Item 1. Financial Statements
NOVAVAX, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share
and per share information)
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
103,857
|
|
|
$
|
119,471
|
|
Short-term investments available-for-sale
|
|
|
48,599
|
|
|
|
13,597
|
|
Restricted cash
|
|
|
203
|
|
|
|
1,417
|
|
Accounts receivable – billed
|
|
|
3,719
|
|
|
|
1,911
|
|
Account receivable – unbilled
|
|
|
4,839
|
|
|
|
4,988
|
|
Prepaid expenses
|
|
|
5,116
|
|
|
|
3,044
|
|
Other current assets
|
|
|
269
|
|
|
|
573
|
|
Total current assets
|
|
|
166,602
|
|
|
|
145,001
|
|
Investments available-for-sale
|
|
|
56,352
|
|
|
|
—
|
|
Property and equipment, net
|
|
|
15,124
|
|
|
|
14,251
|
|
Intangible assets, net
|
|
|
15,090
|
|
|
|
16,250
|
|
Goodwill
|
|
|
57,906
|
|
|
|
58,707
|
|
Restricted cash
|
|
|
758
|
|
|
|
757
|
|
Other non-current assets
|
|
|
159
|
|
|
|
159
|
|
Total assets
|
|
$
|
311,991
|
|
|
$
|
235,125
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
4,495
|
|
|
$
|
5,985
|
|
Accrued expenses and other current liabilities
|
|
|
10,998
|
|
|
|
10,411
|
|
Deferred revenue
|
|
|
25
|
|
|
|
271
|
|
Current portion of capital leases
|
|
|
97
|
|
|
|
108
|
|
Current portion of notes payable
|
|
|
822
|
|
|
|
877
|
|
Deferred rent
|
|
|
1,042
|
|
|
|
470
|
|
Total current liabilities
|
|
|
17,479
|
|
|
|
18,122
|
|
Deferred revenue
|
|
|
2,500
|
|
|
|
2,500
|
|
Non-current portion of capital leases
|
|
|
172
|
|
|
|
195
|
|
Non-current portion of notes payable
|
|
|
717
|
|
|
|
1,004
|
|
Deferred rent
|
|
|
7,885
|
|
|
|
8,502
|
|
Other non-current liabilities
|
|
|
1,507
|
|
|
|
1,568
|
|
Total liabilities
|
|
|
30,260
|
|
|
|
31,891
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
—
|
|
|
|
—
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value, 2,000,000 shares authorized; no shares issued and outstanding as of June 30, 2014 and December 31, 2013, respectively
|
|
|
—
|
|
|
|
—
|
|
Common stock, $0.01 par value, 300,000,000 shares authorized; 238,575,480 shares issued and 238,120,050 shares outstanding at June 30, 2014 and 209,110,744 shares issued and 208,655,314 shares outstanding at December 31, 2013
|
|
|
2,386
|
|
|
|
2,091
|
|
Additional paid-in capital
|
|
|
724,908
|
|
|
|
612,900
|
|
Accumulated deficit
|
|
|
(441,820
|
)
|
|
|
(410,146
|
)
|
Treasury
stock, 455,430 shares, cost basis at both June 30, 2014 and December 31, 2013
|
|
|
(2,450
|
)
|
|
|
(2,450
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
(1,293
|
)
|
|
|
839
|
|
Total stockholders’ equity
|
|
|
281,731
|
|
|
|
203,234
|
|
Total liabilities and stockholders’ equity
|
|
$
|
311,991
|
|
|
$
|
235,125
|
|
The accompanying notes are an integral part
of these financial statements.
NOVAVAX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share information)
(unaudited)
|
|
For
the Three Months
Ended June 30,
|
|
|
For
the Six Months
Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Government contracts
|
|
$
|
7,241
|
|
|
$
|
3,276
|
|
|
$
|
12,713
|
|
|
$
|
6,717
|
|
Research and development collaborations
|
|
|
1,018
|
|
|
|
255
|
|
|
|
3,008
|
|
|
|
648
|
|
Total revenue
|
|
|
8,259
|
|
|
|
3,531
|
|
|
|
15,721
|
|
|
|
7,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of government contracts revenue
|
|
|
5,102
|
|
|
|
1,632
|
|
|
|
8,123
|
|
|
|
3,344
|
|
Research and development
|
|
|
15,202
|
|
|
|
10,785
|
|
|
|
29,720
|
|
|
|
20,041
|
|
General and administrative
|
|
|
5,806
|
|
|
|
4,012
|
|
|
|
10,114
|
|
|
|
6,882
|
|
Total costs and expenses
|
|
|
26,110
|
|
|
|
16,429
|
|
|
|
47,957
|
|
|
|
30,267
|
|
Loss from operations
|
|
|
(17,851
|
)
|
|
|
(12,898
|
)
|
|
|
(32,236
|
)
|
|
|
(22,902
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
20
|
|
|
|
48
|
|
|
|
32
|
|
|
|
95
|
|
Interest expense
|
|
|
(51
|
)
|
|
|
(45
|
)
|
|
|
(103
|
)
|
|
|
(68
|
)
|
Other income
|
|
|
18
|
|
|
|
―
|
|
|
|
18
|
|
|
|
―
|
|
Change in fair value of warrant liability
|
|
|
―
|
|
|
|
267
|
|
|
|
―
|
|
|
|
267
|
|
Realized gains on investments
|
|
|
―
|
|
|
|
―
|
|
|
|
615
|
|
|
|
―
|
|
Loss from operations before income tax
|
|
|
(17,864
|
)
|
|
|
(12,628
|
)
|
|
|
(31,674
|
)
|
|
|
(22,608
|
)
|
Income tax expense
|
|
|
―
|
|
|
|
5
|
|
|
|
―
|
|
|
|
22
|
|
Net loss
|
|
$
|
(17,864
|
)
|
|
$
|
(12,633
|
)
|
|
$
|
(31,674
|
)
|
|
$
|
(22,630
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(0.08
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.15
|
)
|
|
$
|
(0.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average
number of
common shares outstanding
|
|
|
217,178
|
|
|
|
152,312
|
|
|
|
213,075
|
|
|
|
150,391
|
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
LOSS
(in thousands)
(unaudited)
|
|
For
the Three Months
Ended June 30,
|
|
|
For
the Six Months
Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(17,864
|
)
|
|
$
|
(12,633
|
)
|
|
$
|
(31,674
|
)
|
|
$
|
(22,630
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses) on investments
available-for-sale
|
|
|
27
|
|
|
|
168
|
|
|
|
(1
|
)
|
|
|
207
|
|
Reclassification adjustment for gains included
in
net loss
|
|
|
―
|
|
|
|
―
|
|
|
|
(615
|
)
|
|
|
―
|
|
Foreign currency translation adjustment
|
|
|
(1,410
|
)
|
|
|
―
|
|
|
|
(1,543
|
)
|
|
|
―
|
|
Other comprehensive income (loss)
|
|
|
(1,383
|
)
|
|
|
168
|
|
|
|
(2,159
|
)
|
|
|
207
|
|
Comprehensive loss
|
|
$
|
(19,247
|
)
|
|
$
|
(12,465
|
)
|
|
$
|
(33,833
|
)
|
|
$
|
(22,423
|
)
|
The accompanying notes are an integral part
of these financial statements.
NOVAVAX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
|
For the Six Months
Ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
Operating Activities:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(31,674
|
)
|
|
$
|
(22,630
|
)
|
Reconciliation of net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Change in fair value of warrant liability
|
|
|
—
|
|
|
|
(267
|
)
|
Depreciation and amortization
|
|
|
1,956
|
|
|
|
961
|
|
Amortization of net premiums on investments
|
|
|
(80
|
)
|
|
|
232
|
|
Loss (gain) on disposal of property and equipment
|
|
|
4
|
|
|
|
(43
|
)
|
Deferred rent
|
|
|
(45
|
)
|
|
|
458
|
|
Non-cash stock-based compensation
|
|
|
2,892
|
|
|
|
1,121
|
|
Realized gains on investments
|
|
|
(615
|
)
|
|
|
—
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
1,214
|
|
|
|
986
|
|
Accounts receivable – billed
|
|
|
(1,828
|
)
|
|
|
104
|
|
Accounts receivable – unbilled
|
|
|
149
|
|
|
|
(245
|
)
|
Prepaid expenses and other assets
|
|
|
(1,823
|
)
|
|
|
702
|
|
Accounts payable and accrued expenses
|
|
|
(1,279
|
)
|
|
|
(40
|
)
|
Deferred revenue
|
|
|
(243
|
)
|
|
|
(258
|
)
|
Lease incentives received
|
|
|
—
|
|
|
|
703
|
|
Net cash used in operating activities
|
|
|
(31,372
|
)
|
|
|
(18,216
|
)
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(1,846
|
)
|
|
|
(3,157
|
)
|
Proceeds from disposal of property and equipment
|
|
|
12
|
|
|
|
81
|
|
Proceeds from maturities of investments
|
|
|
13,440
|
|
|
|
9,649
|
|
Purchases of investments
|
|
|
(104,686
|
)
|
|
|
(14,754
|
)
|
Net cash used in investing activities
|
|
|
(93,080
|
)
|
|
|
(8,181
|
)
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
Principal payments on capital leases
|
|
|
(32
|
)
|
|
|
(29
|
)
|
Principal payments on notes payable
|
|
|
(338
|
)
|
|
|
(136
|
)
|
Proceeds from notes payable
|
|
|
—
|
|
|
|
1,450
|
|
Changes in restricted cash
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Cash paid with the Novavax AB acquisition
|
|
|
(171
|
)
|
|
|
—
|
|
Net proceeds from sales of common stock, net of offering costs of $7.1 million and $0.3 million, respectively
|
|
|
107,900
|
|
|
|
10,018
|
|
Proceeds from the exercise of stock options and employee stock purchases
|
|
|
1,510
|
|
|
|
270
|
|
Net cash provided by financing activities
|
|
|
108,868
|
|
|
|
11,572
|
|
Effect of exchange rate on cash and cash equivalents
|
|
|
(30
|
)
|
|
|
―
|
|
Net decrease in cash and cash equivalents
|
|
|
(15,614
|
)
|
|
|
(14,825
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
119,471
|
|
|
|
17,399
|
|
Cash and cash equivalents at end of period
|
|
$
|
103,857
|
|
|
$
|
2,574
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash activities:
|
|
|
|
|
|
|
|
|
Property and equipment purchases included in accounts payable and accrued expenses
|
|
$
|
840
|
|
|
$
|
1,026
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash payments of interest
|
|
$
|
100
|
|
|
$
|
61
|
|
The accompanying notes are an integral part
of these financial statements.
NOVAVAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2014
(unaudited)
Note
1 – Organization
Novavax, Inc. (“Novavax,”
and together with its wholly owned subsidiary, “Novavax AB” (formerly known as Isconova AB), the “Company”)
is a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of recombinant nanoparticle
vaccines and adjuvants. The Company’s product pipeline targets a variety of infectious diseases with vaccine candidates currently
in clinical development for respiratory syncytial virus (“RSV”), seasonal influenza and pandemic influenza.
Note 2 – Operations
The Company’s
vaccine candidates currently under development, some of which may include an adjuvant, will require significant additional research
and development efforts that include extensive pre-clinical and clinical testing, and regulatory approval prior to commercial use.
