Item 1. Financial Statements
NOVAVAX, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share
information)
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
113,402
|
|
|
$
|
106,307
|
|
Marketable securities
|
|
|
30,358
|
|
|
|
50,996
|
|
Restricted cash
|
|
|
19,548
|
|
|
|
28,234
|
|
Prepaid expenses and other current assets
|
|
|
17,726
|
|
|
|
17,774
|
|
Total current assets
|
|
|
181,034
|
|
|
|
203,311
|
|
Restricted cash
|
|
|
891
|
|
|
|
890
|
|
Property and equipment, net
|
|
|
32,422
|
|
|
|
35,987
|
|
Intangible assets, net
|
|
|
7,575
|
|
|
|
7,873
|
|
Goodwill
|
|
|
53,286
|
|
|
|
53,563
|
|
Other non-current assets
|
|
|
859
|
|
|
|
869
|
|
Total assets
|
|
$
|
276,067
|
|
|
$
|
302,493
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
5,770
|
|
|
$
|
5,613
|
|
Accrued expenses
|
|
|
19,225
|
|
|
|
29,610
|
|
Accrued interest
|
|
|
2,031
|
|
|
|
5,078
|
|
Deferred revenue
|
|
|
16,377
|
|
|
|
25,625
|
|
Other current liabilities
|
|
|
1,501
|
|
|
|
7,749
|
|
Total current liabilities
|
|
|
44,904
|
|
|
|
73,675
|
|
Deferred revenue
|
|
|
2,500
|
|
|
|
2,500
|
|
Convertible notes payable
|
|
|
318,119
|
|
|
|
317,763
|
|
Other non-current liabilities
|
|
|
9,913
|
|
|
|
10,287
|
|
Total liabilities
|
|
|
375,436
|
|
|
|
404,225
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ deficit:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value, 2,000,000 shares authorized; no shares issued and outstanding as of March 31, 2018 and December 31, 2017, respectively
|
|
|
—
|
|
|
|
—
|
|
Common stock, $0.01 par value, 600,000,000 shares authorized at March 31, 2018 and December 31, 2017; 347,204,416 shares issued and 346,748,986 shares outstanding at March 31, 2018 and 323,684,820 shares issued and 323,229,390 shares outstanding at December 31, 2017
|
|
|
3,472
|
|
|
|
3,237
|
|
Additional paid-in capital
|
|
|
1,069,391
|
|
|
|
1,020,457
|
|
Accumulated deficit
|
|
|
(1,160,711
|
)
|
|
|
(1,114,359
|
)
|
Treasury stock, 455,430 shares, cost basis at both March 31, 2018 and December 31, 2017
|
|
|
(2,450
|
)
|
|
|
(2,450
|
)
|
Accumulated other comprehensive loss
|
|
|
(9,071
|
)
|
|
|
(8,617
|
)
|
Total stockholders’ deficit
|
|
|
(99,369
|
)
|
|
|
(101,732
|
)
|
Total liabilities and stockholders’ deficit
|
|
$
|
276,067
|
|
|
$
|
302,493
|
|
The accompanying notes are an integral part
of these financial statements.
NOVAVAX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share information)
(unaudited)
|
|
Three
Months Ended
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
Grant and other
|
|
$
|
9,653
|
|
|
$
|
5,680
|
|
Total revenue
|
|
|
9,653
|
|
|
|
5,680
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
44,514
|
|
|
|
37,654
|
|
General and administrative
|
|
|
8,652
|
|
|
|
8,852
|
|
Total expenses
|
|
|
53,166
|
|
|
|
46,506
|
|
Loss from operations
|
|
|
(43,513
|
)
|
|
|
(40,826
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Investment income
|
|
|
531
|
|
|
|
474
|
|
Interest expense
|
|
|
(3,403
|
)
|
|
|
(3,513
|
)
|
Other income (expense)
|
|
|
33
|
|
|
|
11
|
|
Net loss
|
|
$
|
(46,352
|
)
|
|
$
|
(43,854
|
)
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(0.14
|
)
|
|
$
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average number of common shares outstanding
|
|
|
336,972
|
|
|
|
274,178
|
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
LOSS
(in thousands)
(unaudited)
|
|
Three Months Ended
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(46,352
|
)
|
|
$
|
(43,854
|
)
|
Other comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses) on marketable securities available-for-sale
|
|
|
8
|
|
|
|
(1
|
)
|
Foreign currency translation adjustment
|
|
|
(462
|
)
|
|
|
480
|
|
Other comprehensive (loss) income
|
|
|
(454
|
)
|
|
|
479
|
|
Comprehensive loss
|
|
$
|
(46,806
|
)
|
|
$
|
(43,375
|
)
|
The accompanying notes are an integral part
of these financial statements.
NOVAVAX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
|
Three Months Ended
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(46,352
|
)
|
|
$
|
(43,854
|
)
|
Reconciliation of net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
2,079
|
|
|
|
2,111
|
|
(Gain) Loss on disposal of property and equipment
|
|
|
(47
|
)
|
|
|
65
|
|
Non-cash impact of lease termination
|
|
|
(4,381
|
)
|
|
|
―
|
|
Amortization of debt issuance costs
|
|
|
356
|
|
|
|
356
|
|
Lease incentives received
|
|
|
―
|
|
|
|
1,248
|
|
Non-cash stock-based compensation
|
|
|
5,245
|
|
|
|
4,213
|
|
Other
|
|
|
(435
|
)
|
|
|
(6
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses and other assets
|
|
|
―
|
|
|
|
1,093
|
|
Accounts payable and accrued expenses
|
|
|
(13,293
|
)
|
|
|
(4,867
|
)
|
Deferred revenue
|
|
|
(9,247
|
)
|
|
|
(5,399
|
)
|
Other liabilities
|
|
|
―
|
|
|
|
543
|
|
Net cash used in operating activities
|
|
|
(66,075
|
)
|
|
|
(44,497
|
)
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(150
|
)
|
|
|
(1,084
|
)
|
Proceeds from maturities of marketable securities
|
|
|
22,721
|
|
|
|
86,130
|
|
Purchases of marketable securities
|
|
|
(1,984
|
)
|
|
|
(110,330
|
)
|
Net cash provided by (used in) investing activities
|
|
|
20,587
|
|
|
|
(25,284
|
)
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
Principal payments on capital lease
|
|
|
―
|
|
|
|
(18
|
)
|
Net proceeds from sales of common stock
|
|
|
42,599
|
|
|
|
14,585
|
|
Proceeds from the exercise of stock options and employee stock purchases
|
|
|
1,325
|
|
|
|
797
|
|
Net cash provided by financing activities
|
|
|
43,924
|
|
|
|
15,364
|
|
Effect of exchange rate on cash, cash equivalents and restricted cash
|
|
|
(26
|
)
|
|
|
31
|
|
Net decrease in cash, cash equivalents and restricted cash
|
|
|
(1,590
|
)
|
|
|
(54,386
|
)
|
Cash, cash equivalents and restricted cash at beginning of period
|
|
|
135,431
|
|
|
|
179,257
|
|
Cash, cash equivalents and restricted cash at end of period
|
|
$
|
133,841
|
|
|
$
|
124,871
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash activities:
|
|
|
|
|
|
|
|
|
Sale of common stock under the Sales Agreement not settled at quarter-end
|
|
$
|
—
|
|
|
$
|
225
|
|
Property and equipment purchases included in accounts payable and accrued expenses
|
|
$
|
62
|
|
|
$
|
823
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash payments of interest
|
|
$
|
6,094
|
|
|
$
|
6,094
|
|
The accompanying notes are an integral part
of these financial statements.
NOVAVAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(unaudited)
Note 1 – Organization
Novavax, Inc. (“Novavax,”
and together with its wholly owned subsidiary, Novavax AB, the “Company”) is a clinical-stage biotechnology company
focused on the discovery, development and commercialization of recombinant nanoparticle vaccines and adjuvants. Using innovative
proprietary recombinant nanoparticle vaccine technology, and its proprietary saponin-based adjuvant technology, the Company produces
vaccine candidates to efficiently and effectively respond to both known and emerging disease threats. The Company’s vaccine
candidates are genetically engineered three-dimensional nanostructures that incorporate recombinant proteins critical to disease
pathogenesis and may elicit differentiated immune responses, which may be more efficacious than naturally occurring immunity or
traditional vaccines. The Company’s product pipeline targets a variety of infectious diseases, with lead clinical vaccine
candidates against respiratory syncytial virus (“RSV”) and influenza, along with other clinical and preclinical infectious
disease vaccine candidates.
Note 2 – Liquidity
The Company’s vaccine
candidates currently under development, some of which include adjuvants, will require significant additional research and development
efforts that can include extensive preclinical studies, clinical testing and regulatory approval prior to commercial use.
As a clinical-stage
biotechnology company, the Company has primarily funded its operations with proceeds from the sale of its common stock in equity
offerings, the issuance of convertible debt, revenue under its grant agreement (“Grant Agreement”) with the Bill &
Melinda Gates Foundation (“BMGF”), and in past years, under its former contract with the Department of Health and Human
Services, Biomedical Advanced Research and Development Authority (“HHS BARDA”).
