Novavax
Annual Report 2000

Plain-text annual report

Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-KANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended December 31, 2000Commission File No. 0-26770NOVAVAX, INC.(Exact name of registrant as specified in its charter) Delaware(State or other jurisdiction of incorporation or organization) 22-2816046(I.R.S. Employer Identification No.)8320 Guilford Road, Columbia, Maryland 21046(Address of principal executive offices) (Zip code)Registrant’s telephone number, including area code: (301) 854-3900Securities registered pursuant to Section 12(b) of the Act: Title of each class:Name of each exchange on which registeredCommon Stock ($.01 par value) American Stock ExchangeSecurities registered pursuant to Section 12(g) of the Act: NONE 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 Actof 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 tosuch filing requirements for the past 90 days. Yes 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 becontained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to this Form 10-K. The aggregate market value of 18,675,548 shares of the registrant’s Common Stock, par value $.01 per share, held by non-affiliates of theregistrant at March 16, 2001, as computed by reference to the closing price of such stock, was approximately $157,808,381. The number of shares of the registrant’s Common Stock, par value $.01 per share, outstanding at March 16, 2001 was 22,247,533 shares.Documents Incorporated By Reference Portions of the Registrant’s Proxy Statement to be filed not later than 120 days after December 31, 2000, in connection with the Registrant’s2001 Annual Meeting of Stockholders, referred to herein as the “Proxy Statement,” are incorporated by reference into Part III of this Form 10-K.Certain exhibits filed with the Registrant’s prior registration statements and period reports under the Securities Exchange Act of 1934 areincorporated herein by reference into Part IV of this Report.TABLE OF CONTENTSPART IItem 1. BusinessItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Submission of Matters to a Vote of Security HoldersPART IIItem 5. Market For Registrant’s Common Equity and Related Stockholder MattersItem 6. Selected Consolidated Financial DataItem 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsItem 7A. Quantitative and Qualitative Disclosures about Market RisksItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements With Accountants on Accounting and Financial DisclosurePART IIIItem 10. Directors and Executive Officers of the RegistrantItem 11. Executive CompensationItem 12. Security Ownership of Certain Beneficial Owners and ManagementItem 13. Certain Relationships and Related TransactionsPART IVItem 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-KCertificate of Amendment dated December 18, 2000List of SusidiariesConsent of Ernst & Young LLPConsent of PricewaterhouseCoopers LLPPART IItem 1. Business The discussion of our business contained in this annual report on form 10-K may contain certain projections, estimates and other forward-looking statements that involve a number of risks and uncertainties, including those discussed below at “Risks and Uncertainties.” While thisoutlook represents management’s current judgment on the future direction of the business, such risks and uncertainties could cause actual resultsto differ materially from any future performance suggested below. We undertake no obligation to release publicly the results of any revisions tothese forward-looking statements to reflect events or circumstances arising after the date of this annual report. Overview Novavax, Inc. (“Novavax”, “we”, “our”, or the “Company”) is a specialty biopharmaceutical company engaged in the research, development andcommercialization of proprietary products focused on women’s health and infectious diseases. We were incorporated in Delaware in 1987. Ourprincipal executive offices are located at 8320 Guilford Road, Columbia, Maryland 21046. Through a series of strategic initiatives, Novavax has evolved from a technology-based biotechnology company into a fully integratedpharmaceutical company. These strategic initiatives have included the: • Acquisition of a profitable women’s healthcare pharmaceutical company; • Acquisition of a fully staffed vaccine manufacturing and development operation; • Expansion of our women’s healthcare product lines through product purchases and co-promotion agreements; • Completion of a pivotal Phase III clinical trial for our estrogen replacement product, ESTRASORB™. These initiatives were funded through two private placements of our common stock in 1999 and 2000 and the issuance of a convertible note in2000.Recent Developments Fielding Pharmaceutical Company Acquisition In December 2000, we acquired