Overview
Novavax, Inc., together
with our wholly-owned Swedish subsidiary, Novavax AB, is a late-stage biotechnology company focused on the discovery, development
and commercialization of innovative vaccines to prevent serious infectious diseases. Using innovative proprietary recombinant nanoparticle
vaccine technology, we produce vaccine candidates to efficiently and effectively respond to both known and emerging disease threats.
We were incorporated
in 1987 under the laws of the State of Delaware. Our principal executive offices are located at 20 Firstfield Road, Gaithersburg,
Maryland, 20878, and our telephone number is (240) 268-2000. Our common stock is listed on the Nasdaq Global Select Market under
the symbol “NVAX.”
Our vaccine candidates,
including our lead candidates, ResVax
TM
and NanoFlu
TM
, are genetically engineered, three-dimensional nanostructures
of 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 (see below) targets a variety of infectious diseases.
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.
Product Pipeline
Program
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Current
Development Stage
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Respiratory Syncytial Virus (“RSV”)
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ResVax* (Infants via Maternal Immunization)
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Phase 3
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Older Adults
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Phase 2
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Pediatrics
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Phase 1
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Seasonal Influenza
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NanoFlu (Older Adults)
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Phase 2
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Combination Seasonal Influenza/RSV
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Preclinical
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*Supported by a grant
of up to $89.1 million from the Bill & Melinda Gates Foundation (“BMGF”)
A summary and status
of these vaccine programs follows:
Respiratory Syncytial Virus (RSV)
Currently, there is
no approved RSV vaccine available to combat the estimated 64 million RSV infections that occur globally each year. We have identified
three susceptible target populations that we believe could benefit from the development of our respiratory syncytial virus fusion
(F) protein nanoparticle vaccine candidate (“RSV F Vaccine”) in different formulations: (1) infants via maternal immunization,
(2) older adults (60 years and older) and (3) children six months to five years old (“pediatrics”). With our current
estimates of the annual global cost burden of RSV in excess of $88 billion, we believe our RSV F Vaccine represents a multi-billion
dollar worldwide opportunity.
ResVax Program (Infants
via Maternal Immunization)
ResVax, our adjuvanted
RSV F Vaccine for infants via maternal immunization, is our lead vaccine program. 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.
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.
In February 2019, we
announced top-line data from the Prepare trial, which we initiated in December 2015 to determine the efficacy of ResVax against
medically significant RSV-positive lower respiratory tract infection (“LRTI”) in infants through a minimum of the first
90 days of life and up through the first six months of life. While the Prepare trial did not meet its pre-specified primary efficacy
endpoint, it did demonstrate efficacy against one of the secondary objectives (RSV LRTI hospitalizations), the first RSV vaccine
to show efficacy in a Phase 3 clinical trial. In addition, in the Prepare trial, other pre-specified exploratory endpoints and
post-hoc analyses highlight ResVax’ potential to improve global health against RSV disease in this vulnerable population.
Like previous clinical trials, ResVax showed a favorable safety and tolerability profile from the Prepare trial. With these results,
we plan to meet with both the U.S. Food and Drug Administration (“FDA”) and the European Medicines Agency (“EMA”)
later in 2019, to discuss and assess opportunities for submitting a Biologics License Application (“BLA”) with the
FDA and/or a Marketing Authorization Application (“MAA”) with the EMA, in 2020. We are also considering seeking licensure
strategically in a number of geographic regions, other than the U.S. and Europe, where the Prepare results support such efforts.
The development of ResVax and the conduct of the Prepare trial are supported by a grant of up to $89.1 million from BMGF for development
activities, product licensing efforts and World Health Organization (“WHO”) prequalification of ResVax.
RSV Older Adults
Program
Older adults (60 years
and older) are at increased risk for RSV disease due in part to immunosenescence, the age-related decline in the human immune system.
RSV infection can also lead to exacerbation of underlying co-morbidities such as chronic obstructive pulmonary disease, asthma
and congestive heart failure. In the U.S. alone, a reported RSV incidence rate of 5.5% in older adults would account for approximately
2.5 million infections per year. We estimate that approximately 900,000 medical interventions are caused by RSV disease in this
U.S. population each year. In our 2017 Phase 2 clinical trial of our RSV F Vaccine in older adults, we assessed safety and immunogenicity
of one and two dose regimens of our RSV F Vaccine, with and without aluminum phosphate or our proprietary Matrix-M adjuvant. Immunogenicity
results indicate that both adjuvants increase the magnitude, duration and quality of the immune response versus the non-adjuvanted
RSV F Vaccine. The 2016 Phase 3 clinical trial of our RSV F Vaccine failed to meet it pre-specified primary or secondary efficacy
objectives and did not demonstrate vaccine efficacy. We are currently assessing the development opportunities for our RSV F Vaccine
in older adults.
RSV Pediatrics
Program
By the age of five,
essentially all children will have been exposed to RSV and will likely develop natural immunity against the virus; however, children
under five remain vulnerable to RSV disease, offering a strong rationale for a pediatric vaccine that could offer enhanced protection.
In 2015, we announced positive results in our Phase 1 clinical trial evaluating the safety and immunogenicity of our RSV F Vaccine
in healthy children between two and six years of age. To the extent we receive regulatory approval for ResVax, we expect to continue
development of our RSV F Vaccine for pediatrics.
Seasonal Influenza
NanoFlu Program (Older Adults)
Influenza is a world-wide
infectious disease with serious illness generally occurring in more susceptible populations such as pediatrics and older adults,
but also occurring in the general population. According to influenza vaccines forecasts by Datamonitor in 2013, the market for
seasonal influenza vaccines is expected to grow from approximately $3.2 billion in the 2015-16 flu season to approximately $5.3
billion in the 2021-22 flu season (in the countries comprising the top seven markets). The Center for Disease Control and Prevention
estimates that each year since 2010, influenza in the U.S. has resulted in between 9.2 million and 35.6 million illnesses, between
140,000 and 710,000 hospitalizations and between 12,000 and 56,000 deaths.
In January 2019, we
announced positive top-line data from our Phase 2 clinical trial of NanoFlu in older adults. Top-line results showed that all formulations
of NanoFlu were well-tolerated and elicited vigorous immune responses to all four strains included in the vaccine; importantly,
use of our Matrix-M adjuvant resulted in significantly enhanced immune responses when compared to a non-adjuvanted formulation.
NanoFlu also showed superior hemagglutination inhibition antibody responses against wild-type A(H3N2) viruses, including drifted
strains, when compared to Fluzone High-Dose, the leading flu vaccine in older adults. During a pre-investigational new drug application
meeting in 2018, the FDA indicated that an accelerated approval pathway for seasonal influenza vaccines could be available for
NanoFlu. We plan to discuss the Phase 2 clinical trial data and the proposed Phase 3 study design, and reach agreement on the use
of accelerated approval with the FDA during an End-of-Phase 2 meeting in the first half of 2019. We are currently planning a pivotal
Phase 3 clinical trial of NanoFlu that could begin as early as the second half of 2019 in the United States.
Combination Seasonal Influenza/RSV F
Vaccine
With the ongoing development
of our NanoFlu and RSV F Vaccine, a strong rationale exists for developing a combination respiratory vaccine that is designed to
protect susceptible populations against both diseases. Although testing is at an early stage, we believe that a combination vaccine
against both influenza and RSV may be achievable.
Early-stage Vaccine Candidates
Because our nanoparticle
technology targets antigens with conserved epitopes essential for viral function, our vaccine candidates have the potential to
be applied broadly to a wide variety of human infectious diseases. Our nanoparticle vaccine technology has already demonstrated
the ability to produce vaccine candidates against a wide variety of infectious diseases: in addition to our ResVax and NanoFlu
vaccines, we have also developed nanoparticle vaccine candidates for clinic testing against ebola virus (positive Phase 1 clinical
trial results) and MERS coronavirus (positive animal studies). While we have focused most of our corporate efforts towards our
RSV and seasonal influenza vaccine candidates, we stand ready to continue work on emerging infectious disease vaccine candidates
as circumstances warrant.
CPLB Joint Venture
CPL Biologicals Private
Limited (“CPLB”), our joint venture between Novavax and Cadila Pharmaceuticals Limited (“Cadila”), is actively
developing a number of vaccine candidates in India. In July 2018, we amended and restated our joint venture and license agreements
with respect to CPLB to align them with our current and planned interactions with CPLB. CPLB continues to be owned 20% by Novavax
and 80% by Cadila.
Vaccine Technology
Our recombinant protein
nanoparticle vaccine technology is based on self-assembly of surface protein antigens from pathogenic organisms including viruses,
bacteria or parasites. The conformations of these nanoparticles are similar but not identical to the natural structure of surface
antigens of disease organisms, and lack the genetic material required for replication and therefore are not infectious. Potential
immunological advantages of protein nanoparticles may be associated with the nanoparticle conformation and the presentation of
key functional epitopes that are often immunologically hidden in the native pathogen. This leads to efficient recognition by the
immune system’s antigen presenting cells that trigger robust immune responses. Recognition of the nanoparticle vaccine’s
repeating protein patterns by the antigen presenting cells’ toll-like receptors to stimulate innate immunity and the high
purity and lack of synthetic material adds to the potential safety of recombinant nanoparticle vaccines. Protein nanoparticle vaccine
technology has expanded our early-stage vaccines in development to include both virus and non-virus disease targets. Our most advanced
protein nanoparticle vaccine candidate is our RSV F Vaccine, which self-assembles from our highly purified F-protein antigen.
Matrix Adjuvants
Adjuvants are predominantly
used to enable a vaccine to increase the amplitude of the immune response and qualitatively change it, broadening the immune systems
attack against microorganisms and allow for effective immunization with much lower doses of antigen. Novavax AB has developed a
number of adjuvant formulations, all based on our proprietary Matrix technology. These adjuvant formulations possess excellent
immunostimulatory features with the ability to increase and prolong the protective benefits of vaccines.
While adjuvants based
on novel, poorly characterized substances have been hampered by safety concerns and limited efficacy, Matrix adjuvants stimulate
strong antibody and cell-mediated immune responses. Matrix adjuvants may allow for lower antigen doses, longer-duration immune
responses and carry a lower risk for allergic reactions or other adverse events. Our Matrix technology typically induces strong
cellular activation of both Th1 and Th2 types, thereby generating all classes and subclasses of antibodies, as well as potent cellular
responses, including cytotoxic T lymphocytes. Our Matrix-M adjuvant provides a potent adjuvant effect that has been well-tolerated
in clinical trials. We also believe that the strong immune response and opportunity to reduce the quantity of antigen dose can
significantly reduce the production cost of our vaccines. This means that our Matrix-M adjuvant has the potential to be of significant
value when there is inadequate vaccine manufacturing capacity during an emerging disease threat such as an influenza pandemic.
Competition in RSV and Influenza
The vaccine market
is intensely competitive, characterized by rapid technological progress. Our technology is based upon utilizing the baculovirus
expression system in insect cells to make recombinant vaccines. We believe this system offers many advantages when compared to
other technologies and is uniquely well-suited for developing RSV and influenza vaccines, as well as vaccines against a number
of other infectious diseases.
There is currently
no approved RSV vaccine for sale in the world; however, a number of vaccine manufacturers, academic institutions and other organizations
currently have, or have had, programs to develop such a vaccine. These groups are developing products to prevent disease caused
by RSV using a variety of technology platforms, including viral vectors, nucleic acid (RNA/DNA), live attenuated chimeric, antigens
or monoclonal antibodies (“Mab”), and competitive recombinant technologies. Despite the recent announcement of results
from the Prepare trial of ResVax, we continue to believe that our RSV F vaccine candidate, which is a recombinant prefusogenic
F-protein nanoparticle, is likely to be more effective than other RSV vaccine candidates or other products in development by our
competitors. We further believe that ResVax, our RSV vaccine program for infants via maternal immunization, is the only RSV vaccine
to have ever demonstrated efficacy in a Phase 3 clinical trial. At this time, there are a number of companies and other organizations
with vaccine candidates in Phase 1 and 2 trials, including Pfizer, GlaxoSmithKline, Sanofi, Bavarian Nordic, Janssen, Moderna,
Ablynx, Immunovaccine, Intravaac, Vaxart and the NIAID. Presently, the two lead Mab programs seeking to develop product candidates
to prevent RSV in young infants are being conducted by AstraZeneca PLC (“AstraZeneca”), and Merck. The AstraZeneca
Mab, which is partnered with Sanofi Pasteur and Swedish Orphan Biovitrum AB, is completing Phase 2 trials for preterm infants and
has recently obtained breakthrough designation from the FDA, while the Merck Mab is currently in Phase 1 trials in preterm and
full-term infants.
