10-K 1 tm205233-1_10k.htm FORM 10-K

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-K

 

xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

 

OR

 

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from      to      .

 

Commission File No. 000-26770

 

NOVAVAX, INC.

(Exact name of Registrant as specified in its charter)

 

Delaware

(State of incorporation)

 

21 Firstfield Road,
Gaithersburg, Maryland
20878

(Address of principal executive offices)

  22-2816046
(I.R.S. Employer Identification No.)

 

Registrant’s telephone number, including area code: (240) 268-2000

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol

Name of each exchange on which registered
Common Stock, Par Value $0.01 per share

NVAX

The Nasdaq Global Select Market

 

Securities registered pursuant to Section 12(g) of the Act: Not Applicable

 

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨

 

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No x

 

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ¨ Accelerated filer x
       
Non-accelerated filer ¨ Smaller reporting company x
       
Emerging growth company ¨    

 

If an emerging growth company, indicate by check mark if the registrant had elected not to use the extended transition period for complying with any new or revised financial accounting standards provide pursuant to Section 13(a) of the Exchange Act. ¨

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant (based on the last reported sale price of Registrants common stock on June 30, 2019 on the Nasdaq Global Select Market) was approximately $138,300,000.

 

As of March 6, 2020, there were 51,528,841 shares of the Registrant’s common stock outstanding.

 

Documents incorporated by reference: Portions of the Registrant’s Definitive Proxy Statement to be filed no later than 120 days after the fiscal year ended December 31, 2019 in connection with the Registrant’s 2020 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K to the extent indicated herein.

 

 

 

 

 

NOVAVAX, INC.

 

TABLE OF CONTENTS

 

    Page
  PART I  
Item 1. BUSINESS 4
Item 1A. RISK FACTORS 13
Item 1B. UNRESOLVED STAFF COMMENTS 34
Item 2. PROPERTIES 34
Item 3. LEGAL PROCEEDINGS 34
Item 4. MINE SAFETY DISCLOSURES 34
     
  PART II  
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 35
Item 6. SELECTED FINANCIAL DATA 36
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 37
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 47
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 48
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 48
Item 9A. CONTROLS AND PROCEDURES 48
Item 9B. OTHER INFORMATION 49
     
  PART III  
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 49
Item 11. EXECUTIVE COMPENSATION 49
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 49
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 50
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 50
     
  PART IV  
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 50
Item 16. FORM 10-K SUMMARY 55

 

 

 2 

 

 

CERTAIN DEFINITIONS

 

All references in this Annual Report on Form 10-K to “Novavax,” the “Company,” “we,” “us” and “our” refer to Novavax, Inc. and its wholly-owned subsidiary, Novavax AB (unless the context otherwise indicates).

 

NOTE REGARDING TRADEMARKS

 

Novavax™, NanoFlu™, Matrix-M™, Matrix™, Prepare™, Resolve™, and ResVax™ are trademarks of Novavax. Any other trademarks referred to in this Annual Report on Form 10-K are the property of their owners. All rights reserved. We do not intend our use or display of other companies’ trade names or trademarks to imply an endorsement or sponsorship of us by such companies, or any relationship with any of these companies.

 

FORWARD-LOOKING INFORMATION

 

This Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth under “Risk Factors” and elsewhere in this Annual Report on Form 10-K, our actual results may differ materially from those anticipated in these forward-looking statements. Please also see the disclaimer under the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

 3 

 

 

PART I

 

Item 1.BUSINESS

 

Overview

 

Novavax, Inc., together with our wholly-owned Swedish subsidiary, Novavax AB, is a late-stage biotechnology company that promotes improved global health through 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 21 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, NanoFlu™ and ResVax™, 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 technology targets a variety of infectious diseases. We are also developing proprietary immune stimulating saponin-based adjuvants at Novavax AB, our wholly owned Swedish subsidiary. Our lead adjuvant, Matrix-M™, has been shown to enhance immune responses and has been well-tolerated in multiple clinical trials.

 

Product Pipeline

 

Program

 

Current 

Development Stage

 

 
Seasonal Influenza        
·NanoFlu (Older Adults)(1)   Phase 3    
         
Respiratory Syncytial Virus (“RSV”)        
·ResVax(2) (Infants via Maternal Immunization)   Phase 3    
·Older Adults(1)   Phase 2    
·Pediatrics   Phase 1    
         
Combination Seasonal Influenza/RSV(1)   Preclinical    
         
Ebola Virus (“EBOV”)(1)   Phase 1    
         
Coronavirus (“COVID-19”)(1)   Preclinical    

  

(1)Includes Matrix-M adjuvant

(2)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:

 

Seasonal Influenza

 

NanoFlu Program (Older Adults)

 

Influenza is a world-wide infectious disease with serious illness generally occurring in more susceptible populations such as children under 18 years old 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). Recent flu seasons have shown an increase in the influenza disease burden. For the 2017-18 flu season, the Centers for Disease Control and Prevention estimates that influenza in the U.S. resulted in 48.8 million illnesses, 959,000 hospitalizations and 79,400 deaths, a dramatic increase across all categories compared to previous years.

 

 4 

 

 

In October 2019, we initiated a pivotal Phase 3 clinical trial of NanoFlu in older adults (65 years and older). This randomized, observer-blinded, active-controlled trial will evaluate the immunogenicity and safety of NanoFlu with its proprietary Matrix-M adjuvant, compared to a U.S.-licensed quadrivalent vaccine, Fluzone® Quadrivalent. The trial’s primary objective is to demonstrate non-inferior immunogenicity as measured by hemagglutination inhibition (“HAI”) titers of vaccine homologous influenza strains compared to a licensed seasonal vaccine, and to describe its safety profile. In October 2019, we completed enrollment of 2,652 healthy older adults across 19 clinical sites in the U.S. and we expect to report top-line clinical data by the end of the first quarter of 2020. Positive data will support a subsequent U.S. biologics license application (“BLA”) and licensure of NanoFlu using the U.S. Food and Drug Administration’s (“FDA”) accelerated approval pathway.

 

In January 2020, we announced that the FDA granted NanoFlu Fast Track designation, which is intended for products that treat serious or life-threatening diseases or conditions and that demonstrate the potential to address unmet medical needs for such diseases or conditions. The program is designed to facilitate development and expedite review of drugs to treat serious and life-threatening conditions so that approved products can reach the market expeditiously. Specifically, Fast Track designation facilitates meetings to discuss all aspects of development to support licensure and provides the opportunity to submit sections of a BLA on a rolling basis as data become available. This permits the FDA to review modules of the BLA as they are received instead of waiting for the entire BLA submission. In addition, priority review (six-month review versus standard 10-month review) is an additional benefit that may potentially be available for NanoFlu in the future.

 

In June 2019, we announced that the FDA acknowledged that the accelerated approval pathway is available for NanoFlu. An accelerated approval may be granted for certain biological products that have been studied for their safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit over existing treatments. Such an approval will be based on adequate and well-controlled clinical trials establishing that the biological product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit. For seasonal influenza vaccines, the HAI antibody response is considered an acceptable surrogate marker of activity that is reasonably likely to predict clinical benefit. To be considered for accelerated approval, a BLA for a new seasonal influenza vaccine should include results from one or more well-controlled studies designed to meet immunogenicity endpoints along with a commitment to conduct confirmatory post-marketing studies of clinical effectiveness in preventing influenza.

 

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 is our adjuvanted RSV F Vaccine for infants via maternal immunization. RSV is the most common cause of lower respiratory tract infections (“LRTI”) 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.

 

Data from our Prepare trial, which was initiated in December 2015, was announced in February 2019. The Prepare trial was conducted to determine whether ResVax reduced incidence of medically significant RSV-positive LRTI in infants through a minimum of the first 90 days of life and up through the first six months of life. While these data did not meet the trial’s primary efficacy endpoint, it did demonstrate efficacy against a secondary objective by reducing RSV LRTI hospitalizations in treated infants. ResVax is thus the first RSV vaccine to show efficacy in a Phase 3 clinical trial, and in addition, showed important effects against a variety of pre-specified exploratory endpoints and post-hoc analyses. This included a ~60% reduction in RSV-related severe hypoxemia and a ~74% reduction in RSV-related, radiographically-confirmed pneumonia through day 90. As in previous clinical trials, ResVax also showed favorable safety and tolerability results. In light of the fact that the trial failed to meet the primary endpoints, the FDA and European Medicines Agency (“EMA”) recommended that we conduct an additional Phase 3 clinical trial to confirm efficacy. BMGF has supported the Prepare trial for ResVax through a grant of up to $89.1 million; BMGF continues to financially support our efforts to conduct certain follow-on analyses of the Phase 3 data. We are currently in discussions with multiple potential commercial partners about the opportunity to bring ResVax to market globally, including assisting us with the regulatory licensure pathways in the U.S., the European Union and other geographies.

 

 5 

 

 

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. We followed up the 2016 Phase 3 clinical trial of our RSV F Vaccine, which failed to meet its pre-specified primary or secondary efficacy objectives, with a 2017 Phase 2 clinical trial in older adults, to assess 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 from the 2017 trial indicate that both adjuvants increase the magnitude, duration and quality of the immune response versus the non-adjuvanted RSV F Vaccine. We continue to assess 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. We continue to assess the development opportunities for our RSV F Vaccine for pediatrics.

 

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.

 

Ebola Virus

 

Ebola virus (“EBOV”) is a filovirus that produces severe, often fatal illness in humans. Within the last decade, it has produced two large outbreaks in Sub-Saharan Africa with high mortality. There are currently no licensed treatments proven to prevent EBOV, although a range of blood, immunological and drug therapies are under development.

 

We have developed an EBOV glycoprotein vaccine candidate (“Ebola GP Vaccine”) expressed in insect cells, using our core recombinant baculovirus technology. In five separate studies, carried out in collaboration with the National Institute of Allergy and Infectious Disease, active immunization with Ebola GP Vaccine was shown to be highly immunogenic and efficacious in preventing lethal disease in non-human primates challenged with EBOV. Our 2015 Phase 1 clinical trial demonstrated that our Ebola GP Vaccine is highly immunogenic in humans, well-tolerated and, in conjunction with our proprietary Matrix-M adjuvant, demonstrated marked antigen dose-sparing and induced significant increases in neutralizing antibody titers. While we intend to advance our Ebola GP Vaccine, doing so will be dependent upon funding or a partner.

 

Coronavirus

 

Coronaviruses (“CoV”), so named for their “crown-like” appearance, are a large family of viruses that spread from animals to humans and include diseases such as Middle East Respiratory Syndrome (“MERS”) and Severe Acute Respiratory Syndrome (“SARS”). Historically, we developed a vaccine candidate against MERS, a novel coronavirus first identified in 2012, as well as a vaccine candidate against SARS in 2005. In 2012, within weeks of obtaining the sequence of the circulating MERS strain, we successfully produced a vaccine candidate designed to provide protection. Our MERS candidate was based on the major surface spike protein, which we had previously identified as the antigen of choice in our work with our SARS vaccine candidate. In 2014, in collaboration with the University of Maryland, School of Medicine, we published results that showed our MERS and SARS vaccine candidates both blocked infection in laboratory studies.

 

 6 

 

 

Recently, a new strain of coronavirus (“COVID-19”) causing pneumonia-like symptoms has emerged in China, marking the beginning of a spread of the virus across the globe. Researchers have now confirmed that the virus can spread via human-to-human transmission. There are currently no licensed treatments proven to prevent COVID-19, although a range of vaccine candidates are under development. We have successfully produced a vaccine candidate designed to provide protection against COVID-19. Using our recombinant nanoparticle technology, we have generated antigen for our initial vaccine candidate derived from the coronavirus spike (S) protein. This vaccine candidate has been engineered from the genetic sequence of COVID-19 virus and binds efficiently with the same human receptors targeted by the virus, a critical aspect for effective vaccine protection. We intend to combine our proprietary Matrix-M adjuvant into our experimental vaccine candidate to potentially provide an additional immune response. We were recently awarded initial funding from the Coalition for Epidemic Preparedness Innovations (“CEPI”) to facilitate our development of a COVID-19 vaccine in preparation for potential future clinical trials. A subsequent CEPI award may be available to cover our program expenditures through Phase 1 clinical trial results.

 

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. CPLB is 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 system’s attack against microorganisms and allowing 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.

 

 7 

 

 

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 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 as effective as other RSV vaccine candidates or other products in development by our competitors, and may prove effective. We further believe that ResVax, our RSV vaccine program for infants via maternal immunization, is the only RSV vaccine to have ever demonstrated some degree of 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 infants are being conducted by AstraZeneca PLC (“AstraZeneca”), and Merck. The AstraZeneca Mab, Nirsevimab (previously known as MEDI-8897), which is partnered with Sanofi Pasteur and Swedish Orphan Biovitrum AB, completed Phase 2 trials for preterm infants and is in Phase 3 trial for full-term infants. Additionally, it has obtained Breakthrough designation from the FDA. The Merck Mab MK-1654 is currently in Phase 2 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. For the older adult segment, Sanofi currently supplies Fluzone-HD® and Flublok® to the majority (>60%) of U.S. older adults. 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 completed Phase 2 trial results, we believe that NanoFlu, our adjuvanted 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:

 

• obtain patents to protect our own technologies and product candidates;

• obtain licenses to use the technologies of third-parties, which may be protected by patents;

• protect our trade secrets and know-how; and

• operate without infringing the intellectual property and proprietary rights of others.

 

 8 

 

 

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 400 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.

 

We also have issued patents directed to other core programs, including our RSV and influenza 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, 10,022,437, and 10,426,829. 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.

 

 9 

 

 

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. Following successful completion of all three phases of clinical development, 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. In June 2019, we announced that the FDA acknowledged that the accelerated approval pathway is available for NanoFlu.

 

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.

 

 10 

 

 

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 at certain prices. Adequate third-party reimbursement may not be available in certain markets 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, including 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.

 

 11 

 

 

Manufacturing

 

Our primary manufacturing facility is located in Uppsala, Sweden, where Novavax AB 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, only one vendor has been qualified 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 strive to create sustainable value by evaluating all options, including working to obtain non-dilutive funding, similar to our agreement with BMGF related to our maternal RSV program, from both governmental and non-governmental funding sources, that would allow for:

 

• continued development of our vaccine candidates until such vaccines can be licensed;

• retained commercial rights in one or more major markets;

• product sales revenue; and/or

• commercialization through partners and other strategic relationships.

 

Employees

 

As of March 6, 2020, we have 165 full-time employees, of whom 24 hold M.D. or Ph.D. degrees and 51 of whom hold other advanced degrees. Of our total workforce, 127 are engaged primarily in research, development and manufacturing activities and 38 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; 48 of our 49 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.

 

 

 12 

 

 

Item 1A.RISK FACTORS

 

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, 2019 was $1.4 billion. Our revenue for the last three fiscal years was $18.7 million in 2019, $34.3 million in 2018, and $31.2 million in 2017. 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 $132.7 million in 2019, $184.7 million in 2018, and $183.8 million in 2017.

 

Historically, our 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 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.

 

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:

 

·conduct clinical trials for RSV F Vaccine and other potential vaccine candidates;
·conduct preclinical studies for other potential vaccine candidates;
·work with third-party manufacturers to commercially scale the manufacturing process; and
·maintain, expand and protect our intellectual property portfolio.

