e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2008
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to .
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Commission File
No. 0-26770
NOVAVAX, INC.
(Exact name of Registrant as
specified in its charter)
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Delaware
(State of
incorporation)
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22-2816046
(I.R.S. Employer
Identification No.)
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9920 Belward Campus Drive, Rockville, Maryland
(Address of principal
executive offices)
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20850
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Registrants telephone number, including area code:
(240) 268-2000
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, Par Value $0.01 per share
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The NASDAQ Stock Market LLC
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Securities registered pursuant to Section 12(g) of the
Act:
Not Applicable
Indicate by check mark if the Registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the Registrant is not required to file
reports pursuant to Section 13 or 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the Registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of the Registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a smaller reporting
company)
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Indicate by check mark whether the Registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the voting and non-voting common
equity held by non-affiliates of the Registrant (based on the
last reported sale price of Registrants common stock on June 30,
2008 on the NASDAQ Global Market) was $108,995,283.
As of March 23, 2009, there were 68,855,091 shares of
the Registrants Common Stock, par value $0.01 per share,
outstanding.
Portions of the Registrants Definitive Proxy Statement to
be filed no later than 120 days after the fiscal year ended
December 31, 2008 in connection with the Registrants
2009 Annual Meeting of Stockholders are incorporated by
reference into Part III of this
Form 10-K.
Table of
Contents
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Page
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PART I
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Item 1.
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BUSINESS
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1
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Item 2.
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PROPERTIES
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30
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Item 3.
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LEGAL PROCEEDINGS
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30
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Item 4.
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SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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30
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PART II
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Item 5.
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MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
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31
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Item 6.
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SELECTED FINANCIAL DATA
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34
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Item 7.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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34
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Item 7A.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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52
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Item 8.
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FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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53
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Item 9.
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
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Item 9A.
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CONTROLS AND PROCEDURES
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Item 9B.
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OTHER INFORMATION
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PART III
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Item 10.
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DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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56
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Item 11.
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EXECUTIVE COMPENSATION
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56
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Item 12.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
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Item 13.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
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56
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Item 14.
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PRINCIPAL ACCOUNTING FEES AND SERVICES
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PART IV
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Item 15.
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EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
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57
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When used in this Annual Report on
Form 10-K,
except where the context otherwise requires, the terms
we, us, our,
Novavax and the Company refer to
Novavax, Inc.
i
PART I
This Annual Report on
Form 10-K
contains forward-looking statements, within the meaning of the
Private Securities Litigation Reform Act that involve risks and
uncertainties. In some cases, forward-looking statements are
identified by words such as believe,
anticipate, intend, plan,
will, may and similar expressions. You
should not place undue reliance on these forward-looking
statements, which speak only as of the date of this report. All
of these forward-looking statements are based on information
available to us at this time, and we assume no obligation to
update any of these statements. Actual results could differ from
those projected in these forward-looking statements as a result
of many factors, including those identified in the section
titled Risk Factors, Managements
Discussion and Analysis of Financial Condition and Results of
Operations and elsewhere. We urge you to review and
consider the various disclosures made by us in this report, and
those detailed from time to time in our filings with the
Securities and Exchange Commission, that attempt to advise you
of the risks and factors that may affect our future results.
Overview
Novavax, Inc., a Delaware corporation (Novavax or
the Company) was incorporated in 1987, and is a
clinical-stage biopharmaceutical company focused on creating
differentiated, value-added vaccines that improve upon current
preventive options for a range of infectious diseases. These
vaccines leverage our virus-like particle (VLP)
platform technology coupled with a unique, disposable production
technology. In 2005, Novavax transitioned from a specialty
pharmaceutical company that sold and marketed womens
health products to an innovative, biopharmaceutical company
focused on vaccines. The Company is now firmly focused on its
VLP vaccine technology platform.
VLPs are genetically engineered three-dimensional
nanostructures, which incorporate immunologically important
lipids and recombinant proteins. Our VLPs resemble the virus but
lack the genetic material to replicate the virus. Our
proprietary production technology uses insect cells rather than
chicken eggs or mammalian cells. Our current product targets
include vaccines against the H5N1 and other subtypes of avian
influenza with pandemic potential, human seasonal influenza,
Varicella Zoster, which causes shingles, and Respiratory
Syncytial Virus (RSV). This RSV vaccine was recently
announced on October 30, 2008.
We made significant progress in 2008 and 2007 in the development
of our vaccine that targets the H5N1 avian influenza with
pandemic potential. In June 2007, we released results from an
important preclinical study in which ferrets that received
Novavaxs pandemic vaccine were protected from a lethal
challenge of the H5N1 virus. After filing an Investigational New
Drug application (IND), Novavax initiated its Phase I/IIa human
clinical trial in July 2007. We released interim human data
from the first portion of this clinical trial in December 2007.
These interim results demonstrated that Novavaxs pandemic
influenza vaccine can generate a protective immune response. We
conducted the second portion of the Phase I/IIa trial in March
2008 to gather additional subject immunogenicity and safety data
and determine a final dose through the completion of this
clinical trial. In August 2008, we reported favorable results
from this clinical trial, which demonstrated strong neutralizing
antibody titers across all three doses tested. Although the
safety data is still blinded at the subject level (pending
complete safety
follow-up),
there were no serious adverse events reported. In February 2009,
we announced that the vaccine induced robust hemagglutination
inhibition (HAT) responses, which have been shown to
be important for protection against influenza disease. We only
intend to initiate further human clinical trials for our
pandemic influenza vaccine, which would be required for
regulatory approval, with a collaborative partner.
We progressed development of our VLP trivalent vaccine that
targets seasonal influenza virus in 2007 and 2008. In December
2007, we announced results from a preclinical study in mice. In
April 2008, we announced that we received positive results from
an immunogenicity study in ferrets inoculated with our trivalent
seasonal influenza vaccine candidate. In September 2008, we
began Phase II clinical trials to evaluate the safety and
immunogenicity of different doses of our seasonal influenza
vaccine. In November 2008, we announced a delay of our seasonal
influenza dose ranging study in the elderly
(>65 years of age) from fourth quarter of 2008
to 2009, pending top line safety and immunogenicity results from
our ongoing seasonal influenza study in healthy adults. We
1
had observed a slightly different safety profile (non-serious
adverse events) from our Phase IIa trial of our pandemic VLP
vaccine, and decided to review and analyze the dose response
curve as well as the safety data from the healthy adult seasonal
trial prior to commencing a study in the elderly. In December
2008, we announced favorable safety and immunogenicity results
from our Phase IIa seasonal study in healthy adults. Further
seasonal studies are planned in 2009 including the
aforementioned study in elderly adults in the second half of
2009. We intend to seek a collaborative partner for our seasonal
influenza vaccine upon completion of additional Phase II
clinical studies, which are expected to be completed by the end
of 2009.
We have also developed vaccine candidates for both RSV and VZV,
both of which are currently being evaluated in preclinical
studies. To date, preliminary data have shown that an RSV
vaccine candidate has shown positive results in two separate
studies with mice. In December 2008, Novavax and the University
of Massachusetts jointly announced favorable results from a
preclinical study to evaluate the immunogenicity and efficacy of
an RSV vaccine candidate in mice. The RSV VLP vaccine induced
strong antibody responses against RSV. We have licensed
exclusive worldwide rights from the University of Massachusetts
Medical School to certain technology for the development and
commercialization of vaccines. In February 2009, we announced
favorable results from an RSV preclinical study performed in
mice against the viral fusion (F) protein, which fuses with
cells in the respiratory tract and causes illness. The vaccine
induced neutralizing antibodies against the viral fusion protein
and also protected against RSV infection, reducing the quantity
of RSV virus found in the lungs of immunized mice after a
challenge with live virus. A VZV vaccine candidate has also
induced antibody and T-cell responses. We plan on moving forward
with further preclinical development of both vaccines in 2009.
Importantly, we have developed a unique production process for
making our recombinant VLP-based vaccines using portable,
disposable manufacturing technology that has advantages over
traditional egg-based vaccine manufacturing and other vaccines
in development. Because the equipment is both portable and
disposable, a facility to produce VLP-based vaccines can be
constructed and validated for production use in
12-18 months
(depending on the capacity) as compared to current egg-based
facilities which can take four or more years to deploy. Our
manufacturing technology requires substantially less capital
costs than traditional egg-based manufacturing (currently
estimated at up to 75% less capital cost). Due to the use of the
Companys proprietary VLP approach in developing
recombinant vaccines, the current production yields up to 10
times the yields of traditional egg-based or mammalian cell
culture manufacturing are encouraging compared to currently used
egg-based vaccines as well as developing mammalian cell growth
approaches.
The following table shows the current stage of each product
candidate in Novavaxs vaccine pipeline:
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Discovery
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Preclinical
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Phase I/IIa
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Phase IIb/III
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Pandemic Influenza
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ü
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ü
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ü
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Seasonal Influenza
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ü
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ü
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ü
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Varicella Zoster Shingles
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ü
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ü
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Respiratory Syncyntial Virus (RSV)
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ü
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ü
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We also had a drug delivery platform based on micellar
nanoparticles (MNPs), proprietary oil and water
nanoemulsions used for the topical delivery of drugs. The MNP
technology was the basis for Novavaxs first FDA -
approved estrogen replacement product,
Estrasorb®.
In October 2005, we entered into license and supply agreements
for Estrasorb with Allergan, Inc.,
successor-in-interest
to Esprit Pharma, Inc. (Allergan), under which we
manufactured Estrasorb, and Allergan had an exclusive license to
sell Estrasorb in North America. In 2007, the Company and
Allergan terminated the supply agreement. In April 2006, the
Company entered into a License and Development Agreement and a
Supply Agreement with Allergan to co-develop, supply and
commercialize our MNP-based testosterone product candidate for
the treatment of female hypoactive sexual desire disorder. In
October 2007, these agreements were mutually terminated. In
February 2008, we entered into asset purchase and supply
agreements with Graceway Pharmaceuticals, LLC related to
Estrasorb and supply of additional units of Estrasorb and
terminated the Estrasorb license agreement with Allergan. We
engaged an investment bank to aid us in the search for potential
buyers or licensees of the technology, but we were not
successful in attempts to sell or license the technology in
fields of use outside vaccines. In 2008, we recorded an
impairment charge of the remaining MNP assets we held totaling
$846,000. We may not be successful in our efforts to divest the
MNP assets
2
and, if we are, it may not be on favorable terms. The operations
related to our Estrasorb product are shown as discontinued
operations in our financial statements.
Our
Strategy
We are creating novel vaccines to address a broad range of
infectious diseases across the globe using advanced, proprietary
virus-like particle (VLP) technology. We are producing these
VLP-based, highly potent, recombinant vaccines utilizing a new,
efficient manufacturing solution.
In creating VLPs, our researchers genetically engineer
three-dimensional nanostructures, which incorporate
immunologically important lipids and recombinant proteins. Our
VLPs resemble a virus but lack the genetic material that would
cause infection. VLP technology is a proven technology. For
example Mercks
Gardasil®
utilizes VLP technology. Our propriety VLPs include multiple
proteins and lipids and can be tailored to induce robust and
broad immune responses similar to natural infections.
Our advanced VLP technology has the potential to develop
vaccines for a wide range of human infectious diseases where
there are significant unmet medical needs, some of which have
not been addressed by other technologies. We have used formal
criteria based upon medical need, technical feasibility and
commercial value to select our vaccine candidates.
Our recombinant VLP platform allows us to utilize ready-to-use
and disposable equipment which enable production capacity
anywhere in the world for a fraction of the cost of traditional
vaccine plants. Our manufacturing platform offers several
significant advantages over traditional vaccine production:
(1) higher yields than traditional mammalian or egg-based
systems, (2) faster facility commissioning time,
(3) significantly lower capital expenditures, and
(4) competitive cost of goods.
Based upon our proprietary VLP platform and manufacturing
system, the key components to the business strategy are as
follows:
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Leverage our proven technologies to develop
differentiated influenza vaccines
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The world-wide seasonal influenza market place is projected to
exceed $6 billion by 2013. Although there are several
significant companies in the vaccine market, there are unmet
needs related to effectiveness in certain populations, speed to
market, and reliable and cost effective supply.
An influenza pandemic is considered by experts and governments
to be a critical public health threat. Governments and
non-government organizations have spent billions of dollars to
stockpile vaccines and anti-viral drugs and to enact a variety
of other measures to prepare for a pandemic. Although these
measures are important, there are opportunities to do more.
Specifically, there are needs related to more effective
vaccines, vaccines that can be matched to a pandemic strain in
time to address or halt the first-wave of a pandemic, and
vaccines that can be produced in sufficient quantities to
address the needs of people in areas that do not have local or
domestic vaccine supply.
We believe that our influenza vaccines are designed to address
many of the significant unmet needs related to seasonal and
pandemic influenza. This past year our pandemic and seasonal
influenza VLP vaccines generated strong Phase IIa data.
Specifically, the pandemic influenza VLP vaccine induced strong
neutralizing antibody titers across all three doses tested and
increasing antibody titers with escalation of dose. In addition,
the vaccine induced strong hemagglutination inhibition
(HAI) responses and was well tolerated with no
reports of serious adverse events. The seasonal influenza VLP
vaccine study also showed robust HAI responses against each of
the strains in the vaccine including H3N2, H1N1, and B strains.
Cross-reactivity was observed against drifted H3N2 and H1N1
strains, a response typically not seen without an adjuvant.
Safety
follow-up
for this study is ongoing; no vaccine-related serious adverse
events have been reported to date.
There are several points of differentiation of our influenza
vaccines when compared to traditional egg-based, or new
mammalian based approaches that form the basis to address unmet
medical needs and capitalize on commercial opportunities.
3
Our influenza VLPs contain components that provide a broad and
robust immune response. Specifically, the VLPs contain the viral
components hemagglutinin (HA), neuraminidase (NA) and matrix
protein (M1). Traditional egg-based vaccines contain meaningful
levels of HA but not NA or M1. The HA sequence in our VLPs is
the same as in the wild-type virus and could prove more
effective/immunogenic than flu vaccines produced using egg or
mammalian cell lines, which alter HA. In addition the NA and M1
in our VLPs may play a role in reducing the severity of the
disease by inducing antibody responses and cell mediated
immunity. NA and M1 are both highly conserved, and immunity to
these viral components should help provide additional protection
throughout an entire flu season even as strains mutate. Finally,
because of the VLPs structure and components, they may
have greater immunogenicity in two vulnerable
populations pediatric and elderly patients.
Our influenza VLPs may provide important time to market
advantages. Once an influenza virus strain is identified, our
VLP vaccines can be produced in about half the time of other
influenza vaccines. This can be a critical advantage in rapidly
addressing a pandemic outbreak, providing a vaccine earlier in
the season (including potential availability for back-to-school
doctor visits) and addressing a late-breaking influenza strain.
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Build a robust pipeline of products based upon our VLP
technology
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Our VLP technology is a platform technology which provides an
efficient system to select lead candidates, refine manufacturing
processes and optimize development across product candidates. In
addition to influenza, we currently have two vaccines in
discovery that are ready for preclinical development. The first
vaccine is for respiratory syncytial virus (RSV) and the second
is for varicella zoster virus (VZV).
RSV is the leading cause of hospitalizations in children and
second only to flu as the leading cause of hospitalizations for
pneumonia in the elderly. VZV is the virus that causes shingles
and the associated pain that may linger for up to 6 months,
called post-herpetic neuralgia. Preclinical studies of these
candidates have shown consistently robust antibody responses and
activation of cell mediated immunity. Further, mice vaccinated
with our RSV vaccine candidates and then infected with live RSV
were protected, with no virus replication in the lungs. We are
now in the process of selecting one or more RSV candidates for
preclinical studies to support an IND and future clinical trials.
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Maximize the potential of our unique and efficient
manufacturing process
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The baculovirus expression system manufacturing process for VLP
vaccines has been developed using a portable, ready-to-use
approach which requires less labor and infrastructure than
egg-based vaccine manufacturing processes. In addition, using
process development techniques, the vaccines under development
are providing yields which will lower cost of production, and
also allow the possibility of higher dose products that are
commercially viable. We can maximize these advantages in the
near term by producing vaccines for preclinical and clinical
studies of our vaccine pipeline of products, and in the long
term through potential commercialization advantages.
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Seek strategic collaborations and partnerships to advance
and set the stage for the commercialization of our products and
technologies
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We believe proprietary VLP technology affords us a range of
traditional and non-traditional commercial options that are
broader than those of existing vaccine companies. Our primary
strategy for maximizing the value of our early vaccine
candidates is to complete early to mid stage development and at
the right time, partner with an organization that has
complementary capabilities to maximize the commercial value of
the product.
Although the primary strategy is to create major partnerships
for commercialization, the manufacturing technology affords us
the option to commercialize products directly or through local
partnerships. These opportunities are not possible using
traditional vaccine and manufacturing approaches because of the
capital investment, scale and other resources needed for
industrial operations and commercialization. For example, we
have a pilot launch facility capable of producing ten
million-plus doses of seasonal influenza vaccines within six
months of strain identification. This capacity can be used to
commercialize influenza in the U.S. and other attractive
markets. Another example of our strategic relationships is our
collaboration with GE Healthcare (GEHC). In many countries there
are significant unmet needs related to pandemic influenza.
4
It is highly likely that borders would close in the event of a
pandemic; access to vaccine could be limited, putting
populations at risk. Because of the VLP technology and the
manufacturing benefits, it is cost-effective (both in terms of
capital expenditures and operating costs) for a country to have
an in-border solution for pandemic. Because our solution
utilizes a platform technology, a country is able to adapt the
manufacturing facility to create not only a seasonal vaccine,
but other VLP vaccines as well. A third example is to work with
government or
non-government
organizations (NGOs) to offer unique vaccines and vaccine
solutions to countries and populations in need that currently
have no or limited access.
Research
and Development Technology and Activities
Vaccines
VLPs. We develop and produce biopharmaceutical
proteins for use as vaccines against pandemic and seasonal
influenza and other infectious diseases. These proteins, as
tolerogens, are used to prevent inflammatory responses in the
initiation and progression of stroke and other illnesses. Our
lead vaccine technology platform is based on VLP, which are
self-assembling protein structures that resemble viruses. These
are noninfectious particles that, for many viral diseases, have
been shown in animal and human studies to make effective
vaccines. VLPs closely mimic natural virus particles with
repeating protein structures that can elicit broad and strong
antibody and cellular immune responses, but lack the genetic
material required for replication. We have several ongoing
development programs involving VLP vaccines that address urgent
medical needs, including pandemic and seasonal influenza,
Varicella Zoster Virus, RSV and other infectious diseases.
Pandemic Influenza VLP Vaccine. In the recent
past, unexpected influenza subtypes of avian origin have
resulted in severe morbidity and mortality in a limited number
of people. Highly pathogenic H5N1 influenza viruses which are
now widespread in poultry in Asia and have spread to some
European countries, have been linked to human infection. Genetic
reassortment between avian and human influenza subtypes, or
genetic mutations, may lead to the emergence of a virus capable
of causing worldwide illness, a pandemic. Proof-of-concept of
the VLP approach in H5N1 pandemic influenza has been
demonstrated by the Phase I/IIa human clinical trial interim
results released by us in December 2007. We reported that our
VLP vaccine for H5N1 influenza is immunogenic, that elicited
immune responses at both 15 and 45 mcg doses. We began subject
enrollment in the second portion of the Phase I/IIa trial in
March 2008 to gather additional subject immunogenicity and
safety data and determine a final dose through the completion of
this clinical trial. In August 2008, we reported favorable
results from this clinical trial, which demonstrated strong
neutralizing antibody titers across all three doses tested.
Although the safety data are still blinded at the subject level
(pending complete safety
follow-up),
there were no serious adverse events reported. In February 2009,
we announced that the vaccine induced robust hemagglutination
inhibition (HAI) responses, which have been shown to
be important for protectioni against influenza disease. We only
intend to initiate further human clinical trials for our
pandemic influenza vaccine, which would be required for
regulatory approval, with a collaborative partner.
Seasonal Influenza VLP Vaccine. According to
the Center for Disease Control, every year between 5% and 20% of
the United States population is infected by the influenza virus.
While the severity of illness varies, influenza causes an
estimated 36,000 deaths in the United States and 500,000
worldwide annually. These seasonal outbreaks have in recent
years been caused by subtypes of influenza virus designated as
H3N2 and H1N1. In December 2007, we announced results from a
preclinical study in mice. In April 2008, we announced that we
received positive results from an immunogenicity study in
ferrets inoculated with our trivalent seasonal influenza vaccine
candidate. In September 2008, we began Phase II clinical
trials to evaluate the safety and immunogenicity of different
doses of our seasonal influenza vaccine. In November 2008, we
announced a delay of our seasonal influenza dose ranging study
in the elderly (>65 years of age) from the
fourth quarter of 2008 to 2009, pending top line safety and
immunogenicity results from our ongoing seasonal influenza study
in healthy adults. We had observed a slightly different safety
profile (non-serious adverse events) from our Phase IIa trial of
our pandemic VLP vaccine, and decided to review and analyze the
dose response curve as well as the safety data from the healthy
adult seasonal trial prior to commencing a study in the elderly.
In December 2008, we announced favorable safety and
immunogenicity results from our Phase IIa seasonal study in
healthy adults. Further seasonal studies are planned in 2009
including the aforementioned study in elderly adults in the
second half of 2009. We intend to seek a collaborative partner
for
5
our seasonal influenza vaccine upon completion of additional
Phase II clinical studies, which are expected to be
completed by the end of 2009.
Varicella Zoster VLP Vaccine. In September
2007, we announced a new discovery-phase product indication
target for the prevention of a disease associated with Varicella
Zoster virus in older patients, commonly referred to as
Shingles. Shingles, a skin rash often accompanied by painful
blisters, is caused by the same virus that causes chickenpox.
Anyone who has had chicken pox can develop Shingles because VZV
remains dormant in the nerve cells and may re-emerge many years
later causing the illness. Shingles most frequently occurs in
patients 60 years or older and manifests itself with acute
pain (post-herpetic neuralgia-PHN) occurring in 65% of affected
patients. Shingles-associated pain may last months or even years
and can have a negative impact on quality of life. It is also
associated with high rates of hospitalization in older adults.
The Advisory Committee on Immunization Practices
(ACIP), a federal body of immunization experts,
currently recommends vaccination for all individuals
60 years of age or older. With only one vaccine currently
approved for use, the potential market for a Varicella Zoster
vaccine is significant.
Respiratory Syncytial Virus
(RSV). RSV is the most commonly
identified cause of lower respiratory tract infection in infants
and young children with repeated infections causing moderate to
severe cold-like symptoms throughout their lives. High risk
individuals (including the elderly over age 65 years,
people with cardiovascular disease and children less than four
years of age) may also develop lower respiratory tract
infections leading to bronchiolitis and pneumonia. It is
estimated that more than 8.5 million adults, including the
elderly over age 65 years, are infected and
900,000 patients are hospitalized annually due to RSV
infection in the United States and major European countries. In
the United States alone there are 177,500 hospitalizations of
high risk adults including the elderly over age 65,
resulting in annual medicals costs exceeding $1 billion. In
addition, there are up to 125,000 infants in the United States
who are hospitalized annually due to RSV.
On December 9, 2008, Novavax and the University of
Massachusetts Medical School announced results from a
preclinical study of an RSV vaccine candidate. Novavax has
licensed exclusive worldwide rights from the University of
Massachusetts Medical School to certain technology for the
development and commercialization of Paramyxovirus vaccines
incorporating certain VLPs. This vaccine candidate is our first
recombinant VLP for the prevention of RSV disease. The
preclinical study evaluated the immunogenicity and efficacy of
the RSV VLP vaccine candidate in mice. The RSV VLP vaccine
induced strong antibody responses against RSV, protected mice
against RSV replication in the lungs, and did not lead to
enhanced inflammation of the airways. These data support
continued development of this and additional RSV VLP vaccine
candidates containing other proteins (i.e., Gb
and F) important for immunity.
VLP Vaccine Manufacturing. All currently
approved influenza vaccines are produced by growing virus in
chicken eggs, from which the virus is extracted and further
processed. This
50-year-old
egg-based production method requires a minimum of a six-month
lead time for production of a new strain of virus and
significant investment in fixed production facilities, with
relatively low production yields. The vaccine shortage during
the 2004 flu season (caused in part by a contamination issue at
a facility in the United Kingdom) highlighted the limitations of
current production methods and the need for increased vaccine
manufacturing capacity. It also heightened concerns regarding
manufacturers capacity to respond to a pandemic, when the
number of vaccine doses required will be higher than the number
required for seasonal flu vaccines and manufacturing lead times
will be even shorter. We produce VLPs using a baculovirus
expression system in insect cells with disposable, low-cost
equipment that can be readily dispersed both nationally and
internationally. By not requiring significant production batch
sizes, production capacity can be employed quickly; estimated to
be built and validated within twelve to eighteen months compared
to the current approved manufacturing technology that can take
four years or more to deploy. Lead times for production against
new virus strains are measured in weeks, not months.
In 2007, we streamlined operations by consolidating our offices
and laboratories into our new corporate headquarters in
Rockville, Maryland where we leased a 51,000 square foot,
stand-alone facility. This facility has ample office space,
state of the art laboratory space, as well as utilities that
allow for operating a Good Manufacturing Practice
(GMP) pilot plant. In late 2007, we embarked on
making leasehold improvements to create a GMP pilot plant in
this facility, and in May 2008, we celebrated the opening of our
new state-of-the-art vaccine facility. On January 26, 2009,
we announced that all equipment in our pilot plant is installed
and ready for operations supporting
scale-up and
validation. The 5,000 square-foot, $5.0 million pilot
and commercial-scale
6
manufacturing plant will initially supply influenza vaccine for
our current clinical programs with planned annual capacity of
10 million doses. This facility showcases the capability of
our disposable production technology to create vaccine
production capacity rapidly, in a low infrastructure
environment, at a fraction of the cost required to bring
traditional vaccine facilities on line. In addition to lower
capital costs, we have made substantial improvement in our
production yields during 2007 which allows us to remain highly
competitive from a cost perspective even at higher vaccine
doses. We continued to operate our manufacturing operations for
producing Phase I/II vaccine materials at our Taft Court
facility, also located in Rockville, Maryland, until October
2008, when we closed the Taft Court location.
VLP Intellectual Property Rights. In March
2007, we secured additional intellectual property through the
licensing of additional VLP technology through a license
agreement with the University of Massachusetts using their
proprietary paramyxoviruses as a core for building VLP vaccines.
In July 2007, we entered into a non-exclusive license agreement
with Wyeth Holdings Corporation to obtain rights to a family of
patent applications covering VLP technology for use in human
vaccines in certain fields of use.
Other VLP Projects. We are working on certain
other vaccine projects with sponsoring organizations. These
projects, described below, are currently funded and controlled
by other parties. As is typical with these research contracts,
we do not currently have commercial rights to these products.
HIV-1/AIDS VLP Vaccine. The human toll
of AIDS is staggering and now kills more people worldwide than
any other infectious disease. Nearly 34 million people are
infected with HIV-1, including 2.5 million people who were
newly infected in 2007, according to the World Health
Organization (WHO). Under a five-year National
Institutes of Health (NIH) grant, which was awarded
in 2003, we are working in collaboration with leading scientists
from the University of Alabama Birmingham, Emory
University and Harvard Medical School in the development of a
second-generation AIDS vaccine. In January 2007, we announced
that it has significantly enhanced both the quality and purity
of its VLP vaccine for HIV/AIDS. This second generation AIDS
vaccine is based on the HIV-1 viral envelope with a natural
three-dimensional structure to trigger a protective immune
response. Preclinical studies are under way using the improved
HIV-1 vaccine, and planning has begun to advance this new
vaccine to human clinical trials in collaboration with the
United States government potentially as early as 2009. Early
versions of Novavaxs VLP vaccine were successful in
triggering immune responses in preclinical studies, however,
attempts to develop a vaccine against this disease has proven to
be elusive to date. Novavax scientists and its collaborators
discovered a way to optimize the expression of the HIV-1
envelope, which is a principal target for immunity in humans. We
do not have commercial rights to this potential vaccine;
however, the project does demonstrate the breadth of potential
application of VLPs to various infectious diseases. This
contract ended in the first quarter of 2008.
SARS VLP Vaccine. Severe acute
respiratory syndrome (SARS) is a viral respiratory
illness cased by a coronavirus and was first reported in Asia in
February 2003. According to the World Health Organization (WHO),
subsequent to the 2003 breakout, over 8,000 people were
infected, with 774 reported deaths. While there is currently no
known reported SARS transmission globally, WHO and other such
agencies continue to monitor the SARS situation on a global
basis as health officials remain concerned that SARS or similar
disease could reemerge. In 2005, the NIH awarded us a
$1.1 million, three-year grant to develop a vaccine to
prevent SARS. SARS is a severe form of pneumonia, accompanied by
a fever and caused by a coronavirus. Our SARS VLP vaccine is
also based on the production of coronavirus-like VLPs in insect
cells. In May 2008, we announced we had created a new
proprietary process to develop a vaccine candidate against SARS.
Novavax does not have the commercial rights to this product and
continues to work with NIH funding to support its development.
This contract ended in January 2009. We intend to apply for a no
cost extension and to seek additional funding from NIH on the
SARS grant.
E-Selectin Tolerogen. In collaboration
with the National Institute of Neurological Disorders and Stroke
(NINDS), we have been developing
E-selectin-based
molecularly-derived products for the prevention of strokes. In
September 2002, a published report in the professional journal
Stroke provided experimental evidence on prevention
of stroke in stroke-prone rats. These results provided
supportive evidence that
E-selectin
tolerization may help in the prevention of strokes and other
illness where inflammatory and immune responses are involved in
the initiation and progression of disease. We were awarded a
government contract for the formulation development and
manufacture of
E-selectin
for Phase I clinical trials to be run by the NINDS and the NIH.
Formulation and
7
product has been produced by the Company for future preclinical
and human clinical trials. We do not have commercial rights to
this product.
Research
and Development Funding
Total externally contracted research and development costs were
$0.3 million in 2008, $1.0 million in 2007 and
$0.9 million in 2006. Externally contracted research and
development costs were primarily related to our HIV, SARS and
E-Selectin
project. Total internally sponsored research and development
costs were $24.0 million in 2008, $16.6 million in
2007 and $10.4 million in 2006.
Competition
The biopharmaceutical industry and the vaccine market are
intensely competitive and are characterized by rapid
technological progress. There are a number of companies
developing and selling vaccines for pandemic and seasonal
influenza employing current technology with some modifications,
as well as new technologies. Our technology is based upon
utilizing the baculovirus expression system in insect cells to
make VLPs. We believe this system offers many advantages when
compared to other technologies and is uniquely suited for
developing pandemic and seasonal influenza vaccines as well as
other infectious diseases. The fact that we do not rely on the
use of adjuvants, chemical substances that can boost the human
immune system, leads us to believe we have a clearer regulatory
path toward approval of our vaccines with regulatory agencies.
The table below provides a list of major vaccine competitors and
corresponding influenza vaccine technologies.
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Company
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Competing Technology Description
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sanofi pasteur, Inc.
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Inactivated sub-unit (egg-based)
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MedImmune Vaccines, Inc. (a subsidiary of Astra-Zeneca, Inc.)
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Nasal, live attenuated (cell-based)
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GlaxoSmithKline Biologicals
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Inactivated (egg-based)
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Novartis, Inc.
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Inactivated sub-unit (egg-based)
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Merck & Co.
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Novel vaccines
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In general, competition among pharmaceutical products is based
in part on product efficacy, safety, reliability, availability,
price and patent position. An important factor is the relative
timing of the market introduction of our products and our
competitors products. Accordingly, the speed with which we
can develop products, complete the clinical trials and approval
processes and supply commercial quantities of the products to
the market is an important competitive factor. Our competitive
position also depends upon our ability to show differentiation
in the seasonal flu space with a product that is more
efficacious, particularly in the elderly population,
and/or be
less expensive and quicker to manufacture. It also depends upon
our ability to attract and retain qualified personnel, obtain
patent protection or otherwise develop proprietary products or
processes, and secure sufficient capital resources for the often
substantial period between technological conception and
commercial sale.
Patents
and Proprietary Rights
We generally seek patent protection for our technology and
product candidates in the United States and abroad. The patent
position of biotechnology firms generally is highly uncertain
and involves complex legal and factual questions. Our success
will depend, in part, on whether we can:
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Obtain patents to protect our own technologies and products;
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Obtain licenses to use the technologies of third parties, which
may be protected by patents;
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Protect our trade secrets and know-how; and
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Operate without infringing the intellectual property and
proprietary rights of others.
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Patent rights; licenses. We have intellectual
property (patents, licenses, know-how) related to its vaccine,
drug delivery, adjuvant and other technologies. Currently, we
have or have rights to over 99 United States patents and
corresponding foreign patents and patent applications relating
to vaccines and biologics. Our core vaccine
8
related intellectual property extends beyond 2010. On
November 6, 2008, we entered into an option agreement with
SGN Biopharma which allows SGN Biopharma to license certain
intellectual property rights from us related to our drug
delivery technology.
In March 2007, we secured additional intellectual property
through the licensing of additional VLP technology through a
license agreement with the University of Massachusetts using
their proprietary paramyxoviruses as a core for building VLP
vaccines. In July 2007, we entered into a non-exclusive license
agreement with Wyeth Holdings Corporation to obtain rights to a
family of patent applications covering VLP technology for use in
human vaccines in certain fields of use.
Consistent with statutory guidelines issued under the Federal
Technology Transfer Act of 1986 designed to encourage the
dissemination of science and technology innovation and provide
sharing of technology that has commercial potential, our
collaborative research efforts with the United States government
and with other private entities receiving federal funding
provide that developments and results must be freely published,
that information or materials supplied by us will not be treated
as confidential and that we will be required to negotiate a
license to any such developments and results in order to
commercialize products. There can be no assurance that we will
be able to successfully obtain any such license at a reasonable
cost, or that such developments and results will not be made
available to our competitors on an exclusive or non-exclusive
basis.