There are a number
of companies developing and selling vaccines for seasonal influenza employing both traditional (egg-based) and new vaccine technologies
(cell-based). Many seasonal influenza vaccines are currently approved and marketed, and most of these are marketed by major pharmaceutical
companies that have significantly greater financial and technical resources, experience and expertise. Competition in the sale
of seasonal influenza vaccines is intense. Therefore, newly developed and approved products must be differentiated from existing
vaccines in order to have commercial success. In order to show differentiation in the seasonal influenza market, a product may
need to be more efficacious and/or be less expensive and quicker to manufacture. Many of our competitors are working on new products
and new generations of current products, some by adding an adjuvant that is used to increase the immunogenicity of that product,
each of which is intended to be more efficacious than currently marketed products. Despite the significant competition and advancing
technologies, some of which are similar to our own, based on our recently completed Phase 2 trials results, we believe that NanoFlu,
our nanoparticle seasonal influenza product could be as efficacious as, or more so than, current products or products being developed
by our competitors. However, our seasonal influenza vaccine may not prove to be efficacious or our manufacturing system may not
prove to be sufficiently effective and differentiated to ensure commercial success.
In general, competition
among pharmaceutical products is based in part on product efficacy, safety, reliability, availability, price and patent position.
An important factor is the relative timing of the market introduction of our products and our competitors’ products. Accordingly,
the speed with which we can develop products, complete the clinical trials and approval processes and supply commercial quantities
of the products to the market is an important competitive factor. Our competitive position also may depend upon our ability to
show differentiation with a product that is more efficacious and/or less expensive and quicker to manufacture. Other factors affecting
our competitive position include our ability to attract and retain qualified personnel, obtain patent protection or otherwise develop
proprietary products or processes and secure sufficient capital resources for the lengthy period between technological conception
and commercial sale.
Patents and Proprietary Rights
We generally seek
patent protection for our technology and product candidates in the U.S. and abroad. The patent position of biotechnology and pharmaceutical
firms generally is highly uncertain and involves complex legal and factual questions. Our success will depend, in part, on whether
we can:
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obtain patents to protect our own technologies and product
candidates;
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obtain licenses to use the technologies of third-parties,
which may be protected by patents;
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protect our trade secrets and know-how; and
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operate without infringing the intellectual property and
proprietary rights of others.
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Patent Rights;
Licenses.
We have intellectual
property (patents, licenses, know-how) related to our vaccines, manufacturing processes and other technologies. Currently, we have
or have rights to over 350 U.S. patents and corresponding foreign patents and patent applications relating to vaccines and vaccine-related
technologies.
Patents related to
our VLP program include U.S. Patent No. 7,763,450, which covers, in part, the use of influenza gene sequences for high-yield production
of consistent influenza VLP vaccines to protect against current and future seasonal and pandemic strains of influenza viruses.
Corresponding European patent, European Patent No. 1644037 also covers this technology. U.S. Patent Nos. 8,080,255, 8,551,756,
8,506,967 and 8,592,197 are directed to methods of producing VLPs and inducing substantial immunity to an influenza virus infection
by administering VLPs comprising HA and NA proteins, and our M1 protein derived from the avian influenza strain, A/Indonesia/5/05.
Certain claims also encompass similar methods and compositions where the M1 protein is from a different strain of influenza virus
than the influenza HA protein and the influenza NA protein. Related patent protection in Europe is provided by European Patent
No. 2343084, which covers, in part, vaccine compositions containing VLPs that contain M1, HA, and NA proteins. Our VLP patent portfolio
contains many other patents, including U.S. Patent Nos. 8,951,537, 8,992,939, 9,144,607, 9,050,290, 9,180,180, 9,381,239, 9,464,276,
9,474,799, and other patents in multiple ex-U.S. jurisdictions, and we continue to prosecute patents related to this program.
In addition to our
VLP program, we have issued patents and pending applications directed to other programs, including our RSV and rabies programs.
Issued patents directed to various aspects of the RSV program include U.S. Patent Nos. 8,715,692, 9,675,685, 9,731,000, 9,717,786,
and 10,022,437. Additional patents in the family include EP237009 in Europe, as well as others throughout the world. Patents related
to our rabies program include 9,724,405 and 10,086,065 in the U.S. and EP2635257 in Europe. Related patents have been issued in
other world markets. In addition to our focus on vaccine programs, we also pursue patent protection for our Matrix Adjuvant program.
Issued U.S. Patent Nos. 7,838,019, 9,205,147, 9,901,634 and 8,821,881 provide examples of patents related to our Matrix Adjuvant
program.
We continue to prepare,
file, and prosecute patent applications to provide broad and strong protection of our proprietary rights, including next generation
applications focused on our RSV Program, our influenza nanoparticle program, and our adjuvant program.
The Federal Technology
Transfer Act of 1986 and related statutory guidance encourages the dissemination of science and technology innovation. While our
expired contract with the Department of Health and Human Services, Biomedical Advanced Research and Development Authority (“HHS
BARDA”) provided us with the right to retain ownership in our inventions that may have arisen during performance of that
contract, with respect to certain other collaborative research efforts with the U.S. government, certain developments and results
that may have commercial potential are to be freely published, not treated as confidential, and we may be required to negotiate
a license to developments and results in order to commercialize products. There can be no assurance that we will be able to successfully
obtain any such license at a reasonable cost, or that such development and results will not be made available to our competitors
on an exclusive or non-exclusive basis.
Trade Secrets.
We also rely significantly
on trade secret protection and confidentiality agreements to protect our interests. It is our policy to require employees, consultants,
contractors, manufacturers, collaborators and other advisors to execute confidentiality agreements upon the commencement of employment,
consulting or collaborative relationships with us. We also require confidentiality agreements from any entity that is to receive
confidential information from us. With respect to employees, consultants and contractors, the agreements generally provide that
all inventions made by the individual while rendering services to us shall be assigned to us as our property.
Government Regulations
The development, production
and marketing of biological products, which include the vaccine candidates being developed by Novavax or our collaborators, are
subject to regulation for safety, efficacy and quality by numerous governmental authorities in the U.S. and other countries. Although,
we focus on the U.S. regulatory process and the standards imposed by the FDA, the International Conference on Harmonisation (“ICH”)
and other agencies because we believe meeting U.S. and ICH standards generally allows us to satisfy regulatory agencies in other
countries where we intend to do business; however we are mindful that expectations in some venues, notably in the European Union,
differ to some degree and we take proactive steps to address such differences by maintaining regular filings and correspondence
and attending regular meetings with many other non-U.S. regulatory agencies. In the U.S., the development, manufacturing and marketing
of human pharmaceuticals and vaccines are subject to extensive regulation under the Federal Food, Drug, and Cosmetic Act, and biological
products are subject to regulation under provisions of that act and the Public Health Service Act. The FDA not only assesses the
safety and efficacy of these products but it also regulates, among other things, the testing, manufacture, labeling, storage, record-keeping,
advertising and promotion of such products. The process of obtaining FDA licensure for a new vaccine is costly and time-consuming.
Vaccine clinical development
follows the same general regulatory pathway as drugs and other biologics. Before applying for FDA licensure to market any new vaccine
candidate, we expect to first submit an investigational new drug application (“IND”) that explains to the FDA, among
other things, the results of preclinical toxicology testing conducted in laboratory animals, the method of manufacture, quality
control tests for release, the stability of the investigational product and what we propose to do for human testing. At this stage,
the FDA decides whether it is reasonably safe to move forward with testing the vaccine candidate in humans. We must then conduct
Phase 1 clinical trials and larger-scale Phase 2 and 3 clinical trials that demonstrate the safety, immunogenicity and efficacy
of our vaccine candidate to the satisfaction of the FDA. Once these trials are complete, a BLA can be submitted to the FDA requesting
licensure of the vaccine for marketing based on the vaccine’s safety and efficacy. Similar pathways exist in Europe and other
geographies.
The FDA will only approve
a BLA if the vaccine is demonstrated to be safe, pure, and potent. During the FDA’s review of a BLA, the proposed manufacturing
facility undergoes a pre-approval inspection during which the FDA examines in detail the production of the vaccine, the manufacturing
facility and the quality documentation related to the vaccine. Vaccine licensure also requires the provision of adequate product
labeling to allow health care providers to understand the vaccine’s proper use, including its potential benefits and risks,
to communicate with patients and parents, and to safely deliver the vaccine to the public. Until a vaccine is given to the general
population, all potential adverse events cannot be anticipated. Thus, the FDA typically requires Phase 4 post-marketing clinical
trials for vaccines after licensure to continue gathering safety, and sometimes effectiveness/efficacy data in the indicated and
additional populations.
In order to ensure
continuing safety, the FDA and most other non-U.S. based regulatory agencies continue to oversee the production of vaccines even
after the vaccine and manufacturing processes are approved. For example, monitoring of the vaccine and of production activities,
including periodic facility inspections, must continue as long as the manufacturer holds a license for the product. Manufacturers
may also be required to submit the results of their own tests for potency, safety and purity for each vaccine lot, if requested
by the relevant regulatory agency. They may also be required to submit samples of each vaccine lot to the agency for testing.
In addition to obtaining
FDA licensure for each product, each domestic manufacturing establishment must be registered with the FDA, is subject to FDA inspection
and must comply with current Good Manufacturing Practices (“GMP”) regulations. To supply products for use either in
the U.S. or outside the U.S., including clinical trials, U.S. and foreign manufacturing establishments, including third-party facilities,
must comply with GMP regulations and are subject to periodic inspection by the FDA or by corresponding regulatory agencies in their
home country.
In 1992, the FDA instituted
regulations that allow accelerated approval of certain products that treat serious or life-threatening illnesses and provide meaningful
therapeutic benefit over existing treatments based on a surrogate endpoint, versus a clinical outcome, which can take many more
years to demonstrate. Surrogate endpoints, generally a laboratory measurement or other physical sign shown to have some correlation
with clinical benefit, can considerably shorten the development time leading up to FDA licensure. The FDA bases its decision on
whether to accept a proposed surrogate endpoint on the scientific support for that endpoint. The company developing the product
is required to conduct further studies to confirm the clinical benefit in Phase 4 confirmatory efficacy trials. We plan to seek
accelerated approval for our seasonal influenza vaccine for older adults, but have not ruled out the potential use of traditional
approval.
In addition to regulatory
approvals that must be obtained in the U.S., an investigational product is also subject to regulatory approval in other countries
in which it is intended to be marketed. No such product can be marketed in a country until the regulatory authorities of that country
have approved an appropriate marketing application. FDA licensure does not guarantee approval by other regulatory authorities.
In addition, in many countries, the government is involved in the pricing of the product. In such cases, the pricing review period
often begins after market approval is granted.
We are also subject
to regulation under the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act,
the Resource Conservation and Recovery Act and other present and potential federal, state or local regulations, including national
and local regulations that govern our facility in Sweden. These and other laws govern our use, handling and disposal of various
biological and chemical substances used in, and waste generated by our operations. Our research and development involves the controlled
use of hazardous materials, chemicals and viruses. Although we believe that our safety procedures for handling and disposing of
such materials comply with the standards prescribed by state and federal regulations, the risk of accidental contamination or injury
from these materials cannot be completely eliminated. In the event of such an accident, we could be held liable for any damages
that result and any such liability could exceed our resources. Additionally, for formulations containing controlled substances,
we are subject to Drug Enforcement Act regulations.
In both domestic and
foreign markets, sales of any products for which we receive regulatory approval for commercial sale will depend in part on the
availability of reimbursement from third-party payers. Third-party payers include government authorities or programs, private health
insurers (including managed care plans) and other organizations. These third-party payers are increasingly challenging the price
and examining the cost-effectiveness of medical products and services. In addition, significant uncertainty exists as to the reimbursement
status of newly approved healthcare products. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate
the cost-effectiveness of our products. Our product candidates may not be considered cost-effective. Adequate third-party reimbursement
may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product
development. Third-party payers may also control access to, or manage utilization of, our products with various utilization management
techniques.