 

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 non-dilutive funding from governmental and non-governmental funding entities, as well as 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.

 

 13 

 

 

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, contract manufacturing 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 United Kingdom’s withdrawal from the European Union could result in increased regulatory and legal complexity, which may make it more difficult for us to do business in Europe and impose additional challenges in securing regulatory approval of our product candidates in Europe.

 

The United Kingdom’s exit from the European Union, or Brexit, and the related negotiations have caused political and economic uncertainty, including in the regulatory framework applicable to our operations and vaccine candidates in the United Kingdom and the European Union, and this uncertainty may persist for years. Brexit could, among other outcomes, disrupt the free movement of goods, services and people between the United Kingdom and the European Union, and result in increased legal and regulatory complexities, as well as potential higher costs of conducting business in Europe. For instance, preparations for Brexit have resulted in the decision to move the European Medicines Agency from the United Kingdom to the Netherlands. This transition may cause disruption or delays in granting clinical trial authorization or opinions for marketing authorization, disruption of importation and export of active substance and other components of new drug formulations, and disruption of the supply chain for clinical trial product and final authorized formulations.

 

The cumulative effects of the disruption to the regulatory framework may add considerably to the development lead time to marketing authorization and commercialization of products in the European Union and/or the United Kingdom. It is possible that there will be increased regulatory complexities, which can disrupt the timing of our clinical trials and regulatory approvals. In addition, changes in, and legal uncertainty with regard to, national and international laws and regulations may present difficulties for our clinical and regulatory strategy. Any delay in obtaining, or an inability to obtain, any marketing approvals, as a result of Brexit or otherwise, would prevent us from commercializing our product candidates in the United Kingdom and/or the European Union and restrict our ability to generate revenues and achieve and sustain profitability.

 

In addition, as a result of Brexit, other European countries may seek to conduct referenda with respect to their continuing membership with the European Union. Given these possibilities and others we may not anticipate, as well as the absence of comparable precedent, it is unclear what financial, regulatory and legal implications the withdrawal of the United Kingdom from the European Union will have, how such withdrawal will affect us, and the full extent to which our business could be adversely affected.

 

 14 

 

 

Inadequate funding for the FDA, the SEC and other government agencies could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which the operation of our business may rely, which could negatively impact our business.

 

The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of the SEC and other government agencies on which our operations may rely, including those that fund research and development activities, is subject to the political process, which is inherently fluid and unpredictable.

  

Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA and the SEC, have had to furlough critical FDA, SEC and other government employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business. Further, in our operations as a public company, future government shutdowns could impact our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.

 

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. Additional development activities likely will be needed and BMGF may not reimburse us for any portion of these activities.

 

The 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 suggest that ResVax is safe and is likely efficacious 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. Although the failure to achieve the primary endpoint in the trial is not evidence that the vaccine is not effective, it means that regulatory agencies like the FDA and EMA are likely to require additional clinical trial data prior to licensure. This development may be viewed negatively by our potential collaborators and partners, which may 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:

 

·the costs associated with seeking to comply with multiple regulatory requirements that govern our ability to develop, manufacture and sell products in local markets;

  

 15 

 

 

·failure to comply with anti-bribery laws such as the U.S. Foreign Corrupt Practices Act and similar anti-bribery laws in other jurisdictions;
·new or changes in interpretations of existing trade protections measures, including tariffs, embargoes and import and export licensing requirements;
·difficulties in and costs of staffing, managing and operating our international operations;
·changes in environmental, health and safety laws;
·fluctuations in foreign currency exchange rates;
·new or changes in interpretations of existing tax laws;
·political instability and actual or anticipated military or potential conflicts;
·economic instability, inflation, recession and interest rate fluctuations;
·minimal or diminished protection of intellectual property in many jurisdictions; and
·possible nationalization and expropriation.

 

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 the scope of the approval, 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:

 

·research and development;
·preclinical testing;

 

 16 

 

 

·designing and implementing clinical trials;
·regulatory processes and approvals;
·production and manufacturing; and
·sales and marketing of approved products.

 

Principal competitive factors in our industry include:

 

·the quality and breadth of an organization’s technology;
·management of the organization and the execution of the organization’s strategy;
·the skill and experience of an organization’s employees and its ability to recruit and retain skilled and experienced employees;
·an organization’s intellectual property portfolio;
·the range of capabilities, from target identification and validation to drug discovery and development to manufacturing and marketing; and
·the availability of substantial capital resources to fund discovery, development and commercialization activities.

 

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 third-party manufacturing arrangements 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.

 

 17 

 

 

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.

 

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 otherwise develop marketable products.

 

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 terms, 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:

 

·decreased demand for our products;
·impairment of our business reputation;
·withdrawal of clinical trial participants;
·costs of related litigation;
·substantial monetary awards to participants or other claimants;
·loss of revenue; and
·inability to commercialize our vaccine candidates.

 

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.

 

 18 

 

 

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, 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 through third-party manufacturers 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.

 

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.

 

 19 

 

 

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:

 

·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 approvals or achieve commercial viability;
·third-party manufacturer facilities will be unable or unwilling to scale-up manufacturing capabilities for our products in a cost-effective manner;
·the products, if safe and effective, will be difficult to manufacture on a large-scale or uneconomical to market;
·third-party manufacturing facilities will fail to continue to pass regulatory inspections;
·proprietary rights of third-parties will prevent us or our collaborators from exploiting technologies, and manufacturing or marketing products; and
·third-party competitors will gain greater market share due to superior products or marketing capabilities.

 

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.

 

 20 

 

 

The steps generally required by the FDA before our proposed investigational products may be marketed in the U.S. include:

 

·performance of preclinical (animal and laboratory) tests;
·submission to the FDA of an IND, which must become effective before clinical trials may commence;
·performance of adequate and well controlled clinical trials to establish the safety and efficacy of the investigational product in the intended target population;
·performance of a consistent and reproducible manufacturing process at commercial scale capable of passing FDA inspection;
·submission to the FDA of a BLA or a NDA; and
·FDA approval of the BLA or NDA before any commercial sale or shipment of the product.

 

These 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 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 ultimately may not grant approval for commercial sale in any jurisdiction, or may impose regulatory requirements that make further pursuit of approval uneconomical in one or more jurisdictions. 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. We are dependent on third-party organizations to conduct all of our vaccine manufacturing activities. If third-party manufacturing organizations are unable to manufacture our vaccine candidates in clinical quantities or, when necessary, in commercial quantities and at sufficient yields, then we will need to identify and reach supply arrangements with additional third-parties. 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 higher priority. We may not be able to enter into any necessary additional 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.

 

 21 

 

 

Our reliance on third-party 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:

 

·difficulties with production costs, scale up and yields;
·availability of raw materials and supplies;
·quality control and assurance;
·shortages of qualified personnel;
·compliance with strictly enforced federal, state and foreign regulations that vary in each country where products might be sold; and
·lack of capital funding.

 

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:

 

·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;
·such partners may not devote sufficient resources to our vaccine candidates or properly maintain or defend our intellectual property rights;
·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
·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.

 

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.

 

 22 

 

 

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 and clinical trials, and all of our vaccine manufacturing, we may encounter delays in or lose some control over our efforts to develop products.

 

We are dependent on third-party organizations to conduct some of our laboratory testing and clinical trials and all of our vaccine 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 third-parties to conduct our laboratory testing, clinical trials and manufacturing activities.

 

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. Furthermore, if our third-party manufacturer is producing materials or products for themselves or other companies, our third-party manufacturer may be exposed to regulatory risks for the production of such materials and products. As a result, failure to meet the regulatory requirements for the production of those materials and products may generally affect the regulatory clearance of the third-party manufacturer’s facility, which could impact its ability to produce our materials and products. Any of our third-party service providers 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.

 

 23 

 

 

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 and 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:

 

·our ability to provide acceptable evidence of safety and efficacy;
·the prevalence and severity of adverse side effects;
·whether our vaccines are differentiated from other vaccines;
·availability, relative cost and relative efficacy of alternative and competing treatments;
·the effectiveness of our marketing and distribution strategy;
·publicity concerning our products or competing products and treatments; and
·our ability to obtain sufficient third party insurance coverage or reimbursement.

 

There are significant challenges associated with marketing 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.

 

 24 

 

 

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:

 

·our ability to manufacture or obtain sufficient quantities of materials for use in necessary preclinical studies and clinical trials;
·regulatory agency review and approval of proposed clinical trial protocols;
·approval of clinical trials protocols and informed consent forms by institutional review boards responsible for overseeing the ethical conduct of the trial;
·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;
·unfavorable test results or side effects experienced by clinical trial participants;
·analysis of data obtained from preclinical and clinical activities, which are susceptible to varying interpretations and which interpretations could delay, limit, result in the suspension or termination of, or prevent further conduct of clinical studies or regulatory approval;
·the availability of skilled and experienced staff to conduct and monitor clinical trials and to prepare the appropriate regulatory applications; and
·changes in the policies of regulatory authorities for drug or vaccine approval during the period of product development.

 

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, United Kingdom, 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.

 

 25 

 

 

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 after a product gains regulatory approval, 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 such 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. We cannot provide assurance that newly discovered or developed safety issues will not arise following regulatory approval. With the use of any vaccine by a wide patient population, serious adverse events may occur from time to time that did not arise in the clinical trials of the product or that initially appeared to be unrelated to the vaccine itself and only with the collection of subsequent information were found to be causally related to the product. Any such 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.

 

Fast Track Designation by the FDA or other regulatory acceleration options may not actually lead to a faster development or regulatory review or approval process and does not assure approval.

 

If a drug is intended for the treatment of a serious or life-threatening condition and the drug demonstrates the potential to address an unmet medical need for this condition, the drug sponsor may apply for FDA Fast Track Designation. However, Fast Track Designation does not ensure that the drug sponsor will receive marketing approval or that approval will be granted within any particular timeframe. In January 2020, we announced that the FDA had granted Fast Track Designation for NanoFlu, our recombinant quadrivalent seasonal influenza vaccine candidate. We may also seek Fast Track Designation for more of our other vaccine candidates. If we do seek Fast Track Designation for our other vaccine candidates, we may not receive it, and even if we receive Fast Track Designation, we may not experience a faster development process, review or approval compared to conventional FDA procedures. In addition, the FDA may withdraw Fast Track designation if it believes that the designation is no longer supported by data from our clinical development program. Fast Track Designation alone does not guarantee qualification for the FDA’s priority review procedures.

 

Obtaining a Fast Track Designation does not change the standards for product approval, but may expedite the development or approval process. Even though the FDA has granted such designation for NanoFlu, it may not actually result in faster clinical development or regulatory review or approval. Furthermore, such a designation does not increase the likelihood that NanoFlu will receive marketing approval in the U.S.

 

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 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.

 

 26 

 

 

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:

 

·government health administration authorities such as the Advisory Committee for Immunization Practices of the Centers for Disease Control and Prevention;
·private health insurers;
·managed care organizations;
·pharmacy benefit management companies; and
·other healthcare related organizations.

 

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 and could adversely affect the prices that we receive for our vaccine candidates, if approved. Some of these proposed and implemented reforms could result in reduced pharmaceutical pricing or 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. The pharmaceutical industry has also been the subject of significant publicity in recent years regarding the pricing of pharmaceutical products, including publicity and pressure resulting from prices charged by pharmaceutical companies for new products as well as price increases by pharmaceutical companies on older products that some people have deemed excessive. As a result, pharmaceutical product prices have been the focus of increased scrutiny by the U.S. government, including certain state attorneys general, members of congress, presidential candidates and the United States Department of Justice. We cannot predict the ultimate content, timing or effect of any healthcare reform legislation or the impact of potential legislation on us.

 

 27 

 

 

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:

 

·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;
·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;
·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;
·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;
·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;
·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;
·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
·state laws restricting interactions with healthcare providers and other members of the healthcare community or requiring pharmaceutical manufacturers to implement certain compliance standards.

 

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 400 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 any particular 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.

 

 28 

 

 

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 be found 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 may 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 suit 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.

 

 29 

 

 

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 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 or 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 may not control either the prosecution or the enforcement of the patents. Under such circumstances, we may be forced to 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.

 

 30 

 

 

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 European Union.

 

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.

 

 31 

 

 

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 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, 2019 through December 31, 2019, the closing sale price of our common stock has been as low as $3.69 per share and as high as $46.80 per share.1 The market price of our common stock may be influenced by many factors, including:

 

·future announcements about us or our collaborators or competitors, including the results of testing, technological innovations or new commercial products;
·clinical trial results;
·depletion of our cash reserves;
·sale of equity securities or issuance of additional debt;
·announcement by us of significant strategic partnerships, collaborations, joint ventures, capital commitments or acquisitions;
·changes in government regulations;
·impact of competitor successes and in particular development success of vaccine candidates that compete with our own vaccine candidates;
·developments in our relationships with our collaboration partners;
·announcements relating to health care reform and reimbursement levels for new vaccines and other matters affecting our business and results, regardless of accuracy;

 

 

1 Share prices reflect the May 10, 2019 1-for-20 Reverse Stock Split.

  

 32 

 

 

·sales of substantial amounts of our stock by us or existing stockholders (including stock by insiders or 5% stockholders);
·development, spread or new announcements related to pandemic diseases;
·litigation;
·public concern as to the safety of our products;
·significant set-backs or concerns with the industry or the market as a whole;
·regulatory inquiries, reviews and potential action, including from the FDA or the SEC;
·recommendations by securities analysts or changes in earnings estimates; and
·the other factors described in this Risk Factors section.

 

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. On April 11, 2019, we received a notification letter from Nasdaq (the “Notice”) advising us that for 30 consecutive business days preceding the date of the Notice, the bid price of our common stock had closed below this $1.00 per share minimum closing bid price. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company was provided a compliance period of 180 calendar days, or until October 8, 2019, to regain compliance with this requirement.

 

On May 8, 2019, our stockholders approved the Reverse Stock Split, which became effective on May 10, 2019. On May 24, 2019, we received a notification letter from Nasdaq advising us that our closing bid price of our common stock had been at $1.00 per share or greater for ten consecutive business days and we had regained compliance with Nasdaq Listing Rule 5450(a)(2) accordingly. We continue to monitor the bid price for our common stock. If we fail to satisfy the minimum closing bid price requirement or any other listing requirements in the future, 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. For example, our organizational documents provide for 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.

 

 33 

 

 

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.

 

Item 1B. UNRESOLVED STAFF COMMENTS

 

None.

 

Item 2. PROPERTIES

 

We lease two facilities in Gaithersburg, Maryland. Novavax AB leases a facility in Uppsala, Sweden. A summary of our current facilities is set forth below. Although we believe that our facilities are suitable and adequate for our present needs, the Company’s management continues to review and assess real property requirements that may be necessary to address our current business plan.

 

Property

Location

 

Approximate

Square Footage

 

Brief Property

Description

21FF Gaithersburg, MD   53,000   Research and development facility and offices
22FF Gaithersburg, MD   40,000   Executive, administrative, clinical and regulatory offices
Uppsala, Sweden   24,000   Adjuvant manufacturing and research and development facility and offices
Total square footage   117,000    

 

Item 3. LEGAL PROCEEDINGS

 

We currently have no material pending legal proceedings.

