Novavax, Inc. — Form 10-Q summary
Reporting period: Three and six months ended June 30, 2014; filed August 7, 2014. Novavax was a clinical-stage biopharmaceutical company developing recombinant nanoparticle vaccines and adjuvants, with programs in RSV and seasonal and pandemic influenza. Financial figures below are in U.S. dollars; millions are rounded.
Financial results
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Revenue | $8.3 million | $3.5 million | $15.7 million | $7.4 million |
| Cost of government-contract revenue | $5.1 million | $1.6 million | $8.1 million | $3.3 million |
| Research and development | $15.2 million | $10.8 million | $29.7 million | $20.0 million |
| General and administrative | $5.8 million | $4.0 million | $10.1 million | $6.9 million |
| Operating loss | $(17.9) million | $(12.9) million | $(32.2) million | $(22.9) million |
| Net loss | $(17.9) million | $(12.6) million | $(31.7) million | $(22.6) million |
| Basic and diluted loss per share | $(0.08) | $(0.08) | $(0.15) | $(0.15) |
| Cash used in operating activities | Not provided for quarter | Not provided for quarter | $(31.4) million | $(18.2) million |
Revenue growth reflected increased activity under the HHS BARDA influenza contract and PATH RSV collaboration. R&D spending and contract costs also rose with clinical-trial and manufacturing work. Management attributed higher R&D costs in part to employee-related expenses. The filing does not provide a clear gross-margin or operating-margin measure.
Financial position and liquidity
- At June 30, 2014, cash and cash equivalents were $103.9 million and investments were $105.0 million, for combined cash and investments of $208.8 million, versus $133.1 million at December 31, 2013.
- Working capital was $149.1 million. Total assets were $312.0 million and stockholders’ equity was $281.7 million.
- Total liabilities were $30.3 million. Notes payable totaled approximately $1.5 million and capital leases approximately $0.3 million; the company reported no material debt.
- Six-month investing cash outflow was $93.1 million, mainly reflecting purchases of investments; financing cash inflow was $108.9 million, primarily from a June public offering. Cash and cash equivalents ended the period at $103.9 million, down from $119.5 million at year-end.
- The June offering sold 28.75 million shares at $4.00 per share and generated approximately $108 million net. Common shares outstanding were 238.4 million as of July 31, 2014.
Material changes and operating developments
- For the first six months, revenue increased 113% and net loss widened by $9.0 million year over year. Weighted-average shares rose substantially, while reported loss per share remained unchanged.
- Novavax completed its purchase of the remaining 0.5% of Novavax AB, making it wholly owned. Goodwill was reduced by $0.8 million retrospectively based on updated acquisition-date information.
- HHS BARDA’s $97 million base-period contract was extended seven months through September 2014. The company was discussing potential modifications to continue development activities and funding beyond that date; the contract also includes a $79 million optional two-year period.
- HHS BARDA development priorities shifted to the H7N9 pandemic vaccine, with a Phase 1/2 trial underway; H5N1 remained a potential, but not current, priority. The company expected H7N9 trial top-line data in Q3 2014.
- The RSV maternal-immunization Phase 2 dose-confirmatory trial reported favorable top-line tolerability and immune-response findings. Management expected to pursue RSV trials in pregnant women, the elderly and pediatric subjects, with trials anticipated in Q4 2014.
Outlook, risks and contingencies
- Management expected significantly higher 2014 revenue and government-contract costs as influenza clinical and product-development activity increased. It also expected higher R&D costs, capital expenditures in the second half, and G&A costs associated with Novavax AB and pre-commercialization work.
- Management believed available cash, investments, anticipated BARDA revenue and other resources would fund operating plans into 2016. Additional financing may be needed; the filing cautions that financing may not be available on acceptable terms and that equity financing would dilute shareholders. If funding or BARDA performance falls short, programs could be delayed, reduced or eliminated.
- BARDA reimbursements are subject to allowable-cost review and could be delayed or withheld. The company recorded $2.9 million of costs from an earlier seasonal-influenza trial as expense pending submission and BARDA approval of the related data and costs.
- A $3.0 million Wyeth milestone payment was expected in Q3 2014 following CPLB’s initiation of a Phase 3 H1N1 trial. Under the Cadila services agreement, a payment may be due if services purchased by March 31, 2015 are below $7.5 million; $4.1 million had been purchased through June 30, 2014.
- The company reported no material changes to its previously disclosed risk factors. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting. Revenue standard ASU 2014-09 was expected to take effect for the company in 2017; its impact was under evaluation.
Important facts for investors to verify
- Whether BARDA funding and contract terms continued beyond September 2014, and the timing and approval of reimbursements, including the $2.9 million trial costs.
- Subsequent H7N9 trial results and the expected Q4 2014 RSV and seasonal-influenza trial starts, including regulatory and manufacturing readiness.
- Cash burn relative to the stated runway into 2016, and any additional financing needs or dilution.
- Whether the $3.0 million Wyeth milestone was paid and whether Cadila services reached the contractual minimum before the March 2015 deadline.
- Clinical safety and efficacy evidence, regulatory pathways, and the ability to advance candidates from clinical development toward commercialization.