Novavax, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Unaudited consolidated results. Novavax is a late-stage vaccine developer; its lead programs included COVID-19 candidate NVX-CoV2373 and influenza candidate NanoFlu. Amounts below are in U.S. dollars; financial statement figures are in millions unless noted.
Key financial metrics
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $35.5 | $3.4 | $38.9 | $7.3 |
| Research and development | $34.8 | $30.4 | $51.7 | $65.9 |
| General and administrative | $17.7 | $9.6 | $27.1 | $18.3 |
| Operating loss | $(17.0) | $(36.7) | $(39.9) | $(76.9) |
| Net loss | $(17.5) | $(39.6) | $(43.4) | $(82.8) |
| Basic and diluted loss per share | $(0.30) | $(1.69) | $(0.84) | $(3.77) |
Revenue was primarily from work performed under the CEPI COVID-19 funding agreement, rather than product sales. Gross margin is not meaningfully presented as product sales were not reported. Q2 other expense was $0.5 million, including a reported $2.7 million foreign-exchange gain on an intercompany loan; six-month interest expense was $6.8 million.
Cash flow, six months: Operating cash provided was $92.5 million, versus $80.6 million used in 2019; the company attributed the improvement primarily to CEPI receipts and payment timing. Investing cash used was $245.9 million, including $164.2 million for the Praha acquisition. Financing cash provided was $602.5 million, chiefly from common and preferred stock sales. Cash, cash equivalents and restricted cash totaled $531.6 million at June 30.
Liquidity and debt: Cash and cash equivalents were $424.4 million, marketable securities $77.9 million, and restricted cash $107.2 million. Management reported $609.5 million in these combined resources and working capital of $423.1 million. Restricted funds are subject to use limitations; cash plus marketable securities totaled $502.3 million. Convertible notes had $325.0 million principal and $321.3 million carrying value, bear a 3.75% coupon and mature February 2023. Management said available capital was sufficient for at least 12 months from the filing date, while noting future financing may be needed.
Material changes and significant transactions
- Revenue increased substantially year over year as COVID-19 development activities funded by CEPI expanded. Net loss narrowed, mainly due to higher grant and other revenue.
- Six-month R&D expense declined 21%, primarily reflecting lower ResVax and other costs, partly offset by NVX-CoV2373 spending. Q2 R&D rose 15% year over year. G&A increased 48% for the six months, including acquisition-related professional fees, COVID-19 support costs and higher staffing.
- Common shares issued increased to 61.3 million from 32.4 million at year-end 2019. The company raised $392.3 million net through at-the-market common stock sales and $199.8 million net from a June preferred-stock placement. Preferred shares are convertible into 4.39 million common shares and have a liquidation preference; further dilution is possible.
- Novavax acquired Praha Vaccines on May 27 for approximately €151.7 million (about $167.3 million), subject to working-capital adjustments. Preliminary purchase accounting included $70.5 million goodwill and $96.7 million property and equipment; valuations remain subject to adjustment. The facility is intended to expand manufacturing capacity. Acquisition costs were about $1.9 million in Q2.
Outlook, risks and unusual items
- Management expected 2020 revenue, R&D expense, G&A expense and capital expenditures to increase significantly, driven largely by NVX-CoV2373 development and manufacturing. The filing does not provide a numerical revenue or earnings forecast.
- In July, the company entered an Operation Warp Speed agreement with funding of up to $1.6 billion; up to $800 million was then authorized for expenditures or obligations, with definitive pricing and terms still to be negotiated. The agreement contemplated development and delivery of 100 million doses, including a pivotal Phase 3 trial. The U.S. government may terminate the agreement under specified conditions and may determine pricing if negotiations fail.
- Other COVID-19 support included CEPI funding of up to $388.4 million in total, comprising grant and potentially forgivable loan funding, and a DoD contract of up to $60 million. Funding is conditional, partly restricted in use, and may be terminated or reduced under agreement terms. CEPI arrangements include equitable-access provisions and possible repayment obligations tied to vaccine sales.
- As of the filing, NVX-CoV2373 was in Phase 2 development. Management expected Phase 2 enrollment in Q3 2020, top-line results early in Q4, and a pivotal Phase 3 trial in Q4. These were expectations, not assured outcomes. August preliminary Phase 1 results and later partnership announcements described in the filing occurred after quarter-end.
- Key risks include clinical or regulatory failure, intense competition, uncertain vaccine demand and pricing, manufacturing scale-up and third-party supply/distribution dependence, execution and integration of Praha, evolving regulatory requirements, and COVID-19-related disruption to trials, operations and suppliers. The company had no commercial product launch experience and warned that funding commitments may not be fully received.
- Other portfolio context: NanoFlu had reported positive Phase 3 top-line results and was expected to support a U.S. BLA; ResVax’s prior Phase 3 trial missed its primary efficacy endpoint, and regulators recommended another Phase 3 trial.
Most important facts to verify
- Actual receipts, eligible expenditures and remaining conditions under OWS, CEPI and DoD agreements; distinguish committed ceilings from cash received and revenue recognized.
- NVX-CoV2373 clinical results, regulatory progress, trial timing, manufacturing yields and ability to deliver contracted doses.
- Unrestricted liquidity and cash runway after restricted funds, acquisition spending and the expected ramp in R&D and capital expenditures.
- Final Praha purchase-price allocation, working-capital adjustments, integration progress and realized manufacturing capacity.
- Equity issuance, preferred-stock conversion and other potential dilution, alongside the 2023 note maturity and any future financing needs.
- Whether the stated 12-month liquidity assessment remains valid as development costs and funding terms evolve.