Management regularly reviews
the Company’s cash and cash equivalents and marketable securities relative to 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
support its product development activities. Based on the Company’s most recent cash flow forecast, the Company believes its
current capital, along with anticipated revenue under the Grant Agreement (see Note 10) and the proceeds from the public offering
of the Company’s common stock in April 2018 (see Note 8), is sufficient to fund its operating plans for a minimum of twelve
months from the date that this Quarterly Report was filed. The Company plans to meet its near term capital requirements primarily
through cash and investments on hand, and a combination of equity and debt financings, collaborations, strategic alliances and
marketing distribution or licensing arrangements and in the longer term, from revenue related to product sales, to the extent its
product candidates receive marketing approval and can be commercialized. There can be no assurances that new financings will be
available to the Company on commercially acceptable terms, if at all. Also, any collaborations, strategic alliances and marketing
distribution or licensing arrangements may require the Company to give up some or all rights to a product or technology at less
than its full potential value. If the Company is unable to perform under the Grant Agreement or obtain additional capital, the
Company will assess its capital resources and may be required to delay, reduce the scope of, or eliminate one or more of its product
research and development programs, and/or downsize its organization, including its general and administrative infrastructure.
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 March 31, 2018, the consolidated statements of operations and the consolidated
statements of comprehensive loss for the three months ended March 31, 2018 and 2017 and the consolidated statements of cash flows
for the three months ended March 31, 2018 and 2017 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 unaudited 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 functional currency of Novavax AB, which is located in Sweden,
is the local currency (Swedish Krona). The translation of assets and liabilities of Novavax AB 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 the 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 accumulated other comprehensive loss in the accompanying consolidated balance sheets. The foreign currency translation adjustment
balance included in accumulated other comprehensive loss was $9.1 million and $8.6 million at March 31, 2018 and December 31, 2017,
respectively.
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, 2017. 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 the
consolidated financial statements in conformity with accounting principles generally accepted in the United States, requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ materially from those 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):
|
|
March
31,
2018
|
|
|
December 31,
2017
|
|
Cash
|
|
$
|
13,448
|
|
|
$
|
10,482
|
|
Money market funds
|
|
|
31,056
|
|
|
|
36,762
|
|
Asset-backed securities
|
|
|
18,750
|
|
|
|
16,007
|
|
Corporate debt securities
|
|
|
50,148
|
|
|
|
43,056
|
|
Cash and cash equivalents
|
|
$
|
113,402
|
|
|
$
|
106,307
|
|
Cash equivalents are recorded
at cost, 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
(“ASC 820”), 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.
|
Marketable Securities
Marketable securities consist
of debt securities that include commercial paper, asset-backed securities and corporate notes. Classification of marketable securities
between current and non-current is dependent upon the maturity date at the balance sheet date taking into consideration the Company’s
ability and intent to hold the investment to maturity.
Interest and dividend income
is recorded when earned and included in investment income in the consolidated statements of operations. Premiums and discounts,
if any, on marketable securities are amortized or accreted to maturity and included in investment income in the consolidated statements
of operations. The specific identification method is used in computing realized gains and losses on the sale of the Company’s
securities.
The Company classifies
its marketable securities with readily determinable fair values as “available-for-sale.” Investments in securities
that are classified as available-for-sale are measured at fair market value in the consolidated balance sheets, and unrealized
holding gains and losses on marketable securities are reported as a separate component of stockholders’ deficit until realized.
Marketable securities 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 as other income (expense) in the consolidated statements of operations.
Restricted Cash
The Company’s current
and non-current restricted cash includes payments received under the Grant Agreement (see Note 10) and cash collateral accounts
under letters of credit that serve as security deposits for certain facility leases. The Company will utilize the Grant Agreement
funds as it incurs expenses for services performed under the agreement. At March 31, 2018 and December 31, 2017, the restricted
cash balances (both current and non-current) consist of payments received under the Grant Agreement of $18.7 million and $27.4
million, respectively, and security deposits of $1.7 million at both dates.
The following table provides
a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the
total of the same such amounts shown in the statement of cash flows (in thousands):
|
|
March
31,
2018
|
|
|
December 31,
2017
|
|
Cash and cash equivalents
|
|
$
|
113,402
|
|
|
$
|
106,307
|
|
Restricted cash current
|
|
|
19,548
|
|
|
|
28,234
|
|
Restricted cash non-current
|
|
|
891
|
|
|
|
890
|
|
Cash, cash equivalents and restricted cash
|
|
$
|
133,841
|
|
|
$
|
135,431
|
|
Revenue Recognition
In May 2014, the Financial
Accounting Standards Board (“FASB”), issued Accounting Standards Update (“ASU”) 2014-09,
Revenue
from Contracts with Customers (Topic 606)
(“ASU 2014-09”), and subsequently issued amendments to ASU 2014-09, to
supersede nearly all existing revenue recognition guidance under U.S. GAAP. The new revenue standard became effective for the Company
on January 1, 2018, and was adopted using the modified retrospective method. The adoption of the new revenue standard as of January
1, 2018 did not materially change the Company’s revenue recognition policies as the majority of its revenue continues to
be recognized under the Grant Agreement (see discussion below). Since the Company did not identify any accounting changes that
impacts its revenue recognition policies, no adjustment to accumulated deficit was required upon adoption.
Under the new revenue standard
for arrangements that are determined within the scope of Topic 606, the Company recognizes revenue following the five-step model:
(i) identify the contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the
transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue
when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when
it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers
to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses
the goods or services promised within each contract and determines the performance obligations, and assesses whether each promised
good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated
to the respective performance obligation when (or as) the performance obligation is satisfied.
The Company performs research
and development under grant, license and clinical development agreements. Payments received in advance of work performed are recorded
as deferred revenue.
The Company’s current
revenue primarily consists of revenue under its Grant Agreement with BMGF (see Note 10). The Company is reimbursed for certain
costs that support development activities, including the Company’s global Phase 3 clinical trial in pregnant women in their
third trimester, product licensing efforts and efforts to obtain World Health Organization (“WHO”) prequalification
of its RSV F Vaccine. The Company’s Grant Agreement does not provide a direct economic benefit to BMGF. Rather, the Company
entered into an agreement with BMGF to make a certain amount of the RSV F Vaccine available and accessible at affordable pricing
to people in certain low and middle income countries. Based on these circumstances, the Company does not consider BMGF to be a
customer and concluded the Grant Agreement is outside the scope of Topic 606. Payments received under the Grant Agreement are considered
conditional contributions under the scope of ASC 958-605,
Not-for-Profit Entities – Revenue Recognition,
and are recorded
as deferred revenue until the period in which such research and development activities are performed and revenue can be recognized.
The Company analyzed the
Grant Agreement 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 considered a number of factors, including whether the Company is principal
under the arrangement, and whether the arrangement is significant to, and part of, the Company’s core operations. Further,
management has consistently applied its policy of presenting such amounts as revenue.
Income Taxes
In December 2017, the SEC
issued Staff Accounting Bulletin No. 118,
Income Tax Accounting Implications of the Tax Cuts and Jobs Act
(“SAB
118”), which provides guidance on accounting for the tax effects of the Tax Cuts and Jobs Act of 2017 (the “Act”)
and allows the Company to record provisional amounts during the measurement period not to extend beyond one year of the enactment
date. The Company was able to reasonably estimate certain effects of the Act as of December 31, 2017 and has not changed the preliminary
estimates as of March 31, 2018. The Company expects to complete its analysis within the measurement period in accordance with SAB
118, although it does not expect there to be any adjustment to the income tax expense on the Company’s consolidated statement
of operations during the re-measurement period.
Net Loss per Share
Net loss per share is computed
using the weighted average number of shares of common stock outstanding. At March 31, 2018 and 2017, the Company had outstanding
stock options and unvested restricted stock awards totaling 45,126,499 and 38,202,248 respectively. At March 31, 2018, the Company’s
Notes (see Note 7) were convertible into approximately 47,716,900 shares of the Company’s common stock. These and any shares
due to the Company upon settlement of its capped call transactions are excluded from the computation, as their effect is antidilutive.
Recent Accounting Pronouncements
Recently Adopted
In May 2014, the FASB 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
price to the performance obligations in the contract and recognizing revenue when (or as) the entity satisfies the performance
obligations. The Company completed its assessment of the potential changes from adopting ASU 2014-09, primarily by reviewing its
current revenue streams and deferred revenue balances. Based on the Company’s assessment, there were no material changes
to the recognition of its revenue. The Company applied ASU 2014-09 on a modified retrospective basis as of January 1, 2018.
In November 2016,
the FASB issued ASU 2016-18,
Statement of Cash Flows - Restricted Cash
(“ASU 2016-18”), which requires that
the change in total cash and cash equivalents at the beginning of period and end of period on the statement of cash flows include
restricted cash and restricted cash equivalents. ASU 2016-18 also requires companies who report cash and cash equivalents and restricted
cash separately on the balance sheet to reconcile those amounts to the statement of cash flows. The standard was adopted on its
effective date of January 1, 2018, and was applied using a retrospective transition method to each period presented. Although the
Company’s restricted cash is now included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period
total amounts shown on the statements of cash flows, the adoption did not have a material impact on the other aspects of the Company’s
cash flow statements, or its consolidated financial statements as a whole, including related disclosures.
Not Yet Adopted
In February 2016, the FASB
issued ASU 2016-02,
Leases (Topic 842)
that increases transparency and comparability among organizations by requiring
the recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements
for both lessees and lessors. The standard will be effective January 1, 2019 for the Company, with early adoption permitted. The
standard will be applied using a modified retrospective approach to the beginning of the earliest period presented in the financial
statements. The Company is expecting to adopt this standard on January 1, 2019 and is currently evaluating the potential
impact to its consolidated financial statements and related disclosures.