As a clinical-stage
biopharmaceutical company, the Company has primarily funded its operations from proceeds through the sale of its common stock
in equity offerings and revenue under its contract with the Department of Health and Human Services, Biomedical Advanced Research
and Development Authority (“HHS BARDA”) and, to a lesser degree, revenue under its contract with Path Vaccine Solutions
(“PATH”). Management regularly reviews the Company’s cash and cash equivalents and investments against its operating
budget and forecast to monitor the sufficiency of the Company’s working capital, and anticipates continuing to draw upon
available sources of capital to meet its product development activities.
Note
3 – Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited
consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10
of Regulation S-X. The consolidated balance sheet as of June 30, 2014, the consolidated statements of operations and the consolidated
statements of comprehensive loss for the three and six months ended June 30, 2014 and 2013 and the consolidated statements of cash
flows for the six months ended June 30, 2014 and 2013 are unaudited, but include all adjustments (consisting of normal recurring
adjustments) that the Company considers necessary for a fair presentation of the financial position, operating results, comprehensive
loss and cash flows, respectively, for the periods presented. Although the Company believes that the disclosures in these consolidated
financial statements are adequate to make the information presented not misleading, certain information and footnote information
normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted as
permitted under the rules and regulations of the United States Securities and Exchange Commission (“SEC”).
The unaudited consolidated
financial statements include the accounts of Novavax, Inc. and its wholly owned subsidiary, Novavax AB. All intercompany accounts
and transactions have been eliminated in consolidation.
The accompanying unaudited
consolidated financial statements are presented in U.S. dollars. The translation of assets and liabilities to U.S. dollars is made
at the exchange rate in effect at the consolidated balance sheet date, while equity accounts are translated at historical rates.
The translation of statement of operations data is made at the average exchange rate in effect for the period. The translation
of operating cash flow data is made at the average exchange rate in effect for the period, and investing and financing cash flow
data is translated at the exchange rate in effect at the date of the underlying transaction. Translation gains and losses are recognized
as a component of other comprehensive income (loss) in the accompanying consolidated statements of comprehensive loss and accumulated
other comprehensive income (loss) in the accompanying consolidated balance sheets. The foreign currency translation adjustment
balance included in accumulated other comprehensive loss was $1.3 million at June 30, 2014.
The accompanying unaudited
consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the
Company’s Annual Report on Form 10-K for the year ended December 31, 2013. Results for this or any interim period are not
necessarily indicative of results for any future interim period or for the entire year. The Company operates in one business segment.
Use of Estimates
The preparation of
consolidated financial statements in conformity with U.S. GAAP 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 consolidated
financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ
materially from these estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly
liquid investments with maturities of three months or less from the date of purchase. Cash and cash equivalents consist of the
following at (in thousands):
|
|
June
30,
2014
|
|
|
December
31,
2013
|
|
Cash
|
|
$
|
2,789
|
|
|
$
|
4,251
|
|
Money market funds
|
|
|
73,069
|
|
|
|
100,049
|
|
Government-backed security
|
|
|
18,000
|
|
|
|
―
|
|
Corporate debt securities
|
|
|
9,999
|
|
|
|
15,171
|
|
Cash and cash equivalents
|
|
$
|
103,857
|
|
|
$
|
119,471
|
|
Cash equivalents are
recorded at cost plus accrued interest, which approximate fair value due to their short-term nature.
Fair Value Measurements
The Company applies
Accounting Standards Codification (“ASC”) Topic 820,
Fair Value Measurements and Disclosures
, for financial
and non-financial assets and liabilities.
ASC 820 discusses valuation
techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash
flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). The statement utilizes a fair
value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following
is a brief description of those three levels:
|
·
|
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets
or liabilities.
|
|
·
|
Level 2: Inputs other than quoted prices that are observable for the asset or liability, either
directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical
or similar assets or liabilities in markets that are not active.
|
|
·
|
Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.
|
Investments
At June 30, 2014, investments
consist of asset-backed securities, commercial paper and corporate notes. Classification of marketable securities between current
and non-current is dependent upon the maturity date at the balance sheet date.
Interest and dividend
income is recorded when earned and included in interest income. Premiums and discounts, if any, on 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 the sale of the Company’s securities.
The Company has classified
its investments as available-for-sale. 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. Investments are evaluated periodically to determine whether a decline in value is “other-than-temporary.” The
term “other-than-temporary” is not intended to indicate a permanent decline in value. Rather, it means that the prospects
for a near term recovery of value are not necessarily favorable, or that there is a lack of evidence to support fair values equal
to, or greater than, the carrying value of the security. Management reviews criteria, such as the magnitude and duration of the
decline, as well as the Company’s ability to hold the securities until market recovery, to predict whether the loss in value
is other-than-temporary. If a decline in value is determined to be other-than-temporary, the value of the security is reduced and
the impairment is recorded in the statements of operations.
Restricted Cash
The Company’s
restricted cash includes payments received under the PATH agreement (See Note 10) until such time as the Company has paid for the
work performed under the agreement. The Company has also established cash accounts that have been pledged to pay for expenses associated
with the remaining (approximately 0.5%) minority shares in Novavax AB, which were acquired by the Company in the second quarter
of 2014 through Swedish acquisition rules. In addition, the Company’s non-current restricted cash with respect to its manufacturing,
laboratory and office space in Gaithersburg, Maryland functions as collateral for letters of credit, which serve as security deposits
for the duration of the leases.
Revenue Recognition
The Company performs
research and development for U.S. Government agencies and other collaborators under cost reimbursable and fixed price contracts,
including license and clinical development agreements. The Company recognizes revenue under research contracts when a contract
has been executed, the contract price is fixed or determinable, delivery of services or products has occurred and collection of
the contract price is reasonably assured. Payments received in advance of work performed are recorded as deferred revenue and losses
on contracts, if any, are recognized in the period in which they become known.
Under cost reimbursable
contracts, the Company is reimbursed and recognizes revenue as allowable costs are incurred plus a portion of the fixed-fee earned.
The Company considers fixed-fees under cost reimbursable contracts to be earned in proportion to the allowable costs incurred in
performance of the work as compared to total estimated contract costs, with such costs incurred representing a reasonable measurement
of the proportional performance of the work completed. Under its HHS BARDA contract, certain activities must be pre-approved by
HHS BARDA in order for their costs to be deemed allowable direct costs. Direct costs incurred under cost reimbursable contracts
are recorded as cost of government contracts revenue. The Company’s government contracts, including its HHS BARDA contract,
provide the U.S. government (or agency) the ability to terminate the contract for convenience or to terminate for default if the
Company fails to meet its obligations as set forth in the statement of work. The Company believes that if the government were to
terminate one of its contracts for convenience, including the HHS BARDA contract, the costs incurred through the effective date
of such termination and any settlement costs resulting from such termination would be allowable costs. Payments to the Company
under cost reimbursable contracts with agencies of the U.S. Government, including its contract with HHS BARDA, are provisional
payments subject to adjustment upon annual audit by the U.S. government. An audit by the U.S government of fiscal years 2011 and
2012 was completed in the first quarter of 2014, the results of which had no impact on the Company’s 2011 and 2012 financial
statements previously filed with the SEC. Management believes that revenue for periods not yet audited has been recorded in amounts
that are expected to be realized upon final audit and settlement. When the final determination of the allowable costs for any year
has been made, revenue and billings may be adjusted accordingly.
The Company’s
collaborative research and development agreements may include upfront payments, payments for research and development services,
milestone payments and royalties. Agreements with multiple deliverables are evaluated to determine if the deliverables can be divided
into more than one unit of accounting. A deliverable can generally be considered a separate unit of accounting if both of the following
criteria are met: (1) the delivered item(s) has value to the customer on a stand-alone basis; and (2) if the arrangement includes
a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable
and substantially in control of the Company. Deliverables that cannot be divided into separate units are combined and treated as
one unit of accounting. Consideration received is allocated among the separate units of accounting based on the relative selling
price method. Deliverables under these arrangements typically include rights to intellectual property, research and development
services and involvement by the parties in steering committees. Historically, deliverables under the Company’s collaborative
research and development agreements have been deemed to have no stand-alone value and as a result have been treated as a single
unit of accounting. In addition, the Company analyzes its contracts and collaborative agreements to determine whether the payments
received should be recorded as revenue or as a reduction to research and development expenses. In reaching this determination,
management considers a number of factors, including whether the Company is the principal under the arrangement, and whether the
arrangement is significant to, and part of, the Company’s core operations. Historically, payments received under its contracts
and collaborative agreements have been recognized as revenue since the Company acts as a principal in the arrangement and the activities
are core to its operations.
When the performance
under a fixed price contract can be reasonably estimated, revenue for such a contract is recognized under the proportional performance
method and earned in proportion to the contract costs incurred in performance of the work as compared to total estimated contract
costs. Costs incurred under fixed price contracts represent a reasonable measurement of proportional performance of the work. Direct
costs incurred under collaborative research and development agreements are recorded as research and development expenses. If the
performance under a fixed price contract cannot be reasonably estimated, the Company recognizes the revenue on a straight-line
basis over the contract term.
Revenue associated
with upfront payments under arrangements is recognized over the contract term or when all obligations associated with the upfront
payment have been satisfied.
Revenue from the achievement
of research and development milestones, if deemed substantive, is recognized as revenue when the milestones are achieved and the
milestone payments are due and collectible. If not deemed substantive, the Company would recognize such milestone as revenue upon
its achievement on a straight-line basis over the remaining expected term of the research and development period. Milestones are
considered substantive if all of the following conditions are met: (1) the milestone is non-refundable; (2) there is substantive
uncertainty of achievement of the milestone at the inception of the arrangement; (3) substantive effort is involved to achieve
the milestone and such achievement relates to past performance; and (4) the amount of the milestone appears reasonable in relation
to the effort expended and all of the deliverables and payment terms in the arrangement.
Net Loss per Share
Net loss per share
is computed using the weighted average number of shares of common stock outstanding. All outstanding warrants, stock options and
unvested restricted stock awards totaling 16,514,230
and 15,832,208 at June 30, 2014 and 2013, respectively, are excluded
from the computation, as their effect is antidilutive.
Recent Accounting Pronouncements
In May 2014, the Financial
Accounting Standards Board issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606)
(“ASU 2014-09”),
which supersedes nearly all existing revenue recognition guidance under Topic 605,
Revenue Recognition
. The new standard
requires a company to recognize revenue when it transfers goods and services to customers in an amount that reflects the consideration
that the company expects to receive for those goods or services. ASU 2014-09 defines a five-step process that includes identifying
the contract with the customer, identifying the performance obligations in the contract, determining the transaction price, allocating
the transaction prices to the performance obligations in the contract and recognizing revenue when (or as) the entity satisfies
the performance obligations. ASU 2014-09 will be effective for the Company on January 1, 2017. The Company is evaluating the potential
impact that ASU 2014-09 will have on its consolidated financial position and results of operations.
Note 4 – Acquisition Novavax AB
During the second quarter
of 2014, the Company completed its purchase of the remaining 0.5% shares outstanding from the holders of such securities of Novavax
AB. As a result, Novavax AB is now a wholly owned subsidiary of Novavax. The results of Novavax AB’s operations have been
included in the consolidated financial statements since the acquisition date, July 31, 2013. Due to new information obtained in
the first quarter of 2014 about facts and circumstances that existed at the acquisition date regarding certain accrued contingencies
related to its pre-existing contractual rights and obligations, the Company reduced the carrying value of its goodwill retrospectively
as of the acquisition date related to the acquisition by $0.8 million from $26.2 million to $25.4 million, which represents the
purchase price paid in the acquisition that was in excess of the fair value of the assets acquired and liabilities assumed. The
goodwill generated from the acquisition is not deductible for income tax purposes.