 

Item 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

 34 

 

 

PART II

 

Item 5.MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

 

Our common stock trades on the Nasdaq Global Select Market under the symbol “NVAX.” Our common stock was held by approximately 133 stockholders of record as of March 6, 2020, one of which is Cede & Co., a nominee for Depository Trust Company (“DTC”). All of the shares of common stock held by brokerage firms, banks and other financial institutions as nominees for beneficial owners are deposited into participant accounts at DTC, and are therefore considered to be held of record by Cede & Co. as one stockholder. We do not anticipate declaring or paying any cash dividends in the foreseeable future.

 

Securities Authorized for Issuance under our Equity Compensation Plans

 

Information regarding our equity compensation plans, including both stockholder approved plans and non-stockholder approved plans, is included in Item 12 of this Annual Report on Form 10-K.

 

Performance Graph

 

The graph below compares the cumulative total stockholders return on our common stock for the last five fiscal years with the cumulative total return on the Nasdaq Composite Index and the Russell 2000 Growth Biotechnology Index (which includes Novavax) over the same period, assuming the investment of $100 in our common stock, the Nasdaq Composite Index and the Russell 2000 Growth Biotechnology Index on December 31, 2014, and reinvestments of all dividends.

 

Value of $100 invested on December 31, 2014 in stock or index, including reinvestment of dividends, for fiscal years ended December 31:

 

      12/31/14       12/31/15       12/30/16       12/29/17       12/31/18       12/31/19  
Novavax, Inc.   $ 100.00     $ 141.48     $ 21.25     $ 20.91     $ 31.03     $ 3.36  
Nasdaq Composite Index   $ 100.00     $ 106.96     $ 116.45     $ 150.96     $ 146.67     $ 200.49  
RUSSELL 2000 Growth Biotechnology Index   $ 100.00     $ 111.17     $ 88.61     $ 141.64     $ 116.81     $ 170.48  

 

This graph is not “soliciting material,” is not deemed “filed” with the SEC and is not to be incorporated by reference in any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

  

 35 

 

 

Item 6.SELECTED FINANCIAL DATA

 

The following table sets forth selected financial data for each of the years in the five-year period ended December 31, 2019, which have been derived from our audited consolidated financial statements. The information below should be read in conjunction with our consolidated financial statements and notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Annual Report. These historical results are not necessarily indicative of results for future periods.

 

   Year Ended December 31, 
   2019(1)   2018(2)   2017(3)   2016(4)   2015(5) 
   (in thousands, except per share amounts) 
Statements of Operations Data(6):                         
Revenue  $18,662   $34,288   $31,176   $15,353   $36,250 
Net loss   (132,694)   (184,748)   (183,769)   (279,966)   (156,937)
Basic and diluted net loss per share   (5.51)   (9.99)   (12.56)   (20.68)   (11.97)
Weighted average shares used in computing basic and diluted net loss per share   24,100    18,488    14,633    13,540    13,112 

 

   As of December 31, 
   2019(1)   2018(2)   2017(3)   2016(4)   2015(5) 
   (in thousands) 
Balance Sheet Data:                         
Cash and cash equivalents, marketable securities and restricted cash  $82,180   $103,939   $186,427   $270,383   $268,062 
Total current assets   97,247    119,276    203,311    287,830    287,257 
Working capital(7)   71,452    73,737    129,636    221,424    210,763 
Total assets(8)   172,957    207,978    302,493    394,301    386,038 
Long-term debt, less current portion(9)   320,611    319,187    317,763    316,339    37 
Accumulated deficit   (1,431,801)   (1,299,107)   (1,114,359)   (929,996)   (650,030)
Total stockholders’ (deficit) equity   (186,017)   (167,935)   (101,732)   (5,546)   292,669 

 

 

(1)In 2019, we had sales of 13.0 million shares of common stock resulting in net proceeds of approximately $98 million.
(2)In 2018, we had sales of 2.9 million shares of common stock resulting in net proceeds of approximately $100 million.
(3)In 2017, we had sales of 2.5 million shares of common stock resulting in net proceeds of approximately $63 million.
(4)In 2016, we issued $325 million aggregate principal amount of convertible senior unsecured notes resulting in net proceeds of approximately $315 million.
(5)In 2015, we had sales of 1.5 million shares of common stock resulting in net proceeds of approximately $204 million.
(6)All share and per share amounts have been retroactively restated for all periods presented to reflect the Reverse Stock Split (see Note 12 to the accompanying consolidated financial statements).
(7)Working capital is computed as the excess of current assets over current liabilities.
(8)In 2019, the Company adopted ASU 20160-02, Leases (Topic 842), in which the Company recorded right-of-use assets associated with its leases on the consolidated balance sheet (see Note 7 to the accompanying consolidated financial statements).
(9)Includes non-current portion of capital leases in 2015.

 

 36 

 

 

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Any statements in the discussion below and elsewhere in this Annual Report about expectations, beliefs, plans, objectives, assumptions or future events or performance of Novavax, Inc. (“Novavax,” and together with its wholly owned subsidiary Novavax AB, the “Company,” “we” or “us”) are not historical facts and are forward-looking statements. Such forward-looking statements include, without limitation, statements with respect to our capabilities, goals, expectations regarding future revenue and expense levels and capital raising activities, including possible proceeds from our March 2020 Sales Agreement (defined below); obligations under our Services Agreement (defined below) with Catalent Maryland, Inc. (formerly Paragon Bioservices, Inc.), a unit of Catalent Biologics (“Catalent”); potential market sizes and demand for our product candidates; the efficacy, safety and intended utilization of our product candidates; the development of our clinical-stage product candidates and our recombinant vaccine and adjuvant technologies; the development of our preclinical product candidates; the conduct, timing and potential results from clinical trials and other preclinical studies; plans for and potential timing of regulatory filings; our expectations with respect to the anticipated ongoing development and potential commercialization or licensure of ResVax; the expected timing and content of regulatory actions; payments by the Bill & Melinda Gates Foundation (“BMGF”); our available cash resources and usage and the availability of financing generally; expected future cash savings and expense reductions associated with the Catalent transaction; plans regarding partnering activities, business development initiatives; the adoption of stock incentive plans and amendments thereto; and other matters referenced herein. You generally can identify these forward-looking statements by the use of words or phrases such as “believe,” “may,” “could,” “will,” “would,” “possible,” “can,” “estimate,” “continue,” “ongoing,” “consider,” “anticipate,” “intend,” “seek,” “plan,” “project,” “expect,” “should,” “would,” or “assume” or the negative of these terms, or other comparable terminology, although not all forward-looking statements contain these words.

 

Forward-looking statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed or implied in the statements. Any or all of our forward-looking statements in this Annual Report may turn out to be inaccurate or materially different from actual results.

 

Because the risk factors discussed in this Annual Report and other risk factors of which we are not aware could cause actual results or outcomes to differ materially from those expressed or implied in any forward-looking statements made by or on behalf of us, you should not place undue reliance on any such forward-looking statements. These statements are subject to risks and uncertainties, known and unknown, which could cause actual results and developments to differ materially from those expressed or implied in such statements. We have included important factors that could cause results to differ in the cautionary statements included in this Annual Report, particularly those identified in Part I, Item 1A “Risk Factors” of this Annual Report. These and other risks may also be detailed and modified or updated in our reports and other documents filed with the Securities and Exchange Commission (“SEC”) from time to time. You are encouraged to read these filings as they are made.

 

We cannot guarantee future results, events, level of activity, performance or achievement. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

 

Overview

 

We are a late-stage biotechnology company that promotes improved global health through the discovery, development and commercialization of innovative vaccines to prevent serious infectious diseases. Our vaccine candidates, including our lead candidates, NanoFlu™ and ResVax™, 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 technology targets a variety of infectious diseases. We are also developing proprietary immune stimulating saponin-based adjuvants at Novavax AB, our wholly owned Swedish subsidiary. Our lead adjuvant, Matrix-M™, has been shown to enhance immune responses and has been well-tolerated in multiple clinical trials.

 

 37 

 

 

Product Pipeline

 

Program  Current
Development Stage
 
Seasonal Influenza     
·NanoFlu (Older Adults)(1)  Phase 3  
      
Respiratory Syncytial Virus (“RSV”)     
·ResVax(2) (Infants via Maternal Immunization)  Phase 3  
·Older Adults(1)  Phase 2  
·Pediatrics  Phase 1  
      
Combination Seasonal Influenza/RSV(1)  Preclinical  
      
Ebola Virus (“EBOV”)(1)  Phase 1  
    
Coronavirus (“COVID-19”)(1)  Preclinical  

 

(1) Includes Matrix-M adjuvant

(2) Supported by a grant of up to $89.1 million from BMGF

 

A summary and status of these vaccine programs follows:

 

Seasonal Influenza

 

NanoFlu Program (Older Adults)

 

Influenza is a world-wide infectious disease with serious illness generally occurring in more susceptible populations such as children under 18 years old 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). Recent flu seasons have shown an increase in the influenza disease burden. For the 2017-18 flu season, the Centers for Disease Control and Prevention estimates that influenza in the U.S. resulted in 48.8 million illnesses, 959,000 hospitalizations and 79,400 deaths, a dramatic increase across all categories compared to previous years.

 

In October 2019, we initiated a pivotal Phase 3 clinical trial of NanoFlu in older adults (65 years and older). This randomized, observer-blinded, active-controlled trial will evaluate the immunogenicity and safety of NanoFlu with its proprietary Matrix-M adjuvant, compared to a U.S.-licensed quadrivalent vaccine, Fluzone® Quadrivalent. The trial’s primary objective is to demonstrate non-inferior immunogenicity as measured by hemagglutination inhibition (“HAI”) titers of vaccine homologous influenza strains compared to a licensed seasonal vaccine, and to describe its safety profile. In October 2019, we completed enrollment of 2,652 healthy older adults across 19 clinical sites in the U.S. and we expect to report top-line clinical data by the end of the first quarter of 2020. Positive data will support a subsequent U.S. biologics license application (“BLA”) and licensure of NanoFlu using the U.S. Food and Drug Administration’s (“FDA”) accelerated approval pathway.

 

In January 2020, we announced that the FDA granted NanoFlu Fast Track designation, which is intended for products that treat serious or life-threatening diseases or conditions and that demonstrate the potential to address unmet medical needs for such diseases or conditions. The program is designed to facilitate development and expedite review of drugs to treat serious and life-threatening conditions so that approved products can reach the market expeditiously. Specifically, Fast Track designation facilitates meetings to discuss all aspects of development to support licensure and provides the opportunity to submit sections of a BLA on a rolling basis as data become available. This permits the FDA to review modules of the BLA as they are received instead of waiting for the entire BLA submission. In addition, priority review (six-month review versus standard 10-month review) is an additional benefit that may potentially be available for NanoFlu in the future.

 

 38 

 

 

In June 2019, we announced that the FDA acknowledged that the accelerated approval pathway is available for NanoFlu. An accelerated approval may be granted for certain biological products that have been studied for their safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit over existing treatments. Such an approval will be based on adequate and well-controlled clinical trials establishing that the biological product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit. For seasonal influenza vaccines, the HAI antibody response is considered an acceptable surrogate marker of activity that is reasonably likely to predict clinical benefit. To be considered for accelerated approval, a BLA for a new seasonal influenza vaccine should include results from one or more well-controlled studies designed to meet immunogenicity endpoints along with a commitment to conduct confirmatory post-marketing studies of clinical effectiveness in preventing influenza.

 

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 is our adjuvanted RSV F Vaccine for infants via maternal immunization. RSV is the most common cause of lower respiratory tract infections (“LRTI”) 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.

 

Data from our Prepare trial, which was initiated in December 2015, was announced in February 2019. The Prepare trial was conducted to determine whether ResVax reduced incidence of medically significant RSV-positive LRTI in infants through a minimum of the first 90 days of life and up through the first six months of life. While these data did not meet the trial’s primary efficacy endpoint, it did demonstrate efficacy against a secondary objective by reducing RSV LRTI hospitalizations in treated infants. ResVax is thus the first RSV vaccine to show efficacy in a Phase 3 clinical trial, and in addition, showed important effects against a variety of pre-specified exploratory endpoints and post-hoc analyses. This included a ~60% reduction in RSV-related severe hypoxemia and a ~74% reduction in RSV-related, radiographically-confirmed pneumonia through day 90. As in previous clinical trials, ResVax also showed favorable safety and tolerability results. In light of the fact that the trial failed to meet the primary endpoints, the FDA and European Medicines Agency (“EMA”) recommended that we conduct an additional Phase 3 clinical trial to confirm efficacy. BMGF has supported the Prepare trial for ResVax through a grant of up to $89.1 million; BMGF continues to financially support our efforts to conduct certain follow-on analyses of the Phase 3 data. We are currently in discussions with multiple potential commercial partners about the opportunity to bring ResVax to market globally, including assisting us with the regulatory licensure pathways in the U.S., the European Union and other geographies.

 

 39 

 

 

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. We followed up the 2016 Phase 3 clinical trial of our RSV F Vaccine, which failed to meet its pre-specified primary or secondary efficacy objectives, with a 2017 Phase 2 clinical trial in older adults, to assess 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 from the 2017 trial indicate that both adjuvants increase the magnitude, duration and quality of the immune response versus the non-adjuvanted RSV F Vaccine. We continue to assess 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. We continue to assess the development opportunities for our RSV F Vaccine for pediatrics.

 

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.

 

Ebola Virus

 

Ebola virus (“EBOV”) is a filovirus that produces severe, often fatal illness in humans. Within the last decade, it has produced two large outbreaks in Sub-Saharan Africa with high mortality. There are currently no licensed treatments proven to prevent EBOV, although a range of blood, immunological and drug therapies are under development.

 

We have developed an EBOV glycoprotein vaccine candidate (“Ebola GP Vaccine”) expressed in insect cells, using our core recombinant baculovirus technology. In five separate studies, carried out in collaboration with the National Institute of Allergy and Infectious Disease, active immunization with Ebola GP Vaccine was shown to be highly immunogenic and efficacious in preventing lethal disease in non-human primates challenged with EBOV. Our 2015 Phase 1 clinical trial demonstrated that our Ebola GP Vaccine is highly immunogenic in humans, well-tolerated and, in conjunction with our proprietary Matrix-M adjuvant, demonstrated marked antigen dose-sparing and induced significant increases in neutralizing antibody titers. While we intend to advance our Ebola GP Vaccine, doing so will be dependent upon funding or a partner.

 

Coronavirus

 

Coronaviruses (“CoV”), so named for their “crown-like” appearance, are a large family of viruses that spread from animals to humans and include diseases such as Middle East Respiratory Syndrome (“MERS”) and Severe Acute Respiratory Syndrome (“SARS”). Historically, we developed a vaccine candidate against MERS, a novel coronavirus first identified in 2012, as well as a vaccine candidate against SARS in 2005. In 2012, within weeks of obtaining the sequence of the circulating MERS strain, we successfully produced a vaccine candidate designed to provide protection. Our MERS candidate was based on the major surface spike protein, which we had previously identified as the antigen of choice in our work with our SARS vaccine candidate. In 2014, in collaboration with the University of Maryland, School of Medicine, we published results that showed our MERS and SARS vaccine candidates both blocked infection in laboratory studies.