Within the U.S., if
we obtain appropriate approval in the future to market any of our product candidates, those products could potentially be covered
by various government health benefit programs as well as purchased by government agencies. The participation in such programs or
the sale of products to such agencies is subject to regulation. In exchange for coverage, we may be obligated to provide rebates
or offer discounts under government health programs or to government and private purchasers.
The U.S. and state
governments continue to propose and pass legislation designed to reform delivery of, or payment for, health care, which include
initiatives to reduce the cost of healthcare. For example, in March 2010, the U.S. Congress enacted the Patient Protection and
Affordable Care Act and the Health Care and Education Reconciliation Act (“Healthcare Reform Act”) which includes changes
to the coverage and reimbursement of drug products under government health care programs. Under the Trump administration, there
have been ongoing efforts to modify or repeal all or certain provisions of the Healthcare Reform Act, and some modifications have
been implemented. Recently, there has been considerable public and government scrutiny in the U.S. of pharmaceutical pricing and
proposals to address the perceived high cost of pharmaceuticals. There have also been several recent state legislative efforts
to address drug costs, which generally have focused on increasing transparency around drug costs or limiting drug prices or price
increases. Adoption of new legislation at the federal or state level could affect demand for, or pricing of, our product candidates
if approved for sale. We cannot predict the ultimate content, timing or effect of any federal and state reform efforts. There is
no assurance that federal or state health care reform will not adversely affect our future business and financial results.
Within the U.S., we
may be subject to various federal and state laws pertaining to health care “fraud and abuse,” including anti-kickback
laws and false claims laws, for activities related to future sales of any of our product candidates that may in the future receive
regulatory and marketing approval. Anti-kickback laws generally prohibit a pharmaceutical manufacturer from soliciting, offering,
receiving, or paying any remuneration to generate business, including the purchase, prescription or use of a particular drug. Although
the specific provisions of these laws vary, their scope is generally broad and there may not be regulations, guidance or court
decisions that apply the laws to particular industry practices. There is therefore a possibility that our practices might be challenged
under such anti-kickback laws. False claims laws prohibit anyone from knowingly and willingly presenting, or causing to be presented,
any claims for payment for reimbursed drugs or services to third party payers (including Medicare and Medicaid) that are false
or fraudulent.
Laws and regulations
have been enacted by the federal government and various states to regulate the sales and marketing practices of pharmaceutical
manufacturers with marketed products. The laws and regulations generally limit financial interactions between manufacturers and
health care providers and/or require disclosure to the government and public of such interactions. Many of these laws and regulations
contain ambiguous requirements or require administrative guidance for implementation. Given the lack of clarity in laws and their
implementation, any future activities (if we obtain approval and/or reimbursement from federal healthcare programs for our product
candidates) could be subject to challenge.
Manufacturing
Our primary manufacturing
facility is located at our corporate headquarters at 20 Firstfield Road in Gaithersburg, Maryland. The facility has 53,000 square
feet of combined GMP manufacturing, laboratory and office space. Our Rockville, Maryland facility houses our 10,000 square foot
GMP pilot manufacturing facility that produces clinical trial material. Novavax AB, located in Uppsala, Sweden, produces our Matrix
adjuvants in an approximately 24,000 square foot facility comprised of GMP manufacturing, laboratory and office space.
Sources of Supply
Most of the raw materials
and other supplies required in our business are generally available from established vendors in quantities adequate to meet our
needs. In some cases, we have only qualified one vendor for certain of our manufacturing components. Prior to the initiation of
commercial production, we plan, where feasible, to qualify multiple vendors of critical raw materials. One key vendor is GE Healthcare
Company (“GEHC”), which supplies disposable components, resins, media and buffers used in our manufacturing process.
GEHC and other vendors that supply our key manufacturing materials have been or will be audited for compliance with GMP standards.
An important component
of our Matrix adjuvant technology is extracted from a species of soap-bark tree (
Quillaja saponaria
) that grows mainly in
Chile, and we have been able to acquire high-quality quillaja extract as needed from our current suppliers.
Business Development
We believe our proprietary
vaccine technology affords us a range of traditional and non-traditional commercialization options. We strive to create sustainable
value by working to obtain non-dilutive funding, similar to our agreement with BMGF to fund our maternal RSV program, that would
allow for:
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continued development of our vaccine candidates until such
vaccines can be licensed;
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retained commercial rights in one or more major markets;
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product sales revenue; and/or
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commercialization through partners and other strategic
relationships.
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Employees
As of March 12,
2019, we have 379 full-time employees, of whom 66 hold M.D. or Ph.D. degrees and 117 of whom hold other advanced degrees. Of
our total workforce, 329 are engaged primarily in research, development and manufacturing activities and 50 are engaged
primarily in executive, business development, finance and accounting, legal and administrative functions. None of our U.S.
employees are represented by labor unions or covered by collective bargaining agreements; 41 of our 42 Swedish employees are
covered by typical collective bargaining agreements. We consider our relations with our employees to be good.
Availability of Information
Our website address
is
www.novavax.com
. We make available, free of charge and through our website, our Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K and our other filings with the Securities and Exchange Commission (“SEC”),
and any amendments to any such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, as soon as reasonably practicable after filed with or furnished to the SEC. The SEC maintains an Internet site
that contains reports, proxy and information statements, and other information regarding issuers that file electronically with
the SEC at
www.sec.gov
.
We use our website
(www.novavax.com) as a means of disclosing material non-public information and for complying with our disclosure obligations under
Regulation Fair Disclosure promulgated by the SEC. These disclosures are included on our website (www.novavax.com) in the “Investors”
or “News” sections. Accordingly, investors should monitor these portions of our website (www.novavax.com), in addition
to following our press releases, SEC filings and public conference calls and webcasts.
Also available on our
website is information relating to corporate governance at Novavax and our Board of Directors, including our Code of Business Conduct
and Ethics. We intend to disclose on our website any future amendments to and waivers from this code that apply to our Chief Executive
Officer, Principal Financial Officer, Principal Accounting Officer and Controller, and persons performing similar functions, as
promptly as practicable, as may be required under applicable SEC and Nasdaq rules.
We webcast our earnings
calls and certain events we participate in or host with members of the investment community on the investor relations section of
our website. Additionally, we provide notifications of news or announcements regarding press and earnings releases as part of the
investor relations section of our website. The contents of our website are not part of this Annual Report on Form 10-K, or any
other report we file with, or furnish to, the SEC.
You should carefully
consider the following risk factors in evaluating our business. A number of risk factors could cause our actual results to differ
materially from those that are indicated by forward-looking statements. Some risks relate principally to our business and the industry
in which we operate. Others relate principally to the securities market and ownership of our common stock. The risks and uncertainties
described below are not the only ones we face. Additional risks and uncertainties of which we are unaware, or that we currently
deem immaterial, also may become important factors that affect us. If any of the following risks occur, our business, financial
condition or results of operations could be materially and adversely affected. You also should consider the other information included
in this Annual Report on Form 10-K.
RISKS RELATED TO OUR BUSINESS AND INDUSTRY
We have a history
of losses and our future profitability is uncertain.
Our expenses have exceeded
our revenue since our formation in 1987, and our accumulated deficit at December 31, 2018 was $1.3 billion. Our revenue for the
last three fiscal years was $34.3 million in 2018, $31.2 million in 2017, and $15.4 million in 2016. We may not be successful in
entering into collaborations, strategic alliances and marketing, distribution or licensing arrangements with other companies or
government agencies that result in significant revenue to offset our expenses. Our net losses for the last three fiscal years were
$184.7 million in 2018, $183.8 million in 2017, and $280.0 million in 2016.
Our recent historical
losses have resulted predominantly from research and development expenses for our vaccine candidates, manufacturing-related expenses,
costs related to protection of our intellectual property and for other general operating expenses. Our expenses have exceeded our
revenue since inception, and we believe our expenses will fluctuate over time, and may substantially increase some years, as a
result of continuing research and development efforts to support our vaccine development efforts, and, if our product candidates
are approved, future commercialization efforts. In 2016, for example, we experienced a significant increase in research and development
expenses compared to prior years primarily due to additional RSV F Vaccine clinical trials in older adults and infants via maternal
immunization, as well as higher employee-related costs to support development of our RSV F Vaccine and other potential vaccine
candidates.
Although certain specified
costs associated with the development of ResVax, our RSV vaccine program for infants via maternal immunization, may be reimbursed
under our contract with BMGF, we expect to continue to incur significant operating expenses and anticipate significant losses over
time as we seek to:
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conduct clinical trials for RSV F Vaccine
and other potential vaccine candidates;
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conduct preclinical studies for other
potential vaccine candidates;
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comply with the FDA’s manufacturing
facility and compliance requirements in anticipation of commercialization;
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invest in our manufacturing process for
commercial-scale and cost-efficiency; and
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maintain, expand and protect our intellectual
property portfolio.
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As a result, we expect
our cumulative operating losses to increase until such time, if ever, that product sales, licensing fees, royalties, milestones,
contract research and other sources generate sufficient revenue to fund our operations. We may never achieve profitability and
may not sustain profitability, if achieved.
We have limited
financial resources and we may not be able to maintain our current level of operations or be able to fund the further development
of our vaccine candidates.
We do not expect to
generate revenue from product sales, licensing fees, royalties, milestones, contract research or other sources in amounts sufficient
to fully fund our operations for the foreseeable future, and we will therefore use our cash resources, and expect to require additional
funds, to maintain our operations, continue our research and development programs, commence future preclinical studies and clinical
trials, seek regulatory approvals and manufacture and market our products. We anticipate seeking such additional funds through
a combination of public or private equity or debt financings, as well as potential collaborations, strategic alliances and marketing,
distribution or licensing arrangements and other sources. While we may continue to apply for contracts or grants from academic
institutions, non-profit organizations and governmental entities, we may not be successful. Adequate additional funding may not
be available to us on acceptable terms, if at all. If we cannot raise the additional funds required for our anticipated operations,
we may be required to delay significantly, reduce the scope of or eliminate one or more of our research or development programs,
downsize our organization, or seek alternative measures to avoid insolvency, including arrangements
with collaborative partners or others that may require us to relinquish rights to certain of our technologies or vaccine candidates.
If we raise additional funds through future offerings of shares of our common stock or other securities, such offerings would cause
dilution of current stockholders’ percentage ownership in the Company, which could be substantial. Future offerings also
could have a material and adverse effect on the price of our common stock.
Economic uncertainty
may adversely affect our access to capital, cost of capital and ability to execute our business plan as scheduled.
Generally, worldwide
economic conditions remain uncertain. Access to capital markets is critical to our ability to operate. Traditionally, biotechnology
companies have funded their research and development expenditures through raising capital in the equity markets. Declines and uncertainties
in these markets in the past have severely restricted raising new capital and have affected companies’ ability to continue
to expand or fund existing research and development efforts. We require significant capital for research and development for our
vaccine candidates and clinical trials. The general economic and capital market conditions, both in the U.S. and worldwide, have
been volatile in the past and at times have adversely affected our access to capital and increased the cost of capital. There is
no certainty that the capital and credit markets will be available to raise additional capital on favorable terms. If economic
conditions become worse, our future cost of equity or debt capital and access to the capital markets could be adversely affected.
In addition, if we are unable to access the capital markets on favorable terms, our ability to execute our business plan as scheduled
would be compromised. Moreover, we rely and intend to rely on third-parties, including clinical research organizations and other
important vendors and consultants. Global economic conditions may result in a disruption or delay in the performance of our third-party
contractors and suppliers. If such third-parties are unable to adequately satisfy their contractual commitments to us in a timely
manner, our business could be adversely affected.
The Grant Agreement
with BMGF does not assure success of ResVax or that the vaccine candidate will be licensed by the FDA.
The grant agreement
we entered into with BMGF in September 2015 (the “Grant Agreement”) reimburses a portion of specified expenses associated
with the development of ResVax, but we remain fully responsible for conducting these development activities. The Grant Agreement
does not guarantee that any of these activities will be successful. Our inability to succeed with key clinical or development activities
could jeopardize our ability to obtain FDA licensure to sell this vaccine.
Even with the
Grant Agreement with BMGF, we may not be able to fully fund ResVax.
The Grant Agreement
reimburses a portion of specified expenses associated with the development of ResVax, and additional activities likely will be
needed and BMGF may not reimburse us for any portion of these activities.
Recently announced
results from the Prepare trial, including that ResVax failed to meet the primary endpoint of the trial, will likely create challenges,
some of which may be significant, around further development of that vaccine.