Trade Secrets. To a more limited extent, we
rely on trade secret protection and confidentiality agreements
to protect our interests. It is our policy to require employees,
consultants, contractors, manufacturers, collaborators, and
other advisors to execute confidentiality agreements upon the
commencement of employment, consulting or collaborative
relationships with us. We also require signed confidentiality
agreements from any entity that is to receive confidential
information from us. With respect to employees, consultants and
contractors, the agreements generally provide that all
inventions made by the individual while rendering services to us
shall be assigned to us as our property.
Government
Regulations
The development, production and marketing of pharmaceutical and
biological products developed by Novavax or our collaborators
are subject to regulation for safety, efficacy and quality by
numerous governmental authorities in the United States and other
countries. In the United States, the development, manufacturing
and marketing of human pharmaceuticals and vaccines are subject
to extensive regulation under the federal Food, Drug, and
Cosmetic Act, and biological products are subject to regulation
both under provisions of that Act and under the Public Health
Service Act. The Food and Drug Administration (FDA)
assesses the safety and efficacy of products and regulates,
among other things, the testing, manufacture, labeling, storage,
record keeping, advertising and promotion. The process of
obtaining FDA approval for a new product is costly and
time-consuming.
Vaccine clinical development follows the same general pathway as
for drugs and other biologics. A sponsor who wishes to begin
clinical trials with a vaccine must submit an Investigational
New Drug application (an IND) describing the
vaccine, its method of manufacture and quality control tests for
release. Before applying for FDA approval to market any new drug
product candidates, we must first submit an IND that explains to
the FDA the results of pre-clinical testing conducted in
laboratory animals and what we propose to do for human testing.
At this stage, the FDA decides whether it is reasonably safe to
move forward with testing the drug on humans. We must then
conduct Phase I human clinical trials and larger-scale
Phase II and III human clinical trials that
demonstrate the safety and efficacy of our products to the
satisfaction of the FDA. Once these trials are complete, a
Biologics License Application (BLA) (the biologic
equivalent to a New Drug Application) can be filed with the FDA
requesting approval of the vaccine for marketing based on the
vaccines effectiveness and safety.
If successful, the completion of all three phases of clinical
development can be followed by the submission of a BLA. Also
during this stage, the proposed manufacturing facility undergoes
a pre-approval inspection during which production of the vaccine
as it is in progress is examined in detail. Vaccine approval
also requires the provision of adequate product labeling to
allow health care providers to understand the vaccines
proper use, including its potential benefits and risks, to
communicate with patients and parents, and to safely deliver the
vaccine to the public. Until a vaccine is given to the general
population, all potential adverse events cannot be anticipated.
Thus,
9
many vaccines undergo Phase IV studies after a BLA has been
approved and the vaccine is licensed and on the market.
In addition to obtaining FDA approval for each product, each
domestic manufacturing establishment must be registered with the
FDA, is subject to FDA inspection and must comply with current
GMP regulations. To supply products for use either in the United
States or outside the United States, including clinical trials,
United States and foreign manufacturing establishments,
including third-party facilities, must comply with GMP
regulations and are subject to periodic inspection by the
corresponding regulatory agencies in their home country under
reciprocal agreements with the FDA
and/or by
the FDA.
Preclinical studies may take several years to complete and there
is no guarantee that the FDA will permit an IND based on those
studies to become effective and the product to advance to
clinical testing.
Clinical trials may take several years to
complete. After the completion of the required
phases of clinical trials, if the data indicate that the drug or
biologic product is safe and effective, a BLA or NDA (depending
on whether the product is a biologic or pharmaceutical product)
is filed with the FDA to approve the marketing and commercial
shipment of the drug. This process takes substantial time and
effort and the FDA may not accept the BLA or NDA for filing.
Even if filed, the FDA might not grant approval. FDA approval of
a BLA or NDA may take up to two years and may take longer if
substantial questions about the filing arise. The FDA may
require post-marketing testing and surveillance to monitor the
safety of the applicable products.
In addition to regulatory approvals that must be obtained in the
United States, an investigational product is also subject to
regulatory approval in other countries in which it is intended
to be marketed. No such product can be marketed in a country
until the regulatory authorities of that country have approved
an appropriate license application. FDA approval does not assure
approval by other regulatory authorities. In addition, in many
countries, the government is involved in the pricing of the
product. In such cases, the pricing review period often begins
after market approval is granted.
We are also subject to regulation under the Occupational Safety
and Health Act, the Environmental Protection Act, the Toxic
Substances Control Act, the Resource Conservation and Recovery
Act and other present and potential federal, state or local
regulations. These and other laws govern our use, handling and
disposal of various biological and chemical substances used in,
and waste generated by, our operations. Our research and
development involves the controlled use of hazardous materials,
chemicals and viruses. Although we believe that our safety
procedures for handling and disposing of such materials comply
with the standards prescribed by state and federal regulations,
the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such
an accident, we could be held liable for any damages that
result, and any such liability could exceed our resources.
Additionally, for formulations containing controlled substances,
we are subject to Drug Enforcement Act (DEA)
regulations.
There have been a number of federal and state proposals during
the last few years to subject the pricing of pharmaceutical and
biological products to government control and to make other
changes to the medical care system of the United States. It is
uncertain what legislative proposals will be adopted or what
actions federal, state or private payers for medical goods and
services may take in response to any medical reform proposals or
legislation. We cannot predict the effect medical or healthcare
reforms may have on our business, and no assurance can be given
that any such reforms will not have a material adverse effect.
Manufacturing
During the fourth quarter of 2007, we commenced the build out of
a manufacturing suite in our Rockville, Maryland corporate
headquarters for a 5,000 square foot GMP facility to
produce clinical trial material as well as modest
commercialization quantities of our VLP vaccines. Due to our
unique manufacturing platform, we believe we are able to produce
vaccines at up to 10 times the yields of traditional
manufacturing methods (i.e. egg-based), depending on the vaccine
dose, and at significantly lower capital costs than currently
available vaccine technologies. Construction for this GMP suite
was completed and a ribbon cutting ceremony was held in May
2008. This facility was ready for use in January 2009, when we
announced that all equipment in the pilot plant was installed
and ready for operations supporting scale up and validation. Any
plans to further expand our manufacturing capabilities
10
at our Rockville, Maryland facilities, including the facilities
necessary to expand manufacturing quantities, test and package
an adequate supply of finished products in order to meet any
long term commercial needs, will require additional resources
and will be subject to ongoing government approval and oversight.
We had a GMP facility in our other facility in Maryland which
incorporated disposable cell culture equipment that supported
the manufacturing requirements for early stage clinical trial
materials for our VLP vaccine candidates, including pandemic and
seasonal influenza vaccine candidates, and other biologic
products. This facility was used through September 2008, when we
consolidated our research and development and manufacturing
activities into one facility.
We also had a manufacturing facility in Philadelphia,
Pennsylvania. Estrasorb, our first FDA-approved commercial
product, was being manufactured at this facility. In February
2008, we entered into an agreement with Graceway
Pharmaceuticals, LLC (Graceway) to sell our
manufacturing equipment and other assets related to Estrasorb.
In addition to the sale of assets, we agreed to produce
additional lots of Estrasorb on behalf of Graceway, which was
completed in August 2008, at which time we closed down this
operation and exited the facility.
Sources
of Supply
Most of the raw materials and other supplies required in our
business are generally available from various suppliers in
quantities adequate to meet our needs. In some cases, we have
only qualified one supplier for certain of our manufacturing
components. We have plans in place to qualify multiple suppliers
for all critical supplies before the time we would put any of
our product candidates into commercial production. One of our
major suppliers is GE Healthcare which supplies disposable
components used in our manufacturing process. GE Healthcare
utilizes a sophisticated, in depth process to qualify multiple
vendors for the products that are supplied to us. All the
materials and vendors that supply manufacturing materials to the
Company are audited for compliance with GMP standards.
Business
Development
We continue to explore opportunities for corporate alliances and
partners to help develop and ultimately commercialize and market
our technologies and product candidates. Our strategy is to
enter into collaborative arrangements with pharmaceutical and
other companies for some or all aspects of product development,
manufacturing, marketing and sales of our products that will
require broad marketing capabilities and overseas marketing.
Specifically, we are working with GE Healthcare to engage
foreign countries in discussions of in-border solutions to a
pandemic threat. We also are seeking to collaborate with global
vaccine and other large pharmaceutical companies for our
seasonal product. These collaborators are generally expected to
be responsible for funding or reimbursing all or a portion of
the development costs, including the costs of later stage
clinical testing necessary to obtain regulatory clearances and
for commercial scale manufacturing, in exchange for rights to
market specific products in particular geographic territories.
Employees
As of March 10, 2009, we had 69 full-time employees
and 1 part-time employee for a total of 70 employees,
20 of whom hold M.D. or Ph.D. degrees and 15 of whom hold other
advanced degrees. Of our total workforce, 51 are engaged
primarily in research, development and manufacturing activities
and 19 are engaged primarily in business development, finance
and accounting and administrative functions. None of our
employees are represented by a labor union or covered by a
collective bargaining agreement, and we consider our employee
relations to be good.
Executive
Officers
Our executive officers hold office until the first meeting of
the Board of Directors following the Annual Meeting of
Stockholders and until their successors are duly chosen and
qualified, or until they resign or are removed from office in
accordance with our By-laws.
11
The following table provides certain information with respect to
our executive officers.
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Principal Occupation and Other Business
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Name
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Age
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Experience During the Past Five Years
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Rahul Singhvi
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44
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President and Chief Executive Officer and Director of Novavax
since August 2005. Senior Vice President and Chief Operating
Officer of Novavax from April 2005 to August 2005 and Vice
President, Pharmaceutical Development and Manufacturing
Operations from April 2004 to April 2005. For 10 years
prior to joining the Company, served in several positions with
Merck & Co., culminating as Director of the Merck
Manufacturing Division from 1999 to 2004.
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Raymond J. Hage, Jr.
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41
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Senior Vice President, Commercial Operations since October 2006.
Senior Vice President and Chief Operating Officer from August
2005 to October 2006 and Vice President of Marketing and
Corporate Development of Novavax from January 2004 to August
2005. Prior to joining the Company, served in several positions
including an independent marketing consultant with CHS, Inc. in
2003, Director of Marketing with Cephalon, Inc. from 2002 to
2003 and for 10 years held various marketing and sales
roles at Eli Lilly culminating as Director of US Womens
Health from 2001 to 2002.
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Penny Heaton
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44
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Vice President, Research & Development and Chief Medical
Officer of Novavax since October 2006. Prior to joining the
Company, served as Sr. Director and Director of Vaccine Clinical
Research at Merck & Co., Inc. from 1999 to
September 2006.
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James Robinson
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48
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Vice President, Technical Operations and Quality Operations at
Novavax since March 2007. Served at sanofi pasteur, Inc. in its
US Vaccine Division in various positions, most recently, as Vice
President, Industrial Operations from June 1986 to
December 2006.
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Thomas Johnston
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38
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Vice President, Strategy of Novavax since April 2008. Prior to
joining the Company in March 2007, and from August 2003 served
as independent strategic business consultant and Gemalto
employee for multiple industries including banking, government
security and mobile telecommunications. Prior to this, served
as VP of Emerging Technology for Fleet Bank, and additional
roles within Microsoft Corporation and Comcast Corporation.
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Evdoxia Kopsidas
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44
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Director of Finance, since October 2006. Prior to joining the
Company, served as Controller of BioVeris Corporation from June
2004 through October 2006 and Controller of BioReliance
Corporation between April 1998 and June 2004. Appointed as
Interim Principal Accounting Officer in February 2009.
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Availability
of Information
Novavax was incorporated in 1987 under the laws of the State of
Delaware. Our principal executive offices are located at 9920
Belward Campus Drive, Rockville, Maryland, 20850. Our telephone
number is
(240) 268-2000
and our website address is www.novavax.com. The contents
of our website are not part of this Annual Report on
Form 10-K.
We make available, free of charge and through our website, our
Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K,
and any amendments to any such reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended, as soon as reasonably
practicable after filed with or furnished to the Securities and
Exchange Commission.
12
You should carefully consider the following risk factors in
evaluating our business. There are a number of risk factors that
could cause our actual results to differ materially from those
that are indicated by forward-looking statements. Some of the
risks described relate principally to our business and the
industry in which we operate. Others relate principally to the
securities market and ownership of our common stock. The risks
and uncertainties described below are not the only ones facing
us. Additional risks and uncertainties that we are unaware of,
or that we currently deem immaterial, also may become important
factors that affect us. If any of the following risks occur, our
business, financial condition or results of operations could be
materially and adversely affected. You should also consider the
other information included in this Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008.
RISKS
RELATED TO OUR BUSINESS
We
have a history of losses and our future profitability is
uncertain.
Our expenses have exceeded our revenues since our formation in
1987, and our accumulated deficit at December 31, 2008 was
$235.8 million. Our net revenues from continuing operations
for the last three fiscal years were $1.1 million in 2008,
$1.5 million in 2007, and $1.7 million in 2006. We
have received a limited amount of related revenue from research
contracts, licenses and agreements to provide vaccine
candidates, services and technologies. We cannot be certain that
we will be successful in entering into strategic alliances or
collaborative arrangements with other companies that will result
in significant revenues to offset our expenses. Our net losses
for the last three fiscal years were $36.0 million in 2008,
$34.8 million in 2007, and $23.1 million in 2006,
including discontinued operations.
Our historical losses have resulted from research and
development expenses for our vaccine and drug delivery product
candidates, sales and marketing expenses, and manufacturing
expenses for Estrasorb, protection of our intellectual property
and other general operating expenses. Our losses increased due
to the launch of Estrasorb since 2004 as we expanded our
manufacturing capacity, and sales and marketing capabilities.
More recently, our losses have increased, and will continue to
increase, as a result of higher research and development efforts
to support the development of our vaccines, particularly our
pandemic and seasonal influenza vaccines.
We expect to continue to incur significant operating expenses
and anticipate that our expenses and losses will increase in the
foreseeable future as we seek to:
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pay our outstanding $22 million principal amount of
4.75% senior convertible notes due July 15, 2009 (the
convertible notes);
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complete Phase II clinical trials for our seasonal flu
vaccine;
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complete our human Phase I/IIa clinical trial for our pandemic
flu vaccines;
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conduct additional preclinical studies for Varicella Zoster and
RSV product candidates using our VLP vaccine technology platform;
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obtain validation from the Food and Drug Administration as a
product manufacturing facility and comply with the FDAs
manufacturing facility requirements; and
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maintain, expand and protect our intellectual property portfolio.
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As a result, we expect our cumulative operating losses to
increase until such time, if ever, that product sales, licensing
fees, royalties, milestones, contract research and other sources
generate sufficient revenue to fund our continuing operations.
We cannot predict when, if ever, we might achieve profitability
and cannot be certain that we will be able to sustain
profitability, if achieved.
13
We
have limited financial resources and we are not certain that we
will be able to maintain our current level of operations or be
able to fund the further development of our product
candidates.
We do not expect to generate revenues from product sales,
licensing fees, royalties, milestones, contract research or
other sources in an amount sufficient to fund our operations,
and we will therefore use our cash resources and expect to
require additional funds to maintain our operations, continue
our research and development programs, commence future
preclinical studies and clinical trials, seek regulatory
approvals and manufacture and market our products. We will seek
such additional funds through public or private equity or debt
financings, collaborative licensing and development arrangements
and other sources. We cannot be certain that adequate additional
funding will be available to us on acceptable terms, if at all.
If we cannot raise the additional funds required for our
anticipated operations, we may be required to delay
significantly, reduce the scope of or eliminate one or more of
our research or development programs, further downsize our
general and administrative infrastructure, or seek alternative
measures to avoid insolvency, including arrangements with
collaborative partners or others that may require us to
relinquish rights to certain of our technologies, product
candidates or products. If we raise additional funds through
future offerings of shares of our common stock or other
securities, such offerings would cause dilution of existing
stockholders percentage ownership in the Company. Given
the current market price of our common stock, such dilution
would likely be substantial. These future offerings also could
have a material and adverse effect on the price of our common
stock.
Our
convertible notes mature on July 15, 2009 and the use of
our cash and common stock to satisfy this debt could adversely
affect our cash flow, dilute stockholders, cause the price of
our common stock to go down and limit our ability to raise
capital.
As of December 31, 2008, we had $22.0 million
principal amount of our convertible notes outstanding, although
for financial reporting purposes the value was held at
$21.8 million, net of a $200,000 debt discount, that will
be accrued to the principal amount over the remaining term of
the debt. Under the terms of the convertible notes, at our
option, we can pay up to 50% of the outstanding convertible
notes in Novavax common stock on the due date, subject to the
satisfaction of certain conditions, including, among other
things, a requirement that the shares issued upon conversion be
registered or freely tradable without registration, that the
shares of common stock have not been suspended from trading on
NASDAQ during the applicable measurement period and there is no
threatened delisting or suspension, and that we are otherwise in
compliance with our agreements with the noteholders. The amount
of shares that may be issued at maturity may be subject to
adjustment depending on the noteholders percentage
ownership of the Company on an as-converted basis and if the
Companys stock price falls below $2.00 during the
measurement period. As a result, the Company will have to pay at
least $11.0 million in cash to satisfy the convertible
notes on the due date unless the notes are converted into common
stock, redeemed or amended.
We believe that the pending maturity date, potential dilution
and use of cash to pay the principal and interest due
July 15, 2009 may be a factor in the recent reduction
in the Companys common stock market price. Until the
convertible notes are paid, converted, redeemed or amended, it
is likely to cause the market price to remain depressed or
further decrease. In addition, the outstanding convertible notes
and the pending maturity date may be having additional negative
consequences. It could
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affect our ability to raise additional capital, either through
the issuance of additional debt or sales or equity securities;
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influence a potential strategic or collaborative partners
willingness to enter into collaborative licensing or development
arrangements with us;
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increase our vulnerability to general adverse economic and
industry conditions; and
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limit our flexibility in planning for, or reacting to, changes
in our business and the industry, which may place us at a
competitive disadvantage compared with competitors that have
less indebtedness.
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We may incur additional indebtedness in the future for various
reasons, including restructuring the convertible notes, which
could extend or increase the risks associated with our
substantial leverage.
14
Our
common stock may be delisted from The NASDAQ Global Market,
which could negatively impact the price of our common stock, our
ability to access the capital markets and our ability to convert
our convertible debt
In December 2008, NASDAQ extended its suspension of the rules
requiring a minimum $1.00 closing bid price and a minimum market
value of publicly held shares. Given the continued extraordinary
market conditions, NASDAQ is extending the suspension of the bid
price and market value of publicly held shares requirements.
Enforcement of these rules is scheduled to resume on Monday,
April 20, 2009. Our stock price has not closed above the
minimum $1.00 bid price since February 26, 2009.
Additionally, we must maintain stockholders equity of at
least $30 million to be in compliance with the continued
listing standards for the NASDAQ Global Market. At
December 31, 2008, our consolidated stockholders
equity was approximately $45 million. We cannot guarantee
that we will be able to meet this listing standard in the
future. If we fail to meet this NASDAQ listing requirement in
the future and are unable to successfully appeal to the NASDAQ
Listing Qualification Staff and Hearings Panel for an extension
of time to regain compliance, our common stock could be delisted
from the NASDAQ Global Market, and we may apply to have our
stock traded on the Over-The-Counter Bulletin Board, an
electronic quotation system that displays stock quotes by market
makers. There can be no assurance that our common stock would be
timely admitted for trading on that market. This alternative may
result in a less liquid market available for existing and
potential shareholders to buy and sell shares of our stock and
could further depress the price of our stock. In addition, it is
a condition to our ability to pay up to half of our convertible
notes in shares of common stock that our shares not be suspended
from trading on NASDAQ and there is no threatened suspension or
delisting.
The
current capital and credit market conditions may adversely
affect the companys access to capital, cost of capital,
and ability to execute its business plan as
scheduled
Access to capital markets is critical to our ability to operate.
Traditionally, biopharmaceutical companies have funded their
research and development expenditures through raising capital in
the equity markets. Declines and uncertainties in these markets
over the past year have severely restricted raising new capital
and have affected companies ability to continue to expand
or fund existing research and development efforts. We require
significant capital for research and development for our product
candidates and clinical trials. The general economic and capital
market conditions, both in the United States and worldwide have
deteriorated significantly and have adversely affected our
access to capital and increased the cost of capital, and there
is no certainty that a recovery in the capital and credit
markets, enabling us to raise capital, will occur in the 2009
fiscal year. If these economic conditions continue or become
worse, the Companys future cost of equity or debt capital
and access to the capital markets could be adversely affected.
In addition, an inability by the Company to access the capital
markets on favorable terms due to our low stock price, or upon
our delisting from the NASDAQ Global Market if we fail to
satisfy a listing requirement, could affect our ability to
execute our business plan as scheduled. Moreover, we rely and
intend to rely on third-parties, including our clinical research
organizations, third-party manufacturers, and certain other
important vendors and consultants. As a result of the current
volatile and unpredictable global economic situation, there may
be a disruption or delay in the performance of our third-party
contractors and suppliers. If such third-parties are unable to
adequately satisfy their contractual commitments to us in a
timely manner, our business could be adversely affected.
We are
limited in our ability to raise additional capital and any sale
of common stock could be significantly dilutive to existing
stockholders.
We will need to engage in capital raising activities in the near
term. Current economic and market conditions, as well as our
convertible notes (as described above), significantly restrict
our ability to raise capital through common stock sales and
additional indebtedness. Due to these and other conditions, we
may not be able to sell shares of our common stock at a price
favorable to us or we may need to sell a large block of stock to
raise sufficient capital or be able to sell any stock at all.
The sale of common stock would cause an immediate and
substantial equity dilution for our existing stockholders. This
may further depress the market price of our common stock and
further impair our ability to raise additional capital by
selling our common stock. Based on the current trading price of
our common stock, we may face challenges selling equity to raise
sufficient funds to execute our business plan due to
NASDAQs Marketplace rules.
15
A
portion of our investments are auction rate securities which
present potential liquidity concerns.
As of December 31, 2008, we had $8.2 million invested
in auction rate securities, which were classified as short-term
investments available for sale and carried at their estimated
fair value of $7.0 million. Auction rate securities are
long-term debt instruments that provide liquidity through a
competitive bidding process known as a Dutch Auction
that resets the applicable interest rates at pre-determined
calendar intervals. Due to recent uncertainties in the credit
markets, we may be unable to liquidate some or all of our
auction rate securities when we are in need of the cash to fund
operations at prices that are acceptable to us. Even if we are
able to liquidate the investments, the sales may be at a loss.
In addition, given the complexity of auction rate securities and
their valuations, our estimates of their fair value may differ
from the actual amount we would be able to collect in the
ultimate sale. It is uncertain as to when the liquidity issues
relating to these investments will improve.
We
have repositioned ourselves from a specialty pharmaceutical
company and face all the risks inherent in the implementation of
a new business strategy.
In 2005, we changed the focus of the Company from the
development and commercialization of specialty pharmaceutical
products to the research and development of new products using
our proprietary virus-like particle vaccine technology platform.
We cannot predict whether we will be successful in implementing
our new business strategy.
We focus our research and development activities on vaccines, an
area in which we have particular strengths and a technology that
appears promising. The outcome of any research and development
program is highly uncertain. Only a small fraction of
biotechnology development programs ultimately result in
commercial products or even product candidates and a number of
events could delay our development efforts and negatively impact
our ability to obtain regulatory approval for, and to market and
sell, a product candidate. Product candidates that initially
appear promising often fail to yield successful products. In
many cases, preclinical or clinical studies will show that a
product candidate is not efficacious or that it raises safety
concerns or has other side effects that outweigh its intended
benefit. Success in preclinical or early clinical trials may not
translate into success in large-scale clinical trials. Further,
success in clinical trials will likely lead to increased
investment, accelerating cumulative losses, to bring such
products to market. Even after a product is approved and
launched, general usage or post-marketing studies may identify
safety or other previously unknown problems with the product,
which may result in regulatory approvals being suspended,
limited to narrow indications or revoked, which may otherwise
prevent successful commercialization.
Many
of our competitors have significantly greater resources and
experience, which may negatively impact our commercial
opportunities and those of our current and future
licensees.
The biotechnology and pharmaceutical industries are subject to
intense competition and rapid and significant technological
change. We have many potential competitors, including major drug
and chemical companies, specialized biotechnology firms,
academic institutions, government agencies and private and
public research institutions. Many of our competitors have
significantly greater financial and technical resources,
experience and expertise in:
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research and development;
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preclinical testing;
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designing and implementing clinical trials;
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regulatory processes and approvals;
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production and manufacturing; and
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sales and marketing of approved products.
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16
Principal competitive factors in our industry include:
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the quality and breadth of an organizations technology;
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management of the organization and the execution of the
organizations strategy;
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the skill and experience of an organizations employees and
its ability to recruit and retain skilled and experienced
employees;
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an organizations intellectual property portfolio;
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the range of capabilities, from target identification and
validation to drug discovery and development to manufacturing
and marketing; and
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the availability of substantial capital resources to fund
discovery, development and commercialization activities.
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Large and established companies such as Merck & Co.,
Inc., GlaxoSmithKline PLC, Novartis, Inc., sanofi pasteur, Inc.
and MedImmune Inc. (a subsidiary of Astra-Zeneca, Inc.), among
others, compete in the vaccine market. In particular, these
companies have greater experience and expertise in securing
government contracts and grants to support their research and
development efforts, conducting testing and clinical trials,
obtaining regulatory approvals to market products, and
manufacturing such products on a broad scale and marketing
approved products.
There are many seasonal flu vaccines currently approved and
marketed. Competition in the sale of these seasonal flu vaccines
is intense. Therefore, newly developed and approved products
must be differentiated from existing vaccines in order to have
commercial success. In order to show differentiation in the
seasonal flu space, a product must be more efficacious,
particularly in the elderly population,
and/or be
less expensive and quicker to manufacture. Many of our
competitors are working on new products and new generations of
current products, often by adding an adjuvant that is used to
increase the efficacy of the current product, each of which is
intended to be more efficacious than products currently being
marketed. Our seasonal flu product may not prove to be more
efficacious than current products or products under development
by our competitors. Further, our manufacturing system may not
provide enough savings of time or money to provide the required
differentiation for commercial success.
Smaller or early-stage companies and research institutions may
also prove to be significant competitors, particularly through
collaborative arrangements with large and established
pharmaceutical or other companies. As these companies develop
their technologies, they may develop proprietary positions,
which may prevent or limit our product development and
commercialization efforts. We will also face competition from
these parties in recruiting and retaining qualified scientific
and management personnel, establishing clinical trial sites and
subject registration for clinical trials, and in acquiring and
in-licensing technologies and products complementary to our
programs or potentially advantageous to our business. If any of
our competitors succeed in obtaining approval from the FDA or
other regulatory authorities for their products sooner than we
do or for products that are more effective or less costly than
ours, our commercial opportunity could be significantly reduced.
In order to effectively compete, we will have to make
substantial investments in development, testing, manufacturing
and sales and marketing or partner with one or more established
companies. There is no assurance that we will be successful in
gaining significant market share for any product or product
candidate. Our technologies and products also may be rendered
obsolete or noncompetitive as a result of products introduced by
our competitors to the marketplace more rapidly and at a lower
cost.
If we
lose or are unable to attract key management or other personnel,
we may experience delays in product development.
We depend on our senior executive officers as well as key
scientific and other personnel. The loss of these individuals
could harm our business and significantly delay or prevent the
achievement of research, development or business objectives. Our
Chief Financial Officer resigned effective January 28, 2009
to pursue opportunities closer to home. While we have retained
an executive search firm to recruit a replacement Chief
Financial Officer, however, we may not be able to attract a
qualified individual on terms acceptable to us. We have not
purchased key-man life
17
insurance on any of our executive officers or key personnel, and
therefore may not have adequate funds to find acceptable
replacements for them. Competition for qualified employees is
intense among pharmaceutical and biotechnology companies, and
the loss of qualified employees, or an inability to attract,
retain and motivate additional highly skilled employees required
for the expansion of our activities, could hinder our ability to
complete human studies successfully and develop marketable
products.
We also rely from time-to-time on outside advisors who assist us
in formulating our research and development and clinical
strategy. We may not be able to attract and retain these
individuals on acceptable terms, which could have a material
adverse effect on our business, financial condition and results
of operations.
We
have experienced significant management turnover.
Our current President and Chief Executive Officer, Rahul
Singhvi, assumed this responsibility in August 2005. Most of our
executive officers have joined us since that time. As mentioned
above, our Chief Financial Officer resigned effective
January 28, 2009, and efforts are underway to find a
replacement. This lack of management continuity, and the
resulting lack of long-term history with our Company, could
result in operational and administrative inefficiencies and
added costs. If we were to experience additional turnover at the
executive level, these risks would be exacerbated.
We may
have product liability exposure.
The administration of drugs to humans, whether in clinical
trials or after marketing clearances are obtained, can result in
product liability claims. We maintain product liability
insurance coverage in the total amount of $10 million for
claims arising from the use of our currently marketed products
and products in clinical trials prior to FDA approval. Coverage
is relatively expensive, and the market pricing can
significantly fluctuate. Therefore, we may not be able to
maintain insurance at a reasonable cost. There can be no
assurance that we will be able to maintain our existing
insurance coverage or obtain coverage for the use of our other
products in the future. This insurance coverage and our
resources may not be sufficient to satisfy all liabilities
resulting from product liability claims. A successful claim may
prevent us from obtaining adequate product liability insurance
in the future on commercially desirable items, if at all. Even
if a claim is not successful, defending such a claim would be
time-consuming and expensive, may damage our reputation in the
marketplace, and would likely divert managements attention.
Regardless of merit or eventual outcome, liability claims may
result in:
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decreased demand for our products;
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impairment of our business reputation;
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withdrawal of clinical trial participants;
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costs of related litigation;
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substantial monetary awards to subjects or other claimants;
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loss of revenues; and
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the inability to commercialize our product candidates.
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There
are outstanding loans owed by certain of our former directors,
which if not repaid, would result in a loss to the
Company.
We have two outstanding notes to former directors which are
secured by shares of our common stock. The notes were initially
due upon the earlier of (a) the date the individual ceased
to be a director of Novavax, (b) in whole or in part, to
the extent of net proceeds on the date on which the director
sold all or a portion of the pledged shares, or
(c) March 21, 2007.
In May 2006, one of these directors resigned from the
Companys Board of Directors. Following his resignation, we
approved an extension of the former directors $448,000
note to December 31, 2007 or earlier
18
to the extent of the net proceeds of the pledged shares. In
connection with this extension, the former director executed a
general release of all claims against the Company. On
May 7, 2008, the Company and the former director entered
into an Amended and Restated Promissory Note and an Amended and
Restated Pledge Agreement (the Amendment). The
Amendment restates the entire amount outstanding as of
December 31, 2007, including accrued interest, or $578,848,
as the new outstanding principal amount. Furthermore, the
Amendment further extends the maturity date of the note to
June 30, 2009, permits us to sell the pledged shares if the
market price of the common stock exceeds certain targets,
increases the interest rate to 8.0% and stipulates quarterly
payments beginning on June 30, 2008.
In March 2007, the second director resigned from the Board of
Directors before the maturity date. In an agreement dated
May 7, 2007, the Board agreed to extend the note that was
due March 21, 2007 to June 30, 2009 and secured
additional collateral in the form of a lien on certain
outstanding stock options. Also under the May 7, 2007
agreement, we have the right to exercise the stock options, sell
the acquired shares and the other shares held as collateral and
use the proceeds to pay the debt, if the share price exceeds a
certain target at any time during the period between May 7,
2007 and June 30, 2009. The note continues to accrue
interest at 5.07% per annum and continues to be secured by
166,666 shares of common stock owned by the former director.
We are uncertain about the collectability of these notes. We do
not know if the price of our common stock will reach the target
prices allowing us to realize on the pledged collateral. Even if
we are able to sell some or all of the pledged shares, we may
not recover the full amount outstanding under either note. We
continue to actively work with these two individuals to collect
the amounts outstanding and reserve our rights to legal remedies
available to us. There are no assurances that the former
directors will be able to repay the notes when due under the
terms of the current agreements.
We may
not be able to win government, institution or non-profit
grants.
From time to time, we may apply for grants from academic
institutions, government agencies and non-profit entities. Such
grants can be highly attractive because they provide capital to
fund the ongoing development of our technologies and product
candidates without diluting our stockholders. However, there is
often significant competition for these grants. Grantors may
have requirements to apply for or to otherwise be eligible to
receive certain grants that our competitors may be able to
satisfy that we cannot. In addition, grantors may make arbitrary
decisions as to whether to make grants, to whom the grants will
be awarded and the size of the grants to each awardee.
Therefore, we may not be able to win grants.
Current
economic conditions and capital markets are in a period of
disruption and instability which could adversely affect our
ability to raise capital and may adversely affect our business
and liquidity.
The current economic conditions and related capital markets may
have a negative impact on our ability to access the capital
markets, and thus have a negative impact on our business and
liquidity. The shortage of liquidity and credit combined with
recent substantial losses in worldwide equity markets has led to
an extended worldwide recession. We may face significant
challenges in selling shares of common stock or in obtaining
debt financing if conditions in the capital markets do not
improve.
If we are not able to enter into a collaborative licensing and
development arrangement with a third party or win a government
grant, we will need to raise money through additional debt or
equity offerings. Our ability to access the capital markets may
be severely restricted at a time when we are accessing such
markets, which would have a negative impact on our business
plans, including our pre-clinical studies and clinical trial
schedules and other research and development activities. Even if
we are able to raise additional capital, it may not be at a
price or on terms that are favorable to us and it may cause a
substantial dilution to our existing stockholders. We cannot
predict the occurrence of future disruptions or how long the
current conditions may continue.
19
Raising
additional capital by issuing securities or through
collaboration and licensing arrangements may cause dilution to
existing stockholders or require us to relinquish rights to our
technologies or product candidates.
If we are unable to partner with a third party to advance the
development of one or more of our vaccine candidates, we will
need to raise money through additional debt or equity
financings. To the extent that we raise additional capital by
issuing equity securities, our stockholders will experience
immediate and significant dilution. To the extent that we raise
additional capital through licensing arrangements or
arrangements with collaborative partners, we may be required to
relinquish, on terms that are not favorable to us, rights to
some of our technologies or product candidates that we would
otherwise seek to develop or commercialize ourselves. In
addition, current economic conditions may also negatively affect
the desire or ability of potential collaborators to enter into
transactions with us. They may also have to delay or cancel
research and development projects or reduce their overall
budgets.
