The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
NOTE 1. Organization and Basis of Presentation
General
Vaxart Biosciences, Inc. was originally incorporated in California in March 2004, under the name West Coast Biologicals, Inc. The Company changed its name to Vaxart, Inc. (“Private Vaxart”) in July 2007, and reincorporated in the state of Delaware.
On February 13, 2018, Private Vaxart completed a business combination with Aviragen Therapeutics, Inc. (“Aviragen”), pursuant to which Aviragen merged with Private Vaxart, with Private Vaxart surviving as a wholly owned subsidiary of Aviragen (the “Merger”). Pursuant to the terms of the Merger, Aviragen changed its name to Vaxart, Inc. (together with its subsidiaries, the “Company” or “Vaxart”) and Private Vaxart changed its name to Vaxart Biosciences, Inc.
On June 8, 2020, the Company’s shareholders approved an amendment to the Company’s certificate of incorporation to change the par value of its common and preferred stock from $0.10 per share to $0.0001 per share and to increase the number of authorized shares of common stock from 100,000,000 to 150,000,000. Except as otherwise noted in these condensed consolidated financial statements, all share, equity security and per share amounts are presented to give retroactive effect to these changes.
On October 13, 2020, the Company entered into the Open Market Sale Agreement, (the “Sales Agreement”) pursuant to which it may offer and sell, from time to time through sales agents, shares of its common stock having an aggregate offering price of up to $250 million. The Company incurred direct expenses of approximately $0.3 million in connection with filing a prospectus supplement, dated October 13, 2020, with the U.S. Securities and Exchange Commission (the “SEC”), and will pay sales commissions of 4.5% of gross proceeds from the sale of shares. As of December 31, 2020, the Company had sold 692,651 shares for gross proceeds of $5.5 million which, after deducting sales commissions and expenses, resulted in net proceeds under the Sales Agreement of $4.9 million in 2020.
In the three months ended March 31, 2021, the Company sold an additional 6,654,367 shares for gross proceeds of $68.9 million which, after deducting sales commissions and expenses, resulted in net proceeds to date under the Sales Agreement of $65.7 million. A total of 7,347,018 shares have been issued under the Sales Agreement since its inception for gross proceeds of $74.4 million which, after deducting sales commissions and expenses, has resulted in net proceeds of $70.6 million.
The Company’s principal operations are based in South San Francisco, California, and it operates in one reportable segment, which is the discovery and development of oral recombinant protein vaccines, based on its proprietary oral vaccine platform.
NOTE 2. Summary of Significant Accounting Policies
Basis of Presentation – The Company has prepared the accompanying condensed consolidated financial statements pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to these rules and regulations. These condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and footnotes related thereto for the year ended December 31, 2020, included in the Company’s Annual Report on Form 10-K filed with the SEC on February 25, 2021 (the “Annual Report”). Except as noted below, there have been no material changes to the Company’s significant accounting policies described in Note 2 to the consolidated financial statements included in the Annual Report. In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the Company’s financial position and the results of its operations and cash flows. The results of operations for such interim periods are not necessarily indicative of the results to be expected for the full year.
VAXART, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
Basis of Consolidation – The condensed consolidated financial statements include the financial statements of Vaxart, Inc. and its subsidiaries. All significant transactions and balances between Vaxart, Inc. and its subsidiaries have been eliminated in consolidation.
Use of Estimates – The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities in the financial statements and accompanying notes. Actual results and outcomes could differ from these estimates and assumptions.
Investments – Excess cash balances may be invested in marketable debt securities. All investments that are readily convertible to known amounts of cash with stated maturities greater than three months when purchased are classified as investments.
The Company determines the appropriate classification of its investments in marketable securities at the time of purchase and reevaluates such designation at each balance sheet date. Marketable debt securities are classified and accounted for as available-for-sale. After consideration of the Company’s objectives to preserve capital, as well as its liquidity requirements, it may sell these debt securities prior to their stated maturities. These securities are carried at fair value and unrealized gains and losses, net of taxes, are reported as a component of stockholders’ equity, except for unrealized losses determined to be other-than-temporary, which are recorded within other income and (expenses). Any realized gains or losses on the sale of marketable debt securities are determined on a specific identification method, and such gains and losses are recorded as a component of other income and (expenses). Available-for-sale investments are classified as either current or non-current assets based on each instrument’s underlying effective maturity date and whether the Company has the intent and ability to hold the investment for a period of greater than 12 months. Marketable securities with remaining maturities of 12 months or less are classified as current and are reported as short-term investments in the condensed consolidated balance sheets. Marketable securities with remaining maturities of more than 12 months for which the Company has the intent and ability to hold the investment for more than 12 months are classified as non-current and are included in long-term investments in the condensed consolidated balance sheets.
Securities are evaluated for impairment at the end of each reporting period. Impairment is evaluated considering numerous factors, including whether a decline in fair value below the amortized cost basis is due to credit-related factors or non-credit-related factors, the financial condition and near-term prospects of the issuer, and intent and ability to hold the investment to allow for an anticipated recovery in fair value. A credit-related impairment is recognized as an allowance on the balance sheet with a corresponding adjustment to earnings. Any impairment that is not credit-related is recognized in other comprehensive loss, net of applicable taxes.
