NOVAVAX INC annual report, FY2015

Novavax, Inc. — 2015 Form 10-K Summary

Reporting period: Fiscal year ended December 31, 2015. This is an annual filing; selected fourth-quarter figures are included below. Novavax was a clinical-stage vaccine company with no approved U.S. products or product sales, developing recombinant nanoparticle vaccines and adjuvants.

Financial performance and liquidity

Metric	2015	2014
Revenue	$36.3 million	$30.7 million
Research and development expense	$162.6 million	$94.4 million
General and administrative expense	$30.8 million	$19.9 million
Net loss	$156.9 million	$82.9 million
Net loss per share	$0.60	$0.37
Operating cash used	$126.1 million	$67.0 million

Revenue increased 18%, mainly from HHS BARDA work, a $7.7 million recovery of prior-year indirect costs, and $3.1 million of previously withheld trial-cost reimbursement. Government contracts contributed $33.3 million of 2015 revenue.
R&D expense rose 72%, primarily due to RSV clinical trials and increased staffing; total expenses increased 69%. The larger loss reflects accelerated development spending.
Fourth-quarter 2015 revenue was $5.9 million and net loss was $78.8 million, compared with $6.7 million revenue and $31.5 million net loss in fourth-quarter 2014.
At year-end, cash and cash equivalents were $93.1 million and marketable securities were $137.5 million, totaling $230.7 million. Working capital was $210.8 million. Operating cash burn increased year over year; capital expenditures were $18.3 million versus $7.3 million.
Year-end total liabilities were $93.4 million, including $395,000 of notes payable, all current. The company reported no material debt at year-end; the convertible notes described below were issued after year-end.

Business developments and changes

RSV was the lead program. In older adults, a Phase 2 trial reported 41% efficacy against all symptomatic RSV disease and 45% in an ad hoc analysis of RSV disease with lower respiratory symptoms. Novavax launched the Phase 3 Resolve trial and completed enrollment of 11,850 participants; top-line results were expected in third-quarter 2016.
The company initiated the global Phase 3 Prepare maternal-immunization trial in December 2015. It was expected to enroll 5,000–8,255 pregnant women and take two to four years. A Phase 2 study reported strong maternal antibody responses and transfer to infants.
Seasonal quadrivalent influenza was in Phase 2; pandemic H7N9 was in Phase 2; Ebola was in Phase 1; and an influenza/RSV combination remained preclinical. CPLB, the India joint venture, received Indian marketing authorization for its trivalent seasonal influenza vaccine.
HHS BARDA’s influenza contract was expected to run through September 2016, with extension or termination uncertain. The company recognized approximately $112 million of revenue over the contract’s life through 2015. Audits of 2013 and 2014 costs were ongoing.
In February 2016, Novavax issued $325 million of 3.75% convertible senior notes due 2023. It reported approximately $276 million of final net proceeds after offering costs and a $38 million capped-call payment. The notes’ initial conversion price was approximately $6.81 per share and the capped-call ceiling was $9.73. Adding the final proceeds to year-end cash, cash equivalents and marketable securities would produce approximately $507 million before use of proceeds.

Outlook, risks and unusual items

Management expected 2016 revenue to depend on BARDA discussions and expected revenue under the Gates Foundation grant to be significantly higher than in 2015. It anticipated higher R&D and general and administrative expense, and significantly higher capital spending. Management stated that available resources, including the subsequent note proceeds and anticipated contract/grant revenue, were expected to fund operations for at least twelve months.
The Gates Foundation grant provides up to $89.1 million for maternal RSV development, licensing and WHO prequalification. The related global-access commitment requires affordable access in certain low- and middle-income countries.
Novavax had a $650.0 million accumulated deficit and expected continuing losses. Product success depends on clinical outcomes, regulatory approval, manufacturing scale-up, market acceptance and additional funding; none of its vaccine candidates had U.S. regulatory approval.
Key uncertainties include Phase 3 RSV results, whether BARDA funding continues beyond September 2016, reimbursement and government audit adjustments, and the need for additional capital. Equity financing could dilute shareholders; conversion of the notes could also dilute ownership, with capped-call protection limited above the cap price.
Contractual obligations at year-end included $40.7 million of operating leases and a $4.0 million accrued Wyeth milestone. The Wyeth license amendment deferred the milestone timing, with payment linked to a non-India seasonal influenza Phase 3 trial and due no later than December 31, 2017. No material pending legal proceedings were reported.
Other risks include strong vaccine competition, dependence on collaborators and suppliers, regulatory and product-liability exposure, and foreign-currency risk. Management and the auditor reported effective internal control over financial reporting; the financial statements received an unqualified audit opinion.

Investor verification priorities

Check subsequent disclosures for Resolve and Prepare trial progress, endpoints and results, and any changes to expected timelines.
Verify BARDA contract status, reimbursement and audit outcomes, as well as the timing and conditions for Gates Foundation grant funding.
Review cash burn, capital spending, financing runway and the actual use of the 2026-era? proceeds from the February 2016 note issuance; assess conversion-related dilution and capped-call limits.
Track manufacturing readiness, regulatory milestones, competitive developments and the potential economics of the Gates global-access commitment.
Confirm the timing and accounting for the Wyeth milestone, lease commitments and other contractual obligations.