assured, and management was discussing future development plans. BARDA costs and billings are subject to government audit; the 2013–2014 audit had begun but was incomplete, and amounts could be adjusted.
- Other obligations and contingencies: A Wyeth license milestone, originally accrued in 2014, was due in connection with initiation of an outside-India seasonal influenza Phase 3 trial, but no later than December 31, 2017; seasonal program milestone payments could total up to $15 million. In May 2016, after quarter-end, the company signed a new Gaithersburg lease for approximately 150,000 square feet through 2030, with annual rent of about $3.3 million after abatement through November 2017, 2.5% annual increases, operating costs, and a $9.6 million tenant-improvement allowance. Future minimum lease payments, including the new lease, were stated as $81.9 million.
- Other risks: Vaccine candidates require further clinical testing and regulatory approval. The filing said risk factors were not materially changed from the 2015 Form 10-K. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Investor verification priorities
- Check Resolve Phase 3 results and subsequent regulatory or development updates; the filing’s Q3 2016 timing was forward-looking.
- Verify BARDA contract status after September 2016, future funding, and resolution of the pending government audit.
- Track operating cash use, R&D and capital spending, and whether management’s stated minimum 12-month funding runway remained adequate.
- Review the convertible notes’ conversion and capped-call terms, potential dilution, and the company’s ability to meet future financing needs.
- Confirm the timing and expense implications of the Wyeth milestone, BMGF grant reimbursements, and the post-quarter new lease commitments.