Concentration of Credit Risk – Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents, available-for-sale investments and accounts receivable. The Company places its cash, cash equivalents and available-for-sale investments at financial institutions that management believes are of high credit quality. The Company is exposed to credit risk in the event of default by the financial institutions holding the cash and cash equivalents to the extent such amounts are in excess of the federally insured limits. The Company has not experienced any losses on its deposits since inception.
The primary focus of the Company’s investment strategy is to preserve capital and meet liquidity requirements. The Company’s investment policy addresses the level of credit exposure by limiting the concentration in any one corporate issuer or sector and establishing a minimum allowable credit rating. The Company generally requires no collateral from its customers.
Recent Accounting Pronouncements
In August 2020, the FASB issued Accounting Standards Update (ASU) 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in an Entity’s Own Equity (Subtopic 815-40). In addition to simplifying the accounting for certain debt and equity instruments, none of which the Company presently has outstanding, this standard update provides guidance on how certain instruments should be treated in the computation of earnings per share. The Company adopted the new guidance effective January 1, 2021, using the modified retrospective method. Its adoption has an immaterial impact on the number of shares used in the computation of year-to-date basic and diluted earnings per share.
The Company has reviewed all other significant newly-issued accounting pronouncements that are not yet effective and concluded that they are either not applicable to its operations or their adoption is not expected to have a material impact on its financial position or results of operations.
VAXART, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
NOTE 3. Fair Value of Financial Instruments
Fair value accounting is applied for all financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Financial instruments include cash and cash equivalents, marketable securities, accounts receivable, accounts payable and accrued liabilities that approximate fair value due to their relatively short maturities.
Assets and liabilities recorded at fair value on a recurring basis in the balance sheets are categorized based upon the level of judgment associated with inputs used to measure their fair values. The accounting guidance for fair value provides a framework for measuring fair value and requires certain disclosures about how fair value is determined. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance also establishes a three-level valuation hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based upon whether such inputs are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions made by the reporting entity.
The three-level hierarchy for the inputs to valuation techniques is briefly summarized as follows:
Level 1 – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;
Level 2 – Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and
Level 3 – Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.
The following table sets forth the fair value of the Company’s financial assets that are measured on a recurring basis as of March 31, 2021 (in thousands):
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Money market funds
|
|
$
|
83,124
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
83,124
|
|
U.S. Treasury securities
|
|
|
—
|
|
|
|
4,997
|
|
|
|
—
|
|
|
|
4,997
|
|
Commercial paper
|
|
|
—
|
|
|
|
8,388
|
|
|
|
—
|
|
|
|
8,388
|
|
Corporate debt securities
|
|
|
—
|
|
|
|
6,554
|
|
|
|
—
|
|
|
|
6,554
|
|
Total
|
|
$
|
83,124
|
|
|
$
|
19,939
|
|
|
$
|
—
|
|
|
$
|
103,063
|
|
As of December 31, 2020, the Company held money market funds of $60,005,000, classified as Level 1 and included in cash and cash equivalents in the condensed consolidated balance sheet. The Company held no recurring financial liabilities as of March 31, 2021 or December 31, 2020, or in the three months ended March 31, 2021 or 2020.
NOTE 4. Balance Sheet Components
|
(a)
|
Cash, Cash Equivalents and Investments
|
Cash, cash equivalents and investments consisted of the following (in thousands):
|
|
March 31, 2021
|
|
|
|
Amortized
|
|
|
Gross Unrealized
|
|
|
Estimated
|
|
|
Cash and Cash
|
|
|
Short-Term
|
|
|
Long-Term
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Equivalents
|
|
|
Investments
|
|
|
Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at banks
|
|
$
|
74,187
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
74,187
|
|
|
$
|
74,187
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Money market funds
|
|
|
83,124
|
|
|
|
—
|
|
|
|
—
|
|
|
|
83,124
|
|
|
|
83,124
|
|
|
|
—
|
|
|
|
—
|
|
U.S. Treasury securities
|
|
|
4,998
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
4,997
|
|
|
|
—
|
|
|
|
4,997
|
|
|
|
—
|
|
Commercial paper
|
|
|
8,388
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,388
|
|
|
|
—
|
|
|
|
8,388
|
|
|
|
—
|
|
Corporate debt securities
|
|
|
6,558
|
|
|
|
—
|
|
|
|
(4
|
)
|
|
|
6,554
|
|
|
|
|
|
|
|
|
|
|
|
6,554
|
|
Total
|
|
$
|
177,255
|
|
|
$
|
—
|
|
|
$
|
(5
|
)
|
|
$
|
177,250
|
|
|
$
|
157,311
|
|
|
$
|
13,385
|
|
|
$
|
6,554
|
|
As of December 31, 2020, the Company held cash at banks of $66,865,000, money market funds of $60,005,000 and no investments in marketable securities.
