Novavax, Inc. — Q3 2015 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2015; financial statements are unaudited. Novavax is a clinical-stage vaccine company focused on recombinant nanoparticle vaccines and adjuvants. Unless otherwise noted, financial amounts are in U.S. dollars.
Financial performance and position
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $6.5 million | $8.2 million | $30.4 million | $23.9 million |
| Operating loss | $33.2 million | $19.8 million | $78.3 million | $52.0 million |
| Net loss | $33.1 million | $19.7 million | $78.1 million | $51.4 million |
| Net loss per share | $0.12 | $0.08 | $0.30 | $0.23 |
| Operating cash used | Not stated for quarter | Not stated for quarter | $71.3 million | $47.2 million |
- Nine-month revenue rose 27%, but included $7.7 million in recovery of previously incurred indirect costs under the BARDA contract and $3.1 million reimbursement for the 205 seasonal-influenza trial. Q3 revenue declined 21%, principally reflecting lower BARDA-funded trial activity.
- R&D expense increased 61% to $78.7 million for nine months, driven primarily by RSV and Ebola programs and higher employee costs. General and administrative expense rose 48% to $22.0 million.
- Operating loss was approximately 509% of revenue in Q3 and 258% for the first nine months; the company reported no positive operating margin. Contract costs are presented separately from internally funded R&D.
- At September 30, cash and cash equivalents were $138.1 million and marketable securities were $152.0 million, totaling $290.2 million. Working capital was $285.2 million; total liabilities were $37.6 million. Notes payable totaled approximately $0.5 million, and management described debt as not material.
- Nine-month capital expenditures were $13.6 million, versus $4.9 million a year earlier. Financing provided $208.1 million, mainly from stock sales, including approximately $190 million net from a March public offering and $14.6 million from the at-the-market program. The latter program was fully used; common shares outstanding were 269.9 million at October 31, 2015.
Material changes and business developments
- RSV older-adult Phase 2 results announced in August showed 44% efficacy against all symptomatic RSV disease in the per-protocol population and 45% efficacy against RSV disease with lower-respiratory symptoms in an ad hoc analysis. After quarter-end, Novavax said it initiated a pivotal Phase 3 trial in older adults and a Phase 2 rollover study.
- In September, the company reported positive Phase 2 maternal-immunization results and entered a Bill & Melinda Gates Foundation grant agreement for up to $89.1 million to support RSV development, including a planned global Phase 3 trial. No grant revenue was recognized in Q3. The accompanying access agreement commits Novavax to affordable access in certain low- and middle-income countries.
- Phase 2 seasonal-influenza results announced in July were described as safe and well tolerated and meeting immunogenicity targets. The company planned to evaluate next steps with BARDA; it expected traditional licensure would require an efficacy trial and could add a year or more to the path to licensure.
- Novavax reported positive Phase 1 Ebola vaccine results in July. Its pipeline also included Phase 2 pandemic H7N9 influenza, Phase 1 Ebola, and preclinical combination influenza/RSV programs. CPLB, its 20%-owned India joint venture, had filed for authorization of its Phase 3 seasonal influenza vaccine and had an approved monovalent H1N1 product.
- The September Wyeth license amendment deferred a $3 million milestone until initiation of an eligible seasonal influenza Phase 3 trial outside India, but no later than December 31, 2017. It increased potential aggregate seasonal-program milestones from $14 million to up to $15 million, raised annual maintenance fees from $0.2 million to $0.3 million, and included a one-time upfront payment.
Outlook, risks and contingencies
- Management said existing cash, expected BARDA and Gates Foundation funding, and other resources were adequate for at least 12 months. It also said further capital may be needed; equity financing could dilute shareholders, and financing on acceptable terms is not assured.
- Management expected higher R&D, G&A and capital spending in 2015 as clinical trials, manufacturing scale-up and pre-commercialization activities expanded. It does not provide program-level cost-to-completion estimates because development timelines and costs are uncertain.
- The BARDA contract was extended through September 2016, but management stated there was no guarantee it would be extended or not terminated. BARDA payments are subject to audit; a fiscal 2013 audit had begun but was not complete. Management believed unaudited-period revenue was recorded at amounts expected to be realized.
- Cash use depends on trial progress, regulatory requirements, manufacturing costs, and funding availability. If grant or BARDA performance or additional financing is insufficient, Novavax may delay, reduce or eliminate programs or reduce staffing.
- Future minimum lease payments were $38.5 million, including an amended facility lease extending to 2026, with an early termination option in 2023. A Cadila services agreement could require up to $0.3 million more by March 2016 based on the stated service threshold.
- Additional disclosed risks include clinical and regulatory uncertainty, reliance on external funding, possible dilution, foreign-currency exposure, and cybersecurity threats. A 10% decline in the U.S. dollar against the Swedish krona was estimated to reduce equity by about $2.8 million. Management said disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether RSV Phase 3 trials meet enrollment, timing, safety and efficacy milestones, and whether the Phase 2 efficacy findings are confirmed.
- The conditions, timing and availability of the Gates Foundation grant funding, alongside the associated global-access commitments.
- BARDA contract performance, audit outcomes, remaining funding and prospects for extension beyond September 2016.
- Cash burn and spending trajectory against the company’s stated minimum 12-month funding horizon, including planned trial and facility expenditures.
- Potential dilution and contractual obligations, including Wyeth milestones, lease commitments and the Cadila services threshold.