The accompanying notes are an integral
part of these financial statements.
The accompanying notes are an integral
part of these financial statements.
The accompanying notes are an integral
part of these financial statements.
The accompanying notes are an integral
part of these financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31. 2019
(unaudited)
Note 1 – Organization
Novavax, Inc.
(“Novavax,” and together with its wholly owned subsidiary, Novavax AB, the “Company”) is a late-stage
biotechnology company focused on the discovery, development and commercialization of innovative vaccines to prevent serious
infectious diseases. The Company’s vaccine candidates, including 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. The Company’s technology targets a variety of infectious diseases.
Note 2 – Going Concern
The accompanying unaudited
consolidated financial statements have been prepared assuming that the Company will continue as a going concern within one year
after the date that the financial statements are issued. During 2018, the Company incurred a net loss of $184.7 million and had
net cash flows used in operating activities of $184.8 million. At March 31, 2019, the Company had $108.7 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. Management believes that given the Company’s current cash position and forecasted negative cash flows from operating
activities over the next twelve months as it continues its product development activities, including its potential ResVax submission
of a Biologics License Application (“BLA”) with the U.S. Food and Drug Administration (“FDA”) and/or a
Marketing Authorization Application (“MAA”) with the European Medicines Agency in 2020, and its planned Phase 3 clinical
trial of NanoFlu following discussions with the FDA in the third quarter of 2019, there is substantial doubt about its ability to
continue as a going concern through one year from the date that these financial statements are issued, without obtaining additional
financing or entering into another form of non-equity or debt arrangement.
The Company’s
ability to fund its 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 its product candidates
receive marketing approval and can be commercialized. New financings may not be available to the Company on commercially acceptable
terms, or at all. Also, any collaborations, strategic alliances and marketing, distribution or licensing arrangements may require
the Company to give up some or all of its rights to a product or technology, which in some cases may be at less than the full
potential value of such rights. If the Company is unable to obtain additional capital, the Company will assess its capital resources
and may be required to delay, reduce the scope of or eliminate one or more of its research and development programs, and/or downsize
its organization.
The unaudited consolidated
financial statements do not include any adjustments that might be necessary if the Company is not able to continue as a going
concern.
Note 3 –
Summary of Significant Accounting Policies
Basis of Presentation
The accompanying
unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in
the United States of America (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q
and Article 10 of Regulation S-X. The consolidated balance sheet as of March 31, 2019, the consolidated statements of
operations and the consolidated statements of comprehensive loss for the three months ended March 31, 2019 and 2018, the
consolidated statements of changes in stockholders’ deficit for the three months ended March 31, 2019 and 2018 and the
consolidated statements of cash flows for the three months ended March 31, 2019 and 2018 are unaudited, but include all
adjustments (consisting of normal recurring adjustments) that the Company considers necessary for a fair presentation of the
financial position, operating results, comprehensive loss, changes in stockholders’ deficit and cash flows,
respectively, for the periods presented. Although the Company believes that the disclosures in these unaudited consolidated
financial statements are adequate to make the information presented not misleading, certain information and footnote
information normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed
or omitted as permitted under the rules and regulations of the United States Securities and Exchange Commission
(“SEC”).
The unaudited consolidated
financial statements include the accounts of Novavax, Inc. and its wholly owned subsidiary, Novavax AB. All intercompany accounts
and transactions have been eliminated in consolidation.
The accompanying
unaudited consolidated financial statements are presented in U.S. dollars. The functional currency of Novavax AB, which is
located in Sweden, is the local currency (Swedish Krona). The translation of assets and liabilities of Novavax AB to U.S.
dollars is made at the exchange rate in effect at the consolidated balance sheet date, while equity accounts are translated
at historical rates. The translation of the statement of operations data is made at the average exchange rate in effect for
the period. The translation of operating cash flow data is made at the average exchange rate in effect for the period, and
investing and financing cash flow data is translated at the exchange rate in effect at the date of the underlying
transaction. Translation gains and losses are recognized as a component of accumulated other comprehensive loss in the
accompanying unaudited consolidated balance sheets. The foreign currency translation adjustment balance included in
accumulated other comprehensive loss was $12.4 million and $11.2 million at March 31, 2019 and December 31, 2018,
respectively.