While the Prepare results
indicate that ResVax showed efficacy in more serious manifestations of RSV disease, the trial failed to achieve its primary clinical
endpoint. Not achieving the primary clinical endpoint has been viewed negatively by our investors, and may also be viewed negatively
by potential collaborators and partners, and by regulatory agencies, which would make the ongoing development of ResVax, and any
other RSV F Vaccine candidates, more challenging.
Collaborations
and contracts of our wholly owned subsidiary Novavax AB, with regional partners, such as Cadila and BMGF, as well as with international
providers, expose us to additional risks associated with doing business outside the U.S.
Swedish-based Novavax
AB is a wholly owned subsidiary of Novavax, Inc. We also have formed a joint venture with Cadila in India, have established a clinical
development agreement with BMGF and have entered into other agreements and arrangements with companies in other countries. We plan
to continue to enter into collaborations or partnerships with companies, non-profit organizations and local governments in various
parts of the world. Risks of conducting business outside the U.S. include negative consequences of:
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the costs associated with seeking to comply
with multiple regulatory requirements that govern our ability to develop, manufacture and sell products in local markets;
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failure to comply with anti-bribery laws
such as the U.S. Foreign Corrupt Practices Act and similar anti-bribery laws in other jurisdictions;
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existing, new or changes in interpretations
of existing trade protections measures, including tariffs, embargoes and import and export licensing requirements;
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difficulties in and costs of staffing,
managing and operating our international operations;
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changes in environmental, health and safety
laws;
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fluctuations in foreign currency exchange
rates;
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new, changes in or changes in interpretations
of tax laws;
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political instability and actual or anticipated
military or potential conflicts;
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economic instability, inflation, recession
and interest rate fluctuations;
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minimal or diminished protection of intellectual
property in many jurisdictions; and
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possible nationalization and expropriation.
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These risks, individually
or in the aggregate, could have a material adverse effect on our business, financial conditions, results of operations and cash
flows.
Current or future
regional relationships may hinder our ability to engage in larger transactions.
We have entered into
regional collaborations to develop our vaccine candidates in certain parts of the world, and we may enter into additional regional
collaborations. Our relationships with Cadila and BMGF are examples of these regional relationships. These relationships often
involve the licensing of our technology to our partner or entering into a distribution agreement, frequently on an exclusive basis.
Generally, exclusive agreements are restricted to certain territories. Because we have entered into exclusive license and distribution
agreements, larger companies may not be interested, or able, to enter into collaborations with us on a worldwide-scale. Also, these
regional relationships may make us an unattractive target for an acquisition.
We are a biotechnology
company and face significant risk in developing, manufacturing and commercializing our products.
We focus our research
and development activities on vaccines, an area in which we believe we have particular strengths and a technology that appears
promising. The outcome of any research and development program is highly uncertain. Only a small fraction of biopharmaceutical
development programs ultimately result in commercial products or even product candidates and a number of events could delay our
development efforts and negatively impact our ability to obtain regulatory approval for, and to manufacture, market and sell, a
vaccine. Vaccine candidates that initially appear promising often fail to yield successful products. In many cases, preclinical
studies or clinical trials will show that a product candidate is not efficacious or that it raises safety concerns or has other
side effects that outweigh its intended benefit. Success in preclinical or early clinical trials may not translate into success
in large-scale clinical trials. Further, success in clinical trials often leads to increased investment, accelerating cumulative
losses. Even if clinical trial results appear positive, regulatory approval may not be obtained if the FDA does not agree with
our interpretation of the results, and we may face challenges when scaling-up the production process to commercial levels. Even
after a product is approved and launched, general usage or post-marketing clinical trials may identify safety or other previously
unknown problems with the product, which may result in regulatory approvals being suspended, limited to narrow indications or revoked,
which may otherwise prevent successful commercialization. Intense competition in the vaccine industry could also limit the successful
commercialization of any products for which we receive commercial approval.
Many of our competitors
have significantly greater resources and experience, which may negatively impact our commercial opportunities and those of our
current and future licensees.
The biotechnology and
pharmaceutical industries are subject to intense competition and rapid and significant technological change. We have many potential
competitors, including major pharmaceutical companies, specialized biotechnology firms, academic institutions, government agencies
and private and public research institutions. Many of our competitors have significantly greater financial and technical resources,
experience and expertise in:
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research and development;
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designing and implementing clinical trials;
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regulatory processes and approvals;
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production and manufacturing; and
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sales and marketing of approved products.
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Principal competitive
factors in our industry include:
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the quality and breadth of an organization’s
technology;
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management of the organization and the
execution of the organization’s strategy;
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the skill and experience of an organization’s
employees and its ability to recruit and retain skilled and experienced employees;
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an organization’s intellectual property
portfolio;
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the range of capabilities, from target
identification and validation to drug discovery and development to manufacturing and marketing; and
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the availability of substantial capital
resources to fund discovery, development and commercialization activities.
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Large and established
companies, such as Merck & Co., Inc., GlaxoSmithKline plc, CSL Ltd, Sanofi Pasteur, SA, Pfizer Inc. and AstraZeneca, among
others, compete in the vaccine market. In particular, these companies have greater experience and expertise in securing government
contracts and grants to support their research and development efforts, conducting testing and clinical trials, obtaining regulatory
approvals to market products, manufacturing such products on a broad scale and marketing approved products.
We are also aware that
there are multiple companies with active RSV vaccine programs at various stages of development. Thus, while there is no RSV vaccine
currently on the market, there is likely to be significant and consistent competition as these active programs mature. Different
RSV vaccines may work better for different segments of the population, so it may be difficult for a single RSV vaccine manufacturer
to provide vaccines that are marketable to multiple population segments. Geographic markets are also likely to vary significantly,
which may make it difficult to market a single RSV vaccine worldwide. Even if a manufacturer brings an RSV vaccine to license,
it is likely that competitors will continue to work on new products that could be more efficacious and/or less expensive. Our RSV
vaccine candidate may not be as far along in development as other active RSV vaccine programs about which we are not aware, nor
as efficacious as products under development by competing companies. Even if our RSV vaccine candidate receives regulatory approval,
it may not achieve significant sales if other, more effective vaccines under development by our competitors are also approved.
Many seasonal influenza
vaccines are currently approved and marketed. Competition in the sale of these seasonal influenza vaccines is intense. Therefore,
newly developed and approved products must be differentiated from existing vaccines in order to have commercial success. In order
to show differentiation in the seasonal influenza market, a product may need to be more efficacious, particularly in older adults,
and/or be less expensive and quicker to manufacture. Many of our competitors are working on new products and new generations of
current products, intended to be more efficacious than those currently marketed. Our nanoparticle seasonal influenza vaccine candidate
may not prove to be more efficacious than current products or products under development by our competitors. Further, our manufacturing
system may not provide enough savings of time or money to provide the required differentiation for commercial success.
Regardless of the disease,
smaller or early-stage companies and research institutions also may prove to be significant competitors, particularly through collaborative
arrangements with large and established pharmaceutical companies. As these companies develop their technologies, they may develop
proprietary positions, which may prevent or limit our product development and commercialization efforts. We will also face competition
from these parties in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites
and participant registration for clinical trials and in acquiring and in-licensing technologies and products complementary to our
programs or potentially advantageous to our business. If any of our competitors succeed in obtaining approval from the FDA or other
regulatory authorities for their products sooner than we do or for products that are more effective or less costly than ours, our
commercial opportunity could be significantly reduced.
In order to effectively
compete, we will have to make substantial investments in development, testing, manufacturing and sales and marketing or partner
with one or more established companies. We may not be successful in gaining significant market share for any vaccine. Our technologies
and vaccines also may be rendered obsolete or non-competitive as a result of products introduced by our competitors to the marketplace
more rapidly and at a lower cost.
If we are unable
to attract or retain key management or other personnel, our business, operating results and financial condition could be materially
adversely affected. These risks may be amplified by our recent announcement of the results of the Prepare trial of ResVax.
We depend on our senior
executive officers, as well as key scientific and other personnel. The loss of these individuals could harm our business and significantly
delay or prevent the achievement of research, development or business objectives. Turnover in key executive positions resulting
in lack of management continuity and long-term history with our Company could result in operational and administrative inefficiencies
and added costs.
We may not be able
to attract qualified individuals for key positions on terms acceptable to us. Competition for qualified employees is intense among
pharmaceutical and biotechnology companies, and the loss of qualified employees, or an inability to attract, retain and motivate
additional highly skilled employees could hinder our ability to complete clinical trials successfully and develop marketable products.
With our recent announcement of the results of our Prepare trial of ResVax, there is a concern that challenges associated with
ResVax development may cause certain of our employees to look for job opportunities elsewhere.
We also rely from time
to time on outside advisors who assist us in formulating our research and development and clinical strategy. We may not be able
to attract and retain these individuals on acceptable terms, which could delay our development efforts.
We may have product
liability exposure.
The administration
of drugs or vaccines to humans, whether in clinical trials or after marketing approval, can result in product liability claims.
We maintain product liability insurance coverage in the total amount of $20 million aggregate for all claims arising from the use
of products in clinical trials prior to FDA approval. Coverage is relatively expensive, and the market pricing fluctuates significantly.
Therefore, we may not be able to maintain insurance at a reasonable cost. We may not be able to maintain our existing insurance
coverage or obtain coverage for the use of our other products in the future. This insurance coverage and our resources may not
be sufficient to satisfy all liabilities that result from product liability claims. A successful claim may prevent us from obtaining
adequate product liability insurance in the future on commercially desirable items, if at all. Even if a claim is not successful,
defending such a claim would be time-consuming and expensive, may damage our reputation in the marketplace and would likely divert
management’s attention.
Regardless of merit
or eventual outcome, liability claims may result in:
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decreased demand for our products;
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impairment of our business reputation;
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withdrawal of clinical trial participants;
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costs of related litigation;
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substantial monetary awards to participants
or other claimants;
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inability to commercialize our vaccine
candidates.
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We may not be
able to win government, academic institution or non-profit contracts or grants.
From time to time,
we may apply for contracts or grants from government agencies, academic institutions, and non-profit organizations. Such contracts
or grants can be highly attractive because they provide capital to fund the ongoing development of our technologies and vaccine
candidates without diluting our stockholders. However, there is often significant competition for these contracts or grants. Entities
offering contracts or grants may have requirements to apply for or to otherwise be eligible to receive certain contracts or grants
that our competitors may be able to satisfy that we cannot. In addition, such entities may make arbitrary decisions as to whether
to offer contracts or make grants, to whom the contracts or grants will be awarded and the size of the contracts or grants to each
awardee. Even if we are able to satisfy the award requirements, we may not be a successful awardee. Therefore, we may not be able
to win any contracts or grants in a timely manner, if at all.
Raising additional
capital by issuing securities or through collaboration and licensing arrangements may cause dilution to existing stockholders or
require us to relinquish rights to our technologies or vaccine candidates.
If we are unable to
partner with a third-party to advance the development of one or more of our vaccine candidates, we will need to raise money through
additional debt or equity financings. To the extent that we raise additional capital by issuing equity securities, our stockholders
will experience immediate dilution, which may be significant, especially when our stock price is at a lower level compared to market
prices over recent years. There is also a risk that such equity issuances may cause an ownership change under the Internal Revenue
Code of 1986, as amended, and similar state provisions, thus limiting our ability to use our net operating loss carryforwards and
credits. To the extent that we raise additional capital through licensing arrangements or arrangements with collaborative partners,
we may be required to relinquish, on terms that may not be favorable to us, rights to some of our technologies or vaccine candidates
that we would otherwise seek to develop or commercialize ourselves. In addition, current economic conditions may also negatively
affect the desire or ability of potential collaborators to enter into transactions with us. They may also have to delay or cancel
research and development projects or reduce their overall budgets.
Our business
may be adversely affected if we do not successfully execute our business development initiatives.
We anticipate growing
through both internal development projects, as well as external opportunities, which include the acquisition, partnering and in-licensing
of products, technologies and companies or the entry into strategic alliances and collaborations. The availability of high quality
opportunities is limited, and we may fail to identify candidates that we and our stockholders consider suitable or complete transactions
on terms that prove advantageous. In order to pursue such opportunities, we may require significant additional financing, which
may not be available to us on favorable terms, if at all. Even if we are able to successfully identify and complete acquisitions,
like our business combination with Novavax AB, we may not be able to integrate the assets or take full advantage of the opportunities
and, consequently, may not realize the benefits that we expect.