In January 2017, the FASB
issued ASU No. 2017-04,
Intangibles-Goodwill and Other (Topic 350)
(“ASU 2017-04”), which
will simplify the goodwill impairment calculation by eliminating Step 2 from the current goodwill impairment test. The new standard
does not change how a goodwill impairment is identified. The Company will continue to perform its quantitative goodwill impairment
test by comparing the fair value of its reporting unit to its carrying amount, but if the Company is required to recognize a goodwill
impairment charge, under the new standard, the amount of the charge will be calculated by subtracting the reporting unit’s
fair value from its carrying amount. Under the current standard, if the Company is required to recognize a goodwill impairment
charge, Step 2 requires it to calculate the implied value of goodwill by assigning the fair value of a reporting unit to all of
its assets and liabilities as if that reporting unit had been acquired in a business combination and the amount of the charge is
calculated by subtracting the reporting unit’s implied fair value of goodwill from the goodwill carrying amount. The standard
will be effective January 1, 2020 for the Company, with early adoption permitted, and should be applied prospectively from the
date of adoption. The Company is currently evaluating when it will adopt ASU 2017-04 and its expected impact to related disclosures.
Note 4 – Fair Value Measurements
The
following table represents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value
(in thousands):
|
|
Fair Value at March 31, 2018
|
|
|
Fair Value at December 31, 2017
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds(1)
|
|
$
|
31,056
|
|
|
$
|
―
|
|
|
$
|
―
|
|
|
$
|
36,762
|
|
|
$
|
―
|
|
|
$
|
―
|
|
Asset-backed securities(2)
|
|
|
―
|
|
|
|
28,496
|
|
|
|
―
|
|
|
|
―
|
|
|
|
29,750
|
|
|
|
―
|
|
Corporate debt securities(3)
|
|
|
―
|
|
|
|
70,760
|
|
|
|
―
|
|
|
|
―
|
|
|
|
80,309
|
|
|
|
―
|
|
Total assets
|
|
$
|
31,056
|
|
|
$
|
99,256
|
|
|
$
|
―
|
|
|
$
|
36,762
|
|
|
$
|
110,059
|
|
|
$
|
―
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable
|
|
$
|
―
|
|
|
$
|
228,621
|
|
|
$
|
―
|
|
|
$
|
―
|
|
|
$
|
152,396
|
|
|
$
|
―
|
|
|
(1)
|
Classified as cash and cash equivalents as of March 31, 2018 and December 31, 2017, respectively
(see Note 3).
|
|
(2)
|
Includes $18,750 and $16,007 classified as cash and cash equivalents as of March 31, 2018 and December
31, 2017, respectively (see Note 3).
|
|
(3)
|
Includes $50,148 and $43,056 classified as cash and cash equivalents as of March 31, 2018 and December
31, 2017, respectively (see Note 3).
|
Fixed-income investments
categorized as Level 2 are valued at the custodian bank by a third-party pricing vendor’s valuation models that use verifiable
observable market data, e.g., interest rates and yield curves observable at commonly quoted intervals and credit spreads, bids
provided by brokers or dealers or quoted prices of securities with similar characteristics. Pricing of the Company’s
Notes (see Note 7) has been estimated using other observable inputs, including the price of the Company’s common stock, implied
volatility, interest rates and credit spreads among others. Over time, the Company expects a market for the Notes to develop. At
that time, the Company intends to use trade data as the principal basis for measuring fair value.
During the three months ended March 31, 2018,
the Company did not have any transfers between levels
.
The amount in the Company’s unaudited
consolidated balance sheets for accounts payable approximates its fair value due to its short-term nature.
Note 5 – Marketable Securities
Marketable securities classified
as available-for-sale as of March 31, 2018 and December 31, 2017 were comprised of (in thousands):
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
Asset-backed securities
|
|
$
|
9,749
|
|
|
$
|
—
|
|
|
$
|
(3
|
)
|
|
$
|
9,746
|
|
|
$
|
13,748
|
|
|
$
|
—
|
|
|
$
|
(5
|
)
|
|
$
|
13,743
|
|
Corporate debt securities
|
|
|
20,618
|
|
|
|
—
|
|
|
|
(6
|
)
|
|
|
20,612
|
|
|
|
37,265
|
|
|
|
—
|
|
|
|
(12
|
)
|
|
|
37,253
|
|
Total
|
|
$
|
30,367
|
|
|
$
|
—
|
|
|
$
|
(9
|
)
|
|
$
|
30,358
|
|
|
$
|
51,013
|
|
|
$
|
—
|
|
|
$
|
(17
|
)
|
|
$
|
50,996
|
|
Marketable Securities
– Unrealized Losses
The primary objective of
the Company’s investment policy is the preservation of capital; thus, the Company’s investment policy limits investments
to certain types of instruments with high-grade credit ratings, places restrictions on maturities and concentrations in certain
industries and requires the Company to maintain a certain level of liquidity.
The Company owned 11 available-for-sale
securities as of March 31, 2018. Of these 11 securities, 10 had combined unrealized losses of less than $0.1 million as of March
31, 2018. The Company did not have any investments in a loss position for greater than 12 months as of March 31, 2018. The Company
has evaluated its marketable securities and has determined that none of these investments had an other-than-temporary impairment,
as it has no intent to sell securities with unrealized losses and it is not likely that the Company will be required to sell any
securities with unrealized losses, given the Company’s current and anticipated financial position.
Note 6 – Goodwill and Other Intangible
Assets
Goodwill
The change in the carrying amounts of goodwill
for the three months ended March 31, 2018 was as follows (in thousands):
|
|
Amount
|
|
Balance at December 31, 2017
|
|
$
|
53,563
|
|
Currency translation adjustments
|
|
|
(277
|
)
|
Balance at March 31, 2018
|
|
$
|
53,286
|
|
Identifiable Intangible Assets
Purchased intangible assets consisted of the
following as of March 31, 2018 and December 31, 2017 (in thousands):
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Intangible
Assets, Net
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Intangible
Assets, Net
|
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary adjuvant technology
|
|
$
|
8,959
|
|
|
$
|
(2,090
|
)
|
|
$
|
6,869
|
|
|
$
|
9,086
|
|
|
$
|
(2,006
|
)
|
|
$
|
7,080
|
|
Collaboration agreements
|
|
|
4,045
|
|
|
|
(3,339
|
)
|
|
|
706
|
|
|
|
4,103
|
|
|
|
(3,310
|
)
|
|
|
793
|
|
Total identifiable intangible assets
|
|
$
|
13,004
|
|
|
$
|
(5,429
|
)
|
|
$
|
7,575
|
|
|
$
|
13,189
|
|
|
$
|
(5,316
|
)
|
|
$
|
7,873
|
|
Amortization expense for
the three months ended March 31, 2018 and 2017 was $0.2 million.
Estimated amortization
expense for existing intangible assets for the remainder of 2018 and for each of the five succeeding years ending December 31 will
be as follows (in thousands):
Year
|
|
Amount
|
|
2018 (remainder)
|
|
$
|
563
|
|
2019
|
|
|
751
|
|
2020
|
|
|
625
|
|
2021
|
|
|
448
|
|
2022
|
|
|
448
|
|
2023
|
|
|
448
|
|
Note 7 – Long-Term Debt
Convertible Notes
The Company incurred approximately
$10.0 million of debt issuance costs during the first quarter of 2016 relating to the issuance of $325 million
aggregate
principal amount of convertible senior unsecured notes that will mature on
February 1, 2023
(the
“Notes”)
, which were recorded as a reduction to the Notes on the consolidated balance sheet. The $10.0 million
of debt issuance costs is being amortized and recognized as additional interest expense over the seven-year contractual term of
the Notes on a straight-line basis, which approximates the effective interest rate method.
Total convertible notes payable consisted of
the following at (in thousands):
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
Principal amount of Notes
|
|
$
|
325,000
|
|
|
$
|
325,000
|
|
Unamortized debt issuance costs
|
|
|
(6,881
|
)
|
|
|
(7,237
|
)
|
Total convertible notes payable
|
|
$
|
318,119
|
|
|
$
|
317,763
|
|
Interest expense incurred in connection with
the Notes consisted of the following (in thousands):
|
|
Three Months Ended
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Coupon interest at 3.75%
|
|
$
|
3,047
|
|
|
$
|
3,047
|
|
Amortization of debt issuance costs
|
|
|
356
|
|
|
|
356
|
|
Total interest expense on Notes
|
|
$
|
3,403
|
|
|
$
|
3,403
|
|
Note 8 – Stockholders’ Deficit
In April 2018, the Company
completed a public offering of 34,848,507 shares of its common stock, including 4,545,457 shares of common stock that were issued
upon the exercise in full of the option to purchase additional shares granted to the underwriters, at a price of $1.65 per share
resulting in net proceeds of approximately $54 million.
In December 2017, the Company
entered into an At Market Issuance Sales Agreement (“December 2017 Sales Agreement”), which allows it to issue and
sell up to $75 million in gross proceeds of its common stock. From January 17, 2018 through March 31, 2018, the Company sold 15.7
million shares of common stock under the December 2017 Sales Agreement resulting in $32.3 million in net proceeds at a weighted
average sales price of $ 2.09 per share. As of March 31, 2018, the Company has approximately $42.2 million available under the
December 2017 Sales Agreement.
In January 2017, the Company
entered into an At Market Issuance Sales Agreement (“January 2017 Sales Agreement”), which allowed it to issue and
sell up to $75 million in gross proceeds of its common stock. From January 1 through January 17, 2018, the Company sold 6.8 million
shares of common stock resulting in $10.3 million in net proceeds at a weighted average sales price of $1.54. The January 2017
Sales Agreement was fully utilized at that time.
Note 9 – Stock-Based Compensation
Stock Options
The 2015 Stock Incentive
Plan, as amended, (“2015 Plan”) was approved at the Company’s annual meeting of stockholders in June 2015. Under
the 2015 Plan, equity awards may be granted to officers, directors, employees and consultants of and advisors to the Company and
any present or future subsidiary.
