Novavax, Inc. — 2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016. The filing also provides unaudited fourth-quarter results. Novavax is a clinical-stage biotechnology company developing recombinant nanoparticle vaccines and adjuvants; it had no approved Novavax vaccine products.
Financial performance and liquidity
| Metric | 2016 | 2015 |
|---|---|---|
| Revenue | $15.4 million | $36.3 million |
| Research and development expense | $237.9 million | $162.6 million |
| General and administrative expense | $46.5 million | $30.8 million |
| Net loss | $280.0 million | $156.9 million |
| Net loss per share | $1.03 | $0.60 |
| Cash used in operating activities | $255.5 million | $126.1 million |
| Cash, cash equivalents and marketable securities at year-end | $235.5 million | $230.7 million |
| Working capital at year-end | $221.4 million | $210.8 million |
Revenue fell 58%, mainly because HHS BARDA activity declined and 2015 included a $7.7 million indirect-cost recovery and $3.1 million related to a prior influenza trial. The decrease was partly offset by higher BMGF grant revenue. Research and development expense rose 46%, primarily from RSV trials and staffing; total expenses increased to $284.5 million. The company has incurred losses since inception; accumulated deficit was $930.0 million.
Fourth quarter, unaudited: Revenue was $5.4 million and net loss was $57.1 million, or $0.21 per share, compared with revenue of $5.9 million and net loss of $78.8 million, or $0.29 per share, in Q4 2015.
Year-end total assets were $394.3 million and total liabilities were $399.8 million, leaving stockholders’ equity in deficit by $5.5 million. The company reported $316.3 million of convertible notes net of issuance costs (principal $325 million), bearing 3.75% interest and due in 2023. It paid $38.5 million for capped-call transactions intended to reduce conversion dilution. Restricted cash totaled approximately $34.9 million. Capital expenditures were $18.2 million.
Material changes and developments
- The Phase 3 Resolve trial of the RSV vaccine in older adults did not meet its primary or secondary efficacy objectives and did not demonstrate vaccine efficacy. RSV attack rates were unexpectedly low during the mild 2015–2016 season. The vaccine was reported as well tolerated; further analyses were ongoing.
- Following Resolve results, Novavax announced a restructuring in November 2016, including an approximately 30% workforce reduction and $3.6 million in one-time costs; $1.1 million remained unpaid at year-end.
- The RSV maternal-immunization Prepare Phase 3 trial was ongoing. It was expected to take three to four years; the company discussed an informational analysis with FDA for late 2017. The trial was supported by a BMGF grant of up to $89.1 million, subject to global-access commitments.
- HHS BARDA’s influenza contract expired in September 2016. CPLB, the India joint venture in which Novavax owns 20%, reported limited sales of its authorized seasonal influenza vaccine and initiated a Phase 3 rabies vaccine trial.
Outlook, risks and other notable items
- Management expected 2017 revenue under the BMGF grant to be significantly higher than in 2016, and expected lower research and development expense, general and administrative expense, operating cash use and capital expenditures, reflecting restructuring, trial plans and delayed RSV commercialization timelines. These are directional expectations, not quantified guidance.
- Management stated that available cash and securities, anticipated grant revenue and other resources were expected to fund operating plans for at least 12 months from the filing date. It also warned that additional capital may be needed; financing might be unavailable or dilutive, or require licensing away program rights. A January 2017 at-the-market agreement authorized up to $75 million in gross common-stock sales; no sales had occurred as of the filing.
- Key execution risks include clinical and regulatory failure, manufacturing scale-up and supply constraints, competition, dependence on collaborators and grant funding, uncertain commercialization and reimbursement, and the need for future financing. The company had no product sales revenue sufficient to fund operations.
- Other items: contractual operating lease commitments totaled $81.3 million, and a $4.0 million Wyeth milestone payment was expected in 2017. Management and Ernst & Young reported effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and internal controls.
Most important facts for investors to verify
- Updated Resolve analyses and whether the subsequent older-adult Phase 2 study support a credible path forward for the RSV program.
- Prepare trial enrollment, FDA interactions, timing and eventual efficacy results; confirm grant reimbursement and remaining funding conditions.
- Actual cash burn, restricted-cash availability, financing needs and any use of the $75 million ATM facility.
- Convertible-note terms and potential dilution, alongside the company’s ability to service debt while operating at a loss.
- Delivery of management’s projected 2017 expense and cash-use reductions, plus lease and Wyeth milestone cash obligations.