To effectively manage
our current and future potential growth, we will need to continue to enhance our operational, financial and management processes
and to effectively expand, train and manage our employee base. Supporting our growth initiatives will require significant expenditures
and management resources, including investments in research and development, manufacturing and other areas of our business. If
we do not successfully manage our growth and do not successfully execute our growth initiatives, then our business and financial
results may be adversely impacted, and we may incur asset impairment or restructuring charges.
Litigation could
have a material adverse impact on our results of operation and financial condition.
In addition to intellectual
property litigation, from time to time, we may be subject to other litigation. Regardless of the merits of any claims that may
be brought against us, litigation could result in a diversion of management’s attention and resources and we may be required
to incur significant expenses defending against these claims. If we are unable to prevail in litigation, we could incur substantial
liabilities. Where we can make a reasonable estimate of the liability relating to pending litigation and determine that it is probable,
we record a related liability. As additional information becomes available, we assess the potential liability and revise estimates
as appropriate. However, because of uncertainties relating to litigation, the amount of our estimates could be wrong.
Given our
current cash position, there is substantial doubt about our ability to continue as a going concern through one year from the
date that the financial statements included in this Annual Report were issued.
We adopted ASU 2014-15,
Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability
to Continue as a Going Concern,
in 2016, under which standard our management must evaluate whether there are conditions or
events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year
after the date that financial statements are issued. During the year ended December 31, 2018, we have incurred a net loss of $184.7
million and had net cash flows used in operating activities of $184.8 million. At December 31, 2018, we had $103.9 million in cash
and cash equivalents, marketable securities and restricted cash and had no committed source of additional funding from either debt
or equity financings. Our management believes that, given the Company’s current cash position, there is substantial doubt
about our ability to continue as a going concern through one year from the date that the financial statements included in this
Annual Report were issued.
Our capital requirements
and cash needs are significant and continuing. Over the next twelve months, we anticipate incurring additional net losses and negative
cash flows from operating activities as we continue our product development activities, including our planned ResVax submission
of a BLA with the FDA and/or a MAA with the EMA in 2020, and our planned Phase 3 clinical trial of NanoFlu following discussions
with the FDA in the first half of 2019. Our ability to fund our operations is dependent upon management’s plans, which include
raising additional capital in the near term primarily through 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 our product candidates receive marketing approval and can be commercialized. There can be no assurances that new
financings or other transactions will be available to us on commercially acceptable terms, or at all. Also, any collaborations,
strategic alliances and marketing, distribution or licensing arrangements may require us to give up some or all of our rights to
a product or technology, which in some cases may be at less than the full potential value of such rights. If we are unable to obtain
adequate capital resources to fund our operations, we may be required to delay, reduce the scope of or eliminate some or all of
our operations, which may have a material adverse effect on our business, financial condition, results of operations and ability
to operate as a going concern.
Security breaches
and other disruptions could compromise our information and expose us to liability, and our failure to comply with data protection
laws and regulations could lead to government enforcement actions, which would cause our business and reputation to suffer.
In the ordinary course
of our business, we collect and store sensitive data, including intellectual property, our proprietary business information and
data about our clinical participants, suppliers and business partners and personally identifiable information. The secure maintenance
of this information is critical to our operations and business strategy. Some of this information could be an attractive target
of criminal attack by malicious third parties with a wide range of motives and expertise, including organized criminal groups,
“hacktivists,” patient groups, disgruntled current or former employees and others. Hacker attacks are of ever-increasing
levels of sophistication, and despite our security measures, our information technology and infrastructure may be vulnerable to
such attacks or may be breached due to employee error or malfeasance. Any such breach could compromise our networks and the information
stored there could be accessed, publicly disclosed, lost or stolen. Furthermore, if our systems become compromised, we may not
promptly discover the intrusion. Like other companies in our industry, we have experienced attacks to our data and systems, including
malware and computer viruses. Attacks could have a material impact on our business, operations or financial results. Any access,
disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy
of personal information, disrupt our operations, and damage our reputation, which could adversely affect our business. In addition,
privacy and data protection laws may be interpreted and applied differently from country to country and may create inconsistent
or conflicting requirements, which can increase the costs incurred by us in complying with such laws. The European Union’s
General Data Protection Regulation (“GDPR”), which greatly increases the jurisdictional reach of European Union law
and became effective in May 2018, adds a broad array of requirements for handling personal data including the public disclosure
of significant data breaches, and imposes substantial penalties for non-compliance of up to the greater of €20 million or
4% of global annual revenue for the preceding financial year. Our efforts to comply with GDPR and other privacy and data protection
laws may impose significant costs and challenges that are likely to increase over time, and we could incur substantial penalties
or litigation related to violations of existing or future data privacy laws and regulations.
The comprehensive
2017 tax reform bill could adversely affect our business and financial condition.
On December 22, 2017,
President Trump signed into law legislation (the “Act”) that significantly revised the Internal Revenue Code of 1986,
as amended. The Act, among other things, contained significant changes to corporate taxation, including reduction of the corporate
tax rate from a top marginal rate of 35 percent (35%) to a flat rate of 21 percent (21%), limitation of the tax deduction for interest
expense to 30 percent (30%) of adjusted earnings (except for certain small businesses), limitation of the deduction for net operating
losses to 80 percent (80%) of current-year taxable income and elimination of net operating loss carrybacks, one time taxation of
offshore earnings at reduced rates regardless of whether they are repatriated, immediate deductions for certain new investments
instead of deductions for depreciation expense over time, modifying or repealing many business deductions and credits, and puts
into effect the migration from a “worldwide” system of taxation to a territorial system. Notwithstanding the reduction
in the corporate income tax rate, the overall impact of the Act is uncertain and our business and financial condition could be
adversely affected. In addition, it is uncertain if and to what extent various states will conform to the Act.
PRODUCT DEVELOPMENT RISKS
Because our vaccine
product development efforts depend on new and rapidly evolving technologies, we cannot be certain that our efforts will be successful.
Our vaccine development
efforts depend on new, rapidly evolving technologies and on the marketability and profitability of our products. Our development
efforts and, if those are successful, commercialization of our vaccines could fail for a variety of reasons, and include the possibility
that:
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our recombinant nanoparticle vaccine technologies,
any or all of the products based on such technologies or our proprietary manufacturing process will be ineffective or unsafe, or
otherwise fail to receive necessary regulatory clearances or commercial viability;
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we are unable to scale-up our manufacturing
capabilities in a cost-effective manner;
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the products, if safe and effective, will
be difficult to manufacture on a large-scale or uneconomical to market;
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our manufacturing facility will fail to
continue to pass regulatory inspections;
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proprietary rights of third-parties will
prevent us or our collaborators from exploiting technologies, and manufacturing or marketing products; and
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third-party competitors will gain greater
market share due to superior products or marketing capabilities.
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We have not completed
the development of vaccine products and we may not succeed in obtaining the FDA licensure necessary to sell such vaccine products.
The development, manufacture
and marketing of our pharmaceutical and biological products are subject to government regulation in the U.S. and other countries,
including the European Medicines Agency and the Swedish Medical Products Agency with respect to our adjuvant product being developed
in Sweden. In the U.S. and most foreign countries, we must complete rigorous preclinical testing and extensive clinical trials
that demonstrate the safety and efficacy of a product in order to apply for regulatory approval to market the product. None of
our vaccine candidates have yet gained regulatory approval in the U.S. or elsewhere. We also have vaccine candidates in clinical
trials and preclinical laboratory or animal studies.
The steps generally
required by the FDA before our proposed investigational products may be marketed in the U.S. include:
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performance of preclinical (animal and
laboratory) tests;
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submissions to the FDA of an IND, which
must become effective before clinical trials may commence;
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performance of adequate and well controlled
clinical trials to establish the safety and efficacy of the investigational product in the intended target population;
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performance of a consistent and reproducible
manufacturing process intended for commercial use, including appropriate manufacturing data and regulatory inspections;
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submission to the FDA of a BLA or a NDA;
and
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FDA approval of the BLA or NDA before
any commercial sale or shipment of the product.
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The processes are expensive
and can take many years to complete, and we may not be able to demonstrate the safety and efficacy of our vaccine candidates to
the satisfaction of regulatory authorities. The start of clinical trials can be delayed or take longer than anticipated for many
and varied reasons, many of which are out of our control. Safety concerns may emerge that could lengthen the ongoing clinical trials
or require additional clinical trials to be conducted. Promising results in early clinical trials may not be replicated in subsequent
clinical trials. Regulatory authorities may also require additional testing, and we may be required to demonstrate that our proposed
products represent an improved form of treatment over existing therapies, which we may be unable to do without conducting further
clinical trials. Moreover, if the FDA or a foreign regulatory body grants regulatory approval of a product, the approval may be
limited to specific indications or limited with respect to its distribution. Expanded or additional indications for approved products
may not be approved, which could limit our revenue. Foreign regulatory authorities may apply similar limitations or may refuse
to grant any approval. Consequently, even if we believe that preclinical and clinical data are sufficient to support regulatory
approval for our vaccine candidates, the FDA and foreign regulatory authorities may not ultimately grant approval for commercial
sale in any jurisdiction. If our vaccine candidates are not approved, our ability to generate revenue will be limited and our business
will be adversely affected.
If we are unable
to manufacture our vaccines in sufficient quantities, at sufficient yields or are unable to obtain regulatory approvals for a manufacturing
facility for our vaccines, we may experience delays in product development, clinical trials, regulatory approval and commercial
distribution.
Completion of our clinical
trials and commercialization of our vaccine candidates require access to, or development of, facilities to manufacture our vaccine
candidates at sufficient yields and at commercial-scale. We have limited experience manufacturing any of our vaccine candidates
in the volumes that will be necessary to support large-scale clinical trials or commercial sales. Efforts to establish these capabilities
may not meet initial expectations as to scheduling, scale-up, reproducibility, yield, purity, cost, potency or quality.
Manufacturing our vaccine
candidates involves a complicated process with which we have limited experience. If we are unable to manufacture our vaccine candidates
in clinical quantities or, when necessary, in commercial quantities and at sufficient yields, then we must rely on third-parties.
Other third-party manufacturers must also receive FDA approval before they can produce clinical material or commercial products.
Our vaccines may be in competition with other products for access to these facilities and may be subject to delays in manufacture
if third-parties give other products greater priority. We may not be able to enter into any necessary third-party manufacturing
arrangements on acceptable terms, or on a timely basis. In addition, we have to enter into technical transfer agreements and share
our know-how with the third-party manufacturers, which can be time-consuming and may result in delays.
Like influenza, a licensed
RSV vaccine would likely be seasonal in nature. If a seasonal vaccine is not available early enough in the season, we would likely
have difficulty selling that vaccine. For these reasons, any delay in the delivery of a seasonal vaccine could result in lower
sales volumes, lower sale prices, or no sales. Strains of the seasonal influenza change annually, which means that inventory of
seasonal vaccine cannot be sold during a subsequent influenza season. We believe that while RSV strains may also change annually,
our RSV F Vaccine is directed at highly-conserved epitopes that are unlikely to change annually, although that has not yet been
definitively demonstrated. Any delay in the manufacture of our vaccines could adversely affect our ability to sell the vaccines.
Our reliance on contract
manufacturers may adversely affect our operations or result in unforeseen delays or other problems beyond our control. Because
of contractual restraints and the limited number of third-party manufacturers with the expertise, required regulatory approvals
and facilities to manufacture our bulk vaccines on a commercial-scale, replacement of a manufacturer may be expensive and time-consuming
and may cause interruptions in the production of our vaccine. A third-party manufacturer may also encounter difficulties in production.
These problems may include:
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difficulties with production costs, scale
up and yields;
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availability of raw materials and supplies;
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quality control and assurance;
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shortages of qualified personnel;
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compliance with strictly enforced federal,
state and foreign regulations that vary in each country where products might be sold; and
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lack of capital funding.
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As a result, any delay
or interruption could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We must identify
vaccines for development with our technologies and establish successful third-party relationships.
The near and long-term
viability of our vaccine candidates will depend in part on our ability to successfully establish new strategic collaborations with
pharmaceutical and biotechnology companies, non-profit organizations and government agencies. Establishing strategic collaborations
and obtaining government funding is difficult and time-consuming. Potential collaborators may reject collaborations based upon
their assessment of our financial, regulatory or intellectual property position or based on their internal pipeline; government
agencies may reject contract or grant applications based on their assessment of public need, the public interest, our products’
ability to address these areas, or other reasons beyond our expectations or control. If we fail to establish a sufficient number
of collaborations or government relationships on acceptable terms, we may not be able to commercialize our vaccine candidates or
generate sufficient revenue to fund further research and development efforts.