VAXART, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
Accounts receivable comprises the following (in thousands):
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
|
|
|
|
Royalties receivable
|
|
$
|
468
|
|
|
$
|
334
|
|
Customer service contracts - billed
|
|
|
232
|
|
|
|
—
|
|
Accounts receivable
|
|
$
|
700
|
|
|
$
|
334
|
|
The Company has provided no allowance for uncollectible accounts as of March 31, 2021 and December 31, 2020.
|
(c)
|
Property and Equipment, Net
|
Property and equipment, net consists of the following (in thousands):
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
|
|
|
|
Laboratory equipment
|
|
$
|
2,072
|
|
|
$
|
1,759
|
|
Office and computer equipment
|
|
|
302
|
|
|
|
294
|
|
Construction in progress
|
|
|
519
|
|
|
|
—
|
|
Total property and equipment
|
|
|
2,893
|
|
|
|
2,053
|
|
Less: accumulated depreciation
|
|
|
(648
|
)
|
|
|
(573
|
)
|
Property and equipment, net
|
|
$
|
2,245
|
|
|
$
|
1,480
|
|
Depreciation expense was $75,000 and $19,000 for the three months ended March 31, 2021 and 2020, respectively. There were no impairments of the Company’s property and equipment recorded in the three months ended March 31, 2021 or 2020.
|
(d)
|
Right-of-Use Assets, Net
|
Right-of-use assets, net consists of the following (in thousands):
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
|
|
|
|
Facilities
|
|
$
|
6,348
|
|
|
$
|
6,836
|
|
Office equipment
|
|
|
2
|
|
|
|
2
|
|
Right-of-use assets, net
|
|
$
|
6,350
|
|
|
$
|
6,838
|
|
|
(e)
|
Intangible Assets, Net
|
Intangible assets comprise developed technology and intellectual property. Intangible assets are carried at cost less accumulated amortization. Amortization is computed using the straight-line method over useful lives ranging from 1.3 to 11.75 years for developed technology and 20 years for intellectual property. As of March 31, 2021, developed technology and intellectual property had remaining lives of 8.6 and 6.75 years, respectively. Intangible assets consist of the following (in thousands):
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
|
|
|
|
Purchased technology
|
|
$
|
20,300
|
|
|
$
|
20,300
|
|
Intellectual property
|
|
|
80
|
|
|
|
80
|
|
Total cost
|
|
|
20,380
|
|
|
|
20,380
|
|
Less: accumulated amortization
|
|
|
(5,452
|
)
|
|
|
(5,019
|
)
|
Intangible assets, net
|
|
$
|
14,928
|
|
|
$
|
15,361
|
|
Total amortization expense for the three months ended March 31, 2021 and 2020, was $433,000 and $433,000, respectively.
VAXART, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
As of March 31, 2021, the estimated future amortization expense by year is as follows (in thousands):
Year Ending December 31,
|
|
Amount
|
|
2021 (nine months remaining)
|
|
$
|
1,299
|
|
2022
|
|
|
1,731
|
|
2023
|
|
|
1,732
|
|
2024
|
|
|
1,732
|
|
2025
|
|
|
1,731
|
|
Thereafter
|
|
|
6,703
|
|
Total
|
|
$
|
14,928
|
|
|
(f)
|
Other Accrued Liabilities
|
Other accrued liabilities consist of the following (in thousands):
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
Accrued compensation
|
|
$
|
1,044
|
|
|
$
|
1,618
|
|
Accrued clinical and manufacturing expenses
|
|
|
889
|
|
|
|
1,772
|
|
Accrued professional and consulting services
|
|
|
906
|
|
|
|
777
|
|
Other liabilities, current portion
|
|
|
337
|
|
|
|
632
|
|
Total
|
|
$
|
3,176
|
|
|
$
|
4,799
|
|
NOTE 5. Revenue
Service Contracts with Customers
Contract Balances. Accounts receivable related to service contracts with customers as of March 31, 2021 and December 31, 2020, was $232,000 and nil, respectively. Contract assets, representing unbilled receivables where revenue has been recognized in advance of customer billings, as of March 31, 2021 and December 31, 2020, was nil and $219,000, respectively, which is included in prepaid expenses and other current assets.
Remaining Performance Obligations. Remaining Performance Obligations (“RPO”) comprise deferred revenue plus unbilled contract revenue. As of March 31, 2021 and December 31, 2020, there was no deferred revenue and the aggregate amount of RPO was nil and $13,000, respectively, all of which was unbilled contract revenue which is not recorded on the balance sheet. Unbilled contract revenue represents non-cancelable contracts under which the Company has an obligation to perform, for which revenue has not yet been recognized in the financial statements and the fixed amounts billable have not yet been invoiced.
Royalty Agreements
Aviragen entered into a royalty-generating research and license agreement with GlaxoSmithKline, plc (“GSK”) in 1990 for the development and commercialization of zanamivir, a neuraminidase inhibitor marketed by GSK as Relenza, to treat influenza. All of the Company’s Relenza patents have expired, with the last remaining patent expiring in July 2019 in Japan, at which time royalty revenue ceased, although until April 30, 2020, it remained subject to adjustments for sales returns and exchange rate differences. There was no royalty revenue related to Relenza recognized in the three months ended March 31, 2021 or 2020.
