Inovio Biomedical reports financial results for the three and nine months ended September 30, 2009

Inovio Biomedical CorporationNov 16 2009

Inovio Biomedical Corporation (NYSE AMEX: INO) (“Inovio”) today reported financial results for the three and nine months ended September 30, 2009.

Total revenue was $3.6 million and $6.5 million for the three and nine months ended September 30, 2009, respectively, compared to $455,000 and $1.8 million for the three and nine months ended September 30, 2008, respectively.

Total operating expenses for the three and nine months ended September 30, 2009, were $7.2 million and $16.7 million, respectively, as compared to $3.2 million and $12.0 million, respectively, for the three and nine months ended September 30, 2008.

The net loss attributable to common stockholders for the three and nine months ended September 30, 2009, was $2.9 million, or $0.03 per share and $17.1 million, or $0.26 per share, respectively, as compared with a net loss attributable to common stockholders of $2.3 million, or $0.05 per share and $9.4 million, or $0.21 per share, respectively, for the three and nine months ended September 30, 2008.

Revenue

Revenue from license fees and milestone payments was $2.1 million and $4.6 million for the three and nine months ended September 30, 2009, respectively, compared to $215,000 and $612,000 for the three and nine months ended September 30, 2008. The increase in revenue under license fees and milestone payments was mainly due to the acceleration of deferred revenues recognized as a result of the cancellation of the Wyeth collaboration and licensing agreement in July 2009.

During the three and nine months ended September 30, 2009, we recorded revenue under collaborative research and development arrangements of $33,000 and $120,000, respectively, compared to $240,000 and $1.2 million in the same periods of 2008. This decrease in revenue was primarily due to a decrease in collaborative research billings to Merck and Wyeth. Revenues from collaborative research and development arrangements are expected to continue to decline, as Wyeth terminated its collaboration and licensing agreement as of July 2009 and, under our research and collaboration agreement with Merck, we have provided the majority of the required device development for use in their clinical trials and believe that development activities will be limited until trial results are obtained.

During the three and nine months ended September 30, 2009, Inovio recorded grant and miscellaneous revenue of $1.5 million and $1.8 million, respectively, compared to no grant revenue in the respective periods of 2008. This increase was primarily due to revenue from VGX’s contracts with the National Institute of Allergy and Infectious Diseases (“NIAID”) and PATH Malaria Vaccine Initiative (“MVI”) of $1.4 million and $55,000, respectively, since June 1, 2009, and the Department of Defense (“U.S. Army”) grant in the amounts of $113,000 and $293,000 for the three and nine months ended September 30, 2009.

Details of these contracts are:

• The NIAID contract is for five years with two one-year options (period of performance is September 30, 2008 — September 29, 2015). The value over the five years is $21.3 million with option years six and seven valued at $1.2 million and $1.1 million, respectively, for a total potential value of $23.6 million. The contract will fund research and development for HIV DNA-based vaccines delivered via our proprietary electroporation system.
• The U.S. Army grant has a total value of $933,000, will fund research and development of DNA-based vaccines delivered via our proprietary electroporation system, and will run through May 2010. This project is focused on identifying DNA vaccine candidates with the potential to provide rapid, robust immunity to protect against bio-warfare and bio-terror attacks.
• MVI is an international nonprofit organization established through a grant from the Bill & Melinda Gates Foundation. Inovio’s research program and agreement with MVI is evaluating Inovio’s SynCon™ DNA vaccine development platform to target antigens from malaria-causing Plasmodium species and deliver them intradermally using the CELLECTRA® electroporation device. The agreement with MVI is for $685,000 and will run through February 2010.

Operating Expenses

Research and development expenses for the three and nine months ended September 30, 2009, were $3.4 million and $5.6 million, respectively, compared to $1.3 million and $4.6 million for the respective periods in September 30, 2008. The increase in these expenses for the three and nine months was primarily due to higher costs related to work performed for the NIAID contract.

General and administrative expenses, including business development expenses and amortization of intangible assets, for the three and nine months ended September 30, 2009, were $3.8 million and $11.1 million, compared to $1.9 million and $7.4 million for the respective periods ended September 30, 2008. The increase in these expenses was primarily due to extraordinary legal and related fees associated with the merger and other corporate matters. We expect these legal fees to decrease in future quarters. Upon closing of Merger, the Company also incurred costs that would have not been incurred in the comparable period in 2008, such as Merger-related compensation to key employees, higher amortization expense as a result of the intangible assets that were acquired from VGX, and higher employee stock-based compensation due to the accelerated vesting of all Inovio stock options. The increase was also attributed to higher accounting, audit and valuation fees incurred related to the Merger and the combined company.

Net Loss Attributable to Common Stockholders

The $7.7 million increase in net loss attributable to common stockholders for the nine months ended September 30, 2009, compared with the same period in 2008, resulted primarily due to increased operating expenses, an increase in expense for the revaluation of registered common stock warrants and the loss due to the change in the fair market value for our investment in VGX International as of September 30, 2009.