The 2015 Plan authorizes
the issuance of up to 36,000,000 shares of common stock under equity awards granted under the plan. All such shares authorized
for issuance under the 2015 Plan have been reserved. The Company will seek approval to increase the number of shares of common
stock available for issuance under the 2015 Plan by 20,000,000 shares at its June 2018 annual meeting of stockholders. The
2015 Plan will expire on March 4, 2025.
The Amended and Restated
2005 Stock Incentive Plan (“2005 Plan”) expired in February 2015 and no new awards may be made under such plan, although
awards will continue to be outstanding in accordance with their terms.
The 2015 Plan permits and
the 2005 Plan permitted the grant of stock options (including incentive stock options), restricted stock, stock appreciation rights
and restricted stock units. In addition, under the 2015 Plan, unrestricted stock, stock units and performance awards may be granted.
Stock options and stock appreciation rights generally have a maximum term of 10 years and may be or were granted with an exercise
price that is no less than 100% of the fair market value of the Company’s common stock at the time of grant. Grants of stock
options are generally subject to vesting over periods ranging from six months to four years.
Stock Options Awards
The following is a summary of option activity
under the 2015 Plan and 2005 Plan for the three months ended March 31, 2018:
|
|
2015 Plan
|
|
|
2005 Plan
|
|
|
|
Stock Options
|
|
|
Weighted-
Average
Exercise Price
|
|
|
Stock Options
|
|
|
Weighted-
Average
Exercise Price
|
|
Outstanding at January 1, 2018
|
|
|
33,675,720
|
|
|
$
|
3.61
|
|
|
|
12,818,929
|
|
|
$
|
3.26
|
|
Granted
|
|
|
140,500
|
|
|
$
|
1.95
|
|
|
|
—
|
|
|
$
|
—
|
|
Exercised
|
|
|
(139,645
|
)
|
|
$
|
1.35
|
|
|
|
(281,020
|
)
|
|
$
|
1.89
|
|
Canceled
|
|
|
(744,928
|
)
|
|
$
|
4.47
|
|
|
|
(343,057
|
)
|
|
$
|
4.08
|
|
Outstanding at March 31, 2018
|
|
|
32,931,647
|
|
|
$
|
3.59
|
|
|
|
12,194,852
|
|
|
$
|
3.27
|
|
Shares exercisable at March 31, 2018
|
|
|
10,614,915
|
|
|
$
|
5.86
|
|
|
|
11,789,727
|
|
|
$
|
3.22
|
|
Shares available for grant at March 31, 2018
|
|
|
2,883,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of stock
options granted under the 2015 Plan and 2005 Plan was estimated at the date of grant using the Black-Scholes option-pricing model
with the following assumptions:
|
|
Three Months Ended
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
Weighted-average Black-Scholes fair value of stock options granted
|
|
|
$1.50
|
|
|
|
$1.13
|
|
Risk-free interest rate
|
|
|
2.26%-2.54
%
|
|
|
|
1.73%-2.34%
|
|
Dividend yield
|
|
|
0%
|
|
|
|
0%
|
|
Volatility
|
|
|
113.98%-114.12
%
|
|
|
|
88.91%-109.50%
|
|
Expected term (in years)
|
|
|
4.12-4.14
|
|
|
|
4.19-7.46
|
|
Expected forfeiture rate
|
|
|
0%
|
|
|
|
0%
|
|
The total aggregate intrinsic
value and weighted-average remaining contractual term of stock options outstanding under the 2015 Plan and 2005 Plan as of March
31, 2018 was $16.9 million and 7.5 years, respectively. The total aggregate intrinsic value and weighted-average remaining contractual
term of stock options exercisable under the 2015 Plan and 2005 Plan as of March 31, 2018 was $4.4 million and 6.1 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 March 31, 2018. 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
and vesting of restricted stock awards for the three months ended March 31, 2018 and 2017 was $0.3 million and less than $0.1 million,
respectively.
Employee Stock Purchase Plan
In 2013, the Company adopted
an Employee Stock Purchase Plan (the “ESPP”), which currently authorizes an aggregate of 3,600,000 shares of common
stock to be purchased, and the aggregate amount of shares will continue to increase 5% on each anniversary of its adoption up to
a maximum of 4,000,000 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 March 31, 2018, there were 270,880 shares available for issuance
under the ESPP. The Company will seek approval to increase the maximum number of shares of common stock available for issuance
under the ESPP by 4,000,000 shares at its June 2018 annual meeting of stockholders.
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
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
Range of Black-Scholes fair value of ESPP shares granted
|
|
|
$0.45-$3.53
|
|
|
|
$1.05-$5.47
|
|
Risk-free interest rate
|
|
|
0.66%-1.79
%
|
|
|
|
0.45%-0.70%
|
|
Dividend yield
|
|
|
0%
|
|
|
|
0%
|
|
Volatility
|
|
|
59.84%-203.83%
|
|
|
|
45.98%-267.85%
|
|
Expected term (in years)
|
|
|
0.5-2.0
|
|
|
|
0.5-2.0
|
|
Expected forfeiture rate
|
|
|
0%
|
|
|
|
0%
|
|
Restricted Stock Awards
The following is a summary
of restricted stock awards activity for the three months ended March 31, 2018:
|
|
Number of
Shares
|
|
|
Per Share
Weighted-
Average
Grant-Date
Fair Value
|
|
Outstanding and Unvested at January 1, 2018
|
|
|
18,750
|
|
|
$
|
4.99
|
|
Restricted stock granted
|
|
|
―
|
|
|
$
|
―
|
|
Restricted stock vested
|
|
|
―
|
|
|
$
|
―
|
|
Restricted stock forfeited
|
|
|
(18,750
|
)
|
|
$
|
4.99
|
|
Outstanding and Unvested at March 31, 2018
|
|
|
―
|
|
|
$
|
―
|
|
The Company recorded all stock-based compensation
expense in the consolidated statements of operations as follows (in thousands):
|
|
Three Months Ended
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
Research and development
|
|
$
|
3,098
|
|
|
$
|
2,215
|
|
General and administrative
|
|
|
2,147
|
|
|
|
1,998
|
|
Total stock-based compensation expense
|
|
$
|
5,245
|
|
|
$
|
4,213
|
|
As of March 31, 2018, there
was approximately $31 million of total unrecognized compensation expense related to unvested stock options and ESPP. This unrecognized
non-cash compensation expense is expected to be recognized over a weighted-average period of 1.6 years, and will be allocated between
research and development and general and administrative expenses accordingly. This estimate does not include the impact of other
possible stock-based awards that may be made during future periods.
Note 10 – Grant Agreement
Bill & Melinda Gates Foundation (“BMGF”)
Grant Agreement
In support of the Company’s
development of its RSV F Vaccine for infants via maternal immunization, in September 2015, the Company entered into the Grant Agreement
with BMGF, under which it was awarded a grant totaling up to $89.1 million (the “Grant”). The Grant supports development
activities, including the Company’s global Phase 3 clinical trial in pregnant women in their third trimester, product licensing
efforts and efforts to obtain World Health Organization (“WHO”) prequalification of its RSV F Vaccine. Unless terminated
earlier by BMGF, the Grant Agreement will continue in effect until the end of 2021. The Company concurrently entered into a Global
Access Commitments Agreement (“GACA”) with BMGF as a part of the Grant Agreement. Under the terms of the GACA, among
other things, the Company agreed to make a certain amount of the RSV F Vaccine available and accessible at affordable pricing to
people in certain low and middle income countries. Unless terminated earlier by BMGF, the GACA will continue in effect until the
latter of 15 years from its effective date, or 10 years after the first sale of a product under defined circumstances. The term
of the GACA may be extended in certain circumstances, by a period of up to five additional years.
Payments received in advance
that are related to future performance are deferred and recognized as revenue when the research and development activities are
performed. Cash payments received under the Grant are restricted as to their use until expenditures contemplated in the Grant are
incurred. In the three months ended March 31, 2018, the Company recognized revenue from the Grant of $9.3 million, and has recognized
approximately $51 million in revenue since the inception of the agreement. At March 31, 2018, the Company’s current restricted
cash and deferred revenue balances on the consolidated balance sheet represent its estimate of costs to be reimbursed and revenue
to be recognized, respectively, in the next twelve months under the Grant Agreement.
Note 11 –
License Agreement with Wyeth Holdings LLC
In April 2018, the Company
provided written notice of its intent to terminate (90 days after such notice) a 2007 agreement to license certain rights from
Wyeth Holdings LLC (formerly Wyeth Holdings Corporation), a subsidiary of Pfizer Inc. (“Wyeth”). The Wyeth license
offered a non-exclusive, worldwide license to a family of patents and patent applications covering virus-like particles (“VLP”)
technology for use in human vaccines in certain fields, with expected patent expiration in early 2022. At present, the Company
has no programs to which the Wyeth license applies and CPLB’s recombinant trivalent seasonal VLP influenza vaccine (“CadiFlu”)
is only being marketed in India. In September 2015, the Company entered into an amendment to the Wyeth license that, among other
things, increased the milestone payment owed as a result of CPLB’s initiation of a Phase 3 clinical trial for CadiFlu in
2014 (“Milestone”) from $3 million to as much as $4 million if not paid before December 31, 2017. The Milestone was
paid in the first quarter of 2018. The Milestone was recorded as a research and development expense in 2014. Payments under the
Wyeth license as of March 31, 2018 aggregated to $11.6 million.
Note 12 – Facility
Leases
In January 2018, the Company’s
1201 Clopper Road lease was terminated and the Company paid a termination fee to the landlord of $5.3 million, which the Company
believes is less than the potential total lease and operating expense cash obligations that could have been incurred over one year.
