Inovio Pharmaceuticals, Inc. — Q2 2017 Form 10-Q
Reporting period: Three and six months ended June 30, 2017; unaudited. Inovio is a clinical-stage biotechnology company developing DNA immunotherapies, vaccines and electroporation delivery devices. It had no approved products or product-sale revenue.
Financial performance and liquidity
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Total revenue | $20.4 million | $6.2 million | $30.8 million | $14.3 million |
| Operating loss | $9.6 million | $18.2 million | $31.6 million | $33.7 million |
| Net loss attributable to Inovio | $9.5 million | $18.7 million | $32.6 million | $26.7 million |
| Loss per share, basic and diluted | $0.13 | $0.26 | $0.44 | $0.37 |
- Revenue growth was primarily collaboration revenue: In Q2, $14.2 million was recognized from MedImmune, including $13.8 million of previously deferred amounts after MedImmune selected its first research-collaboration cancer candidate. Six-month collaboration revenue also benefited from Roche-related revenue.
- Q2 research and development expense was $23.9 million, up from $19.6 million; six-month expense was $48.4 million, up from $37.8 million. General and administrative expense was $6.2 million for Q2 and $13.9 million for six months, also higher year over year.
- The six-month net loss increased despite a narrower operating loss, in part because the prior-year period included a $6.8 million gain on an affiliated investment; the 2017 period recorded a $1.4 million loss on that investment.
- Cash and cash equivalents were $23.9 million and short-term investments were $68.1 million at June 30, totaling $92.0 million. Working capital was $79.5 million, versus $80.8 million at year-end 2016. Total assets were $158.9 million and total liabilities $35.3 million. The filing does not report interest-bearing debt.
- Net cash used in operating activities was $31.9 million for the first half, versus $29.0 million in 2016. Investing activities provided $11.7 million, and financing activities provided $24.9 million, including $24.1 million net proceeds from ATM stock sales.
Material changes and developments
- In June, Inovio began actively recruiting for the Phase 3 VGX-3100 trial for HPV-related cervical precancer after the FDA removed a clinical hold following information submitted on the CELLECTRA 5PSP device.
- On July 25, 2017, after quarter-end, Inovio completed an offering of 12.5 million shares at $6.00 per share, generating approximately $70.2 million net proceeds; underwriters also received a 30-day option for up to 1.875 million additional shares.
- At June 30, the company had sold 2.9 million shares under its ATM program during the first half for $24.1 million net, with approximately $19.0 million of program capacity remaining.
- Future minimum operating lease payments were $39.6 million, including a new San Diego facility and a Plymouth Meeting sublease and lease extension.
Outlook, commentary and risks
- Management stated that cash and short-term investments were expected to fund planned working-capital requirements for at least 12 months from the report date. The company nevertheless expects substantial continuing losses and has an accumulated deficit of $467.7 million.
- All product candidates remain in research and development; management did not provide a quantified revenue or earnings forecast. It expects no product-sale revenue for at least several years.
- Key risks include clinical-trial delays or failure, regulatory approval and manufacturing uncertainty, dependence on a small number of collaboration and government-funding sources, future financing needs and potential shareholder dilution.
- The ApolloBio VGX-3100 China-region license and related equity purchase remained subject to corporate, currency and regulatory approvals. If conditions are not met, Inovio would not receive the contemplated $15 million upfront license payment or up to $35 million equity proceeds, and would need another partner to access those markets.
- Revenue timing is uneven and depends on grants, collaboration work and contingent events. The filing also highlights risks relating to collaborator performance, intellectual property, competition, reimbursement and stock-price volatility.
- No material litigation was reported. Management concluded disclosure controls were effective as of June 30, 2017, and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Progress, enrollment and interim results for the Phase 3 VGX-3100 program, including any further regulatory or device-related requirements.
- Whether the ApolloBio agreements receive all required approvals and become effective, and the associated timing, proceeds, dilution and territorial rights.
- Cash burn relative to available liquidity, including the effect of the July offering and ongoing clinical-trial and facility spending.
- Future collaboration and grant revenue timing, especially MedImmune, Roche and government-funded programs, and whether revenue is repeatable rather than driven by one-time recognition.
- Share count and dilution from ATM sales, the July offering, equity compensation and any ApolloBio share purchase.