The accompanying unaudited
consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the
Company’s Annual Report on Form 10-K for the year ended December 31, 2018. Results for this or any interim period are not
necessarily indicative of results for any future interim period or for the entire year. The Company operates in one business segment.
Use of Estimates
The preparation of
the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ
materially from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly
liquid investments with maturities of three months or less from the date of purchase. Cash and cash equivalents consist of the
following at (in thousands):
|
|
March
31,
2019
|
|
|
December
31,
2018
|
|
Cash
|
|
$
|
9,370
|
|
|
$
|
6,750
|
|
Money market funds
|
|
|
49,113
|
|
|
|
39,168
|
|
Asset-backed securities
|
|
|
15,000
|
|
|
|
15,000
|
|
Corporate debt securities
|
|
|
24,228
|
|
|
|
9,236
|
|
Cash and cash equivalents
|
|
$
|
97,711
|
|
|
$
|
70,154
|
|
Cash equivalents are
recorded at cost, which approximate fair value due to their short-term nature.
Marketable Securities
Marketable securities
consist of debt securities with maturities greater than three months from the date of purchase that include commercial paper,
asset-backed securities and corporate notes. Classification of marketable securities between current and non-current is dependent
upon the maturity date at the balance sheet date taking into consideration the Company’s ability and intent to hold the
investment to maturity.
Interest and dividend
income is recorded when earned and included in investment income in the consolidated statements of operations. Premiums and discounts,
if any, on marketable securities are amortized or accreted to maturity and included in investment income in the consolidated statements
of operations. The specific identification method is used in computing realized gains and losses on the sale of the Company’s
securities.
The Company classifies
its marketable securities with readily determinable fair values as “available-for-sale.” Investments in securities
that are classified as available-for-sale are measured at fair market value in the consolidated balance sheets, and unrealized
gains and losses on marketable securities are reported as a separate component of stockholders’ deficit until realized.
Marketable securities are evaluated periodically to determine whether a decline in value is “other-than-temporary.”
The term “other-than-temporary” is not intended to indicate a permanent decline in value. Rather, it means that the
prospects for a near term recovery of value are not necessarily favorable, or that there is a lack of evidence to support fair
values equal to, or greater than, the carrying value of the security. Management reviews criteria, such as the magnitude and duration
of the decline, as well as the Company’s ability to hold the securities until market recovery, to predict whether the loss
in value is other-than-temporary. If a decline in value is determined to be other-than-temporary, the value of the security is
reduced and the impairment is recorded as other income (expense) in the consolidated statements of operations.
Restricted Cash
The Company’s
current and non-current restricted cash includes payments received under the Grant Agreement (as defined in Note 11) with the
Bill & Melinda Gates Foundation (“BMGF”) under which the Company was awarded a grant up to $89.1 million and cash
collateral accounts under letters of credit that serve as security deposits for certain facility leases. The Company will utilize
the Grant Agreement funds as it incurs expenses for services performed under the agreement. At March 31, 2019 and December 31,
2018, the restricted cash balances (both current and non-current) consist of payments received under the Grant Agreement of $7.5
million and $10.8 million, respectively, and security deposits of $1.0 million at both dates.
The following table
provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum
to the total of the same such amounts shown in the statement of cash flows (in thousands):
|
|
March
31,
2019
|
|
|
December
31,
2018
|
|
Cash and cash equivalents
|
|
$
|
97,711
|
|
|
$
|
70,154
|
|
Restricted cash current
|
|
|
6,628
|
|
|
|
10,847
|
|
Restricted cash non-current
|
|
|
1,860
|
|
|
|
958
|
|
Cash, cash equivalents and restricted cash
|
|
$
|
106,199
|
|
|
$
|
81,959
|
|
Revenue Recognition
The Company performs
research and development under grant, license and clinical development agreements. Payments received in advance of work performed
are recorded as deferred revenue.
The Company’s
current revenue primarily consists of revenue under its Grant Agreement with BMGF (see Note 11). The Company is reimbursed for
certain costs that support development activities, including the Company’s global Phase 3 clinical trial in pregnant women
in their third trimester, product licensing efforts and efforts to obtain World Health Organization (“WHO”) prequalification
of its RSV F Vaccine for infants via maternal immunization (“ResVax”). The Company’s Grant Agreement does not
provide a direct economic benefit to BMGF. Rather, the Company entered into an agreement with BMGF to make a certain amount of
ResVax available and accessible at affordable pricing to people in certain low and middle income countries. Based on these circumstances,
the Company does not consider BMGF to be a customer and concluded the Grant Agreement is outside the scope of Accounting Standards
Update (“ASU”) 2014-09,
Revenue from Contracts with Customers (Topic 606)
. Payments received under the Grant Agreement
are considered conditional contributions under the scope of ASC 958-605,
Not-for-Profit Entities – Revenue Recognition
,
and are recorded as deferred revenue until the period in which such research and development activities are performed and revenue
can be recognized.