The Company recorded total expense, which includes the termination fee and write-down of the related leasehold improvements, and
is partially offset by deferred rent expense previously recorded, of $0.9 million in the first quarter of 2018 in connection with
the termination of the 1201 Clopper Road lease.
Note 13 – Related Party Transactions
In July 2017, the Company
entered into a consulting agreement with Dr. Sarah Frech, the spouse of Mr. Stanley C. Erck, the Company’s President and
Chief Executive Officer. Dr. Frech is a seasoned biotechnology executive with significant experience managing multiple clinical
programs. Under the agreement, Dr. Frech provides clinical development and operations services related to the Company’s Phase
3 clinical trial of its RSV F Vaccine for infants via maternal immunization and other professional services. The agreement is scheduled
to terminate in July 2018. For the three months ended March 31, 2018, the Company incurred $0.1 million in consulting expenses
under the agreement. The amount due and unpaid for services performed under the agreement at March 31, 2018 and December 31, 2017
was less than $0.1 million.
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
Any statements in the discussion
below and elsewhere in this Quarterly 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, 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 capabilities, goals, expectations regarding future revenue and expense levels and capital
raising activities, including possible proceeds from our December 2017 Sales Agreement; 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 development of our preclinical product candidates;
the conduct, timing and potential results from clinical trials and other preclinical studies; plans for and potential timing of
regulatory filings; the expected timing and content of regulatory actions; reimbursement by the Department of Health and Human
Services, Biomedical Advanced Research and Development Authority (“HHS BARDA”); payments by the Bill & Melinda
Gates Foundation (“BMGF”); our available cash resources and the availability of financing generally, plans regarding
partnering activities, business development initiatives and the adoption of stock incentive plans and amendments thereto; and other matters 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.
Forward-looking statements
involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed or implied
in the statements. Any or all of our forward-looking statements in this Quarterly Report may turn out to be inaccurate or materially
different than actual results.
Because the risk factors
discussed in this Quarterly Report and identified in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017,
and other risk factors of which we are not aware, could cause actual results or outcomes to differ materially from those expressed
or implied in any forward-looking statements made by or on behalf of us, you should not place undue reliance on any such forward-looking
statements. These statements are subject to risks and uncertainties, known and unknown, which could cause actual results and developments
to differ materially from those expressed or implied in such statements. We have included important factors that could cause results
to differ in the cautionary statements included in this Quarterly Report, particularly those identified in Part II, Item 1A “Risk
Factors,” and in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K, that could cause actual results
or events to differ materially from forward-looking statements. These and other risks may also be detailed and modified or updated
in our reports and other documents filed with the Securities and Exchange Commission (“SEC”) from time to time. You
are encouraged to read these filings as they are made.
We cannot guarantee future
results, events, level of activity, performance or achievement. Further, any forward-looking statement speaks only as of the date
on which it is made, and 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. New factors emerge from time to time, and it is not possible
for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent
to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking
statements.
Overview
We are a clinical-stage
biotechnology company focused on the discovery, development and commercialization of recombinant nanoparticle vaccines and adjuvants.
Using innovative proprietary recombinant nanoparticle vaccine technology, we produce vaccine candidates to efficiently and effectively
respond to both known and emerging disease threats. Our vaccine candidates are genetically engineered three-dimensional nanostructures
that incorporate recombinant proteins critical to disease pathogenesis and may elicit differentiated immune responses, which may
be more efficacious than naturally occurring immunity or traditional vaccines. Our product pipeline targets a variety of infectious
diseases, with lead clinical vaccine candidates against respiratory syncytial virus (“RSV”) and influenza, along with
other clinical and preclinical infectious disease vaccine candidates.
We are also developing
immune stimulating saponin-based adjuvants through our wholly owned Swedish subsidiary, Novavax AB. Our lead adjuvant, Matrix-M™,
has been shown to enhance immune responses and was well-tolerated in multiple clinical trials that we and others have conducted.
Product Pipeline
Our product pipeline includes vaccine candidates
engineered to elicit differentiated immune responses with the potential to provide increased protection. Our nanoparticle technology
targets antigens with conserved epitopes essential for viral function. Our vaccine technology has the potential to be applied broadly
to a wide variety of human infectious diseases.
Program
|
|
Current
Development Stage
|
Respiratory Syncytial Virus (“RSV”)
|
|
|
·
Infants via Maternal Immunization*
|
|
Phase 3
|
·
Older Adults
|
|
Phase 2
|
·
Pediatrics
|
|
Phase 1
|
|
|
|
Nanoparticle Influenza (“NanoFlu”)
|
|
Phase 1/2
|
Combination Influenza/RSV
|
|
Preclinical
|
|
|
|
Ebola Virus (“EBOV”)
|
|
Phase 1
|
*Supported by the $89.1
million grant from BMGF
A current summary of our
significant research and development programs and status of the related product candidates in development follows:
Respiratory Syncytial
Virus
We have identified three
susceptible target populations that could benefit from the development of our respiratory syncytial virus fusion (F) protein nanoparticle
vaccine candidate (“RSV F Vaccine”) in different formulations: infants via maternal immunization, older adults (60
years of age and older) and children six months to five years of age (“pediatrics”). We believe our RSV F Vaccine represents
a multi-billion dollar revenue opportunity, worldwide. Currently, there is no approved RSV vaccine available.
Repeat infection and lifelong
susceptibility to RSV are common and we currently estimate the global cost burden of RSV to be in excess of $88 billion.
1
We made a breakthrough in developing a vaccine that targets the fusion protein, or F-protein, of the virus. The F-protein
has highly conserved amino acid sequences, called antigenic sites, which we believe are ideal vaccine targets. We genetically
engineered a novel F-protein antigen resulting in enhanced immunogenicity by exposing a number of these antigenic sites. The Novavax
RSV F Vaccine assembles into a recombinant protein nanoparticle optimized for F-protein antigen presentation. We are seeking to
bring the first RSV vaccine to market to combat the 64 million RSV infections that occur globally each year.
2,3
1
Estimated value of life lost,
future health implications and lost earnings; preliminary data based on Novavax research of available epidemiology and health
outcomes data
2
Nair, H.,
et al
.,
(2010) Lancet. 375:1545 – 1555
3
WHO Acute Respiratory
Infections September 2009 Update:
http://apps.who.int/vaccine_research/diseases/ari/en/index2.html
RSV Infants via Maternal Immunization
Program
Burden of
Disease
RSV is the most common cause of lower respiratory
tract infections and the leading viral cause of severe lower respiratory tract disease in infants and young children worldwide.
4,5
In the U.S., RSV is the leading cause of hospitalization of infants, and globally, is second only to malaria as a cause
of death in children under one year of age.
6,7
Despite the induction of post-infection immunity, repeat infection
and lifelong susceptibility to RSV is common.
8,9
Clinical Trial
Update
Prepare
Phase 3 Trial (Ongoing)
We initiated Prepare™,
a global pivotal Phase 3 clinical trial of our RSV F Vaccine, using aluminum phosphate as an adjuvant, in December 2015. In May
2018, we announced that we had enrolled approximately 4,600 pregnant women, of which at least 3,000 were actively vaccinated. The
primary objective of the Prepare trial is to determine the efficacy of maternal immunization with the RSV F Vaccine against symptomatic
RSV lower respiratory tract infection (“LRTI”) with objective measures of medical significance in infants through a
minimum of the first 90 days of life and up to the first six months of life.
The Prepare trial utilizes
a group sequential design. We will initiate a prespecified interim efficacy analysis following the trial’s six months of
follow-up for the last infant born from these enrolled women. We expect to report on the interim data in the first quarter of
2019. Assuming successful interim analysis results, the trial would be concluded without further enrollment and we would file
a biologics license application (“BLA”) with the U.S. Food and Drug Administration (“FDA”) and a marketing
authorization application (“MAA”) with the European Medicines Agency (“EMA”) by the first quarter of 2020.
In December 2017, we conducted an informational analysis related to the prevention of medically significant RSV-positive LRTI
in a subset of 1,300 infants from the Prepare trial. This analysis allows us to conclude that the vaccine’s potential observed
efficacy in this subset group is in the range of 45% and 100%
10
and further allows us to make go-forward decisions
relating to various program-related activities.
The Prepare trial is supported
by a grant (the “Grant”) of up to $89.1 million from BMGF. The Grant supports development activities, product licensing
efforts and World Health Organization (“WHO”) prequalification of our RSV F Vaccine. In 2015, along with the Grant
agreement (the “Grant Agreement”), we concurrently entered into a Global Access Commitments Agreement with BMGF, under
which we agreed to make a certain amount of the RSV F Vaccine available and accessible at affordable pricing to people in certain
low and middle income countries.
4
Nair, H.,
et al
.,
(2010) Lancet. 375:1545 - 1555
5
CDC:
https://www.cdc.gov/rsv/research/us-surveillance.html
6
Hall, C.B.
et al
.
(2013) Pediatrics; 132(2):E341-348
7
Oxford Vaccine Group:
http://www.ovg.ox.ac.uk/rsv
8
Glezen, W.P.
et
al
. (1986) Am J Dis Child; 140:543-546
9
Glenn, G.M.
et al
.