Note 5 – Fair Value Measurements
The
following table represents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair
value on a recurring basis (in thousands):
|
|
Fair Value at June 30, 2014
|
|
|
Fair Value at December 31, 2013
|
|
Assets
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Auction
rate security
|
|
$
|
―
|
|
|
$
|
―
|
|
|
$
|
—
|
|
|
$
|
1,790
|
|
|
$
|
―
|
|
|
$
|
—
|
|
Money
market funds
|
|
|
73,069
|
|
|
|
―
|
|
|
|
—
|
|
|
|
100,049
|
|
|
|
—
|
|
|
|
—
|
|
Government-backed security
|
|
|
—
|
|
|
|
18,000
|
|
|
|
—
|
|
|
|
―
|
|
|
|
—
|
|
|
|
—
|
|
Asset-backed securities
|
|
|
—
|
|
|
|
42,483
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Corporate
debt securities
|
|
|
—
|
|
|
|
72,467
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26,978
|
|
|
|
—
|
|
Total
cash equivalents and investments
|
|
$
|
73,069
|
|
|
$
|
132,950
|
|
|
$
|
—
|
|
|
$
|
101,839
|
|
|
$
|
26,978
|
|
|
$
|
—
|
|
During
the six months ended June 30, 2014, the Company did not have any transfers between levels.
The amounts in the
Company’s consolidated balance sheet for accounts receivable – billed, accounts receivable – unbilled and accounts
payable approximate fair value due to their short-term nature. Based on borrowing rates available to the Company, the fair value
of capital leases and notes payable approximates their carrying value.
Note 6 – Investments
Investments classified
as available-for-sale as of June 30, 2014 and December 31, 2013 were comprised of (in thousands):
|
|
June
30, 2014
|
|
|
December
31, 2013
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
Auction rate security
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,175
|
|
|
$
|
615
|
|
|
$
|
—
|
|
|
$
|
1,790
|
|
Asset-backed securities
|
|
|
42,478
|
|
|
|
8
|
|
|
|
(3
|
)
|
|
|
42,483
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Corporate debt securities
|
|
|
62,446
|
|
|
|
26
|
|
|
|
(4
|
)
|
|
|
62,468
|
|
|
|
11,806
|
|
|
|
1
|
|
|
|
—
|
|
|
|
11,807
|
|
Total
|
|
$
|
104,924
|
|
|
$
|
34
|
|
|
$
|
(7
|
)
|
|
$
|
104,951
|
|
|
$
|
12,981
|
|
|
$
|
616
|
|
|
$
|
—
|
|
|
$
|
13,597
|
|
As
of June 30, 2014, the Company held securities in an unrealized loss position with a fair value of approximately $32 million. All
of these securities have been in a continuous unrealized loss position for less than one year. The Company has determined that
the decline in fair value of these investments is temporary as the Company does not intend to sell these securities and it is
not likely that the Company will be required to sell the securities before the recovery of their amortized cost basis.
The following table summarizes maturities of the Company’s marketable securities as of
June 30, 2014:
|
|
Short-term
Investments
Available-for-Sale
|
|
|
Investments
Available-for-Sale
|
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
Less than one year
|
|
$
|
48,577
|
|
|
$
|
48,599
|
|
|
$
|
―
|
|
|
$
|
―
|
|
Due in year two
|
|
|
―
|
|
|
|
―
|
|
|
|
56,347
|
|
|
|
56,352
|
|
Total
|
|
$
|
48,577
|
|
|
$
|
48,599
|
|
|
$
|
56,347
|
|
|
$
|
56,352
|
|
The
Company’s investments in asset-backed securities have effective maturity dates of less than one year and accordingly, have
been included in short-term investments available-for-sale in the table above.
In
January 2014, the Company sold its remaining auction rate security and received proceeds of $1.8 million resulting in a realized
gain of $0.6 million.
Note 7 – Goodwill and Other Intangible Assets
Goodwill
The changes in the carrying amounts of goodwill
for the six months ended June 30, 2014 and 2013 were as follows (in thousands):
|
|
Six
Months Ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
Beginning balance after retroactive adjustment
|
|
$
|
58,707
|
|
|
$
|
33,141
|
|
Currency translation and other adjustments
|
|
|
(801
|
)
|
|
|
—
|
|
Ending balance
|
|
$
|
57,906
|
|
|
$
|
33,141
|
|
Identifiable Intangible
Assets
Identifiable intangible, all of which are
finite-lived, assets consisted of the following as of June 30, 2014 (in thousands):
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Intangible
Assets,
Net
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary adjuvant technology
|
|
$
|
11,070
|
|
|
$
|
(507
|
)
|
|
$
|
10,563
|
|
Collaboration agreements
|
|
|
4,999
|
|
|
|
(472
|
)
|
|
|
4,527
|
|
Total identifiable intangible assets
|
|
$
|
16,069
|
|
|
$
|
(979
|
)
|
|
$
|
15,090
|
|
Amortization expense
for the six months ended June 30, 2014 was $0.6 million.
Estimated amortization
expense for existing intangible assets for the remainder of 2014 and for each of the five succeeding years ending December 31 will
be as follows (in thousands):
Year
|
|
Amount
|
|
2014 (remainder)
|
|
$
|
534
|
|
2015
|
|
|
1,068
|
|
2016
|
|
|
1,068
|
|
2017
|
|
|
1,068
|
|
2018
|
|
|
1,068
|
|
2019
|
|
|
1,068
|
|
Note 8 – Stockholders’ Equity
In October 2012, the
Company entered into an At Market Issuance Sales Agreement (“2012 Sales Agreement”), under which the Board of Directors
of the Company (the “Board”) approved the Company’s sale of up to an aggregate of $50 million in gross proceeds
of its common stock. The shares of common stock are potentially available pursuant to a shelf registration statement filed with
the SEC in March 2013, which replaced the previous shelf registration statement filed in 2010. The Board’s standing Finance
Committee (the “Finance Committee”) assists with the Board’s responsibilities to monitor, provide advice to senior
management of the Company and approve capital raising activities that are not otherwise approved by the Board. The Finance Committee
has been authorized by the Board, absent any action by the Board to the contrary, to take any additional actions necessary to carry
out the Board’s authorization of the issuance and sale of the common stock pursuant to the 2012 Sales Agreement. In doing
so, the Finance Committee is authorized to set the amount of shares to be sold, the period of time during which such sales may
occur and the minimum sales price per share. As of June 30, 2014, the Company had approximately $15 million available under the
2012 Sales Agreement. The most recent sales that occurred under the 2012 Sales Agreement were on September 10, 2013.
In June 2014, the Company
completed a public offering of 28,750,000 shares of its common stock, including 3,750,000 shares of common stock that were issued
upon the exercise in full of an option to purchase additional shares granted to the underwriters, at a price of $4.00 per share
resulting in net proceeds of approximately $108 million.
Note 9 – Stock-Based
Compensation
Stock Options
The Company has granted equity awards under
several plans, two of which remain active. Under the Amended and Restated 2005 Stock Incentive Plan (the “2005 Plan”),
equity awards may be granted to officers, directors, employees, consultants and advisors to the Company and any present or future
subsidiary. The 2005 Plan, approved in May 2005 and amended most recently in June 2014 by the Company’s stockholders, currently
authorizes the grant of equity awards for up to 26,312,192 shares of common stock, which included, at the time of approval of the
2005 Plan, a maximum 5,746,468 shares of common stock subject to stock options outstanding under the Company’s 1995 Stock
Option Plan (the “1995 Plan”) that may revert to and become issuable under the 2005 Plan if such options expire or
otherwise terminate unexercised. The Company received approval at its 2014 annual meeting of stockholders to increase the number
of shares of common stock available for issuance under the 2005 Plan by 4,000,000 shares. The term of the Company’s 1995
Plan has expired and no new awards will be made under the 1995 Plan; however, outstanding stock options remain in existence in
accordance with their terms.
Under the 2005 Plan and the 1995 Plan,
incentive stock options, having a maximum term of 10 years, can be or were granted at no less than 100% of the fair value of the
Company’s common stock at the time of grant and are generally exercisable over periods ranging from six months to four years.
Stock Options Awards
The following is a summary of option activity
under the 2005 Plan and the 1995 Plan for the six months ended June 30, 2014:
|
|
2005 Stock
Incentive Plan
|
|
|
1995 Stock
Option Plan
|
|
|
|
Stock
Options
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Stock
Options
|
|
|
Weighted-
Average
Exercise
Price
|
|
Outstanding at January 1, 2014
|
|
|
11,788,100
|
|
|
$
|
1.87
|
|
|
|
188,150
|
|
|
$
|
5.04
|
|
Granted
|
|
|
5,410,000
|
|
|
$
|
5.59
|
|
|
|
—
|
|
|
$
|
—
|
|
Exercised
|
|
|
(493,462
|
)
|
|
$
|
1.87
|
|
|
|
(32,450
|
)
|
|
$
|
4.81
|
|
Canceled
|
|
|
(225,775
|
)
|
|
$
|
3.11
|
|
|
|
(137,000
|
)
|
|
$
|
5.97
|
|
Outstanding at June 30, 2014
|
|
|
16,478,863
|
|
|
$
|
3.07
|
|
|
|
18,700
|
|
|
$
|
2.51
|
|
Shares exercisable at June 30, 2014
|
|
|
6,000,837
|
|
|
$
|
1.89
|
|
|
|
18,700
|
|
|
$
|
2.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares available for grant at June 30,
2014
|
|
|
5,416,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of stock
options granted was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:
|
|
Three
Months Ended
June
30,
|
|
Six
Months Ended
June
30,
|
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Weighted-average Black-Scholes fair value of stock options granted
|
|
$1.92
|
|
$1.01
|
|
$2.48
|
|
$1.00
|
Risk-free interest rate
|
|
1.33%-1.39%
|
|
0.54%-0.96%
|
|
1.24%-2.22%
|
|
0.54%-1.34%
|
Dividend yield
|
|
0%
|
|
0%
|
|
0%
|
|
0%
|
Volatility
|
|
52.87%-53.81%
|
|
55.81%-66.02%
|
|
52.47%-67.93%
|
|
55.81%-73.72%
|
Expected term (in years)
|
|
4.10-4.26
|
|
3.98-4.25
|
|
4.04-6.96
|
|
3.98-7.05
|
Expected forfeiture rate
|
|
0%-23.15%
|
|
0%-23.15%
|
|
0%-23.15%
|
|
0%-23.15%
|
The aggregate intrinsic
value and weighted-average remaining contractual term of stock options outstanding as of June 30, 2014 was approximately $31.1
million and 8.0
years, respectively. The aggregate intrinsic value and weighted-average remaining contractual term of stock
options exercisable as of June 30, 2014 was approximately $16.5 million and 6.4
years, respectively. The aggregate intrinsic
value represents the total intrinsic value (the difference between the Company’s closing stock price on the last trading
day of the period and the exercise price, multiplied by the number of in-the-money options) that would have been received by the
option holders had all option holders exercised their options on June 30, 2014. This amount is subject to change based on changes
to the closing price of the Company’s common stock. The aggregate intrinsic value of options exercised for the six months
ended June 30, 2014 and 2013 was $1.7 million and less than $0.1 million, respectively.
Stock options issued
to non-employees are measured at their estimated fair value. Stock-based compensation expense is recognized when services are rendered;
however, the expense may fluctuate with changes in the fair value of the underlying common stock, until the award is vested. The
Company recorded $0.3 million and less than $0.1 million in stock-based compensation expense related to stock options granted to
non-employees in the six months ended June 30, 2014 and 2013, respectively.