Even if we establish
new collaborations or obtain government funding, these relationships may never result in the successful development or commercialization
of any vaccine candidates for several reasons, including the fact that:
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we may not have the ability to control
the activities of our partners and cannot provide assurance that they will fulfill their obligations to us, including with respect
to the license, development and commercialization of vaccine candidates, in a timely manner or at all;
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such partners may not devote sufficient
resources to our vaccine candidates or properly maintain or defend our intellectual property rights;
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any failure on the part of our partners
to perform or satisfy their obligations to us could lead to delays in the development or commercialization of our vaccine candidates
and affect our ability to realize product revenue; and
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disagreements, including disputes over
the ownership of technology developed with such collaborators, could result in litigation, which would be time consuming and expensive,
and may delay or terminate research and development efforts, regulatory approvals and commercialization activities.
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Our collaborators will
be subject to the same regulatory approval of their manufacturing facility and process as us. Before we could begin commercial
manufacturing of any of our vaccine candidates, we and our collaborators must pass a pre-approval inspection before FDA approval
and comply with the FDA’s GMP regulations. If our collaborators fail to comply with these requirements, our vaccine candidates
would not be approved. If our collaborators fail to comply with these requirements after approval, we could be subject to possible
regulatory action and may be limited in the jurisdictions in which we are permitted to sell our products.
If we or our collaborators
fail to maintain our existing agreements or in the event we fail to establish agreements as necessary, we could be required to
undertake research, development, manufacturing and commercialization activities solely at our own expense. These activities would
significantly increase our capital requirements and, given our lack of sales, marketing and distribution capabilities, significantly
delay the commercialization of our vaccine candidates.
Because we depend
on third-parties to conduct some of our laboratory testing, clinical trials, and manufacturing, we may encounter delays in or lose
some control over our efforts to develop products.
We are dependent on
third-party research organizations to conduct some of our laboratory testing, clinical trials and manufacturing activities. If
we are unable to obtain any necessary services on acceptable terms, we may not complete our product development efforts in a timely
manner. We may lose some control over these activities and become too dependent upon these parties. These third-parties may not
complete testing or manufacturing activities on schedule, within budget, or when we request. We may not be able to secure and maintain
suitable research organizations to conduct our laboratory testing, clinical trials and manufacturing activities. We have not manufactured
any of our vaccine candidates at a commercial level and may need to identify additional third-party manufacturers to scale-up and
manufacture our products.
We are responsible
for confirming that each of our clinical trials is conducted in accordance with its general investigational plan and protocol.
Moreover, the FDA and foreign regulatory agencies require us to comply with regulations and standards, commonly referred to as
good clinical practices, for conducting, recording and reporting the results of clinical trials to assure that data and reported
results are credible and accurate and that the clinical trial participants are adequately protected. The FDA and foreign regulatory
agencies also require us to comply with good manufacturing practices. Our reliance on third-parties does not relieve us of these
responsibilities and requirements. These third-parties may not successfully carry out their contractual duties or regulatory obligations
or meet expected deadlines. In addition, these third-parties may need to be replaced or the quality or accuracy of the data they
obtain may be compromised or the product they manufacture may be contaminated due to the failure to adhere to our clinical and
manufacturing protocols, regulatory requirements or for other reasons. In any such event, our preclinical development activities
or clinical trials may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory approval of,
or commercially manufacture, our vaccine candidates.
Even if licensed
to market, our vaccine products may not be initially or ever profitable.
Whether Novavax makes
a profit from the sale of its vaccine products is dependent on a number of variables, including the costs we incur manufacturing,
testing and releasing, packaging and shipping such vaccine product. The Grant Agreement with BMGF necessitates that we commit to
a specific amount of sales in certain specified middle and lower income countries, which may impact our ability to make profits.
In addition, we have not yet determined pricing for our vaccine products, which is a complicated undertaking that necessitates
both regulatory agency and payer support. We cannot predict when, if at all, our approved vaccine products will be profitable to
the Company.
Our collaborations
may not be profitable.
We formed CPLB with
Cadila in India, but we cannot predict when, if at all, this relationship will lead to additional approved products, sales, or
otherwise provide revenue to the Company or become profitable.
We have limited
marketing capabilities, and if we are unable to enter into collaborations with marketing partners or develop our own sales and
marketing capability, we may not be successful in commercializing any approved products.
Although we have initiated
preliminary activities in anticipation of commercialization of our vaccine candidates, we currently have no dedicated sales, marketing
or distribution capabilities. As a result, we will depend on collaborations with third-parties that have established distribution
systems and sales forces. To the extent that we enter into co-promotion or other licensing arrangements, our revenue will depend
upon the efforts of third-parties, over which we may have little or no control. If we are unable to reach and maintain agreements
with one or more pharmaceutical companies or collaborators, we may be required to market our products directly. Developing a marketing
and sales force is expensive and time-consuming and could delay a product launch. We may not be able to attract and retain qualified
sales personnel or otherwise develop this capability.
Our vaccine candidates
may never achieve market acceptance even if we obtain regulatory approvals.
Even if we receive
regulatory approvals for the commercial sale of our vaccine candidates, the commercial success of these vaccine candidates will
depend on, among other things, their acceptance by physicians, patients, third-party payers, such as health insurance companies
and other members of the medical community, as a vaccine and cost-effective alternative to competing products. If our vaccine candidates
fail to gain market acceptance, we may be unable to earn sufficient revenue to continue our business. Market acceptance of, and
demand for, any product that we may develop and commercialize will depend on many factors, including:
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our ability to provide acceptable evidence
of safety and efficacy;
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the prevalence and severity of adverse
side effects;
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whether our vaccines are differentiated
from other vaccines;
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availability, relative cost and relative
efficacy of alternative and competing treatments;
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the effectiveness of our marketing and
distribution strategy;
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publicity concerning our products or competing
products and treatments; and
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our ability to obtain sufficient third
party insurance coverage or reimbursement.
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Unlike RSV, where there
is no current vaccine available, there are significant challenges to market seasonal influenza vaccines. For a seasonal vaccine
to be accepted in the market, it must demonstrate differentiation from other seasonal vaccines that are currently approved and
marketed. This can mean that the vaccine is more effective in certain populations, such as in older adults, or cheaper and quicker
to produce. There are no assurances that our influenza vaccine can be differentiated from other influenza vaccines.
If our vaccine candidates
do not become widely accepted by physicians, patients, third-party payers and other members of the medical community, our business,
financial condition and results of operations could be materially and adversely affected.
We may not be
able to secure sufficient supplies of a key component of our adjuvant technology.
Because an important
component of our adjuvant technology is extracted from a species of soap-bark tree (
Quillaja saponaria
) grown in Chile,
we need long term access to quillaja extract with a consistent and sufficiently high quality. We need a secure supply of raw material,
as well as back-up suppliers, or our adjuvant products may be delayed.
If reforms in
the health care industry make reimbursement for our potential products less likely, the market for our potential products will
be reduced, and we could lose potential sources of revenue.
Our success may depend,
in part, on the extent to which reimbursement for the costs of vaccines will be available from third-party payers, such as government
health administration authorities, private health insurers (including managed care plans), and other organizations. Over the past
decade, the cost of health care has risen significantly, and there have been numerous proposals by legislators, regulators and
third-party health care payers to curb these costs. Some of these proposals have involved limitations on the amount of reimbursement
for certain products. Similar federal or state health care legislation may be adopted in the future and any products that we or
our collaborators seek to commercialize may not be considered cost-effective. Adequate third-party insurance coverage may not be
available for us to establish and maintain price levels that are sufficient for realization of an appropriate return on our investment
in product development. Moreover, the existence or threat of cost control measures could cause our corporate collaborators to be
less willing or able to pursue research and development programs related to our vaccine candidates.
REGULATORY RISKS
We may fail to
obtain regulatory approval for our products on a timely basis or comply with our continuing regulatory obligations after approval
is obtained.
Delays in obtaining
regulatory approval can be extremely costly in terms of lost sales opportunities, loss of any potential marketing advantage of
being early to market and increased clinical trial costs. The speed with which we begin and complete our preclinical studies necessary
to begin clinical trials, clinical trials and our applications for marketing approval will depend on several factors, including
the following:
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our ability to manufacture or obtain sufficient
quantities of materials for use in necessary preclinical studies and clinical trials;
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prior regulatory agency review and approval;
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approval of the protocol and the informed
consent form by the review board of the institution conducting the clinical trial;
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the rate of participant enrollment and
retention, which is a function of many factors, including the size of the participant population, the proximity of participants
to clinical sites, the eligibility criteria for the clinical trial and the nature of the protocol;
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negative test results or side effects
experienced by clinical trial participants;
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analysis of data obtained from preclinical
and clinical activities, which are susceptible to varying interpretations and which interpretations could delay, limit or prevent
further studies or regulatory approval;
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the availability of skilled and experienced
staff to conduct and monitor clinical trials and to prepare the appropriate regulatory applications; and
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changes in the policies of regulatory
authorities for drug or vaccine approval during the period of product development.
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We have limited experience
in conducting and managing the preclinical studies and clinical trials necessary to obtain regulatory marketing approvals. We may
not be permitted to continue or commence additional clinical trials. We also face the risk that the results of our clinical trials
may be inconsistent with the results obtained in preclinical studies or clinical trials of similar products or that the results
obtained in later phases of clinical trials may be inconsistent with those obtained in earlier phases. A number of companies in
the biotechnology and product development industry have suffered significant setbacks in advanced clinical trials, even after experiencing
promising results in early animal and human testing.
Regulatory agencies
may require us or our collaborators to delay, restrict or discontinue clinical trials on various grounds, including a finding that
the participants are being exposed to an unacceptable health risk. In addition, we or our collaborators may be unable to submit
applications to regulatory agencies within the time frame we currently expect. Once submitted, applications must be approved by
various regulatory agencies before we or our collaborators can commercialize the product described in the application. All statutes
and regulations governing the conduct of clinical trials are subject to change in the future, which could affect the cost of such
clinical trials. Any unanticipated costs or delays in our clinical trials could delay our ability to generate revenue and harm
our financial condition and results of operations.
Failure to obtain
regulatory approval in foreign jurisdictions would prevent us from marketing our products internationally.
We intend to have our
vaccine candidates marketed outside the U.S. In furtherance of this objective, we have entered into relationships with Cadila in
India. In order to market our products in the European Union, India, Asia and many other non-U.S. jurisdictions, we must obtain
separate regulatory approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among
countries and can involve additional testing and data review. The time required to obtain foreign regulatory approval may differ
from that required to obtain FDA approval. The foreign regulatory approval process may include all of the risks associated with
obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. Approval by a regulatory agency,
such as the FDA, does not ensure approval by any other regulatory agencies, for example in other foreign countries. However, a
failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process
in other jurisdictions, including approval by the FDA. The failure to obtain regulatory approval in foreign jurisdictions could
harm our business.
Even if regulatory
approval is received for our vaccine candidates, the later discovery of previously unknown problems with a product, manufacturer
or facility may result in restrictions, including withdrawal of the product from the market.
Even if a product gains
regulatory approval, such approval is likely to limit the indicated uses for which it may be marketed, and the product and the
manufacturer of the product will be subject to continuing regulatory review, including adverse event reporting requirements and
the FDA’s general prohibition against promoting products for unapproved uses. Failure to comply with any post-approval requirements
can, among other things, result in warning letters, product seizures, recalls, substantial fines, injunctions, suspensions or revocations
of marketing licenses, operating restrictions and criminal prosecutions. Any of these enforcement actions, any unanticipated changes
in existing regulatory requirements or the adoption of new requirements, or any safety issues that arise with any approved products,
could adversely affect our ability to market products and generate revenue and thus adversely affect our ability to continue our
business.
We also may be restricted
or prohibited from marketing or manufacturing a product, even after obtaining product approval, if previously unknown problems
with the product or its manufacture are subsequently discovered and we cannot provide assurance that newly discovered or developed
safety issues will not arise following any regulatory approval. With the use of any vaccine by a wide patient population, serious
adverse events may occur from time to time that initially do not appear to relate to the vaccine itself, and only if the specific
event occurs with some regularity over a period of time does the vaccine become suspect as having a causal relationship to the
adverse event. Any safety issues could cause us to suspend or cease marketing of our approved products, possibly subject us to
substantial liabilities, and adversely affect our ability to generate revenue and our financial condition.