Global
credit and financial market conditions could negatively impact
the value of our current portfolio of cash equivalents or
short-term investments and our ability to meet our financing
objectives.
Our short-term investments consist primarily of auction rate
securities and are classified as available for sale. While as of
the date of this filing, we have recorded a reduction in the
value of these securities due to their illiquidity of
approximately $1.2 million, we cannot assure you that
further deterioration in conditions of the global credit and
financial markets will not occur. Such a further deterioration
could negatively impact our current portfolio of cash
equivalents or short-term investments or our ability to meet our
financing objectives. As described above under A
portion of our investments are auction rate securities which
present potential liquidity concerns, we hold some
auction rate securities that could have additional liquidity
concerns.
PRODUCT
DEVELOPMENT RISKS
Because
our vaccine product development efforts depend on new and
rapidly evolving technologies, we cannot be certain that our
efforts will be successful.
Our vaccine work depends on new, rapidly evolving technologies
and on the marketability and profitability of our products.
Commercialization of our vaccine products could fail for a
variety of reasons, and include the possibility that:
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our VLP technology, any or all of the products based on VLP
technology or our proprietary manufacturing process will be
ineffective or unsafe, or otherwise fail to receive necessary
regulatory clearances;
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the products, if safe and effective, will be difficult to
manufacture on a large scale or uneconomical to market;
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we will fail to have our GMP pilot plant validated or that the
plant will fail to continue to pass regulatory inspections;
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proprietary rights of third parties will prevent us or our
collaborators from exploiting technologies or marketing
products; and
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third party competitors will gain greater market share due to
superior products or marketing capabilities.
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We
have not completed the development of vaccine products and we
may not succeed in obtaining the FDA approval necessary to sell
additional products.
The development, manufacture and marketing of our pharmaceutical
and biological products are subject to government regulation in
the United States and other countries. In the United States and
most foreign countries, we must complete rigorous preclinical
testing and extensive human clinical trials that demonstrate the
safety and efficacy of a product in order to apply for
regulatory approval to market the product. We also have product
candidates in human clinical trials and preclinical laboratory
or animal studies.
20
The steps required by the FDA before our proposed
investigational products may be marketed in the United States
include:
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performance of preclinical (animal and laboratory) tests;
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submissions to the FDA of an IND which must become effective
before human clinical trials may commence;
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performance of adequate and well-controlled human clinical
trials to establish the safety and efficacy of the
investigational product in the intended target population;
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performance of a consistent and reproducible manufacturing
process intended for commercial use;
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submission to the FDA of a BLA or a New Drug Application
(NDA); and
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FDA approval of the BLA or NDA before any commercial sale or
shipment of the product.
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The processes are expensive and can take many years to complete,
and we may not be able to demonstrate the safety and efficacy of
our products to the satisfaction of such regulatory authorities.
The start of clinical trials can be delayed or take longer than
anticipated for many and varied reasons, many of which are out
of our control. Safety concerns may emerge that could lengthen
the ongoing trials or require additional trials to be conducted.
Regulatory authorities may also require additional testing, and
we may be required to demonstrate that our proposed products
represent an improved form of treatment over existing therapies,
which we may be unable to do without conducting further clinical
studies. Moreover, if the FDA grants regulatory approval of a
product, the approval may be limited to specific indications or
limited with respect to its distribution. Expanded or additional
indications for approved drugs may not be approved, which could
limit our revenues. Foreign regulatory authorities may apply
similar limitations or may refuse to grant any approval.
Consequently, even if we believe that preclinical and clinical
data are sufficient to support regulatory approval for our
product candidates, the FDA and foreign regulatory authorities
may not ultimately grant approval for commercial sale in any
jurisdiction. If our drug candidates are not approved, our
ability to generate revenues will be limited and our business
will be adversely affected.
We
must identify products and product candidates for development
with our VLP technology and establish successful third-party
relationships.
The near and long-term viability of our vaccine product
candidates will depend in part on our ability to successfully
establish new strategic collaborations with pharmaceutical and
biotechnology companies and government agencies. Establishing
strategic collaborations and obtaining government funding is
difficult and time-consuming. We will only initiate further
human clinical trials for our pandemic influenza vaccine with a
collaborative partner and will seek a collaborative partner for
our seasonal influenza vaccine upon completion of additional
Phase II clinical studies. Potential collaborators may
reject collaborations based upon their assessment of our
financial, regulatory or intellectual property position;
government agencies may reject contract or grant applications
based on their assessment of public need, the public interest,
our products ability to address these areas or other
reasons beyond our expectations or control. If we fail to
establish a sufficient number of collaborations or government
relationships on acceptable terms, we may not be able to
commercialize our vaccine product candidate or generate
sufficient revenue to fund further research and development
efforts.
Even if we establish new collaborations or obtain government
funding, these relationships may never result in the successful
development or commercialization of any vaccine product
candidates for several reasons, including the fact that:
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we may not have the ability to control the activities of our
partner and cannot provide assurance that they will fulfill
their obligations to us, including with respect to the license,
development and commercialization of products and product
candidates, in a timely manner or at all;
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such partners may not devote sufficient resources to our
products and product candidates or properly maintain or defend
our intellectual property rights;
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any failure on the part of our partners to perform or satisfy
their obligations to us could lead to delays in the development
or commercialization of our products and product candidates, and
affect our ability to realize product revenues; and
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disagreements, including disputes over the ownership of
technology developed with such collaborators, could result in
litigation, which would be time-consuming and expensive, and may
delay or terminate research and development efforts, regulatory
approvals, and commercialization activities.
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Our collaborators will be subject to the same regulatory
approval of the manufacturing facility and process as Novavax.
Before we could begin commercial manufacturing of any of our
product candidates, we and our collaborators must pass a
pre-approval inspection before FDA approval and comply with the
FDAs current Good Manufacturing Practices. If our
collaborators fail to comply with these requirements, our
product candidates would not be approved. If our collaborators
fail to comply with these requirements after approval, we would
be subject to possible regulatory action and may be limited in
the jurisdictions in which we are permitted to sell our products.
If we or our partners fail to maintain our existing agreements
or in the event we fail to establish agreements as necessary, we
could be required to undertake research, development,
manufacturing and commercialization activities solely at our own
expense. These activities would significantly increase our
capital requirements and, given our lack of sales, marketing and
distribution capabilities, significantly delay the
commercialization of products and product candidates.
Because
we depend on third parties to conduct some of our laboratory
testing and human studies, we may encounter delays in or lose
some control over our efforts to develop products.
We are dependent on third-party research organizations to
conduct some of our laboratory testing and human studies. If we
are unable to obtain any necessary testing services on
acceptable terms, we may not complete our product development
efforts in a timely manner. If we rely on third parties for
laboratory testing and human studies, we may lose some control
over these activities and become too dependent upon these
parties. These third parties may not complete testing activities
on schedule or when we request. We may not be able to secure and
maintain suitable research organizations to conduct our
laboratory testing and human studies. We are responsible for
confirming that each of our clinical trials is conducted in
accordance with its general investigational plan and protocol.
Moreover, the FDA and foreign regulatory agencies require us to
comply with regulations and standards, commonly referred to as
good clinical practices, for conducting, recording and reporting
the results of clinical trials to assure that data and reported
results are credible and accurate and that the trial
participants are adequately protected. Our reliance on third
parties does not relieve us of these responsibilities and
requirements. If these third parties do not successfully carry
out their contractual duties or regulatory obligations or meet
expected deadlines, if the third parties need to be replaced or
if the quality or accuracy of the data they obtain is
compromised due to the failure to adhere to our clinical
protocols or regulatory requirements or for other reasons, our
pre-clinical development activities of clinical trials may be
extended, delayed, suspended or terminated, and we may not be
able to obtain regulatory approval for our product candidates.
Our
relationship with GE Healthcare may not be
profitable.
We have entered into a co-marketing agreement with GE Healthcare
to co-market a pandemic influenza vaccine solution to select
international countries. The collaboration incorporates GE
Healthcares bioprocess solutions and design expertise with
Novavaxs VLP manufacturing platform. We cannot predict
when, if at all, we will be able to successfully negotiate a
definitive agreement with a target country. Even if we do enter
into a definitive agreement, it may not result in significant
revenues.
Even
though we have received governmental support in the past, we may
not continue to receive support at the same level or at
all.
The United States government, through its various agencies, has
provided grants to fund certain research and development
efforts. There can be no assurances that the Company will
continue to receive the same level of funding from the United
States government, if at all.
22
If we
are unable to manufacture our vaccines in sufficient quantities
or are unable to obtain regulatory approvals for a manufacturing
facility for our vaccines, we may experience delays in product
development and clinical trials.
Completion of our clinical trials and commercialization of our
vaccine product candidates require access to, or development of,
facilities to manufacture a sufficient supply of our product
candidates. We have limited experience manufacturing any of our
product candidates in the volumes that will be necessary to
support large-scale clinical trials or commercial sales. Efforts
to establish capabilities may not meet initial expectations as
to scheduling, reproducibility, yield, purity, cost, potency or
quality.
If we are unable to manufacture our product candidates in
clinical quantities or, when necessary, in commercial
quantities, then we will need to rely on third parties to
manufacture compounds for clinical and commercial purposes.
These third-party manufacturers must also receive FDA approval
before they can produce clinical material or commercial
products. Our vaccines may be in competition with other products
for access to these facilities and may be subject to delays in
manufacture if third parties give other products greater
priority. In addition, we may not be able to enter into any
necessary third-party manufacturing arrangements on acceptable
terms, or on a timely basis. In addition, we would have to enter
into a technical transfer agreement and share our know-how with
the third party manufacturer.
We
rely on a limited number of suppliers for some of our
manufacturing materials. Any problems experienced by any of
these suppliers could negatively affect our
operations.
We rely on third-party suppliers and vendors for some of the
materials used in the manufacture of our product candidates. For
supply of early clinical trial materials, we rely on a limited
number of suppliers. Any significant problem experienced by one
of our suppliers could result in a delay or interruption in the
supply of materials to us until such supplier resolves the
problem or an alternative source of supply is located. We have
limited experience with alternative sources of raw materials.
Any delay or interruption could negatively affect our operations.
We
have limited marketing capabilities, and if we are unable to
enter into collaborations with marketing partners or develop our
own sales and marketing capability, we may not be successful in
commercializing any approved products.
We currently have no sales, marketing or distribution
capabilities. As a result, we will depend on collaborations with
third parties that have established distribution systems and
sales forces. To the extent that we enter into
co-promotion
or other licensing arrangements, our revenues will depend upon
the efforts of third parties, over which we may have little or
no control. If we are unable to reach and maintain agreements
with one or more pharmaceutical companies or collaborators, we
may be required to market our products directly. Developing a
marketing and sale force is expensive and time consuming and
could delay a product launch. We cannot be certain that we will
be able to attract and retain qualified sales personnel or
otherwise develop this capability.
Our
product candidates may never achieve market acceptance even if
we obtain regulatory approvals.
Even if we receive regulatory approvals for the commercial sale
of our product candidates, the commercial success of these
product candidates will depend on, among other things, their
acceptance by physicians, patients, third party payers such as
health insurance companies and other members of the medical
community as a therapeutic and cost-effective alternative to
competing products and treatments. If our product candidates
fail to gain market acceptance, we may be unable to earn
sufficient revenue to continue our business. Market acceptance
of, and demand for, any product that we may develop and
commercialize will depend on many factors, including:
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Our ability to provide acceptable evidence of safety and
efficacy;
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The prevalence and severity of adverse side effects;
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Availability, relative cost and relative efficacy of alternative
and competing treatments;
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The effectiveness of our marketing and distribution strategy;
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Publicity concerning our products or competing products and
treatments; and
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Our ability to obtain sufficient third party insurance coverage
or reimbursement.
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If our product candidates do not become widely accepted by
physicians, patients, third party payers and other members of
the medical community, our business, financial condition and
results of operations would be materially and adversely affected.
If
reforms in the health care industry make reimbursement for our
potential products less likely, the market for our potential
products will be reduced, and we could lose potential sources of
revenue.
Our successes may depend, in part, on the extent to which
reimbursement for the costs of therapeutic products and related
treatments will be available from third-party payers such as
government health administration authorities, private health
insurers, managed care programs, and other organizations. Over
the past decade, the cost of health care has risen
significantly, and there have been numerous proposals by
legislators, regulators, and third-party health care payers to
curb these costs. Some of these proposals have involved
limitations on the amount of reimbursement for certain products.
Similar federal or state health care legislation may be adopted
in the future and any products that we or our collaborators seek
to commercialize may not be considered cost-effective. Adequate
third-party insurance coverage may not be available for us to
establish and maintain price levels that are sufficient for
realization of an appropriate return on our investment in
product development. Moreover, the existence or threat of cost
control measures could cause our corporate collaborators to be
less willing or able to pursue research and development programs
related to our product candidates.
REGULATORY
RISKS
We may
fail to obtain regulatory approval for our products on a timely
basis or comply with our continuing regulatory obligations after
approval is obtained.
Delays in obtaining regulatory approval can be extremely costly
in terms of lost sales opportunities, losing any potential
marketing advantage of being early to market and increased trial
costs. The speed with which we begin and complete our
preclinical trials necessary to begin human studies, human
clinical trials and our applications for marketing approval will
depend on several factors, including the following:
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our ability to manufacture or obtain sufficient quantities of
materials for use in necessary preclinical studies and clinical
trials;
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prior regulatory agency review and approval;
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Institutional Review Board approval of the protocol and the
informed consent form;
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the rate of subject or patient enrollment and retention, which
is a function of many factors, including the size of the subject
or patient population, the proximity of subjects and patients to
clinical sites, the eligibility criteria for the study and the
nature of the protocol;
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negative test results or side effects experienced by trial
participants;
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analysis of data obtained from preclinical and clinical
activities, which are susceptible to varying interpretations and
which interpretations could delay, limit or prevent further
studies or regulatory approval;
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the availability of skilled and experienced staff to conduct and
monitor clinical studies and to prepare the appropriate
regulatory applications; and
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changes in the policies of regulatory authorities for drug or
vaccine approval during the period of product development.
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We have limited experience in conducting and managing the
preclinical studies and clinical trials necessary to obtain
regulatory marketing approvals. We may not be permitted to
continue or commence additional clinical trials. We also face
the risk that the results of our clinical trials may be
inconsistent with the results obtained in preclinical studies or
clinical trials of similar products, or that the results
obtained in later phases of clinical trials may be inconsistent
with those obtained in earlier phases. A number of companies in
the biopharmaceutical and product
24
development industry have suffered significant setbacks in
advanced clinical trials, even after experiencing promising
results in early animal and human testing.
Regulatory agencies may require us or our collaborators to
delay, restrict or discontinue clinical trials on various
grounds, including a finding that the subjects or patients are
being exposed to an unacceptable health risk. In addition, we or
our collaborators may be unable to submit applications to
regulatory agencies within the time frame we currently expect.
Once submitted, applications must be approved by various
regulatory agencies before we or our collaborators can
commercialize the product described in the application. All
statutes and regulations governing the conduct of clinical
trials are subject to change in the future, which could affect
the cost of such clinical trials. Any unanticipated costs or
delays in our clinical studies could delay our ability to
generate revenues and harm our financial condition and results
of operations.
Even
if regulatory approval is received for our product candidates,
the later discovery of previously unknown problems with a
product, manufacturer or facility may result in restrictions,
including withdrawal of the product from the
market.
Even if a product gains regulatory approval, such approval is
likely to limit the indicated uses for which it may be marketed,
and the product and the manufacturer of the product will be
subject to continuing regulatory review, including adverse event
reporting requirements and the FDAs general prohibition
against promoting products for unapproved uses. Failure to
comply with any post-approval requirements can, among other
things, result in warning letters, product seizures, recalls,
substantial fines, injunctions, suspensions or revocations of
marketing licenses, operating restrictions and criminal
prosecutions. Any of these enforcement actions, any
unanticipated changes in existing regulatory requirements or the
adoption of new requirements, or any safety issues that arise
with any approved products, could adversely affect our ability
to market products and generate revenues and thus adversely
affect our ability to continue our business.
We also may be restricted or prohibited from marketing or
manufacturing a product, even after obtaining product approval,
if previously unknown problems with the product or its
manufacture are subsequently discovered and we cannot provide
assurance that newly discovered or developed safety issues will
not arise following any regulatory approval. With the use of any
drug by a wide patient population, serious adverse events may
occur from time to time that initially do not appear to relate
to the drug itself, and only if the specific event occurs with
some regularity over a period of time does the drug become
suspect as having a causal relationship to the adverse event.
Any safety issues could cause us to suspend or cease marketing
of our approved products, possibly subject us to substantial
liabilities, and adversely affect our ability to generate
revenues and our financial condition.
Failure
to obtain regulatory approval in foreign jurisdictions would
prevent us from marketing our products
internationally.
We intend to have our product candidates marketed outside the
United States. In order to market our products in the European
Union and many other
non-U.S. jurisdictions,
we must obtain separate regulatory approvals and comply with
numerous and varying regulatory requirements. To date, we have
not filed for marketing approval for any of our products
candidates and may not receive the approvals necessary to
commercialize our product candidates in any market. The approval
procedure varies among countries and can involve additional
testing and data review. The time required to obtain foreign
regulatory approval may differ from that required to obtain FDA
approval. The foreign regulatory approval process may include
all of the risks associated with obtaining FDA approval. We may
not obtain foreign regulatory approvals on a timely basis, if at
all. Approval by the FDA does not ensure approval by regulatory
agencies in other foreign countries or by the FDA. However, a
failure or delay in obtaining regulatory approval in one
jurisdiction may have a negative effect on the regulatory
approval process in other jurisdictions, including approval by
the FDA. The failure to obtain regulatory approval in foreign
jurisdictions could harm our business.
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Because
we are subject to environmental, health and safety laws, we may
be unable to conduct our business in the most advantageous
manner.
We are subject to various laws and regulations relating to safe
working conditions, laboratory and manufacturing practices, the
experimental use of animals, emissions and wastewater
discharges, and the use and disposal of hazardous or potentially
hazardous substances used in connection with our research,
including infectious disease agents. We also cannot accurately
predict the extent of regulations that might result from any
future legislative or administrative action. Any of these laws
or regulations could cause us to incur additional expense or
restrict our operations.
Our facility in Maryland is subject to various local, state and
federal laws and regulations relating to safe working
conditions, laboratory and manufacturing practices, the
experimental use of animals and the use and disposal of
hazardous or potentially hazardous substances, including
chemicals, microorganisms and various hazardous compounds used
in connection with our research and development activities. In
the United States, these laws include the Occupational Safety
and Health Act, the Toxic Test Substances Control Act and the
Resource Conservation and Recovery Act. We cannot eliminate the
risk of accidental contamination or discharge or injury from
these materials. Federal, state, and local laws and regulations
govern the use, manufacture, storage, handling and disposal of
these materials. We could be subject to civil damages in the
event of an improper or unauthorized release of, or exposure of
individuals to, these hazardous materials. In addition,
claimants may sue us for injury or contamination that results
from our use or the use by third parties of these materials, and
our liability may exceed our total assets. Compliance with
environmental laws and regulations may be expensive, and current
or future environmental regulations may impair our research,
development or production efforts.
Although we have general liability insurance, these policies
contain exclusions from insurance against claims arising from
pollution from chemical or pollution from conditions arising
from our operations. Our collaborators are working with these
types of hazardous materials in connection with our
collaborations. In the event of a lawsuit or investigation, we
could be held responsible for any injury we or our collaborators
cause to persons or property by exposure to, or release of, any
hazardous materials. However, we believe that we are currently
in compliance with all applicable environmental and occupational
health and safety regulations.
INTELLECTUAL
PROPERTY RISKS
Our
success depends on our ability to maintain the proprietary
nature of our technology.
Our success in large part depends on our ability to maintain the
proprietary nature of our technology and other trade secrets,
including our proprietary drug delivery and biological
technologies. To do so, we must prosecute and maintain existing
patents, obtain new patents and pursue trade secret and other
intellectual property protection. We also must operate without
infringing the proprietary rights of third parties or allowing
third parties infringe our rights. We currently have or have
rights to over 99 United States patents and corresponding
foreign patents and patent applications covering our
technologies. However, patent issues relating to pharmaceuticals
and biologics involve complex legal, scientific and factual
questions. To date, no consistent policy has emerged regarding
the breadth of biotechnology patent claims that are granted by
the United States Patent and Trademark Office or enforced by the
federal courts. Therefore, we do not know whether our patent
applications will result in the issuance of patents, or that any
patents issued to us will provide us with any competitive
advantage. We also cannot be sure that we will develop
additional proprietary products that are patentable.
Furthermore, there is a risk that others will independently
develop or duplicate similar technology or products or
circumvent the patents issued to us.
There is a risk that third parties may challenge our existing
patents or claim that we are infringing their patents or
proprietary rights. We could incur substantial costs in
defending patent infringement suits or in filing suits against
others to have their patents declared invalid or claim
infringement. It is also possible that we may be required to
obtain licenses from third parties to avoid infringing
third-party patents or other proprietary rights. We cannot be
sure that such third-party licenses would be available to us on
acceptable terms, if at all. If we are unable to obtain required
third-party licenses, we may be delayed in or prohibited from
developing, manufacturing or selling products requiring such
licenses.
26
Although our patents include claims covering various features of
our products and product candidates, including composition,
methods of manufacture and use, our patents do not provide us
with complete protection against the development of competing
products. Some of our know-how and technology is not patentable.
To protect our proprietary rights in unpatentable intellectual
property and trade secrets, we require employees, consultants,
advisors and collaborators to enter into confidentiality
agreements. These agreements may not provide meaningful
protection for our trade secrets, know-how or other proprietary
information.
If we
infringe or are alleged to infringe the intellectual property
rights of third parties, it will adversely affect our business,
financial condition and results of operations.
Our research, development and commercialization activities,
including any product candidates or products resulting from
these activities, may infringe or be claimed to infringe patents
owned by third parties and to which we do not hold licenses or
other rights. There may be rights we are not aware of, including
applications that have been filed but not published that, when
issued, could be asserted against us. These third parties could
bring claims against us, and that would cause us to incur
substantial expenses and, if successful against us, could cause
us to pay substantial damages. Further, if a patent infringement
suit were brought against us, we could be forced to stop or
delay research, development, manufacturing or sales of the
product or biologic drug candidate that is the subject of the
suit.
As a result of patent infringement claims, or in order to avoid
potential claims, we may choose or be required to seek a license
from the third party. These licenses may not be available on
acceptable terms, or at all. Even if we are able to obtain a
license, the license would likely obligate us to pay license
fees or royalties or both, and the rights granted to us might be
nonexclusive, which could result in our competitors gaining
access to the same intellectual property. Ultimately, we could
be prevented from commercializing a product, or be forced to
cease some aspect of our business operations, if, as a result of
actual or threatened patent infringement claims, we are unable
to enter into licenses on acceptable terms. All of the issues
described above could also impact our collaborators, which would
also impact the success of the collaboration and therefore us.
There has been substantial litigation and other proceedings
regarding patent and other intellectual property rights in the
pharmaceutical and biotechnology industries. In addition to
infringement claims against us, we may become a party to other
patent litigation and other proceedings, including interference
proceedings declared by the United States Patent and Trademark
Office and opposition proceedings in the European Patent Office,
regarding intellectual property rights with respect to our
products and technology.
We may
become involved in lawsuits to protect or enforce our patents or
the patents of our collaborators or licensors, which could be
expensive and time consuming.
Competitors may infringe our patents or the patents of our
collaborators or licensors. As a result, we may be required to
file infringement claims to counter infringement for
unauthorized use. This can be expensive, particularly for a
company of our size, and time-consuming. In addition, in an
infringement proceeding, a court may decide that a patent of
ours is not valid or is unenforceable, or may refuse to stop the
other party from using the technology at issue on the grounds
that our patents do not cover its technology. An adverse
determination of any litigation or defense proceedings could put
one or more of our patents at risk of being invalidated or
interpreted narrowly and could put our patent applications at
the risk of not issuing.
Interference proceedings brought by the United States Patent and
Trademark Office may be necessary to determine the priority of
inventions with respect to our patent applications or those of
our collaborators or licensors. Litigation or interference
proceedings may fail and, even if successful, may result in
substantial costs and distraction to our management. We may not
be able, alone or with our collaborators and licensors, to
prevent misappropriation of our proprietary rights, particularly
in countries where the laws may not protect such rights as fully
as in the United States.
Furthermore, because of the substantial amount of discovery
required in connection with intellectual property litigation,
there is a risk that some of our confidential information could
be compromised by disclosure during this type of litigation. In
addition, during the course of this kind of litigation, there
could be public announcements of the
27
results of hearings, motions or other interim proceedings or
developments. If investors perceive these results to be
negative, the market price for our common stock could be
significantly harmed.
We may
need to license intellectual property from third parties and if
our right to use the intellectual property we license is
affected, our ability to develop and commercialize our product
candidates may be harmed.
We expect that we will need to license intellectual property
from third parties in the future and that these licenses will be
material to our business. We will not own the patents or patent
applications that underlie these licenses, and we will not
control the enforcement of the patents. We will rely upon our
licensors to properly prosecute and file those patent
applications and prevent infringement of those patents.
Our license agreement with Wyeth Holdings Corporation, which
gives us rights to a family of patent applications covering VLP
technology for use in human vaccines in certain fields of use,
is non-exclusive. These applications are very significant to our
business. Payments since inception, under this agreement, have
aggregated $4.8 million as of December 31, 2008 and
are expected to aggregate an additional $0.3 million during
2009, based on current planned clinical development and
therefore, related milestones achieved under the agreement. If
each milestone is achieved for any particular product candidate,
we would be obligated to pay an aggregate of $14 million to
Wyeth Holdings for each product candidate developed and
commercialized under the agreement. Achievement of each
milestone is subject to many risks, including those described in
these Risk Factors. Annual license maintenance fees
under the Wyeth Holdings agreement aggregate $0.3 million
per year. Our license with the University of Massachusetts gives
us exclusive rights to develop and commercialize vaccines
incorporating certain virus-like particles for use in human
vaccines.
While many of the licenses under which we have rights provide us
with rights in specified fields, the scope of our rights under
these and other licenses may be subject to dispute by our
licensors or third parties. In addition, our rights to use these
technologies and practice the inventions claimed in the licensed
patents and patent applications are subject to our licensors
abiding by the terms of those licenses and not terminating them.
Any of our licenses may be terminated by the licensor if we are
in breach of a term or condition of the license agreement, or in
certain other circumstances.
Our product candidates and potential product candidates will
require several components that may each be the subject of a
license agreement. The cumulative license fees and royalties for
these components may make the commercialization of these product
candidates uneconomical.
If
patent laws or the interpretation of patent laws change, our
competitors may be able to develop and commercialize our
discoveries.
Important legal issues remain to be resolved as to the extent
and scope of available patent protection for biotechnology
products and processes in the United States and other important
markets outside the United States, such as Europe and Japan.
Foreign markets may not provide the same level of patent
protection as provided under the United States patent system. We
expect that litigation or administrative proceedings will likely
be necessary to determine the validity and scope of certain of
our and others proprietary rights. Any such litigation or
proceeding may result in a significant commitment of resources
in the future and could force us to do one or more of the
following: cease selling or using any of our products that
incorporate the challenged intellectual property, which would
adversely affect our revenue; obtain a license from the holder
of the intellectual property right alleged to have been
infringed, which license may not be available on reasonable
terms, if at all; and redesign our products to avoid infringing
the intellectual property rights of third parties, which may be
time-consuming or impossible to do. In addition, changes in, or
different interpretations of, patent laws in the United States
and other countries may result in patent laws that allow others
to use our discoveries or develop and commercialize our
products. We cannot provide assurance that the patents we obtain
or the unpatented technology we hold will afford us significant
commercial protection.
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RISKS
RELATED TO OUR COMMON STOCK AND ORGANIZATIONAL
STRUCTURE
Because
our stock price has been and will likely continue to be
volatile, the market price of our common stock may be lower or
more volatile than expected.
Our stock price has been highly volatile. The
stock market in general and the market for biotechnology
companies in particular have experienced extreme volatility that
has often been unrelated to the operating performance of
particular companies. From January 1, 2008 through
March 23, 2009, the closing price of our common stock has
been as low as $0.56 per share and as high as $3.71 per share.
The market price of our common stock may be influenced by many
factors, including:
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future announcements about our Company or our collaborators or
competitors, including the results of testing, technological
innovations or new commercial products;
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clinical trial results;
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depletion of our cash reserves;
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the approach of the maturity of our convertible notes on
July 15, 2009 if additional capital is not raised, or the
payment
and/or
conversion of our convertible notes;
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sale of equity securities or issuance of additional debt;
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announcement by us of significant strategic partnerships,
collaborations, joint ventures, capital commitments or
acquisitions;
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changes in government regulations;
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developments in our relationships with our collaboration
partners;
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announcements relating to health care reform and reimbursement
levels for new drugs;
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sales of substantial amounts of our stock by existing
stockholders (including stock by insiders or 5% stockholders);
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litigation;
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public concern as to the safety of our products;
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significant set-backs or concerns with the industry or the
market as a whole; and
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the other factors described in this Risk Factor
section.
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The stock market has experienced extreme price and volume
fluctuation that have particularly affected the market price for
many emerging and biotechnology companies. These fluctuations
have often been unrelated to the operating performance of these
companies. These broad market fluctuations may cause the market
price of our common stock to be lower or more volatile than
expected.
We
have never paid dividends on our capital stock, and we do not
anticipate paying any such dividends in the foreseeable
future.
We have never paid cash dividends on our common stock. We
currently anticipate that we will retain all of our earnings for
use in the development of our business and do not anticipate
paying any cash dividends in the foreseeable future. As a
result, capital appreciation, if any, of our common stock would
be the only source of gain for stockholders until dividends are
paid, if at all.
Provisions
of our Certificate of Incorporation and By-laws, Delaware law,
and our Shareholder Rights Plan could delay or prevent the
acquisition of the Company, even if such acquisition would be
beneficial to stockholders, and could impede changes in our
Board.
Our organizational documents could hamper a third partys
attempt to acquire, or discourage a third party from attempting
to acquire control of, the Company. We have also adopted a
shareholder rights plan, or poison pill, that
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empowers our Board to delay or negotiate, and thereby possibly
thwart, any tender offer or takeover attempt the Board opposes.
Stockholders who wish to participate in these transactions may
not have the opportunity to do so. These provisions also could
limit the price investors are willing to pay in the future for
our securities and make it more difficult to change the
composition of our Board in any one year. These provisions
include the right of the Board to issue preferred stock with
rights senior to those of common stock without any further vote
or action by stockholders, the existence of a staggered Board
with three classes of directors serving staggered three-year
terms and advance notice requirements for stockholders to
nominate directors and make proposals.
The Company also is afforded the protections of Section 203
of the Delaware General Corporation Law, which will prevent us
from engaging in a business combination with a person who
acquires at least 15% of our common stock for a period of three
years from the date such person acquired such common stock,
unless advance board or stock holder approval was obtained.
Any delay or prevention of a change of control transaction or
changes in our Board of Director or management could deter
potential acquirers or prevent the completion of a transaction
in which our stockholders could receive a substantial premium
over the then current market price for their shares.
|
|
Item 1B.
|
UNRESOLVED
STAFF COMMENTS
|
None.
We have current operations in one leased facility. We lease
approximately 51,200 square feet in Rockville, Maryland,
which serves as our corporate headquarters and includes
administrative offices, vaccine research and development, as
well as manufacture of early stage clinical supplies. We lease
approximately 13,900 square feet at another facility in
Rockville, Maryland which was used for contract vaccine
research, development and manufacturing of early stage clinical
supplies through September 2008, when we consolidated our
research and development and manufacturing activities into our
one corporate facility. We continue to lease approximately
32,900 square feet for administrative office and research
and development space at our former corporate headquarters in
Malvern, Pennsylvania of which approximately 28,000 square
feet is being subleased. Our manufacturing facility for
Estrasorb and other contract manufacturing was located in
Philadelphia, Pennsylvania, where we leased approximately
24,000 square feet of manufacturing space. This facility
was vacated in August 2008. We believe that our corporate
facility in Rockville, Maryland is sufficient for our current
needs. We have additional space in our current facility to
accommodate our anticipated growth over the next several years.
A summary of our current facilities is set forth below.
|
|
|
|
|
|
|
|
|
Approximate
|
|
|
|
Property Location
|
|
Square Footage
|
|
|
|
|
Rockville, MD
|
|
|
51,200
|
|
|
Corporate headquarters and vaccine research and development
|
Rockville, MD
|
|
|
13,900
|
|
|
Former vaccine research and development and early clinical phase
manufacturing
|
Malvern, PA
|
|
|
32,900
|
|
|
Former corporate headquarters and research and development
|
|
|
|
|
|
|
|
Total square footage
|
|
|
98,000
|
|
|
|
Malvern, PA sublease
|
|
|
(32,900
|
)
|
|
|
|
|
|
|
|
|
|
Net square footage
|
|
|
70,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 3.
|
LEGAL
PROCEEDINGS
|
None.
|
|
Item 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
No matters were submitted to a vote of our security holders
during the fourth quarter of the fiscal year ended
December 31, 2008.
30
PART II
|
|
Item 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
|
Our common stock trades on The NASDAQ Global Market under the
symbol NVAX. The following table sets forth the
range of high and low closing sale prices for our common stock
as reported on The NASDAQ Global Market for each quarter in the
two most recent years:
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
High
|
|
|
Low
|
|
|
January 1, 2009 to March 23, 2009
|
|
$
|
2.04
|
|
|
$
|
0.56
|
|
December 31, 2008
|
|
$
|
3.03
|
|
|
$
|
1.22
|
|
September 30, 2008
|
|
$
|
3.42
|
|
|
$
|
2.05
|
|
June 30, 2008
|
|
$
|
3.10
|
|
|
$
|
2.24
|
|
March 31, 2008
|
|
$
|
3.71
|
|
|
$
|
2.30
|
|
December 31, 2007
|
|
$
|
4.20
|
|
|
$
|
3.00
|
|
September 30, 2007
|
|
$
|
3.72
|
|
|
$
|
2.74
|
|
June 30, 2007
|
|
$
|
3.46
|
|
|
$
|
2.71
|
|
March 31, 2007
|
|
$
|
4.50
|
|
|
$
|
2.59
|
|
On March 23, 2009, the last sale price reported on The
NASDAQ Global Market for our common stock was $0.80. Our common
stock was held by approximately 554 stockholders of record as of
March 23, 2009, one of which is Cede & Co., a
nominee for Depository Trust Company (or DTC).
