Inovio Biomedical Corporation (NYSE AMEX: INO) (“Inovio”) today reported financial results for the three and six months ended June 30, 2009.
Total revenue of $2.5 million and $2.9 million for the three and six months ended June 30, 2009, compared to $663,000 and $1.3 million for the three and six months ended June 30, 2008, respectively.
Total operating expenses for the three and six months ended June 30, 2009, were $5.5 million and $9.4 million, respectively, as compared to $4.8 million and $8.8 million, respectively, for the three and six months ended June 30, 2008.
The net loss attributable to common stockholders for the three and six months ended June 30, 2009, was $10.7 million, or $0.19 per share and $14.1 million, or $0.28 per share, respectively, as compared with a net loss attributable to common stockholders of $4.0 million, or $0.09 per share and $7.0 million, or $0.16 per share, respectively, for the three and six months ended June 30, 2008.
Revenue
Revenue from license fees and milestone payments was $2.3 million and $2.5 million for the three and six months ended June 30, 2009, respectively, as compared to $204,000 and $397,000 for the three and six months ended June 30, 2008, respectively. The increase in revenue under license fees and milestone payments was mainly due to the acceleration of $2.2 million of deferred revenues recognized as a result of the cancellation of the Wyeth collaboration and licensing agreement in July 2009.
During the three and six months ended June 30, 2009, Inovio recorded revenue under collaborative research and development arrangements of $102,000 and $157,000, respectively, as compared to $459,000 and $919,000 for the three and six months ended June 30, 2008, respectively. This decrease in revenue was primarily due to a decrease in Merck collaborative research billings as well as no billings to Wyeth related to our collaborative agreement. Revenues from collaborative research and development arrangements are expected to decline in 2009 as compared to 2008, as Wyeth terminated its collaboration and licensing agreement as of July 2009. Under our research and collaboration agreement with Merck, Inovio provided the majority of the required device development for use in their clinical trials and believe that development activities for Merck will be limited until trial results are obtained.
During the three and six months ended June 30, 2009, Inovio recorded grant and miscellaneous revenue of $114,000 and $216,000, respectively. There was no grant and miscellaneous revenue for the three and six months ended June 30, 2008. The increase in grant and miscellaneous revenue was primarily due to revenue recognized from a Department of Defense (“U.S. Army”) grant as well as revenue attributable to VGX’s contract with the National Institute of Allergy and Infectious Diseases (“NIAID”). The NIAID contract is for five years with two one-year options for a total potential value of $23.6 million and is funding Inovio research and development of HIV DNA-based vaccines delivered via our proprietary electroporation system.
Operating Expenses
Research and development expenses for the three and six months ended June 30, 2009, were $1.2 million and $2.1 million, respectively, compared to $1.7 million and $3.3 million for the three and six months ended June 30, 2008, respectively. The decrease in research and development expenses was primarily due to lower personnel costs due to a lower employee headcount during the period and a decrease in outside lab testing as well as lab and engineering supply purchases. This decrease was offset by expenses incurred related to government funded programs and government contracts.
General and administrative expenses, including business development expenses and amortization of intangible assets, for the three and six months ended June 30, 2009, were $4.3 million and $7.3 million, respectively, compared to $3.1 million and $5.5 million for the three and six months ended June 30, 2008, respectively. The increase in general and administrative expenses was primarily due to extraordinary legal and related fees associated with the Merger and other corporate matters. Inovio expects these legal fees to significantly decrease in future quarters. These increases were offset by a decrease in outside consulting services related to partnering our SECTA therapy program and other corporate advisory services.
Net Loss Attributable to Common Stockholders
The $7.1 million increase in net loss attributable to common stockholders for the six months ended June 30, 2009, compared with the same period in 2008, resulted primarily due to the fluctuations in revenues and operating expenses as noted above and the loss due to the change in the fair market value for our investment in VGX International as of June 30, 2009.
Capital Resources
Inovio ended the second quarter 2009 with cash and cash equivalents of $8.3 million and working capital of $4.2 million as compared to $14.1 million in cash and cash equivalents and $554,000 working capital as of December 31, 2008.