Capital Resources

Inovio ended the third quarter 2009 with cash and cash equivalents of $32.5 million and working capital of $27.2 million, 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 nine months ended September 30, 2009, was primarily due to the financing closed on July 31, 2009. The sale and issuance of 11,111,110 shares of common stock at a purchase price of $2.70 per share resulted in net proceeds to the company of approximately $28.4 million. Related warrants to purchase a total of 2,777,776 shares of common stock with an exercise price of $3.50 per share will be exercisable beginning six months after issuance and will expire six months from the date they are first exercisable.

The change in working capital is also due to the reclassification of Auction Rate Securities (“ARS”) and related ARS Rights from long-term assets to current assets due to the time frame in which they can be readily convertible to cash and higher account receivables. We believe our 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 lapsed 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 102,128,323 as of November 12, 2009.

Corporate Update

Corporate Development

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.

Subsequent to the quarter, Inovio’s board of directors elected David J. Williams, former chairman and CEO of Sanofi Pasteur, the vaccine business of Sanofi-Aventis Group, and Keith H. Wells, a senior member of the Biologics Consulting Group and former director of vaccine development for The Salk Institute, to the board.

Vaccine Program Accomplishments, Status & Milestones

VGX-3100 Therapeutic Cervical Cancer DNA Vaccine
Inovio announced on October 5^th significant antibody and T-cell responses from the first of three dose groups being evaluated in this phase I clinical trial. These results were significant in providing the first indication of the potential for Inovio’s DNA vaccine platform to rival levels of immune responses generated by any DNA vaccine technology. The company currently plans to report interim data relating to safety and levels of immune responses (immunogenicity) from the second and third dose groups in the first half of 2010. In addition, Inovio currently plans to initiate a Phase II trial in late 2010.

VGX-3400 Avian Influenza (H5N1) DNA Vaccine
Our clinical team is fulfilling information requests from the US Food & Drug Administration (FDA) relating to our previously-filed investigational new drug application (IND) and currently plans to initiate a US phase I clinical trial in Q1 2010. These studies are expected to focus on safety and immunogenicity.

Universal Influenza DNA Vaccine
Inovio reported multiple sets of data from its universal influenza vaccine, which was designed in 2006/2007, indicating its potential to provide broad cross-strain protection against existing and newly emergent, unknown seasonal and pandemic-potential influenza strains.

Multiple studies in a pig model showed the potential of Inovio’s universal DNA vaccines to induce levels of hemagglutination inhibition (HI) titers against multiple strains of H1N1 influenza, including currently circulating strains of swine-origin influenza. The titer levels achieved were above the protection threshold considered to be protective against influenza infection in 100% of the animals tested.

Studies in a mouse model showed the potential of Inovio’s universal DNA vaccines to provide 100% protection in a lethal challenge study against an unmatched H1N1 virus that caused the 1918 Spanish flu. In a separate study, the vaccinated mice recovered from virus infection-induced morbidity significantly faster compared to the non-immunized control mice when the mice were challenged with another currently circulating swine influenza A/H1N1 virus.

A combination of Inovio’s synthetic consensus (SynCon^TM) H1N1 influenza vaccine candidates achieved protective antibody responses against the novel pandemic influenza A/H1N1 (2009) in 100% of tested ferrets. The ferret model is widely considered to be the most representative of human influenza; achieving in ferrets a level of antibody titers commonly associated with protection in humans is a critical milestone in influenza vaccine development.

PENNVAX^TM HIV DNA Vaccines
The company’s partner, HIV Vaccines Trial Network (HVTN), completed enrollment of 120 subjects in its phase I clinical study of Inovio’s PENNVAX^TM-B preventive HIV vaccine (against HIV clade B, the prevalent HIV strain in North America and western Europe) without electroporation. The company currently expects to report results of this study by year end.

On October 15^th, Inovio announced the initiation of a phase I clinical study of Inovio’s PENNVAX™-B preventive DNA vaccine delivered using its proprietary electroporation technology. The multi-center study is being conducted at several HVTN clinical sites under a protocol designated HVTN-080. The study is enrolling healthy volunteers to assess safety of and levels of immune responses. The HVTN-080 follow-on study is sponsored by the National Institute of Allergy and Infectious Diseases (NIAID), an NIH agency.

In a third trial, initiated in 2009, Inovio’s collaborators at the University of Pennsylvania began enrolling adult HIV-infected patients undergoing therapy to assess the use of PENNVAX™-B DNA vaccine without electroporation in a therapeutic setting.

The company continues to advance its pre-clinical work on PENNVAX™-GP (against HIV clades A, C, and D, the prevalent strains in Africa and Asia) as a preventive HIV vaccine. This work is funded by a contract from the NIH’s National Institute of Allergy and Infectious Diseases with a total potential value of about $23.5 million.