Novavax, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; balance-sheet figures are as of March 31, 2013, compared with December 31, 2012. Novavax is a clinical-stage biopharmaceutical company developing recombinant protein nanoparticle vaccines, including candidates for influenza and RSV.
Financial results and liquidity
| Metric | Q1 2013 | Q1 2012 / comparison |
|---|---|---|
| Revenue | $3.8 million | $4.6 million; down 17% |
| Operating loss | $10.0 million | $7.5 million loss |
| Net loss | $10.0 million; $0.07 per share | $7.3 million; $0.06 per share |
| Operating cash flow | $(10.6) million | $(4.2) million |
| Cash and cash equivalents | $9.0 million | $17.4 million at Dec. 31, 2012 |
| Investments | $36.4 million | $32.9 million at Dec. 31, 2012 |
| Working capital | $42.5 million | — |
Operating loss equaled approximately 261% of revenue. Total costs and expenses were $13.8 million, up $1.7 million year over year. Research and development rose 77% to $9.4 million, mainly due to RSV clinical trials and employee costs; general and administrative expense fell 10% to $2.7 million. Cost of government-contract revenue declined 55% to $1.7 million. The filing does not present a conventional operating-margin measure.
Cash and investments totaled $45.4 million at quarter-end. Investing activities used $5.0 million, including $1.5 million of capital expenditures; financing provided $7.2 million, including $6.4 million of net proceeds from stock sales. Total liabilities were $21.1 million. Notes payable were approximately $1.7 million and capital-lease obligations approximately $0.3 million.
Material changes and business developments
- Revenue decreased $0.8 million year over year, primarily because there was less influenza clinical-trial activity under the HHS BARDA contract; PATH collaboration revenue partly offset the decline.
- Net loss increased $2.7 million, primarily reflecting higher R&D spending. Weighted-average shares outstanding rose to 148.4 million from 120.6 million.
- Q1 stock sales raised $6.4 million net. From April 1 through May 7, the company sold an additional 1.3 million shares for $3.2 million net proceeds.
- HHS BARDA notified Novavax in January that support for its vaccine advanced-development contract would continue after an in-process review. The contract provides for up to $179 million across its three-year base period and optional two-year period.
- In April 2013, Novavax reported top-line Phase II RSV results in women of childbearing age: the trial met protocol objectives, the candidate was generally well tolerated, and alum-adjuvanted groups showed stronger antibody responses. Elderly-trial results were expected later in the first half of 2013.
Outlook, risks and unusual items
- Management expected a slight increase in 2013 revenue from increased HHS BARDA product-development activity; government-contract costs were expected to remain flat. R&D expense was expected to increase significantly, G&A to remain relatively flat, and capital expenditures to decrease as manufacturing-facility scale-up work approached completion.
- Management said available resources, anticipated BARDA revenue, possible ATM proceeds and current operations were expected to fund planned operations for approximately 24 months. This outlook depends on contract performance, collection of reimbursements and access to capital; further funding will be needed for development and commercialization.
- About $3.0 million of outside costs for the 205 seasonal-influenza trial had been incurred by March 31 and expensed. Under discussions with BARDA, reimbursement and revenue recognition may be deferred until data are submitted with a future Quadrivalent IND. The next Phase II trial was delayed while Novavax worked to improve the response to one strain.
- The PATH agreement was due to expire July 31, 2013 unless extended. If PATH elects to continue funding half of external RSV-development costs but Novavax stops development, PATH may receive a fully paid license for use in pregnant women in specified low-resource countries.
- Novavax disclosed $4.2 million of unpaid amounts under certain outside-provider agreements if services are completed in 2013; the company may terminate for convenience but must pay costs incurred through termination. A Cadila services agreement may require a payment if qualifying services fall short of $7.5 million by March 2014.
- Other key risks include clinical safety and efficacy, regulatory approval, manufacturing scale-up, market acceptance, BARDA reimbursement timing, and the need for additional financing. The filing reported no material change to the risk factors in the 2012 Form 10-K.
- The $0.3 million warrant liability related to warrants still outstanding at quarter-end; the warrants were exercisable through July 31, 2013. The company also reported that disclosure controls were effective and that no material change in internal control occurred during Q1.
Important facts for investors to verify
- Whether BARDA reimburses the 205-trial costs and the timing of the Quadrivalent IND and follow-on Phase II trial.
- Cash use, clinical-trial spending and whether the stated approximately 24-month funding outlook remains supportable.
- Subsequent RSV elderly-trial results and the timing and scope of further RSV trials, including any PATH extension.
- Further ATM share issuance, associated dilution, and the company’s remaining financing needs.
- Potential Cadila shortfall payments, provider commitments, and obligations under facility leases and equipment financing.