The Company analyzed
the Grant Agreement with BMGF to determine whether the payments received should be recorded as revenue or as a reduction to research
and development expenses. In reaching the determination that such payments should be recorded as revenue, management considered
a number of factors, including whether the Company is principal under the arrangement, and whether the arrangement is significant
to, and part of, the Company’s core operations. Further, management has consistently applied its policy of presenting such
amounts as revenue.
Net Loss per
Share
Net loss per share
is computed using the weighted average number of shares of common stock outstanding. At March 31, 2019 and 2018, the Company had
outstanding stock options and unvested restricted stock units (“RSUs”) totaling 61,260,970 and 45,126,499, respectively. At March 31,
2019, the Company’s Notes (see Note 8) would have been convertible into approximately 47,716,900 shares of the Company’s
common stock assuming a common stock price of $6.81 or higher. These and any shares due to the Company upon settlement of its
capped call transactions are excluded from the computation, as their effect is antidilutive.
Recent Accounting Pronouncements
Recently Adopted
In February 2016,
the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02,
Leases
(Topic 842), subsequently amended in 2018 by ASU 2018-01, ASU 2018-10, ASU 2018-11
and ASU 2018-20 (collectively, “Topic 842”), that increases transparency and comparability among organizations by
requiring the recognition of right-of-use assets and lease liabilities on the balance sheet and disclosure of key information
about leasing arrangements for both lessees and lessors. Leases will be classified as either finance or operating, with classification
affecting the pattern of expense recognition in the income statement. In connection with the adoption of Topic 842, the Company
conducted reviews of its facility and equipment operating leases and assessed contracts that may contain a right-of-use asset
or embedded leasing arrangement.
The Company adopted
Topic 842 on January 1, 2019 under the optional transition method, which does not require restatement of prior periods. The Company
elected the package of practical expedients permitted under the transition guidance, which allowed the Company to carryforward
its historical lease classification, its assessment of whether a contract is or contains a lease and its initial direct costs
for any leases that existed prior to adoption of the standard. The Company also elected to combine lease and non-lease components
for its facility leases and to exclude leases with an initial term of 12 months or less from its consolidated balance sheet and
recognize the associated lease payments in its consolidated statements of operations on a straight-line basis over the lease term.
The Company’s equipment leases had a remaining term of 12 months or less at the adoption date.
The Company recorded
approximately $12 million in total right-of-use assets, net of the deferred rent liability, and approximately $22 million
in total lease liabilities on its consolidated balance sheet as of January 1, 2019. Adoption of the standard did not materially
impact its consolidated statements of cash flows or results of operations.
Not Yet Adopted
In January 2017, the
FASB issued ASU No. 2017-04,
Intangibles-Goodwill and Other (Topic 350)
(“ASU 2017-04”),
which will simplify the goodwill impairment calculation by eliminating Step 2 from the current goodwill impairment test. The new
standard does not change how a goodwill impairment is identified. The Company will continue to perform its quantitative goodwill
impairment test by comparing the fair value of its reporting unit to its carrying amount, but if the Company is required to recognize
a goodwill impairment charge, under the new standard, the amount of the charge will be calculated by subtracting the reporting
unit’s fair value from its carrying amount. Under the current standard, if the Company is required to recognize a goodwill
impairment charge, Step 2 requires it to calculate the implied value of goodwill by assigning the fair value of a reporting unit
to all of its assets and liabilities as if that reporting unit had been acquired in a business combination and the amount of the
charge is calculated by subtracting the reporting unit’s implied fair value of goodwill from the goodwill carrying amount.
The standard will be effective January 1, 2020 for the Company, with early adoption permitted, and should be applied prospectively
from the date of adoption. The Company is currently evaluating when it will adopt ASU 2017-04 and its expected impact to related
disclosures.
