Novavax, Inc. — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014. Novavax is a clinical-stage biopharmaceutical company developing recombinant nanoparticle vaccines and adjuvants; it reported one business segment and had no commercial product sales. Results include Novavax AB, acquired in July 2013.
Financial performance and liquidity
| Metric | Q1 2014 | Q1 2013 / prior date |
|---|---|---|
| Total revenue | $7.5 million | $3.8 million |
| Operating loss | $14.4 million | $10.0 million |
| Net loss | $13.8 million; $0.07 per share | $10.0 million; $0.07 per share |
| Operating cash flow | $(20.4) million | $(10.6) million |
| Cash and cash equivalents | $109.9 million | $119.5 million at Dec. 31, 2013 |
| Cash, cash equivalents and investments | $112.8 million | $133.1 million at Dec. 31, 2013 |
| Working capital | $115.2 million | Not stated for the comparable date |
Amounts are in U.S. dollars. Government-contract revenue was $5.5 million and collaboration revenue was $2.0 million. Cost of government-contract revenue was $3.0 million; research and development expense was $14.5 million and general and administrative expense was $4.3 million. The filing does not present an overall gross margin measure. Interest income was $0.01 million, interest expense $0.05 million, and a $0.6 million realized gain on investment sales contributed to other income.
At March 31, total liabilities were $27.5 million. Notes payable were approximately $1.7 million and capital-lease obligations approximately $0.3 million, including current and non-current portions. Management said the company had adequate capital to fund its operating plans into 2016, based on cash and investments, anticipated BARDA revenue and other resources; further capital may be needed.
Material changes versus Q1 2013
- Revenue increased 95%, primarily from greater HHS BARDA activity on H7N9 and seasonal influenza development and increased PATH-funded RSV trial activity; $0.8 million of revenue came from Novavax AB.
- Total costs and expenses rose $8.0 million to $21.8 million. R&D increased 57%, including $1.8 million attributed to Novavax AB and higher employee and facility costs. G&A increased 50%, reflecting acquisition-related costs, professional fees and employee costs.
- Net loss increased $3.8 million. The per-share loss remained $0.07, while weighted-average shares increased to 208.9 million from 148.4 million, primarily due to 2013 stock sales and shares issued for the Isconova acquisition.
- Operating cash use increased $9.8 million. Cash and investments declined $20.3 million from year-end; operating cash use was partly offset by investment maturities and financing proceeds, mainly employee stock-plan activity.
Outlook, developments and risks
- Management expected a significant increase in 2014 revenue and government-contract costs as HHS BARDA-supported clinical and development work expanded. It also expected higher R&D, particularly for RSV, and higher G&A from a full year of Novavax AB costs and pre-commercialization activities. Capital expenditures were expected to be consistent with 2013.
- HHS BARDA extended the $97 million base period of its influenza contract by seven months, through September 2014, to permit access to remaining base-period funding. A further two-year option is valued at $79 million. Development priority shifted from H5N1 to H7N9; H5N1 remained a possible future opportunity. The U.S. H7N9 Phase 1/2 trial began in Q1, with top-line data expected in the second half of 2014.
- RSV maternal-immunization development included a Phase 2 trial in 720 women of childbearing age. After reporting favorable top-line immunogenicity and tolerability data in April 2014, the company requested an FDA Type C meeting and expected to start a Phase 2 trial in pregnant women in Q4 2014. A seasonal quadrivalent influenza Phase 2 trial was also expected in Q4 2014. Management said a traditional efficacy pathway for seasonal influenza could add a year or more before licensure compared with an accelerated pathway.
- Funding and reimbursement uncertainties include possible delays or withholding of BARDA reimbursements and a $2.9 million cost from an earlier seasonal influenza trial that could be submitted for reimbursement only after a future Quadrivalent IND submission. Government indirect-cost billings remain subject to audit.
- Potential obligations include up to $7.6 million unpaid under certain outside-provider agreements if services are completed; a possible $3.0 million Wyeth milestone if a seasonal influenza Phase 3 trial begins; a $0.3 million expected sublicense payment; and a potential Cadila services shortfall payment if purchases are below $7.5 million by March 2015. Through March 31, $3.4 million of Cadila services had been purchased.
- Key business risks include clinical-trial outcomes and timing, manufacturing scale-up, regulatory approval, reliance on collaborations and BARDA, competition, intellectual-property protection, and the ability to obtain additional financing. Equity financing could dilute shareholders; the company warned that inability to perform under BARDA or raise capital could require it to delay, reduce or discontinue programs or downsize.
Important facts for investors to verify
- Whether BARDA funding and reimbursements continue as expected, including access to remaining base-period funds and any later option period.
- H7N9 trial data expected in the second half of 2014, and the timing and results of planned RSV and seasonal influenza trials.
- Whether the stated cash runway into 2016 remains achievable as operating cash use and development spending increase.
- Potential timing and amounts of the Wyeth milestone, Cadila shortfall, outside-provider commitments, and recovery of the $2.9 million trial costs.
- Further share issuance and dilution: approximately $15 million remained available under the at-the-market sales agreement at quarter-end; 209.3 million common shares were outstanding on April 30, 2014.