Inovio Pharmaceuticals, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2016. The unaudited interim financial statements are prepared under U.S. GAAP.
Business context
Inovio is a clinical-stage biopharmaceutical company developing DNA immunotherapies and vaccines with electroporation delivery devices for cancer and infectious diseases. It had no approved human products and reported no product-sale revenue; revenue came primarily from collaborations, grants and government contracts.
Financial performance and liquidity
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Total revenue | $12.5 million | $24.2 million | $26.9 million | $34.6 million |
| Research and development | $27.0 million | $16.1 million | $64.8 million | $42.2 million |
| General and administrative | $5.8 million | $4.4 million | $16.9 million | $13.2 million |
| Operating income (loss) | $(20.2) million | $3.7 million | $(53.9) million | $(19.8) million |
| Net income (loss) | $(20.8) million | $5.6 million | $(47.5) million | $(11.2) million |
| Basic loss per share | $(0.28) | $0.08 income | $(0.65) | $(0.17) |
- Cash flow: Cash used in operations was $47.7 million for the first nine months of 2016, versus $5.7 million in the comparable 2015 period. Investing activities provided $6.4 million; financing activities provided $6.9 million.
- Liquidity: At September 30, 2016, cash and cash equivalents were $23.3 million and short-term investments were $96.4 million, totaling $119.7 million. Working capital was $98.9 million, down from $140.4 million at year-end 2015.
- Balance sheet: Total assets were $194.5 million and total liabilities were $47.6 million. The balance sheet does not disclose an interest-bearing debt balance. Accumulated deficit was $408.6 million.
- Gross margin is not presented, and a conventional product margin is not meaningful given the company’s development-stage, collaboration- and grant-based revenue.
Material changes versus prior period
- Q3 revenue declined 48% year over year, largely because the 2015 quarter included recognition of revenue from MedImmune’s $27.5 million upfront payment. Nine-month revenue fell 22%, also reflecting prior-period Roche revenue recognized after partial termination and a Roche milestone.
- Grant and miscellaneous revenue rose to $19.6 million for the first nine months from $9.2 million, mainly due to higher DARPA Ebola grant revenue. DARPA contributed $17.6 million in the 2016 nine-month period.
- R&D expense rose 54% for the first nine months, reflecting grant-related and clinical-study activity, increased staffing and other development costs. G&A expense rose 28%. The company cited higher non-cash stock compensation as one contributor.
- Cash and short-term investments decreased $43.3 million from December 31, 2015. Operating cash use increased substantially year over year.
Outlook, management commentary, risks and unusual items
- Management said existing cash and short-term investments should fund planned working-capital requirements for at least the next 12 months, while expecting substantial operating losses to continue. The company stated it may need additional funding to develop and potentially commercialize products.
- On October 24, 2016, after quarter-end, the FDA placed the proposed VGX-3100 Phase III program on clinical hold, requesting additional data supporting the shelf-life claim for a disposable device component. No subjects had been enrolled or dosed. Inovio estimated a delay until the first half of 2017, subject to resolving the FDA’s request.
- Roche notified Inovio in July 2016 that it would discontinue development of INO-1800; termination became effective in October, and rights returned to Inovio. Inovio planned to continue developing the hepatitis B candidate independently.
- In April 2016, Inovio acquired Bioject assets for $5.5 million: $4.3 million in stock and $1.2 million in cash. The preliminary allocation included $5.1 million of intangible assets and $0.4 million of goodwill.
- In October 2016, Inovio entered a 10-year San Diego lease for approximately 51,000 square feet. Disclosed future minimum operating-lease payments across leases totaled $26.5 million as of October 10, 2016.
- The company had an ATM equity program of up to $50 million and sold 568,248 shares for $5.5 million net proceeds through September 30. It reported no material litigation and stated disclosure controls were effective.
- Key risks include continued losses, clinical and regulatory uncertainty, financing needs and potential dilution, reliance on a limited number of collaborators and government funding, and manufacturing and intellectual-property risks.
Important facts for investors to verify
- Whether and when the FDA’s VGX-3100 clinical hold is resolved, and the resulting Phase III timetable and costs.
- Cash burn, investment balances and financing needs against management’s stated 12-month liquidity outlook.
- Future DARPA and other grant funding, and the concentration and timing of collaboration revenue after Roche’s exit.
- Bioject acquisition accounting, the preliminary purchase-price allocation, and costs associated with the new lease and expansion plans.
- Potential share dilution from the ATM program, stock-based awards and other equity instruments.