 

 40 

 

 

Recently, a new strain of coronavirus (“COVID-19”) causing pneumonia-like symptoms has emerged in China, marking the beginning of a spread of the virus across the globe. Researchers have now confirmed that the virus can spread via human-to-human transmission. There are currently no licensed treatments proven to prevent COVID-19, although a range of vaccine candidates are under development. We have successfully produced a vaccine candidate designed to provide protection against COVID-19. Using our recombinant nanoparticle technology, we have generated antigen for our initial vaccine candidate derived from the coronavirus spike (S) protein. This vaccine candidate has been engineered from the genetic sequence of COVID-19 virus and binds efficiently with the same human receptors targeted by the virus, a critical aspect for effective vaccine protection. We intend to combine our proprietary Matrix-M adjuvant into our experimental vaccine candidate to potentially provide an additional immune response. We were recently awarded initial funding from the Coalition for Epidemic Preparedness Innovations (“CEPI”) to facilitate our development of a COVID-19 vaccine in preparation for potential future clinical trials. A subsequent CEPI award may be available to cover our program expenditures through Phase 1 clinical trial results.

 

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. CPLB is owned 20% by Novavax and 80% by Cadila.

 

Reverse Stock Split

 

On May 8, 2019, following stockholders approval at a Special Meeting earlier that day, we filed a Certificate of Amendment to our Second Amended and Restated Certificate of Incorporation with the Delaware Secretary of State to effect a reverse stock split of our issued and outstanding common stock, par value $0.01, at a ratio of 1-for-20 (the “Reverse Stock Split”), effective as of May 10, 2019. We have retroactively restated all per share and share amounts, including stock options and restricted stock awards, in this Annual Report for all periods presented to reflect the Reverse Stock Split.

 

Catalent Transaction

 

In July 2019, we closed a transaction under an asset purchase agreement (the “Purchase Agreement”) with Catalent, pursuant to which we sold to Catalent certain assets related to our biomanufacturing and development activities located at the facilities situated at each of 20 Firstfield Road in Gaithersburg, MD 20878 and 9920 Belward Campus Drive in Rockville, MD 20850, for a purchase price of (i) $18.0 million, including $1.5 million to be held in escrow for one year following the closing of the transaction, plus (ii) an additional fee to purchase laboratory supplies of approximately $0.3 million, subject to certain adjustments. Pursuant to the transactions contemplated by the Purchase Agreement, approximately 100 Novavax manufacturing and quality employees transferred to Catalent, and we assigned two facility leases to Catalent. We also entered into other ancillary agreements upon the closing of the transaction, including a Non-Commercial GMP Manufacturing Services Agreement pursuant to which we are required to purchase $6.0 million in certain services from Catalent set forth therein, through July 31, 2020. The transaction was treated as an asset disposition for accounting purposes. As a result of the transactions contemplated by the Purchase Agreement and related attrition since March 1, 2019, we have reduced our headcount by more than 200 employees. In 2019, we recorded a gain on the disposition of such assets of $9.0 million.

 

HHS BARDA Contract Close Out

 

In December 2019, we amended our contract with the Department of Health and Human Services, Biomedical Advanced Research and Development Authority (“HHS BARDA”) to close out the contract we were awarded by HHS BARDA in 2011. Pursuant to the amendment, HHS BARDA agreed to pay us $7.5 million for the recovery of additional costs under the contract relating to the close out of indirect rates for the remaining fiscal years 2013 through 2016. As a result of the amendment, we recorded revenue of $7.5 million in the fourth quarter of 2019. Payment was received in the first quarter of 2020.

 

Sales of Common Stock

 

In March 2020, we entered into an At Market Issuance Sales Agreement (“March 2020 Sales Agreement”), which allows us to issue and sell up to $150 million in gross proceeds of our common stock. From March 2 through March 6, 2020, we sold 1.5 million shares of common stock under the March 2020 Sales Agreement resulting in $18.6 million in net proceeds, leaving $131.1 million remaining.

 

 41 

 

 

In January 2020, we entered into an At Market Issuance Sales Agreement (“January 2020 Sales Agreement”), which allowed us to issue and sell up to $100 million in gross proceeds of our common stock. During the first quarter of 2020, we sold 10.5 million shares of common stock under the January 2020 Sales Agreement resulting in $98.7 million in net proceeds. The January 2020 Sales Agreement was fully utilized at that time.

 

In December 2018, we entered into an At Market Issuance Sales Agreement (“December 2018 Sales Agreement”), which allowed us to issue and sell up to $100 million in gross proceeds of our common stock. During 2019, we sold 10.5 million shares of common stock under the December 2018 Sales Agreement resulting in $59.5 million in net proceeds (this amount excludes $0.5 million received in the first quarter of 2020 for shares traded in late December 2019). In January 2020, we sold 7.2 million shares of common stock under the December 2018 Sales Agreement resulting in $38.5 million in net proceeds. The December 2018 Sales Agreement was fully utilized at that time.

 

Critical Accounting Policies and Use of Estimates

 

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States.

 

The preparation of our consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities and equity and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. These estimates, particularly estimates relating to accounting for revenue and long-lived assets have a material impact on our consolidated financial statements and are discussed in detail throughout our analysis of the results of operations discussed below.

 

We base our estimates on historical experience and various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets, liabilities and equity that are not readily apparent from other sources. Actual results and outcomes could differ from these estimates and assumptions.

 

Revenue

 

Our current revenue primarily consists of revenue under our Grant Agreement with BMGF. We are reimbursed for certain costs that support development activities, including our global Phase 3 clinical trial in pregnant women in their third trimester, product licensing efforts and efforts to obtain WHO prequalification of ResVax. The Grant Agreement does not provide a direct economic benefit to BMGF. Rather, we 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, we do not consider BMGF to be a customer and concluded the Grant Agreement is outside the scope of Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) (“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.

 

We 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, we considered a number of factors, including whether we are the principal under the arrangement, and whether the arrangement is significant to, and part of, our core operations. Further, we have consistently applied our policy of presenting such amounts as revenue.

 

For arrangements that are determined within the scope of Topic 606, we recognize revenue following the five-step model: (i) identify the contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to our customer. At contract inception, once the contract is determined to be within the scope of Topic 606, we assess the goods or services promised within each contract and determine the performance obligations, and assesses whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

 

 42 

 

 

We perform research and development under grant, license and clinical development agreements. Payments received in advance of work performed are recorded as deferred revenue.

 

Impairments of Long-Lived Assets

 

We account for the impairment of long-lived assets (including property and equipment and finite-lived intangible and right-of-use assets) by performing an evaluation of the recoverability of the carrying value of long-lived asset (group) whenever events or changes in circumstances indicate that the carrying value of the asset (group) may not be recoverable. Examples of events or changes in circumstances that indicate that the recoverability of the carrying value of an asset (group) should be assessed include, but are not limited to, the following: a significant decrease in the market value of an asset, a significant change in the extent or manner in which an asset is used, a significant physical change in an asset, a significant adverse change in legal factors or in the business climate that could affect the value of an asset, an adverse action or assessment by a regulator, an accumulation of costs significantly in excess of the amount originally expected to acquire or construct an asset, a current period operating or cash flow loss combined with a history of operating or cash flow losses and/or a projection or forecast that demonstrates continuing losses associated with an asset used for the purpose of producing revenue. We consider historical performance and anticipated future results in our evaluation of potential impairment. Accordingly, when indicators of impairment are present, we evaluate the carrying value of these assets (group) in relation to the operating performance of the business and future undiscounted cash flows expected to result from the use of these asset (groups). Impairment losses are recognized when the sum of expected future cash flows is less than the assets’ (group’s) carrying value.

 

Recent Accounting Pronouncements

 

See “Note 3―Summary of Significant Accounting Policies” included in our Notes to Consolidated Financial Statements (under the caption “Recent Accounting Pronouncements”).

 

Results of Operations for Fiscal Years 2019 and 2018

 

The following is a discussion of the historical financial condition and results of operations of Novavax, including Novavax AB’s operations, and should be read in conjunction with the consolidated financial statements and notes thereto set forth in this Annual Report. Additional information concerning factors that could cause actual results to differ materially from those in our forward-looking statements is described under Part I, Item 1A, “Risk Factors” of this Annual Report.

 

For our discussion of the year ended December 31, 2018, compared to the year ended December 31, 2017, please read Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations located in our 2018 Form 10-K.

 

Revenue:

 

   2019   2018   Change
2018 to
2019
 
Revenue (in thousands):               
Total revenue  $18,662   $34,288   ($15,626)

 

Revenue for 2019 was $18.7 million as compared to $34.3 million for 2018, a decrease of $15.6 million, or 46%. Revenue for 2019 and 2018 was primarily comprised of services performed under the Grant Agreement, the closeout of our HHS BARDA contract and, to a much lesser extent, revenue from Novavax AB. Revenue decreased under the Grant Agreement by $22.3 million as a result of completing enrollment of the Prepare trial in the second quarter of 2018, partially offset by $7.5 million in revenue for the recovery of additional costs under the HHS BARDA contract relating to the close out of indirect rates for the remaining fiscal years 2013 through 2016.

 

We expect revenue in 2020 to be significantly lower than in 2019 as the Prepare trial and our HHS BARDA contract have both concluded.

 

 43 

 

 

  

Expenses:

 

   2019   2018   Change
2018 to
2019
 
Expenses (in thousands):               
Research and development  $113,842   $173,797   $(59,955)
Gain on Catalent transaction   (9,016)       (9,016)
General and administrative   34,417    34,409    8 
Total expenses  $139,243   $208,206   $(68,963)

 

Research and Development Expenses

 

Research and development expenses include salaries, stock-based compensation, laboratory supplies, consultants and subcontractors, including external contract research organizations, and other expenses associated with our process development, manufacturing, clinical, regulatory and quality assurance activities for our programs. In addition, indirect costs such as fringe benefits and overhead expenses related to research and development activities, are also included in research and development expenses. Research and development expenses decreased to $113.8 million for 2019 from $173.8 million for 2018, a decrease of $60.0 million, or 34%. This decrease was primarily due to decreased development activities, including lower clinical trial costs, of ResVax, and lower employee-related costs and other cost savings due to the Catalent transaction, partially offset by our Phase 3 clinical trial of NanoFlu. At December 31, 2019, we had 127 employees dedicated to our research and development programs versus 324 employees as of December 31, 2018. For 2020, we expect research and development expenses overall to decrease primarily due to the completion of activities related to the conclusion of the Prepare trial and lower employee-related and other costs resulting from the Catalent transaction, partially offset by our Phase 3 clinical trial and development activities of NanoFlu.

 

Expenses by Functional Area

 

We track our research and development expenses by the type of costs incurred in identifying, developing, manufacturing and testing vaccine candidates. We evaluate and prioritize our activities according to functional area and therefore believe that project-by-project information would not form a reasonable basis for disclosure to our investors. Historically, we did not account for internal research and development expenses by project, since our employees’ work time was spread across multiple programs and our internal manufacturing clean-room facility produced multiple vaccine candidates.

 

 44 

 

 

The following summarizes our research and development expenses by functional area for the years ended December 31, 2019 and 2018 (in millions).

 

   2019   2018 
Manufacturing  $64.3   $79.7 
Vaccine Discovery   6.6    6.4 
Clinical and Regulatory   42.9    87.7 
Total research and development expenses  $113.8   $173.8 

 

We do not provide forward-looking estimates of costs and time to complete our research programs due to the many uncertainties associated with vaccine development. As we obtain data from preclinical studies and clinical trials, we may elect to discontinue or delay clinical trials in order to focus our resources on more promising vaccine candidates. Completion of clinical trials may take several years or more, but the length of time can vary substantially depending upon the phase, size of clinical trial, primary and secondary endpoints and the intended use of the vaccine candidate. The cost of clinical trials may vary significantly over the life of a project as a result of a variety of factors, including:

 

·the number of participants who participate in the clinical trials;

·the number of sites included in the clinical trials;

·if clinical trial locations are domestic, international or both;

·the time to enroll participants;

·the duration of treatment and follow-up;

·the safety and efficacy profile of the vaccine candidate; and

·the cost and timing of, and the ability to secure, regulatory approvals.

 

As a result of these uncertainties, we are unable to determine with any significant degree of certainty the duration and completion costs of our research and development projects or when, and to what extent, we will generate future cash flows from our research projects.

 

Gain on Catalent Transaction

 

As a result of the Catalent transaction (see discussion above), we recorded a gain of $9.0 million in 2019.

 

General and Administrative Expenses

 

General and administrative expenses were flat at $34.4 million. At December 31, 2019, we had 41 employees dedicated to general and administrative functions versus 50 employees as of December 31, 2018. For 2020, we expect general and administrative expenses to continue to be flat year-over-year.

 

Other Income (Expense):

 

   2019   2018   Change 
2018 to 
2019
 
Other Income (Expense) (in thousands):               
Investment income  $1,512   $2,674   $(1,162)
Interest expense   (13,612)   (13,612)    
Other income (expense)   (13)   108    (121)
Total other income (expense), net  $(12,113)  $(10,830)  $(1,283)

 

We had total other expense, net of $12.1 million for 2019 compared to total other expense, net of $10.8 million for 2018, an increase of $1.3 million. Our investment income decreased in 2019 as compared to 2018 due to lower marketable securities balances.

 

Net Loss:

 

   2019   2018   Change 
2018 to 
2019
 
Net Loss (in thousands, except per share information):               
Net loss  $(132,694)  $(184,748)  $52,054 
Net loss per share  $(5.51)  $(9.99)  $4.48 
Weighted average shares outstanding   24,100    18,488    5,612 

 

 45 

 

 

Net loss for 2019 was $132.7 million, or $5.51 per share, as compared to $184.7 million, or $9.99 per share, for 2018, a decrease of $52.1 million. The decrease in net loss was primarily due to decreased development activities, including lower clinical trial costs of ResVax, and the $9.0 million gain recorded on the Catalent transaction, partially offset by decreased revenue under the Grant Agreement.

 

The increase in weighted average shares outstanding for 2019 and 2018 is primarily a result of sales of our common stock in 2019 and 2018.

 

Liquidity Matters and Capital Resources

 

Our future capital requirements depend on numerous factors including, but not limited to, the commitments and progress of our research and development programs, the progress of preclinical and clinical testing, the time and costs involved in obtaining regulatory approvals, the costs of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights and manufacturing costs. We plan to continue to have multiple vaccines and product candidates in various stages of development, and we believe our operating expenses and capital requirements will fluctuate depending upon the timing of events, such as the scope, initiation, rate and progress of our preclinical studies and clinical trials and other research and development activities. We have primarily funded our operations with proceeds from the sale of common stock in equity offerings, the issuance of convertible debt and revenue under our Grant Agreement with BMGF.

 

As of December 31, 2018, we had $82.2 million in cash and cash equivalents, marketable securities and restricted cash as compared to $103.9 million as of December 31, 2018. These amounts consisted of $78.8 million in cash and cash equivalents and $3.4 million in restricted cash as of December 31, 2019 as compared to $70.2 million in cash and cash equivalents, $22.0 million in marketable securities and $11.8 million in restricted cash as of December 31, 2018.