Employee Stock Purchase Plan
In 2013, the Company
adopted an Employee Stock Purchase Plan (the “ESPP”), which authorized an aggregate of 2,000,000 shares of common stock
to be purchased, which will increase 5% on each anniversary of its adoption up to a maximum of 3,000,000 shares. The ESPP allows
employees to purchase shares of common stock of the Company at each purchase date through payroll deductions of up to a maximum
of 15% of their compensation, at 85% of the lesser of the market price of the shares at the time of purchase or the market price
on the beginning date of an option period (or, if later, the date during the option period when the employee was first eligible
to participate). At June 30, 2014, there were 1,811,176 shares available for issuance under the ESPP.
The ESPP is considered
compensatory for financial reporting purposes. As such, the fair value of ESPP shares was estimated at the date of grant using
the Black-Scholes option-pricing model with the following assumptions:
|
|
Three
Months Ended
June 30,
2014
|
|
Six
Months
Ended
June 30,
2014
|
Range of Black-Scholes fair values of ESPP shares granted
|
|
$0.97-$1.79
|
|
$0.97-$1.79
|
Risk-free interest rate
|
|
0.11%-0.14%
|
|
0.11%-0.14%
|
Dividend yield
|
|
0%
|
|
0%
|
Volatility
|
|
53.80%-67.57%
|
|
53.80%-67.57%
|
Expected term (in years)
|
|
0.5-1.0
|
|
0.5-1.0
|
Expected forfeiture rate
|
|
5%
|
|
5%
|
Stock-based compensation related
to the ESPP for the six months ended June 30, 2014 was $0.3 million.
Restricted Stock Awards
The following is a
summary of restricted stock awards activity for the six months ended June 30, 2014:
|
|
Number
of
Shares
|
|
|
Per
Share
Weighted-
Average
Grant-Date
Fair Value
|
|
Outstanding and Unvested at January 1, 2014
|
|
|
16,667
|
|
|
$
|
1.39
|
|
Restricted stock granted
|
|
|
—
|
|
|
$
|
—
|
|
Restricted stock vested
|
|
|
—
|
|
|
$
|
—
|
|
Restricted stock forfeited
|
|
|
—
|
|
|
$
|
—
|
|
Outstanding and Unvested at June 30, 2014
|
|
|
16,667
|
|
|
$
|
1.39
|
|
The Company recorded stock-based compensation expense in the
consolidated statements of operations as follows (in thousands):
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Research and development
|
|
$
|
651
|
|
|
$
|
296
|
|
|
$
|
1,175
|
|
|
$
|
513
|
|
General and administrative
|
|
|
1,201
|
|
|
|
342
|
|
|
|
1,717
|
|
|
|
608
|
|
Total stock-based
compensation expense
|
|
$
|
1,852
|
|
|
$
|
638
|
|
|
$
|
2,892
|
|
|
$
|
1,121
|
|
As of June 30, 2014,
there was approximately $13.3
million of total unrecognized compensation expense (net of estimated forfeitures) related
to unvested options, ESPP and restricted stock awards. This unrecognized compensation expense is expected to be recognized over
a weighted-average period of 1.6
years. This estimate does not include the impact of other possible stock-based awards that
may be made during future periods.
Note
10 – U.S. Government Agreement, Joint Venture and Collaborations
HHS
BARDA Contract for Recombinant Influenza Vaccines
In February 2011,
the Company was awarded a contract from HHS BARDA valued at $97 million for the first three-year base-period, which was extended
in February 2014 by seven months to September 2014, with an HHS BARDA option for an additional two-year period valued at $79 million.
This extension of the base period was intended to allow the Company to continue to access the base-period funding. Following discussions
in the second quarter of 2014, at HHS BARDA’s request, the Company presented its progress to date and plan forward to representatives
of the Department of Health and Human Services in order to determine how potential contract modifications will be structured to
allow development activities and funding to continue under that contract beyond September 2014. The HHS BARDA contract
award provides significant funding for the Company’s ongoing clinical development and product scale-up of both its seasonal
and pandemic influenza vaccine candidates. This is a cost-plus-fixed-fee contract in which HHS BARDA reimburses the Company for
allowable direct contract costs, allowable indirect costs and a fixed-fee earned in the development of the Company’s multivalent
seasonal and monovalent pandemic influenza vaccine candidates. HHS BARDA originally directed the Company to develop its monovalent
pandemic influenza vaccine against the A(H5N1) strain. In February 2014, the Company amended its contract with HHS BARDA to prioritize
its development efforts on a monovalent pandemic influenza vaccine against the A(H7N9) strain with a Phase 1/2 clinical trial using
its H7N9 candidate and Matrix-M adjuvant, which began in the first quarter of 2014. HHS BARDA has also indicated that, while not
a current development priority, the Company’s H5N1 vaccine program remains a viable potential development opportunity under
the contract. Billings under the contract are based on approved provisional indirect billing rates, which permit recovery of fringe
benefits, overhead and general and administrative expenses that may be subject to certain limits. These indirect rates are subject
to audit by HHS BARDA on an annual basis. An audit by the U.S government of fiscal years 2011 and 2012 was completed in the first
quarter of 2014, the results of which had no impact on the Company’s 2011 and 2012 financial statements previously filed
with the SEC. Management believes that revenue for periods not yet audited has been recorded in amounts that are expected to be
realized upon final audit and settlement. When the final determination of the allowable costs for any year has been made, revenue
and billings may be adjusted accordingly. The Company recognized revenue of $7.2 million and $12.5 million in the three and six
months ended June 30, 2014, respectively, and has recognized approximately $65 million in revenue since the inception of the contract.
Under certain circumstances,
HHS BARDA reimbursements may be delayed or even potentially withheld. In March 2012, the Company decided to conduct a Phase 2 clinical
trial of its quadrivalent seasonal influenza vaccine candidate in Australia (“205 Trial”) under appropriate local regulatory
authorization. Based on the Company’s discussions with HHS BARDA in 2012, the outside clinical trial costs for the 205 Trial
may only be submitted for reimbursement to HHS BARDA and recorded as revenue by the Company after it submits the clinical trial
data in a future quadrivalent investigational new drug application (“Quadrivalent IND”), and those costs are approved
by HHS BARDA. The Quadrivalent IND is expected to be submitted shortly before the Company initiates the next Phase 2 dose-confirmatory
clinical trial, which is currently expected in the fourth quarter of 2014. The outside clinical trial costs of the 205 Trial conducted
in 2012 total $2.9 million. These costs have been recorded as an expense in the period incurred as a cost of government contracts
revenue.
CPL Biologicals
Private Limited (“CPLB”) Joint Venture
In 2009, the Company
formed a joint venture with Cadila Pharmaceuticals Limited (“Cadila”) named CPL Biologicals Private Limited (“CPLB”)
to develop and manufacture vaccines, biological therapeutics and diagnostics in India. CPLB is owned 20% by the Company and 80%
by Cadila. The Company accounts for its investment in CPLB using the equity method. CPLB has incurred losses since its inception;
however, the Company has not recorded any losses related to this investment because the carrying value of the Company’s initial
investment was nominal and the Company has no obligation or commitment to provide future funding.
LG Life Sciences,
Ltd. (“LGLS”) License Agreement
In February 2011, the
Company entered into a license agreement with LGLS that allows LGLS to use the Company’s technology to develop and commercially
sell influenza vaccines exclusively in South Korea and non-exclusively in certain other specified countries. At its own cost, LGLS
is responsible for funding both its clinical development of the influenza VLP vaccines and a manufacturing facility to produce
such vaccines in South Korea. Under the license agreement, the Company is obligated to provide LGLS with information and materials
related to the manufacture of the licensed products, provide on-going project management and regulatory support and conduct clinical
trials of its influenza vaccines in order to obtain FDA approval in the U.S. The license agreement is scheduled to terminate in
2027. Payments to the Company under the license agreement include an upfront payment of $2.5 million (received in 2011), reimbursements
of certain development and product costs, payments related to the achievement of certain milestones and royalty payments in the
high single digits from LGLS’s future commercial sales of influenza VLP vaccines, if any. The upfront payment has been deferred
and will be recognized when the previously mentioned obligations in the agreement are satisfied, which may not occur until the
end of the term of the agreement. Payments for milestones under the agreement would be recognized on a straight-line basis over
the remaining term of the research and development period upon achievement of such milestone. Any royalties under the agreement
would be recognized as earned.
PATH Clinical
Development Agreement
In July 2012, the Company
entered into a clinical development agreement with PATH to develop its RSV F-protein nanoparticle vaccine candidate (“RSV
F vaccine candidate”) to protect against RSV through maternal immunization in low-resource countries (the “RSV Collaboration
Program”). Under the RSV Collaboration Program, the Company has been awarded approximately $6 million, including $3.5 million
in funding pursuant to a December 2013 amendment to partially support the Company’s Phase 2 dose-ranging clinical trial in
720 women of childbearing age, which was launched in October 2013. The Company retains global rights to commercialize the product
and has made a commitment to make the vaccine affordable and available in low-resource countries. To the extent PATH elects to
continue to fund 50% of the Company’s external clinical development costs for the RSV Collaboration Program, but the Company
does not continue development, the Company would then grant PATH a fully-paid license to its technology for its RSV F vaccine candidate
for use in pregnant women in such low-resource countries. The Company recognized revenue of $0.7 million and $1.9 million in the
three and six months ended June 30, 2014, respectively, and has recognized $5.8 million in revenue since the inception of the agreement.
Revenue under this arrangement is being recognized under the proportional performance method and earned in proportion to the contract
costs incurred in performance of the work as compared to total estimated contract costs. Costs incurred under this agreement represent
a reasonable measurement of proportional performance of the services being performed.
Note 11
–
Master Services Agreement with Cadila
The Company and Cadila
entered into a master services agreement pursuant to which the Company may request services from Cadila in the areas of biologics
research, pre-clinical development, clinical development, process development, manufacturing scale-up and general manufacturing
related services in India. In each of July 2011, March 2013 and March 2014, the Company and Cadila amended the master services
agreement to extend the term by one year for which services can be provided by Cadila under this agreement. Under the revised terms,
if, by March 31, 2015, the amount of services provided by Cadila is less than $7.5 million, the Company will 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. Through June 30, 2014, the Company has purchased $4.1 million in services from Cadila pursuant to this agreement,
which includes services provided, since the beginning of 2013, by CPLB to the Company on behalf of Cadila pursuant to an October
2013 amendment authorizing such CPLB services. During the six months ended June 30, 2014, the Company purchased $1.1 million in
services from Cadila pursuant to this agreement, $0.6 million of which were provided by CPLB on behalf of Cadila. The Company has
recognized as expense the entire amount related to CPLB as the Company has not recorded any equity income (loss) of CPLB (see Note
10).
Note
12 – License agreement with Wyeth Holding Corporation
In July 2007, the Company
entered into an agreement to license certain rights from Wyeth Holding Corporation, a subsidiary of Pfizer Inc. (“Wyeth”).
