Novavax, Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; filed May 8, 2017. Novavax is a clinical-stage biotechnology company developing recombinant nanoparticle vaccines and adjuvants. Its lead program was an RSV vaccine, including a Phase 3 trial in infants via maternal immunization.
Financial performance
Amounts below are in millions of dollars, except per-share data.
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Revenue | $5.7 | $4.2 |
| Research and development expense | $37.7 | $69.0 |
| General and administrative expense | $8.9 | $10.5 |
| Operating loss | $(40.8) | $(75.3) |
| Net loss | $(43.9) | $(77.3) |
| Net loss per share | $(0.16) | $(0.29) |
| Net cash used in operating activities | $(38.6) | $(69.8) |
- Revenue rose 35%, primarily from increased BMGF grant activity as enrollment increased in the Prepare Phase 3 trial. This was partly offset by the expiration of the HHS BARDA contract in September 2016.
- R&D spending declined 45%, which management attributed mainly to lower RSV trial and development costs and fewer employees supporting R&D (302 at quarter-end, versus 410 a year earlier). G&A fell 16%, mainly due to lower professional fees.
- Gross margin is not presented as a meaningful metric in the filing; the company reports R&D and G&A expenses and operating losses.
Liquidity, cash flow and debt
- Cash and cash equivalents were $95.8 million and marketable securities were $115.3 million at March 31, 2017, totaling $211.2 million, down from $235.5 million at December 31, 2016. The filing reports working capital of $202.0 million. Restricted cash of $29.0 million is separately reported and is not equivalent to unrestricted cash.
- Cash and cash equivalents decreased by $48.5 million during the quarter. Investing activities used $25.3 million, largely reflecting purchases net of maturities of marketable securities; financing activities provided $15.4 million, including $14.6 million net proceeds from common-stock sales.
- Convertible notes had $325.0 million principal outstanding, with a $316.7 million balance-sheet carrying amount after unamortized issuance costs. The notes bear 3.75% cash interest and mature February 1, 2023; they are initially convertible into approximately 47.7 million shares.
- Management believed available cash, securities and anticipated BMGF grant revenue were sufficient to fund operating plans for at least 12 months from the filing date. It also cautioned that future capital may be needed and financing may not be available on acceptable terms.
Material changes, outlook and risks
- The Q1 net loss narrowed by $33.4 million year over year, primarily because of lower R&D spending. Operating cash use also fell by $31.2 million.
- Management expected 2017 grant revenue to be significantly higher than in 2016 as Prepare enrollment increased, and expected R&D, G&A and capital expenditures to decrease versus 2016. These are expectations, not guaranteed results.
- The Phase 3 Prepare trial was ongoing, with enrollment planned at 5,000–8,255 pregnant women and completion of enrollment expected to take three to four years. The company expected an informational analysis in late 2017, subject to discussions with FDA.
- Important clinical uncertainty: the older-adult Phase 3 Resolve trial did not meet its primary or secondary efficacy objectives and did not demonstrate vaccine efficacy. The company cited unexpectedly low RSV attack rates and said it was continuing analyses. Top-line data from a separate older-adult Phase 2 trial were expected in Q3 2017.
- The BMGF grant provides up to $89.1 million for RSV development and related activities; $5.5 million of grant revenue was recognized in Q1. The grant is subject to performance, and funds received in advance are restricted to eligible expenditures. Failure to perform or obtain additional capital could force program delays, reductions or eliminations and organizational downsizing.
- Novavax sold 10.7 million shares under its at-the-market agreement for $14.6 million net proceeds, at a weighted-average price of $1.43 per share, diluting existing holders. The filing added a risk that failure to meet Nasdaq’s $1 minimum closing bid requirement could lead to delisting and impair liquidity or fundraising.
- A Wyeth license milestone related to a seasonal influenza candidate was accrued and is due upon initiation of a Phase 3 trial outside India, but no later than December 31, 2017. The filing does not provide a clear current amount for the accrued milestone; it notes the original amount was $3 million and had increased slightly over time.
Key facts for investors to verify
- Progress, enrollment pace and any informational analysis from the Prepare Phase 3 trial, and the timing and results of the older-adult Phase 2 trial.
- Whether the company can maintain its stated liquidity runway as operating cash burn, grant receipts and trial spending evolve.
- Terms and availability of future financing, potential dilution, and Nasdaq bid-price compliance.
- Final timing and amount of the Wyeth milestone, and Novavax’s performance and eligible funding under the BMGF grant.
- Any new analysis or development decisions following the unsuccessful Resolve efficacy trial.