All of the shares of common stock held by brokerage firms, banks
and other financial institutions as nominees for beneficial
owners are deposited into participant accounts at DTC, and are
therefore considered to be held of record by Cede &
Co. as one stockholder. We have not paid any cash dividends on
our common stock since our inception. We do not anticipate
declaring or paying any cash dividends in the foreseeable future.
Securities
Authorized for Issuance under our Equity Compensation
Plans
Information regarding our equity compensation plans, including
both stockholder approved plans and non-stockholder approved
plans, is included in Item 12. of this Annual Report on
Form 10-K.
Unregistered
Sales of Equity Securities; Use of Proceeds from Registered
Securities
On July 31, 2008, we completed a registered direct offering
of 6,686,650 units (the Units), with each unit
consisting of one share of common stock and a warrant to
purchase 0.5 shares of common stock at a price of $2.68 per
unit (or $2.8425 per unit for units sold to affiliates of the
Company). The warrants represent the right to acquire
3,343,325 shares of common stock at an exercise price of
$3.62 per share and are exercisable between January 30,
2009 and July 31, 2013. The net proceeds were approximately
$17.4 million. The purchasers in the offering were
comprised of current and new institutional shareholders and
affiliates of the Company. The securities described above were
offered by the Company pursuant to a registration statement
previously filed and declared effective by the Securities and
Exchange Commission (the SEC). As of
December 31, 2008, all of the proceeds of this offering
have been used for pre-clinical studies and clinical trials of
our VLP-based vaccines, internal research and development
programs, working capital, capital expenditures and other
general corporate purposes.
31
On January 12, 2009 the Company entered into an At Market
Issuance Sales Agreement (the Sales Agreement), with
Wm Smith & Co. (Wm Smith), under which the
Company may sell an aggregate of up to $25,000,000 in gross
proceeds of the Companys common stock from time to time
through Wm Smith, as the agent for the offer and sale of the
common stock. The board of directors has authorized the sale of
up to 12,500,000 shares of common stock under the Sales
Agreement. Based on the trading price of our common stock, we
may not be able to sell all 12,500,000 shares or we may not
be able to raise the full $25,000,000 in gross proceeds
permitted under the Sales Agreement. Wm Smith may sell the
common stock by any method permitted by law, including sales
deemed to be an at the market offering as defined in
Rule 415 of the Securities Act, including without
limitation sales made directly on NASDAQ Global Market, on any
other existing trading market for the common stock or to or
through a market maker. Wm Smith may also sell the common stock
in privately negotiated transactions, subject to the
Companys prior approval. As of March 23, 2009, the
Company sold 70,500 shares and received net proceeds in the
amount of $121,457 under the Sales Agreement. The securities
described above were offered by the Company pursuant to a
registration statement previously filed and declared effective
by the SEC. All of the proceeds of this offering will be used
for pre-clinical studies and clinical trials of our VLP-based
vaccines, internal research and development programs, working
capital, capital expenditures and other general corporate
purposes.
On March 31, 2009, the Company entered into a binding
non-cancellable stock purchase agreement to sell
12.5 million shares of common stock to a wholly-owned
subsidiary of Cadila for $0.88 per share. The Company
expects to receive net proceeds in the amount of
$10.65 million. This transaction is expected to close on
April 1, 2009. These securities were offered by the Company
pursuant to a registration statement previously filed and
declared effective with the SEC. The proceeds will be used to
pay a portion of the Companys convertible notes due on
July 15, 2009 and for a variety of other corporate
purposes, including internal research and development programs,
working capital, and other general corporate purposes.
32
The graph below compares the cumulative total stockholders
return on the Common Stock of the Company for the last fiscal
years with the cumulative total return on the NASDAQ Stock
Market (United States and Foreign) Index and the NASDAQ
Pharmaceutical Index (which includes Novavax) over the same
period, assuming the investment of $100 in the Companys
Common Stock, the NASDAQ Stock Market (United States and
Foreign) Index and the NASDAQs Pharmaceutical Index on
December 31, 2003, and investments of all dividends. The
graph and note below assume the investment of $100 on
December 31, 2003 in our common stock, the NASDAQ Composite
Index and the NASDAQ Pharmaceutical Index and assumes any
dividends are reinvested.
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Novavax, Inc., The NASDAQ Composite Index
And The NASDAQ Pharmaceutical Index
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/03
|
|
|
12/31/04
|
|
|
12/31/05
|
|
|
12/31/06
|
|
|
12/31/07
|
|
|
12/31/08
|
Novavax, Inc.
|
|
|
$
|
100
|
|
|
|
$
|
54.33
|
|
|
|
$
|
64.17
|
|
|
|
$
|
68.33
|
|
|
|
$
|
55.50
|
|
|
|
$
|
31.50
|
|
NASDAQ Composite Index (United States and Foreign)
|
|
|
$
|
100
|
|
|
|
$
|
110.06
|
|
|
|
$
|
112.92
|
|
|
|
$
|
126.61
|
|
|
|
$
|
138.33
|
|
|
|
$
|
80.65
|
|
NASDAQ Pharmaceutical Index
|
|
|
$
|
100
|
|
|
|
$
|
110.37
|
|
|
|
$
|
112.07
|
|
|
|
$
|
115.01
|
|
|
|
$
|
106.58
|
|
|
|
$
|
97.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
This graph is not soliciting material, is not deemed
filed with the Securities and Exchange Commission
and is not to be incorporated by reference in any filing of the
Company under the Securities Act of 1933, as amended, or the
Exchange Act, whether made before or after the date hereof and
irrespective of any general incorporation language in any such
filing.
33
|
|
Item 6.
|
SELECTED
FINANCIAL DATA
|
The following table sets forth selected financial data for each
of the years in the five-year period ended December 31,
2008. The information below should be read in conjunction with
our financial statements and notes thereto and
Managements Discussion and Analysis of Financial
Condition and Results of Operations included elsewhere in
the Annual Report on
Form 10-K.
These historical results are not necessarily indicative of
results that may be expected for future periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Years Ended December 31,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
(In thousands, except per share data)
|
|
|
Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
6,498
|
|
|
$
|
5,343
|
|
|
$
|
1,738
|
|
|
$
|
1,513
|
|
|
$
|
1,064
|
|
Loss from operations
|
|
|
(21,933
|
)
|
|
|
(4,316
|
)
|
|
|
(21,116
|
)
|
|
|
(30,271
|
)
|
|
|
(34,360
|
)
|
Loss from continuing operations
|
|
|
(23,389
|
)
|
|
|
(6,319
|
)
|
|
|
(19,577
|
)
|
|
|
(28,590
|
)
|
|
|
(36,322
|
)
|
(Loss) income from discontinued operations
|
|
|
(2,531
|
)
|
|
|
(4,855
|
)
|
|
|
(3,491
|
)
|
|
|
(6,175
|
)
|
|
|
273
|
|
Net loss
|
|
|
(25,920
|
)
|
|
|
(11,174
|
)
|
|
|
(23,068
|
)
|
|
|
(34,765
|
)
|
|
|
(36,049
|
)
|
Basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share from continuing operations
|
|
$
|
(0.63
|
)
|
|
$
|
(0.15
|
)
|
|
$
|
(0.33
|
)
|
|
$
|
(0.47
|
)
|
|
|
(0.53
|
)
|
(Loss) income per share from discontinued operations
|
|
|
(0.07
|
)
|
|
|
(0.11
|
)
|
|
|
(0.06
|
)
|
|
|
(0.10
|
)
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(0.70
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
(0.39
|
)
|
|
$
|
(0.57
|
)
|
|
|
(0.53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic and diluted net loss per share
|
|
|
36,926,034
|
|
|
|
42,758,302
|
|
|
|
58,664,365
|
|
|
|
61,101,474
|
|
|
|
68,174,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and investments
|
|
$
|
17,876
|
|
|
$
|
31,893
|
|
|
$
|
73,595
|
|
|
$
|
46,489
|
|
|
$
|
33,900
|
|
Total current assets
|
|
|
23,937
|
|
|
|
37,611
|
|
|
|
77,342
|
|
|
|
49,016
|
|
|
|
35,096
|
|
Working capital
|
|
|
15,361
|
|
|
|
32,735
|
|
|
|
72,003
|
|
|
|
42,810
|
|
|
|
7,379
|
|
Total assets
|
|
|
77,993
|
|
|
|
84,382
|
|
|
|
121,877
|
|
|
|
91,291
|
|
|
|
76,625
|
|
Long term debt, less current portion
|
|
|
35,970
|
|
|
|
29,678
|
|
|
|
22,458
|
|
|
|
21,629
|
|
|
|
480
|
|
Accumulated deficit
|
|
|
(130,720
|
)
|
|
|
(141,894
|
)
|
|
|
(164,962
|
)
|
|
|
(199,727
|
)
|
|
|
(235,776
|
)
|
Total stockholders equity
|
|
|
33,281
|
|
|
|
49,652
|
|
|
|
94,001
|
|
|
|
63,065
|
|
|
|
45,489
|
|
|
|
Item 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Certain statements contained herein or as may otherwise be
incorporated by reference herein constitute
forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995.
Forward-looking statements include, but are not limited to,
statements regarding future product development and related
clinical trials and future research and development, including
Food and Drug Administration approval and product sales. Such
forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual
results, performance or achievements of the Company, or industry
results, to be materially different from those expressed or
implied by such forward-looking statements.
Factors that may cause actual results to differ materially from
the results discussed in the forward-looking statements or
historical experience include risks and uncertainties, including
our ability to raise capital through public or private equity
and/or debt
financings; the maturity of our convertible notes on
July 15, 2009, and our
34
obligation to pay at least $11 million in cash upon
maturity, absent a conversion or amendment to the convertible
notes prior to their maturity, the failure by Novavax to secure
and maintain relationships with collaborators; risks relating to
the early stage of Novavaxs product candidates under
development; uncertainties relating to commencing clinical
trials and their outcome; risks relating to the supply and
commercialization, if any, of Novavaxs proposed product
candidates; dependence on the efforts of third parties;
dependence on intellectual property; and competition for
clinical resources and patient enrollment from drug candidates
in development by other companies with greater resources and
visibility.
All forward-looking statements contained in this annual report
are based on information available to the Company on the date
hereof, and the Company assumes no obligation to update any such
forward-looking statements, except as specifically required by
law. Accordingly, past results and trends should not be used to
anticipate future results or trends.
Overview
Novavax, Inc., a Delaware corporation (Novavax or
the Company), was incorporated in 1987, and is a
clinical-stage biopharmaceutical company focused on creating
differentiated, value-added vaccines that improve upon current
preventive options for a range of infectious diseases. These
vaccines leverage the Companys virus-like-particle
(VLP) platform technology coupled with a unique,
disposable production technology. The Company produces these VLP
based, potent, recombinant vaccines utilizing new and efficient
manufacturing approaches.
VLPs are genetically engineered three-dimensional
nanostructures, which incorporate immunologically important
lipids and recombinant proteins. Our VLPs resemble the virus but
lack the genetic material to replicate the virus. Our
proprietary production technology uses insect cells rather then
chicken eggs or mammalian cells. The Companys current
product targets include vaccines against the H5N1 and other
subtypes of avian influenza with pandemic potential, human
seasonal influenza, Varicella Zoster, which causes shingles, and
a Respiratory Syncytial Virus (RSV). RSV vaccine was
recently announced on October 30, 2008.
We made significant progress in 2008 and 2007 in our vaccine
that targets the H5N1 avian influenza with pandemic potential.
In December 2007, we announced favorable interim results for a
Phase I clinical trial which began in July 2007 for our pandemic
influenza vaccine, that demonstrated immunogenicity and safety.
In August 2008, we received favorable results from a Phase I/IIa
trial which was conducted to gather additional patient
immunogenicity and safety data, as well as to determine a final
dose, which demonstrated strong neutralizing antibody titers
across all three doses tested. Although the safety data are
still blinded pending complete safety
follow-up,
there were no serious adverse events reported. In
February 2009, we announced that the vaccine induced robust
hemagglutination inhibition (HAI) responses, which
have been shown to be important for protection against influenza
disease. We only intend to initiate further human clinical
trials for our pandemic influenza vaccine, which would be
required for regulatory approval, with a collaborative partner.
We also progressed development of our VLP trivalent vaccine that
targets seasonal influenza virus in 2008 and 2007. In December
2008, we announced favorable safety and immunogenicity results
from our Phase IIa seasonal study in healthy adults which we
commenced in September 2008 to evaluate the safety and
immunogenicity of different doses of our seasonal influenza
vaccine. We observed a slightly different safety profile
(non-serious adverse events) from our Phase IIa trial of our
pandemic VLP vaccine, and plan to review and analyze the dose
response curve as well as the safety data from the healthy adult
seasonal trial before commencing a seasonal influenza dose
ranging study in the elderly (>65 years of age)
next year. Further seasonal studies are planned in 2009. We
intend to seek a collaborative partner for our seasonal
influenza vaccine upon completion of additional Phase II
clinical studies, which are expected to be completed by the end
of 2009.
We have also developed vaccine candidates for both RSV and VZV,
both of which are currently being evaluated in preclinical
studies. To date, preliminary data have shown that an RSV
vaccine candidate has shown positive results in two separate
studies with mice. In December 2008, Novavax and the University
of Massachusetts jointly announced favorable results from a
preclinical study to evaluate the immunogenicity and efficacy of
an RSV vaccine candidate in mice. The RSV VLP vaccine induced
strong antibody responses against RSV. In February 2009, we
announced favorable results from an RSV preclinical study
performed in mice against the viral fusion (F)
protein, which fuses with cells in the respiratory tract and
causes illness. A VZV vaccine candidate has also
35
induced antibody and T-cell responses. We plan on moving forward
with further preclinical development of both vaccines in 2009.
Our vaccine products currently under development or in clinical
trials will require significant additional research and
development efforts, including extensive pre-clinical and
clinical testing and regulatory approval, prior to commercial
use. There can be no assurance that our research and development
efforts will be successful or that any potential products will
prove to be safe and effective in clinical trials. Even if
developed, these vaccine products may not receive regulatory
approval or be successfully introduced and marketed at prices
that would permit us to operate profitably. The commercial
launch of any vaccine product is subject to certain risks
including but not limited to, manufacturing
scale-up and
market acceptance. No assurance can be given that we can
generate sufficient product revenue to become profitable or
generate positive cash flow from operations at all or on a
sustained basis.
We also have a drug delivery platform based on our micellar
nanoparticle (MNP) technology, proprietary oil and
water nano emulsions used for the topical delivery of drug. The
MNP technology was the basis for the development of our first
FDA approval estrogen replacement product known as Estrasorb. In
February 2008, we sold our assets related to Estrasorb in the
United States, Canada and Mexico to Graceway Pharmaceuticals,
LLC (Graceway) and terminated the Estrasorb license
agreement with Allergan. We engaged an investment bank to aid in
the search for potential buyers or licensees in fields of use
outside vaccines, but were not successful. Accordingly, we fully
impaired these assets by recording a charge in the amount of
$846,000.
Summary
of Significant Transactions
On March 31, 2009, Company and Cadila Pharmaceuticals Ltd.,
a company incorporated under the laws of India
(Cadila) entered into a Joint Venture Agreement (the
JVA) pursuant to which the Company and Cadila formed
CPL Biologicals Limited, a joint venture (the JV),
of which 80% will be owned by Cadila and 20% is owned by the
Company. The JV must obtain approval from Indias Foreign
Investment Promotion Board (the FIPB) prior to
issuing shares to Novavax. The JV will develop and commercialize
the Companys seasonal influenza virus-like-particle
(VLP)-based vaccine candidate and Cadilas therapeutic
vaccine candidates against cancer as well as its adjuvants,
biogeneric products and other diagnostic products for the
territory of India. Novavax will also contribute to the JV
technology for the development of several other VLP vaccine
candidates against diseases of public health concern in the
territory, such as hepatitis E and chikungunya fever. Cadila
will contribute approximately $8 million over three years
to support the JVs operations. The JV will be responsible
for clinical testing and registration of products that will be
marketed and sold in India.
The board of directors of the JV consists of five members, three
of whom (including the Chairman of the board) are nominated by
Cadila and two of whom are nominated by Novavax. If the board is
not in unanimous agreement on an issue, the CEOs of the Company
and Cadila will work to resolve the issue. If the CEOs cannot
resolve the issue in five business days, a vote by the majority
of the board will decide. However, the approval of the Company
and Cadila, as shareholders of the JV, and the board of
directors of the JV is required for (1) the sale of all or
most of the assets of the JV, (2) a change in control of
the JV, (3) the liquidation, dissolution, or winding up of
the JV, (4) any occurrence of indebtedness that results in
the JV having a debt-to-equity ratio of 3-to-1 or greater, or
(5) most amendments of the JVA or the JVs Articles of
Association.
The JV has the right to negotiate a definitive agreement for
rights to for certain future Novavax products (other than RSV)
and certain future Cadila products in India prior to Novavax or
Cadila licensing such rights to a third party. Novavax has the
right to negotiate the licensing of vaccines developed by the
joint venture using Novavaxs technology for
commercialization in every country except for India and vaccines
developed by the joint venture using Cadilas technology
for commercialization in certain other countries, including the
United States.
In connection with the JVA, on March 31, 2009, the Company
also entered into license agreement, an option to enter into a
license agreement, a technical services agreement and a supply
agreement with the JV.
Also on March 31, 2009, Novavax entered into a binding,
non-cancellable Stock Purchase Agreement (the SPA)
with Satellite Overseas (Holdings) Limited (SOHL), a
subsidiary of Cadila, pursuant to which SOHL has agreed to
purchase 12.5 million shares of Company common stock, par
value $0.01 (the Common Stock) at the
36
market price of $0.88 per share. Novavax expects to deliver the
shares of Common Stock on April 1, 2009. The Company
expects to raise gross proceeds of $11 million in the
offering. The net proceeds to the Company from the sale of the
Common Stock, after deducting estimated offering expenses
payable by the Company, is approximately $10.65 million.
The SPA provides that, as long as SOHL owns more than 5% of the
Companys then-outstanding Common Stock, SOHL may purchase
a pro-rata portion of any Company Common Stock sale or issuance.
Under the SPA, certain issuances are exempt from SOHLs
pre-emptive right, including shares issued (1) as stock
dividends, stock splits, or otherwise payable pro rata to all
holders of Common Stock; (2) to employees, officers,
directors or consultants of the Company pursuant to an employee
benefit program; (3) upon the conversion or exercise of any
options, warrants or other rights to purchase Common Stock; and
(4) as consideration for a merger, consolidation, purchase
of assets, or in connection with a joint venture or strategic
partnership. However, any issuances pursuant to (4) above,
must be approved by a majority of the full board and, if the
transaction exceeds 5% of the Companys then issued and
outstanding shares of Common Stock, the per share purchase price
cannot be less than $0.88.
Under the SPA, for so long as SOHL owns 5% of the Companys
Common Stock, SOHL may designate one member of the
Companys board of directors.
Finally, on March 31, 2009, Novavax and Cadila entered into
a Master Services Agreement (the Master Services
Agreement) pursuant to which Novavax may request services
from Cadila in the areas of biologics research, preclinical
development, clinical development, process development,
manufacturing scale up, and general manufacturing related
services in India. If, at the third anniversary of the Master
Services Agreement, the amount of services provided by Cadila is
less than $7.5 million, Novavax will pay Cadila a portion
of the shortfall. Novavax will have to pay Cadila the portion of
the shortfall amount that is less than or equal to
$2.0 million and 50% of the portion of the shortfall amount
that exceeds $2.0 million. When calculating the shortfall,
the amount of services provided by Cadila includes amounts that
have been paid under all project plans, the amounts that will be
paid under ongoing executed project plans and amounts for
services that had been offered to Cadila, that Cadila was
capable of performing, but exercised its right not to accept
such project. The term of the Master Services Agreement is five
years, but may be terminated by either party if there is a
material breach that is not cured within 30 days of notice
or, at any time after three years, provided that 90 days
prior notice is given to the other party.
At the
Market Issuance
On January 12, 2009 we entered into an At Market Issuance
Sales Agreement (the Sales Agreement), with Wm
Smith & Co. (Wm Smith), under which we may
sell an aggregate of up to $25 million in gross proceeds of
our common stock from time to time through Wm Smith, as the
agent for the offer and sale of the common stock. The Board of
Directors has authorized the sale of up to
12,500,000 shares of common stock under the Sales
Agreement. Based on the trading price of our common stock, we
may not be able to sell all 12,500,000 shares or we may not
be able to raise the full $25 million in gross proceeds
permitted under the Sales Agreement. Wm Smith may sell the
common stock by any method permitted by law, including sales
deemed to be an at the market offering as defined in
Rule 415 of the Securities Act, including without
limitation sales made directly on NASDAQ Global Market, on any
other existing trading market for the common stock or to or
through a market maker. Wm Smith may also sell the common stock
in privately negotiated transactions, subject to the
Companys prior approval. We will pay Wm Smith a commission
equal to 3% of the gross proceeds of the sales price of all
common stock sold through it as sales agent under the Agreement.
In the first quarter of 2009, we sold 70,500 shares and
received net proceeds in the amount of $121,457, under the Sales
Agreement.
Facility
Exit Costs
In July 2007, we decided to consolidate our research and
development and manufacturing activities into our facility at
Belward Campus Drive in Rockville, Maryland by closing our Taft
Court facility in Rockville, Maryland. The Taft Court location
was used to support the manufacturing requirements for early
stage clinical trial materials for our VLP vaccine candidates.
Our new GMP pilot manufacturing facility located at our Belward
Campus Drive location will be used to support clinical trials
and may also be used for future commercialization quantities of
our VLP vaccines. The move commenced in September 2008 and was
completed on October 17, 2008.
37
For the year ended December 31, 2008, we included $356,000
in research and development costs in the accompanying
consolidated statement of operations, which represents the fair
value of the remaining lease payments. This amount has not been
reduced by any estimated sublease rentals as we do not
anticipate receiving and do not have any current proposals to
sub-let this space.
Our accrued expenses on the consolidated balance sheet as of
December 31, 2008 include $296,000 related to the remaining
lease payments. For the year ended December 31, 2008,
research and development costs on our consolidated statement of
operations include $148,000 associated with the impairment of
these leasehold improvements. In October 2008, we disposed of
these leasehold improvements.
Registered
Direct Offering
On July 31, 2008, we completed a registered direct offering
of 6,686,650 units (the Units), with each unit
consisting of one share of common stock and a warrant to
purchase 0.5 shares of common stock at a price of $2.68 per
unit (or $2.8425 per unit for units sold to affiliates of the
Company). The warrants represent the right to acquire
3,343,325 shares of common stock at an exercise price of
$3.62 per share and are exercisable between January 30,
2009 and July 31, 2013. The net proceeds were approximately
$17.4 million. The purchasers in the offering were
comprised of current and new institutional shareholders and
affiliates of the Company. The securities described above were
offered by the Company pursuant to a registration statement
previously filed and declared effective by the Securities and
Exchange Commission (the SEC).
We estimated the fair value attributable to the warrants of
approximately $4.1 million as of the date of grant by
applying the Black-Scholes pricing valuation model. The
Black-Scholes pricing model utilized the following assumptions:
a risk-free interest rate of 3.30%, expected volatility of
80.32%, and expected term of 5.0 years and a warrant issue
date stock price of $2.52. The fair value of the warrants is
included in additional
paid-in-capital
on our consolidated balance sheet.
Belward
Lease Amendment
On June 26, 2008, we amended the lease for our corporate
headquarters at 9920 Belward Campus Drive in Rockville,
Maryland. The amendment (1) extended the terms of the lease
to January 31, 2017, (2) provided that the landlord
reimburse Novavax for $3.0 million in leasehold
improvements (the Allowance) and (3) increased
the monthly installments of base rent going forward by an amount
equal to the monthly amortization of the allowance over the
remaining term of the lease at 11% interest, or an additional
$45,132 per month. The additional monthly rent is subject to the
annual 2.125% escalation included in the original lease. On
June 27, 2008, we received $3.0 million from the
landlord as reimbursement for leasehold improvements. The amount
was recorded as deferred rent on the balance sheet and is being
amortized as a credit to rent expense over the remaining lease
term.
Graceway
Agreements
In February 2008, we entered into an asset purchase agreement
with Graceway Pharmaceuticals, LLC (Graceway),
pursuant to which Novavax sold Graceway its assets related to
Estrasorb in the United States, Canada and Mexico. The assets
sold include certain patents related to the MNP technology,
trademarks, know-how, manufacturing equipment, customer and
supplier relations, goodwill and other assets. We retained the
rights to commercialize Estrasorb outside of the United States,
Canada and Mexico.
In February 2008, Novavax and Graceway also entered into a
supply agreement, pursuant to which Novavax manufactured
additional units of Estrasorb with final delivery completed in
July 2008. Graceway is paying a preset transfer price per unit
of Estrasorb for the supply of this product. Because Novavax has
delivered the required quantity of Estrasorb, Novavax was
required to clean the manufacturing equipment and prepare the
equipment for transport. Graceway removed the equipment from the
manufacturing facility and Novavax exited the facility in August
2008.
In February 2008, Novavax and Graceway also entered into a
license agreement, pursuant to which Graceway granted Novavax an
exclusive, non-transferable (except for certain allowed
assignments and sublicenses), royalty-free, limited license to
the patents and know-how that Novavax sold to Graceway pursuant
to the asset purchase
38
agreement. The license grant allows Novavax to make, use and
sell licensed products and services in certain, limited fields.
The net cash proceeds from these transactions were in excess of
$2.5 million for the year ended December 31, 2008. The
license and supply agreements with Allergan, Inc.,
successor-in-interest
to Esprit Pharma, Inc., were terminated in February 2008 and
October 2007, respectively.
License
Agreement with Wyeth Holdings Corporation
On July 5, 2007, we entered into a License Agreement with
Wyeth Holdings Corporation, a subsidiary of Wyeth
(Wyeth). The license is a non-exclusive, worldwide
license to a family of patent applications covering VLP
technology for use in human vaccines in certain fields of use.
The agreement provides for an upfront payment, annual license
fees, milestone payments and royalties on any product sales. If
each milestone is achieved for any particular product candidate,
the Company would be obligated to pay an aggregate of
$14 million to Wyeth Holdings for each product candidate
developed and commercialized under the agreement. Achievement of
each milestone is subject to many risks, including those
described in the Companys Risk Factors. Annual license
maintenance fees under the Wyeth Holdings agreement aggregate
$0.3 million per year. The royalty to be paid by the
Company under the agreement, if a product is approved by the FDA
for commercialization, will be based on single digit percentage
of net sales. Payments under the agreement to Wyeth as of
December 31, 2008 aggregated $4.8 million and could
aggregate up to an additional $0.3 million in 2009,
depending on the achievement of clinical development milestones.
The agreement will remain effective as long as at least one
claim of the licensed patent rights cover the manufacture, sale
or use of any product unless terminated sooner at Novavaxs
option or by Wyeth for an uncured breach by Novavax.
License
Agreement with University of Massachusetts Medical
School
Effective February 26, 2007, we entered into a worldwide
agreement to exclusively license a VLP technology from the
University of Massachusetts Medical School (UMMS).
Under the agreement, we have the right to use this technology to
develop VLP vaccines for the prevention of any viral diseases in
humans. As of December 31, 2008 and 2007, we made payments
to UMMS in an aggregate amount that is not material to the
Company. In addition, we will make certain payments based on
development milestones as well as future royalties on any sales
of products that may be developed using the technology. The
Company believes that all payments under the UMMS agreement will
not be material to the Company in the foreseeable future. The
UMMS agreement will remain effective as long as at least one
claim of the licensed patent rights cover the manufacture, sale
or use of any product unless terminated sooner at Novavaxs
option or by UMMS for an uncured breach by Novavax.
Sublease
Agreement with PuriCore, Inc.
In April 2006, we entered into a sublease agreement with
Sterilox Technologies, Inc. (now known as PuriCore, Inc.) to
sublease 20,469 square feet of the Companys Malvern,
Pennsylvania corporate headquarters at a premium price per
square foot. The sublease, with a commencement date of
July 1, 2006, expires on September 30, 2009. This
sublease resulted from our corporate move to Rockville,
Maryland. In October 2006, we entered into a lease for an
additional 51,000 square feet in Rockville, Maryland.
Accordingly, in October 2006, the Company entered into an
amendment to the Sublease Agreement with PuriCore, Inc. to
sublease an additional 7,500 square feet of the Malvern
corporate headquarters at a premium price per square foot. This
amendment has a commencement date of October 25, 2006 and
expires concurrent with the initial lease on September 30,
2009. In March 2009, the Company further amended the sublease
with PuriCore. The amendment, which is effective as of
November 1, 2008, extends the term of the sublease until
September 30, 2011, expands the sublease premises to
include all of the approximately 32,900 rentable square
feet and grants PuriCore the option to renew the lease for an
additional three-year term.
Convertible
Notes
On June 15, 2007, we entered into amendment agreements (the
Amendments) with each of the holders of the
outstanding 4.75% senior convertible notes (the
Notes) to amend the terms of the Notes. As of
December 31, 2008, $22.0 million aggregate principal
amount remained outstanding under the Notes. The Amendments
39
(i) lowered the conversion price from $5.46 to $4.00 per
share, (ii) eliminated the holders right to require
the Company to redeem the Notes if the weighted average price of
the Companys common stock is less than the conversion
price on 30 of the 40 consecutive trading days preceding
July 19, 2007 or July 19, 2008 and (iii) mandated
that the Notes be converted into Company common stock if the
weighted average price of the Companys common stock is
greater than $7.00 (a decrease from $9.56) in any 15 out of 30
consecutive trading days after July 19, 2007. The number of
shares to be issued as repayment is determined by dividing the
amount of the maturity date payment to be paid in shares by the
redemption conversion price. The redemption
conversion price is 95% of the arithmetic average of the
weighted average price of the common stock on each
trading day during the measurement period. The
weighted average price is the dollar volume-weighted price on
NASDAQ as reported by Bloomberg. The measurement period is the
20 consecutive trading days ending on and including the second
trading day preceding the maturity date.
We determined the change in the value of the conversion option
and have reduced the convertible debt amount by $852,000 related
to this amendment, which beginning on June 30, 2007, is
being accreted over the remaining term (through July 15,
2009) of the convertible notes as interest expense.
The Notes mature on July 15, 2009. Under the terms of the
Notes, Novavax, at its option, can pay up to 50% of the
outstanding Notes in Novavax common stock on the due date of
July 15, 2009, subject to the satisfaction of certain
conditions, including, among other things, a requirement that
the shares issued upon conversion be registered or freely
tradable without registration, that Novavaxs shares of
common stock have not been suspended from trading on NASDAQ
during the applicable measurement period, there is no threatened
delisting or suspension, and that the Company is otherwise in
compliance with its agreements with the Note holders. The amount
of shares that may be issued at maturity may be subject to
adjustment depending on the Note holders percentage
ownership of the Company on an as-converted basis and if our
stock price falls below $2.00 during the measurement period. As
a result, we will have to pay at least $11 million in cash
to satisfy the Notes on the due date unless the notes are
converted into common stock, redeemed or amended.
Notes
with Former Directors
In March 2002, pursuant to the Novavax, Inc. 1995 Stock Option
Plan, we approved the payment of the exercise price of options
by two of our directors through the delivery of full-recourse,
interest-bearing promissory notes in the aggregate amount of
$1,480,000. The notes were secured by an aggregate of
261,667 shares of our common stock.
In May 2006, one of these directors resigned from the
Companys board of directors. Following his resignation, we
approved an extension of the former directors $448,000
note to be payable on December 31, 2007, or earlier to the
extent of the net proceeds from any sale of the pledged shares.
We entered into negotiations with the former director to extend
the loan in January 2008. As of December 31, 2007, the
interest accrued on this note totaled $131,000 and was fully
reserved since management believes the collectability of this
amount is uncertain. On May 7, 2008 the Company and the
former director entered into an Amended and Restated Promissory
Note and an Amended and Restated Pledge Agreement (the
Amendment).
The Amendment restates the entire amount outstanding as of
December 31, 2007, including accrued interest, or $578,848,
as the new outstanding principal amount. Furthermore, the
Amendment extends the maturity date of the note to June 30,
2009, permits the Company to sell the pledged shares if the
market price of the common stock as reported on NASDAQ Global
Market exceeds certain targets, increases the interest rate to
8.0% and stipulates quarterly payments beginning June 30,
2008. We received the first payment of $50,000 in July 2008 and
a second payment of $5,000 in October 2008. In January 2009, we
received an additional payment of $10,000.
In March 2007, the other director resigned. Following his
resignation, we approved an extension of the former
directors $1,031,668 note. The note continues to accrue
interest at 5.07% per annum and is secured by shares of common
stock owned by the former director and is payable on
June 30, 2009, or earlier to the extent of the net proceeds
from any sale of the pledged shares. In addition, we have the
option to sell the pledged shares on behalf of the former
director at any time that the market price of our common stock,
as reported on NASDAQ Global Market, exceeds $7.00 per share. As
of December 31, 2007, the interest accrued on this note
totaled $302,000 and was fully reserved since management
believes collectability of this amount is uncertain.
40
We continue to actively work with these two individuals to
collect the amounts outstanding and reserve our rights to pursue
the remedies available to us. Due to heightened sensitivity in
the current environment surrounding related-party transactions
and the extensions of the maturity dates, these transactions
could be viewed negatively in the market and our stock price
could be negatively affected.
Critical
Accounting Policies and Use of Estimates
Our discussion and analysis of our financial condition and
results of operations are based upon our consolidated financial
statements, which have been prepared in accordance with
accounting principles generally accepted in the United States.