The Wyeth license, which provides for an upfront payment (previously made), ongoing annual license fees, sublicense payments, payments
on certain milestone development activities and royalties on any product sales, is a non-exclusive, worldwide license to a family
of patent applications covering VLP technology for use in human vaccines in certain fields, with expected patent expiration in
early 2022. At present, the Company’s influenza VLP vaccine programs, both seasonal and pandemic, are the only programs to
which the Wyeth license applies. The license may be terminated by Wyeth only for cause and may be terminated by the Company only
after it has provided ninety (90) days’ notice that the Company has absolutely and finally ceased activity, including through
any affiliate or sublicense, related to the manufacturing, development, marketing or sale of products covered by the license. Payments
under the agreement to Wyeth from 2007 through June 30, 2014 totaled $6.2 million, of which a $0.3 million sublicense payment was
made during the three months ended June 30, 2014 relating to the upfront payment the Company received under the LGLS license agreement.
The Company expects that a milestone payment in the amount of $3.0 million associated with the first Phase 3 clinical trial in
a seasonal vaccine candidate will be owed to Wyeth during the third quarter of 2014 resulting from its affiliate, CPLB, initiating
a Phase 3 clinical trial for a monovalent H1N1 seasonal influenza VLP vaccine candidate. Such milestone payment is only owed once
and the Company would not be required to make another payment if it or any of its affiliates initiate an additional Phase 3 clinical
trial in a seasonal influenza VLP vaccine candidate.
Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of Operations
Any statements in the
discussion below and elsewhere in this report, about expectations, beliefs, plans, objectives, assumptions or future events or
performance of Novavax, Inc. (Novavax, and together with its wholly owned subsidiary, Novavax AB (formerly known as Isconova AB),
the “Company,” “we” or “us”) are not historical facts and are forward-looking statements. Such
forward-looking statements include, without limitation, statements with respect to our expectations regarding future revenue and
expense levels; potential market sizes and demand for our product candidates; the efficacy, safety and intended utilization of
our product candidates; the development of our clinical-stage product candidates and our recombinant vaccine and adjuvant technologies;
the future development of our product candidates; the conduct, timing and results of clinical trials; plans for and potential timing
of regulatory filings; reimbursement by and possible modification of the contract with Department of Health and Human Services,
Biomedical Advanced Research and Development Authority (HHS BARDA); our available cash resources and the availability of financing
generally, plans regarding partnering activities and business development initiatives, and other factors referenced herein. You
generally can identify these forward-looking statements by the use of words or phrases such as “believe,” “may,”
“could,” “will,” “would,” “possible,” “can,” “estimate,”
“continue,” “ongoing,” “consider,” “anticipate,” “intend,” “seek,”
“plan,” “project,” “expect,” “should,” “would,” or “assume”
or the negative of these terms, or other comparable terminology, although not all forward-looking statements contain these words.
Any or all of our forward-looking
statements in this Quarterly Report may turn out to be inaccurate or materially different than actual results. Among the factors
that could cause actual results to differ materially from those indicated in the forward-looking statements are risks and uncertainties
inherent in our business including, without limitation, the progress, timing or success of our clinical trials; difficulties or
delays in development, testing, GMP manufacturing and scale-up, obtaining regulatory approval for producing and marketing our product
candidates; regulatory developments in the U.S. or in foreign jurisdictions; decisions by regulatory authorities and HHS BARDA;
risks associated with our reliance on collaborations for the development and commercialization of our product candidates; unexpected
adverse side effects or inadequate efficacy of our product candidates that could delay or prevent product development or commercialization,
or that could result in recalls or product liability claims; our ability to attract and retain key scientific, management or operational
personnel; the size and growth potential of the markets for our product candidates and our ability to serve those markets; the
scope and validity of patent protection for our product candidates; competition from other pharmaceutical or biotechnology companies;
our ability to establish and maintain strategic collaborations or to otherwise obtain additional financing to support our operations
on commercially reasonable terms; successful administration of our business and financial reporting capabilities; and risks identified
under Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31,
2013. In light of these risks and uncertainties, forward-looking events and circumstances discussed in this Quarterly Report may
not occur as indicated in forward-looking statements, and actual results could differ materially from those anticipated or implied
by the forward-looking statements. We, therefore, caution readers not to place undue reliance on such forward-looking statements
contained in this Quarterly Report.
We cannot guarantee
future results, events, levels of activity, performance or achievement. We undertake no obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise, unless required by law.
Overview
We are a clinical-stage
biopharmaceutical company focused on the discovery, development and commercialization of recombinant protein nanoparticle vaccines
and adjuvants. Our vaccine technology platform is based on proprietary recombinant nanoparticle vaccine technology that includes
both virus-like particle vaccines (“VLPs”) and nanoparticle vaccines. In each case, these vaccine candidates are genetically
engineered three-dimensional nanostructures that incorporate immunologically important proteins. Our vaccine product pipeline targets
a variety of infectious diseases with candidates currently in clinical development for respiratory syncytial virus (“RSV”),
seasonal influenza and pandemic influenza.
Through our Swedish
wholly owned subsidiary, Novavax AB, we are also developing proprietary immune-stimulating saponin-based adjuvants, which we expect
to utilize in conjunction with our pandemic influenza vaccine candidates and potentially with other vaccine candidates that may
benefit from such an adjuvant. Our Matrix
TM
adjuvant technology utilizes selected quillaja fractions, which form separate
matrix structures, to develop modern, multi-purpose immune-modulating adjuvant products for a broad range of potential vaccine
applications. We acquired the Matrix technology through our acquisition of Novavax AB in the third quarter of 2013 based on our
assessment that this saponin-based adjuvant technology could represent a powerful complement to our recombinant vaccine programs.
Our lead adjuvant for human applications, Matrix-M
TM
, is in clinical trials with our collaborator Genocea Biosciences
in its vaccine candidate against herpes simplex virus type 2. Also, during the first quarter of 2014, under our contract with HHS
BARDA, we initiated a clinical trial using Matrix-M in combination with our H7N9 vaccine candidate.
Our joint venture with
Cadila Pharmaceuticals Limited (“Cadila”), named CPL Biologicals Private Limited (“CPLB”), is developing
and manufacturing vaccines, biological therapeutics and diagnostics in India. CPLB is owned 20% by us and 80% by Cadila. CPLB operates
a manufacturing facility in India for the production of vaccines and is actively developing a number of vaccine candidates that
were genetically engineered by us.
Clinical Product
Pipeline
A current summary of
our significant research and development programs and status of related products in development follows:
Program
|
|
Development Phase
|
|
Collaborator
|
|
|
|
|
|
Respiratory Syncytial Virus (RSV)
|
|
|
|
|
·
Maternal Immunization
|
|
Phase 2
|
|
PATH
|
·
Elderly
|
|
Phase 1
|
|
|
·
Pediatric
|
|
Pre-clinical
|
|
|
|
|
|
|
|
Influenza
|
|
|
|
|
·
Seasonal Quadrivalent
|
|
Phase 2
|
|
HHS BARDA/LGLS
|
·
Pandemic (H7N9)
1
|
|
Phase 1/2
|
|
HHS BARDA/LGLS
|
·
Pandemic (H5N1)
1
|
|
Phase 1
|
|
HHS BARDA/LGLS
|
|
|
|
|
|
Combination (Influenza/RSV)
|
|
Pre-clinical
|
|
|
|
|
|
|
|
CPLB Programs (India)
|
|
|
|
|
·
Seasonal Trivalent Influenza
|
|
Phase 1/2
|
|
|
·
Monovalent (H1N1) Influenza
|
|
Phase 3
|
|
|
·
Rabies
|
|
Phase 1/2
|
|
|
1
Although we initiated development of our pandemic influenza vaccine program under our
contract with HHS BARDA against the A(H5N1) strain, because of concern over the potential mutation and spread of the A(H7N9) influenza
strain in China, we independently initiated a second pandemic vaccine program in the first half of 2013 against A(H7N9). In February
2014, we amended our contract with HHS BARDA to re-prioritize our development efforts on a pandemic influenza vaccine against
the A(H7N9) strain with a Phase 1/2 clinical trial using our H7N9 candidate and Matrix-M™ adjuvant, which began in the first
quarter of 2014. HHS BARDA has indicated that, while not a current development priority, the H5N1 vaccine program remains a viable
potential development opportunity under our contract.
Respiratory
Syncytial Virus (RSV)
RSV is a widespread
disease that causes infections of the lower respiratory tract. While RSV affects individuals of all ages, it acutely impacts infants,
the elderly, young children and others with compromised immune systems. Current estimates indicate that RSV is responsible for
over 30 million new acute lower respiratory infection episodes and between 150,000 and 200,000 deaths in children under five years
old.
2
In the U.S., nearly all children become infected
with RSV before they are two years old; it has been associated with 20% of hospitalizations and 15% of office visits for acute
respiratory infection in young children.
3
The World
Health Organization (WHO) estimates that the global disease burden for RSV is 64 million cases. Because there is no approved prophylactic
vaccine, an RSV vaccine has the potential to protect millions of patients from this far-reaching unmet medical need.
We are developing a
RSV F-protein nanoparticle vaccine candidate (RSV F vaccine candidate) to prevent RSV disease, and are looking at three susceptible
target populations: 1) infants via material immunization, 2) the elderly and 3) pediatrics.
Maternal Immunization
Development Program — Clinical Experience
In April 2013, we announced
top-line data from a Phase 2 dose-ranging clinical trial in women of childbearing age. The data were similar to, or exceeded, immune
responses seen in our first Phase 1 clinical trial. This randomized, blinded, placebo-controlled Phase 2 clinical trial evaluated
the safety and immunogenicity of two dose levels of our RSV F vaccine candidate, with and without an aluminum phosphate adjuvant,
in 330 women of childbearing age. We further reported that the vaccine candidate was well-tolerated, the two-dose alum-adjuvanted
groups showed a 13 to 16-fold rise in anti-F IgG antibodies to the F protein compared to a six to ten-fold rise in the non-alum
groups. In addition, titers of palivizumab-competing antibodies (PCAs), which are antibodies that demonstrate protection similar
to the monoclonal antibody currently marketed as Synagis® used to prevent RSV in pre-mature infants, rose eight to nine-fold
with four-fold rises in 92% of subjects in the two-dose alum-adjuvanted groups.
In April 2014, we announced
top-line data from a Phase 2 dose-confirmatory trial clinical trial of our RSV F vaccine candidate in 720 women of childbearing
age. The randomized, blinded, placebo-controlled Phase 2 study was designed to evaluate the immunogenicity and safety of multiple
formulations of the vaccine candidate adjuvanted with aluminum phosphate. We reported that the vaccine candidate was well-tolerated
with no vaccine-related serious adverse events. In addition, we reported that the highest immune responses, as measured by RSV
F and PCA levels, were achieved in a single dose formulation, which also demonstrated rapid and sustainable increases in those
antibody levels. These data, along with the data from our other RSV F vaccine candidate clinical trials are expected to support
the advancement of our maternal immunization program in pregnant women; we have initiated discussions with the FDA in support of
the planned initiation of a Phase 2 clinical trial of our RSV F vaccine candidate in pregnant women in the fourth quarter of 2014.
Elderly Development
Program — Clinical Experience
In July 2013, we announced
top-line data from a Phase 1 clinical trial in the elderly that was initiated in October 2012. This clinical trial was a randomized,
blinded, placebo-controlled Phase 1 clinical trial that evaluated the safety and immunogenicity in 220 elderly adults, 60 years
of age and older, who received a single intramuscular injection of our RSV F vaccine candidate (with and without alum) or placebo
plus a single dose of licensed influenza vaccine or placebo at days 0 and 28. The top-line data further corroborated our previous
clinical experiences with our RSV F vaccine candidate: we reported that the vaccine candidate was well-tolerated, that the higher
dose groups had better overall immune responses than the lower dose groups and that essentially undetectable Day 0 levels of PCA
increased to between 80% and 97% of active vaccine recipients by Day 28. In May 2014, we announced one-year follow-up data from
this Phase 1 clinical trial demonstrating that the 90μg dose without adjuvant resulted in anti-F levels and PCA levels that
were significantly elevated and maintained over baseline throughout a 118 day period. These data suggest that the vaccine candidate
sustained levels that may provide protection during an entire RSV season and support the accelerated development of the RSV F vaccine
candidate as an annual seasonal vaccine for the elderly. We expect to initiate a Phase 2 clinical trial of the RSV F vaccine candidate
in elderly subjects in the fourth quarter of 2014.