 

The following table summarizes cash flows for 2019 and 2018:

 

   2019   2018   Change 
2018 to
 2019
 
Summary of Cash Flows (in thousands):               
Net cash (used in) provided by:               
Operating activities  $(136,623)  $(184,825)  $48,202 
Investing activities   38,492    28,596    9,896 
Financing activities   98,384    102,805    (4,421)
Effect on exchange rate on cash, cash equivalents and restricted cash..   (32)   (48)   16 
Net increase (decrease) in cash, cash equivalents and restricted cash   221    (53,472)   53,693 
Cash, cash equivalents and restricted cash at beginning of year   81,959    135,431    (53,472)
Cash, cash equivalents and restricted cash at end of year  $82,180   $81,959   $221 

 

Net cash used in operating activities decreased to $136.6 million for 2019, as compared to $184.8 million for 2018. The decrease in cash usage is primarily due to decreased development activities, including lower clinical trial costs, of ResVax in 2019 as compared to 2018, $9.3 million of one-time payments made in 2018 that included our lease termination fee and a milestone payment to Wyeth Holdings LLC and reduced bonus payouts in the first quarter of 2019 as compared to the same period in 2018, partially offset by receipt of a $15 million payment under the Grant Agreement with BMGF in 2018.

 

During 2019 and 2018, our investing activities consisted primarily of purchases and maturities of marketable securities, $18.3 million in proceeds from the Catalent transaction in 2019. In 2020, we expect our capital expenditures to slightly increase due to development activities related to NanoFlu.

 

Our financing activities consisted primarily of sales of our common stock under our At Market Issuance Sales Agreements and, to a much lesser extent, stock option exercises and purchases under our employee stock purchase plan. In 2019, we received net proceeds of $97.4 million (this amount excludes $0.5 million received in the first quarter of 2020 for shares traded in late December 2019) from selling shares of common stock through our At Market Issuance Sales Agreements. During the first quarter of 2020, we received approximately $156 million in net proceeds from selling shares of common stock under our At Market Issuance Sales Agreements. In 2018, we completed a public offering of our common stock resulting in net proceeds of approximately $54 million and received net proceeds of $46.2 million from selling shares of common stock through our At Market Issuance Sales Agreements.

 

 46 

 

 

Based on our most recent cash flow forecast, we believe our current capital is sufficient to fund our operating plans for a minimum of twelve months from the date that this Annual Report was filed. Additional capital may be required in the future to develop our vaccine candidates through clinical development, manufacturing and commercialization.

 

Our ability to fund the Company’s 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. 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 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 additional capital, we will assess the Company’s capital resources and may be required to delay, reduce the scope of or eliminate one or more of our research and development programs, and/or downsize our organization.

 

Contractual Obligations

 

The following table summarizes our contractual obligations as of December 31, 2019 (in thousands):

 

Contractual Obligations:  Total   Less than 
One Year
   1 – 3
Years
   3 – 5
Years
   More than
5 Years
 
Operating leases  $17,649   $2,927   $6,054   $4,843   $3,825 
Convertible notes payable   325,000            325,000     
Total contractual obligations  $342,649   $2,927   $6,054   $329,843   $3,825 

 

See Note 11 to the consolidated financial statements included in the Annual Report regarding our convertible notes payable, which will mature on February 1, 2023, and bear cash interest of 3.75%, payable February 1 and August 1 of each year.

 

Off-Balance Sheet Arrangements

 

We are not involved in any off-balance sheet agreements that have or are reasonably likely to have a material future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

Item 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The primary objective of our investment activities is preservation of capital, with the secondary objective of maximizing income. As of December 31, 2019, we had cash and cash equivalents of $78.8 million, $3.4 million in restricted cash and working capital of $71.5 million.

 

Our exposure to market risk is primarily confined to our investment portfolio. As of December 31, 2019, our investments were classified as available-for-sale. We do not believe that a change in the market rates of interest would have any significant impact on the realizable value of our investment portfolio. Changes in interest rates may affect the investment income we earn on our marketable securities when they mature and the proceeds are reinvested into new marketable securities and, therefore, could impact our cash flows and results of operations.

 

Interest and dividend income is recorded when earned and included in investment income. Premiums and discounts, if any, on marketable securities are amortized or accreted to maturity and included in investment income. The specific identification method is used in computing realized gains and losses on the sale of our securities.

 

We are headquartered in the U.S. where we conduct the vast majority of our business activities. We have one foreign consolidated subsidiary, Novavax AB, which is located in Sweden. A 10% decline in the exchange rate between the U.S. dollar and Swedish Krona would result in a decline of stockholders’ deficit of approximately $2.4 million at December 31, 2019.

 

Our Notes have a fixed interest rate and we have no additional material debt. As such, we do not believe that we are exposed to any material interest rate risk as a result of our borrowing activities.

 

 47 

 

 

  Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

The information required by this item is set forth on pages F-1 to F-25.

 

Item 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

  

  Item 9A. CONTROLS AND PROCEDURES

  

Evaluation of Disclosure Controls and Procedures

 

The term “disclosure controls and procedures” (defined in SEC Rule 13a-15(e)) refers to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported, within time periods specified in the rules and forms of the Securities and Exchange Commission. “Disclosure controls and procedures” include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

The Company’s management, with the participation of the chief executive officer and the chief financial officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this Annual Report (the “Evaluation Date”). Based on that evaluation, the Company’s chief executive officer and chief financial officer have concluded that, as of the Evaluation Date, such controls and procedures were effective at the reasonable assurance level.

 

Management’s Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act, as a process designed by, or under the supervision of, the Company’s principal executive officer and principal financial officer and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States (“GAAP”). Such internal control includes those policies and procedures that:

 

·pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

·provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

·provide reasonable assurance regarding prevention or timely detection of an unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2019. In making this assessment, our management used the criteria set forth in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its assessment, our management has determined that, as of December 31, 2019, our internal controls over financial reporting are effective based on those criteria.

 

Ernst & Young LLP has issued a report on our internal control over financial reporting. This report is included in the Reports of Independent Registered Public Accounting Firm in Item 15.(a)(1).

 

 48 

 

 

Changes in Internal Control over Financial Reporting

 

Our management, including our chief executive officer and chief financial officer, has evaluated any changes in our internal control over financial reporting that occurred during the quarterly period ended December 31, 2019, and has concluded that there was no change that occurred during the quarterly period ended December 31, 2019 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B.OTHER INFORMATION

 

None.

 

PART III

 

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

The information required by this item is incorporated by reference from our definitive Proxy Statement for our 2020 Annual Meeting of Stockholders scheduled to be held in June 2020 (the “2020 Proxy Statement”). We expect to file the 2020 Proxy Statement within 120 days after the close of the fiscal year ended December 31, 2019.

 

Item 11.EXECUTIVE COMPENSATION

 

We incorporate herein by reference the information required by this item concerning executive compensation to be contained in the 2020 Proxy Statement.

 

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

  

We incorporate herein by reference the information required by this item concerning security ownership of certain beneficial owners and management and related stockholder matters to be contained in the 2020 Proxy Statement.

 

The following table provides our equity compensation plan information as of December 31, 2019. Under these plans, our common stock may be issued upon the exercise of stock options and purchases under our Employee Stock Purchase Plan (“ESPP”). See also the information regarding our stock options and ESPP in Note 13 to the consolidated financial statements included herewith.

 

 49 

 

 

Equity Compensation Plan Information

 

Plan Category 

Number of Securities
to be Issued
Upon Exercise of
Outstanding Options,
Warrants and Rights

(a)

  Weighted-Average
Exercise Price of
Outstanding
Options, Warrants
and Rights
(b)
 

Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a))

(c)

Equity compensation plans approved by security holders(1)  4,992,792  $39.32  520,054
Equity compensation plans not approved by security holders  N/A  N/A   N/A

 

(1)Includes our 2015 Stock Incentive Plan, 2005 Stock Incentive Plan and ESPP. The weighted-average exercise price in column (b) excludes restricted stock units, which are not subject to an exercise price.

 

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

  

We incorporate herein by reference the information required by this item concerning certain related party transactions set forth in Note 16 to our consolidated financial statements included herewith. We incorporate herein by reference other information required by this item concerning certain other relationships and related transactions and director independence to be contained in the 2020 Proxy Statement.

 

Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

  

We incorporate herein by reference the information required by this item concerning principal accountant fees and services to be contained in the 2020 Proxy Statement.

 

PART IV

 

Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

(a)The following documents are filed as part of the Annual Report:

 

(1)Index to Financial Statements

 

Reports of Independent Registered Public Accounting Firm  F-2
Consolidated Balance Sheets as of December 31, 2019 and 2018  F-4
Consolidated Statements of Operations and Statements of Comprehensive Loss for the years ended December 31, 2019, 2018 and 2017  F-5
Consolidated Statements of Stockholders’ Deficit for the years ended December 31, 2019, 2018 and 2017  F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017  F-7
Notes to Consolidated Financial Statements  F-8

 

(2)Financial Statement Schedules

 

Financial statement schedules are omitted because they are not applicable, not required under the instructions or all the information required is set forth in the financial statements or notes thereto.

 

(3)Exhibits

 

Exhibits marked with a single asterisk (*) are filed herewith.

 

Exhibits marked with a double plus sign (††) refer to management contracts, compensatory plans or arrangements.

 

Confidential treatment has been granted for portions of exhibits marked with a double asterisk (**).

 

 50 

 

 

Confidential information contained in exhibits marked with a caret (^) has been omitted because it (i) is not material and/or (ii) would be competitively harmful if publically disclosed.

 

All other exhibits listed have previously been filed with the SEC and are incorporated herein by reference.

 

Exhibit
Number
  Description
     
3.1   Second Amended and Restated Certificate of Incorporation of the Registrant (Incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, filed on August 10, 2015 (File No. 000-26770))
     
3.2   Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation of the Registrant (Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on May 9, 2019 (File No. 000-26770))
     
3.3   Amended and Restated By-Laws of the Registrant (Incorporated by reference to Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012, filed on March 12, 2013 (File No. 000-26770))
     
4.1   Specimen stock certificate for shares of common stock of the Registrant, par value $.01 per share (Incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form S-3, filed on December 31, 2019 (File No. 333-235761))
     
4.2   Indenture (including form of Notes) with respect to Novavax, Inc.’s 3.75% Convertible Senior Notes due 2023, dated as of January 29, 2016, between Novavax, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee (Incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed on January 29, 2016 (File No. 000-26770))
     
4.3*   Description of Registrant’s Securities
     
10.1††   Novavax, Inc. Amended and Restated 2005 Stock Incentive Plan (Incorporated by reference to Exhibit 10.2 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012, filed on March 12, 2013 (File No. 000-26770))
     
10.2††   Amendment to Amended and Restated 2005 Stock Incentive Plan (Incorporated by reference to Appendix 1 of the Registrant’s Definitive Proxy Statement filed on April 30, 2014 in connection with the Annual Meeting held on June 12, 2014 (File No. 000-26770))
     
10.3††   Form of Non-Statutory Stock Option Award Agreement granted under the Novavax, Inc. Amended and Restated 2005 Stock Incentive Plan (Incorporated by reference to Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014, filed on February 27, 2015 (File No. 000-26770))
     
10.4††   Form of Incentive Stock Option Award Agreement granted under the Novavax, Inc. Amended and Restated 2005 Stock Incentive Plan (Incorporated by reference to Exhibit 10.5 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014, filed on February 27, 2015 (File No. 000-26770))
     
10.5††   Amended and Restated 2013 Employee Stock Purchase Plan (Incorporated by reference to Appendix B to the Registrant’s Definitive Proxy Statement filed on May 16, 2019 in connection with the Annual Meeting held on June 28, 2019 (File No. 000-26770))
     
10.6††   Amended and Restated Novavax, Inc. 2015 Stock Incentive Plan (Incorporated by reference to Appendix A of the Registrant’s Definitive Proxy Statement filed on May 16, 2019 in connection with the Annual Meeting held on June 28, 2019 (File No. 000-26770))
     
10.7††   Form of Non-Statutory Stock Option Award Agreement granted under the Novavax, Inc. 2015 Stock Incentive Plan (Incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, filed on August 10, 2015 (File No. 000-26770))

 

 51 

 

 

10.8††   Form of Incentive Stock Option Award Agreement granted under the Novavax, Inc. 2015 Stock Incentive Plan (Incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, filed on August 10, 2015 (File No. 000-26770))
     
10.9††   Form of Incentive Stock Option Award Agreement granted under the Novavax, Inc. Amended and Restated 2015 Stock Incentive Plan (Incorporated by reference to Exhibit 10.9 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2016, filed on February 27, 2017 (File No. 000-26770))
     
10.10††   Form of Incentive Stock Option Agreement granted under the Amended and Restated Novavax, Inc. 2015 Stock Incentive Plan (Performance- and Time-Based Vesting) (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on November 16, 2016 (File No. 000-26770))
     
10.11††   Form of Restricted Stock Award Agreement granted under the Novavax, Inc. 2015 Stock Incentive Plan (Incorporated by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, filed on August 10, 2015 (File No. 000-26770))
     
10.12††   Form of Restricted Stock Unit Agreement granted under the Novavax, Inc. Amended and Restated 2015 Stock Incentive Plan (Incorporated by reference to Exhibit 10.12 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2019, filed on March 18, 2019 (File No. 000-26770))
     
10.13††   Form of Stock Appreciation Right Award Agreement granted under the Novavax, Inc. Amended and Restated 2015 Stock Incentive Plan (Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, filed on November 7, 2019  (File No. 000-26770))
     
10.14††   Form of Director Deferred Fee Agreement (Incorporated by reference to Exhibit 10.10 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2015, filed on February 29, 2016 (File No. 000-26770))
     
10.15††   Employment Agreement between Novavax, Inc. and Stanley C. Erck, dated as of June 22, 2011 (Incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, filed on August 9, 2011 (File No. 000-26770))
     
10.16††   Employment Agreement between Novavax, Inc. and Gregory M. Glenn dated July 1, 2010 (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on July 6, 2010 (File No. 000-26770))
     
10.17††   Employment Agreement between Novavax, Inc. and John A. Herrmann dated April 1, 2012 (Incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, filed on May 5, 2016 (File No. 000-26770))
     
10.18††   Employment Agreement between Novavax, Inc. and John J. Trizzino dated March 3, 2014 (Incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, filed on May 5, 2016 (File No. 000-26770))
     
10.19††   Novavax, Inc. Amended and Restated Change in Control Severance Benefit Plan (Incorporated by reference to Exhibit 10.18 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2016, filed on February 27, 2017 (File No. 000-26770))
     
10.20††   Form of Indemnification Agreement entered into between the Registrant and its directors and officers  (Incorporated by reference to Exhibit 10.19 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2009, filed on March 16, 2010 (File No. 000-26770))
     
10.21   Lease Agreement for space at 9920 Belward Campus Drive between GP Rock One, LLC and Novavax, Inc., dated as of May 7, 2007 (Incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008, filed on August 11, 2008 (File No. 000-26770))

 

 52 

 

 

