INOVIO Pharmaceuticals, Inc. — Q3 2019 Form 10-Q
Business context and period. Clinical-stage biotechnology company developing DNA-based immunotherapies, vaccines and delivery devices for cancer and infectious diseases. This unaudited report covers the quarter and nine months ended September 30, 2019; the comparable periods are 2018. The company had no approved products and no product-sales revenue.
Financial performance and liquidity
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total revenue | $0.87 million | $2.00 million | $3.83 million | $27.98 million |
| Research and development expense | $19.14 million | $21.85 million | $66.01 million | $68.89 million |
| General and administrative expense | $5.68 million | $6.79 million | $18.51 million | $23.68 million |
| Operating loss | $(23.95) million | $(26.64) million | $(80.69) million | $(64.59) million |
| Net loss attributable to Inovio | $(23.09) million | $(25.02) million | $(81.70) million | $(64.01) million |
| Basic loss per share | $(0.23) | $(0.27) | $(0.83) | $(0.70) |
- Revenue fell sharply year over year, primarily because 2018 included ApolloBio’s one-time $23.0 million upfront payment. Q3 revenue also declined with lower AstraZeneca manufacturing-services revenue.
- Q3 operating loss narrowed year over year, but the nine-month operating loss and net loss increased. No meaningful positive profit margin was reported; the company remains loss-making.
- Nine-month operating cash use was $84.1 million, versus $56.3 million in 2018. Investing activities used $19.5 million; financing activities provided $95.8 million.
- At September 30, cash and cash equivalents were $15.9 million and short-term investments were $77.9 million, totaling $93.8 million. Working capital was $79.3 million. Management said available cash, cash equivalents and investments were sufficient for at least 12 months from the financial-statement issuance date; it also said additional capital would be needed to fund future R&D.
- Total assets were $151.5 million, total liabilities $115.4 million, and stockholders’ equity $36.1 million. Accumulated deficit was $702.1 million.
Material changes, outlook and risks
- In 2019, Inovio issued $78.5 million principal amount of 6.5% convertible senior notes due 2024, receiving net proceeds of $75.7 million, and approximately $15.0 million principal amount of Korean-won-denominated 1.0% convertible bonds due 2024, receiving net proceeds of $14.5 million. September 30 carrying amounts were $62.1 million for the notes and $8.0 million for the bonds. The bonds’ embedded conversion feature generated a $4.5 million derivative liability; related fair-value gain was $2.6 million for the quarter and nine months. Effective interest rates were 13.1% for the notes’ liability component and 29.4% for the bonds.
- In July, the company reduced its workforce by approximately 28%, discontinued the Phase 1/2 INO-5401 advanced bladder-cancer trial, and recorded $2.2 million of restructuring charges in Q3. Management cited expense reduction and cash conservation.
- Management expects continued operating losses and says the company may need further financing through collaborations, licensing, debt or equity. Additional financing may be unavailable or dilutive; without adequate funds, programs could be delayed, reduced or suspended. The filing gives no specific revenue or earnings guidance.
- Key risks include clinical and regulatory uncertainty, manufacturing and trial execution, reliance on collaborators and grants, limited revenue sources, competition, and financing needs. Convertible debt could require cash settlement or repurchase in specified circumstances and could dilute shareholders. The Korean bonds also expose the company to foreign-currency risk.
- As a subsequent event, Inovio sold 967,862 shares under its at-the-market program from October 1 through November 8, 2019, for $2.4 million net proceeds. Up to $68.5 million of additional share sales remained available under the agreement, subject to its conditions.
- The filing reports no material litigation and says disclosure controls were effective at the reasonable-assurance level as of September 30, 2019.
Most important facts for investors to verify
- Cash runway assumptions and the pace of operating cash use relative to the stated 12-month liquidity outlook.
- Clinical progress, timelines and funding for the remaining pipeline after the workforce reduction and INO-5401 trial discontinuation.
- Convertible-note and Korean-bond terms, potential cash obligations, conversion dilution and the bonds’ currency and derivative valuation risks.
- Revenue dependence on a small number of collaborators and grants, including the timing and continuation of milestone and grant funding.
- Subsequent at-the-market share issuance and the resulting dilution, alongside any further capital-raising plans.