2
Nair, H., et al., (2010) Lancet. 375:1545 – 1555
3
Hall, CB, et al., (2009) N Engl J
Med. 360(6):588-98.
Pediatric Development
Program — Pre-clinical Experience
While the burden of
RSV disease on newborn infants is well understood, RSV is also a prevalent and currently unaddressed problem in pediatric patients.
This third market segment for our RSV F vaccine candidate remains an important opportunity. Our pediatric development plan will
likely be based on a series of clinical trials that “step-down” from our past clinical trials in healthy adults into
younger pediatric subjects. We also expect that our clinical experience in pregnant women will be significantly important to understanding
a vaccine for this patient population. We expect to initiate a Phase 1 clinical trial in pediatric subjects in the fourth quarter
of 2014.
PATH Vaccine
Solutions (PATH) Clinical Development Agreement
In July 2012, we entered
into a clinical development agreement with PATH to develop our RSV F vaccine candidate for the maternal immunization indication
in low-resource countries (our “RSV Collaboration Program”). Under our RSV Collaboration Program, we have been awarded
approximately $6 million, including $3.5 million in funding pursuant to a December 2013 amendment to partially support our Phase
2 dose-confirmation clinical trial in 720 women of childbearing age, as described above. We retain global rights to commercialize
the product and plan to support PATH in its goal to make an RSV maternal vaccine product affordable and available in low-resource
countries. To the extent PATH elects to continuously fund 50% of our external clinical development costs for the RSV Collaboration
Program, but we do not continue development, we would then grant PATH a fully-paid license to our technology for our RSV F vaccine
candidate for use in pregnant women in such low-resource countries.
Influenza
Seasonal Influenza
Vaccine
Developing and commercializing
a Novavax seasonal influenza vaccine remains an important strategic goal and viable opportunity for us. The Advisory Committee
for Immunization Practices of the Center for Disease Control and Prevention recommends that all persons aged six months and older
should be vaccinated annually against seasonal influenza. In conjunction with this universal recommendation, attention from the
2009 influenza H1N1 pandemic, along with reports of other cases of avian-based influenza strains, has increased public health awareness
of the importance of seasonal influenza vaccination, the market for which is expected to continue to grow worldwide in both developed
and developing global markets.
Among the seasonal
influenza vaccines licensed in the U.S., only four products are quadrivalent vaccines (meaning four separate influenza strains:
two influenza A strains and two influenza B strains) as opposed to trivalent vaccines (meaning three influenza strains: two influenza
A strains and one influenza B strain). However, in coming years, additional quadrivalent seasonal influenza vaccines are expected
to be produced and licensed within and outside of the U.S. With two distinct lineages of influenza B viruses circulating, governmental
health authorities have advocated for the addition of a second influenza B strain to provide additional protection. Current estimates
for seasonal influenza vaccine growth in the top seven markets (U.S., Japan, France, Germany, Italy, Spain and UK), show potential
expansion from the current market of approximately $3.2 billion (2012/13 season) to $5.3 billion by the 2021/2022 season.
4
We believe that recombinant seasonal influenza vaccines, like the candidate we are developing, have an important
advantage: once licensed for commercial sale, large quantities of vaccines can be quickly and cost-effectively manufactured without
the use of either the live influenza virus or chicken eggs.
4
Influenza Vaccines Forecast. Datamonitor (2013)
Top-line data from
our most recent Phase 2 clinical trial for our quadrivalent influenza vaccine candidate were announced in July 2012. In that clinical
trial, our quadrivalent VLP vaccine candidate demonstrated immunogenicity against all four viral strains based on hemagglutination
inhibition (HAI) responses at day 21, and was well-tolerated, as evidenced by the absence of any observed vaccine-related serious
adverse events along with an acceptable reactogenicity profile. Our vaccine candidate met the FDA accelerated approval seroprotection
rates criterion for all four viral strains. The potential to fulfill the seroconversion rates criterion was demonstrated for three
of the four viral strains. The fourth strain, B/Brisbane/60/08, despite fulfilling the seroprotection criterion, failed to demonstrate
a satisfactory seroconversion rate. Following our last Phase 2 clinical trial, we focused our seasonal influenza vaccine candidate
activities on locking the manufacturing process that is expected to provide consistent and enhanced immune responses in all strains.
With these activities significantly completed, we have begun preliminary manufacturing work for the A and B strain influenza VLPs
to be used in the next Phase 2 clinical trial with our quadrivalent vaccine candidate, which we expect to initiate in the fourth
quarter of 2014.
Pandemic Influenza
Vaccine
In the aftermath of
the 2009 H1N1 influenza pandemic, preventing a human influenza pandemic remains a key priority with both governmental health authorities
and influenza vaccine manufacturers. In the U.S. alone, the 2009 H1N1 pandemic led to the production of approximately 126 million
doses of monovalent (single strain) vaccine. Public health awareness and government preparedness for the next potential influenza
pandemic are driving development of vaccines that can be manufactured quickly against a potentially threatening influenza strain.
Until the spring of 2013, industry and health experts focused attention on developing a monovalent H5N1 influenza vaccine as a
potential key defense against a future pandemic threat; however, recent attention from a significant number of reported cases in
China of an avian-based influenza strain of H7N9 has shifted to the potential development of an H7N9 influenza vaccine.
In collaboration with
HHS BARDA, we have now developed and delivered compelling safety and immunogenicity data on two pandemic vaccine candidates, H5N1
and H7N9, which provide the U.S. government with alternatives for dealing with future potential threats. In October 2012, under
our collaboration with HHS BARDA, we reported positive results from two Phase 1 clinical trials of our pandemic (H5N1) vaccine
candidate in combination with two different adjuvants, both of which are designed to improve the immunogenicity of vaccines at
lower doses and thus provide antigen dose-sparing. The top-line data demonstrated safety and immunogenicity of varying dose-levels
of the vaccine, with and without adjuvant, and further demonstrated statistically significant robust adjuvant effects on immune
response.
In April 2013, we
initiated manufacturing of a new monovalent influenza vaccine candidate against prototype A(H7N9). This strain was first recognized
by Chinese health authorities as a potential pandemic influenza threat in late March 2013. In a three month period, we developed
a recombinant baculovirus expressing the published A(H7N9) viral HA and NA gene sequences, developed and purified a VLP vaccine
antigen, conducted multiple animal studies and initiated a Phase 1 clinical trial in Australia independent of our HHS BARDA contract.
In November 2013, we announced the publication of the clinical results from the Phase 1 clinical trial in The New England Journal
of Medicine. The publication highlighted the fact that 81% of subjects treated with a 5ug dose of vaccine with a saponin-based
adjuvant achieved protective HAI levels, and 97% of subjects showed an anti-neuraminidase antibody response. We achieved protective
levels from vaccinations within 116 days of the announcement of the H7N9 outbreak from the industry’s first clinical trial
of a vaccine against an A(H7N9) influenza strain.
In February 2014, we
modified our contract with HHS BARDA to focus our development on a monovalent pandemic influenza vaccine against the A(H7N9) strain
with a Phase 1/2 clinical trial conducted in the U.S. using our H7N9 candidate and Matrix-M adjuvant. The first subjects were enrolled
in the first quarter of 2014 and top-line data is expected to be released in the third quarter of 2014; HHS BARDA has also indicated
that, while not a current development priority, our H5N1 vaccine program remains a viable potential development opportunity under
our contract.
Potential Accelerated
Approval Pathway for Influenza
In the past, we have
referenced attainment of accelerated approval immunogenicity endpoints for seroprotection and seroconversion as a potential pathway
for licensure of our influenza vaccines. The criteria for granting such accelerated approval of a Biologics License Application
(BLA, the biologic equivalent to a New Drug Application or NDA) for new seasonal and pandemic influenza vaccines was published
by the U.S. Food and Drug Administration (FDA’s), Center for Biologics Evaluation and Research. Under this FDA guidance,
developers that can demonstrate results that meet or exceed certain specified immunogenicity endpoint criteria in their clinical
trials may, at the FDA’s discretion, be granted a license to market a product prior to submission of traditional clinical
endpoint efficacy trial data. It should be noted that FDA licensure based on accelerated approval nevertheless requires sponsors
to conduct a post-licensure clinical endpoint efficacy study to demonstrate the clinical benefit of the vaccine, which would thereby
support traditional approval of the vaccine. Because it is not possible to conduct a clinical endpoint efficacy study for a pandemic
vaccine in advance of a declared pandemic, FDA’s pandemic guidance allows for submission of seasonal influenza clinical efficacy
data for the purpose of confirming clinical benefit of a pandemic vaccine manufactured by the same process. Thus, the demonstration
of efficacy with a seasonal vaccine provides a key link between the seasonal and pandemic programs. Accelerated approval further
necessitates a shortage of influenza vaccine relative to the total population recommended to receive such vaccine, a situation
that persists with seasonal influenza vaccines.
Although we have not
ruled out this accelerated approval approach, particularly for our pandemic program or certain subject populations within the seasonal
influenza program, we do not expect to pursue accelerated approval of our quadrivalent seasonal influenza vaccine, largely because
of the uncertainty as to whether the accelerated approval pathway will be available to us at the time of our BLA submissions and
the unknown ability of current and new influenza strains to meet such accelerated approval criteria. We are planning, therefore,
to pursue traditional licensure of our quadrivalent seasonal influenza vaccine by conducting a clinical endpoint efficacy study
for the purpose of submitting the data within the original BLA. Positive efficacy data would also support the requirement for clinical
efficacy data for our pandemic vaccine program. We plan to discuss with the FDA our licensure pathways (both the traditional pathway
for seasonal and possible accelerated pathways for pandemic and certain subject populations within the seasonal program) during
future formal meetings. The impact of such an efficacy trial could potentially delay FDA licensure by a year or more of our seasonal
influenza vaccine.
HHS BARDA Contract
for Recombinant Influenza Vaccines
HHS BARDA awarded us
a contract in February 2011, which funds the development of both our seasonal and pandemic influenza vaccine candidates. The contract,
valued at $97 million for the first three-year base-period, was extended in February 2014 by seven months to September 2014; this
extension was intended to allow us to continue to access base-period funding. Following discussions in the second quarter of 2014,
at HHS BARDA’s request, we presented our progress to date and plan forward to representatives of the Department of Health
and Human Services in order to determine how potential contract modifications will be structured to
allow development activities and funding to continue under our contract beyond September 2014. In addition, the contract
provides $79 million for an HHS BARDA optional two-year period. Our contract with HHS BARDA is a cost-plus-fixed-fee contract in
which they reimburse us for allowable direct contract costs, allowable indirect costs and a fixed-fee earned in the ongoing clinical
development and product scale-up of our multivalent seasonal and monovalent pandemic influenza vaccine candidates. HHS BARDA originally
directed us to develop our monovalent pandemic influenza vaccine against the A(H5N1) strain. With the recent amendment, we are
developing our monovalent pandemic influenza vaccine against the A(H7N9) strain; nevertheless, our H5N1 vaccine program, while
not a current development priority, remains a viable potential development opportunity under the contract. We recognized revenue
of $12.5 million during the six months ended June 30, 2014, and have recognized approximately $65
million in revenue since
the inception of the contract. Under certain circumstances, HHS BARDA reimbursements may be delayed or even potentially withheld.