(2016) JID; 213(3):411-12
10
Assumes 2:1 randomization
Phase 2 Safety and Immunogenicity
Trial (Completed)
In September 2015, we announced
positive top-line data from our Phase 2 clinical trial of our RSV F Vaccine in 50 healthy pregnant women and their infants. This
clinical trial evaluated the safety and immunogenicity of our RSV F Vaccine in pregnant women in their third trimester, and assessed
the transplacental transfer of maternal antibodies induced by the vaccine. The trial also examined the impact of maternal immunization
on infant safety during the first year of life and RSV-specific antibody levels through the infants’ first six months of
life. Immunized women demonstrated a geometric mean 14-fold rise in anti-F IgG, a 29-fold rise in palivizumab-competing antibodies
and 2.7 and 2.1-fold rises in microneutralization titers against RSV/A and RSV/B, respectively. In contrast, women who received
placebo demonstrated no significant change in antibody levels. The infants’ antibody levels at delivery averaged 90-100%
of the mothers’ levels, indicating efficient transplacental transfer of antibodies from mother to infant. The estimated half-lives
of infant PCA, anti-F IgG, and RSV/A and RSV/B microneutralizing antibodies, based on data through day 60, were 41, 30, 36 and
34 days, respectively.
Fast Track Designation
The FDA granted Fast Track
designation to our RSV F Vaccine for protection of infants via maternal immunization. Fast Track designation is intended for products
that treat serious or life-threatening diseases or conditions, and that demonstrate the potential to address unmet medical needs
for such diseases or conditions. The program is designed to facilitate development and expedite review of drugs to treat serious
and life-threatening conditions so that approved products can reach the market expeditiously. Specifically, Fast Track designation
facilitates meetings to discuss all aspects of development to support licensure and it provides the opportunity to submit sections
of a BLA on a rolling basis as data become available, which permits the FDA to review modules of the BLA as they are received instead
of waiting for the entire BLA submission. In addition, priority review (6-month review versus standard 10-month review) is a potential
benefit that may be available to our RSV F vaccine in the future.
RSV Older Adults
Program
Burden of
Disease
Older adults (60 years
of age and older) are at increased risk for RSV disease due to immunosenescence, the age-related decline in the human immune system.
In this population, RSV is an important respiratory virus, distinct from influenza, which is frequently responsible for serious
lower respiratory tract disease and may lead to hospitalization or even death. Additionally, RSV infection can lead to exacerbation
of underlying co-morbidities such as chronic obstructive pulmonary disease (“COPD”), asthma and congestive heart failure. In the
U.S., the incidence rate of RSV in older adults is approximately 2.5 million infections per year, and RSV is increasingly recognized
as a significant cause of morbidity and mortality in the population of 64 million older adults.
11,12
Based on
our analysis of published literature applied to 2014 U.S. population estimates, the disease causes 207,000 hospitalizations and
16,000 deaths among adults older than 65.
13,14
Annually, we estimate that there are approximately 900,000 medical interventions
directly caused by RSV disease across all populations.
15,16
11
Falsey, A.R.
et al.
(2005) NEJM.
352:1749–59 extrapolated to 2015 census population
12
Falsey, A.R.
et al.
(1995) JID
.
172:389-94
13
Falsey, A.R.
et al.
(2005) NEJM.
352:1749–59 extrapolated to 2015 census population
14
W.W. Thompson et al. Mortality associated with influenza
and respiratory syncytial virus in the United States. JAMA 2003; 289(2): 179-186
15
K. Widmer
et al
. Rates of hospitalizations
for respiratory syncytial virus, human metapneumovirus, and influenza virus in older adults. J Infect Dis. 2012; 206: 56-62
16
K. Widmer
et al
. Respiratory syncytial virus
& human metapneumovirus-associated emergency department and hospital burden in adults. Influenza and Other Respiratory Viruses.
2014; 8(3): 347-352.
Clinical Trial
Updates and Analyses
Phase 2 (E-205)
Safety and Immunogenicity Clinical Trial (Completed)
In July 2017, we announced
positive top-line data from our Phase 2 clinical trial of our RSV F Vaccine in older adults known as E-205. The objective of the
E-205 trial was to assess safety and immunogenicity to one and two dose regimens of the RSV F Vaccine, with and without aluminum
phosphate or our proprietary Matrix-M adjuvant, in older adults. The trial was a randomized, observer-blinded, placebo-controlled
trial which enrolled 300 older adults in the Southern Hemisphere. Participants were enrolled and vaccinated outside of the RSV
season to best assess immunogenicity. Immunogenicity results indicated both aluminum phosphate and Matrix-M adjuvants increased
the magnitude, duration and quality of the immune response relative to RSV F antigen alone. All formulations and regimens were
safe and well-tolerated. The data support the inclusion of adjuvanted formulations of our RSV F Vaccine in future older adult trials,
although we do not currently expect to initiate such trials in 2018 without additional funding.
Further Analyses
of Prior Clinical Trials
Following the September
2016 announcement of top-line results of Resolve™, our Phase 3 clinical trial of our RSV F Vaccine in older adults conducted
during the 2015-16 RSV season in the U.S., we conducted multiple analyses on the clinical data from the Resolve trial, as well
as the other completed Phase 2 clinical trials conducted in older adults. Our analyses of these clinical trials sought to better
understand their results. More detailed descriptions of each of these RSV older adult clinical trials are found under “Clinical
Trial Updates and Analyses” below; the trials are named and briefly described in the following table:
Clinical Trial Name
|
|
Phase
|
|
Description
|
|
Conducted
|
|
Participants(#)
|
|
E-201
|
|
Phase 2
|
|
Efficacy in prevention of all symptomatic RSV disease
|
|
2014-15 RSV season
|
|
|
1,600
|
|
Resolve (or E-301)
|
|
Phase 3
|
|
Efficacy in prevention of msLRTD
|
|
2015-16 RSV season
|
|
|
11,856
|
|
E-202 Rollover
|
|
Phase 2
|
|
Immunogenicity in response to serial immunization after E-201
|
|
2015-16 RSV season
|
|
|
1,329
|
|
E-205
|
|
Phase 2
|
|
Immunogenicity in one or two doses, with or without adjuvant
|
|
2017
|
|
|
300
|
|
We have found that seasonal
variation in attack rate, meaning the incidence of infectious disease in an at-risk population, may have a large impact on demonstrating
vaccine efficacy in a particular year. Lower attack rates may mean that either the virus is less common in a given season, or alternatively,
that the population being studied has increased intrinsic resistance in that season due to a variety of potential factors such
as recent prior exposure. In our E-201 trial, we witnessed a high attack rate and showed a clear demonstration of efficacy. In
our Resolve trial the following year, we observed a primary endpoint attack rate of only one-fourth that of the previous season.
This scenario represents a conundrum that influenza vaccine developers have experienced for decades: “low attack rate”
influenza seasons make it very difficult to demonstrate vaccine efficacy.
Additional further analyses
of the Resolve trial data indicate that our RSV F Vaccine was associated with a 61% reduction in hospitalizations due to COPD exacerbations,
and the same analysis of the E-201 trial showed a similar signal, supporting this finding. We believe that such higher-risk patients
represent an unmet medical need with a significant healthcare cost burden that could potentially be addressed by such a vaccine.
Resolve (E-301)
Phase 3 Trial (Completed)
In September 2016, we announced
top-line data from our Resolve trial. Resolve was a randomized, observer-blinded, placebo-controlled trial that began in November
2015, and was fully enrolled with 11,856 older adults at 60 sites in the U.S. by December 2015. The trial did not meet its pre-specified
primary or secondary efficacy objectives and did not demonstrate vaccine efficacy. The primary objective of the Resolve trial was
to demonstrate efficacy in the prevention of moderate-severe RSV (“msLRTD”), as defined by the presence of multiple
lower respiratory tract symptoms. The secondary objective of the trial was to demonstrate efficacy of the RSV F Vaccine in reducing
the incidence of all symptomatic respiratory disease due to RSV (“RSV ARD”). The trial also evaluated the safety of
an unadjuvanted, 135 microgram dose of the RSV F Vaccine compared to placebo. Consistent with our previous clinical experience,
the vaccine was well-tolerated.
Phase 2 (E-202)
Rollover Trial (Completed)
In September 2016, we announced
positive top-line data from our E-202 rollover trial of our RSV F Vaccine in older adults. The trial was a randomized, observer-blinded,
placebo-controlled rollover trial, which enrolled 1,329 older adults from our prior E-201 trial, conducted at the same 10 sites
in the U.S. as the E-201 trial. The primary objectives of the trial were to evaluate safety and serum anti-F IgG antibody concentrations
in response to immunization with the RSV F Vaccine. The exploratory objectives of the trial evaluated the efficacy of a second
annual dose of the RSV F Vaccine in the prevention of RSV ARD and RSV msLRTD. Participants previously randomized to receive 135
microgram RSV F Vaccine or placebo were re-enrolled and re-randomized to receive either 135 microgram RSV F Vaccine or placebo.
This trial design resulted in four separate trial arms: a) participants receiving a placebo in both the first trial and second
trial (“Placebo-Placebo”); b) participants receiving RSV F Vaccine in the first trial and placebo in the second trial
(“Vaccine-Placebo”); c) participants receiving placebo in the first trial and RSV F Vaccine in the second trial (“Placebo-Vaccine”);
and d) participants receiving RSV F Vaccine in both the first trial and second trial (“Vaccine-Vaccine”).
The E-202 rollover
trial demonstrated immunogenicity in all active vaccine recipients, with a 6-fold increase in anti-F IgG in the Placebo-Vaccine
arm, consistent with the E-201 trial. There was higher anti-F IgG at baseline in the Vaccine-Vaccine arm compared to the Placebo-Vaccine
arm and the Vaccine-Vaccine arm showed a greater than 2-fold increase in anti-F IgG from the higher baseline.