10.22   First Amendment to Lease Agreement for space at 9920 Belward Campus Drive between BMR-9920 Belward Campus Q, LLC (formerly GP Rock One, LLC) and Novavax, Inc., dated as of May 30, 2008 (Incorporated by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008, filed on August 11, 2008 (File No. 000-26770))
     
10.23   Second Amendment to Lease Agreement for space at 9920 Belward Campus Drive between BMR-9920 Belward Campus Q, LLC (formerly GP Rock One, LLC) and Novavax, Inc., dated as of June 26, 2008 (Incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008, filed on August 11, 2008 (File No. 000-26770))
     
10.24   Third Amendment to Lease Agreement for space at 9920 Belward Campus Drive between BMR-9920 Belward Campus Drive, LLC (formerly GP Rock One, LLC) and Novavax, Inc., dated February 29, 2016 (Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, filed on May 5, 2016 (File No. 000-26770))
     
10.25   Fourth Amendment to Lease Agreement for space at 9920 Belward Campus Drive between BMR-9920 Belward Campus Drive, LLC (formerly GP Rock One, LLC) and Novavax, Inc., dated March 31, 2017 (Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, filed on May 8, 2017 (File No. 000-26770))
     
10.26   Fifth Amendment to Lease Agreement for space at 9920 Belward Campus Drive between ARE-MARYLAND NO. 46, LLC and Novavax, Inc., dated January 16, 2019 (Incorporated by reference to Exhibit 10.25 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2019, filed on March 18, 2019 (File No. 000-26770))
     
10.27   Acknowledgment of Exercise of Second Extension Term Option and Second Extension Term Commencement Date for space at 9920 Belward Campus Drive between ARE-MARYLAND NO. 46, LLC and Novavax, Inc., dated April 26, 2019 (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on May 2, 2019 (File No. 000-26770))
     
10.28   Lease Agreement for space at 20 Firstfield Road between ARE-20/22/1300 Firstfield Quince Orchard, LLC and Novavax, Inc., dated as of November 18, 2011 (Incorporated by reference to Exhibit 10.23 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011, filed on March 14, 2012 (File No. 000-26770))
     
10.29   Lease Agreement for space at 22 Firstfield Road between ARE-20/22/1300 Firstfield Quince Orchard, LLC and Novavax, Inc., dated as of November 18, 2011 (Incorporated by reference to Exhibit 10.25 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011, filed on March 14, 2012 (File No. 000-26770))
     
10.30   Deed of Lease for space at 21 Firstfield Road between Firstfield Holdco, LLC and Novavax, Inc., dated as of February 4, 2015 (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on August 21, 2015 (File No. 000-26770))
     
10.31   First Amendment to Deed of Lease for space at 21 Firstfield Road between Firstfield Holdco, LLC and Novavax, Inc., dated as of August 17, 2015 (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed on August 21, 2015 (File No. 000-26770))
     
10.32   Second Amendment to Deed of Lease for space at 21 Firstfield Road between BMR-Firstfield LLC (formerly Firstfield Holdco, LLC) and Novavax, Inc., dated as of March 31, 2017 (Incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, filed on May 8, 2017 (File No. 000-26770))
     
10.33   Deed of Lease for space at 1201 Clopper Road between IP9 1201 Clopper Road, LLC and Novavax, Inc., dated May 3, 2016 (Incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, filed on May 5, 2016 (File No. 000-26770))
     
10.34   First Amendment to Deed of Lease for space at 1201 Clopper Road between IP9 1201 Clopper Road, LLC and Novavax, Inc., dated August 23, 2017 (Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, filed on November 7, 2017 (File No. 000-26770))

 

 53 

 

 

10.35**   Contract, effective as of February 24, 2011, between Novavax, Inc. and HHS/OS/ASPR/BARDA (Incorporated by reference to Exhibit 10.1 to the Registrant’s Amendment No. 1 to the Registrant’s Quarterly Report on Form 10-Q/A for the quarter ended on March 31, 2011, filed on November 4, 2011 (File No. 000-26770))
     
10.36**   Contract Amendment/Modification No. 5 between Novavax, Inc. and HHS/OS/ASPR/BARDA, dated February 21, 2014 (Incorporated by reference to Exhibit 10.25 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013, filed on March 12, 2014 (File No. 000-26770))
     
10.37**   Contract Amendment/Modification No. 6 between Novavax, Inc. and HHS/OS/ASPR/BARDA, dated September 22, 2014 (Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, filed on November 6, 2014 (File No. 000-26770))
     
10.38**   Contract Amendment/Modification No. 8 between Novavax, Inc. and HHS/OS/ASPR/BARDA, dated June 5, 2015 (Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, filed on August 10, 2015 (File No. 000-26770))
     
10.39**   Second Amended and Restated Joint Venture Agreement between Novavax, Inc. and Cadila Pharmaceuticals Limited, dated as of July 17, 2018 (Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, filed on November 7, 2018 (File No. 000-26770))
     
10.40**   Second Amended and Restated Novavax Product License Agreement between Novavax, Inc. and CPL Biologicals Private Limited, dated as of July 17, 2018 (Incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, filed on November 7, 2018 (File No. 000-26770))
     
10.41**   Grant Agreement between Bill & Melinda Gates Foundation and Novavax, Inc., dated as of September 25, 2015 (Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, filed on November 9, 2015 (File No. 000-26770))
     
10.42**   Global Access Commitments Agreement between Bill & Melinda Gates Foundation and Novavax, Inc., dated as of September 25, 2015 (Incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, filed on November 9, 2015 (File No. 000-26770))
     
10.43^   Asset Purchase Agreement between Novavax, Inc. and Paragon Bioservices, Inc., dated June 26, 2019 (Incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, filed on August 7, 2019 (File No. 000-26770))
     
10.44   Base Call Option Transaction Confirmation, dated as of January 25, 2016, between Novavax and JPMorgan Chase Bank, National Association, London Branch (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on January 29, 2016 (File No. 000-26770))
     
10.45   Base Call Option Transaction Confirmation, dated as of January 25, 2016, between Novavax and Morgan Stanley & Co. LLC (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed on January 29, 2016 (File No. 000-26770))
     
10.46   Additional Base Call Option Transaction Confirmation, dated as of February 2, 2016, between Novavax and JPMorgan Chase Bank, National Association, London Branch (Incorporated by reference to Exhibit 10.51 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2015, filed on February 29, 2016 (File No. 000-26770))
     
10.47   Additional Base Call Option Transaction Confirmation, dated as of February 2, 2016, between Novavax and Morgan Stanley & Co. LLC (Incorporated by reference to Exhibit 10.52 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2015, filed on February 29, 2016 (File No. 000-26770))
     
14   Code of Business Conduct and Ethics (Incorporated by reference to Exhibit 14 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, filed on August 9, 2011 (File No. 000-26770))

 

 54 

 

 

21*   Subsidiaries of the Registrant
     
23.1*   Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm
     
31.1*   Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(e) of the Securities Exchange Act
     
31.2*   Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(e) of the Securities Exchange Act  
     
32.1*   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
32.2*   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
101   The following financial information from our Annual Report on Form 10-K for the year ended December 31, 2019, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets as of December 31, 2019 and 2018, (ii) the Consolidated Statements of Operations for the three years in the period ended December 31, 2019, (iii) the Consolidated Statements of Comprehensive Loss for the three years in the period ended December 31, 2019, (iv) the Consolidated Statements of Changes in Stockholders’ Deficit for the three years in the period ended December 31, 2019, (v) the Consolidated Statements of Cash Flows for the three years in the period ended December 31, 2019, and (vi) the Notes to Consolidated Financial Statements.

 

  Item 16. FORM 10-K SUMMARY

 

Not applicable.

 

 55 

 

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  NOVAVAX, INC.
   
  By:    /s/ Stanley C. Erck
    Stanley C. Erck
    President and Chief Executive Officer

 

Date: March 11, 2020

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

 

Name   Title   Date
         
/s/ Stanley C. Erck   President and Chief Executive Officer and Director (Principal Executive Officer)   March 11, 2020
Stanley C. Erck      
         
/s/ John J. Trizzino   Senior Vice President, Chief Business Officer, Chief Financial Officer and Treasurer   March 11, 2020
John J. Trizzino   (Principal Financial and Principal Accounting Officer)    
         
/s/ James F. Young   Chairman of the Board of Directors   March 11, 2020
James F. Young        
         
/s/ Richard H. Douglas   Director   March 11, 2020
Richard H. Douglas        
         
/s/ Gary C. Evans   Director   March 11, 2020
Gary C. Evans        
         
/s/ Rachel K. King   Director   March 11, 2020
Rachel K. King        
         
/s/ Michael A. McManus   Director   March 11, 2020
Michael A. McManus        
         
/s/ Rajiv I. Modi   Director   March 11, 2020
Rajiv I. Modi        

 

 56 

 

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2019, 2018 and 2017

 

Contents

 

Reports of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheets as of December 31, 2019 and 2018 F-4
Consolidated Statements of Operations and Statements of Comprehensive Loss for the years ended December 31, 2019, 2018 and 2017 F-5
Consolidated Statements of Changes in Stockholders’ Deficit for the years ended December 31, 2019, 2018 and 2017 F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017 F-7
Notes to Consolidated Financial Statements F-8

 

 F-1 

 

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and Stockholders of

Novavax, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Novavax, Inc. (the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive loss, changes in stockholders’ deficit, and cash flows for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 11, 2020 expressed an unqualified opinion thereon.

 

Adoption of ASU 2016-02

 

As discussed in Note 3 to the consolidated financial statements, the Company changed its method of accounting for leases in 2019 due to the adoption of ASU 2016-02, Leases (Topic 842).

 

Basis for Opinion

 

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ Ernst & Young LLP

 

We have served as the Company’s auditor since 2014.

 

Tysons, Virginia

March 11, 2020

 

 F-2 

 

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and Stockholders of

Novavax, Inc.

 

Opinion on Internal Control over Financial Reporting

 

We have audited Novavax, Inc.’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Novavax, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive loss, changes in stockholders’ deficit, and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and our report dated March 11, 2020 expressed an unqualified opinion thereon.

 

Basis for Opinion

 

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting included in Item 9A. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

 

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

 

Definition and Limitations of Internal Control Over Financial Reporting

 

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

/s/ Ernst & Young LLP

 

Tysons, Virginia

March 11, 2020

 

 F-3 

 

 

 

NOVAVAX, INC.

 

CONSOLIDATED BALANCE SHEETS

 

   December 31, 
   2019   2018 
   (in thousands, except share and
per share information)
 
ASSETS 
Current assets:          
Cash and cash equivalents  $78,823   $70,154 
Marketable securities       21,980 
Restricted cash   2,947    10,847 
Accounts receivable   7,500     
Prepaid expenses and other current assets   7,977    16,295 
Total current assets   97,247    119,276 
Restricted cash   410    958 
Property and equipment, net   11,445    28,426 
Intangible assets, net   5,581    6,541 
Goodwill   51,154    51,967 
Other non-current assets   7,120    810 
Total assets  $172,957   $207,978 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT 
Current liabilities:          
Accounts payable  $2,910   $9,301 
Accrued expenses   14,867    19,550 
Accrued interest   5,078    5,078 
Deferred revenue   1,678    10,010 
Other current liabilities   1,262    1,600 
Total current liabilities   25,795    45,539 
Deferred revenue   2,500    2,500 
Convertible notes payable   320,611    319,187 
Other non-current liabilities   10,068    8,687 
Total liabilities   358,974    375,913 
           
Commitments and contingencies          
           
Stockholders’ deficit:          
Preferred stock, $0.01 par value, 2,000,000 shares authorized; no shares issued and outstanding at December 31, 2019 and 2018        
Common stock, $0.01 par value, 600,000,000 shares authorized at December 31, 2019 and 2018; and 32,399,352 shares issued and 32,352,416 shares outstanding at December 31, 2019 and 19,245,302 shares issued and 19,222,410 shares outstanding at December 31, 2018   324    192 
Additional paid-in capital   1,260,551    1,144,621 
Accumulated deficit   (1,431,801)   (1,299,107)
Treasury stock, 46,936 shares, cost basis at December 31, 2019 and 22,892 shares, cost basis at December 31, 2018   (2,583)   (2,450)
Accumulated other comprehensive loss   (12,508)   (11,191)
Total stockholders’ deficit   (186,017)   (167,935)
Total liabilities and stockholders’ deficit  $172,957   $207,978 

 

The accompanying notes are an integral part of these financial statements.

 

 F-4 

 

 

NOVAVAX, INC.

 

CONSOLIDATED STATEMENTS OF OPERATIONS

 

   Year Ended December 31, 
   2019   2018   2017 
   (in thousands, except per share information) 
Revenue:            
Government contract  $7,500   $   $ 
Grant and other   11,162    34,288    31,176 
Total revenue   18,662    34,288    31,176 
                
Expenses:               
Research and development   113,842    173,797    168,435 
Gain on Catalent transaction   (9,016)        
General and administrative   34,417    34,409    34,451 
Total expenses   139,243    208,206    202,886 
Loss from operations   (120,581)   (173,918)   (171,710)
Other income (expense):               
Investment income   1,512    2,674    1,946 
Interest expense   (13,612)   (13,612)   (14,072)
Other income (expense)   (13)   108    67 
Net loss  $(132,694)  $(184,748)  $(183,769)
                
Basic and diluted net loss per share  $(5.51)  $(9.99)  $(12.56)
                
Basic and diluted weighted average number of common shares outstanding   24,100    18,488    14,633 

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

 

   Year Ended December 31, 
   2019   2018   2017 
   (in thousands) 
Net loss  $(132,694)  $(184,748)  $(183,769)
Other comprehensive income (loss):               
Net unrealized gains (losses) on marketable securities available-for-sale   5    12    (50)
Foreign currency translation adjustment   (1,322)   (2,586)   3,247 
Other comprehensive income (loss)   (1,317)   (2,574)   3,197 
Comprehensive loss  $(134,011)  $(187,322)  $(180,572)

 

The accompanying notes are an integral part of these financial statements.

 

 F-5 

 

 

 

NOVAVAX, INC.