The preparation of our consolidated financial statements
requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities and equity and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. These estimates,
particularly estimates relating to revenue recognition,
allowance for doubtful accounts, accounting for stock based
compensation, goodwill, valuation of net deferred tax assets,
and the valuation of our investments, have a material impact on
our financial statements and are discussed in detail throughout
our analysis of the results of operations discussed below.
We base our estimates on historical experience and various other
assumptions that we believe are reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying value of assets, liabilities and
equity that are not readily apparent from other sources. Actual
results and outcomes could differ from these estimates and
assumptions.
Revenue
Recognition and Allowances
The Company recognizes revenue in accordance with the provisions
of Staff Accounting Bulletin No. 104, Revenue
Recognition (SAB No. 104). For product
sales, revenue is recognized when all of the following criteria
are met: persuasive evidence of an arrangement exists, delivery
has occurred, the price is fixed and determinable and
collectability is reasonably assured. The Company establishes
allowances for estimated uncollectible amounts, product returns,
rebates and charge backs based on historical trends and
specifically identified problem accounts.
For upfront payments and licensing fees related to contract
research or technology, the Company follows the provisions of
SAB No. 104 in determining if these payments and fees
represent the culmination of a separate earnings process or if
they should be deferred and recognized as revenue as earned over
the life of the related agreement. Milestone payments are
recognized as revenue upon achievement of contract-specified
events and when there are no remaining performance obligations.
Revenue earned under research contracts is recognized in
accordance with the terms and conditions of such contracts for
reimbursement of costs incurred and defined milestones.
Stock
Based Compensation
We account for our stock options in accordance with Statement of
Financial Accounting Standard No. 123 (revised),
Accounting for Stock-Based Compensation
(SFAS No. 123R). This standard requires us
to measure the cost of employee services received in exchange
for equity share options granted based on the grant-date fair
value of the options. Under the provisions of SFAS 123R,
employee stock-based compensation is estimated at the date of
grant based on the awards fair value using the
Black-Scholes option-pricing model and is recognized as expense
ratably over the requisite service period. The Black-Scholes
option-pricing model requires the use of certain assumptions,
the most significant of which are our estimates of the expected
volatility of the market price of our stock, the expected term
of the award, and the risk-free interest rate. Our estimate of
the expected volatility is based on historical volatility. The
expected term represents the period during which our stock-based
awards are expected to be outstanding. In 2008 we estimated this
amount based on historical experience of similar awards, giving
consideration to the contractual terms of the awards, vesting
requirements, and expectation of future employee behavior,
including post-vesting terminations. Our estimate of the
risk-free interest rate is based on U.S. Treasury debt
securities with maturities close to the expected term of the
option as of the date of grant. As required under
SFAS 123R, we review our valuation assumptions at each
grant date and, as a result, our assumptions in future
41
periods may change. Also, the accounting estimate of stock-based
compensation expense is reasonably likely to change from period
to period as further stock options are granted and adjustments
are made for stock option forfeitures and cancellations.
Research
and Development
Research and development costs are expensed as incurred. Such
costs include internal research and development expenditures
(such as salaries and benefits, raw materials and supplies) and
contracted services (such as sponsored research, consulting and
testing services) of proprietary research and development
activities and similar expenses associated with collaborative
research agreements.
Income
Taxes
We account for income taxes in accordance with SFAS No.
109, Accounting for Income Taxes (SFAS 109)
and FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement
No. 109, as amended by FASB Staff Position
No. 48-1
(FIN 48). Under SFAS 109 and FIN 48,
we must recognize deferred tax assets and liabilities for
expected future tax consequences of temporary differences
between the carrying amounts and tax bases of assets and
liabilities. Income tax receivables and liabilities, and
deferred tax assets and liabilities, are recognized based on the
amounts that more likely than not would be sustained upon
ultimate settlement with taxing authorities.
Developing our provision for income taxes and analyzing our tax
positions requires significant judgment and knowledge of federal
and state income tax laws, regulations and strategies, including
the determination of deferred tax assets and liabilities and,
any valuation allowances that may be required for deferred tax
assets.
We assess the likelihood of realizing our deferred tax assets to
determine whether an income tax valuation allowance is required.
Based on such evidence that can be objectively verified, we
determine whether it is more likely than not that all or a
portion of the deferred tax assets will be realized. The main
factors that we consider include:
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the applicable statute of limitations.
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Tax benefits associated with uncertain tax positions are
recognized in the period in which one of the following
conditions is satisfied: (1) the more likely than not
recognition threshold is satisfied; (2) the position is
ultimately settled through negotiation or litigation; or
(3) the statute of limitations for the taxing authority to
examine and challenge the position has expired. Tax benefits
associated with an uncertain tax position are reversed in the
period in which the more likely than not recognition threshold
is no longer satisfied.
A valuation allowance is established when necessary to reduce
net deferred tax assets to the amount expected to be realized.
We concluded that the realization of deferred tax assets is
dependent upon future earnings, if any, the timing and amount of
which are uncertain. Accordingly, the net deferred tax assets
have been fully offset by a valuation allowance.
Goodwill
and Intangible Assets
Goodwill originally results from business acquisitions. Assets
acquired and liabilities assumed are recorded at their fair
values; the excess of the purchase price over the identifiable
net assets acquired is recorded as goodwill. Other intangible
assets are a result of product acquisitions, non-compete
arrangements and internally discovered patents. In accordance
with SFAS No. 142, Goodwill and Other Intangible
Assets (SFAS No. 142) goodwill and
intangible assets deemed to have indefinite lives are not
amortized but are subject to impairment tests annually, or more
frequently should indicators of impairment arise. We utilize
both the market approach and the income approach to determine if
we have an impairment of our goodwill. The income approach was
used as a confirming look to the market approach. Under
SFAS No. 142, goodwill impairment is deemed to exist
if the carrying value of a reporting unit exceeds its estimated
fair value. In accordance with the requirements of
SFAS No. 142, we initially
42
tested our goodwill for impairment as of January 1, 2002
and determined that no impairment was present. We thereafter
performed the required annual impairment test as of December 31
of each year on the carrying amount of its goodwill.
Our annual goodwill impairment assessment has historically been
completed at December 31 of each year. Given the current
economic conditions and the uncertainties regarding their impact
on our Company, there can be no assurance that the estimates and
assumptions made for purposes of our goodwill impairment testing
at December 31, 2008 will prove to be accurate predictions
of the future, or that any change in the assumptions or the
current economic conditions will not trigger another goodwill
impairment test before December 31, 2009. If our
assumptions are not achieved or economic conditions deteriorate
further, we may be required to record goodwill impairment
charges in future periods. These impairment charges may be a
partial or full impairment of the current balance.
Disposal
of Long-Lived Assets/Discontinued Operations
We account for the impairment of long-lived assets and
long-lived assets to be disposed of in accordance with Statement
of Financial Accounting Standard No. 144, Accounting for
the Impairment or Disposal
(SFAS No. 144). SFAS No. 144
requires a periodic evaluation of the recoverability of the
carrying value of long-lived assets and identifiable intangibles
and whenever events or changes in circumstances indicate that
the carrying value of the asset may not be recoverable. Examples
of events or changes in circumstances that indicate that the
recoverability of the carrying value of an asset should be
assessed include, but are not limited to, the following: a
significant decrease in the market value of an asset, a
significant change in the extent or manner in which an asset is
used, a significant physical change in an asset, a significant
adverse change in legal factors or in the business climate that
could affect the value of an asset, an adverse action or
assessment by a regulator, an accumulation of costs
significantly in excess of the amount originally expected to
acquire or construct an asset, a current period operating or
cash flow loss combined with a history of operating or cash flow
losses,
and/or a
projection or forecast that demonstrates continuing losses
associated with an asset used for the purpose of producing
revenue. We consider historical performance and anticipated
future results in its evaluation of potential impairment.
Accordingly, when indicators of impairment are present, we
evaluate the carrying value of these assets in relation to the
operating performance of the business and future undiscounted
cash flows expected to result from the use of these assets.
Impairment losses are recognized when the sum of expected future
cash flows is less than the assets carrying value.
SFAS No. 144 also provides accounting and reporting
provisions for components of an entity that are classified as
discontinued operations. We recorded an impairment loss in
connection with the discontinued operations of our Philadelphia,
Pennsylvania manufacturing facility for the year ended
December 31, 2007 (See Notes to Consolidated Financial
Statements Note 11 Discontinued
Operations).
Recent
Accounting Pronouncements
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities
(SFAS No. 159), which provides
companies an option to report certain financial assets and
liabilities at fair value. The intent of SFAS No. 159
is to reduce the complexity in accounting for financial
instruments and the volatility in earnings caused by measuring
related assets and liabilities differently.
SFAS No. 159 is effective for financial statements
issued for fiscal years beginning January 1, 2008. The
Company did not elect the fair value option under
SFAS No. 159 for any of its financial instruments upon
adoption.
In December 2007, the FASB issued SFAS No. 141
(revised), Business Combinations
(SFAS No. 141R) which replaces
SFAS No. 141, Business Combinations
(SFAS No. 141).
SFAS No. 141R retains the fundamental requirements of
SFAS No. 141 that the acquisition method of accounting
be used for all business combinations and for an acquirer to be
identified for each business combination. In addition, the scope
of SFAS No. 141R is broader than
SFAS No. 141 because it applies to all transactions
and other events in which one entity obtains control over one or
more other businesses. SFAS No. 141R is effective on a
prospective basis for all business combinations for which the
acquisition date is on or after the beginning of the first
annual period subsequent to December 15, 2008 and early
adoption is not allowed. We are currently evaluating the effects
that SFAS No. 141R may have on any future business
combinations.
43
In December 2007, the FASB issued EITF Issue
No. 07-1,
Accounting for Collaborative Arrangements, which is
effective for calendar year companies on January 1, 2009.
The Task Force clarified the manner in which costs, revenues and
sharing payments made to, or received by a partner in a
collaborative arrangements should be presented in the income
statement and set for the certain disclosures that should be
required in the partners financial statements. Novavax is
currently assessing the potential impact of implementing this
standard on its financial condition results of operations or
liquidity.
In May 2008, the FASB issued SFAS No. 162,
Hierarchy of Generally Accepted Accounting Principles
(SFAS No. 162), which identifies the
sources of accounting principles and the framework for selecting
the principles used in the preparation of financial statements.
SFAS No. 162 is effective 60 days following the
SECs approval of the Public Company Accounting Oversight
Board amendments to AU Section 411, The Meaning of
Present Fairly in Conformity with Generally Accepted Accounting
Principles. The implementation of this standard is not
expected to have a material impact on our consolidated financial
position and results of operations.
In June 2008, the FASB ratified EITF Issue
No. 07-5,
Determining Whether an Instrument (or an Embedded Feature) Is
Indexed to an Entitys Own Stock
(EITF 07-5).
EITF 07-5
provides that an entity should use a two step approach to
evaluate whether an equity-linked financial instrument (or
embedded feature) is indexed to its own stock, including
evaluating the instruments contingent exercise and
settlement provisions. It also clarifies on the impact of
foreign currency denominated strike prices and market-based
employee stock option valuation instruments on the evaluation.
EITF 07-5
is effective for fiscal years beginning after December 15,
2008. The Company is currently assessing the impact of
EITF 07-5
on its consolidated financial position and results of operations.
Results
of Operations for Fiscal Years 2008, 2007 and 2006 (In
thousands, except percentage changes and share and per share
information)
The following is a discussion of the historical consolidated
financial condition and results of operations of Novavax, Inc.
and its wholly owned subsidiary and should be read in
conjunction with the consolidated financial statements and notes
thereto set forth in this Annual Report on
Form 10-K.
Additional information concerning factors that could cause
actual results to differ materially from those in the
Companys forward-looking statements is contained from time
to time in the Companys SEC filings.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
Change from
|
|
|
|
|
|
Change from
|
|
|
|
|
Revenues:
|
|
|
|
|
2007
|
|
|
|
|
|
2006
|
|
|
2006
|
|
|
Total net product sales
|
|
$
|
|
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
|
$
|
(641
|
)
|
|
|
(100
|
)%
|
|
$
|
641
|
|
Contract research and development
|
|
|
966
|
|
|
|
(422
|
)
|
|
|
(31
|
)%
|
|
|
1,388
|
|
|
|
320
|
|
|
|
30
|
%
|
|
|
1,068
|
|
Royalties, milestone and licensing fees
|
|
|
98
|
|
|
|
(27
|
)
|
|
|
(22
|
)%
|
|
|
125
|
|
|
|
96
|
|
|
|
331
|
%
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,064
|
|
|
$
|
(449
|
)
|
|
|
(30
|
)%
|
|
$
|
1,513
|
|
|
$
|
(225
|
)
|
|
|
(13
|
)%
|
|
$
|
1,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues for the year ended December 31, 2008 were
$1.1 million as compared to $1.5 million for the year
ended December 31, 2007, a decrease of $0.4 million,
or 30%. The decrease in revenues during 2008 as compared to 2007
was principally due to lower contract research and development
revenue.
Contract research and development revenue is comprised of
revenue from government and commercial contracts and, for the
year ended December 31, 2008, is comprised of revenue from
two National Institutes of Health (NIH) grants.
Contract research revenues were $1.0 million for 2008 as
compared to $1.4 million in 2007, a decrease of
$0.4 million, or 31%. The decrease in contract research
revenues was primarily due to the completion of a third
government contract during the first quarter of 2008.
We did not record any product sales in 2008 and 2007 due to the
discontinuation of the sale of Gynodiol in 2007. We recorded the
excess of returns on our 2007 product sales as costs of goods
sold.
Revenues for 2007 consisted of contract research revenues of
$1.4 million and royalties and milestone fees from licensed
products of $125,000 compared to contract research revenue of
$1.1 million and royalties and milestone fees from licensed
products of $29,000 in 2006. Revenues for 2006 also included
product sales of $641,000. For the year ended December 31,
2007, total revenues were $1.5 million as compared to
$1.7 million for
44
the year ended December 31, 2006, a decrease of
$0.2 million, or 13%. The decrease in product sales during
2007 as compared to 2006 was principally due to the discontinued
sale of Gynodiol in 2007. We recorded the excess of returns on
our 2007 product sales as cost of goods sold. Net product sales
in 2006 were $0.6 million consisting primarily of Gynodiol.
The increase in contract research revenues in 2007 as compared
to 2006 was primarily due to higher government reimbursement for
projects and milestones achieved in 2007. The increase in
royalties and milestone payments in 2007 of $96,000 as compared
to 2006 was primarily due to additional fees in 2007 of $50,000
for a development project and additional royalties from a prior
sales agreement.
Contract research and development revenues for 2006 totaled
$1.1 million. Revenues in 2006 were recognized under a
National Institutes of Health (NIH) grant to develop
a second generation HIV/AIDS vaccine, three manufacturing
contracts and one additional government contract. Royalties,
milestone and licensing fees for 2006 of $29,000 was principally
due to fees from a development project.
Operating
Costs and
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
Change from
|
|
|
|
|
|
Change from
|
|
|
|
|
Operating Costs and Expenses:
|
|
|
|
|
2007
|
|
|
|
|
|
2006
|
|
|
2006
|
|
|
Cost of products sold
|
|
$
|
|
|
|
$
|
(221
|
)
|
|
|
(100
|
)%
|
|
$
|
221
|
|
|
$
|
(16
|
)
|
|
|
(7
|
)%
|
|
$
|
237
|
|
Research and development
|
|
|
24,334
|
|
|
|
6,734
|
|
|
|
38
|
%
|
|
|
17,600
|
|
|
|
6,271
|
|
|
|
55
|
%
|
|
|
11,329
|
|
Selling, general and administrative
|
|
|
11,090
|
|
|
|
(2,873
|
)
|
|
|
(21
|
)%
|
|
|
13,963
|
|
|
|
2,675
|
|
|
|
24
|
%
|
|
|
11,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
35,424
|
|
|
$
|
3,640
|
|
|
|
11
|
%
|
|
$
|
31,784
|
|
|
$
|
8,930
|
|
|
|
39
|
%
|
|
$
|
22,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
Products Sold
We did not have any cost of products sold in 2008. Costs of
products sold were $163,000 in 2007, which represents the cost
of products sold for Gynodiol. In June 2007, we decided to
discontinue the sale of Gynodiol.
Cost of products sold decreased to $221,000 in 2007, compared to
$237,000 in 2006. The decrease was entirely due to lower gross
sales of Gynodiol due to the discontinued sale of the product
during the third quarter of 2007, as discussed above.
Research
and Development Expenses
Research and development costs increased from $17.6 million
for year ended December 31, 2007 to $24.3 million for
the year ended December 31, 2008, an increase of
$6.7 million, or 38%. This increase was due primarily to
higher research and development spending to support our
strategic focus on creating differentiated, value-added vaccines
that leverage our proprietary VLP technology. Outside-testing
costs (including outsourced clinical trial costs, sponsored
research and consulting agreements) associated with expanded
preclinical testing, human clinical trials, process development,
manufacturing and quality-related programs necessary to move our
influenza vaccine candidates into human clinical trials and
license fees paid to Wyeth account for $2.9 million of the
increase. The remaining increase of $3.8 million can be
attributed to an increase in employee related costs of
$1.1 million, an increase in facility costs of
$1.5 million and $0.4 million accrued in 2008 related
to future lease payments for our Taft Court facility in
Rockville, Maryland. Research and development costs in 2008 also
include $0.1 million related to the revision of the useful
life of the leasehold improvements at the Taft Court facility.
The costs associated with our Taft Court facility resulted from
our decision to consolidate our research and development and
manufacturing activities into our Belward Campus Drive facility
in Rockville, Maryland.
Research and development costs increased from $11.3 million
in 2006 to $17.6 million in 2007, an increase of
$6.3 million, or 55%. Research and development expenses
were significantly higher in 2007 due to a 3.9 million
increase in outside-testing costs (including sponsored research
and consulting agreements) associated with expanded preclinical
testing and process development, manufacturing and
quality-related programs, license fees paid to Wyeth Holdings
Corporation and the initiation of human clinical trials
necessary to advance our influenza vaccine candidates in
clinical development. The remaining increase of
$2.4 million can be attributed to a $1.9 million
increase in employee related costs and a $0.4 million
increase in lab supplies.
45
General
and Administrative
General and administrative costs were $11.1 million in 2008
compared to $13.9 million in 2007. The decrease of
$2.8 million, or 21%, was primarily due to the correction
of the classification of the notes receivable due from former
directors to show these notes as reductions of equity in the
December 31, 2008 consolidated balance sheet. For the year
ended December 31, 2008, general and administrative
expenses include a $1.2 million credit to the allowance
established for the notes receivable. During the year ended
December 31, 2008, we concluded that the notes receivable
from the former directors should be classified as a reduction of
equity and had been erroneously reclassified to an asset during
the prior fiscal years. Therefore, the reserve charges taken to
the statement of operations during 2006 and 2007 and during the
first two quarters of 2008, totaling $1.2 million were also
determined to be incorrect. We are of the opinion that when
evaluated qualitatively and quantitatively, the impact of the
prior period error is not material to the financial statements
during any period presented. As such, we have determined it is
appropriate to record the correction of this matter in the third
quarter results and to not make modifications to any prior
filings. The credit to general and administrative expenses is a
result of the adjustment recorded in the current year results to
correct the cumulative impact of the prior period errors noted
above.
General and administrative expenses for the year ended
December 31, 2008 were also impacted by lower facility
costs of approximately $0.6 million for the new facility in
Rockville, Maryland and decreased employee costs of
approximately $0.3 million as we implemented our plan to
consolidate all operations into our Belward Campus Drive
facility in Rockville, Maryland. The credit to general and
administrative expenses discussed above and the decreases in
facility and employee costs was partially offset by the
impairment charge to the MNP assets of $0.8. Expenses for the
year ended December 31, 2007 also included non-recurring
costs for the adoption of FIN 48 of $0.2 million,
consulting fees related to studies of the vaccine market of
$0.2 million, and investment banker fees of
$0.1 million related to our decision to divest our MNP
technology.
General and administrative costs were $14.0 million in 2007
compared to $11.3 million in 2006. The increase of
$2.7 million was primarily due to increased facility costs
of approximately $1.2 million for the Companys new
facility in Rockville, Maryland which was leased in the fourth
quarter of 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
Change from
|
|
|
|
|
|
Change from
|
|
|
|
|
Net Interest and Other (Expense) Income:
|
|
|
|
|
2007
|
|
|
|
|
|
2006
|
|
|
2006
|
|
|
Interest income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
959
|
|
|
$
|
(2,328
|
)
|
|
|
71
|
%
|
|
$
|
3,287
|
|
|
$
|
20
|
|
|
|
1
|
%
|
|
$
|
3,267
|
|
Interest expense
|
|
|
(1,683
|
)
|
|
|
(77
|
)
|
|
|
5
|
%
|
|
|
(1,606
|
)
|
|
|
121
|
|
|
|
(7
|
)
|
|
|
(1,727
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment loss on short-term investments
|
|
|
(1,238
|
)
|
|
|
(1,238
|
)
|
|
|
N/A
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1,962
|
)
|
|
$
|
(3,643
|
)
|
|
|
217
|
%
|
|
$
|
1,681
|
|
|
$
|
141
|
|
|
|
9
|
%
|
|
$
|
1,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company had net interest and other expense of
$2.0 million for 2008 compared to net interest and other
income of $1.7 million for 2007, a change of
$3.6 million, or 217%. Interest income decreased from
$3.3 million in 2007 to $1.0 million in 2008, due in
part to the correction of a matter described above related to
notes receivable from former directors along with a decrease in
our cash, cash equivalents, and short-term investment balances.
For the year ended December 31, 2008, interest income
includes a $1.0 million adjustment related to the
correction of our accounting for the notes receivable with two
of our former directors, as discussed above. Additionally, our
cash, cash equivalents, and short-term investment balances
decreased primarily due to increased spending levels related to
our vaccine development programs. Interest expense increased
from $1.6 million in 2007 to $1.7 million in 2008, an
increase of $0.1 million or 5%. The increase in interest
expense is due to the increase in the amortization of debt
discount of $0.3 million, related to the amendment of the
convertible notes, which occurred in June 2007. The debt
discount of $852,000 is being amortized over the remaining term
of the convertible notes, through July 2009. Additionally, we
recorded $1.2 million as an impairment loss on investments
for the year ended December 31, 2008, related to an other
than temporary impairment loss on our auction rate securities.
Net interest and other income increased from $1.5 million
in 2006 to $1.6 million in 2007, an increase of
$0.1 million, or 9%. Interest income remained constant at
$3.3 million in both 2007 and 2006, despite lower cash and
cash equivalent balances in 2007, due to offsetting higher
interest rates earned on investments in 2007 as
46
compared to 2006. Interest expense decreased to
$1.6 million in 2007 from $1.7 million in 2006, a
decrease of $0.1 million, or 7%. The decrease in interest
expense in 2007 from 2006 was principally due to conversion of
$7.0 million face amount of the convertible notes into
equity in March 2006, partially offset by the amortization of
debt discount of $0.2 million related to the amendments to
convertible notes made in 2007. In connection with amendments to
the convertible notes in 2007, we recorded a debt discount of
$852,000 and increased additional paid-in capital accordingly.
The debt discount is being amortized over the remaining term of
the convertible notes.
Discontinued
Operations
In October 2007, we entered into agreements to terminate our
supply agreements with Allergan,
successor-in-interest
to Esprit. In connection with the termination, we decided to
wind down operations at our previously leased manufacturing
facility in Philadelphia, Pennsylvania. The results of
operations for the manufacturing facility are being reported as
discontinued operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
Change from
|
|
|
|
|
|
Change from
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
2006
|
|
|
|
|
|
2006
|
|
|
Revenues
|
|
$
|
3,776
|
|
|
$
|
1,863
|
|
|
|
97
|
%
|
|
$
|
1,913
|
|
|
$
|
(1,032
|
)
|
|
|
(35
|
)%
|
|
$
|
2,945
|
|
Costs of products sold
|
|
|
2,955
|
|
|
|
(3,803
|
)
|
|
|
56
|
%
|
|
|
6,758
|
|
|
|
2,071
|
|
|
|
44
|
%
|
|
|
4,687
|
|
Excess inventory costs over market
|
|
|
548
|
|
|
|
(719
|
)
|
|
|
57
|
%
|
|
|
1,267
|
|
|
|
(282
|
)
|
|
|
(18
|
)%
|
|
|
1,549
|
|
Research and development
|
|
|
|
|
|
|
(63
|
)
|
|
|
100
|
%
|
|
|
63
|
|
|
|
(137
|
)
|
|
|
(69
|
)%
|
|
|
200
|
|
General and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
3,503
|
|
|
|
(4,585
|
)
|
|
|
57
|
%
|
|
|
8,088
|
|
|
|
1,652
|
|
|
|
26
|
%
|
|
|
6,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
273
|
|
|
$
|
(6,448
|
)
|
|
|
104
|
%
|
|
$
|
(6,175
|
)
|
|
$
|
(2,684
|
)
|
|
|
77
|
%
|
|
$
|
(3,491
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As part of the Graceway transaction, we sold our rights related
to Estrasorb in the United States, Canada and Mexico to Graceway
as well as certain manufacturing equipment for the production of
Estrasorb. The assets sold also included certain patents related
to MNP technology, trademarks, customer and supplier relations
and goodwill. Novavax and Graceway also entered into a supply
agreement, pursuant to which Novavax agreed to manufacture
additional quantities of Estrasorb with final delivery completed
in July 2008. Graceway paid a preset transfer price per unit of
Estrasorb for the supply of this product. The net cash impact
from this transaction was in excess of $2.5 million for the
year ended December 31, 2008. The license and supply
agreements with Allergan, Inc.,
successor-in-interest
to Esprit Pharma, Inc., were terminated in February 2008 and
October 2007, respectively.
We recorded net income from discontinued operations of
$0.2 million compared to a loss of $6.2 million for
the years ended December 31, 2008 and December 31,
2007, respectively. The change resulted from an increase in
revenues and a decrease in operating expenses. Revenue from
discontinued operations increased to $3.8 million for 2008
from $1.9 million for 2007, an increase of
$1.8 million or 97% primarily due to the recognition of
revenue related to the Graceway agreements. We completed our
obligations under the Graceway agreements in August 2008.
Costs of products sold for the year ended December 31,
2008, which included fixed idle capacity costs, decreased from
$6.8 million in 2007 to $3.0 million in 2008, a
decrease of $3.8 million, or 56%. Of the $3.0 million
cost of products sold in 2008, $1.3 million represented
idle plant capacity costs at our manufacturing facility. The
remaining $1.7 million represented the cost of Estrasorb
sales to Graceway. Of the $6.8 million cost of products
sold in 2007, $3.1 million represents idle plant capacity
costs and the balance of $3.7 million represented
$1.5 million related to the costs of Estrasorb sales to
Allergan and a $2.2 million impairment charge related to
the fixed assets at our manufacturing facility. In accordance
with the Supply Agreement with Allergan, which terminated in
February 2008, and with the supply agreement with Graceway, we
were required to sell Estrasorb at a price that was lower than
our manufacturing costs. These excess costs over the product
cost totaled $0.5 million and $1.2 million for the
years ended December 31, 2008 and 2007.
Research and development costs from discontinued operations were
$0.1 million for the year ended December 31, 2007.
There were no research and developments costs from discontinued
operations for the year ended December 31, 2008.
47
We recorded a loss from discontinued operations of
$3.5 million for the year ended December 31, 2006
compared to $6.2 million for the year ended
December 31, 2007, an increase of $2.7 million or 77%.
The increase resulted from a decrease in revenue and an increase
in operating expenses. Revenue from discontinued operations
decreased to $1.9 million for 2007 from $2.9 million
for 2006, a decrease of $1.0 million. The decrease resulted
from lower Estrasorb shipments due to adjustments in inventory
levels made by Allergan to reflect sales volume activity.
Revenue also decreased as a result of decreased contract
research revenue associated with the Allergan agreement.
Costs of products sold, which includes fixed idle capacity costs
increased from $4.7 million in 2006 to $6.8 million in
2007, an increase of $2.1 million, or 44%. Of the
$6.8 million cost of products sold in 2007,
$3.1 million represented idle plant capacity costs at our
manufacturing facility. The remaining $3.7 million
represented $1.5 million related to the cost of Estrasorb
sales to Allergan and a $2.2 million impairment charge
related to the fixed assets at our manufacturing facility. Of
the $4.7 million cost of products sold in 2006,
$2.5 million represents idle plant capacity costs and the
balance of $2.2 million represent the costs of Estrasorb
sales to Allergan. We were required to complete the manufacture
of the remaining orders of Estrasorb in accordance with our
agreement with Allergan in October 2007 to terminate the
Allergan Supply Agreement.
In accordance with the Supply Agreement with Allergan, during
2006 and 2007, we were required to sell Estrasorb at a price
that is lower than our manufacturing costs. These excess costs
over the product cost totaled $1.3 million for 2007 and
$1.5 million for 2006.
Research and development costs from discontinued operations
decreased to $0.1 million in 2007 from $0.2 million in
2006, primarily as a result of the termination of our agreements
with Allergan.
We recorded research and development costs from discontinued
operations in 2006 of $0.2 million related to costs
incurred for contract research performed in our manufacturing
facility.
Net
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
Change from
|
|
|
|
|
|
Change from
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
2006
|
|
|
2006
|
|
|
Net Loss
|
|
$
|
(36,049
|
)
|
|
$
|
(1,284
|
)
|
|
|
(4
|
)%
|
|
$
|
(34,765
|
)
|
|
$
|
(11,697
|
)
|
|
|
(51
|
)%
|
|
$
|
(23,068
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share
|
|
$
|
(0.53
|
)
|
|
$
|
0.04
|
|
|
|
7
|
%
|
|
|
(0.57
|
)
|
|
$
|
(0.17
|
)
|
|
|
(44
|
)%
|
|
$
|
(0.39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted shares outstanding
|
|
|
68,174,338
|
|
|
|
7,072,591
|
|
|
|
12
|
%
|
|
|
61,101,747
|
|
|
|
2,437,382
|
|
|
|
4
|
%
|
|
|
58,664,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year ended December 31, 2008 was
$36.0 million or $0.53 net loss per share, as compared
to $34.8 million, or $0.57 net loss per share, for the
year ended December 31, 2007, an increased loss of
$1.2 million. The increased net loss was primarily due to
an increase in operating expenses of $3.6 million, a
decrease in interest and other income (expense) of
$3.6 million, a decrease in revenues of $0.3 million,
partially offset by an increase in income (loss) from
discontinued operations of $6.4 million. The weighted
shares outstanding increased from 61.1 million in 2007 to
68.2 million in 2008, primarily due to the shares issued as
part of the equity financing completed in July 2008.
Our net loss for 2007 totaled $34.8 million or
$0.57 net loss per share, which was an increase of
$11.7 million, or $0.18 net loss per share more than
the net loss for 2006 of $23.1 million, or $0.39 net
loss per share. The increase in the net loss in 2007 was
principally due to increases in research and development
expenses of $6.0 million, increases in net losses from
discontinued operations of $2.7 million, the cost of our
new facility in Rockville, Maryland of $1.2 million, and an
increase in reserves for two former Board members note
receivables of $0.9 million.
Weighted shares outstanding increased in 2007 to
61.1 million shares from 58.7 million in 2006. The
increase in weighted shares in 2007 was principally due to
vesting of restricted stock and exercising of stock options.
48
Liquidity
Matters and Capital Resources
Our future capital requirements depend on numerous factors
including but not limited to, the maturity of our Notes on
July 15, 2009, the commitments and progress of our research
and development programs, the progress of preclinical and
clinical testing, the costs of filing, prosecuting, defending
and enforcing any patent claims and other intellectual property
rights, and manufacturing costs. We plan to continue to have
multiple vaccines and products in various stages of development
and we believe our research and development as well as general
and administrative expenses and capital requirements will
continue to increase. We will need to engage in capital raising
activities in the near term. Future activities, particularly
vaccine and product development, are subject to our ability to
raise funds through public or private financings using equity
and/or debt
securities, or collaborative licensing and development
arrangements with industry partners and government agencies.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008
|
|
|
|
Continuing
|
|
|
Discontinued
|
|
|
|
|
Summary of Cash Flows:
|
|
Operations
|
|
|
Operations
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Net cash (used in) provided by:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(26,764
|
)
|
|
$
|
2,459
|
|
|
$
|
(24,310
|
)
|
Investing activities
|
|
|
28,552
|
|
|
|
1,354
|
|
|
|
29,906
|
|
Financing activities
|
|
|
16,992
|
|
|
|
|
|
|
|
16,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
18,775
|
|
|
|
3,813
|
|
|
|
22,588
|
|
Cash and cash equivalents at beginning of year
|
|
|
|
|
|
|
|
|
|
|
4,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
|
|
|
|
|
|
|
|
$
|
26,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three-year period ended December 31, 2008, we
have funded our operations primarily from the following
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds (In millions)
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
Total
|
|
|
Sales of common stock in equity offerings, net
|
|
$
|
56.0
|
|
|
$
|
|
|
|
$
|
17.0
|
|
|
$
|
73.0
|
|
License payments received
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
2.5
|
|
Exercise of stock options and warrants
|
|
|
1.7
|
|
|
|
0.1
|
|
|
|
.3
|
|
|
|
2.1
|
|
Lease incentives received
|
|
|
|
|
|
|
|
|
|
|
3.0
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
60.2
|
|
|
$
|
0.1
|
|
|
$
|
20.3
|
|
|
$
|
80.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In additional to the net proceeds outlined above, as part of the
Graceway transaction, we sold our rights related to Estrasorb in
the United States, Canada and Mexico to Graceway as well as
certain manufacturing equipment for the production of Estrasorb.
We also manufactured additional quantities of Estrasorb with
final delivery completed in July 2008. The net cash impact from
this transaction was in excess of $2.5 million for the year
ended December 31, 2008.
As of December 31, 2008, we held $33.9 million in
cash, cash equivalents and short-term investments as compared to
$46.5 million at December 31, 2007. Cash, cash
equivalents and short-term investments as of December 31,
2008 are net of a $1.2 million realized loss related to the
impairment of our auction rate securities recorded for the year
ended December 31, 2008. The $12.6 million decrease in
cash, cash equivalents and short-term investments during 2008
was primarily due to the operating losses from continuing
operations of $36.3 million, principal payments on debt of
$1.0 million, capital expenditures for our Belward Campus
Drive Good Manufacturing Practices (GMP) facility
project, partially offset by the proceeds of our equity
financing completed on July 31, 2008 of $17.4 million,
and the proceeds from the Graceway transaction. We also received
a lease incentive totaling $3.0 million from our landlord
related to the extension of our lease term at our corporate
headquarters.