Note 4 – Fair Value Measurements
The
following table represents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair
value (in thousands):
|
|
Fair Value at March
31, 2019
|
|
|
Fair Value at December
31, 2018
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds(1)
|
|
$
|
49,113
|
|
|
$
|
―
|
|
|
$
|
―
|
|
|
$
|
39,168
|
|
|
$
|
―
|
|
|
$
|
―
|
|
Asset-backed securities(2)
|
|
|
―
|
|
|
|
15,000
|
|
|
|
―
|
|
|
|
―
|
|
|
|
19,997
|
|
|
|
―
|
|
Corporate debt securities(3)
|
|
|
―
|
|
|
|
26,712
|
|
|
|
―
|
|
|
|
―
|
|
|
|
26,219
|
|
|
|
―
|
|
Total assets
|
|
$
|
49,113
|
|
|
$
|
41,712
|
|
|
$
|
―
|
|
|
$
|
39,168
|
|
|
$
|
46,216
|
|
|
$
|
―
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable
|
|
$
|
―
|
|
|
$
|
117,267
|
|
|
$
|
―
|
|
|
$
|
―
|
|
|
$
|
197,935
|
|
|
$
|
―
|
|
|
(1)
|
Classified as cash and cash equivalents
as of March 31, 2019 and December 31, 2018, respectively, on the consolidated balance
sheets.
|
|
(2)
|
Includes $15,000 classified as cash
and cash equivalents as of both March 31, 2019 and December 31, 2018 on the consolidated
balance sheets.
|
|
(3)
|
Includes $24,228 and $9,236 classified
as cash and cash equivalents as of March 31, 2019 and December 31, 2018, respectively,
on the consolidated balance sheet.
|
Fixed-income investments
categorized as Level 2 are valued at the custodian bank by a third-party pricing vendor’s valuation models that use verifiable
observable market data, e.g., interest rates and yield curves observable at commonly quoted intervals and credit spreads, bids
provided by brokers or dealers or quoted prices of securities with similar characteristics. Pricing of the Company’s
Notes (see Note 8) has been estimated using other observable inputs, including the price of the Company’s common stock,
implied volatility, interest rates and credit spreads among others. Over time, the Company expects a market for the Notes to develop
when there is sufficient volume of trading. At that time, the Company intends to use trade data as the principal basis for measuring
fair value.
During the three months ended March 31,
2019 and 2018, the Company did not have any transfers between levels
.
The amount recorded
in the Company’s unaudited consolidated balance sheets for accounts payable and accrued expenses approximates its fair value
due to its short-term nature.
Note 5 – Marketable Securities
Marketable securities
classified as available-for-sale as of March 31, 2019 and December 31, 2018 were comprised of (in thousands):
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
Asset-backed securities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,999
|
|
|
$
|
—
|
|
|
$
|
(2
|
)
|
|
$
|
4,997
|
|
Corporate debt securities
|
|
|
2,484
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,484
|
|
|
|
16,986
|
|
|
|
—
|
|
|
|
(3
|
)
|
|
|
16,983
|
|
Total
|
|
$
|
2,484
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,484
|
|
|
$
|
21,985
|
|
|
$
|
—
|
|
|
$
|
(5
|
)
|
|
$
|
21,980
|
|
Marketable
Securities – Unrealized Losses
The primary objective
of the Company’s investment policy is the preservation of capital; thus, the Company’s investment policy limits investments
to certain types of instruments with high-grade credit ratings, places restrictions on maturities and concentrations in certain
industries and requires the Company to maintain a certain level of liquidity.
Note 6 – Goodwill and Other Intangible
Assets
Goodwill
The change in the carrying amounts of goodwill
for the three months ended March 31, 2019 was as follows (in thousands):
|
|
Amount
|
|
Balance at December 31, 2018
|
|
$
|
51,967
|
|
Currency translation adjustments
|
|
|
(722
|
)
|
Balance at March 31, 2019
|
|
$
|
51,245
|
|
Identifiable Intangible
Assets
Purchased intangible assets consisted of
the following as of March 31, 2019 and December 31, 2018 (in thousands):
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Intangible
Assets, Net
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Intangible
Assets, Net
|
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary adjuvant technology
|
|
$
|
8,026
|
|
|
$
|
(2,274
|
)
|
|
$
|
5,752
|
|
|
$
|
8,357
|
|
|
$
|
(2,263
|
)
|
|
$
|
6,094
|
|
Collaboration agreements
|
|
|
3,624
|
|
|
|
(3,262
|
)
|
|
|
362
|
|
|
|
3,773
|
|
|
|
(3,326
|
)
|
|
|
447
|
|
Total identifiable intangible assets
|
|
$
|
11,650
|
|
|
$
|
(5,536
|
)
|
|
$
|
6,114
|
|
|
$
|
12,130
|
|
|
$
|
(5,589
|
)
|
|
$
|
6,541
|
|
Amortization expense
for the three months ended March 31, 2019 and 2018 was $0.2 million.