 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
Year Ended December 31, 2019, 2018 and 2017

 

                       Accumulated     
           Additional           Other   Total 
   Common Stock   Paid-in   Accumulated   Treasury   Comprehensive   Stockholders’ 
   Shares   Amount   Capital   Deficit   Stock   Income(Loss)   Deficit 
  (in thousands, except share information)   
Balance at December 31, 2016   13,585,070   $136   $938,578   $(929,996)  $(2,450)  $(11,814)  $(5,546)
Cumulative effect of adoption of ASU 2016-09           594    (594)            
Non-cash compensation cost for stock options, ESPP and restricted stock           19,809                19,809 
Exercise of stock options/Purchases under ESPP   54,676    1    1,151                1,152 
Issuance of common stock, net of issuance costs of $1,065   2,544,495    25    63,400                63,425 
Unrealized loss on marketable securities                       (50)   (50)
Foreign currency translation adjustment                       3,247    3,247 
Net loss               (183,769)           (183,769)
Balance at December 31, 2017   16,184,241    162    1,023,532    (1,114,359)   (2,450)   (8,617)   (101,732)
Non-cash compensation cost for stock options, ESPP and restricted stock           18,314                18,314 
Exercise of stock options/Purchases under ESPP   120,561    1    2,744                2,745 
Restricted stock cancelled   (938)                        
Issuance of common stock, net of issuance costs of $4,265   2,941,438    29    100,031                100,060 
Unrealized gain on marketable securities                       12    12 
Foreign currency translation adjustment                       (2,586)   (2,586)
Net loss               (184,748)           (184,748)
Balance at December 31, 2018   19,245,302    192    1,144,621    (1,299,107)   (2,450)   (11,191)   (167,935)
Non-cash compensation cost for stock options, RSUs, SARs and ESPP           17,048                17,048 
Exercise of stock options/Vesting of RSUs/Purchases under ESPP   173,873    2    1,122        (132)       992 
Fractional shares purchased in stock split                   (1)       (1)
Issuance of common stock, net of issuance costs of $1,655   12,980,177    130    97,760                97,890 
Unrealized gain on marketable securities                       5    5 
Foreign currency translation adjustment                       (1,322)   (1,322)
Net loss               (132,694)           (132,694)
Balance at December 31, 2019   32,399,352   $324   $1,260,551   $(1,431,801)  $(2,583)  $(12,508)  $(186,017)

 

The accompanying notes are an integral part of these financial statements.

 

 F-6 

 

 

NOVAVAX, INC.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   Year Ended December 31, 
   2019   2018   2017 
   (in thousands) 
Operating Activities:               
Net loss  $(132,694)  $(184,748)  $(183,769)
Reconciliation of net loss to net cash used in operating activities:               
Depreciation and amortization   5,676    8,159    9,817 
Loss (Gain) on disposal of property and equipment   88    (55)   269 
Gain on Catalent transaction   (9,016)        
Non-cash impact of lease termination       (4,381)    
Amortization of debt issuance costs   1,424    1,424    1,424 
Lease incentives received           1,933 
Non-cash stock-based compensation   17,048    18,314    19,809 
Other   4,869    (2,396)   2,715 
Changes in operating assets and liabilities:               
Prepaid expenses and other assets   (4,202)   1,212    2,590 
Accounts payable and accrued expenses   (11,485)   (6,744)   5,192 
Deferred revenue   (8,331)   (15,610)   (4,456)
Net cash used in operating activities   (136,623)   (184,825)   (144,476)
Investing Activities:               
Capital expenditures   (1,857)   (1,372)   (4,189)
Proceeds from Catalent transaction   18,333         
Purchases of marketable securities   (17,484)   (120,150)   (218,045)
Proceeds from maturities of marketable securities   39,500    150,118    258,202 
Net cash provided by investing activities   38,492    28,596    35,968 
Financing Activities:               
Principal payments of capital leases           (37)
Net proceeds from sales of common stock   97,392    100,060    63,425 
Proceeds from the exercise of stock options and employee stock purchases   992    2,745    1,152 
Net cash provided by financing activities   98,384    102,805    64,540 
Effect of exchange rate on cash, cash equivalents and restricted cash   (32)   (48)   142 
Net increase (decrease) in cash, cash equivalents and restricted cash   221    (53,472)   (43,826)
Cash, cash equivalents and restricted cash at beginning of year   81,959    135,431    179,257 
Cash, cash equivalents and restricted cash at end of year  $82,180   $81,959   $135,431 
Supplemental disclosure of non-cash activities:               
Sale of common stock under the Sales Agreement not settled at year-end  $497   $   $ 
Capital expenditures included in accounts payable and accrued expenses  $49   $519   $15 
Supplemental disclosure of cash flow information:               
Cash interest payments  $12,188   $12,188   $12,188 

 

The accompanying notes are an integral part of these financial statements.

 

 F-7 

 

 

 

NOVAVAX, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017

 

Note 1 – Organization

 

Novavax, Inc. (“Novavax,” and together with its wholly owned subsidiary, Novavax AB, the “Company”) is a late-stage biotechnology company that promotes improved global health through the discovery, development and commercialization of innovative vaccines to prevent serious infectious diseases. The Company’s vaccine candidates, including its lead candidates, NanoFluTM and ResVaxTM, 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 – Liquidity

 

Based on the Company’s most recent cash flow forecast, the Company believes its current capital, which includes approximately $156 million in net proceeds from sales of common stock under the At Market Issuance Sales Agreements during the first quarter of 2020, is sufficient to fund its operating plans for a minimum of twelve months from the date that this Annual Report was filed. Additional capital may be required in the future to develop its vaccine candidates through clinical development, manufacturing and commercialization.

 

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.

 

Note 3 – Summary of Significant Accounting Policies

 

Basis of Presentation

 

The 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.

 

Use of Estimates

 

The preparation of the consolidated financial statements in conformity with generally accepted accounting principles in the United States (“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 December 31 (in thousands):

 

   2019   2018 
Cash  $15,863   $6,750 
Money market funds    42,960    39,168 
Asset-backed securities   20,000    15,000 
Corporate debt securities      9,236 
Cash and cash equivalents  $78,823   $70,154 

 

Cash equivalents are recorded at cost, which approximate fair value due to their short-term nature.

 

 F-8 

 

 

Marketable Securities

 

Marketable securities consist of debt securities with maturities greater than three months from the date of purchase that have historically included 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, including whether the Company will be required to sell a security prior to recovery of its amortized cost basis, the investment issuer’s financial condition and business outlook 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.

 

Concentration of Credit Risk

 

Financial instruments, which possibly expose the Company to concentration of credit risk, consist primarily of cash and cash equivalents and marketable securities. The Company’s investment policy limits investments to certain types of instruments, including asset-backed securities, high-grade corporate debt securities and money market funds, places restrictions on maturities and concentrations in certain industries and requires the Company to maintain a certain level of liquidity. At times, the Company maintains cash balances in financial institutions, which may exceed federally insured limits. The Company has not experienced any losses relating to such accounts and believes it is not exposed to a significant credit risk on its cash and cash equivalents.

 

Fair Value Measurements

 

The Company applies Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), for financial and non-financial assets and liabilities.

 

ASC 820 discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). The statement utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

 

·Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

·Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

·Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.

 

Restricted Cash

 

The Company’s current and non-current restricted cash includes payments received under the Grant Agreement (as defined in Note 8) with the Bill & Melinda Gates Foundation (“BMGF”) under which the Company was awarded a grant of up to $89.1 million, escrow funds received in connection with the Catalent transaction (see Note 9) 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 December 31, 2019 and 2018, the restricted cash balances (both current and non-current) consist of payments received under the Grant Agreement of $1.4 million and $10.8 million, respectively, $1.5 million held in escrow received in connection with the Catalent transaction at December 31, 2019 and security deposits of $0.4 million and $1.0 million, respectively.

 

 F-9 

 

 

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 at December 31 (in thousands):

 

   2019   2018 
Cash and cash equivalents  $78,823   $70,154 
Restricted cash current   2,947    10,847 
Restricted cash non-current   410    958 
Cash, cash equivalents and restricted cash  $82,180   $81,959 

 

Property and Equipment

 

Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets, generally three to seven years. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the estimated useful lives of the improvements or the remaining term of the lease. Repairs and maintenance costs are expensed as incurred.

 

Leases

 

The Company adopted the new leasing standard, Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) on January 1, 2019 under the optional transition method (see Note 3 under the caption “Recent Accounting Pronouncements”). Under the new standard, the Company determines if an arrangement is a lease or contains a lease at the inception of the contract. For all leases, the Company determines the classification as either operating or financing.

 

Lease liabilities, which represent the Company’s obligation to make lease payments arising from the lease, and corresponding right-of-use assets, which represent the right to use an underlying asset for the lease term, are recognized at the commencement date of the lease based on the present value of the fixed future payments over the lease term. The Company calculates the present value of future payments using the discount rate implicit in the lease, if available, or the Company’s incremental borrowing rate.

 

For operating leases, lease expense relating to fixed payments is recognized on a straight-line basis over the lease term and lease expense relating to variable payments is recognized as incurred. For finance leases, the amortization of the asset is recognized over the shorter of the lease term or useful life of the underlying asset.

 

Other Intangible Assets

 

The Company’s intangible assets include proprietary adjuvant technology and collaboration agreements, which were measured at the estimated fair values as of their acquisition dates. Amortization expense for intangible assets is recorded on a straight-line basis over the expected useful lives of the assets, ranging for seven to 20 years.

 

Impairment of Long-Lived Assets

 

Long-lived assets, including property and equipment and finite-lived intangible and right-of-use assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable based on the criteria for accounting for the impairment or disposal of long-lived assets under ASC Topic 360, Property, Plant and Equipment. The Company calculates the estimated fair value of a long-lived asset (group) using the income approach. Impairment losses are recognized when the sum of expected future cash flows is less than the assets’ (group’s) carrying value.

 

Goodwill

 

Goodwill is subject to impairment tests annually or more frequently should indicators of impairment arise. The Company has determined that, because its only business is the development of recombinant vaccines, it operates as a single operating segment and has one reporting unit. The Company primarily utilizes the market approach and, if considered necessary, the income approach to determine if it has an impairment of its goodwill. The market approach is based on market value of invested capital. To ensure that the Company’s capital stock is the appropriate measurement of fair value, the Company considers factors such as its trading volume, diversity of investors and analyst coverage. If considered necessary, the income approach is used to corroborate the results of the market approach. Goodwill impairment may exist if the carrying value of the reporting unit exceeds its estimated fair value. If the carrying value of the reporting unit exceeds its fair value, step two of the impairment analysis is performed. In step two of the analysis, an impairment loss is recorded equal to the excess of the carrying value of the reporting unit’s goodwill over its implied fair value, should such a circumstance arise.

 

 F-10 

 

 

At December 31, 2019 and 2018, the Company used the market approach to determine if the Company had an impairment of its goodwill. The fair value of the Company’s single reporting unit was substantially higher than its carrying value, resulting in no impairment to goodwill at December 31, 2019 and 2018.

 

Equity Method Investment

 

The Company has an equity investment in CPL Biologicals Private Limited (“CPLB”). The Company accounts for this investment using the equity method (see Note 8). Under the equity method of accounting, investments are stated at initial cost and are adjusted for subsequent additional investments and the Company’s proportionate share of earnings or losses and distributions up to the amount initially invested or advanced.

 

Revenue Recognition

 

In May 2014, the Financial Accounting Standards Board (“FASB”), issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09” or “Topic 606”), and subsequently issued amendments to ASU 2014-09, to supersede nearly all existing revenue recognition guidance under U.S. GAAP. The new revenue standard became effective for the Company on January 1, 2018 and was adopted using the modified retrospective method. The adoption of the new revenue standard as of January 1, 2018 did not materially change the Company’s timing of revenue recognition as the majority of its revenue continues to be recognized under its Grant Agreement with BMGF (see discussion below). Since the Company did not identify any accounting changes that impact its revenue recognition timing, no adjustment to accumulated deficit was required upon adoption.

 

Under the new revenue standard for arrangements that are determined within the scope of Topic 606, the Company recognizes revenue following the five-step model: (i) identify the contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services promised within each contract and determines the performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

 

The Company performs research and development under grant, license and clinical development agreements. Payments received in advance of work performed are recorded as deferred revenue.

 

The Company’s current revenue primarily consists of revenue under its Grant Agreement with BMGF (see Note 8). 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 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.

 

As discussed in Note 8, the Company recorded revenue of $7.5 million as a result of the amendment the Company entered into with The Department of Health and Human Services, Biomedical Advanced Research and Development Authority (“HHS BARDA”) in the fourth quarter of 2019 to close out the HHS BARDA contract.

 

 F-11 

 

 

Stock-Based Compensation

 

The Company accounts for stock-based compensation related to grants of stock options, stock appreciation rights, restricted stock awards and purchases under the Company’s Employee Stock Purchase Plan, as amended and restated (the “ESPP”) at fair value. The Company recognizes compensation expense related to such awards on a straight-line basis over the requisite service period (generally the vesting period) of the equity awards, which typically occurs ratably over periods ranging from six months to four years.

 

The expected term of stock options and stock appreciation rights granted is based on the Company’s historical option exercise experience and post-vesting forfeiture experience using the historical expected term from the vesting date, whereas the expected term for purchases under the ESPP is based on the purchase periods included in the offering. The expected volatility is determined using historical volatilities based on stock prices over a look-back period corresponding to the expected term. The risk-free interest rate is determined using the yield available for zero-coupon U.S. Government issues with a remaining term equal to the expected term. The Company has never paid a dividend, and as such, the dividend yield is zero, and the Company does not intend to pay dividends in the foreseeable future.

 

Restricted stock awards are recorded as compensation expense over the expected vesting period based on the fair value at the award date using the straight-line method of amortization.

 

See Note 13 for a further discussion on stock-based compensation.

 

Research and Development Expenses

 

Research and development expenses include salaries, stock-based compensation, laboratory supplies, consultants and subcontractors, including external contract research organizations (“CROs”), and other expenses associated with the Company’s process development, manufacturing, clinical, regulatory and quality assurance activities for its clinical development programs. In addition, related indirect costs such as fringe benefits and overhead expenses are also included in research and development expenses. Research and development activities are expensed as incurred.

 

Accrued Research and Development Expenses

 

The Company accrues research and development expenses, including clinical trial-related expenses, as the services are performed, which may include estimates of those expenses incurred, but not invoiced. The Company uses information provided by third-party service providers and CROs, invoices and internal estimates to determine the progress of work performed on the Company’s behalf. Assumptions based on clinical trial protocols, contracts and participant enrollment data are also developed to determine and analyze these estimates and accruals.

 

Income Taxes

 

The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes. Under the liability method, deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The effect of changes in tax rates on deferred tax assets and liabilities is recognized in income in the period such changes are enacted. A valuation allowance is established when necessary to reduce net deferred tax assets to the amount expected to be realized.

 

Tax benefits associated with uncertain tax positions are recognized in the period in which one of the following conditions is satisfied: (1) the more likely than not recognition threshold is satisfied; (2) the position is ultimately settled through negotiation or litigation; or (3) the statute of limitations for the taxing authority to examine and challenge the position has expired. Tax benefits associated with an uncertain tax position are reversed in the period in which the more likely than not recognition threshold is no longer satisfied.

 

Interest and penalties related to income tax matters are recorded as income tax expense. At December 31, 2019 and 2018, the Company had no accruals for interest or penalties related to income tax matters.

 

 F-12 

 

 

Net Loss per Share

 

Net loss per share is computed using the weighted average number of shares of common stock outstanding. At December 31, 2019, 2018 and 2017, the Company had outstanding stock options and unvested restricted stock awards totaling 4,992,792, 2,975,481 and 2,325,670 underlying shares of the Company’s common stock, respectively. At December 31, 2019 and 2018, the Company’s Notes (as defined in Note 11) would have been convertible into approximately 2,385,800 shares of the Company’s common stock assuming a common stock price of $136.20 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.