As of December 31, 2008, our working capital was
$7.3 million compared to $42.8 million as of
December 31, 2007. This $35.5 million decrease
primarily resulted from our net loss and the reclassification of
our convertible debt to current liabilities, partially offset by
the proceeds of our equity financing completed on July 31,
2008, an upfront payment received from Graceway as part of the
Estrasorb transaction in February 2008 and a $3.0 million
49
lease incentive received from our landlord in June 2008.
Additionally, we purchased $5.7 million of capital
expenditures activities and made $1.0 million in principal
payments on our outstanding debt obligations during the year
ended December 31, 2008.
As of December 31, 2007, we held $46.5 million in cash
and investments as compared to $73.6 million at
December 31, 2006. The $27.1 million decrease in cash
and investments during 2007, was due to the operating loss from
continued operations of $28.6 million, cash used from
discontinued operations of $1.0 million, and principal
payments on debt of $0.8 million, partially offset by
non-cash expenses of $4.6 million and net balance sheet
changes of $0.6 million. In addition, capital expenses
totaled $2.0 million in 2007, primarily for equipment for
vaccine development and the initial investment in the build out
of a new GMP facility in our corporate headquarters.
At December 31, 2008 we had cash totaling
$26.9 million and auction rate securities with a face value
of $8.2 million and a fair value of $7.0 million.
There has been insufficient demand at auction for each of our
five auction rate securities, which had a par value totaling
$8.2 million. We recorded an impairment charge on these
investments of $1.2 million in the fourth quarter of 2008
on these investments due primarily to their illiquidity, and
believe the $7.0 million it has recorded at
December 31, 2008 represents their fair market value and
the value we could liquidate the investment for, if necessary.
We are currently evaluating what purchase price it could get for
these securities now and what the risks along with the benefits
of holding verses selling these securities. Without liquidity of
these auction rate securities, our cash position would be
negatively affected.
We will seek to raise additional capital through public or
private equity
and/or debt
financing. We intend to use the proceeds from these financing
transactions to pay all or a portion of the principal and
interest due on the Notes and for general corporate purposes,
including but not limited to our internal research and
development programs, such as preclinical and clinical testing
and studies for our vaccine and other product candidates, the
development of new technologies, capital improvements and
general working capital. We will also seek to fund our
operations through licensing and development arrangements. There
can be no assurance that we will be able to obtain additional
capital or, if such capital is available, that the terms of any
financing will be satisfactory to the Company. Any capital
raised by an equity offering will likely be substantially
dilutive to the stockholders and any licensing or development
arrangement may require the Company to give up rights to a
product or technology at less than its full potential value.
As of March 23, 2009, we have sold 70,500 shares of
common stock and received net proceeds in the amount of
$121 pursuant to the sales agreement with Wm Smith. On
March 31, 2009, we entered into a binding, non-cancellable
stock purchase agreement to sell 12.5 million shares to a
wholly-owned
subsidiary of Cadila for a market price of $0.88 per share.
We expect to close this transaction on April 1, 2009 and
expect to receive net proceeds in the amount of
$10.65 million.
Based on the amount of funds on hand, the anticipated proceeds
from the Cadila transaction, our intention to pay 50% of the
outstanding Notes in Novavax common stock, and our planned
business operations, we believe we will have adequate capital
resources to operate at planned levels for at least the next
twelve months. However, we are planning to raise additional
capital during 2009 in order to continue its current level of
operations and to pursue the business plan beyond 2009. We have
not, however, secured any additional commitments for new
financing at this time nor can we provide any assurance that new
financing will be available on commercially acceptable terms, if
at all. Any equity financing would cause significant dilution at
current market prices. If the we are unable to immediately
secure additional capital, we will continue to assess our
capital resources and we may be required to downsize our
operations, reduce general and administrative costs or to delay
or reduce the scope of, or eliminate one or more of our product
research and development programs, thereby causing delays in our
efforts to introduce our future products to market. Should we be
unable to accomplish these activities, we may not be able to
continue its business.
As of December 31, 2008, we had $22.0 million of
senior convertible notes outstanding (the Notes).
The Notes carry a 4.75% coupon; are currently convertible into
shares of Novavax common stock at $4.00 per share; and mature on
July 15, 2009. Under the terms of the Notes, we can, at our
option, pay up to 50% of the outstanding Notes in our common
stock on the due date of July 15, 2009, subject to the
satisfaction of certain conditions, including, among other
things, a requirement that the shares issued upon conversion be
registered or freely tradable without registration, that
Novavaxs shares of common stock have not been suspended
from trading on The NASDAQ
50
Global Market during the applicable measurement period and there
is no threatened delisting or suspension, and that we are
otherwise in compliance with its agreements with the Note
holders. The amount of shares that may be issued at maturity may
be subject to adjustment depending on the Note holders
percentage ownership of the Company on an as-converted basis and
if our stock price falls below $2.00 during the measurement
period. As a result, we will have to pay a least
$11.0 million in cash to satisfy the Notes on the due date
unless the notes are converted into common stock, redeemed or
amended.
Contractual
Obligations and Commitments
We utilize different financing instruments, such as debt and
operating leases, to finance various equipment and facility
needs. The following table summarizes our current financing
obligations and commitments as of December 31, 2008 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than
|
|
|
1 - 3
|
|
|
4 - 5
|
|
|
More than
|
|
Commitments & Obligations
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
Convertible notes*
|
|
$
|
22,000
|
|
|
$
|
22,000
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
Operating leases
|
|
|
17,148
|
|
|
|
2,263
|
|
|
|
6,307
|
|
|
|
4,330
|
|
|
$
|
4,248
|
|
Notes payable
|
|
|
1,130
|
|
|
|
650
|
|
|
|
480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total principal payments
|
|
|
40,278
|
|
|
|
24,913
|
|
|
|
6,787
|
|
|
|
4,330
|
|
|
|
4,248
|
|
Less: Subleases
|
|
|
(925
|
)
|
|
|
(326
|
)
|
|
|
(599
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net principal payments
|
|
|
39,353
|
|
|
|
24,587
|
|
|
|
6,188
|
|
|
|
4,330
|
|
|
|
4,248
|
|
Interest
|
|
|
619
|
|
|
|
619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commitments & obligations
|
|
$
|
39,972
|
|
|
$
|
25,206
|
|
|
$
|
6,188
|
|
|
$
|
4,330
|
|
|
$
|
4,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Convertible notes are reflected at their par value. |
On June 26, 2008, we amended the lease for our corporate
headquarters at 9920 Belward Campus Drive in Rockville,
Maryland. The amendment (1) extended the term of the lease
to January 31, 2017, (2) provided that the landlord
reimburse Novavax for up to $3.0 million in leasehold
improvements and (3) increases the monthly installments of
base rent going forward, by an additional $45,132 per month. The
additional monthly rent is subject to the annual 2.125%
escalation included in the original lease. On June 27,
2008, we received $3.0 million from the landlord as
reimbursement for leasehold improvements. The amount was
recorded in deferred rent on the balance sheet, and is being
amortized as a credit to rent expense over the remaining lease
term.
In March 2009, we further amended the sublease with PuriCore.
The amendment, which is effective as of November 1, 2008,
extends the term of the sublease until September 30, 2011,
expands the sublease premises to include all of the
approximately 32,900 rentable square feet and grants
PuriCore the option to renew the lease for an additional
three-year term.
In addition to the amounts reflected in the table above in the
future, we may owe royalties and other contingent payments to
our collaborators or license holders based on the achievement
product sales, milestones and other specific objectives.
Based on our available capital and cash burn rate, if we are
unable to obtain additional capital, we may be required to
delay, reduce the scope of, or eliminate one or more of our
product research and development programs, downsize our
organization, or reduce general and administrative
infrastructure.
Off-Balance
Sheet Arrangements
We are not involved in any off-balance sheet agreements that
have or are reasonably likely to have a material future effect
on its financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital
expenditures, or capital resources.
51
|
|
Item 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
The primary objective of our investment activities is to
preserve our capital until it is required to fund operations
while at the same time maximizing the income we receive from our
investments without significantly increasing risk. As of
December 31, 2008, we had cash and cash equivalents and
short-term investments of $33.9 million as follows:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
26.9 million
|
|
Short-term investments classified as available for sale
|
|
$
|
7.0 million
|
|
Our exposure to market risk is confined to our investment
portfolio. As of December 31, 2008, our short-term
investments are classified as available for sale. We do not
believe that a change in the market rates of interest would have
any significant impact on the realizable value of our investment
portfolio. Changes in interest rates may affect the investment
income we earn on our investments and, therefore, could impact
our cash flows and results of operations.
Short-term investments at December 31, 2008 consist of
investments in five auction rate securities with a par value of
$8.2 million and a fair value of $7.0 million. We
recorded an other than temporary impairment charge to operating
related to these securities during the fourth quarter of 2008 of
$1.2 million because of the current turmoil in the credit
markets and managements belief these securities cannot
presently be sold at par value but are saleable at a discount
from their par value. The collateral for these AAA-rated
securities is guaranteed by agencies of the United States
against loss of principal and interest by bond insurers.
We have classified these securities as short-term investments
and have accounted for our investments in these securities as
available for sale securities under the guidance of Statement of
Financial Accounting Standards, Accounting for Certain
Investments in Debt and Equity Securities
(SFAS No. 115). Although the auction
rate securities have variable interest rates which typically
reset every 16 to 32 days through a competitive bidding
process known as a Dutch auction, they have
long-term contractual maturities. These investments are
classified within current assets because we may need to
liquidate these securities within the next year.
The available for sale securities are carried at fair value and
unrealized gains and losses on these securities, if determined
to be temporary, are included in accumulated other comprehensive
income (loss) in stockholders equity. We assess the
recoverability of our available-for-sale securities and, if
impairment is indicated, we measure the amount of such
impairment by comparing the fair value to the carrying value.
Other than temporary impairments are included in the
consolidated statements of operations. As noted above, during
the year ended December 31, 2008, there was a
$1.2 million impairment recorded against the available for
sale securities. The impairment was concluded to be other than
temporary, thus the charge was taken in the consolidated
statement of operations.
We had invested in auction rate securities for short periods of
time as part of our cash management program. Recent
uncertainties in the credit markets have prevented us from
liquidating certain holdings of auction rate securities
subsequent to December 31, 2008 as the amount of securities
submitted for sale during the auction has exceeded the amount of
purchase orders. Although an event of an auction failure does
not necessarily mean that a security is impaired, we considered
various factors to assess the fair value and the classification
of the securities as short-term assets. Fair value was
determined through an independent valuation using two valuation
methods a discounted cash flow method and a market
comparables method. Certain factors used in these methods
include, but are not necessarily limited to, comparable
securities traded on secondary markets, timing of the failed
auction, specific security auction history, quality of
underlying collateral, rating of the security and the bond
insurer, our ability and intent to retain the securities for a
period of time to allow for anticipated recovery in the market
value, and other factors.
Interest and dividend income is recorded when earned and
included in interest income. Premiums and discounts, if any, on
short-term investments are amortized or accreted to maturity and
included in interest income. The specific identification method
is used in computing realized gains and losses on sale of our
securities.
We are headquartered in the United States where we conduct the
vast majority of our business activities. Accordingly, we have
not had any material exposure to foreign currency rate
fluctuations.
52
On June 15, 2007, we entered into amendment agreements (the
Amendments) with each of the holders of the
outstanding Notes to amend the terms of the Notes. As of
December 31, 2007, $22.0 million aggregate principal
amount remained outstanding under the Notes. The Amendments
(i) lowered the conversion price from $5.46 to $4.00 per
share, (ii) eliminated the holders right to require
the Company to redeem the Notes if the weighted average price of
the Companys common stock is less than the conversion
price on 30 of the 40 consecutive trading days preceding
July 19, 2007 or July 19, 2008 and (iii) mandated
that the Notes be converted into Company common stock if the
weighted average price of the Companys common stock is
greater than $7.00 (a decrease from $9.56) in any 15 out of 30
consecutive trading days after July 19, 2007. In connection
with the Amendments, we recorded a debt discount of $852,000 and
increased additional paid-in capital accordingly. The debt
discount is being amortized over the remaining term of the
Notes. Interest expense included $259,000 and $221,000 for the
years ended December 31, 2008 and 2007, respectively,
related to the amortization of the debt discount.
At December 31, 2008, we had a total debt of
$22.3 million, most of which bears interest at fixed
interest rates. We do not believe that it is exposed to any
material interest rate risk as a result of our borrowing
activities.
Information required under this section is also contained in
Part I, Item IA of this report and in Item 8 of
this report, and is incorporated herein by reference.
|
|
Item 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
The information required by this item is set forth on pages F-1
to F-38.
|
|
Item 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
|
|
Item 9A.
|
CONTROLS
AND PROCEDURES
|
Evaluation
of Disclosure Controls and Procedures
The Companys chief executive officer and interim principal
accounting officer, who performs functions similar to a
principal financial officer, have reviewed and evaluated the
effectiveness of the Companys disclosure controls and
procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended) as of the
end of the period covered by this annual report. Based on that
review and evaluation, which included the participation of
management and certain other employees of the Company, the chief
executive officer and interim principal accounting officer have
concluded that the Companys current disclosure controls
and procedures, as designed and implemented, are effective.
Changes
in Internal Control over Financial Reporting
The Companys management, including our principal executive
officer and interim principal accounting officer, has evaluated
any changes in the Companys internal control over
financial reporting that occurred during the year ended
December 31, 2008, and has concluded that there was no
change that occurred during the year ended December 31,
2008 that has materially affected, or is reasonably likely to
materially affect, the Companys internal control over
financial reporting.
Managements
Annual Report on Internal Control over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act. Because of its inherent limitations,
internal control over financial reporting may not prevent or
detect misstatements. Projections of any evaluation of
effectiveness to future periods are subject to the risks that
controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures
may deteriorate.
53
Management assessed the effectiveness of our internal control
over financial reporting as of December 31, 2008. In making
this assessment, management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control-Integrated Framework. Based on
this assessment, management believes that, as of
December 31, 2008, our internal control over financial
reporting is effective.
The effectiveness of our internal control over financial
reporting as of December 31, 2008, has been audited by
Grant Thornton LLP, an independent registered public accounting
firm, as stated in their report below.
54
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL
CONTROLS OVER FINANCIAL REPORTING
Board of Directors and Shareholders of
Novavax, Inc.
We have audited Novavax, Inc. (a Delaware Corporation) and
subsidiary (the Company) internal control over financial
reporting as of December 31, 2008, based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Companys management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in the accompanying
Managements Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the
Companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2008, based on criteria established in
Internal Control Integrated Framework issued
by COSO.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of the Company as of
December 31, 2008 and 2007 and the related consolidated
statements of operations, stockholders equity, and cash
flows for each of the three years in the period ended
December 31, 2008 and our report dated March 31, 2009
expressed an unqualified opinion thereon.
/s/ Grant Thornton LLP
Baltimore, Maryland
March 31, 2009
55
|
|
Item 9B.
|
OTHER
INFORMATION
|
None.
PART III
|
|
Item 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
We incorporate herein by reference the information concerning
our directors, officers and corporate governance to be included
in our definitive Proxy Statement for our 2009 Annual Meeting of
Stockholders (the 2009 Proxy Statement). We expect
to file the 2009 Proxy Statement within 120 days after the
close of the fiscal year ended December 31, 2008.
|
|
Item 11.
|
EXECUTIVE
COMPENSATION
|
We incorporate herein by reference the information concerning
executive compensation to be contained in the 2009 Proxy
Statement.
|
|
Item 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
We incorporate herein by reference the information concerning
security ownership of certain beneficial owners and management
and related stockholder matters to be contained in the 2009
Proxy Statement.
The following table provides the Companys equity
compensation plan information as of December 31, 2008.
Under these plans, the Companys common stock may be issued
upon the exercise of options. See also the information regarding
stock options of the Company in Note 9, Stock
Options to the Consolidated Financial Statements included
herewith.
Equity
Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
Remaining Available
|
|
|
|
Number of Securities
|
|
|
|
|
|
for Future Issuance
|
|
|
|
to be Issued
|
|
|
Weighted-Average
|
|
|
Under Equity
|
|
|
|
Upon Exercise of
|
|
|
Exercise Price of
|
|
|
Compensation Plans
|
|
|
|
Outstanding Options,
|
|
|
Outstanding Options,
|
|
|
(Excluding Securities
|
|
Plan Category
|
|
Warrants and Rights (a)
|
|
|
Warrants and Rights (b)
|
|
|
Reflected in Column(a))(c)
|
|
|
Equity compensation plans approved by security holders(1)
|
|
|
6,078,478
|
|
|
$
|
3.18
|
|
|
|
3,185,928
|
|
Equity compensation plans not approved by security holders
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
(1) |
|
Includes the Companys 2005 Stock Incentive Plan, 1995
Stock Option Plan and 1995 Director Stock Option Plan. |
|
|
Item 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
We incorporate herein by reference the information concerning
certain related party transactions set forth in Note 14 to
our Consolidated Financial Statements included herewith. We
incorporate herein by reference the information concerning
certain other relationships and related transactions and
director independence to be contained in the 2009 Proxy
Statement.
|
|
Item 14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
We incorporate herein by reference the information concerning
principal accountant fees and services to be contained in the
2009 Proxy Statement.
56
PART IV
|
|
Item 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
(a) The following documents are filed as part of the Annual
Report:
(1) Index to Consolidated Financial Statements
|
|
|
|
|
Reports of Independent Registered Public Accounting Firm
|
|
|
F-2
|
|
Consolidated Balance Sheets as of December 31, 2008 and 2007
|
|
|
F-3
|
|
Consolidated Statements of Operations for the years ended
December 31, 2008, 2007 and 2006
|
|
|
F-4
|
|
Consolidated Statements of Stockholders Equity for years
ended December 31, 2008, 2007 and 2006
|
|
|
F-5
|
|
Consolidated Statements of Cash Flows for the years ended
December 31, 2008, 2007 and 2006
|
|
|
F-6
|
|
Notes to Consolidated Financial Statements
|
|
|
F-7
|
|
(2) Financial Statement Schedules
All financial statement schedules are omitted because they are
not applicable, not required under the instructions or all the
information required is set forth in the financial statements or
notes thereto.
(3) Exhibits
Exhibits marked with a single asterisk (*) are filed herewith.
Exhibits marked with a double plus sign () refer to
management contracts, compensatory plans or arrangements.
Confidential treatment has been granted for portions of exhibits
marked with a triple asterisk (***).
All other exhibits listed have previously been filed with the
Commission and are incorporated herein by reference.
|
|
|
|
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation of the Company
(Incorporated by reference to Exhibit 3.1 to the Companys
Annual Report on Form 10-K for the fiscal year ended December
31, 1996, filed March 21, 1997 (the 1996 Form
10-K)), as amended by the Certificate of Amendment dated
December 18, 2000 (Incorporated by reference to Exhibit 3.4
to the Companys Annual Report on Form 10-K for the fiscal
year ended December 31, 2000, filed March 29, 2001 (the
2000 Form 10-K)), as further amended by the
Certificate of Amendment dated July 8, 2004 (Incorporated by
reference to Exhibit 3.1 to the Companys Quarterly Report
on Form 10-Q for the quarter ended June 30, 2004, filed August
9, 2004 (the 2004 2Q Form 10-Q))
|
|
3
|
.2
|
|
Amended and Restated By-Laws of the Company (Incorporated by
reference to Exhibit 3.2 to the Companys Current Report on
Form 8-K, filed August 8, 2007), as amended on August 2, 2007
|
|
4
|
.1
|
|
Specimen stock certificate for shares of common stock, par value
$.01 per share (Incorporated by reference to Exhibit 4.1 to the
Companys Registration Statement on Form 10, File No.
0-26770, filed September 14, 1995 (the Form 10))
|
|
4
|
.2
|
|
Rights Agreement, dated as of August 8, 2002, by and between the
Company and Equiserve Trust Company, which includes the Form of
Summary of Rights to Purchase Series D Junior Participating
Preferred Stock as Exhibit A, the Form of Right Certificate as
Exhibit B and the Form of Certificate of Designation of Series D
Junior Participating Preferred Stock as Exhibit C. (Incorporated
by reference to Exhibit 4.1 to the Companys Current Report
on Form 8-K, filed August 9, 2002)
|
|
4
|
.3
|
|
Registration Rights Agreement, dated as of July 16, 2004, by and
between the Company and the Buyers identified therein.
(Incorporated by reference to Exhibit 4.7 to the Registration
Statement on Form S-3, File No. 333-118210, filed August 13,
2004)
|
|
4
|
.4
|
|
Form of Common Stock Purchase Warrant (Incorporated by reference
to Exhibit 4.1 to the Companys Current Report on Form 8-K,
filed July 30, 2008)
|
57
|
|
|
|
|
|
10
|
.1
|
|
Novavax, Inc. 1995 Stock Option Plan, as amended (Incorporated
by reference to Appendix A of the Companys Definitive
Proxy Statement filed March 31, 2003 in connection with the
Annual Meeting held on May 7, 2003)
|
|
10
|
.2
|
|
Novavax, Inc. 1995 Director Stock Option Plan (Incorporated
by reference to Exhibit 10.5 to the Form 10)
|
|
10
|
.3
|
|
Novavax, Inc. Amended and Restated 2005 Stock Incentive Plan
(Incorporated by reference to Exhibit 10.2 of the
Companys Current Report on Form 8-K, filed January 5, 2009)
|
|
10
|
.4
|
|
Amended and Restated Employment Agreement, dated as of August 2,
2007, originally effective November 9, 2005, by and between the
Company and Rahul Singhvi (Incorporated by reference to Exhibit
10.2 to the Companys Quarterly Report on Form 10-Q for the
quarter ended June 30, 2007, filed August 9, 2007)
|
|
10
|
.5
|
|
Amended and Restated Employment Agreement, dated as of August 2,
2007, originally effective November 9, 2005, by and between the
Company and Raymond J. Hage, Jr. (Incorporated by reference to
Exhibit 10.4 to the Companys Quarterly Report on Form 10-Q
for the quarter ended June 30, 2007, filed August 9, 2007)
|
|
10
|
.6
|
|
Employment Agreement of Penny Heaton, dated October 2, 2008
(Incorporated by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K, filed October 10, 2008)
|
|
10
|
.7
|
|
Employment Agreement of Len Stigliano, dated October 2, 2008
(Incorporated by reference to Exhibit 10.2 to the Companys
Current Report on Form 8-K, filed October 10, 2008)
|
|
10
|
.8
|
|
Amendment to the Amended and Restated Employment Agreement of
Raymond Hage, dated October 2, 2008 (Incorporated by
reference to Exhibit 10.3 to the Companys Current Report
on Form 8-K, filed October 10, 2008)
|
|
10
|
.9
|
|
Employment Agreement of James Robinson, effective October 2,
2008 (Incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K, filed October 16,
2008)
|
|
10
|
.10
|
|
Consulting Agreement, dated as of April 27, 2007, effective as
of March 7, 2007, between the Company and John Lambert
(Incorporated by reference to Exhibit 10.1 to the Companys
Quarterly Report on Form 10-Q for the quarter ended March 31,
2007, filed May 10, 2007)
|
|
10
|
.11
|
|
Consulting Agreement of Len Stigliano, effective January 28,
2009 (Incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K, filed February 20,
2009)
|
|
10
|
.12
|
|
Novavax, Inc. Amended and Restated Change in Control Severance
Benefit Plan, (Incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K filed January 5, 2009)
|
|
10
|
.13
|
|
Form of Indemnity Agreement, as authorized August 10, 2005
(Incorporated by reference to Exhibit 99.2 to the Companys
Current Report on Form 8-K, filed August 16, 2005)
|
|
10
|
.14
|
|
Facilities Reservation Agreement, dated as of February 11, 2002,
by and between the Company and Packaging Coordinators, Inc.
(Incorporated by reference to Exhibit 10.13 to the 2001 Form
10-K)
|
|
10
|
.15
|
|
Letter Agreement by and between Novavax, Inc. and Catalent
Pharma Solutions, Inc., dated February 12, 2008 and
effective February 19, 2008 amending the Facilities Reservation
Agreement dated February 11, 2002 (Incorporated by reference to
Exhibit 10.4 to the Companys Current Report on Form 8-K,
filed February 25, 2008)
|
|
10
|
.16
|
|
Lease Agreement, dated as of July 15, 2004, between Liberty
Property Limited Partnership and the Company (Incorporated by
reference to Exhibit 10.1 to the 2004 2Q Form 10-Q)
|
|
10
|
.17
|
|
Sublease Agreement, dated April 28, 2006, by and between the
Company and Sterilox Technologies, Inc. (Incorporated by
reference to Exhibit 10.3 to the Companys Quarterly Report
on Form 10-Q for the quarter ended June 30, 2006, filed August
14, 2006)
|
|
10
|
.18
|
|
Amendment dated as of October 25, 2006 to the Sublease
Agreement, dated April 28, 2006, by and between the Company and
Sterilox Technologies, Inc. (Incorporated by reference to
Exhibit 10.3 to the Companys Quarterly Report on Form 10-Q
for the quarter ended September 30, 2006, filed
November 14, 2006)
|
|
10
|
.19
|
|
Lease, commencing April 1, 2005, by and between United Health
Care Services, Inc. and the Company (Incorporated by reference
to Exhibit 10.1 to the Companys Quarterly Report on Form
10-Q for the quarter ended June 30, 2005, filed August 9, 2005)
|
58
|
|
|
|
|
|
10
|
.20
|
|
Sublease Agreement by and between Human Genome Sciences, Inc.,
and the Company dated October 6, 2006 (Incorporated by
reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K, filed December 13, 2006)
|
|
10
|
.21
|
|
Termination of Sublease dated as of May 7, 2007 between Human
Genome Sciences, Inc and Novavax, Inc. (Incorporated by
reference to Exhibit 10.3 to the Companys Quarterly Report
for the quarter ended June 30, 2008, filed on August 11, 2008)
|
|
10
|
.22
|
|
Lease Agreement between GP Rock One, LLC and Novavax, Inc.,
dated as of May 7, 2007 (Incorporated by reference to Exhibit
10.4 to the Companys Quarterly Report for the quarter
ended June 30, 2008, filed on August 11, 2008)
|
|
10
|
.23
|
|
First Amendment to Lease Agreement between GP Rock One, LLC and
Novavax, Inc., dated as of May 30, 2008 (Incorporated by
reference to Exhibit 10.5 to the Companys Quarterly Report
for the quarter ended June 30, 2008, filed on August 11, 2008)
|
|
10
|
.24
|
|
Second Amendment to Lease Agreement between BMR-9920 Belward
Campus Q, LLC (formerly GP Rock One, LLC) and Novavax, Inc.,
dated as of June 26, 2008 (Incorporated by reference to Exhibit
10.6 to the Companys Quarterly Report for the quarter
ended June 30, 2008, filed on August 11, 2008)
|
|
10
|
.25
|
|
License Agreement between IGEN, Inc. and the Company
(Incorporated by reference to Exhibit 10.3 to the Companys
Annual Report on Form 10-K for the fiscal year ended December
31, 1995, filed April 1, 1996)
|
|
10
|
.26
|
|
HIV Vaccine Design and Development Agreement, effective
September 26, 2003, by and between the Company and the National
Institute of Allergy and Infectious Diseases, a component of the
National Institutes of Health, an agency of the Department of
Health and Human Services (Incorporated by reference to Exhibit
10.33 to the Companys Annual Report on Form 10-K (as
amended) for the fiscal year ended December 31, 2004, filed
March 15, 2005)
|
|
10
|
.27
|
|
Form of Senior Convertible Note (Incorporated by reference to
Exhibits 99.4 to the Companys Current Report on Form 8-K,
filed July 19, 2004)
|
|
10
|
.28
|
|
Amendment Agreement by and between Novavax, Inc. and Smithfield
Fiduciary LLC, dated June 15, 2007 (Incorporated by reference to
Exhibit 10.1 of the Companys Current Report on Form 8-K,
filed June 18, 2007)
|
|
10
|
.29
|
|
Amendment Agreement by and between Novavax, Inc. and SF Capital
Partner Ltd., dated June 15, 2007 (Incorporated by reference to
Exhibit 10.2 of the Companys Current Report on Form 8-K,
filed June 18, 2007)
|
|
10
|
.30
|
|
Amendment Agreement by and between Novavax, Inc. and Portside
Growth and Opportunity Fund, dated June 15, 2007 (Incorporated
by reference to Exhibit 10.3 of the Companys Current
Report on Form 8-K, filed June 18, 2007)
|
|
10
|
.31
|
|
Exchange Agreement, dated July 16, 2004, between the Company,
King Pharmaceuticals, Inc. and Parkedale Pharmaceuticals, Inc.
(Incorporated by reference to Exhibit 99.5 to the Companys
Current Report on Form 8-K, filed July 19, 2004)
|
|
10
|
.32
|
|
Termination Agreement, dated as of July 16, 2004 among King
Pharmaceuticals, Inc., Parkedale Pharmaceuticals, Inc. and the
Company (Incorporated by reference to Exhibit 99.6 to the
Companys Current Report on Form 8-K, filed July 19, 2004)
|
|
10
|
.33
|
|
Asset Purchase Agreement, dated and entered into as of September
22, 2005, by and among the Company, Fielding Pharmaceutical
Company and Pharmelle, LLC (Incorporated by reference to Exhibit
10.1 to the Companys Current Report on Form 8-K, filed
September 28, 2005)
|
|
10
|
.34
|
|
Amendment dated and entered into as of July 5, 2006, to Asset
Purchase Agreement, dated and entered into as of September 22,
2005, by and among the Company, Fielding Pharmaceutical Company
and Pharmelle, LLC (Incorporated by reference to Exhibit 10.1 to
the Companys Quarterly Report on Form 10-Q for the
quarter-ended September 30, 2006, filed November 14, 2006)
|
|
10
|
.35***
|
|
Exclusive License Agreement, dated February 26, 2007, between
the Company and the University of Massachusetts (Incorporated by
reference to Exhibit 10.34 to the Companys Annual Report
on Form 10-K for the fiscal year ended December 31, 2006, filed
March 14, 2007)
|
|
10
|
.36***
|
|
License Agreement, dated July 5, 2007, between the Company and
Wyeth Holdings Corporation (Incorporated by reference to Exhibit
10.1 to the Companys Quarterly Report on Form 10-Q for the
quarter ended June 30, 2007, filed August 9, 2007)
|
59
|
|
|
|
|
|
10
|
.37**
|
|
Asset Purchase Agreement by and between Novavax, Inc. and
Graceway Pharmaceuticals, LLC, dated February 19, 2008
(Incorporated by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K, filed February 25, 2008)
|
|
10
|
.38**
|
|
Supply Agreement by and between Novavax, Inc. and Graceway
Pharmaceuticals, LLC, dated February 19, 2008 (Incorporated by
reference to Exhibit 10.2 to the Companys Current Report
on Form 8-K, filed February 25, 2008)
|
|
10
|
.39**
|
|
License Agreement by and between Novavax, Inc. and Graceway
Pharmaceuticals, LLC, dated February 19, 2008 (Incorporated by
reference to Exhibit 10.3 to the Companys Current Report
on Form 8-K, filed February 25, 2008)
|
|
10
|
.40
|
|
Form of Subscription Agreement dated July 28, 2008 (Incorporated
by reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K, filed July 30, 2008)
|
|
10
|
.41
|
|
Form of Investor Rights Agreement dated July 29, 2008
(Incorporated by reference to Exhibit 10.2 to the Companys
Current Report on Form 8-K, filed July 30, 2008)
|
|
10
|
.42
|
|
Forbearance and Pledge Agreement among Denis ODonnell and
the Company, dated May 7, 2007, relating to Secured Promissory
Note and Pledge Agreement, each dated March 21, 2002 and filed
as Exhibits 10.11 and 10.12 to the Companys Annual Report
on Form 10-K for the fiscal year ended December 31, 2002
(Incorporated by reference to Exhibit 10.32 to the
Companys Amendment No. 1on Form 10-K/A for the year ended
December 31, 2007, filed on December 12, 2008)
|
|
10
|
.43
|
|
Amended and Restated Promissory Note by Mitchell J. Kelly to the
Company, dated May 7, 2008, relating to Secured Promissory Note,
dated March 21, 2002 and filed as Exhibit 10.9 to the
Companys Annual Report on Form 10-K for the fiscal year
ended December 31, 2002 (Incorporated by reference to Exhibit
10.33 to the Companys Amendment No. 1on Form 10-K/A for
the year ended December 31, 2007, filed on December 12, 2008)
|
|
10
|
.42
|
|
Amended and Restated Pledge Agreement among Mitchell J. Kelly
and the Company, dated May 7, 2008, relating to Pledge
Agreement, dated March 21, 2002 and filed as Exhibit 10.10 to
the Companys Annual Report on Form 10-K for the fiscal
year ended December 31, 2002 (Incorporated by reference to
Exhibit 10.34 to the Companys Amendment No. 1on Form
10-K/A for the year ended December 31, 2007, filed on December
12, 2008)
|
|
10
|
.43
|
|
At Market Issuance Sales Agreement, dated January 12, 2009, by
and between Novavax, Inc. and Wm. Smith & Co.
(Incorporated by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K, filed January 13, 2009)
|
|
14
|
|
|
Code of Business Conduct and Ethics (Incorporated by reference
to Exhibit 14 to the Companys Annual Report on Form 10-K
for the fiscal year ended December 31, 2003, filed March 15,
2004)
|
|
21
|
|
|
Subsidiaries of the Registrant (Incorporated by reference to
Exhibit 21 to the Companys Annual Report on Form 10-K for
the fiscal year ended December 31, 2005, filed March 6, 2006)
|
|
23
|
.1
|
|
Consent of Grant Thornton LLP, Independent Registered Public
Accounting Firm*
|
|
31
|
.1
|
|
Certification of principal executive officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002*
|
|
31
|
.2
|
|
Certification of principal accounting officer (performing
functions similar to a principal financial officer) pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002*
|
|
32
|
.1
|
|
Certification Pursuant to 18 UNITED STATESC. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, by Rahul Singhvi, President and Chief Executive Officer of
the Company*
|
|
32
|
.2
|
|
Certification Pursuant to 18 UNITED STATESC. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, by Evdoxia Kopsidas, Director of Finance and Interim
Principal Accounting Officer of the Company*
|
60
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NOVAVAX, INC.