Estimated amortization
expense for existing intangible assets for the remainder of 2019 and for each of the five succeeding years ending December 31
will be as follows (in thousands):
Year
|
|
Amount
|
|
2019 (remainder)
|
|
$
|
505
|
|
2020
|
|
|
560
|
|
2021
|
|
|
401
|
|
2022
|
|
|
401
|
|
2023
|
|
|
401
|
|
2024
|
|
|
401
|
|
Note 7 – Leases
The Company has operating
leases for its research and development and manufacturing facilities, corporate headquarters and offices and certain equipment.
The operating leases have expirations that range from 1 year to 8 years, some of which include options to extend the leases or
terminate the leases early. Options to extend the leases or terminate the leases early are only included in the lease term when
it is reasonably certain that the option will be exercised. The facility leases contain provisions for future rent increases,
and obligate the Company to pay building operating costs.
The operating leases represent the right to obtain substantially all of the economic benefits from use of the identified asset
and the right to direct the use of the asset and are capitalized as right of use (“ROU”) assets for the expected lease term
(net of the deferred rent liability) with corresponding lease liabilities representing the obligation to make lease payments
arising from the lease.
Supplemental balance
sheet information related to leases as of March 31, 2019 was as follows (in thousands, except weighted-average remaining lease
term and discount rate):
Lease Assets and Liabilities
|
|
Classification
|
|
Amount
|
|
Assets:
|
|
|
|
|
|
Operating lease ROU assets
|
|
Other non-current assets
|
|
$
|
11,049
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
Current operating lease liabilities
|
|
Other current liabilities
|
|
$
|
3,491
|
|
Non-current operating lease liabilities
|
|
Other non-current liabilities
|
|
|
17,396
|
|
Total operating lease liabilities
|
|
|
|
$
|
20,887
|
|
|
|
|
|
|
|
|
Weighted-average remaining lease term (years)
|
|
|
|
|
5.58
|
|
Weighted-average discount rate
|
|
|
|
|
15.25
|
%
|
Lease expense for the operating and short-term leases for the three months ended March 31, 2019 was as
follows (in thousands):
|
|
Amount
|
|
Operating lease expense
|
|
$
|
1,265
|
|
Short-term lease expense
|
|
|
170
|
|
Total lease expense
|
|
$
|
1,435
|
|
Supplemental cash flow information related to leases for the three months ended March 31, 2019 was as
follows (in thousands):
|
|
Amount
|
|
Cash paid for amounts included in the measurement of operating lease liabilities
|
|
$
|
1,646
|
|
ROU assets obtained in exchange for operating lease obligations
|
|
|
11,893
|
|
As of March 31, 2019,
maturities of lease liabilities were as follows (in thousands):
Year
|
|
Amount
|
|
2019 (remainder)
|
|
$
|
5,008
|
|
2020
|
|
|
5,311
|
|
2021
|
|
|
5,292
|
|
2022
|
|
|
5,409
|
|
2023
|
|
|
4,919
|
|
Thereafter
|
|
|
5,754
|
|
Total operating lease payments
|
|
|
31,693
|
|
Less: imputed interest
|
|
|
(10,806
|
)
|
Total operating lease liabilities
|
|
$
|
20,887
|
|
During the three months
ended March 31, 2019, the Company did not enter into any additional operating or finance leases. In April 2019, the Company extended the lease at its Rockville, MD facility to expire in January 2024. Under the amended lease,
the Company will pay approximately $1.7 million per year in base rent, which was not included in the Company’s operating lease
liabilities as of March 31, 2019 as the Company was not reasonably certain that the option would be exercised.