 

Foreign Currency

 

The accompanying consolidated financial statements are presented in U.S. dollars. The functional currency of Novavax AB, which is located in Sweden, is the local currency (Swedish Krona). The translation of assets and liabilities of Novavax AB to U.S. dollars is made at the exchange rate in effect at the consolidated balance sheet date, while equity accounts are translated at historical rates. The translation of the statement of operations data is made at the average exchange rate in effect for the period. The translation of operating cash flow data is made at the average exchange rate in effect for the period, and investing and financing cash flow data is translated at the exchange rate in effect at the date of the underlying transaction. Translation gains and losses are recognized as a component of accumulated other comprehensive loss in the accompanying consolidated balance sheets. The foreign currency translation adjustment balance included in accumulated other comprehensive loss was $12.5 million and $11.2 million at December 31, 2019 and 2018, respectively.

 

Segment Information

 

The Company manages its business as one operating segment: the development of recombinant vaccines. The Company does not operate separate lines of business with respect to its vaccine candidates. Accordingly, the Company does not have separately reportable segments as defined by ASC Topic 280, Segment Reporting.

 

Recent Accounting Pronouncements

 

Recently Adopted

 

In February 2016, 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 are 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. Subsequent to its adoption and as a result of the Catalent transaction (see Note 9), the Company wrote-off right-of-use assets of $8.2 million and the associated lease liabilities of $12.7 million.

 

 F-13 

 

 

  

Not Yet Adopted

 

In January 2017, the FASB issued ASU 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 and will be applied prospectively from the date of adoption. The adoption of ASU 2017-04 will not have a material impact on the historical consolidated financial statements.

  

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 on a recurring basis (in thousands):

 

    Fair Value at December 31, 2019     Fair Value at December 31, 2018  
Assets   Level 1     Level 2     Level 3     Level 1     Level 2       Level 3  
Money market funds(1)   $ 42,960     $     $     $ 39,168     $     $  
Asset-backed securities(2)           20,000                   19,997        
Corporate debt securities(3)                             26,219        
Total cash equivalents and marketable securities   $ 42,960     $ 20,000     $     $ 39,168     $ 46,216     $  
Liabilities                                                
Convertible notes payable   $     $ 125,811     $     $     $ 197,935     $  

 

(1)Classified as cash and cash equivalents as of December 31, 2019 and 2018, respectively (see Note 3).

(2)Includes $20,000 and $15,000 classified as cash and cash equivalents as of December 31, 2019 and 2018, respectively, on the consolidated balance sheets.

(3)Includes $9,236 classified as cash and cash equivalents as of December 31, 2018 on the consolidated balance sheets.

 

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 (as defined in Note 11) 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.

 

During the years ended December 31, 2019 and 2018, the Company did not have any transfers between Levels.

 

The amount in the Company’s consolidated balance sheets for accounts payable and accrued expenses approximates its fair value due to its short-term nature.

 

 F-14 

 

 

Note 5 – Marketable Securities

  

Marketable securities classified as available-for-sale as of December 31, 2019 and 2018 were comprised of (in thousands):

 

   December 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                   16,986        (3)   16,983 
Total  $   $   $   $   $21,985   $   $(5)  $21,980 

 

Note 6 – Goodwill and Other Intangible Assets

 

Goodwill

 

The changes in the carrying amounts of goodwill for the years ended December 31, 2019 and 2018 were as follows (in thousands):

 

  

Year Ended

December 31,

 
   2019   2018 
Beginning balance  $51,967   $53,563 
Currency translation adjustments   (813)   (1,596)
Ending balance  $51,154   $51,967 

 

Identifiable Intangible Assets

 

Purchased intangible assets consisted of the following as of December 31, 2019 and 2018 (in thousands):

 

   December 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  $7,985   $(2,562)  $5,423   $8,357   $(2,263)  $6,094 
Collaboration agreements   3,606    (3,448)   158    3,773    (3,326)   447 
Total identifiable intangible assets  $11,591   $(6,010)  $5,581   $12,130   $(5,589)  $6,541 

 

 

Amortization expense for the years ended December 2019, 2018 and 2017 was $0.7 million, $0.7 million and $2.2 million, respectively. Estimated amortization expense for existing intangible assets for each of the five succeeding years ending December 31, is as follows (in thousands):

 

Year  Amount 
2020  $557 
2021   399 
2022   399 
2023   399 
2024   399 

 

Note 7 – Leases

 

The Company has operating leases for its research and development and manufacturing facilities, corporate headquarters and offices and certain equipment. At December 31, 2019, the facility leases have expirations that range from approximately 4 year to 7 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. Upon closing of the Catalent transaction in July 2019, the Company assigned two of its manufacturing facility leases to Catalent (see Note 9). As a result, the Company wrote-off the corresponding right-of-use (“ROU”) assets of $8.2 million and the associated lease liabilities of $12.7 million.

 

 F-15 

 

 

 

Supplemental balance sheet information related to leases as of December 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  $6,454 
         
Liabilities:        
   Current operating lease liabilities  Other current liabilities  $1,262 
   Non-current operating lease liabilities  Other non-current liabilities   10,004 
Total operating lease liabilities     $11,266 
         
Weighted-average remaining lease term (years)      5.99 
Weighted-average discount rate      15.58%

 

Lease expense for the operating and short-term leases for the year ended December 31 was as follows (in thousands):

 

   2019 
Operating lease expense  $3,952 
Short-term lease expense   434 
Total lease expense  $4,386 

 

Total facility rent expense was approximately $5.0 million and $8.4 million for the years ended December 31, 2018 and 2017, respectively.

 

Supplemental cash flow information related to leases for the year ended December 31, 2019 was as follows (in thousands):

 

   Amount 
Cash paid for amounts included in the measurement of operating lease liabilities  $5,060 
ROU assets obtained in exchange for operating lease obligations   16,534 

 

 

As of December 31, 2019, maturities of lease liabilities were as follows (in thousands):

 

Year  Amount 
2020  $2,927 
2021   2,993 
2022   3,061 
2023   2,921 
2024   1,922 
Thereafter   3,825 
Total operating lease payments   17,649 
Less: imputed interest   (6,383)
Total operating lease liabilities  $11,266 

 

Note 8 – Grants, U.S. Government Contract and Joint Venture

 

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.

 

 F-16 

 

  

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. In 2019, the Company recognized revenue from the Grant of $8.4 million, and has recognized approximately $81 million in revenue since the inception of the agreement. At December 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.

 

Coalition for Epidemic Preparedness Innovations Award

 

In March 2020, the Company was awarded initial funding of $4 million from the Coalition for Epidemic Preparedness Innovations (“CEPI”) to facilitate its development of a new strain of the coronavirus vaccine (“COVID-19”) in preparation for potential future clinical trials. A subsequent CEPI award may be available to cover the Company’s program expenditures through Phase 1 clinical trial results.

 

HHS BARDA Contract for Recombinant Influenza Vaccines

 

HHS BARDA awarded the Company a contract in 2011 for the development of both the Company’s quadrivalent seasonal and pandemic influenza virus-like particle (“VLP”) vaccine candidates. The HHS BARDA contract was a cost-plus-fixed-fee contract, under which the Company was reimbursed for allowable direct and indirect contract costs and a fixed-fee. The HHS BARDA contract expired in accordance with its terms in September 2016. Billings under the contract were provisional, subject to adjustment after audit by the government, and were based on approved provisional indirect billing rates, including fringe benefits, overhead and general and administrative expenses. These indirect rates were subject to audit by HHS BARDA on an annual basis.

 

In December 2019, the Company amended its contract with HHS BARDA to close out the contract. Pursuant to the amendment, HHS BARDA agreed to pay the Company $7.5 million for the recovery of additional costs under the contract relating to the close out of indirect rates for the remaining fiscal years 2013 through 2016. As a result of the amendment, the Company recorded revenue of $7.5 million in the fourth quarter of 2019. Payment was received in the first quarter of 2020.

 

CPLB Joint Venture

 

In 2009, the Company formed a joint venture with Cadila Pharmaceuticals Limited (“Cadila”), CPLB, to develop and manufacture vaccines, biological therapeutics and diagnostics in India. CPLB is owned 20% by the Company and 80% by Cadila. Because CPLB’s activities and operations are controlled and funded by Cadila, the Company accounts for its investment using the equity method. Since the carrying value of the Company’s initial investment was nominal, and the Company has provided no guarantee or commitment to provide future funding, the Company has not recorded losses related to this investment. In July 2018, the Company amended and restated its joint venture and license agreements with respect to CPLB to align them with its current and planned interactions with CPLB. CPLB continues to be owned 20% by the Company and 80% by Cadila.

  

 F-17 

 

 

Note 9 – Catalent Transaction

 

In June 2019, the Company entered into an asset purchase agreement (the “Purchase Agreement”) with Catalent Maryland, Inc. (formerly Paragon Bioservices, Inc.), a unit of Catalent Biologics (“Catalent”), pursuant to which the Company agreed to sell to Catalent certain assets related to its biomanufacturing and development activities located at the facilities situated at each of 20 Firstfield Road in Gaithersburg, MD 20878 and 9920 Belward Campus Drive in Rockville, MD 20850, for a purchase price of (i) $18.0 million, including $1.5 million to be held in escrow for one year following the closing of the transaction, plus (ii) an additional fee to purchase laboratory supplies of $0.3 million, subject to certain adjustments. The transaction closed in July 2019. Pursuant to the transactions contemplated by the Purchase Agreement, approximately 100 Novavax manufacturing and quality employees transferred to Catalent, and the Company assigned two facility leases to Catalent. The Company also entered into other ancillary agreements upon the closing of the transaction, including a Non-Commercial GMP Manufacturing Services Agreement pursuant to which the Company is required to purchase $6.0 million in certain services from Catalent set forth therein, through July 31, 2020. The transaction was treated as an asset disposition for accounting purposes. In 2019, the Company recorded a gain on the disposition of such assets of $9.0 million.

 

Note 10 – Other Financial Information

 

Prepaid Expenses and Other Current Assets

 

Prepaid expenses and other current assets consist of the following at December 31 (in thousands):

 

   2019   2018 
Laboratory supplies  $4,376   $11,974 
Other prepaid expenses and other current assets   3,601    4,321 
Prepaid expenses and other current assets  $7,977   $16,295 

 

Property and Equipment, net

 

Property and equipment is comprised of the following at December 31 (in thousands):

 

   2019   2018 
Machinery and equipment  $9,946   $35,723 
Leasehold improvements   9,088    22,276 
Computer hardware   4,987    4,763 
Construction in progress   448    1,347 
    24,469    64,109 
Less ― accumulated depreciation   (13,024)   (35,683)
Property and equipment, net  $11,445   $28,426 

 

Depreciation expense was approximately $5.1 million, $7.4 million and $7.6 million for the years ended December 31, 2019, 2018 and 2017, respectively.

 

Accrued Expenses

 

Accrued expenses consist of the following at December 31 (in thousands):

 

   2019   2018 
Employee benefits and compensation  $7,504   $9,632 
Research and development accruals   6,175    8,476 
Other accrued expenses   1,188    1,442 
Accrued expenses  $14,867   $19,550 

 

 F-18 

 

 

Note 11 – Long-Term Debt

 

Convertible Notes

 

In the first quarter of 2016, the Company issued $325 million aggregate principal amount of convertible senior unsecured notes that will mature on February 1, 2023 (the “Notes”). The Notes are senior unsecured debt obligations and were issued at par. The Notes were issued pursuant to an indenture dated January 29, 2016 (the “Indenture”), between the Company and the trustee. The Company received $315.0 million in net proceeds from the offering after deducting underwriting fees and offering expenses. The Notes bear cash interest at a rate of 3.75%, payable on February 1 and August 1 of each year, beginning on August 1, 2016. The Notes are not redeemable prior to maturity and are convertible into shares of the Company’s common stock. As a result of the Company’s one-for-twenty reverse stock split (see Note 12) and pursuant to Section 14.04(a) of the Indenture, the Notes are initially convertible into approximately 2,385,800 shares of the Company’s common stock based on the initial conversion rate of 7.3411 shares of the Company’s common stock per $1,000 principal amount of the Notes. This represents an initial conversion price of approximately $136.20 per share of the Company’s common stock, representing an approximate 22.5% conversion premium based on the last reported sale price of the Company’s common stock of $111.20 per share on January 25, 2016. In addition, the holders of the Notes may require the Company to repurchase the Notes at par value plus accrued and unpaid interest following the occurrence of a Fundamental Change (as described in the Indenture). If a holder of the Notes converts upon a Make-Whole Adjustment Event (as described in the Indenture), they may be eligible to receive a make-whole premium through an increase to the conversion rate up to a maximum of 8.9928 shares per $1,000 principal amount of Notes (subject to other adjustments as described in the Indenture).

 

The Notes are accounted for in accordance with ASC 470-20, Debt with Conversion and Other Options (“ASC 470-20”) and ASC 815-40, Contracts in Entity’s Own Equity (“ASC 815-40”). Under ASC 815-40, to qualify for equity classification (or nonbifurcation, if embedded) the instrument (or embedded feature) must be both (1) indexed to the issuer’s stock and (2) meet the requirements of the equity classification guidance. Based upon the Company’s analysis, it was determined the Notes do contain embedded features indexed to its own stock, but do not meet the requirements for bifurcation, and therefore do not need to be separately accounted for as an equity component. Since the embedded conversion feature meets the equity scope exception from derivative accounting, and also since the embedded conversion option does not need to be separately accounted for as an equity component under ASC 470-20, the proceeds received from the issuance of the convertible debt were recorded as a liability on the consolidated balance sheets.

 

In connection with the issuance of the Notes, the Company also paid $38.5 million, including expenses, to enter into privately negotiated capped call transactions with certain financial institutions (the “capped call transactions”). The capped call transactions are generally expected to reduce the potential dilution upon conversion of the Notes in the event that the market price per share of the Company’s common stock, as measured under the terms of the capped call transactions, is greater than the strike price of the capped call transactions, which initially corresponds to the conversion price of the Notes, and is subject to anti-dilution adjustments generally similar to those applicable to the conversion rate of the Notes. The cap price of the capped call transactions will initially be $194.60 per share, which represented a premium of approximately 75% based on the last reported sale price of the Company’s common stock of $111.20 per share on January 25, 2016, and is subject to certain adjustments under the terms of the capped call transactions. If, however, the market price per share of the Company’s common stock, as measured under the terms of the capped call transactions, exceeds the cap price, there would nevertheless be dilution upon conversion of the Notes to the extent that such market price exceeds the cap price. The Company evaluated the capped call transactions under ASC 815-10, Derivatives and Hedging – Overall and determined that it should be accounted for as a separate transaction and that the capped call transactions will be classified as an equity instrument.

 

The Company incurred approximately $10.0 million of debt issuance costs during the first quarter of 2016 relating to the issuance of 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. The Company also incurred $0.9 million of expenses related to the capped call transactions, which were recorded as a reduction to additional paid-in-capital.

 

Total convertible notes payable consisted of the following at (in thousands):

 

   December 31,
2019
   December 31,
2018
 
Principal amount of Notes  $325,000   $325,000 
Unamortized debt issuance costs   (4,389)   (5,813)
Total convertible notes payable  $320,611   $319,187 

 

 F-19 

 

 

Interest expense incurred in connection with the Notes consisted of the following for the years ended December 31 (in thousands):

 

   2019   2018   2017 
Coupon interest at 3.75%  $12,188   $12,188   $12,188 
Amortization of debt issuance costs   1,424    1,424    1,424