Phase 2 (E-201)
Trial in Older Adults (Completed)
In August 2015, we announced
positive top-line data from our E-201 trial of our RSV F Vaccine in 1,600 older adults. The E-201 trial was designed to prospectively
examine the incidence of all symptomatic respiratory illnesses associated with RSV infection, in community-living older adults
who were treated with placebo. The trial also evaluated safety and immunogenicity of our RSV F Vaccine compared to placebo. Finally,
the trial estimated the efficacy of our RSV F Vaccine in reducing the incidence of respiratory illness due to RSV. The trial was
the first to demonstrate efficacy of an active RSV immunization in any clinical trial population. In the per protocol population,
the clinical trial showed statistically significant vaccine efficacy in prevention of all symptomatic RSV disease (41%) and, in
an ad hoc analysis, showed a decrease in RSV disease with any symptoms of lower respiratory tract infection (45%) in
older adults. The clinical trial established an attack rate for symptomatic RSV disease of 4.9% in older adults, 95% of which included
lower respiratory track symptoms. Efficacy against more severe RSV illness, defined by the presence of multiple lower respiratory
tract symptoms or signs associated with difficulty breathing, was 64% in ad hoc analyses.
RSV Pediatrics Program
Burden of
Disease
There are currently approximately 18 million
children in the U.S. between six months and five years of age.
17
By the age of five, essentially all children
will have been exposed to RSV and will likely have developed natural immunity against the virus, thus decreasing the rate of severe
disease in these children. In the U.S., RSV is responsible for approximately 57,000 hospitalizations of children under five years
of age annually, the vast majority of which occur in infants less than one year old, and especially those under six months of
age.
18,19,20,21,22
17
U.S. Census.
www.census.go/population/international/data/idb/informationGateway.php
18
Stockman, L.J.
et
al
(2012) Pediatr Infect Dis J. 31: 5-9
19
CDC update May 5,
2015.
http://www.cdc.gov/rsv/research/us-surveillance.html
20
Boyce, T.G.
et
al
(2000) Pediatrics; 137: 865-870
21
Hall, C.B.
et al
(2009) NEJM; 360(6): 588-98
22
Hall, C.B.
et al
(2013) Pediatrics; 132(2): E341-8
Clinical Trial Update
In September 2015, we announced
positive top-line data from our Phase 1 clinical trial of our RSV F Vaccine in healthy children between two and six years of age.
This clinical trial evaluated the safety and immunogenicity of our RSV F Vaccine, with one or two doses, with or without aluminum
phosphate adjuvant. Trial enrollment was concluded with a smaller than planned cohort so that dosing could be completed ahead of
the 2014-15 RSV season. The vaccine was well-tolerated and serum samples collected from a subset of 18 immunized children in the
per-protocol population, demonstrated that the RSV F Vaccine was highly immunogenic at all formulations and regimens. There were
greater than 10-fold increases in both anti-F IgG and PCA antibody titers in the adjuvanted group and greater than 6-fold increases
in anti-F IgG and PCA antibody titers in the unadjuvanted group. Development of our RSV F Vaccine for pediatrics would likely follow
successful development of our RSV F Vaccine for maternal immunization.
Influenza
Burden of Disease
Influenza is a world-wide
infectious disease that causes illness in humans ranging from mild to life-threatening symptoms or even death. Serious illness
occurs not only in susceptible populations such as pediatrics and older adults, but also in the general population largely because
of infection by unique strains of influenza for which most humans have not developed protective antibodies. Current estimates
for seasonal influenza vaccine growth in the top seven markets (U.S., Japan, France, Germany, Italy, Spain and UK), show a potential
increase from approximately $3.2 billion in the 2012-13 season to $5.3 billion by the 2021-22 season.
23
The Advisory Committee
for Immunization Practices of the Center for Disease Control and Prevention (“CDC”) recommends that all persons aged six months
and older be vaccinated annually against seasonal influenza. Influenza is a major burden on public health worldwide: an estimated
one million deaths each year are attributed to influenza.
24
It is further estimated that, each year, influenza
attacks between 5% and 10% of adults and 20% to 30% of children, causing significant levels of illness, hospitalization and death.
25
One important advantage of recombinant seasonal influenza vaccines, like the candidate we are developing, is that once licensed
for commercial sale, large quantities of such vaccine could potentially be manufactured quickly and in a cost-effective manner,
without the use of either live influenza virus or eggs. Our recombinant influenza nanoparticles also can display conserved antigenic
regions, which have the potential to elicit broadly neutralizing antibodies that appear to protect against a range of “drifted”
strains, or influenza strains in which, over time, the hemagglutinin antigen undergoes an accumulation of genetic mutations at
the hemagglutinin antigen sites that bind with neutralizing antibodies, potentially resulting in reduced protection of those antibodies.
Additionally, nanoparticles offer improved purity and manufacturability and advantages for co-formulation with other nanoparticle-based
vaccines.
23
Influenza Vaccines
Forecasts. Datamonitor (2013)
24
Resolution of the
World Health Assembly. (2003) WHA56.19. 28
25
WHO position paper (2012) Weekly Epidemiol Record;
87(47): 461–76
Clinical Trial Update
In February 2018, we reported
positive top-line results from our Phase 1/2 clinical trial of our nanoparticle seasonal trivalent influenza vaccine candidate,
including our proprietary Matrix-M adjuvant (“NanoFlu™”), in older adults that was initiated in September 2017.
The trial was a randomized, observer-blinded, active comparator-controlled trial in approximately 330 healthy older adults. The
primary objective of the trial was to assess the safety and immunogenicity of two dose levels (15 micrograms or 60 micrograms
of hemagglutinin per strain) of NanoFlu compared to Fluzone® High Dose, the market-leading licensed egg-based, high-dose influenza
vaccine for older adults (“IIV3-HD”). NanoFlu was well tolerated and had an acceptable safety profile; short-term
reactogenicity was comparable to IIV3-HD.
26
With regard to immunogenicity, NanoFlu induced:
|
·
|
Significantly higher hemagglutination inhibition (“HAI”)
immune responses as compared to IIV3-HD against the homologous and four generations of drifted wild-type A(H3N2) influenza
strains:
|
|
o
|
28-38% increase in HAI against distant historic drifted A(H3N2) viruses
A/Texas (the 2014-15 vaccine strain) and A/Victoria (the 2012-13 vaccine strain), respectively (p=0.0366; p=0.0058);
|
|
o
|
54% increase in HAI against recent historic drifted A(H3N2) virus
A/Switzerland (the 2015-16 vaccine strain)(p=0.0065);
|
|
o
|
47% increase in HAI against the vaccine homologous A(H3N2) virus
A/Hong Kong (the 2016-17 and 2017-18 vaccine strain)(p=0.0056); and
|
|
o
|
64% increase in HAI against forward drifted virus A(H3N2) virus A/Singapore
(the future 2018-19 vaccine strain)(p=0.0009).
|
|
·
|
Higher HAI antibody responses against the homologous A(H1N1) influenza
strain and comparable HAI responses against the homologous B/Brisbane strain, as compared to IIV3-HD; and
|
|
·
|
Strong neutralizing antibody responses that correlate with
HAI results.
|
Overall, NanoFlu was well-tolerated
over the three-week trial period. Given the strength of these trial results, we have submitted for publication in a peer-reviewed
medical journal. Based on these results, we expect to begin a Phase 2 quadrivalent NanoFlu clinical trial in the third quarter
of 2018.
Preclinical Analyses
Preclinical data in which NanoFlu was compared
in a head-to-head challenge study against IIV3-HD, as well as IIV3-SD (standard dose) seasonal influenza vaccine, was announced
in August 2017 and provided a strong rationale for the initiation of the Phase 1/2 trial. Our NanoFlu demonstrated significantly
stronger and broader immune responses (microneutralizing antibodies) against homologous and heterologous influenza strains, including
a series of drifted H3N2 strains evolved across over more than a decade of influenza seasons, compared to IIV3-HD. In this preclinical
challenge study, we showed that our NanoFlu was more protective than the licensed comparator vaccines against both a homologous
H3N2 virus and a ten-year old drifted H3N2 strain. In parallel, we announced the achievement of significant improvements in manufacturing
yields and product purity.
Combination Influenza/RSV Vaccine
Given the ongoing development
of our RSV F Vaccine and our desire to develop a combination respiratory vaccine with the potential to protect against both RSV
and seasonal influenza, we made the decision to shift our seasonal influenza vaccine development focus from VLP-based seasonal
influenza vaccines to nanoparticle-based seasonal influenza vaccines. We remain confident that a combination nanoparticle vaccine
against both RSV and influenza is feasible.
26
Fluzone® High-Dose
Prescribing Information, 02 March 2017 v0.1. Sanofi Pasteur, Swiftwater, PA
Ebola Virus
EBOV, formerly known as
Ebola hemorrhagic fever, is a severe, often fatal illness in humans. Multiple strains of EBOV have been identified, the most recent
of which, the Makona EBOV strain, is associated with a case fatality rate of 50% to 90%.
27
There are currently
no licensed treatments proven to neutralize the virus, but a range of blood, immunological and drug therapies are under development.
Despite the development of such therapies, current vaccine approaches target either a previous strain of the virus or were initially
developed to be delivered by genetic vectors. In contrast, our EBOV glycoprotein vaccine candidate (“Ebola GP Vaccine”)
was developed using the Makona EBOV strain.