VAXART, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
The Company also generates royalty revenue from the sale of Inavir in Japan, pursuant to a collaboration and license agreement that Aviragen entered into with Daiichi Sankyo Company, Limited (“Daiichi Sankyo”) in 2009. In September 2010, laninamivir octanoate was approved for sale by the Japanese Ministry of Health and Welfare for the treatment of influenza in adults and children, which Daiichi Sankyo markets as Inavir. Under the agreement, the Company currently receives a 4% royalty on net sales of Inavir in Japan. The last patent related to Inavir is set to expire in December 2029, at which time royalty revenue will cease. The royalty revenue related to Inavir recognized in the three months ended March 31, 2021 and 2020, was nil and $2,769,000, respectively, representing 4% of net sales in Japan. In addition, the Company recognized non-cash royalty revenue related to the sale of future royalties (see Note 6) of $493,000 and $34,000 in the three months ended March 31, 2021 and 2020, respectively. Both the royalty revenue and the non-cash royalty revenue related to sale of future royalties have been subjected to a 5% withholding tax in Japan, for which $25,000 and $140,000 was included in income tax expense in the three months ended March 31, 2021 and 2020, respectively.
The Company’s royalty revenue is seasonal, in line with the flu season, so the majority of the Company’s royalty revenue is earned in the first and fourth fiscal quarters.
NOTE 6. Liabilities Related to Sale of Future Royalties
In April 2016, Aviragen entered into a Royalty Interest Acquisition Agreement (the “RIAA”) with HealthCare Royalty Partners III, L.P. (“HCRP”). Under the RIAA, HCRP made a $20.0 million cash payment to Aviragen in consideration for acquiring certain royalty rights (“Royalty Rights”) related to the approved product Inavir in the Japanese market. The Royalty Rights were obtained pursuant to the collaboration and license agreements (the “License Agreement”) and a commercialization agreement that the Company entered into with Daiichi Sankyo. Per the terms of the RIAA, HCRP is entitled to the first $3.0 million plus 15% of the next $1.0 million in royalties earned in each year commencing on April 1, with any excess revenue being retained by the Company.
Under the relevant accounting guidance, due to a limit on the amount of royalties that HCRP can earn under the RIAA, this transaction is accounted for as a liability that is being amortized using the interest method over the life of the arrangement. The Company has no obligation to pay any amounts to HCRP other than to pass through to HCRP its share of royalties as they are received from Daiichi Sankyo. In order to record the amortization of the liability, the Company is required to estimate the total amount of future royalty payments to be received under the License Agreement and the payments that will be passed through to HCRP over the life of this agreement. Consequently, the Company imputes interest on the unamortized portion of the liability and records non-cash interest expense using an estimated effective interest rate. The royalties earned in each period that will be passed through to HCRP are recorded as non-cash royalty revenue related to sale of future royalties, with any excess not subject to pass-through being recorded as royalty revenue. When the pass-through royalties are paid to HCRP in the following quarter, the imputed liability related to sale of future royalties is commensurately reduced. The Company periodically assesses the expected royalty payments, and to the extent such payments are greater or less than the initial estimate, the Company adjusts the amortization of the liability and interest rate. As a result of this accounting, even though the Company does not retain HCRP’s share of the royalties, it will continue to record non-cash revenue related to those royalties until the amount of the associated liability, including the related interest, is fully amortized.
The following table shows the activity within the liability account during the three months ended March 31, 2021 (in thousands):
Total liability related to sale of future royalties, start of period
|
|
$
|
14,929
|
|
Non-cash royalty revenue paid to HCRP
|
|
|
(334
|
)
|
Non-cash interest expense recognized
|
|
|
466
|
|
Total liability related to sale of future royalties, end of period
|
|
|
15,061
|
|
Current portion
|
|
|
(1,822
|
)
|
Long-term portion
|
|
$
|
13,239
|
|
VAXART, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
NOTE 7. Leases
The Company has the right of use for office and manufacturing facilities under five operating lease agreements and for equipment under one operating lease agreement with initial terms exceeding one year, and for a manufacturing facility under an operating lease agreement with an initial term of one year or less.
The Company obtained the right of use of real estate located in South San Francisco, California, in November 2020 under a lease that terminates on September 30, 2025, with no extension option. The Company also obtained the right of use of real estate located in South San Francisco, California, in June 2015 that was scheduled to terminate on April 30, 2020, with a five-year extension option that the Company exercised in July 2019, extending the lease until April 30, 2025. Further, the Company obtained, via the Merger in February 2018, the right of use of facilities located in Alpharetta, Georgia, that terminated on February 28, 2021, with no extension option. These facilities were subleased for the remainder of the lease term effective November 30, 2018. In addition, the Company has the right of use of two facilities located in South San Francisco, California, under leases that terminate on July 31, 2021, with no extension options, and the right of use of equipment under a lease that terminates in September 2021. Further, the Company has identified an embedded lease for the rental of facilities in Burlingame, California, within a Statement of Work for the manufacture of bulk vaccine product that is expected to be completed early in 2022, and a short-term embedded lease for the rental of facilities in Lodi, California.
As of March 31, 2021, the weighted average discount rate for operating leases with initial terms of more than one year was 9.92% and the weighted average remaining term of these leases was 3.96 years. Discount rates were determined using the Company’s marginal rate of borrowing at the time each lease was executed or extended.