In March 2012, we decided to conduct a Phase 2 clinical trial of our quadrivalent seasonal influenza vaccine candidate in Australia
(the 205 Trial) under appropriate local regulatory authorization. Based on our discussions with HHS BARDA in 2012, the outside
clinical trial costs for the 205 Trial may only be submitted for reimbursement to HHS BARDA and recorded as revenue by us after
we submit the clinical trial data in a future quadrivalent investigational new drug application (Quadrivalent IND), and those costs
are approved by HHS BARDA. The Quadrivalent IND is expected to be submitted shortly before we initiate the next Phase 2 dose-confirmatory
clinical trial, which is currently expected in the fourth quarter of 2014. The outside clinical trial costs of the 205 Trial conducted
in 2012 total $2.9 million. These costs have been recorded as an expense in the period incurred as a cost of government contracts
revenue.
LG Life Sciences,
Ltd. (LGLS) License Agreement
In February 2011, we
entered into a license agreement with LGLS that allows LGLS to use our technology to develop and commercially sell our influenza
vaccines in South Korea and certain other emerging-market countries. LGLS received an exclusive license to our influenza VLP technology
in South Korea and a non-exclusive license in the other specified countries. At its own cost, LGLS is responsible for funding both
its clinical development of the influenza VLP vaccines and a manufacturing facility to produce such vaccines in South Korea. We
received an upfront payment and may receive reimbursements of certain development and product costs, payments related to the achievement
of certain milestones and royalty payments in the high single digits from LGLS’s future commercial sales of influenza VLP
vaccines.
Combination Respiratory (Influenza and
RSV)
With the ongoing development
of both our RSV F vaccine candidate (as a potential annual seasonal vaccine for the elderly) and our seasonal influenza vaccine
candidate, we see an important opportunity to develop a combination respiratory vaccine for the elderly population, although we
have not ruled out developing a combination respiratory vaccine for children and infants. Early pre-clinical development efforts
and data from animal models have given us confidence that such a combination vaccine is viable and provides acceptable immunogenicity.
We intend to explore this development opportunity by conducting a Phase 1 clinical trial in such a combination vaccine in early 2015.
CPLB Programs (India)
Influenza
CPLB initiated Phase
1/2 clinical trials on its seasonal trivalent VLP vaccine candidate and monovalent H1N1 influenza vaccine candidate in 2012. The
results of these trials showed safety and immunogenicity data similar to our experiences, particularly when taking into account
differences between the Indian subjects’ baseline titers and the baseline titers of the subjects in our trials. In October
2013, CPLB initiated the manufacture of Phase 3 material in anticipation of starting Phase 3 clinical trials for both vaccine candidates
in 2014, applications for which have been approved by the office of the Drug Controller General of India. CPLB initiated the Phase
3 trial of its monovalent H1N1 influenza vaccine candidate in July 2014 and has indicated that it anticipates initiating the Phase
3 clinical trial for its seasonal trivalent VLP vaccine candidate in the second half of 2014.
Rabies
CPLB is developing
a rabies G protein vaccine candidate that we genetically engineered and has initiated a Phase 1/2 clinical trial in India in January
2014. Our common objective with CPLB is to develop a recombinant vaccine that can be administered both as a pre-exposure prophylaxis
for residents of certain higher-risk geographies, as well as travelers to such locations, and also has potential to provide post-exposure
prophylaxis with fewer doses. Pre-clinical results have demonstrated that this vaccine candidate has the potential to evoke antibody
responses that are active in the neutralization of the rabies virus and could prevent the virus from entering the central nervous
system, thus preventing death. The CPLB candidate protects mice from rabies in an assay known as the NIH potency test, which is
used as one predictor of the clinical effect of rabies vaccines.
Discovery Programs
Our vaccine platform
technology provides an efficient system to rapidly develop antigens to selected targets, refine manufacturing processes and optimize
development across multiple vaccine candidates. We pay close attention to global reports of emerging diseases for which there do
not appear to be immediate cures and where a vaccine protocol could offer potential protection. In addition to our response to
the A(H7N9) influenza strain (see discussion above), we have been monitoring reports concerning the Middle East Respiratory Syndrome
Coronavirus (MERS), a novel coronavirus first identified in September 2012 by an Egyptian virologist. MERS became an emerging threat
in 2013, with the WHO currently reporting more than 800 confirmed cases of infection and approximately 300 deaths. The MERS virus
is a part of the coronavirus family that includes the severe acute respiratory syndrome coronavirus (SARS). Because of the public
health priority given to MERS, within weeks of getting the virus’ sequence, we successfully produced a vaccine candidate
designed to provide protection against MERS. This vaccine candidate, which was made using our recombinant nanoparticle vaccine
technology, is based on the major surface spike protein, which we had earlier identified as the antigen of choice in our work with
a SARS vaccine candidate. In April 2014, in collaboration with the University of Maryland School of Medicine, we published results
that showed our investigational vaccine candidates against both MERS and SARS blocked infection in laboratory studies. Although
the development of a MERS vaccine candidate currently remains a pre-clinical program, we believe that our MERS vaccine candidate
offers a viable option to interested global public health authorities.
Sales of Common Stock
In October 2012, we
entered into an At Market Issuance Sales Agreement (2012 Sales Agreement), under which our Board of Directors (the Board) approved
the sale of up to an aggregate of $50 million in gross proceeds of our common stock. The shares of common stock are potentially
available pursuant to a shelf registration statement filed with the SEC in March 2013, which replaced the previous shelf registration
statement filed in 2010. The Board’s standing Finance Committee (the Finance Committee) assists with the Board’s responsibilities
to monitor, provide advice to our senior management and approve capital raising activities that are not otherwise approved by the
Board. The Finance Committee has been authorized by the Board, absent any action by the Board to the contrary, to take any additional
actions necessary to carry out the Board’s authorization of the issuance and sale of the common stock pursuant to the 2012
Sales Agreement. In doing so, the Finance Committee is authorized to set the amount of shares to be sold, the period of time during
which such sales may occur and the minimum sales price per share. As of June 30, 2014, we have approximately $15 million available
under the 2012 Sales Agreement. The most recent sales that occurred under the 2012 Sales Agreement were on September 10, 2013.
In June 2014, the Company
completed a public offering of 28,750,000 shares of its common stock, including 3,750,000 shares of common stock that were issued
upon the exercise in full of an option to purchase additional shares granted to the underwriters, at a price of $4.00 per share
resulting in net proceeds of approximately $108 million.
Critical Accounting
Policies and Use of Estimates
There are no material
changes to the Company’s critical accounting policies as described in Item 7 of the Company’s Annual Report on
Form 10-K for the fiscal year ended December 31, 2013, as filed with the SEC.
Recent Accounting
Pronouncements Not Yet Adopted
We have considered
the applicability and impact of all Financial Accounting Standards Board’s Accounting Standards Updates (ASUs). In May 2014,
the Financial Accounting Standards Board issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606)
(“ASU
2014-09”), which supersedes nearly all existing revenue recognition guidance under Topic 605,
Revenue Recognition
.
The new standard requires a company to recognize revenue when it transfers goods and services to customers in an amount that reflects
the consideration that the company expects to receive for those goods or services. ASU 2014-09 defines a five-step process that
includes identifying the contract with the customer, identifying the performance obligations in the contract, determining the transaction
price, allocating the transaction prices to the performance obligations in the contract and recognizing revenue when (or as) the
entity satisfies the performance obligations. ASU 2014-09 will be effective for us on January 1, 2017. We are evaluating the potential
impact that ASU 2014-09 will have on our consolidated financial position and results of operations.
Results of Operations
The following is a
discussion of the historical financial condition and results of operations of the Company and should be read in conjunction with
the financial statements and notes thereto set forth in this Quarterly Report.
Three Months Ended June 30, 2014 and
2013
(amounts in tables are presented in thousands, except per share information)
Revenue:
|
|
Three
Months Ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
Change
2013 to
2014
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
8,259
|
|
|
$
|
3,531
|
|
|
$
|
4,728
|
|
Revenue for the three
months ended June 30, 2014 was $8.3 million as compared to $3.5 million for the same period in 2013, an increase of $4.7 million
or 134%. Revenue for the three months ended June 30, 2014 and 2013 is primarily comprised of services performed under the HHS BARDA
contract, and to a lesser extent, the PATH clinical development agreement. The increase in revenue is primarily due to the higher
level of activity in the three months ended June 30, 2014 associated with our Phase 1/2 pandemic (H7N9) clinical trial and preliminary
manufacturing work for our Phase 2 seasonal influenza clinical trial under the HHS BARDA contract, as compared to the same period
in 2013. We also had increased revenue in the three months ended June 30, 2014 associated with our Phase 2 clinical trial in women
of childbearing age under the PATH clinical development agreement.
For 2014, we expect
a significant increase in revenue associated with our increased clinical trial and product development activities under the HHS
BARDA contract to support the initiation of later-stage clinical trials of our seasonal influenza and pandemic (H7N9) influenza
vaccine candidates.
Costs and Expenses:
|
|
Three
Months Ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
Change
2013 to
2014
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of government contracts revenue
|
|
$
|
5,102
|
|
|
$
|
1,632
|
|
|
$
|
3,470
|
|
Research and development
|
|
|
15,202
|
|
|
|
10,785
|
|
|
|
4,417
|
|
General and administrative
|
|
|
5,806
|
|
|
|
4,012
|
|
|
|
1,794
|
|
Total costs and expenses
|
|
$
|
26,110
|
|
|
$
|
16,429
|
|
|
$
|
9,681
|
|
Cost
of Government Contracts Revenue
Cost of government
contracts revenue includes direct costs of salaries, laboratory supplies, consultants and subcontractors and other direct costs
associated with our process development, manufacturing, clinical, regulatory and quality assurance activities under research contracts.
Cost of government contracts revenue increased to $5.1 million for the three months ended June 30, 2014 from $1.6 million for the
same period in 2013, an increase of $3.5 million, or 213%. The increase in cost of government contracts revenue is primarily related
to the costs of our Phase 1/2 clinical trial using our H7N9 candidate and Matrix-M adjuvant and preliminary manufacturing work
for our Phase 2 seasonal influenza clinical trial. For 2014, we expect a significant increase in cost of government contracts revenue
associated with our increased clinical trial and product development activities under the HHS BARDA contract to support the initiation
of later-stage clinical trials of our seasonal influenza and pandemic (H7N9) influenza vaccine candidates.
Research
and Development Expenses
Research and development
expenses include salaries, laboratory supplies, consultants and subcontractors and other expenses associated with our process development,
manufacturing, clinical, regulatory and quality assurance activities for internally funded programs. In addition, indirect costs,
such as fringe benefits and overhead expenses, are also included in research and development expenses. Research and development
expenses increased to $15.2 million for the three months ended June 30, 2014 from $10.8 million for the same period in 2013, an
increase of $4.4 million, or 41%. Excluding the research and development expenses of $1.6 million from Novavax AB, the increase
in research and development expenses was primarily due to higher employee-related costs.
For 2014, we expect a significant increase in research and development expenses primarily due to additional RSV F vaccine candidate
clinical trials and employee-related costs to support product development of our RSV F vaccine candidate and other potential vaccine
candidates.