President and Chief Executive Officer
and Director
Date: March 31, 2009
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated:
|
|
|
|
|
|
|
Name
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ RAHUL
SINGHVI
Rahul
Singhvi
|
|
President and Chief Executive Officer and Director (Principal
Executive Officer)
|
|
March 31, 2009
|
|
|
|
|
|
/s/ EVDOXIA
E. KOPSIDAS
Evdoxia
E. Kopsidas
|
|
Director of Finance and Interim Principal Accounting Officer
(performing functions similar to a principal financial officer)
|
|
March 31, 2009
|
|
|
|
|
|
/s/ JOHN
LAMBERT
John
Lambert
|
|
Chairman of the Board of Directors
|
|
March 31, 2009
|
|
|
|
|
|
/s/ GARY
C. EVANS
Gary
C. Evans
|
|
Lead Director
|
|
March 31, 2009
|
|
|
|
|
|
/s/ JOHN
O. MARSH, JR.
John
O. Marsh, Jr.
|
|
Director
|
|
March 31, 2009
|
|
|
|
|
|
/s/ MICHAEL
A. MCMANUS
Michael
A. McManus
|
|
Director
|
|
March 31, 2009
|
|
|
|
|
|
/s/ THOMAS
P. MONATH
Thomas
P. Monath
|
|
Director
|
|
March 31, 2009
|
|
|
|
|
|
/s/ JAMES
B. TANANBAUM
James
B. Tananbaum
|
|
Director
|
|
March 31, 2009
|
61
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2008, 2007 and 2006
Contents
|
|
|
|
|
Reports of Independent Registered Public Accounting Firm
|
|
|
F-2
|
|
Consolidated Balance Sheets as of December 31, 2008 and 2007
|
|
|
F-3
|
|
Consolidated Statements of Operations for each of the three
years in the period ended December 31, 2008
|
|
|
F-4
|
|
Consolidated Statements of Stockholders Equity for each of
the three years in the period ended December 31, 2008
|
|
|
F-5
|
|
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 2008
|
|
|
F-6
|
|
Notes to Consolidated Financial Statements
|
|
|
F-7
|
|
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of
Novavax, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of
Novavax, Inc. (a Delaware Corporation) and subsidiary (the
Company) as of December 31, 2008 and 2007 and the related
consolidated statements of operations, stockholders
equity, and cash flows for each of the three years in the period
ended December 31, 2008. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2008 and 2007,
and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2008 in
conformity with accounting principles generally accepted in the
United States of America.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
December 31, 2008, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) and our report dated March 31, 2009
expressed an unqualified opinion thereon.
Baltimore, Maryland
March 31, 2009
F-2
NOVAVAX,
INC.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except share and per share information)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
26,938
|
|
|
$
|
4,350
|
|
Short-term investments available for sale
|
|
|
6,962
|
|
|
|
9,200
|
|
Short-term investments held to maturity
|
|
|
|
|
|
|
32,939
|
|
Accounts and other receivables, net of allowance for doubtful
accounts of $218 and $168 as of December 31, 2008 and 2007,
respectively
|
|
|
290
|
|
|
|
667
|
|
Inventory
|
|
|
42
|
|
|
|
25
|
|
Prepaid expenses and other current assets
|
|
|
732
|
|
|
|
1,304
|
|
Current assets of discontinued operations
|
|
|
132
|
|
|
|
531
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
35,096
|
|
|
|
49,016
|
|
Property and equipment, net
|
|
|
8,228
|
|
|
|
5,721
|
|
Goodwill
|
|
|
33,141
|
|
|
|
33,141
|
|
Assets held for sale
|
|
|
|
|
|
|
899
|
|
Non-current assets of discontinued operations
|
|
|
|
|
|
|
1,634
|
|
Other non-current assets
|
|
|
160
|
|
|
|
880
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
76,625
|
|
|
$
|
91,291
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,750
|
|
|
$
|
1,490
|
|
Accrued expenses and other current liabilities
|
|
|
2,969
|
|
|
|
2,980
|
|
Current liabilities of discontinued operations
|
|
|
242
|
|
|
|
616
|
|
Current portion of notes payable
|
|
|
650
|
|
|
|
1,120
|
|
Convertible notes, current portion net of discount
|
|
|
21,778
|
|
|
|
|
|
Deferred rent
|
|
|
328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
27,717
|
|
|
|
6,206
|
|
Non-current portion of notes payable
|
|
|
480
|
|
|
|
260
|
|
Convertible notes, net of discount
|
|
|
|
|
|
|
21,369
|
|
Deferred rent
|
|
|
2,939
|
|
|
|
391
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
31,136
|
|
|
|
28,226
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingences (see Note 13)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value, 2,000,000 shares
authorized; no shares issued and outstanding
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, 100,000,000 shares
authorized; 69,220,221 shares issued and
68,764,591 shares outstanding at December 31, 2008,
and 62,356,977 shares issued and 61,949,881 shares
outstanding at December 31, 2007
|
|
|
692
|
|
|
|
624
|
|
Additional paid-in capital
|
|
|
284,595
|
|
|
|
264,618
|
|
Notes receivable from directors
|
|
|
(1,572
|
)
|
|
|
|
|
Accumulated deficit
|
|
|
(235,776
|
)
|
|
|
(199,727
|
)
|
Treasury stock, 455,430 and 407,096 shares at
December 31, 2008 and December 31, 2007, respectively,
cost basis
|
|
|
(2,450
|
)
|
|
|
(2,450
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
45,489
|
|
|
|
63,065
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
76,625
|
|
|
$
|
91,291
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
NOVAVAX,
INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except share and
|
|
|
|
per share information)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net product sales
|
|
$
|
|
|
|
$
|
|
|
|
$
|
641
|
|
Contract research and development
|
|
|
966
|
|
|
|
1,388
|
|
|
|
1,068
|
|
Royalties and milestone fees
|
|
|
98
|
|
|
|
125
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,064
|
|
|
|
1,513
|
|
|
|
1,738
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
|
|
|
|
|
221
|
|
|
|
237
|
|
Research and development
|
|
|
24,334
|
|
|
|
17,600
|
|
|
|
11,329
|
|
General and administrative
|
|
|
11,090
|
|
|
|
13,963
|
|
|
|
11,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
35,424
|
|
|
|
31,784
|
|
|
|
22,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before other income (expense)
|
|
|
(34,360
|
)
|
|
|
(30,271
|
)
|
|
|
(21,116
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
959
|
|
|
|
3,287
|
|
|
|
3,267
|
|
Interest expense
|
|
|
(1,683
|
)
|
|
|
(1,606
|
)
|
|
|
(1,728
|
)
|
Impairment of short-term investments
|
|
|
(1,238
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(36,322
|
)
|
|
|
(28,590
|
)
|
|
|
(19,577
|
)
|
Income (loss) from discontinued operations
|
|
|
273
|
|
|
|
(6,175
|
)
|
|
|
(3,491
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(36,049
|
)
|
|
$
|
(34,765
|
)
|
|
$
|
(23,068
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average number of common shares
outstanding
|
|
|
68,174,338
|
|
|
|
61,101,474
|
|
|
|
58,664,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share from continuing operations
|
|
$
|
(0.53
|
)
|
|
$
|
(0.47
|
)
|
|
$
|
(0.33
|
)
|
Earnings (loss) per share from discontinued operations
|
|
|
|
|
|
|
(0.10
|
)
|
|
|
(0.06
|
)
|
Net loss per share
|
|
$
|
(0.53
|
)
|
|
$
|
(0.57
|
)
|
|
$
|
(0.39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
NOVAVAX,
INC.
For the
Years Ended December 31, 2008, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Receivable
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Unearned
|
|
|
From
|
|
|
Accumulated
|
|
|
Treasury
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
Directors
|
|
|
Deficit
|
|
|
Stock
|
|
|
Total
|
|
|
|
(In thousands, except share information)
|
|
|
Balance, January 1, 2005
|
|
|
50,259,494
|
|
|
$
|
503
|
|
|
$
|
195,361
|
|
|
$
|
(425
|
)
|
|
$
|
(1,480
|
)
|
|
$
|
(141,894
|
)
|
|
$
|
(2,413
|
)
|
|
$
|
49,652
|
|
Unearned compensation against costs for stock options in
accordance with SFAS No. 123
|
|
|
|
|
|
|
|
|
|
|
(425
|
)
|
|
|
425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash compensation costs for stock options
|
|
|
|
|
|
|
|
|
|
|
1,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,776
|
|
Exercise of stock options
|
|
|
497,613
|
|
|
|
5
|
|
|
|
1,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,718
|
|
Conversion of convertible debt
|
|
|
1,294,564
|
|
|
|
13
|
|
|
|
7,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,068
|
|
Restricted stock issued as compensation
|
|
|
285,000
|
|
|
|
3
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of restricted stock for compensation
|
|
|
|
|
|
|
|
|
|
|
491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
491
|
|
Treasury stock issued in lieu of payment of services rendered
|
|
|
|
|
|
|
|
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57
|
|
|
|
25
|
|
Sales of common stock
|
|
|
9,803,180
|
|
|
|
98
|
|
|
|
57,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,000
|
|
Financing costs allocated to raising additional capital
|
|
|
|
|
|
|
|
|
|
|
(2,016
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,016
|
)
|
Reclassification due to change in status of a director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
449
|
|
|
|
|
|
|
|
|
|
|
|
449
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(94
|
)
|
|
|
(94
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,068
|
)
|
|
|
|
|
|
|
(23,068
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006
|
|
|
62,139,851
|
|
|
|
622
|
|
|
|
261,822
|
|
|
|
|
|
|
|
(1,031
|
)
|
|
|
(164,962
|
)
|
|
|
(2,450
|
)
|
|
|
94,001
|
|
Non-cash compensation costs for-stock options
|
|
|
|
|
|
|
|
|
|
|
1,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,345
|
|
Exercise of stock options
|
|
|
57,126
|
|
|
|
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89
|
|
Restricted stock issued as compensation
|
|
|
160,000
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of restricted stock for compensation
|
|
|
|
|
|
|
|
|
|
|
512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
512
|
|
Reclassification due to change in status of a director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,031
|
|
|
|
|
|
|
|
|
|
|
|
1,031
|
|
Debt discount from modification of convertible debt
|
|
|
|
|
|
|
|
|
|
|
852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
852
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,765
|
)
|
|
|
|
|
|
|
(34,765
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
62,356,977
|
|
|
|
624
|
|
|
|
264,618
|
|
|
|
|
|
|
|
|
|
|
|
(199,727
|
)
|
|
|
(2,450
|
)
|
|
|
63,065
|
|
Non-cash compensation costs for stock options
|
|
|
|
|
|
|
|
|
|
|
1,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,814
|
|
Exercise of stock options
|
|
|
176,394
|
|
|
|
1
|
|
|
|
328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
329
|
|
Amortization of restricted stock for compensation
|
|
|
|
|
|
|
|
|
|
|
256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
256
|
|
Issuance of common stock, net of issuance costs of $420
|
|
|
6,686,650
|
|
|
|
67
|
|
|
|
17,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,503
|
|
Reclassification of former directors notes receivable
|
|
|
|
|
|
|
|
|
|
|
143
|
|
|
|
|
|
|
|
(1,572
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,429
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36,049
|
)
|
|
|
|
|
|
|
(36,049
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
69,220,021
|
|
|
$
|
692
|
|
|
$
|
284,595
|
|
|
|
|
|
|
$
|
(1,572
|
)
|
|
$
|
(235,776
|
)
|
|
$
|
(2,450
|
)
|
|
$
|
45,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
NOVAVAX,
INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss:
|
|
$
|
(36,049
|
)
|
|
$
|
(34,765
|
)
|
|
$
|
(23,068
|
)
|
Plus net loss (income) from discontinued operations
|
|
|
(273
|
)
|
|
|
6,175
|
|
|
|
3,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operation
|
|
|
(36,322
|
)
|
|
|
(28,590
|
)
|
|
|
(19,577
|
)
|
Reconciliation of net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
|
|
|
|
|
132
|
|
|
|
132
|
|
Depreciation
|
|
|
893
|
|
|
|
702
|
|
|
|
577
|
|
Amortization of deferred financing costs
|
|
|
258
|
|
|
|
259
|
|
|
|
797
|
|
Amortization of debt discount
|
|
|
409
|
|
|
|
221
|
|
|
|
|
|
Provision for bad debts
|
|
|
|
|
|
|
176
|
|
|
|
111
|
|
Loss on disposal of property and equipment
|
|
|
258
|
|
|
|
100
|
|
|
|
321
|
|
Impairment of long-lived assets
|
|
|
994
|
|
|
|
|
|
|
|
|
|
Amortization of net discounts on short-term investments
|
|
|
(181
|
)
|
|
|
(2,320
|
)
|
|
|
(1,135
|
)
|
Reserve for notes receivable and accrued interest
|
|
|
(534
|
)
|
|
|
875
|
|
|
|
167
|
|
Deferred rent
|
|
|
(123
|
)
|
|
|
312
|
|
|
|
12
|
|
Non-cash expense for services
|
|
|
|
|
|
|
57
|
|
|
|
25
|
|
Non-cash stock compensation
|
|
|
2,070
|
|
|
|
1,800
|
|
|
|
2,267
|
|
Lease incentives received
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
Impairment of investments
|
|
|
1,238
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts and other receivables
|
|
|
438
|
|
|
|
(298
|
)
|
|
|
2,684
|
|
Inventory
|
|
|
(17
|
)
|
|
|
90
|
|
|
|
(96
|
)
|
Prepaid expenses and other current assets
|
|
|
691
|
|
|
|
129
|
|
|
|
281
|
|
Accounts payable and accrued expenses
|
|
|
141
|
|
|
|
206
|
|
|
|
444
|
|
Other non-current assets
|
|
|
18
|
|
|
|
432
|
|
|
|
(435
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities from continuing operations
|
|
|
(26,769
|
)
|
|
|
(25,717
|
)
|
|
|
(13,425
|
)
|
Net cash provided by (used in) in operating activities from
discontinued operations
|
|
|
2,459
|
|
|
|
(1,025
|
)
|
|
|
(1,385
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(24,310
|
)
|
|
|
(26,742
|
)
|
|
|
(14,810
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(5,689
|
)
|
|
|
(1,961
|
)
|
|
|
(1,406
|
)
|
Proceeds from disposal of property and equipment
|
|
|
121
|
|
|
|
|
|
|
|
|
|
Purchases of short-term investments
|
|
|
(15,650
|
)
|
|
|
(94,993
|
)
|
|
|
(121,546
|
)
|
Proceeds from maturities of short-term investments
|
|
|
49,770
|
|
|
|
121,608
|
|
|
|
56,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities from
continuing operations
|
|
|
28,552
|
|
|
|
24,654
|
|
|
|
(66,705
|
)
|
Net cash used in investing activities from discontinued
operations
|
|
|
1,354
|
|
|
|
(3
|
)
|
|
|
(110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
29,906
|
|
|
|
24,651
|
|
|
|
(66,815
|
)
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments of notes payable
|
|
|
(1,040
|
)
|
|
|
(809
|
)
|
|
|
(715
|
)
|
Proceeds from other borrowings
|
|
|
200
|
|
|
|
|
|
|
|
|
|
Net proceeds from sales of common stock
|
|
|
17,503
|
|
|
|
|
|
|
|
55,984
|
|
Proceeds from the exercise of stock options
|
|
|
329
|
|
|
|
89
|
|
|
|
1,718
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
(94
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities from
continuing operations
|
|
|
16,992
|
|
|
|
(720
|
)
|
|
|
56,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities from discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) by financing activities
|
|
|
16,992
|
|
|
|
(720
|
)
|
|
|
56,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
22,588
|
|
|
|
(2,811
|
)
|
|
|
(24,732
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
4,350
|
|
|
|
7,161
|
|
|
|
31,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
26,938
|
|
|
$
|
4,350
|
|
|
|
7,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of convertible debt and accrued interest to common
stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt discount from modification of convertible debt
|
|
$
|
|
|
|
$
|
852
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment purchases included in accounts payable
|
|
$
|
|
|
|
$
|
624
|
|
|
$
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financed insurance premiums
|
|
$
|
570
|
|
|
$
|
600
|
|
|
$
|
511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash interest payments
|
|
$
|
1,040
|
|
|
$
|
1,073
|
|
|
$
|
1,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
Novavax, Inc., a Delaware corporation (Novavax or
the Company), was incorporated in 1987, and is a
clinical-stage biopharmaceutical company focused on creating
differentiated, value-added vaccines that improve upon current
preventive options for a range of infectious diseases. These
vaccines leverage the Companys virus-like-particle
(VLP) platform technology coupled with a unique,
disposable production technology.
VLPs are genetically engineered three-dimensional
nanostructures, which incorporate immunologically important
lipids and recombinant proteins. The Companys VLPs
resemble the virus but lack the genetic material to replicate
the virus. The Companys proprietary production technology
uses insect cells rather then chicken eggs or mammalian cells.
The Companys current product targets include vaccines
against the H5N1 and other subtypes of avian influenza with
pandemic potential, human seasonal influenza, Varicella Zoster,
which causes Shingles and Respiratory Syncytial Virus
(RSV). RSV vaccine was announced on October 30,
2008.
Liquidity
Matters
The Company has incurred losses since its inception and as of
December 31, 2008 has an accumulated deficit of
$236 million.
The Companys vaccine products currently under development
or in clinical trials will require significant additional
research and development efforts, including extensive
pre-clinical and clinical testing and regulatory approval, prior
to commercial use. There can be no assurance that the
Companys research and development efforts will be
successful or that any potential products will prove to be safe
and effective in clinical trials. Even if developed, these
vaccine products may not receive regulatory approval or be
successfully introduced and marketed at prices that would permit
the Company to operate profitably. The commercial launch of any
vaccine product is subject to certain risks including but not
limited to, manufacturing
scale-up and
market acceptance. The Company does not expect to generate
revenue in the near future.
At December 31, 2008 the Company has cash totaling
$26.9 million and auction rate securities with a face value
of $8.2 million and a fair value of $7.0 million.
There has been insufficient demand at auction for each of the
Companys five auction rate securities. The Company
recorded an impairment charge on these investments of
$1.2 million in the fourth quarter of 2008 on these
investments due primarily to their illiquidity, and believes the
$7.0 million it has recorded at December 31, 2008
represents their fair market value and the value the Company
could liquidate these investments for, if necessary. The Company
is currently evaluating what purchase price it could get for
these securities now and what the risks along with the benefits
of holding versus selling these securities. Without liquidity of
these auction rate securities, the Companys cash position
would be negatively affected.
As of March 23, 2009, the Company sold 70,500 shares
of common stock and received net proceeds in the amount of
$121,457 pursuant to the Sales Agreement with Wm Smith. On
March 31, 2009, the Company entered into a non-cancellable
binding Stock Purchase Agreement for the sale of
12.5 million shares of common stock to a wholly-owned
subsidiary of Cadila at the market price of $0.88 per share for
a net purchase price of $10.65 million (See
note 14 Subsequent Events).
Based on the amount of funds on hand, the Companys
anticipated proceeds from the Cadila transaction, the
Companys intention to pay 50% of the outstanding principal
balance of the convertible notes, as described below with its
common stock, and the Companys planned business
operations, the Company believes it will have adequate capital
resources to operate at planned levels for at least the next
twelve months. The Company is planning to raise additional
capital during 2009 in order to continue its current level of
operations and to pursue its business plan beyond 2009. The
Company has not, however, secured any additional commitments for
new financing at this time nor can it provide any assurance that
new financing will be available on commercially acceptable
terms, if at
F-7
NOVAVAX,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
all. Any equity financing would cause significant dilution at
current market prices. If the Company is unable to immediately
secure additional capital, it will continue to assess its
capital resources and the Company may be required to downsize
its operations, reduce general and administrative costs or to
delay or reduce the scope of, or eliminate one or more of its
product research and development programs, thereby causing
delays in the Companys efforts to introduce its future
products to market. Should the Company be unable to accomplish
these activities, it may not be able to continue its business.
As of December 31, 2008, the Company had $22.0 million
of senior convertible notes outstanding (the Notes).
The Notes carry a 4.75% coupon; are currently convertible into
shares of Novavax common stock at $4.00 per share; and mature on
July 15, 2009. Under the terms of the Notes, The Company
can, at our option, can pay up to 50% of the outstanding Notes
in Novavax common stock on the due date of July 15, 2009,
subject to the satisfaction of certain conditions, including,
among other things, a requirement that the shares issued upon
conversion be registered or freely tradable without
registration, that Novavaxs shares of common stock have
not been suspended from trading on the NASDAQ Global Market
during the applicable measurement period and there is no
threatened delisting or suspension, and that the Company is
otherwise in compliance with its agreements with the Note
holders. The amount of shares that may be issued at maturity may
be subject to adjustment depending on the Note holders
percentage ownership of the Company on an as-converted basis and
if the Companys stock price falls below $2.00 during the
measurement period. As a result, the Company plans to pay at
least $11.0 million in cash to satisfy the Notes on the due
date unless the notes are converted into common stock, redeemed
or amended.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Basis
of Presentation
The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary,
Fielding Pharmaceutical Company. All significant intercompany
accounts and transactions have been eliminated in consolidation.
In October 2007, Allergan, Inc. (Allergan) purchased
Esprit Pharma, Inc. (Esprit) and subsequently
entered into an agreement with Novavax, which among other things
terminated the supply agreement for Estrasorb. In February 2008,
the Company sold certain other assets related to Estrasorb in
the United States, Canada and Mexico to Graceway Pharmaceutical,
LLC (Graceway). In connection with the sale of
Estrasorb assets to Graceway, Novavax terminated the Estrasorb
license agreement with Allergan. The Company engaged an
investment bank to aid in the search for potential buyers or
licensees but has not been successful in attempts to sell or
license the technology in fields of use outside vaccines. As a
result, in Q4 2008, the Company fully impaired these assets by
recording a charge in the consolidated statement of operations
in the amount of $846. The Company has recorded this and is more
fully described in Note 10, as discontinued operations.
Use of
Estimates
The preparation of the consolidated financial statements in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual
results could differ materially from those estimates.
Reclassifications
Certain amounts appearing in the consolidated financial
statements for the years ended December 31, 2008, 2007 and
2006 have been reclassified to conform to the current
years presentation.
The Company corrected the classification of certain notes
receivable due from former directors to show these notes
receivable as a reduction to stockholders equity during
the third quarter of 2008. In addition, the Company
F-8
NOVAVAX,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
reduced general and administrative expenses for the accumulated
amounts previously reserved and charged to general and
administrative expenses and a charge to interest income for the
cumulative interest income related to the notes receivable
during the year ended December 31, 2008, 2007 and 2006,
netting to $670 by adjusting the related general and
administrative expenses and interest income accounts for the
year ended December 31, 2008. The Company evaluated the
impact of this correction based on the operating results for the
years ended December 31, 2008, 2007 and 2006 in accordance
with Staff Accounting Bulletin (SAB) 99,
Materiality. Managements evaluation indicated that
the amount of the correction for the year ended
December 31, 2008, when compared to the operating results
for the years ended December 31, 2007 and 2006, is not
considered to be material.
Cash
and Cash Equivalents
Cash equivalents consist of highly liquid investments with
original maturities of three months or less from the date of
purchase.
Short-Term
Investments
Short-term investments at December 31, 2008 consist of
investments in five auction rate securities with a par value of
$8.2 million and a fair value of $7.0 million. The
Company recorded an other than temporary impairment charge to
other expenses related to these securities during the fourth
quarter of 2008 of $1.2 million because of the current
turmoil in the credit markets and managements belief these
securities cannot presently be sold at par value, but are
saleable at a discount from their par value. The collateral for
these AAA-rated securities is guaranteed by agencies of the
United States against loss of principal and interest by bond
insurers.
The Company has classified these securities as short-term
investments and has accounted for the investments in these
securities as available for sale securities under the guidance
of Statement of Financial Accounting Standards, Accounting
for Certain Investments in Debt and Equity Securities
(SFAS No. 115). Although the auction
rate securities have variable interest rates which typically
reset every 16 to 32 days through a competitive bidding
process known as a Dutch auction, they have
long-term contractual maturities. These investments are
classified within current assets because the Company may need to
liquidate these securities within the next year.
The available for sale securities are carried at fair value and
unrealized gains and losses on these securities, if determined
to be temporary, are included in accumulated other comprehensive
income (loss) in stockholders equity. The Company assesses
the recoverability of our available-for-sale securities and, if
impairment is indicated, the Company measures the amount of such
impairment by comparing the fair value to the carrying value.
Other than temporary impairments are included in the
consolidated statements of operations. As noted above, during
the year ended December 31, 2008, there was a
$1.2 million impairment recorded against the available for
sale securities. The impairment was concluded to be other than
temporary, thus the charge was taken in the consolidated
statement of operations.
The Company had invested in auction rate securities for short
periods of time as part of its cash management program. Recent
uncertainties in the credit markets have prevented the Company
from liquidating certain holdings of auction rate securities
subsequent to December 31, 2008 as the amount of securities
submitted for sale during the auction has exceeded the amount of
purchase orders. Although an event of an auction failure does
not necessarily mean that a security is impaired, the Company
considered various factors to assess the fair value and the
classification of the securities as short-term assets. Fair
value was determined through an independent valuation using two
valuation methods a discounted cash flow method and
a market comparables method. Certain factors used in these
methods include, but are not necessarily limited to, comparable
securities traded on secondary markets, timing of the failed
auction, specific security auction history, quality of
underlying collateral, rating of the security and the bond
insurer, our ability and intent to retain the securities for a
period of time to allow for anticipated recovery in the market
value, and other factors.
F-9
NOVAVAX,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Interest and dividend income is recorded when earned and
included in interest income. Premiums and discounts, if any, on
short-term investments are amortized or accreted to maturity and
included in interest income. The specific identification method
is used in computing realized gains and losses on sale of the
Companys securities.
For short-term investments classified as held to maturity
securities, the Company has the positive intent and ability to
hold them until maturity. These investments are recorded at face
value less any premiums or discounts. Income related to these
securities is reported as a component of interest income. These
premiums or discounts are then amortized over the remaining
maturity periods of the investments using the straight-line
method. The Company did not have any short-term investments
classified as held to maturity at December 31, 2008.
Included in net interest income on the consolidated statement of
operations for the years ended December 31, 2007 and 2006
is $2,320 and $1,135 of amortization of premiums/discounts
related to these short-term investments. As of December 31,
2007, short-term investments classified as held to maturity had
original maturity dates of less than one year and were comprised
of $1,997 of certificates of deposit, $22,057 of corporate
bonds, and $8,884 of government agency bonds.
Financial
Instruments and Concentration of Credit Risk
Financial instruments, which possibly expose the Company to
concentration of credit risk, consist primarily of cash and cash
equivalents, short-term investments, accounts receivable and
convertible notes payable. The Companys investment policy
limits investments to certain types of instruments, including
auction rate securities, high-grade corporate debt securities
and money market instruments, places restrictions on maturities
and concentrations in certain industries and requires the
Company to maintain a certain level of liquidity. The carrying
value of cash and cash equivalents, and accounts receivable
approximates their fair value based on their short-term
maturities at December 31, 2008 and 2007. The Company has
certain debt instruments at fixed rates, with lower interest
rates than the prevailing market rates. The fair values of
convertible notes approximate their carrying value as of
December 31, 2008 and 2007 based on rates currently
available to the Company for debt with similar terms and
remaining maturities.
On January 1, 2008, the Company adopted
SFAS No. 157, Fair Value Measurements
(SFAS No. 157), which clarifies the
definition of fair value, establishes a framework for measuring
fair value, and expends the disclosures on fair value
measurements. In February 2008, the FASB issued
FSP 157-2
that deferred the effective date of SFAS No. 157 for
one year for nonfinancial assets and liabilities recorded at
fair value on a non-recurring basis. SFAS No. 157
defines fair value as the exchange price that would be received
for an asset or paid to transfer a liability (an exit price) in
the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants
on the measurement date. SFAS No. 157 also establishes
a fair value hierarchy which, as outlined below, requires an
entity to maximize the use of observable inputs and minimize the
use of unobservable inputs when measuring fair value.
If inputs used to measure the financial assets and liabilities
fall within the different levels described below, the
categorization is based on the lowest level input that is
significant to the fair value measurements of the instrument.
Level 1 Quoted prices in active markets
for identical assets or liabilities. The Company does not have
any Level 1 assets as of December 31, 2008.
Level 2 Observable inputs other than
Level 1 prices, such as quoted prices for similar assets or
liabilities, or other inputs that are observable or can be
corroborated by observable market data for substantially the
full term of the assets or liabilities. The Company considers
its auction rate securities to be a Level 2 assets.
Level 3 Unobservable inputs that are
supported by little or no market activity and that are financial
instruments whose value is determined using pricing models,
discounted cash flow methodologies, or similar techniques, as
well as instruments for which the determination of fair value
requires significant judgment or estimation. The Company
considers its goodwill to be a Level 3 asset.
F-10
NOVAVAX,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Financial assets and liabilities measured at fair market value
on a recurring basis for the year ended December 31, 2008
are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at December 31, 2008 using
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
other
|
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Assets
|
|
Assets
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
At Fair Value
|
|
|
|
(In thousands)
|
|
|
Auction rate securities
|
|
$
|
|
|
|
$
|
6,962
|
|
|
$
|
|
|
|
$
|
6,962
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
33,141
|
|
|
|
33,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
|
|
|
$
|
6,962
|
|
|
$
|
33,141
|
|
|
$
|
40,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the Companys assets measure
at fair value on a recurring basis using level 2 inputs
during the year ended December 31, 2008:
|
|
|
|
|
|
|
(In thousands)
|
|
|
Balance as of January 1, 2008
|
|
$
|
9,200
|
|
Impairment losses included in earnings
|
|
|
(1,238
|
)
|
Purchases
|
|
|
15,650
|
|
Redemptions at par
|
|
|
(16,650
|
)
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
$
|
6,962
|
|
|
|
|
|
|
Accounts
and Other Receivables
Accounts receivable are reported at their net realizable value.
The Company charges off uncollectible receivables when the
likelihood of collection is remote. Generally, the Company
considers receivables past due 30 days subsequent to the
billing date. The Company performs ongoing credit evaluations of
its customers and generally extends credit without requiring
collateral. The Company maintains an allowance for doubtful
accounts that is determined based on historical experience and
managements expectations of future losses. Accounts deemed
uncollectible are charged to the allowance based on specific
identification. Provisions for bad debts and recoveries on
reserved accounts are recorded within the allowance. As of
December 31, 2008 and 2007, the Company had an allowance
for doubtful accounts of approximately $218 and $168,
respectively.
Inventories
Inventories are priced at the lower of cost or market using the
first-in-first-out
method and consist of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Raw materials
|
|
$
|
|
|
|
$
|
226
|
|
Materials and supplies
|
|
|
42
|
|
|
|
25
|
|
Finished goods
|
|
|
|
|
|
|
115
|
|
Reserve for inventory
|
|
|
|
|
|
|
(52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
314
|
|
Less: inventory reclassified to current assets of discontinued
operations
|
|
|
|
|
|
|
(289
|
)
|
|
|
|
|
|
|
|
|
|
Total inventory
|
|
$
|
42
|
|
|
$
|
25
|
|
|
|
|
|
|
|
|
|
|
F-11
NOVAVAX,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Raw materials and finished goods were related to the production
of Estrasorb. Materials and supplies are used in the
Companys research and development efforts. At
December 31, 2007, raw materials and finished goods were
included in current assets of discontinued operations.
Under Statement of Financial Accounting Standard
(SFAS) No. 151, Inventory Costs
an amendment of ARB No. 43, Chapter 4
(SFAS No. 151), the Company allocates
fixed production overhead costs to inventories based on the
anticipated normal capacity of its manufacturing facility at the
time. Included in cost of products sold from discontinued
operations for the years ended December 31, 2008, 2007 and
2006 are $1.3 million, $3.1 million and
$2.5 million, respectively, of idle capacity costs, which
represent the excess of overhead costs over that allocated to
inventories. The aforementioned costs are included in the cost
of sales from discontinued operations.
During the years ended December 31, 2008, 2007 and 2006,
$0.5 million, $1.3 million and $1.5 million,
respectively, of inventory costs in excess of market value were
included in the income (loss) from discontinued operations in
the consolidated statement of operations related to the supply
agreements with both Esprit and Graceway (see
Note 3 Summary of Significant
Transactions). Under the terms of these supply agreements,
the Company sold Estrasorb at a price below its manufacturing
costs during the years ended December 31, 2008, 2007 and
2006.
In June 2007, the Company decided to discontinue the sale of
Gynodiol. In connection with its decision, the Company recorded
an inventory reserve totaling $52. During the year ended
December 31, 2008, the Company destroyed the remaining
Gynodiol inventory totaling $49 and wrote-off the remaining
inventory balance against this reserve.
Based on the termination of the Supply Agreement with Allergan,
the Company had planned to close its Philadelphia, Pennsylvania
manufacturing facility at the end of 2007 and transfer
production to a third party. However, in February 2008, the
Company entered into an agreement with Graceway Pharmaceuticals,
LLC (Graceway) to sell its manufacturing equipment
and other assets related to Estrasorb in the United States,
Canada and Mexico. In addition to the sale of assets, the
Company agreed to produce additional lots of Estrasorb on behalf
of Graceway. The production began in March 2008 and was
completed in July 2008, with final delivery completed in August
2008. The Company closed this leased facility in August 2008. As
a result, the Company no longer has any inventory related to the
production of Estrasorb.
Property
and Equipment
Property and equipment are stated at cost and are depreciated
using the straight-line method over the estimated useful lives
of the assets, generally three to ten years. Amortization of
leasehold improvements is provided over the shorter of the
estimated useful lives of the improvements or the term of the
lease. Repairs and maintenance costs are expensed as incurred.