Because we are
subject to environmental, health and safety laws, we may be unable to conduct our business in the most advantageous manner.
We are subject to various
laws and regulations relating to safe working conditions, laboratory and manufacturing practices, the experimental use of animals,
emissions and wastewater discharges, and the use and disposal of hazardous or potentially hazardous substances used in connection
with our research, including infectious disease agents. We also cannot accurately predict the extent of regulations that might
result from any future legislative or administrative action. Any of these laws or regulations could cause us to incur additional
expense or restrict our operations.
Our facilities in Maryland
are subject to various local, state and federal laws and regulations relating to safe working conditions, laboratory and manufacturing
practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances, including
chemicals, microorganisms and various hazardous compounds used in connection with our research and development activities. In the
U.S., these laws include the Occupational Safety and Health Act, the Toxic Test Substances Control Act and the Resource Conservation
and Recovery Act. Similar national and local regulations govern our facility in Sweden. We cannot eliminate the risk of accidental
contamination or discharge or injury from these materials. Federal, state, and local laws and regulations govern the use, manufacture,
storage, handling and disposal of these materials. We could be subject to civil damages in the event of an improper or unauthorized
release of, or exposure of individuals to, these hazardous materials. In addition, claimants may sue us for injury or contamination
that results from our use or the use by third-parties of these materials, and our liability may exceed our total assets. Compliance
with environmental laws and regulations may be expensive, and current or future environmental regulations may impair our research,
development or production efforts.
Although we have general
liability insurance, these policies contain exclusions from insurance against claims arising from pollution from chemicals or pollution
from conditions arising from our operations. Our collaborators are working with these types of hazardous materials in connection
with our collaborations. In the event of a lawsuit or investigation, we could be held responsible for any injury we or our collaborators
cause to persons or property by exposure to, or release of, any hazardous materials. However, we believe that we are currently
in compliance with all material applicable environmental and occupational health and safety regulations.
Even if we successfully
commercialize any of our vaccine candidates, either alone or in collaboration, we face uncertainty with respect to pricing, third-party
reimbursement and healthcare reform, all of which could adversely affect any commercial success of our vaccine candidates.
Our ability to collect
revenue from the commercial sale of our vaccines may depend on our ability, and that of any current or potential future collaboration
partners or customers, to obtain adequate levels of approval, coverage and reimbursement for such products from third-party payers
such as:
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government health administration authorities
such as the Advisory Committee for Immunization Practices of the Center for Disease Control and Prevention;
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private health insurers;
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managed care organizations;
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pharmacy benefit management companies;
and
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other healthcare related organizations.
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Third-party payers
are increasingly challenging the prices charged for medical products and may deny coverage or offer inadequate levels of reimbursement
if they determine that a prescribed product has not received appropriate clearances from the FDA, or foreign equivalent, or other
government regulators; is not used in accordance with cost-effective treatment methods as determined by the third-party payer;
or is experimental, unnecessary or inappropriate. Prices could also be driven down by managed care organizations that control or
significantly influence utilization of healthcare products.
In both the U.S. and
some foreign jurisdictions, there have been a number of legislative and regulatory proposals and initiatives to change the health
care system in ways that could affect our ability to sell vaccines. Some of these proposed and implemented reforms could result
in reduced reimbursement rates for medical products, and while we have no current vaccines available for commercial sale, the impact
of such reform could nevertheless adversely affect our business strategy, operations and financial results. For example, the Healthcare
Reform Act contained several cost containment measures that could adversely affect our future revenue, including, for example,
increased drug rebates under Medicaid for brand name prescription drugs, extension of Medicaid rebates to Medicaid managed care
organizations, and extension of so-called 340B discounted pricing on pharmaceuticals sold to certain healthcare providers. Additional
provisions of the healthcare reform laws that may negatively affect our future revenue and prospects for profitability include
the assessment of an annual fee based on our proportionate share of sales of brand name prescription drugs to certain government
programs, including Medicare and Medicaid, as well as mandatory discounts on drugs (including vaccines) sold to certain Medicare
Part D beneficiaries in the coverage gap (the so-called “donut hole”). Other aspects of healthcare reform, such as
expanded government enforcement authority and heightened standards that could increase compliance-related costs, could also affect
our business. In addition, we face uncertainties because there are ongoing federal legislative and administrative efforts to repeal,
substantially modify or invalidate some or all of the provisions of the Healthcare Reform Act. For example, in 2017, the President
announced that his administration will withhold the cost-sharing subsidies paid to health insurance exchange plans serving low-income
enrollees. The Act was also enacted at the end of 2017 and includes provisions that will affect healthcare insurance coverage and
payment, such as the elimination of the tax penalty for individuals who do not maintain sufficient health insurance coverage beginning
in 2019 (the so-called “individual mandate”). The Bipartisan Budget Act of 2018 contained various provisions that affect
coverage and reimbursement of drugs, including an increase in the mandatory discounts on pharmaceuticals sold to certain Medicare
Part D beneficiaries in the coverage gap starting in 2019. We cannot predict the ultimate content, timing or effect of any healthcare
reform legislation or the impact of potential legislation on us.
If our product
candidates obtain marketing approval, we will be subject to additional healthcare laws and our failure to comply with those laws
could have a material adverse effect on our results of operations and financial conditions.
Within the U.S., if
we obtain approval for any of our product candidates and begin commercializing them, our operations may be directly, or indirectly
through our customers, subject to additional healthcare regulation and enforcement by the federal and state governments. In addition
to the laws mentioned above, the laws that may affect our ability to operate include:
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the Food, Drug and Cosmetic Act, which
among other things, strictly regulates drug product marketing and promotion and prohibits manufacturers from marketing such products
for off-label use;
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the federal anti-kickback law, which prohibits,
among other things, persons from soliciting, receiving or providing remuneration, directly or indirectly, to induce the referral
for an item or service or the purchasing or ordering of a good or service, for which payment may be made under federal healthcare
programs such as Medicare and Medicaid;
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federal false claims laws which prohibit,
among other things, individuals or entities from knowingly presenting, or causing to be presented, information or claims for payment
from Medicare, Medicaid, or other third-party payers that are false or fraudulent;
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federal laws that require pharmaceutical
manufacturers to report certain calculated product prices to the government or provide certain discounts or rebates to government
authorities or private entities, often as a condition of reimbursement under government healthcare programs;
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the so-called “federal sunshine”
law (also known as “open payments”) which requires pharmaceutical and medical device manufacturers to report certain
financial interactions to the federal government for re-disclosure to the public;
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the federal law known as HIPAA, which,
in addition to privacy protections applicable to healthcare providers and other entities, prohibits executing a scheme to defraud
any healthcare benefit program or making false statements relating to healthcare matters;
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state law equivalents of the above federal
laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payer, including
commercial insurers, and state gift ban and transparency laws, many of which state laws differ from each other in significant ways
and often are not preempted by federal laws, thus complicating compliance efforts; and
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state laws restricting interactions with
healthcare providers and other members of the healthcare community or requiring pharmaceutical manufacturers to implement certain
compliance standards.
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Because of the breadth
of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business
activities could be subject to challenge under one or more of such laws. If our operations are found to be in violation of any
of such laws or any other governmental regulations that apply to us, we may be subject to, on a corporate or individual basis,
penalties, including civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations, the exclusion
from participation in federal and state healthcare programs and even imprisonment, any of which could materially adversely affect
our ability to operate our business and our financial results. In addition, the cost of implementing sufficient systems, controls,
and processes to ensure compliance with all of the aforementioned laws could be significant.
INTELLECTUAL PROPERTY RISKS
Our success
depends on our ability to maintain the proprietary nature of our technology.
Our success in large
part depends on our ability to maintain the proprietary nature of our technology and other trade secrets. To do so, we must prosecute
and maintain existing patents, obtain new patents and pursue trade secret and other intellectual property protection. We also must
operate without infringing the proprietary rights of third-parties or allowing third-parties to infringe our rights. We currently
have or have rights to over 350 U.S. patents and corresponding foreign patents and patent applications covering our technologies.
However, patent issues relating to pharmaceuticals and biologics involve complex legal, scientific and factual questions. To date,
no consistent policy has emerged regarding the breadth of biotechnology patent claims that are granted by the U.S. Patent and Trademark
Office (“USPTO”) or enforced by the federal courts. Therefore, we do not know whether our patent applications will
result in the issuance of patents, or that any patents issued to us will provide us with any competitive advantage. We also cannot
be sure that we will develop additional proprietary products that are patentable. Furthermore, there is a risk that others will
independently develop or duplicate similar technology or products or circumvent the patents issued to us.
There is a risk that
third-parties may challenge our existing patents or claim that we are infringing their patents or proprietary rights. We could
incur substantial costs in defending patent infringement suits or in filing suits against others to have their patents declared
invalid or claim infringement. It is also possible that we may be required to obtain licenses from third-parties to avoid infringing
third-party patents or other proprietary rights. We cannot be sure that such third-party licenses would be available to us on acceptable
terms, if at all. If we are unable to obtain required third-party licenses, we may be delayed in or prohibited from developing,
manufacturing or selling products requiring such licenses.
Although our patent
filings include claims covering various features of our vaccine candidates, including composition, methods of manufacture and use,
our patents do not provide us with complete protection against the development of competing products. Some of our know-how and
technology is not patentable. To protect our proprietary rights in unpatentable intellectual property and trade secrets, we require
employees, consultants, advisors and collaborators to enter into confidentiality agreements. These agreements may not provide meaningful
protection for our trade secrets, know-how or other proprietary information.
Third parties
may claim we infringe their intellectual property rights.
Our research, development
and commercialization activities, including any vaccine candidates resulting from these activities, may infringe or be claimed
to infringe patents owned by third-parties and to which we do not hold licenses or other rights. There may be rights we are not
aware of, including applications that have been filed, but not published that, when issued, could be asserted against us. These
third-parties could bring claims against us, and that would cause us to incur substantial expenses and, if successful against us,
could cause us to pay substantial damages. Further, if a patent infringement suit were brought against us, we could be forced to
stop or delay research, development, manufacturing or sales of the product or biologic drug candidate that is the subject of the
suit.
As a result of patent
infringement claims, or in order to avoid potential claims, we may choose or be required to seek a license from the third-party.
These licenses may not be available on acceptable terms, or at all. Even if we are able to obtain a license, the license would
likely obligate us to pay license fees or royalties or both, and the rights granted to us might be non-exclusive, which could result
in our competitors gaining access to the same intellectual property. Ultimately, we could be prevented from commercializing a product,
or be forced to cease some aspect of our business operations, if, as a result of actual or threatened patent infringement claims,
we are unable to enter into licenses on acceptable terms. All of the issues described above could also impact our collaborators,
which would also impact the success of the collaboration and therefore us.
There has been substantial
litigation and other proceedings regarding patent and other intellectual property rights in the pharmaceutical and biotechnology
industries.
We may become
involved in litigation to protect or enforce our patents or the patents of our collaborators or licensors, which could be expensive
and time-consuming.
Competitors may infringe
our patents or the patents of our collaborators or licensors. As a result, we may be required to file infringement claims to counter
infringement for unauthorized use. This can be expensive, particularly for a company of our size, and time-consuming. In addition,
in an infringement proceeding, a court may decide that a patent of ours is not valid or is unenforceable, or may refuse to stop
the other party from using the technology at issue on the grounds that our patents do not cover its technology. An adverse determination
of any litigation or defense proceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly
and could put our patent applications at the risk of not issuing.
Even if we are successful,
litigation may result in substantial costs and distraction to our management. Even with a broad portfolio, we may not be able,
alone or with our collaborators and licensors, to prevent misappropriation of our proprietary rights, particularly in countries
where the laws may not protect such rights as fully as in the U.S.
Furthermore, because
of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some
of our confidential information could be compromised by disclosure during this type of litigation. In addition, during the course
of this kind of litigation, there could be public announcements of the results of hearings, motions or other interim proceedings
or developments. If investors perceive these results to be negative, the market price for our common stock could be significantly
harmed.
The scope, validity,
and ownership of our patent claims may be challenged in various venues and, if we do not prevail, our ability to exclude competitors
may be harmed, potentially reducing our ability to succeed commercially.