The following table summarizes the Company’s undiscounted cash payment obligations for its operating lease liabilities with initial terms of more than twelve months as of March 31, 2021 (in thousands):
Year Ending December 31,
|
|
|
|
|
2021 (nine months remaining)
|
|
$
|
1,887
|
|
2022
|
|
|
1,801
|
|
2023
|
|
|
1,585
|
|
2024
|
|
|
1,641
|
|
2025
|
|
|
1,112
|
|
Undiscounted total
|
|
|
8,026
|
|
Less: imputed interest
|
|
|
(1,392
|
)
|
Present value of future minimum payments
|
|
|
6,634
|
|
Current portion of operating lease liability
|
|
|
(2,006
|
)
|
Operating lease liability, net of current portion
|
|
$
|
4,628
|
|
The Company presently has no finance leases and no future obligations under operating leases for equipment with initial terms of one year or less.
Certain operating lease agreements for facilities include non-lease costs, such as common area maintenance, which are recorded as variable lease costs. Operating lease expenses for the three months ended March 31, 2021 and 2020, are summarized as follows (in thousands):
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Lease cost
|
|
|
|
Operating lease cost
|
|
$
|
662
|
|
|
$
|
189
|
|
Short-term lease cost
|
|
|
60
|
|
|
|
3
|
|
Variable lease cost
|
|
|
293
|
|
|
|
11
|
|
Sublease income
|
|
|
(36
|
)
|
|
|
(54
|
)
|
Total lease cost
|
|
$
|
979
|
|
|
$
|
149
|
|
Net cash outflows associated with operating leases totaled $934,000 and $237,000 in the three months ended March 31, 2021 and 2020, respectively.
VAXART, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
NOTE 8. Commitments and Contingencies
As of March 31, 2021, the Company had approximately $26.8 million of non-cancelable purchase commitments, principally for contract manufacturing and clinical services which are expected to be paid within the next eighteen months. In addition, the Company has operating lease commitments as detailed in Note 7.
In the ordinary course of business, the Company enters into agreements that may include indemnification provisions. Pursuant to such agreements, the Company may indemnify, hold harmless and defend indemnified parties for losses suffered or incurred by the indemnified party. Some of the provisions will limit losses to those arising from third-party actions. In some cases, the indemnification will continue after the termination of the agreement. The maximum potential amount of future payments the Company could be required to make under these provisions is not determinable. The Company has also entered into indemnification agreements with its directors and officers that require the Company to indemnify its directors and officers against liabilities that may arise by reason of their status or service as directors or officers to the fullest extent permitted by Delaware corporate law. The Company currently has directors’ and officers’ insurance.
From time to time the Company may be involved in legal proceedings arising in connection with its business. Based on information currently available, the Company believes that the amount, or range, of reasonably possible losses in connection with any pending actions against it in excess of established reserves, in the aggregate, is not material to its consolidated financial condition or cash flows. However, any current or future dispute resolution or legal proceeding, regardless of the merits of any such proceeding, could result in substantial costs and a diversion of management’s attention and resources that are needed to run the Company successfully, and could have a material adverse impact on its business, financial condition and results of operations.
On August 4, 2020, a purported shareholder derivative complaint was filed in the Superior Court of California, San Mateo County, entitled Godfrey v. Latour, et al. An amended complaint was filed on September 4, 2020, and the case was re-named Ennis v. Latour, et al. A second amended complaint was filed on November 25, 2020. The second amended complaint names certain of Vaxart’s officers and directors as defendants, asserting claims against them for breach of fiduciary duty, unjust enrichment, and waste and seeking, among other things, an award of unspecified damages, certain equitable relief, and attorneys’ fees and costs. The complaint also asserts claims for breach of fiduciary duty, unjust enrichment, and aiding and abetting breach of fiduciary duty against Armistice Capital, LLC (“Armistice”). The claims challenge certain stock options granted to certain of the Company’s officers and directors between March 24, 2020 and June 15, 2020 and certain amendments to two warrants held by Armistice, as disclosed on June 8, 2020. The second amended complaint purports to bring the lawsuit derivatively on behalf of and for the benefit of the Company and names the Company as a “nominal defendant” against which no damages are sought. On December 30, 2020, all defendants in the action filed a demurrer with the court addressing the second amended complaint, seeking to have the entire case dismissed. On March 15, 2021, the court sustained the demurrer, dismissing the complaint in its entirety, without prejudice to file a newly-amended complaint.