Note 8 – Long-Term Debt
Convertible Notes
The Company incurred
approximately $10.0 million of debt issuance costs during the first quarter of 2016 relating to the issuance of $325 million
aggregate
principal amount of convertible senior unsecured notes that will mature on
February 1, 2023
(the
“Notes”)
, which were recorded as a reduction to the Notes on the consolidated balance sheet. The $10.0 million
of debt issuance costs is being amortized and recognized as additional interest expense over the seven-year contractual term of
the Notes on a straight-line basis, which approximates the effective interest rate method.
Total convertible
notes payable consisted of the following at (in thousands):
|
|
March
31,
2019
|
|
|
December
31,
2018
|
|
Principal amount of the Notes
|
|
$
|
325,000
|
|
|
$
|
325,000
|
|
Unamortized debt issuance costs
|
|
|
(5,457
|
)
|
|
|
(5,813
|
)
|
Total convertible notes payable
|
|
$
|
319,543
|
|
|
$
|
319,187
|
|
Interest expense incurred in connection
with the Notes consisted of the following (in thousands):
|
|
Three
Months Ended
March
31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Coupon interest at 3.75%
|
|
$
|
3,047
|
|
|
$
|
3,047
|
|
Amortization of debt issuance costs
|
|
|
356
|
|
|
|
356
|
|
Total interest expense on the Notes
|
|
$
|
3,403
|
|
|
$
|
3,403
|
|
Note 9 – Stockholders’ Deficit
The Company will
seek approval to effect a reverse stock split of its issued and outstanding common stock at a ratio of 1-for-20 at its May 8,
2019 special meeting of its stockholders.
In December 2018,
the Company entered into an At Market Sales Agreement (“December 2018 Sales Agreement”), which allows it to issue
and sell up to $100 million in gross proceeds of its common stock. During the first quarter of 2019, the Company sold 33.6 million
shares of common stock under the December 2018 Sales Agreement resulting in $17.4 million in net proceeds at a weighted average
sales price of $0.53 per share, leaving $82.2 million remaining available to be sold.
In December 2017,
the Company entered into an At Market Issuance Sales Agreement (“December 2017 Sales Agreement”), which allows it
to issue and sell up to $75 million in gross proceeds of its common stock. During the first quarter of 2019, the Company sold
50.3 million shares of common stock under the December 2017 Sales Agreement resulting in $37.9 million in net proceeds at a weighted
average sales price of $0.77 per share. The December 2017 Sales Agreement was fully utilized at that time. During the first quarter
of 2018, the Company sold 15.7 million shares of common stock under the December 2017 Sales Agreement resulting in $32.3 million
in net proceeds at a weighted average sales price of $2.09 per share.
In January 2017, the
Company entered into an At Market Issuance Sales Agreement (“January 2017 Sales Agreement”), which allowed it to issue
and sell up to $75 million in gross proceeds of its common stock. During the first quarter of 2018, the Company sold 6.8 million
shares of common stock resulting in $10.3 million in net proceeds at a weighted average sales price of $1.54 per share. The January
2017 Sales Agreement was fully utilized at that time.
Note 10 – Stock-Based Compensation
Stock Options
The 2015 Stock Incentive
Plan, as amended (“2015 Plan”), was approved at the Company’s annual meeting of stockholders in June 2015. Under
the 2015 Plan, equity awards may be granted to officers, directors, employees and consultants of and advisors to the Company and
any present or future subsidiary.
The 2015 Plan authorizes
the issuance of up to 56,000,000 shares of common stock under equity awards granted under the plan. All such shares authorized
for issuance under the 2015 Plan have been reserved. The 2015 Plan will expire on March 4, 2025.
The Amended and Restated
2005 Stock Incentive Plan (“2005 Plan”) expired in February 2015 and no new awards may be made under such plan, although
awards will continue to be outstanding in accordance with their terms.
The 2015 Plan permits
and the 2005 Plan permitted the grant of stock options (including incentive stock options), restricted stock, stock appreciation
rights and restricted stock units. In addition, under the 2015 Plan, unrestricted stock, stock units and performance awards may
be granted. Stock options and stock appreciation rights generally have a maximum term of 10 years and may be or were granted with
an exercise price that is no less than 100% of the fair market value of the Company’s common stock at the time of grant.
Grants of stock options are generally subject to vesting over periods ranging from one to four years.
