Novavax, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2011. Novavax is a clinical-stage vaccine developer focused on virus-like particle and recombinant nanoparticle vaccines, including candidates for influenza and respiratory syncytial virus (RSV). The interim financial statements are unaudited.
Financial results and liquidity
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Revenue | $5.0 million | $0.2 million | $8.8 million | $0.3 million |
| Research and development | $6.2 million | $7.9 million | $17.2 million | $23.2 million |
| General and administrative | $2.7 million | $2.8 million | $8.9 million | $8.5 million |
| Operating loss | $4.0 million | $10.5 million | $17.3 million | $31.5 million |
| Net loss | $3.2 million | $10.2 million | $15.7 million | $29.4 million |
| Net loss per share | $0.03 | $0.10 | $0.14 | $0.29 |
- Revenue was primarily for work performed under the HHS BARDA influenza-vaccine contract. Gross profit and gross margin are not separately reported.
- At September 30, 2011, cash and cash equivalents were $14.3 million and short-term investments were $5.3 million, totaling approximately $19.6 million. Working capital was $19.5 million; total assets were $67.1 million and stockholders’ equity was $54.6 million.
- Operating cash use for the first nine months was $20.8 million, compared with $27.0 million in 2010. Investing activities provided $17.7 million, mainly reflecting net investment maturities; financing provided $9.3 million, primarily from stock sales. Cash increased by $6.3 million during the period.
- Notes payable totaled $0.34 million; management said the company had no material debt. The $0.87 million warrant liability is a separate balance-sheet item. The $2.0 million nine-month gain from changes in warrant fair value was noncash.
Changes versus the prior comparable period
- Revenue rose sharply from a small base following commencement of BARDA contract work. Management attributed lower net losses to this revenue and reduced R&D spending.
- Nine-month R&D expense fell 26%, mainly because of lower outside testing and clinical-trial-related costs. Q3 R&D declined 21% year over year.
- Nine-month G&A increased 5%, largely due to employee-related and severance costs, partly offset by lower professional fees.
- Novavax raised $9.2 million net through its at-market stock sales in the first nine months, versus $22.1 million in the comparable 2010 period. Weighted-average shares increased, primarily due to these sales.
- Cash and cash equivalents increased from $8.1 million at December 31, 2010, while short-term investments declined from $23.6 million to $5.3 million. The filing reports $0.9 million of unrealized gains on auction-rate securities in accumulated other comprehensive income.
Outlook, risks and unusual items
- Management expected significant 2011 revenue from BARDA and believed available resources, anticipated BARDA receipts, possible at-market stock-sale proceeds and current operations would fund planned operations for at least 12 months. This outlook depends on contract performance and access to capital; further funding will be needed for development, manufacturing and commercialization.
- The BARDA award provides up to $97 million for a 36-month base period, with an $82 million option for an additional 24 months. Reimbursement is subject to allowable-cost limits, indirect-rate audits and contract performance.
- As of the filing, candidates included pandemic and seasonal influenza programs in Phase II and RSV in Phase I. The RSV Phase I trial’s positive interim top-line results were presented in October 2011, after the quarter; management said it would assess the results before deciding whether to begin Phase II. Planned influenza trials included a Phase I H5N1 trial expected in early 2012 and a seasonal-influenza Phase II trial expected in Q1 2012.
- Key risks include clinical safety and efficacy, regulatory approval, manufacturing scale-up, market acceptance, competition, dependence on third parties and the need for future financing. No vaccine candidate had received regulatory approval for sale. If BARDA performance or financing is inadequate, the company may need to delay or reduce programs or downsize.
- Under the amended Cadila master services agreement, if services purchased by March 2013 are below $7.5 million, Novavax may owe part of the shortfall under specified terms. Only $0.2 million of services had been purchased through September 30, 2011.
- Novavax settled collection actions against two former directors in September 2011: the lawsuits were dismissed and pledged shares were surrendered. The related $1.572 million notes receivable were eliminated through a reduction to equity.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The filing reported no material changes to the risk factors in the 2010 Form 10-K.
Important facts for investors to verify
- BARDA contract execution, allowable-cost recovery, audit outcomes and the timing of receipts supporting the stated 12-month liquidity outlook.
- Cash burn, remaining liquidity and any future equity issuance, including dilution from the at-market sales agreement.
- RSV Phase I full results and any decision to initiate Phase II, plus the timing and progress of planned influenza trials.
- Liquidity and recoverability of the auction-rate securities, including the reported fair value and unrealized gains.
- Potential Cadila shortfall payments and future development, manufacturing and commercialization funding needs.