On September 8, 2020, a purported shareholder derivative complaint was filed in the Chancery Court in the State of Delaware, entitled Galjour v. Floroiu, et al. On October 20, 2020, a purported shareholder derivative and class action complaint, entitled Jaquith v. Vaxart, Inc., was filed in the Court of Chancery of the State of Delaware. The complaints name as defendants certain of Vaxart’s current and former directors, asserting claims against them for breach of fiduciary duty, unjust enrichment, and waste and seeking, among other things, an award of unspecified damages, certain equitable relief, and attorneys’ fees and costs. The complaints also assert claims against Armistice. The complaints challenge certain stock options granted to certain of the Company’s officers and directors between March 24, 2020 and June 15, 2020 and certain amendments made to two warrants held by Armistice, as disclosed on June 8, 2020. Both complaints purport to bring suit derivatively on behalf of and for the benefit of the Company, and the Jaquith complaint also purports to assert a direct claim for breach of fiduciary duty on behalf of a class of Vaxart stockholders. Both complaints name the Company as a “nominal defendant” against which no claims are asserted and no damages are sought. On October 9, 2020, all defendants moved to dismiss the Galjour complaint and to stay the action pending disposition of the Ennis action in California. On November 12, 2020, the Galjour and Jaquith actions were consolidated under the caption In re Vaxart, Inc. Stockholder Litigation and the complaint filed in the Jaquith v. Latour action was deemed the operative pleading. On January 4, 2021, all defendants filed motions to dismiss, seeking to have the case dismissed. Those motions remain pending.
On September 17, 2020, a purported derivative complaint was filed in the U.S. District Court for the Northern District of California, entitled Stachowski v. Boyd, et al. The complaint names as defendants certain of Vaxart’s current directors, asserting claims against them for breach of fiduciary duty and unjust enrichment and seeking, among other things, an award of unspecified damages, certain equitable relief, and attorneys’ fees and costs. The complaint also alleges a violation of §14(a) of the Securities Exchange Act of 1934 for allegedly false statements or omissions in the Company’s April 24, 2020, proxy statement regarding the Company’s options practices. The complaint also asserts a claim for breach of fiduciary duty against Armistice. The claims are based on allegations that certain stock options granted to certain of the Company’s officers and directors between March 24, 2020 and June 15, 2020, were allegedly improper and that certain warrants held by Armistice were amended on June 8, 2020, allegedly for no consideration. The complaint purports to bring the lawsuit derivatively on behalf of and for the benefit of the Company and names the Company as a “nominal defendant” against which no claims are asserted and no damages are sought. On November 13, 2020, plaintiffs voluntarily withdrew their claims and the case was dismissed.
VAXART, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
Two substantially similar securities class actions were filed in the U.S. District Court for the Northern District of California, the first, titled Himmelberg v. Vaxart, Inc. et al. was filed on August 24, 2020 (the “Himmelberg Action”), and the second action, titled Hovhannisyan v. Vaxart, Inc. et al. was filed on September 1, 2020 (the “Hovhannisyan Action,” and together, the “Putative Class Actions”). On September 17, 2020, the court issued an order that the Putative Class Actions were related and would proceed as one consolidated action. On December 9, 2020, the court appointed the lead plaintiffs and lead plaintiffs’ counsel and on January 29, 2021, the lead plaintiffs filed their consolidated amended complaint. The consolidated amended complaint names as defendants certain of Vaxart’s current and former executive officers and directors, and Armistice. It claims two violations of federal civil securities laws, violation of SEC Rule 10b-5, as against all defendants; violation of Section 20(a) of the Exchange Act, as against all defendants except for Vaxart; and violation of Section 20A of the Exchange Act against Armistice. The consolidated amended complaint alleges that the defendants violated securities laws by misstating and omitting information regarding the Company’s development of a norovirus vaccine, the vaccine manufacturing capabilities of a business counterparty, as well as the Company’s Operation Warp Speed (“OWS”) involvement to deceive the investing public and inflate Vaxart’s stock price. The consolidated amended complaint seeks to be certified as a class action for similarly situated shareholders and seek, among other things, an uncertain amount of damages and attorneys’ fees and costs. Defendants have filed motions to dismiss the consolidated amended complaint, which is pending.
On October 23, 2020, a purported shareholder derivative complaint was filed in the U.S. District Court for the Southern District of New York, entitled Roth v. Armistice Capital LLC, et al. The complaint names Armistice and an Armistice-affiliated Company director as defendants, asserting a violation of Exchange Act Section 16(b) and seeking the disgorgement of short-swing profits obtained in violation thereof. The complaint purports to bring the lawsuit derivatively on behalf of and for the benefit of the Company and names the Company as a “nominal defendant” against which no damages are sought.
On January 8, 2021, a purported shareholder, Phillip Chan, commenced a pro se lawsuit in the U.S. District Court for the Northern District of California titled Chan v. Vaxart, Inc. et al. (the “Opt-Out Action”). This complaint is nearly identical to an earlier version of the complaint filed in the Putative Class Actions, naming the same defendants, certain of Vaxart’s current and former executive officers and directors and Armistice, and asserting identical legal claims relating to the same factual allegations. The complaint asserts two violations of federal civil securities laws, violation of Section 10(b) of the Exchange Act and SEC Rule 10b-5, as against all defendants, and violation of Section 20(a) of the Exchange Act, as against the individual defendants. The Opt-Out Action alleges that the defendants violated securities laws by misstating and omitting information regarding the Company’s development of a Covid-19 vaccine as well as its OWS involvement to deceive the investing public and inflate Vaxart’s stock price. The Opt-Out Action has been stayed pending resolution of the Putative Class Actions.
