Inovio Pharmaceuticals, Inc. — Q2 2015 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2015. Inovio is a clinical-stage biotechnology company developing DNA immunotherapies and vaccines with electroporation delivery technology. It had no approved human products and no product-sales revenue.
Financial performance
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Total revenue | $5.29m | $3.80m | $10.45m | $6.16m |
| Research and development | $16.69m | $9.61m | $26.11m | $17.83m |
| General and administrative | $4.72m | $4.35m | $8.83m | $8.48m |
| Operating loss | $15.12m | $10.15m | $23.49m | $20.15m |
| Net loss attributable to Inovio | $6.25m | $10.71m | $16.83m | $21.53m |
| Basic loss per share | $0.09 | $0.18 | $0.26 | $0.37 |
Revenue primarily came from collaborations and grants. Revenue growth reflected Roche-related revenue, including a $3.0m milestone and recognition of previously deferred revenue after Roche’s partial termination of its agreement. Q2 net loss was reduced by an $8.86m gain on the fair-value change in Inovio’s GeneOne investment; the operating loss nevertheless widened.
For the six months, operating cash use was $21.09m, versus $13.71m in 2014. Investing activities used $31.62m, mainly reflecting investment purchases, while financing provided $82.47m, including $81.9m net proceeds from the May stock offering.
Financial position and liquidity
- At June 30, cash and cash equivalents were $70.30m and short-term investments were $84.30m, together $154.6m. Working capital was $147.6m.
- Total assets were $201.70m; total liabilities were $20.75m. The filing reports no conventional borrowings or funded debt. It does report $1.71m of warrant liabilities.
- Management said cash and short-term investments were expected to fund planned working capital requirements through the end of 2018. The company expected continued losses and said it would rely on external financing beyond that period.
Material changes, outlook, and risks
- R&D expense rose substantially year over year, driven by clinical studies, Ebola-related DARPA work, staffing, and expensed inventory; some Roche-related manufacturing costs declined. Management expects substantial future operating losses as it funds development and trials.
- Roche ended its prostate-cancer collaboration for INO-5150 in February 2015; rights returned to Inovio. The parties continued work on HBV candidate INO-1800, but potential event-based payments were significantly reduced.
- Subsequent event: On August 7, 2015, MedImmune agreed to license INO-3112 and fund development. The agreement provides a $27.5m upfront payment and potential development and commercial milestone payments of up to $700m, plus tiered royalties. These are contractual potential payments, not guaranteed revenue.
- Inovio reported no material litigation. Operating lease commitments totaled $14.99m. It also disclosed a further $1.0m payment due from Plumbline, but did not record a receivable because collection was uncertain.
- Key risks include clinical and regulatory uncertainty, manufacturing and trial delays, dependence on partners and government funding, future capital needs and possible dilution, competition, and intellectual-property risks. The filing states that disclosure controls were effective and that no material change in internal control occurred during the quarter.
Important facts for investors to verify
- How much of reported revenue and the improved net loss reflects recurring collaboration activity versus Roche-related deferred revenue, milestone recognition, and GeneOne fair-value gains.
- Clinical-trial progress, results, costs, and funding needs, particularly given the increase in R&D spending and continuing operating cash burn.
- Whether the MedImmune agreement’s upfront payment was received and the conditions, timing, and likelihood associated with potential milestone and royalty payments.
- The extent of future dilution and financing needs; the May offering issued 10.925m shares, and 72.12m shares were outstanding as of August 3, 2015.
- Partner and grant concentration, related-party balances and costs involving GeneOne, and collection uncertainty related to Plumbline.