Property and equipment is comprised of the following at December
31:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Construction in progress
|
|
$
|
5,394
|
|
|
$
|
1,601
|
|
Machinery and equipment
|
|
|
3,880
|
|
|
|
4,124
|
|
Leasehold improvements
|
|
|
637
|
|
|
|
7,759
|
|
Computer software and hardware
|
|
|
339
|
|
|
|
346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,250
|
|
|
|
13,830
|
|
Less accumulated depreciation and amortization
|
|
|
(2,022
|
)
|
|
|
(8,109
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,228
|
|
|
$
|
5,721
|
|
|
|
|
|
|
|
|
|
|
F-12
NOVAVAX,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Construction in progress is related to costs incurred in the
construction of the Companys GMP pilot manufacturing
facility which started during the third quarter of 2007. The GMP
pilot manufacturing facility was ready for use in January 2009,
when the Company announced that all equipment in the pilot
plants were installed and ready for operations supporting
scale-up and
validation.
Depreciation expense associated with continuing operations was
approximately $893, $702 and $577 for the years ended
December 31, 2008, 2007 and 2006, respectively.
Depreciation expense associated with discontinued operations was
approximately $1,155, $2,095 and $2,344 for the years ended
December 31, 2008, 2007 and 2006, respectively.
Goodwill
and Intangible Assets
Goodwill originally results from certain business acquisitions.
Assets acquired and liabilities assumed are recorded at their
fair values; the excess of the purchase price over the
identifiable net assets acquired is recorded as goodwill. In
accordance with SFAS No. 142, Goodwill and Other
Intangible Assets (SFAS No. 142),
goodwill is deemed to have an indefinite life and is subject to
impairment tests annually, or more frequently should indicators
of impairment arise. The Companys judgments regarding the
existence of impairment indicators are primarily dependent on
the successful commercialization of its vaccine technologies,
probability of success, growth and profitability. Achievability
of prospective results is subject to a great deal of risk and
because events or circumstances may not occur as expected,
differences between actual and expected results may be material.
At December 31, 2008 and 2007, the Company used both the
market approach and the income approach to determine if the
Company had an impairment of its goodwill. The income approach
was used as a confirming look to the market approach. The
Company used a market approach to determine the market value of
capitalization of its single reporting unit. Step one of the
impairment test states that if the fair value of a reporting
unit exceeds its carrying amount, goodwill is considered not to
be impaired. The Companys forecasts were used to create a
risk adjusted discounted cash flow analysis to indicate the
market value capitalization. The fair value of the
Companys reporting unit was compared to the carrying
amount of the reporting unit. Under both approaches, the fair
value of the reporting unit was higher than the carrying value,
resulting in no impairments recorded against goodwill at
December 31, 2008 and 2007.
Long-Lived
Assets and Discontinued Operations
The Company accounts for the impairment of its long-lived assets
in accordance with SFAS No. 144, Accounting for the
Impairment or Disposal (SFAS No. 144).
SFAS No. 144 requires a periodic evaluation of the
recoverability of the carrying value of long-lived assets and
identifiable intangibles whenever events or changes in
circumstances indicate that the carrying value of the asset may
not be recoverable. The Company considers historical performance
and anticipated future results in its evaluation of potential
impairment. Accordingly, when indicators of impairment are
present, the Company evaluates the carrying value of these
assets in relation to the operating performance of the business
and future undiscounted cash flows expected to result from the
use of these assets. Impairment losses are recognized when the
sum of expected future cash flows is less than the assets
carrying value.
During the third quarter of 2007, the Company began efforts to
divest its MNP technology, which consisted of the patent that
had been included as intangible assets on the Companys
consolidated balance sheet. In connection with the planned
divestiture, the Company evaluated the recoverability of the
carrying value of the patents and reclassified $846 into assets
held for sale as of December 31, 2007. The Company was
unable to sell the patents in 2008 so they were removed from
assets held for sale and impaired for the full value of $846
during the year ended December 31, 2008.
SFAS No. 144 also provides accounting and reporting
provisions for components of an entity that are classified as
discontinued operations. The Company recorded an impairment loss
in connection with the discontinued
F-13
NOVAVAX,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
operations of its Philadelphia, Pennsylvania manufacturing
facility for the year ended December 31, 2007 (See
Note 10 Discontinued Operations).
Revenue
Recognition and Allowances
The Company recognizes revenue in accordance with the provisions
of Staff Accounting Bulletin (SAB) No. 104,
Revenue Recognition (SAB No. 104).
For product sales, revenue is recognized when all of the
following criteria are met: persuasive evidence of an
arrangement exists, delivery has occurred, the sellers
price to the buyer is fixed or determinable and collectability
is reasonably assured. The Company recognizes these sales, net
of allowances for returns and rebates. The Company estimates the
amount of rebates and returns and records them as a liability
and reduction of revenue upon sale of the products. Under the
License and Supply Agreements with Allergan (See Significant
Transactions- Graceway Agreements), the Company is no longer
responsible for rebates related to Estrasorb or for returns of
Estrasorb made subsequent to entering into the License Agreement
on October 19, 2005.
For upfront payments and licensing fees related to contract
research or technology, the Company follows the provisions of
SAB No. 104 in determining if these payments and fees
represent the culmination of a separate earnings process or if
they should be deferred and recognized as revenue as earned over
the life of the related agreement. Milestone payments are
recognized as revenue upon achievement of contract-specified
events and when there are no remaining performance obligations.
Revenue earned under research contracts is recognized in
accordance with the terms and conditions of such contracts for
reimbursement of costs incurred and defined milestones.
Stock-Based
Compensation
The Company accounts for its stock options in accordance with
Statement of Financial Accounting Standard No. 123
(revised), Accounting for Share-based Payment
(SFAS No. 123R). This standard
requires the Company to measure the cost of employee services
received in exchange for equity share options granted based on
the grant-date fair value of options. The cost is recognized as
compensation expense over the requisite service period
(generally the vesting period) of the options.
The expected life of options granted was based on the
Companys historical share option exercise experience using
the historical expected term from the vesting date. The expected
volatility of the options granted was determined using
historical volatilities based on stock prices over a look-back
period corresponding to the expected life. The risk-free
interest rate was determined using the yield available for
zero-coupon United States government issues with a remaining
term equal to the expected life of the options. The forfeiture
rate was determined using historical rates since the inception
of the plans. The Company has never paid a dividend, and as
such, the dividend yield is zero.
Non-cash compensation expense related to all restricted stock
issued to employees and directors has been recorded as
compensation cost using the straight-line method of
amortization. The Company accounts for stock-based awards issued
to non-employees in accordance with Emerging Issues Task Force
(EITF) Issue
No. 96-18,
Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services. These pronouncements require the fair
value of equity instruments given as consideration for services
rendered be recognized as a non-cash operating expense over the
shorter of the vesting or service periods. In cases where
services are not fully rendered, the equity instruments must be
revalued on each subsequent reporting date until performance is
complete with a cumulative
catch-up
adjustment recognized for any changes in their estimated fair
value.
F-14
NOVAVAX,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Research
and Development Costs
Research and development costs are expensed as incurred. Such
costs include internal research and development expenditures
(such as salaries and benefits, raw materials and supplies) and
contracted services (such as sponsored research, consulting and
testing services) of proprietary research and development
activities and similar expenses associated with collaborative
research agreements.
The Company was part of a consortium that received a National
Institutes of Health (NIH) project program grant to
develop HIV vaccine candidates. As of December 31, 2008,
the Company earned $3.0 million under this research
contract. This contract ended in January 2008.
Income
Taxes
The Companys income taxes are accounted for using the
liability method in accordance with SFAS No. 109,
Accounting for Income Taxes. Under the liability method,
deferred income taxes are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities
and their respective tax basis and operating loss carryforward.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the year in
which those temporary differences are expected to be recovered
or settled.
The effect of changes in tax rates on deferred tax assets and
liabilities is recognized in income in the period that includes
the enactment date. A valuation allowance is established when
necessary to reduce net deferred tax assets to the amount
expected to be realized.
On January 1, 2007, the Company adopted Financial
Accounting Standards Board (FASB) Interpretation
No. 48, Accounting for Uncertainty in Income
Taxes an interpretation of SFAS No. 109.
Accounting for Income Taxes (FIN 48).
FIN 48 gives guidance related to the financial statement
recognition and measurement of a tax position taken or expected
to be taken in a tax return, and requires that we recognize in
our financial statements the impact of a tax position, if that
position is more likely than not to be sustained upon an
examination, based on the technical merits of the position.
Interest and penalties related to income tax matters are
recorded as income tax expense. As of December 31, 2008 and
2007, we had no accruals for interest or penalties related to
income tax matters.
Net
Loss per Share
The Company calculates net loss per share in accordance with
SFAS No. 128, Earnings per Share. Basic loss
per share is computed by dividing net loss available to common
stockholders by the weighted average number of common shares
outstanding during the period. The dilutive effect of common
stock equivalents is included in the calculation of diluted
earnings per share only when the effect of the inclusion would
be dilutive. Outstanding stock options with an exercise price
above market, are excluded from the Companys diluted
computation as their effect would be anti-dilutive. There were
approximately 4.6 million outstanding stock options and
3.3 million outstanding warrants that were excluded from
the Companys diluted loss per share calculation for the
year ended December 31, 2008. For the years ended
December 31, 2007 and 2006, there were approximately
4.1 million and 2.3 million outstanding stock options,
respectively, that were excluded from the calculation of diluted
loss per share.
Comprehensive
Loss
Under SFAS No. 130, Reporting Comprehensive
Income, requires comprehensive loss and its components to be
presented as part of the consolidated financial statements.
Comprehensive loss is comprised of the net loss and other
comprehensive income (loss), which includes certain changes in
equity that are excluded from the net loss. Comprehensive loss
for the Company was the same as net loss for the years ended
December 31, 2008, 2007 and 2006.
F-15
NOVAVAX,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Segment
Information
The Company currently operates in one business segment, which is
the creation of differentiated value-added vaccines that
leverage the Companys proprietary virus-like particle
technology. The Company is managed and operated as one business.
A single management team that reports to the Chief Executive
Officer comprehensively manages the entire business. The Company
does not operate separate lines of business with respect to its
products or product candidates. Accordingly, the Company does
not have separately reportable segments as defined by Statement
of Financial Accounting Standards No. 131, Disclosure
about Segments of an Enterprise and Related Information.
Recent
Accounting Pronouncements
SFAS No. 159
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities
(SFAS No. 159), which provides
companies an option to report certain financial assets and
liabilities at fair value. The intent of SFAS No. 159
is to reduce the complexity in accounting for financial
instruments and the volatility in earnings caused by measuring
related assets and liabilities differently.
SFAS No. 159 is effective for financial statements
issued for fiscal years beginning January 1, 2008. The
Company did not elect the fair value option under
SFAS No. 159 for any of its financial instruments upon
adoption.
SFAS No. 141
R
In December 2007, the FASB issued FASB Statement No. 141
(Revised 2007) (SFAS 141R), Business
Combinations. SFAS 141R will significantly change the
accounting for business combinations. Under SFAS 141R, an
acquiring entity will be required to recognize all the assets
acquired and liabilities assumed in a transaction at the
acquisition date at fair value with limited exceptions.
SFAS 141R will change the accounting treatment for certain
specific items, including; acquisition costs will be generally
expensed as incurred, minority interests will be valued at fair
value at the acquisition date, acquired contingent liabilities
will be recorded at fair value at the acquisition date and
subsequently measured at either the higher of such amount or the
amount determined under existing guidance for non-acquired
contingencies, in-process research and development will be
recorded at fair value as an indefinite-lived intangible asset
at the acquisition date, restructuring costs associated with a
business combination will be generally expensed subsequent to
the acquisition date, and changes in deferred tax asset
valuation allowances and income tax uncertainties after the
acquisition date generally will affect income tax expense.
SFAS 141R also includes a substantial number of new
disclosure requirements. SFAS 141R applies prospectively to
business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period
beginning on or after December 15, 2008. Earlier adoption
is prohibited. The Company is required to record and disclose
business combinations following existing GAAP until
January 1, 2009.
EITF
Issue
No. 07-1
In December 2007, the FASB issued EITF Issue
No. 07-1,
Accounting for Collaborative Arrangements, which is
effective for calendar year companies on January 1, 2009.
The Task Force clarified the manner in which costs, revenues and
sharing payments made to, or received by a partner in a
collaborative arrangements should be presented in the income
statement and set for the certain disclosures that should be
required in the partners financial statements. Novavax is
currently assessing the potential impact of implementing this
standard on its financial condition results of operations or
liquidity.
SFAS No. 162
In May 2008, the FASB issued SFAS No. 162,
Hierarchy of Generally Accepted Accounting Principles
(SFAS No. 162), which identifies the
sources of accounting principles and the framework for selecting
the
F-16
NOVAVAX,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
principles used in the preparation of financial statements.
SFAS No. 162 is effective 60 days following the
SECs approval of the Public Company Accounting Oversight
Board amendments to AU Section 411, The Meaning of
Present Fairly in Conformity with Generally Accepted Accounting
Principles. The implementation of this standard is not
expected to have a material impact on the Companys
consolidated financial position and results of operations.
EITF
Issue
No. 07-5
In June 2008, the FASB ratified EITF Issue
No. 07-5,
Determining Whether an Instrument (or an Embedded Feature) Is
Indexed to an Entitys Own Stock
(EITF 07-5).
EITF 07-5
provides that an entity should use a two step approach to
evaluate whether an equity-linked financial instrument (or
embedded feature) is indexed to its own stock, including
evaluating the instruments contingent exercise and
settlement provisions. It also clarifies on the impact of
foreign currency denominated strike prices and market-based
employee stock option valuation instruments on the evaluation.
EITF 07-5
is effective for fiscal years beginning after December 15,
2008. The Company is currently assessing the impact of
EITF 07-5
on its consolidated financial position and results of operations.
|
|
3.
|
Summary
of Significant Transactions
|
Graceway
Agreements
In February 2008, the Company entered into an asset purchase
agreement with Graceway Pharmaceuticals, LLC
(Graceway), pursuant to which Novavax sold to
Graceway its assets related to Estrasorb in the United States,
Canada and Mexico. The assets sold include certain patents
related to the micellar nanoparticle technology (the MNP
Technology), trademarks, know-how, manufacturing
equipment, customer and supplier relations, goodwill and other
assets. Novavax retained the rights to commercialize Estrasorb
outside of the United States, Canada and Mexico.
In February 2008, Novavax and Graceway also entered into a
supply agreement, pursuant to which Novavax agreed to
manufacture additional units of Estrasorb with final delivery
completed in July 2008. Graceway paid a preset transfer price
per unit of Estrasorb for the supply of this product. Once
Novavax delivered the required quantity of Estrasorb, Novavax
cleaned the manufacturing equipment and prepare the equipment
for transport. Graceway removed the equipment from the
manufacturing facility and Novavax exited the facility in August
2008. During the year ended December 31, 2008, the Company
received payments for the manufacture and delivery of the
additional units of Estrasorb delivered during the period and
the related revenue was recognized upon completion of all
components of the contractual obligation.
In February 2008, Novavax and Graceway also entered into a
license agreement, pursuant to which Graceway granted Novavax an
exclusive, non-transferable (except for certain allowed
assignments and sublicenses), royalty-free, limited license to
the patents and know-how that Novavax sold to Graceway pursuant
to the asset purchase agreement. The license grant allows
Novavax to make, use and sell licensed products and services in
certain, limited fields.
Upon commencement of the Graceway agreement the license and
supply agreements with Allergan, Inc.,
successor-in-interest
to Esprit Pharma, Inc., were terminated in February 2008 and
October 2007, respectively.
In connection with the closing of the transaction, Novavax
received an upfront payment from Graceway. The Company
determined that the Graceway agreements should be accounted for
as a single arrangement with multiple elements as defined in
EITF 00-21,
Revenue Arrangements with Multiple Deliverables
(EITF 00-21).
Under
EITF 00-21,
in an arrangement with multiple deliverables, the delivered
item(s) should be considered a separate unit of accounting if it
has stand-alone value and the fair value of the undelivered
performance obligations can be determined. If the fair value of
the undelivered performance obligations can be determined, such
obligations would be accounted for separately as performed. If
the fair value of undelivered performance obligations cannot be
determined, the arrangement is accounted for as a single unit of
accounting. The Company evaluated the
F-17
NOVAVAX,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
deliverables related to the Graceway supply and asset purchase
agreements under the criteria of
EITF 00-21
to determine whether they met the requirements for separation
within a multi-element arrangement. The Company concluded that
the deliverables would not be treated as separate units of
accounting as there was no objective and reliable evidence of
the fair value of the undelivered items related to the
manufacture of the additional Estrasorb lots and the cleaning
and preparation of the equipment under the terms of supply
agreement. Accordingly, all revenue associated with the
deliverables, under both the supply and asset purchase
agreement, was deferred and was not recognized until the
Companys obligations were completed in August 2008.
License
Agreement with University of Massachusetts Medical
School
Effective February 26, 2007, the Company entered into a
worldwide agreement to exclusively license a VLP technology from
the University of Massachusetts Medical School
(UMMS). Under the agreement, the Company has the
right to use this technology to develop VLP vaccines for the
prevention of any viral diseases in humans. As of
December 31, 2008 and 2007, the Company made payments to
UMMS in an aggregate amount that is not material. In addition,
the Company will make certain payments based on development
milestones as well as future royalties on any sales of products
that may be developed using the technology. The Company believes
that all payments under the UMMS agreement will not be material
to the Company in the foreseeable future. The UMMS agreement
will remain effective as long as at least one claim of the
licensed patent rights cover the manufacture, sale or use of any
product unless terminated sooner at the Companys option or
by UMMS for an unsecured breach by Novavax.
License
Agreement with Wyeth Holdings Corporation
On July 5, 2007, we entered into a License Agreement with
Wyeth Holdings Corporation, a subsidiary of Wyeth
(Wyeth). The license is a non-exclusive, worldwide
license to a family of patent applications covering VLP
technology for use in human vaccines in certain fields of use.
The agreement provides for an upfront payment, annual license
fees, milestone payments and royalties on any product sales. If
each milestone is achieved for any particular product candidate,
the Company would be obligated to pay an aggregate of
$14.0 million to Wyeth Holdings for each product candidate
developed and commercialized under the agreement. Achievement of
each milestone is subject to many risks, including those
described in the Companys Risk Factors. Annual license
maintenance fees under the Wyeth Holdings agreement aggregate
$0.3 million per year. The royalty to be paid by the
Company under the agreement, if a product is approved by the FDA
for commercialization, will be based on single digit percentage
of net sales. Payments under the agreement to Wyeth as of
December 31, 2008 aggregated $4.8 million and could
aggregate up to an additional $0.3 million in 2009,
depending on the achievement of clinical development milestones.
The agreement will remain effective as long as at least one
claim of the licensed patent rights cover the manufacture, sale
or use of any product unless terminated sooner at Novavaxs
option or by Wyeth for an uncured breach by Novavax.
License
and Supply Agreements with Allergan
In October 2005, the Company entered into License and Supply
agreements for Estrasorb with Allergan, Inc.
(Allergan),
successor-in-interest
to Esprit Pharma, Inc. (Esprit). Under the License
Agreement, Allergan obtained exclusive rights to market
Estrasorb in North America and under the Supply Agreement the
Company was obligated to continue to manufacture Estrasorb. In
consideration for the rights granted, Allergan paid the Company
a cash consideration of $12.5 million, including
$2.5 million during the year ended December 31, 2006.
In February 2008, in connection with the sale of the Estrasorb
assets to Graceway, noted above, Novavax terminated the
Estrasorb License Agreement with Allergan.
In April 2006, the Company entered into a second License and
Supply Agreement with Allergan to co-develop, supply and
commercialize an MNP testosterone product candidate for the
treatment of female hypoactive sexual desire disorder. Under the
terms of the License and Development Agreement, Esprit was
granted exclusive rights to
F-18
NOVAVAX,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
market the products in North America. In October 2007, Allergan
purchased Esprit and subsequently entered into an agreement with
Novavax, which among other things, terminated the license and
supply agreement for testosterone and the supply agreement for
Estrasorb.
|
|
4.
|
Supplemental
Financial Data
|
Allowance
for Doubtful Accounts
A roll-forward of the allowance for doubtful accounts is as
follows:
|
|
|
|
|
|
|
(In thousands)
|
|
|
Balance, January 1, 2006
|
|
$
|
429
|
|
Provision for bad debts
|
|
|
111
|
|
Write off bad debts
|
|
|
(423
|
)
|
|
|
|
|
|
Balance, December 31, 2006
|
|
|
117
|
|
Provision for bad debts
|
|
|
176
|
|
Write off bad debts
|
|
|
(125
|
)
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
168
|
|
Provision for bad debts
|
|
|
50
|
|
Write off bad debts
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
$
|
218
|
|
|
|
|
|
|
Prepaid
Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the
following at December 31:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Prepaid insurance
|
|
$
|
540
|
|
|
$
|
568
|
|
Current portion of deferred financing costs
|
|
|
147
|
|
|
|
259
|
|
Notes receivable from former director, net of reserve
|
|
|
|
|
|
|
202
|
|
Interest receivable on directors notes
|
|
|
|
|
|
|
132
|
|
Other current assets
|
|
|
127
|
|
|
|
51
|
|
Interest receivable
|
|
|
50
|
|
|
|
229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
864
|
|
|
|
1,441
|
|
Less: prepaid expenses and other current assets reclassified to
current assets of discontinued operations
|
|
|
(132
|
)
|
|
|
(137
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
732
|
|
|
$
|
1,304
|
|
|
|
|
|
|
|
|
|
|
F-19
NOVAVAX,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Accrued
Expenses and Other Liabilities
Accrued expenses consist of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Sales return and rebate allowance
|
|
$
|
118
|
|
|
$
|
371
|
|
Employee benefits and compensation
|
|
|
412
|
|
|
|
1,581
|
|
Operating expenses
|
|
|
697
|
|
|
|
695
|
|
Research and development accruals
|
|
|
1,297
|
|
|
|
299
|
|
Interest expense
|
|
|
478
|
|
|
|
475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,002
|
|
|
|
3,421
|
|
Less: accrued expense and other liabilities reclassified to
current liabilities of discontinued operations
|
|
|
(33
|
)
|
|
|
(441
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,969
|
|
|
$
|
2,980
|
|
|
|
|
|
|
|
|
|
|
Notes
Payable
Notes payable consist of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Note payable; bears interest at 3.00% per annum; principal and
interest due in monthly installments of $6,600, repaid February
2008
|
|
$
|
|
|
|
$
|
135
|
|
Note payable; bears interest at 2.850% per annum; principal and
interest due in monthly installments of $6,573, repaid February
2008
|
|
|
|
|
|
|
153
|
|
Note payable; bears interest at 2.38% per annum; principal and
interest due in monthly installments of $6,468, repaid February
2008
|
|
|
|
|
|
|
152
|
|
Note payable; insurance financing; bears interest at 6.00% per
annum; principal and interest due in monthly installments of
$51,385 through November 2008
|
|
|
|
|
|
|
600
|
|
Note payable; insurance financing; bears interest at 4.9% per
annum; principal and interest due in monthly installments of
$51,677 through September 2009
|
|
|
570
|
|
|
|
|
|
Opportunity Grant Fund notes payable; non-interest bearing;
principal only payments due in monthly installments of $6,666
through May 2012
|
|
|
260
|
|
|
|
340
|
|
Other
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,130
|
|
|
|
1,380
|
|
Less current portion
|
|
|
(650
|
)
|
|
|
(1,120
|
)
|
|
|
|
|
|
|
|
|
|
Long-term portion
|
|
$
|
480
|
|
|
$
|
260
|
|
|
|
|
|
|
|
|
|
|
The notes payable (except for the notes payable for financing
insurance premiums and the Opportunity Grant Fund note payable)
were secured by $2.4 million of the Companys
machinery and equipment located at its manufacturing facility in
Philadelphia, Pennsylvania. In February 2008, in connection with
the execution of the asset purchase agreement with Graceway, the
Company repaid the outstanding balances plus any accrued
interest on the 3.00%, 2.850% and 2.38% notes payable
totaling $423,886 and received a release for the equipment which
served as collateral.
F-20
NOVAVAX,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Opportunity
Grant Fund Note Payable
In July 2005, the Company received a $400,000 Opportunity Grant
from the Commonwealth of Pennsylvania for the reimbursement of
certain costs incurred in connection with the move of the
Companys corporate headquarters and product development
activities to Malvern, Pennsylvania. These funds were included
as an offset to general and administrative expenses included in
the Consolidated Statement of Operations for the year ended
December 31, 2005. The Opportunity Grant had the following
conditions: (i) the Company would create 95 full time jobs
at the Malvern facility within three years; (ii) the
Company would invest at least $9.4 million in capital
improvements and fixtures and equipment at the Malvern facility
within three years; and, (iii) the Company would operate at
the Malvern facility for a minimum of five years. If the Company
failed to meet these conditions, it would be obligated to repay
the full amount of the grant.
In line with its new business strategy, the Company announced in
December 2006 that it had signed a long-term lease for its new
corporate headquarters and research and development facility in
Rockville, Maryland, where its vaccine operations were then and
now currently located. As a result of the Companys failure
to comply with the conditions of the grant, the Department of
Community & Economic Development (DCED) of
the Commonwealth of Pennsylvania requested that the Company
repay the full amount of the Opportunity Grant.
In April, 2007, the Company entered into a Settlement and
Release Agreement with the Commonwealth of Pennsylvania, acting
by and through DCED, whereby the Company agreed to repay the sum
of the original grant in 60 monthly installments starting
on May 1, 2007. The loan was reclassified to notes payable.
The terms of the agreement stipulate the amount of the monthly
repayment to be $6,667 for 60 months. Interest does not
accrue on the outstanding balance. During the years ended
December 31, 2008 and 2007, the Company made payments
totaling $80 and $60 respectively. The outstanding balance is
included in notes payable on the consolidated balance sheets as
of December 31, 2008 and 2007.
Convertible
Notes
Convertible notes consist of the following on December 31:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Note payable; 4.75% senior convertible, issued
July 19, 2004, due July 15, 2009, currently
convertible by the holders into 4,029,304 shares of Novavax
common stock at $4.00 per share
|
|
$
|
22,000
|
|
|
$
|
22,000
|
|
Less: Discount
|
|
|
(222
|
)
|
|
|
(631
|
)
|
|
|
|
|
|
|
|
|
|
Note payable, net
|
|
$
|
21,778
|
|
|
$
|
21,369
|
|
|
|
|
|
|
|
|
|
|
In July 2004, the Company entered into definitive agreements for
the private placement of $35.0 million aggregate principal
amount of senior convertible notes (the Notes) to a
group of institutional investors. The notes carry a 4.75%
coupon, payable semi-annually, mature in five years on
July 15, 2009 and are convertible into shares of common
stock, originally at $5.46 per share. On June 15, 2007, the
Company entered into amendment agreements (the
Amendments) with each of the holders of the
outstanding Notes to amend the terms of the Notes. The
Amendments (i) lowered the conversion price from $5.46 to
$4.00 per share, (ii) eliminated the holders right to
require the Company to redeem the Notes if the weighted average
price of the Companys common stock is less than the
conversion price on 30 of the 40 consecutive trading days
preceding July 19, 2007 or July 19, 2008 and
(iii) mandated that the Notes be converted into Company
common stock if the weighted average price of the Companys
common stock is greater than $7.00 (a decrease from $9.56) in
any 15 out of 30 consecutive trading days after July 19,
2007. The Notes are also redeemable upon the occurrence of
specified events of default as well as a change of
control (as that term is defined in the Notes) of Novavax.
At December 31, 2008 and 2007, the Company had accrued
interest of $475 and $478, respectively, relating to these notes.
F-21
NOVAVAX,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Under the terms of the Notes, Novavax, at its option, can pay up
to 50% of the outstanding Notes in Novavax common stock on the
due date of July 15, 2009, subject to the satisfaction of
certain conditions, including, among other things, a requirement
that the shares issued upon conversion be registered or freely
tradable without registration, that Novavaxs shares of
common stock have not been suspended from trading on NASDAQ
during the applicable measurement period and there is no
threatened delisting or suspension, and that the Company is
otherwise in compliance with its agreements with the Note
holders. The amount of shares that may be issued at maturity may
be subject to adjustment depending on the Note holders
percentage ownership of the Company on an as-converted basis and
if the Companys stock price falls below $2.00 during the
measurement period. As a result, the Company will have to pay at
least $11.0 million in cash to satisfy the Notes on the due
date unless the Notes are converted into common stock, redeemed
or amended.
In October 2005 and May 2006, certain holders of
$13.0 million face amount of the Companys senior
convertible notes exercised their optional conversion right to
convert their notes plus accrued interest into
2,365,200 shares of Novavax common stock, at the per share
conversion price then in effect of $5.68 in 2005 and $5.46 in
2006. This reduced the aggregate principal amount of such notes
outstanding from $35.0 million to $22.0 million.
In connection with the Amendments in June 2007, the Company
recorded a debt discount of $852 and increased additional
paid-in capital accordingly. The debt discount is being
amortized over the remaining term of the Notes. Interest expense
includes $259 and $221 related to the amortization of the debt
discount for the years ended December 31, 2008 and 2007,
respectively. The Company did not record any amortization of the
debt discount for the year ended December 31, 2006.
Aggregate future minimum principal payments on debt at
December 31, 2008 are as follows:
|
|
|
|
|
Year
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
2009
|
|
$
|
22,641
|
|
2010
|
|
|
382
|
|
2011
|
|
|
80
|
|
2012
|
|
|
27
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23,130
|
|
|
|
|
|
|
In February 2006, the Company sold 4,597,700 shares of
common stock at $4.35 per share for net proceeds of
$19.9 million and in March 2006, the Company sold
5,205,480 shares of common stock at $7.30 per share for net
proceeds of $36.1 million. These shares were offered and
sold pursuant to an existing shelf registration statement. The
stock was offered and sold pursuant to an existing shelf
registration statement.
During 2006, the Company received net proceeds of
$1.7 million for the exercise of 497,613 common stock
options at a range of $0.74 to $5.81 per share. During 2007, the
Company received net proceeds of $89 from the exercise of
57,126 shares of common stock options at a range of $1.34
to $2.21 per share. During 2008, the Company received net
proceeds of $329 from the exercise of 176,394 common stock
options at a range of $1.34 to $2.77 per share.
On July 31, 2008, the Company completed a registered direct
offering of 6,686,650 units (the Units), with
each unit consisting of one share of common stock and a warrant
to purchase 0.5 shares of common stock at a price of $2.68
per unit (or $2.8425 per unit for units sold to affiliates of
the Company). The warrants represent the right to acquire an
aggregate of 3,343,325 shares of common stock at an
exercise price of $3.62 per share and are exercisable between
January 31, 2009 and July 31, 2013. The net proceeds
were approximately $17.4 million. The
F-22
NOVAVAX,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
purchasers in the offering were comprised of current and new
institutional shareholders and affiliates of the Company. The
securities described above were offered by the Company pursuant
to a registration statement previously filed and declared
effective by the Securities and Exchange Commission (the
SEC).
The Company estimated the fair value attributable to the
warrants of approximately $4.1 million as of the date of
grant by applying the Black-Scholes pricing valuation model. The
Black-Scholes pricing valuation model utilized the following
assumptions: a risk-free interest rate of 3.30%, expected
volatility of 80.32%, and expected term of 5.0 years,
dividend yield of 0.0% and a warrant issue date stock price of
$2.52. The fair value of the warrants is included in additional
paid-in-capital
on the Companys consolidated balance sheet.
On August 7, 2002, the Company adopted a Shareholder Rights
Plan which provides for the issuance of rights to purchase
shares of Series D Junior Participating Preferred Stock,
par value $0.01 per share (the Preferred Shares), of
the Company. Under the Shareholder Rights Plan, the Company
distributed one preferred share purchase right (a
Right) for each outstanding share of common stock,
par value $0.01 (the Common Shares), of the Company.
The Rights were distributed to stockholders of record on
August 16, 2002.
Each Right entitles the holder to purchase from the Company
one-thousandth of a Preferred Share at a price of $40, subject
to adjustment. The Rights become exercisable, with certain
exceptions, 10 business days after any party, without prior
approval of the Board of Directors, acquires or announces an
offer to acquire beneficial ownership of 15% or more of the
Companys Common Shares. In the event that any party
acquires 15% or more of the Companys common stock, the
Company enters into a merger or other business combination, or
if a substantial amount of the Companys assets are sold
after the time that the Rights become exercisable, the Rights
provide that the holder will receive, upon exercise, shares of
the common stock of the surviving or acquiring company, as
applicable, having a market value of twice the exercise price of
the Right.
The Rights expire August 7, 2012, and are redeemable by the
Company at a price of $0.00025 per Right at any time prior to
the time that any party acquires 15% or more of the
Companys Common Shares. Until the earlier of the time that
the Rights become exercisable, are redeemed or expire, the
Company will issue one Right with each new Common Share issued.
|
|
8.
|
Stock
Options and Restricted Stock Awards
|
The Company recorded stock-based compensation costs in the
consolidated statement of operation as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Cost of products sold
|
|
$
|
|
|
|
$
|
35
|
|
|
$
|
48
|
|
Research and development
|
|
|
750
|
|
|
|
573
|
|
|
$
|
561
|
|
General and administrative
|
|
|
1,064
|
|
|
|
737
|
|
|
$
|
1,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation costs
|
|
$
|
1,814
|
|
|
$
|
1,345
|
|
|
$
|
1,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has granted stock option incentive awards under
several plans. Under the 2005 Stock Incentive Plan (the
2005 Plan), approved in May 2005 and amended in June
2007 by the stockholders of the Company, options may be granted
to officers, directors, employees, consultants and advisors to
Novavax and any present or future subsidiary to purchase a
maximum of 5.0 million shares of Novavax common stock and
an additional 565,724 shares of common stock that had been
held in reserve under the Companys 1995 Stock Option Plan
(the 1995 Plan), were unused and were transferred to
the Company 2005 Plan upon adoption. In addition, a maximum
5,746,468 shares of common stock subject to existing
options under the 1995 Plan may revert to and become
F-23