On February 4, 2021, a purported shareholder, Stephen Barker, commenced a lawsuit in the Delaware Court of Chancery titled Barker v. Vaxart, Inc. et al. The complaint names as defendants the Company and its current board of directors. The complaint asserts a single claim for declaratory relief seeking a declaration that one of the Company’s bylaws, which requires a supermajority vote to remove a Company director from office, is in violation of Delaware General Corporate Law Section 141(k). It does not seek damages.
On March 5, 2021, a purported shareholder, Kathleen Sanetel, served a demand letter on the Company’s board of directors demanding that it investigate and commence appropriate legal action against certain members of the board of directors and/or executive officers, and Armistice to remedy purportedly wrongful conduct beginning in April 2020. The specific allegations and alleged wrongful conduct set forth in the demand letter are, in all material respects, substantially similar to the allegations and claims made in the consolidated amended complaint in the Putative Class Actions. After receipt of the demand letter, the Board appointed a committee of the Board (the “Demand Committee”) and delegated to the Demand Committee the authority to investigate the matters referenced in the demand letter and determine action(s), if any, to be taken by the Company in response to the demand.
The Company’s legal costs incurred in its defense against these claims are expensed as incurred.
NOTE 9. Stockholders’ Equity
The Company is authorized to issue 5,000,000 shares of preferred stock, $0.0001 par value per share. The Company’s board of directors may, without further action by the stockholders, fix the rights, preferences, privileges and restrictions of up to an aggregate of 5,000,000 shares of preferred stock in one or more series and authorize their issuance. These rights, preferences and privileges could include dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and the number of shares constituting any series or the designation of such series, any or all of which may be greater than the rights of the Company’s common stock. The issuance of preferred stock could adversely affect the voting power of holders of common stock and the likelihood that such holders will receive dividend payments and payments upon liquidation. In addition, the issuance of preferred stock could have the effect of delaying, deterring or preventing a change of control or other corporate action. No shares of preferred stock are currently outstanding, and the Company has no present plan to issue any shares of preferred stock.
VAXART, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
Except as otherwise required by law or as otherwise provided in any certificate of designation for any series of preferred stock, the holders of common stock possess all voting power for the election of the Company’s directors and all other matters requiring stockholder action. Holders of common stock are entitled to one vote per share on matters to be voted on by stockholders. Holders of common stock are entitled to receive such dividends, if any, as may be declared from time to time by the Company’s board of directors in its discretion out of funds legally available therefor. In no event will any stock dividends or stock splits or combinations of stock be declared or made on common stock unless the shares of common stock at the time outstanding are treated equally and identically. As of March 31, 2021, no dividends had been declared by the board of directors.
In the event of the Company’s voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up, the holders of the common stock will be entitled to receive an equal amount per share of all of the Company’s assets of whatever kind available for distribution to stockholders, after the rights of the holders of the preferred stock have been satisfied. There are no sinking fund provisions applicable to the common stock.
The Company had shares of common stock reserved for issuance as follows:
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
Options issued and outstanding
|
|
|
7,764,164
|
|
|
|
6,813,033
|
|
Available for future grants of equity awards
|
|
|
67,863
|
|
|
|
1,230,863
|
|
Common stock warrants
|
|
|
414,252
|
|
|
|
1,244,974
|
|
Total
|
|
|
8,246,279
|
|
|
|
9,288,870
|
|
The following warrants were outstanding as of March 31, 2021, all of which contain standard anti-dilution protections in the event of subsequent rights offerings, stock splits, stock dividends or other extraordinary dividends, or other similar changes in the Company’s common stock or capital structure, and none of which have any participating rights for any losses:
Securities into which warrants are convertible
|
|
Warrants outstanding
|
|
|
Exercise Price
|
|
Expiration Date
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
5,000
|
|
|
$
|
0.30
|
|
September 2024
|
Common Stock
|
|
|
225,966
|
|
|
$
|
1.10
|
|
April 2024
|
Common Stock
|
|
|
26,515
|
|
|
$
|
1.375
|
|
April 2024
|
Common Stock
|
|
|
29,150
|
|
|
$
|
2.50
|
|
March 2025
|
Common Stock
|
|
|
100,532
|
|
|
$
|
3.125
|
|
February 2025
|
Common Stock
|
|
|
16,175
|
|
|
$
|
3.125
|
|
March 2024
|
Common Stock
|
|
|
10,914
|
|
|
$
|
22.99
|
|
December 2026
|
Total
|
|
|
414,252
|
|
|
|
|
|
|
In the event of a Fundamental Transaction (a transfer of ownership of the Company as defined in the warrant) within the Company’s control, the holders of the unexercised common stock warrants exercisable for $0.30, $1.10 and $2.50 and those exercisable for $3.125 expiring in February 2025 shall be entitled to receive cash consideration equal to a Black-Scholes valuation, as defined in the warrant. If such Fundamental Transaction is not within the Company’s control, the warrantholders would only be entitled to receive the same form of consideration (and in the same proportion) as the holders of the Company’s common stock, hence these warrants are classified as a component of permanent equity.
