Novavax, Inc. — 2018 Q1 Form 10-Q
Business context and period. Clinical-stage biotechnology company developing recombinant nanoparticle vaccines and adjuvants, with lead programs targeting RSV and influenza. This unaudited report covers the three months ended March 31, 2018; comparisons are with Q1 2017 unless noted. The company reported one business segment.
Financial results and liquidity
| Metric | Q1 2018 | Q1 2017 / prior date |
|---|---|---|
| Revenue | $9.7 million | $5.7 million |
| Research and development expense | $44.5 million | $37.7 million |
| General and administrative expense | $8.7 million | $8.9 million |
| Operating loss | $43.5 million | $40.8 million |
| Net loss | $46.4 million; $0.14 per share | $43.9 million; $0.16 per share |
| Cash used in operating activities | $66.1 million | $44.5 million |
| Cash, cash equivalents, marketable securities and restricted cash | $164.2 million at March 31 | $186.4 million at December 31, 2017 |
Revenue was primarily from the Bill & Melinda Gates Foundation (BMGF) grant, including $9.3 million recognized under that agreement in Q1. No gross margin is reported; the filing does not present a conventional product-sales margin measure. Total expenses rose 14%, mainly from higher R&D spending. The larger net loss reflected that spending, partly offset by higher grant revenue. Loss per share improved as weighted-average shares increased to 337.0 million from 274.2 million.
At March 31, cash and cash equivalents were $113.4 million, marketable securities $30.4 million, and restricted cash $20.4 million. Working capital was $136.1 million. Convertible notes had $325 million principal outstanding, a $318.1 million carrying amount after unamortized issuance costs, and mature February 1, 2023; coupon rate is 3.75%. The company reported a stockholders’ deficit of $99.4 million.
Material changes and notable items
- Revenue increased 70% year over year, with grant revenue up mainly because of increased enrollment in the Prepare RSV trial.
- R&D expense increased 18% to $44.5 million, primarily reflecting development of the RSV vaccine for infants through maternal immunization. Clinical and regulatory costs rose to $23.1 million from $17.3 million.
- Operating cash use increased by $21.6 million. Management attributed much of the increase to about $16 million of one-time payments, including a $5.3 million facility lease termination fee, the Wyeth license milestone payment, and annual bonuses. Cash from financing included $42.6 million of net common-stock proceeds.
- In April 2018, Novavax completed a public offering of 34.85 million shares at $1.65 per share, generating approximately $53.9 million net. Pro forma cash, cash equivalents, marketable securities and restricted cash at March 31, including those proceeds, would have been $218.1 million.
- The company terminated its 1201 Clopper Road lease in January; total Q1 expense associated with termination was $0.9 million after offsets. It paid the Wyeth milestone in Q1 and gave notice in April of intent to terminate the license.
Outlook, commentary and risks
- Management expected 2018 grant revenue to exceed 2017 levels and R&D expense to increase, primarily due to RSV and other vaccine development. G&A was expected to increase slightly.
- Management stated that existing capital, anticipated BMGF grant revenue, and April offering proceeds were expected to fund operating plans for at least 12 months from the filing date. This depends in part on grant performance and does not assure financing beyond that period.
- For the Prepare Phase 3 maternal-immunization trial, Novavax expected an interim efficacy analysis and data in Q1 2019. If results were successful, it planned to conclude the trial and submit U.S. and European applications by Q1 2020. The filing also reported approximately 4,600 women enrolled by May 2018, with at least 3,000 actively vaccinated.
- The company reported positive top-line Phase 1/2 NanoFlu results in older adults and expected to begin a Phase 2 quadrivalent trial in Q3 2018. These are company-reported clinical results and plans, not regulatory conclusions.
- Prior Phase 3 RSV older-adult Resolve results did not meet primary or secondary efficacy objectives. Novavax said it did not expect to begin further older-adult trials in 2018 without additional funding.
- Risks include clinical and regulatory uncertainty, substantial ongoing development costs, dependence on grant payments and external capital, potential dilution from equity financing, and the possibility that financing may not be available on acceptable terms. If funding or grant performance is insufficient, programs could be delayed, reduced or discontinued. The filing reported no material changes to the risk factors in the 2017 Form 10-K.
Important facts for investors to verify
- Prepare trial enrollment, interim-analysis timing and results, and the assumptions behind any future regulatory filing schedule.
- Cash burn, restricted-cash availability, grant reimbursement and performance conditions, and whether the stated 12-month runway remains adequate.
- Further financing needs and dilution, including remaining capacity under the at-the-market sales agreement and the impact of the April offering.
- Clinical evidence and development plans for NanoFlu and RSV programs, particularly given the unsuccessful Resolve Phase 3 efficacy trial.
- Amounts and timing of remaining obligations, including the convertible notes and commitments under the BMGF access agreement.