Stock Options
Awards
The following is a summary of option activity
under the 2015 Plan and 2005 Plan for the three months ended March 31, 2019:
|
|
2015 Plan
|
|
|
2005 Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
|
Weighted-
Average
Exercise Price
|
|
|
Stock Options
|
|
|
Weighted-
Average
Exercise Price
|
|
Outstanding at January 1, 2019
|
|
|
47,856,238
|
|
|
$
|
3.12
|
|
|
|
11,653,372
|
|
|
$
|
3.29
|
|
Granted
|
|
|
196,060
|
|
|
$
|
1.78
|
|
|
|
—
|
|
|
$
|
—
|
|
Exercised
|
|
|
(30,267
|
)
|
|
$
|
1.37
|
|
|
|
(30,000
|
)
|
|
$
|
0.56
|
|
Canceled
|
|
|
(915,624
|
)
|
|
$
|
4.81
|
|
|
|
(433,400
|
)
|
|
$
|
4.63
|
|
Outstanding at March 31, 2019
|
|
|
47,106,407
|
|
|
$
|
3.08
|
|
|
|
11,189,972
|
|
|
$
|
3.24
|
|
Shares exercisable at March 31, 2019
|
|
|
17,762,576
|
|
|
$
|
4.70
|
|
|
|
11,189,972
|
|
|
$
|
3.24
|
|
Shares available for grant at March 31, 2019
|
|
|
5,576,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of
stock options granted under the 2015 Plan was estimated at the date of grant using the Black-Scholes option-pricing
model with the following assumptions:
|
|
Three Months Ended
March 31,
|
|
|
2019
|
|
2018
|
|
|
|
|
|
Weighted-average Black-Scholes fair value of stock options granted
|
|
$1.38
|
|
$1.50
|
Risk-free interest rate
|
|
2.43%-2.55%
|
|
2.26%-2.54%
|
Dividend yield
|
|
0%
|
|
0%
|
Volatility
|
|
111.65%-126.76%
|
|
113.98%-114.12%
|
Expected term (in years)
|
|
4.06-4.50
|
|
4.12-4.14
|
Expected forfeiture rate
|
|
0%
|
|
0%
|
The total aggregate
intrinsic value and weighted-average remaining contractual term of stock options outstanding under the 2015 Plan and 2005 Plan
as of March 31, 2019 was $0 million and 7.4 years, respectively. The total aggregate intrinsic value and weighted-average remaining
contractual term of stock options exercisable under the 2015 Plan and 2005 Plan as of March 31, 2019 was $0 million and 5.8 years,
respectively. The aggregate intrinsic value represents the total intrinsic value (the difference between the Company’s closing
stock price on the last trading day of the period and the exercise price, multiplied by the number of in-the-money options) that
would have been received by the option holders had all option holders exercised their options on March 31, 2019. This amount is
subject to change based on changes to the closing price of the Company’s common stock. The aggregate intrinsic value of
options exercised for the three months ended March 31, 2019 and 2018 was $0.1 million and
$0.3 million, respectively.
Employee Stock Purchase Plan
The Employee Stock
Purchase Plan, as amended (the “ESPP”), was approved at the Company’s annual meeting of stockholders in June
2013. The ESPP currently authorizes an aggregate of 7,950,000 shares of common stock to be purchased, and the aggregate amount
of shares will continue to increase 5% on each anniversary of its adoption up to a maximum of 8,000,000 shares. The ESPP allows
employees to purchase shares of common stock of the Company at each purchase date through payroll deductions of up to a maximum
of 15% of their compensation, at 85% of the lesser of the market price of the shares at the time of purchase or the market price
on the beginning date of an option period (or, if later, the date during the option period when the employee was first eligible
to participate). At March 31, 2019, there were 2,745,580 shares available for issuance under the ESPP.