VAXART, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
NOTE 10. Equity Incentive Plans
On April 23, 2019, the Company’s stockholders approved the adoption of the 2019 Equity Incentive Plan (the “2019 Plan”), under which the Company is authorized to issue incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards and restricted stock units, other stock awards and performance awards that may be settled in cash, stock, or other property. The 2019 Plan is designed to secure and retain the services of employees, directors and consultants, provide incentives for the Company’s employees, directors and consultants to exert maximum efforts for the success of the Company and its affiliates, and provide a means by which employees, directors and consultants may be given an opportunity to benefit from increases in the value of the Company’s common stock. Following adoption of the 2019 Plan, all previous plans were frozen, and on forfeiture, cancellation and expiration, awards under those plans are not assumed by the 2019 Plan.
The aggregate number of shares of common stock authorized for issuance under the 2019 Plan was initially 1,600,000 shares, which was increased through an amendment to the 2019 Plan adopted by the Company’s stockholders on June 8, 2020, to 8,000,000 (the “Plan Amendment”). Further amendments to the 2019 Plan to increase the share reserve would require stockholder approval. Awards that expire or are canceled generally become available for issuance again under the 2019 Plan. Awards have a maximum term of ten years from the grant date and may vest over varying periods, as specified by the Company’s board of directors for each grant.
A summary of stock option transactions in the three months ended March 31, 2021, is as follows:
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Shares
|
|
|
Number of
|
|
|
Average
|
|
|
|
Available
|
|
|
Options
|
|
|
Exercise
|
|
|
|
For Grant
|
|
|
Outstanding
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2021
|
|
|
1,230,863
|
|
|
|
6,813,033
|
|
|
$
|
2.70
|
|
Granted
|
|
|
(1,163,000
|
)
|
|
|
1,163,000
|
|
|
$
|
6.27
|
|
Exercised
|
|
|
—
|
|
|
|
(207,730
|
)
|
|
$
|
1.11
|
|
Canceled
|
|
|
—
|
|
|
|
(4,139
|
)
|
|
$
|
5.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2021
|
|
|
67,863
|
|
|
|
7,764,164
|
|
|
$
|
3.28
|
|
As of March 31, 2021, there were 7,764,164 options outstanding with a weighted average exercise price of $3.28, a weighted average remaining term of 8.91 years and an aggregate intrinsic value of $23.5 million. Of these options, 3,007,780 were vested, with a weighted average exercise price of $2.65, a weighted average remaining term of 8.48 years and an aggregate intrinsic value of $11.3 million. The Company received $231,000 for the 207,730 options exercised during the three months ended March 31, 2021, which had an intrinsic value of $1.1 million, and received $18,000 for the 23,606 options exercised during the three months ended March 31, 2020, which had an intrinsic value of $25,000.
VAXART, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
The weighted average grant date fair value of options awarded in the three months ended March 31, 2021, was $5.46. Their fair values were estimated using the following assumptions:
Risk-free interest rate
|
|
|
1.02% - 1.07%
|
|
Expected term
|
|
5.87 - 6.07 Years
|
|
Expected volatility
|
|
|
122% - 124%
|
|
Dividend yield
|
|
|
—
|
%
|
No options were awarded in the three months ended March 31, 2020. The Company measures the fair value of all stock-based awards on the grant date and records the fair value of these awards, net of estimated forfeitures, to compensation expense over the service period. Total stock-based compensation recognized for options was as follows:
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
579
|
|
|
$
|
22
|
|
General and administrative
|
|
|
672
|
|
|
|
74
|
|
Total stock-based compensation
|
|
$
|
1,251
|
|
|
$
|
96
|
|
As of March 31, 2021, the unrecognized stock-based compensation cost related to outstanding unvested stock options was $13.3 million, which the Company expects to recognize over an estimated weighted average period of 2.55 years.
VAXART, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
NOTE 11. Net Loss Per Share
The following table presents the calculation of basic and diluted net loss per share (in thousands, except share and per share amounts):
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(16,007
|
)
|
|
$
|
(1,297
|
)
|
|
|
|
|
|
|
|
|
|
Shares used to compute net loss per share – basic and diluted
|
|
|
115,422,628
|
|
|
|
60,677,145
|
|
|
|
|
|
|
|
|
|
|
Net loss per share – basic and diluted
|
|
$
|
(0.14
|
)
|
|
$
|
(0.02
|
)
|
No adjustment has been made to the net loss in the three months ended March 31, 2021 or 2020, as the effect would be anti-dilutive due to the net loss.
The following potentially dilutive securities were excluded from the computation of diluted weighted average shares outstanding because they would have been antidilutive:
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
Options to purchase common stock
|
|
|
6,834,510
|
|
|
|
1,773,779
|
|
|
|
|
|
|
|
|
|
|
Performance-based restricted stock units
|
|
|
—
|
|
|
|
36,132
|
|
|
|
|
|
|
|
|
|
|
Warrants to purchase common stock
|
|
|
622,942
|
|
|
|
33,023,381
|
|
|
|
|
|
|
|
|
|
|
Total potentially dilutive securities excluded from denominator of the diluted earnings per share computation
|
|
|
7,457,452
|
|
|
|
34,833,292
|
|
NOTE 12. Subsequent Events
Since March 31, 2021, the Company has issued 4,304,541 shares of common stock under the Sales Agreement (see Note 1) for net proceeds totaling $36.3 million.