The increase in working capital during the six months ended June 30, 2009 was due to ARS investment securities and the ARS and Put option being reclassified from long-term assets to current assets due to the time frame in which they can be readily convertible to cash as well as higher account receivable balances. This increase was offset by expenditures related to research and development as well as general and administrative expenses related to legal, consultants, accounting and audit, and corporate development.
On July 29, 2009, Inovio entered into a securities purchase agreement with certain institutional investors relating to the sale and issuance of (a) 11,111,110 shares of common stock and (b) warrants to purchase a total of 2,777,776 shares of common stock with an exercise price of $3.50 per share, for an aggregate purchase price of approximately $30 million. The warrants will be exercisable beginning six months after issuance and will expire six months from the date they are first exercisable. The shares of common stock and warrants were sold in units, consisting of one share of common stock and a warrant to purchase 0.25 of a share of common stock at a purchase price of $2.70 per unit. The offering closed on July 31, 2009. Inovio received proceeds from the funding of approximately $28.4 million, after deducting offering expenses. Inovio believes that its cash and cash equivalents are sufficient to meet our planned working capital requirements through the second half of 2011.
Effective August 4, 2009, outstanding convertible subordinated promissory notes were automatically converted into 4,600,681 shares of Inovio’s common stock. Such shares are subject to a lock-up agreement which provides that such shares may not be sold for a period of 180 days following June 1, 2009, the date the Merger closed, provided that such restriction will lapse with respect to 50% of such shares on the date that is 90 days from the date the Merger closed.
The number of shares of Common Stock issued and outstanding was 101,974,362 as of August 17, 2009.
Corporate Update
Merger Completion
A key event of the quarter was completion of the merger with VGX Pharmaceuticals of Blue Bell, Pennsylvania. As referenced extensively in prior filings with the Securities and Exchange Commission, press releases and a conference call, the combined company has an integrated DNA vaccine design, development and delivery technology platform, as well as a compelling pipeline of proprietary vaccines and partnerships that are advancing research projects and clinical trials using Inovio’s proprietary electroporation delivery technology.
Integration of the two companies is substantially completed, with operating locations in San Diego, CA; Blue Bell, PA; and The Woodlands, TX. The company is focused on advancing its clinical and IND-stage programs, research and preclinical development of DNA vaccine, and ongoing research and development of innovative new electroporation delivery processes and devices.
Corporate Development
The company announced in June that Stanley A. Plotkin, MD, agreed to join the company’s scientific advisory board. Dr. Plotkin developed the rubella vaccine now used worldwide and worked extensively on the development and application of other vaccines including polio, rabies, varicella, rotavirus and cytomegalovirus. He is Emeritus Professor, Wistar Institute and the University of Pennsylvania, and a consultant to Sanofi Pasteur.
In June, Inovio granted an option to a commercial license to develop intravascular catheters using its proprietary electroporation technology to Cardigant Medical, Inc. of Long Beach, California. Cardigant is focused on developing electroporation-based drug or gene-based therapeutics for a variety of vascular conditions, including vulnerable plaques and others requiring revascularization.
In June, the company announced a collaboration with the National Microbiology Laboratory of the Public Health Agency of Canada and the University of Pennsylvania to further evaluate Inovio DNA vaccine candidates against swine influenza A (H1N1) virus. The purpose of this collaboration is to test vaccine candidates against pandemic and seasonal influenza strains in animal models.
Subsequent to the quarter, Inovio announced a research collaboration agreement with the National Institutes of Health’s Vaccine Research Center (VRC) to develop influenza vaccines. Under the agreement, the VRC and Inovio will pool technologies to develop universal influenza vaccines as well as rapidly advance development of vaccine candidates targeting the emerging pandemic 2009 H1N1 swine flu strains.
Vaccine Program Accomplishments, Status & Milestones
VGX-3100 Therapeutic Cervical Cancer DNA Vaccine
This vaccine candidate entered phase I clinical trials in September 2008. The trial is expected to end in mid 2010 and Inovio aims to initiate a Phase II trial in late 2010. The company aims to report interim data relating to safety and levels of immune response (immunogenicity) from the first two of three subject cohorts of this clinical study by year end.
VGX-3400 Avian Influenza (H5N1) DNA Vaccine