We may be subject
to a variety of challenges from third-parties that relate to the scope of the claims or to their validity. Such challenges can
be mounted in post-grant review, ex parte re-examination, and inter partes review proceedings before the USPTO, or similar adversarial
proceedings in other jurisdictions. If we are unsuccessful in any such challenge, the scope of our claims could be narrowed, and
the patent or claims thereof could be invalidated. Any such outcome could impair our ability to exclude competitors from the market
in those countries, potentially impacting our commercial success.
Our patents may be
subject to various challenges related to ownership and inventorship, including interference or derivation proceedings. Third-parties
may assert that they are inventors on our patents or that they are owners of the patents. While we perform inventorship analyses
to insure that the correct inventors are listed on our patents, we cannot be certain that a court of competent jurisdiction would
arrive at the same conclusions we do. If we are unsuccessful in defending against ownership or inventorship challenges, a court
may require us to list additional inventors, may invalidate the patent, or may transfer ownership of the patent to a third-party.
Any of these outcomes may harm our ability to exclude competitors and potentially impact our commercial success. Further, if ownership
is transferred to a third-party we may be required to seek a license to those rights to preserve our exclusive ability to practice
the invention. Such a license may not be available on commercially reasonable terms, or at all. If we are unable to obtain a license,
we may be required to expend time, effort, and other resources to design around the patent. Any such license may be non-exclusive
and if a competitor is able to obtain a license from the third-party, our ability to exclude that competitor from the market may
be negatively impacted.
Even if we are ultimately
successful, defending any such challenges may cause us to incur substantial expenses and may require us to divert substantial financial
and management resources that we would otherwise be able to devote to our business.
We may need
to license intellectual property from third-parties and, if our right to use the intellectual property we license is affected,
our ability to develop and commercialize our vaccine candidates may be harmed.
We have in the past,
and we expect in the future to license intellectual property from third-parties and that these licenses will be material to our
business. We will not own the patents or patent applications that underlie these licenses, and we will not control the enforcement
of the patents. We will rely upon our licensors to properly prosecute and file those patent applications and prevent infringement
of those patents.
While many of the
licenses under which we have rights provide us with rights in specified fields, the scope of our rights under these and other licenses
may be subject to dispute by our licensors or third-parties. In addition, our rights to use these technologies and practice the
inventions claimed in the licensed patents and patent applications are subject to our licensors abiding by the terms of those licenses
and not terminating them. Any of our licenses may be terminated by the licensor if we are in breach of a term or condition of the
license agreement, or in certain other circumstances.
Further, any disputes
regarding obligations in licenses may require us to take expensive and time-consuming legal action to resolve, and, even if we
are successful, may delay our ability to commercialize products and generate revenue. Further, if we are unable to resolve license
issues that arise we may lose rights to practice intellectual property that is required to make, use, or sell products. Any such
loss could compromise our development and commercialization efforts for current or future product candidates and/or may require
additional effort and expense to design around.
Our vaccine candidates
and potential vaccine candidates will require several components that may each be the subject of a license agreement. The cumulative
license fees and royalties for these components may make the commercialization of these vaccine candidates uneconomical.
If patent laws
or the interpretation of patent laws change, our competitors may be able to develop and commercialize our discoveries.
Important legal issues
remain to be resolved as to the extent and scope of available patent protection for biopharmaceutical products and processes in
the U.S. and other important markets outside the U.S., such as Europe and Japan. In addition, foreign markets may not provide the
same level of patent protection as provided under the U.S. patent system. Litigation or administrative proceedings may be necessary
to determine the validity and scope of certain of our and others’ proprietary rights. Any such litigation or proceeding may
result in a significant commitment of resources in the future and could force us to do one or more of the following: cease selling
or using any of our products that incorporate the challenged intellectual property, which would adversely affect our revenue; obtain
a license from the holder of the intellectual property right alleged to have been infringed, which license may not be available
on reasonable terms, if at all; and redesign our products to avoid infringing the intellectual property rights of third-parties,
which may be time-consuming or impossible to do. In addition, changes in, or different interpretations of, patent laws in the U.S.
and other countries may result in patent laws that allow others to use our discoveries or develop and commercialize our products.
We cannot provide assurance that the patents we obtain or the unpatented technology we hold will afford us significant commercial
protection.
If we do not
obtain patent term extension and/or patent term adjustment in the United States under the Hatch-Waxman Act and similar extensions
in foreign countries, our ability to exclude competitors may be harmed.
In the United States,
the patent term is 20 years from the earliest U.S. non-provisional filing date. Extensions of patent term may be available under
certain circumstances. Depending upon the timing, duration and conditions of FDA marketing approval of our product candidates,
we may be able to extend the term of one patent that covers a marketed product under the Drug Price Competition and Patent Term
Restoration Act of 1984, (the “Hatch-Waxman Amendments”) and similar legislation in the EU.
The Hatch-Waxman Amendments
permit patent term extension of up to five years for a patent covering an approved product as compensation for effective patent
term lost during product development and the FDA regulatory review process. We may not receive any extension if we fail to apply
within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements.
Moreover, the length of the extension could be less than we request. If we are unable to obtain patent term extension or the term
of any such extension is less than we request, the period during which we can enforce our patent rights for that product will be
shortened and our competitors may obtain approval to market competing products sooner.
Patent term covering
our products may also be extended for time spent during the prosecution of the patent application in the USPTO. This extension
is referred to as Patent Term Adjustment (“PTA”). The laws and regulations governing how the USPTO calculates the PTA
is subject to change and changes in the law can reduce or increase any such PTA. Further, the PTA granted by the USPTO may be challenged
by a third-party. If we do not prevail under such a challenge, the PTA may be reduced or eliminated, shortening the patent term,
which may negatively impact our ability to exclude competitors.
Risks
Related to OUR Convertible SENIOR Notes
Servicing our
3.75% convertible senior unsecured notes due 2023 (the “Notes”) requires a significant amount of cash, and we may not
have sufficient cash flow to pay our debt.
In
2016, we issued $325 million aggregate principal amount of Notes. Our ability to make scheduled payments of the principal of, to
pay interest on, or to refinance our indebtedness, including the Notes, depends on our future performance, which is subject to
economic, financial, competitive and other factors beyond our control. We do not expect our business to be able to generate cash
flow from operations, in the foreseeable future, sufficient to service our debt and make necessary capital expenditures and may
therefore be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity
capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness, which is non-callable and matures
in 2023, will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these
activities or engage in these activities on desirable terms, which could result in a default on our debt obligations, and limit
our flexibility in planning for and reacting to changes in our business.
We may not have
the ability to raise the funds necessary to repurchase the Notes as required upon a fundamental change, and our future debt may
contain limitations on our ability to repurchase the Notes.
Holders of the Notes
will have the right to require us to repurchase their Notes for cash upon the occurrence of a fundamental change at a fundamental
change repurchase price equal to 100% of the principal amount of the Notes to be repurchased,
plus
accrued and unpaid interest,
if any. A fundamental change may also constitute an event of default or prepayment under, and result in the acceleration of the
maturity of, our then-existing indebtedness. We cannot assure you that we will have sufficient financial resources, or will be
able to arrange financing, to pay the fundamental change repurchase price in cash with respect to any Notes surrendered by holders
for repurchase upon a fundamental change. In addition, restrictions in our then existing credit facilities or other indebtedness,
if any, may not allow us to repurchase the Notes upon a fundamental change. Our failure to repurchase the Notes upon a fundamental
change when required would result in an event of default with respect to the Notes which could, in turn, constitute a default under
the terms of our other indebtedness, if any. If the repayment of the related indebtedness were to be accelerated after any applicable
notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the Notes.
Capped call transactions
entered into in connection with our Notes may affect the value of our common stock.
In connection with
our Notes, we entered into capped call transactions (the “capped call transactions”) with certain financial institutions.
The capped call transactions are expected to generally reduce the potential dilution upon conversion of the Notes into shares of
our common stock.
In connection with
establishing their initial hedges of the capped call transactions, these financial institutions or their respective affiliates
entered into various derivative transactions with respect to our common stock and/or to purchase our common stock. The financial
institutions, or their respective affiliates, may modify their hedge positions by entering into or unwinding various derivatives
with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market
transactions prior to the maturity of the Notes. This activity could also cause or avoid an increase or a decrease in the market
price of our common stock or the Notes, which could affect the value of our common stock.
RISKS RELATED TO OUR COMMON STOCK AND
ORGANIZATIONAL STRUCTURE
Because our stock
price has been and will likely continue to be highly volatile, the market price of our common stock may be lower or more volatile
than expected.
Our stock price has
been highly volatile. The stock market in general and the market for biotechnology companies in particular have experienced extreme
volatility that has often been unrelated to the operating performance of particular companies. From January 1, 2018 through December
31, 2018, the closing sale price of our common stock has been as low as $1.17 per share and as high as $2.48 per share. The market
price of our common stock may be influenced by many factors, including:
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future announcements about us or our collaborators
or competitors, including the results of testing, technological innovations or new commercial products;
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clinical trial results;
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depletion of our cash reserves;
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sale of equity securities or issuance
of additional debt;
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announcement by us of significant strategic
partnerships, collaborations, joint ventures, capital commitments or acquisitions;
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changes in government regulations;
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impact of competitor successes and in
particular development success of vaccine candidates that compete with our own vaccine candidates;
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developments in our relationships with
our collaboration partners;
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announcements relating to health care
reform and reimbursement levels for new vaccines and other matters affecting our business and results, regardless of accuracy;
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sales of substantial amounts of our stock
by existing stockholders (including stock by insiders or 5% stockholders);
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development, spread or new announcements
related to pandemic diseases;
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public concern as to the safety of our
products;
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significant set-backs or concerns with
the industry or the market as a whole;
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regulatory inquiries, reviews and potential
action, including from the FDA or the SEC;
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recommendations by securities analysts
or changes in earnings estimates; and
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the other factors described in this Risk
Factors section.
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In addition, the stock
market in general, and the market for biotechnology companies in particular, have experienced extreme price and volume fluctuations
that have particularly affected the market price for many of those companies. These fluctuations have often been unrelated to the
operating performance of these companies. These broad market fluctuations may cause the market price of our common stock to be
lower or more volatile than expected.
The Nasdaq Global
Select Market has a listing requirement; if a participating company no longer meets such requirements and fails to correct the
listing deficiency, its stock may be delisted.
The Nasdaq Global Select
Market (“Nasdaq”), on which our common stock is listed and traded, has listing requirements that include a $1 minimum
closing bid price requirement. If we fail to satisfy this or other listing requirements, Nasdaq may elect, subject to any potential
cure periods, to initiate a process that may delist our common stock. Should such a delisting occur, it may adversely impact the
liquidity and price of our common stock, impede our ability to raise capital and would constitute a fundamental change under our
Notes.
Provisions of
our Second Amended and Restated Certificate of Incorporation and Amended and Restated By-Laws and Delaware law could delay or prevent
the acquisition of the Company, even if such acquisition would be beneficial to stockholders, and could impede changes in our Board.
Provisions in our organizational
documents could hamper a third-party’s attempt to acquire, or discourage a third-party from attempting to acquire control
of, the Company. Stockholders who wish to participate in these transactions may not have the opportunity to do so. Our organizational
documents also could limit the price investors are willing to pay in the future for our securities and make it more difficult to
change the composition of our Board in any one year. Certain provisions include the right of the existence of a staggered board
with three classes of directors serving staggered three-year terms and advance notice requirements for stockholders to nominate
directors and make proposals.
As a Delaware corporation,
we are also afforded the protections of Section 203 of the Delaware General Corporation Law, which will prevent us from engaging
in a business combination with a person who acquires at least 15% of our common stock for a period of three years from the date
such person acquired such common stock, unless advance board or stockholder approval was obtained.
Any delay or prevention
of a change of control transaction or changes in our Board or management could deter potential acquirers or prevent the completion
of a transaction in which our stockholders could receive a substantial premium over the then current market price for their shares.
We have never
paid dividends on our capital stock, and we do not anticipate paying any such dividends in the foreseeable future.
We have never paid
cash dividends on our common stock. We currently anticipate that we will retain all of our earnings for use in the development
of our business and do not anticipate paying any cash dividends in the foreseeable future. As a result, capital appreciation, if
any, of our common stock would be the only source of gain for stockholders until dividends are paid, if at all.