Costs and Expenses
by Functional Area
We track our cost of
government contracts revenue and research and development expenses by the type of costs incurred in identifying, developing, manufacturing
and testing vaccine candidates. We evaluate and prioritize our activities according to functional area and therefore believe that
project-by-project information would not form a reasonable basis for disclosure to our investors. At June 30, 2014, we had 197
employees dedicated to our research and development programs versus 131 employees as of June 30, 2013. Historically, we did not
account for internal research and development expenses by project, since our employees work time is spread across multiple programs,
and our internal manufacturing clean-room facility produces multiple vaccine candidates.
The following summarizes
our cost of government contracts revenue and research and development expenses by functional area for the three months ended June
30 (in millions).
|
|
2014
|
|
|
2013
|
|
Manufacturing
|
|
$
|
12.1
|
|
|
$
|
7.4
|
|
Vaccine Discovery
|
|
|
1.5
|
|
|
|
1.1
|
|
Clinical and Regulatory
|
|
|
6.7
|
|
|
|
3.9
|
|
Total cost of government contracts revenue and research and development expenses
|
|
$
|
20.3
|
|
|
$
|
12.4
|
|
We do not provide forward-looking
estimates of costs and time to complete our research programs due to the many uncertainties associated with vaccine development.
As we obtain data from pre-clinical studies and clinical trials, we may elect to discontinue or delay clinical trials in order
to focus our resources on more promising vaccine candidates. Completion of clinical trials may take several years or more, but
the length of time can vary substantially depending upon the phase, size of clinical trial, primary and secondary endpoints and
the intended use of the vaccine candidate. The cost of clinical trials may vary significantly over the life of a project as a result
of a variety of factors, including: the number of patients who participate in the clinical trials and the specific patient population;
the number of sites included in the clinical trials; whether clinical trial locations are domestic, international or both; the
time to enroll patients; the duration of treatment and follow-up; the safety and efficacy profile of the vaccine candidate; and
the cost and timing of, and the ability to secure, regulatory approvals.
As a result of these
uncertainties, we are unable to determine with any significant degree of certainty the duration and completion costs of our research
and development projects or when, and to what extent, we will generate future cash flows from our research projects.
General
and Administrative Expenses
General and administrative
expenses increased to $5.8 million for the three months ended June 30, 2014 from $4.0 million for the same period in 2013, an increase
of $1.8 million, or 45%. Excluding the general and administrative expenses of approximately $0.6 million from Novavax AB, the increase
was primarily due to higher employee-related costs, partially offset by lower professional fees. For 2014, we expect general and
administrative expenses to increase primarily due to a full year of expenses relating to Novavax AB and pre-commercialization activities.
Other Income (Expense):
|
|
Three
Months Ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
Change
2013 to
2014
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
20
|
|
|
$
|
48
|
|
|
$
|
(28
|
)
|
Interest expense
|
|
|
(51
|
)
|
|
|
(45
|
)
|
|
|
(6
|
)
|
Other income
|
|
|
18
|
|
|
|
―
|
|
|
|
18
|
|
Change in fair value of warrant liability
|
|
|
―
|
|
|
|
267
|
|
|
|
(267
|
)
|
Realized gains on investments
|
|
|
―
|
|
|
|
―
|
|
|
|
―
|
|
Total other income (expense)
|
|
$
|
(13
|
)
|
|
$
|
270
|
|
|
$
|
(283
|
)
|
We had total other
expense of less than $0.1
million for the three months ended June 30, 2014 compared to total other income of $0.3 million
for the same period in 2013. For the three months ended June 30, 2014, the change in fair value of the warrant liability resulted
in a $0.3 million decrease in total other income as compared to the same period in 2013. The warrants expired unexercised on July
31, 2013.
Net Loss:
|
|
Three Months Ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
Change
2013 to
2014
|
|
Net Loss:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(17,864
|
)
|
|
$
|
(12,633
|
)
|
|
$
|
(5,231
|
)
|
Net loss per share
|
|
$
|
(0.08
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
0.00
|
|
Weighted shares outstanding
|
|
|
217,178
|
|
|
|
152,312
|
|
|
|
64,866
|
|
Net loss for the three
months ended June 30, 2014 was $17.9 million, or $0.08 per share, as compared to $12.6 million, or $0.08 per share, for the same
period in 2013, an increased net loss of $5.2 million. The increased net loss was primarily due to higher research and development
spending, including higher employee-related costs.
The increase in weighted
average shares outstanding for the three months ended June 30, 2014 as compared to the same period in 2013 is primarily a result
of sales of our common stock in 2013 and shares issued in connection with the acquisition of Novavax AB.
Six Months Ended June 30, 2014 and 2013
(amounts in tables are presented in thousands, except per share information)
Revenue:
|
|
Six Months Ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
Change
2013 to
2014
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
15,721
|
|
|
$
|
7,365
|
|
|
$
|
8,356
|
|
Revenue for the six
months ended June 30, 2014 was $15.7 million as compared to $7.4 million for the same period in 2013, an increase of $8.4 million
or 113%. Revenue for the six months ended June 30, 2014 and 2013 is primarily comprised of services performed under the HHS BARDA
contract and the PATH clinical development agreement, and to a lesser extent in 2014, revenue of $1.1 million from recently acquired
Novavax AB. The increase in revenue is primarily due to the higher level of activity in the six months ended June 30, 2014 associated
with our Phase 1/2 pandemic (H7N9) clinical trial and preliminary manufacturing work for our Phase 2 seasonal influenza clinical
trial under the HHS BARDA contract, as compared to the same period in 2013. We also had increased revenue in the six months ended
June 30, 2014 associated with our Phase 2 clinical trial in women of childbearing age under the PATH clinical development agreement.
Costs and Expenses:
|
|
Six
Months Ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
Change
2013 to
2014
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
Cost of government contracts revenue
|
|
$
|
8,123
|
|
|
$
|
3,344
|
|
|
$
|
4,779
|
|
Research and development
|
|
|
29,720
|
|
|
|
20,041
|
|
|
|
9,679
|
|
General and administrative
|
|
|
10,114
|
|
|
|
6,882
|
|
|
|
3,232
|
|
Total costs and expenses
|
|
$
|
47,957
|
|
|
$
|
30,267
|
|
|
$
|
17,690
|
|
Cost
of Government Contracts Revenue
Cost of government
contracts revenue includes direct costs of salaries, laboratory supplies, consultants and subcontractors and other direct costs
associated with our process development, manufacturing, clinical, regulatory and quality assurance activities under research contracts.
Cost of government contracts revenue increased to $8.1 million for the six months ended June 30, 2014 from $3.3 million for the
same period in 2013, an increase of $4.8 million, or 143%. The increase in cost of government contracts revenue is primarily related
to the costs of our Phase 1/2 clinical trial using our H7N9 candidate and Matrix-M adjuvant and preliminary manufacturing work
for our Phase 2 seasonal influenza clinical trial.
Research
and Development Expenses
Research and development
expenses include salaries, laboratory supplies, consultants and subcontractors and other expenses associated with our process development,
manufacturing, clinical, regulatory and quality assurance activities for internally funded programs. In addition, indirect costs,
such as fringe benefits and overhead expenses, are also included in research and development expenses. Research and development
expenses increased to $29.7 million for the six months ended June 30, 2014 from $20.0 million for the same period in 2013, an increase
of $9.7 million, or 48%. Excluding the research and development expenses of $3.4 million from Novavax AB, the increase in research
and development expenses was primarily due to higher employee-related costs and, to a lesser degree, facility costs.
Costs and Expenses
by Functional Area
The following summarizes
our cost of government contracts revenue and research and development expenses by functional area for the six months ended June
30 (in millions).
|
|
2014
|
|
|
2013
|
|
Manufacturing
|
|
$
|
22.4
|
|
|
$
|
13.2
|
|
Vaccine Discovery
|
|
|
2.8
|
|
|
|
2.6
|
|
Clinical and Regulatory
|
|
|
12.6
|
|
|
|
7.6
|
|
Total cost of government contracts revenue and
research and development expenses
|
|
$
|
37.8
|
|
|
$
|
23.4
|
|
General
and Administrative Expenses
General and administrative
expenses increased to $10.1 million for the six months ended June 30, 2014 from $6.9 million for the same period in 2013, an increase
of $3.2 million, or 47%. Excluding the general and administrative expenses of approximately $1.1 million from Novavax AB, the increase
was primarily due to higher employee-related costs, partially offset by lower professional fees.
Other Income (Expense):
|
|
Six Months Ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
Change
2013 to
2014
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
32
|
|
|
$
|
95
|
|
|
$
|
(63
|
)
|
Interest expense
|
|
|
(103
|
)
|
|
|
(68
|
)
|
|
|
(35
|
)
|
Other income
|
|
|
18
|
|
|
|
―
|
|
|
|
18
|
|
Change in fair value of warrant liability
|
|
|
―
|
|
|
|
267
|
|
|
|
(267
|
)
|
Realized gains on investments
|
|
|
615
|
|
|
|
―
|
|
|
|
615
|
|
Total other income (expense)
|
|
$
|
562
|
|
|
$
|
294
|
|
|
$
|
268
|
|
We had total other
income of $0.6
million for the six months ended June 30, 2014 compared to total other income of $0.3 million for the same
period in 2013. The change in fair value of the warrant liability resulted in a $0.3 million decrease in total other income for
the six months ended June 30, 2014 as compared to the same period in 2013. The warrants expired unexercised on July 31, 2013.
For the six months ended June 30, 2014, we sold our remaining auction rate security and received proceeds of $1.8 million resulting
in a realized gain of $0.6 million.
Net Loss:
|
|
Six Months Ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
Change
2013 to
2014
|
|
Net Loss:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(31,674
|
)
|
|
$
|
(22,630
|
)
|
|
$
|
(9,044
|
)
|
Net loss per share
|
|
$
|
(0.15
|
)
|
|
$
|
(0.15
|
)
|
|
$
|
0.00
|
|
Weighted shares outstanding
|
|
|
213,075
|
|
|
|
150,391
|
|
|
|
62,684
|
|
Net loss for the six
months ended June 30, 2014 was $31.7 million, or $0.15 per share, as compared to $22.6 million, or $0.15 per share, for the same
period in 2013, an increased net loss of $9.0 million. The increased net loss was primarily due to higher research and development
spending, including higher employee-related costs.
The increase in weighted
average shares outstanding for the six months ended June 30, 2014 as compared to the same period in 2013 is primarily a result
of sales of our common stock in 2013 and shares issued in connection with the acquisition of Novavax AB.
Liquidity Matters
and Capital Resources
Our future capital
requirements depend on numerous factors including, but not limited to, the commitments related to and progress of, our research
and development programs, the progress of pre-clinical and clinical testing, the time and costs involved in obtaining regulatory
approvals, the costs of filing, prosecuting, defending and enforcing 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 operating
expenses and capital requirements will fluctuate depending upon the timing of certain events, such as the scope, initiation, rate
and progress of our pre-clinical studies and clinical trials and other research and development activities.
As of June 30, 2014,
we had $208.8 million in cash and cash equivalents and investments as compared to $133.1 million as of December 31, 2013. These
amounts consisted of $103.9 million in cash and cash equivalents and $105.0 million in investments as of June 30, 2014 as compared
to $119.5 million in cash and cash equivalents and $13.6 million in investments at December 31, 2013.
The following table
summarizes cash flows for the six months ended June 30, 2014 and 2013 (in thousands):