In July 2015, we announced positive top-line
data from our Phase 1 clinical trial of our Ebola GP Vaccine in ascending doses, with and without our Matrix-M adjuvant, in 230
healthy adults. Participants received either one or two intramuscular injections ranging from 6.5 micrograms to 50 micrograms of
antigen, with or without adjuvant, or placebo. Immunogenicity was assessed at multiple time points, including days 28 and 35. These
Phase 1 data demonstrated that our Ebola GP Vaccine is highly immunogenic, well-tolerated and, in conjunction with our proprietary
Matrix-M adjuvant, resulted in significant antigen dose-sparing. The adjuvanted Ebola GP Vaccine was highly immunogenic at all
dose levels; the adjuvanted two-dose regimens induced Ebola anti-GP antibody geometric mean responses between 45,000 and 70,000
ELISA units, representing a 500 to 750-fold rise over baseline at day 35. In 2015, we also announced successful data from two separate
non-human primate challenge studies of our Ebola GP Vaccine in which, in both cases, the challenge was lethal for the control
animal, whereas 100% of the immunized animals were protected.
CPLB Joint Venture (India)
CPL Biologicals Private Limited (“CPLB”),
our joint venture company with Cadila Pharmaceuticals Limited (“Cadila”) in India, is actively developing a number
of vaccine candidates that were genetically engineered by us. CPLB is owned 20% by us and 80% by Cadila. CPLB operates a manufacturing
facility in India for the production of vaccines.
Seasonal Influenza
Since 2016, CPLB has been
marketing CadiFlu, its trivalent VLP influenza vaccine in India, with limited sales in 2017 and expected in 2018.
Rabies
In October 2016,
CPLB initiated its Phase 3 clinical trial in India of a recombinant rabies G protein vaccine candidate that can be administered
in prophylactic regimens, both pre and post-exposure. The post-exposure regimen has the potential to use fewer doses (three doses)
than the current standard of care (five doses). Data from the trial are expected in the second half of 2018.
Sales of Common Stock
In April 2018,
we completed a public offering of 34,848,507 shares of our common stock, including 4,545,457 shares of common stock that were issued
upon the exercise in full of the option to purchase additional shares granted to the underwriters, at a price of $1.65 per share
resulting in net proceeds of approximately $54 million.
In December 2017, we entered
into an At Market Issuance Sales Agreement (“December 2017 Sales Agreement”), which allows us to issue and sell up
to $75 million in gross proceeds of our common stock. From January 17, 2018 through March 31, 2018, we sold 15.7 million shares
of common stock under the December 2017 Sales Agreement resulting in $32.3 million in net proceeds at a weighted average sales
price of $2.09 per share. As of March 31, 2018, we have approximately $42.2 million available under the December 2017 Sales Agreement.
27
WHO:
http://www.who.int/mediacentre/factsheets/fs103/en/
After giving effect to our public offering above,
our pro forma cash, cash equivalents, marketable securities and restricted cash as of March 31, 2018 would have been $218.1 million
as shown below.
|
|
Amount
|
|
Cash and cash equivalents
|
|
$
|
113,402
|
|
Marketable securities
|
|
|
30,358
|
|
Restricted cash current
|
|
|
19,548
|
|
Restricted cash non-current
|
|
|
891
|
|
Cash, cash equivalents, marketable securities and restricted cash at March 31, 2018
|
|
|
164,199
|
|
Public offering net proceeds in April 2018
|
|
|
53,907
|
|
Pro forma cash, cash equivalents, marketable securities and restricted cash
|
|
$
|
218,106
|
|
Critical Accounting
Policies and Use of Estimates
There are no material changes
to our critical accounting policies as described in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31,
2017, as filed with the SEC, other than the adoption of the new revenue standard as described in Note 3.
Recent Accounting
Pronouncements Not Yet Adopted
See “Note 3―Summary
of Significant Accounting Policies” included in our Notes to Consolidated Financial Statements (under the caption “
Recent
Accounting Pronouncements
”).
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 unaudited
financial statements and notes thereto set forth in this Quarterly Report.
Three Months Ended March
31, 2018 and 2017
(amounts in tables are presented in thousands, except per share information)
Revenue:
|
|
Three Months Ended
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
Change
2017 to
2018
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
9,653
|
|
|
$
|
5,680
|
|
|
$
|
3,973
|
|
Revenue for the three months
ended March 31, 2018 was $9.7 million as compared to $5.7 million for the same period in 2017, an increase of $4.0 million, or
70%. Revenue for the three months ended March 31, 2018 and 2017 was primarily comprised of services performed under the Grant Agreement
and to a much lesser extent, revenue from Novavax AB. Revenue increased under the Grant Agreement in the amount of $3.8 million
as a result of increased enrollment of participants in the Prepare trial.
We expect revenue in 2018
under the Grant Agreement to be higher than in 2017 due to increased enrollment of participants in Prepare, who we continue to
monitor through scheduled follow-up visits.
Expenses:
|
|
Three Months Ended
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
Change
2017 to
2018
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
44,514
|
|
|
$
|
37,654
|
|
|
$
|
6,860
|
|
General and administrative
|
|
|
8,652
|
|
|
|
8,852
|
|
|
|
(200
|
)
|
Total expenses
|
|
$
|
53,166
|
|
|
$
|
46,506
|
|
|
$
|
6,660
|
|
Research
and Development Expenses
Research and development
expenses include salaries, stock-based compensation, laboratory supplies, consultants and subcontractors, including external contract
research organizations, and other expenses associated with our process development, manufacturing, clinical, regulatory and quality
assurance activities for our programs. In addition, indirect costs such as fringe benefits and overhead expenses related to research
and development activities, are also included in research and development expenses. Research and development expenses increased
to $44.5 million for the three months ended March 31, 2018 from $37.7 million for the same period in 2017, an increase of $6.9
million, or 18%. The increase in research and development expenses was primarily due to increased development activities of our
RSV F Vaccine for infants via maternal immunization. At March 31, 2018, we had 301 employees dedicated to our research and development
programs versus 302 employees as of March 31, 2017. For 2018, we expect an increase in research and development expenses from 2017
primarily due to higher anticipated costs to support product development of our RSV F Vaccine and other potential vaccine candidates.
Expenses by Functional
Area
We track our 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. 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 research and development expenses by functional area for the three months ended March 31 (in millions):
|
|
2018
|
|
|
2017
|
|
Manufacturing
|
|
$
|
19.8
|
|
|
$
|
18.9
|
|
Vaccine Discovery
|
|
|
1.6
|
|
|
|
1.5
|
|
Clinical and Regulatory
|
|
|
23.1
|
|
|
|
17.3
|
|
Total research and development expenses
|
|
$
|
44.5
|
|
|
$
|
37.7
|
|
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 preclinical 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 participants who participate in the clinical trials;
|
|
·
|
the number of sites included in the clinical trials;
|
|
·
|
if clinical trial locations are domestic, international or both;
|
|
·
|
the time to enroll participants;
|
|
·
|
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 decreased slightly to $8.7 million for the three months ended March 31, 2018 from $8.9 million for the same period in
2017. At March 31, 2018, we had 50 employees dedicated to general and administrative functions versus 53 employees as of March
31, 2017. For 2018, we expect general and administrative expenses to slightly increase from 2017 primarily due to higher anticipated
professional fees.
Other Income (Expense):
|
|
Three Months Ended
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
Change
2017 to
2018
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income
|
|
$
|
531
|
|
|
$
|
474
|
|
|
$
|
57
|
|
Interest expense
|
|
|
(3,403
|
)
|
|
|
(3,513
|
)
|
|
|
110
|
|
Other income (expense)
|
|
|
33
|
|
|
|
11
|
|
|
|
22
|
|
Total other income (expense)
|
|
$
|
(2,839
|
)
|
|
$
|
(3,028
|
)
|
|
$
|
189
|
|
We had total other expense,
net of $2.8 million for the three months ended March 31, 2018 compared to total other expense, net of $3.0 million for the same
period in 2017, a decrease of $0.2 million.
Net Loss:
|
|
Three
Months Ended
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
Change
2017 to
2018
|
|
Net
Loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(46,352
|
)
|
|
$
|
(43,854
|
)
|
|
$
|
(2,498
|
)
|
Net loss per share
|
|
$
|
(0.14
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
0.02
|
|
Weighted shares outstanding
|
|
|
336,972
|
|
|
|
274,178
|
|
|
|
62,794
|
|
Net loss for three
months ended March 31, 2018 was $46.4 million, or $0.14 per share, as compared to $43.9 million, or $0.16 per share, for the
same period in 2017, an increased net loss of $2.5 million. The increased net loss was primarily due to higher research and
development spending, including increased development activities of our RSV F Vaccine for infants via maternal immunization, partially offset by increased revenue under the Grant Agreement.
The increase in weighted
average shares outstanding for the three months ended March 31, 2018 is primarily a result of sales of our common stock in 2018
and 2017.
Liquidity Matters and
Capital Resources
Our future capital requirements
depend on numerous factors including, but not limited to, the commitments and progress of our research and development programs,
the progress of preclinical 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 product candidates in various stages of development, and we believe our operating expenses and capital
requirements will fluctuate depending upon the timing of events, such as the scope, initiation, rate and progress of our preclinical
studies and clinical trials and other research and development activities. We have primarily funded our operations with proceeds
from the sale of common stock in equity offerings, the issuance of convertible debt and revenue under our current Grant Agreement
with BMGF and our former contract with HHS BARDA.
As of March 31, 2018, we
had $164.2 million in cash and cash equivalents, marketable securities and restricted cash as compared to $186.4 million as of
December 31, 2017. These amounts consisted of $113.4 million in cash and cash equivalents, $30.4 million in marketable securities
and $20.4 million in restricted cash as of March 31, 2018 as compared to $106.3 million in cash and cash equivalents, $51.0 million
in marketable securities and $29.1 million in restricted cash as of December 31, 2017.
The following table summarizes
cash flows for the three months ended March 31, 2018 and 2017 (in thousands):