The ESPP is considered
compensatory for financial reporting purposes. As such, the fair value of ESPP shares was estimated at the date of grant using
the Black-Scholes option-pricing model with the following assumptions:
|
|
Three Months Ended
March 31,
|
|
|
2019
|
|
2018
|
Range of Black-Scholes fair value of ESPP shares granted
|
|
$0.36-$1.74
|
|
$0.45-$3.53
|
Risk-free interest rate
|
|
1.20%-2.50%
|
|
0.66%-1.79%
|
Dividend yield
|
|
0%
|
|
0%
|
Volatility
|
|
52.19%-171.60%
|
|
59.84%-203.83%
|
Expected term (in years)
|
|
0.5-2.0
|
|
0.5-2.0
|
Expected forfeiture rate
|
|
0%
|
|
0%
|
Restricted Stock Units
The following is a
summary of restricted stock units activity for the three months ended March 31, 2019:
|
|
Number of
Shares
|
|
|
Per Share
Weighted-
Average
Grant-Date
Fair Value
|
|
Outstanding and Unvested at January 1, 2019
|
|
|
―
|
|
|
$
|
―
|
|
Restricted stock units granted
|
|
|
2,964,591
|
|
|
$
|
0.52
|
|
Restricted stock units vested
|
|
|
―
|
|
|
$
|
―
|
|
Restricted stock units forfeited
|
|
|
―
|
|
|
$
|
―
|
|
Outstanding and Unvested at March 31, 2019
|
|
|
2,964,591
|
|
|
$
|
0.52
|
|
During the three months ended March 31,
2019, the Company granted 3.0 million restricted stock units, of which 1.3 million contain performance-based vesting requirements
associated with the development of its vaccine candidates.
The Company recorded all stock-based compensation
expense in the consolidated statements of operations as follows (in thousands):
|
|
Three
Months Ended
March
31,
|
|
|
|
2019
|
|
|
2018
|
|
Research and development
|
|
$
|
3,179
|
|
|
$
|
3,098
|
|
General and administrative
|
|
|
2,379
|
|
|
|
2,147
|
|
Total stock-based compensation
expense
|
|
$
|
5,558
|
|
|
$
|
5,245
|
|
As of March 31, 2019,
there was approximately $41 million of total unrecognized compensation expense related to unvested stock options, restricted stock
units and the ESPP. This unrecognized non-cash compensation expense is expected to be recognized over a weighted-average period
of 1.5 years, and will be allocated between research and development and general and administrative expenses accordingly. This
estimate does not include the impact of other possible stock-based awards that may be made during future periods.
Note 11 – Grant Agreement
Bill & Melinda Gates Foundation
Grant Agreement
In support of the
Company’s development of ResVax, in September 2015, the Company entered into the grant agreement with BMGF (the “Grant
Agreement”), under which it was awarded a grant totaling up to $89.1 million (the “Grant”). The Grant supports
development activities, including the Company’s global Phase 3 clinical trial in pregnant women in their third trimester,
product licensing efforts and efforts to obtain WHO prequalification of ResVax. Unless terminated earlier by BMGF, the Grant Agreement
will continue in effect until the end of 2021. The Company concurrently entered into a Global Access Commitments Agreement (“GACA”)
with BMGF as a part of the Grant Agreement. Under the terms of the GACA, among other things, the Company agreed to make a certain
amount of ResVax available and accessible at affordable pricing to people in certain low and middle income countries. Unless terminated
earlier by BMGF, the GACA will continue in effect until the latter of 15 years from its effective date, or 10 years after the
first sale of a product under defined circumstances. The term of the GACA may be extended in certain circumstances, by a period
of up to five additional years.
Payments received
in advance that are related to future performance are deferred and recognized as revenue when the research and development activities
are performed. Cash payments received under the Grant Agreement are restricted as to their use until expenditures contemplated
in the Grant Agreement are incurred. During the three months ended March 31, 2019, the Company recognized revenue from the Grant
of $3.2 million, and has recognized approximately $76 million in revenue since the inception of the agreement. At March 31, 2019,
the Company’s current restricted cash and deferred revenue balances on the consolidated balance sheet represent its estimate
of costs to be reimbursed and revenue to be recognized, respectively, in the next twelve months under the Grant Agreement.
Note 12 – Related Party Transactions
In July 2017, the
Company entered into a consulting agreement with Dr. Sarah Frech, the spouse of Mr. Stanley C. Erck, the Company’s President
and Chief Executive Officer. Dr. Frech is a seasoned biotechnology executive with significant experience managing multiple clinical
programs. Under the agreement, Dr. Frech provides clinical development and operations services related to the Company’s
Phase 3 clinical trial of ResVax and other professional services. The agreement has been extended to terminate in July 2019.
For the three months ended March 31, 2019 and 2018, the Company incurred $0.1 million in consulting expenses under the agreement.
The amount due and unpaid for services performed under the agreement at March 31, 2019 was $0.1 million and at December 31, 2018
was less than $0.1 million.