the privately owned Fielding Pharmaceutical Company (“Fielding”), based in St. Louis, Missouri, which sells,markets and distributes a proprietary line of pharmaceutical products focused on women’s health. Under the terms of the acquisition agreement,we acquired 100% of the outstanding shares of Fielding for $31.5 million, consisting of $13 million in cash and 2,312,501 shares of Novavaxcommon stock, valued at $18.5 million. An additional $5 million in either Novavax common stock or cash will be paid to former Fieldingshareholders in March 2002. Fielding was established in 1959 and markets women’s healthcare products nationally to obstetricians and gynecologists through its salesforce of over 60 personnel. Fielding’s products included Nestabs®, a complete line of pre-natal vitamins; Gynodiol®, an oral form of estrogenreplacement therapy, as well as several other over-the-counter (“OTC”) women’s healthcare products. We intend to use Fielding to sell, market anddistribute additional future products. Fielding fills, packages and warehouses all of its own products, which are purchased from contractmanufacturers. Biomedical Services Laboratory Acquisition In August 1999, we acquired substantially all of the assets of the Biomedical Services Laboratory (“BSD”) division of DynCorp of Reston,Virginia. The total consideration and direct costs for the acquisition were $860,000. The research and development activities of BSD are conductedin an approximately 12,000 square foot facility located in Rockville, Maryland. BSD is engaged in contract research, development and pilotmanufacturing of human vaccines for government laboratories, principally National Institutes of Health (“NIH”), and other vaccine companies.2Table of Contents King Pharmaceuticals, Inc. Transactions In December 2000, King Pharmaceuticals, Inc., (“King”) agreed to make a $25 million convertible note investment in Novavax. The note isconvertible into Novavax Common Stock at $10.00 per share. The note carries a 4% coupon payable semi-annually in cash and stock. As part ofthe transaction, we received $20 million in December 2000 and will receive an additional $5 million when we file a New Drug Application (“NDA”) forour topical transdermal estrogen replacement therapy, ESTRASORB™, expected to be filed in the first half of 2001. We used a portion of thefunds to complete our acquisition of Fielding and will use the balance for general operating purposes. In January 2001, we also signed a co-promotion agreement with King for ESTRASORB™, in the United States. In addition, we will combine U.S. sales efforts with King to begin co-promoting one of King’s products already on the market, Nordette®, a birth control pill. In another agreement, we also acquired AVC™ Cream andSuppositories from King in January 2001, for $3.3 million, which has been marketed by King for the treatment of vaginal bacterial infections.Our Products and Product Candidates The tables below provides a summary of our products and product development candidates which are discussed in further detail herein: Women’s Health Products ProductIndicationsStatusNestabs® Prescription Pre-Natal Vitamins MarketedGynodiol® Oral Estrogen Replacement Therapy MarketedVitelle® OTC Women’s Health Products MarketedAVC™ Vaginal Bacterial Infection MarketedNordette® (co-promote) Birth Control Pill MarketedESTRASORB™ Transdermal Lotion for Estrogen replacement Phase IIIANDROSORB™ Transdermal Lotion for Testosterone replacement Phase I/IIANDRO-JECTTM Injectable Testosterone Therapy Preclinical Infectious Disease Vaccines ProductCollaboraton/PartnerStatusHuman Papillomavirus (“HPV16”) VLP(mono) NIH/King Phase IIHepatitis E Vaccine NIH Phase IDengue Type 4 NIH INDMalaria MSP-1 NIH/SAIC PreclinicalInfluenza Vaccine King PreclinicalHPV16 (chimeric) NIH/King PreclinicalProduct Development Programs Our product development efforts are focused on the research and development of proprietary drug delivery and vaccine technologies and theapplications of those technologies. Our technology platforms involve the use of proprietary, microscopic, organized, non-phospholipid structures asvehicles for the delivery of a wide variety of drugs and other therapeutic products, including certain hormones, anti-bacterial and anti-viral productsand vaccine adjuvants. These technology platforms support three product development programs: hormone replacement therapies, third party drugdelivery and vaccine adjuvant applications. In addition, BSD is engaged in contract research and development and Phase I and Phase II vaccinemanufacturing of human vaccines for the Company’s own use, for government laboratories and for other vaccine companies.3Table of Contents Hormone Replacement Therapies. The Company’s hormone replacement therapy program includes its two lead product candidates:ESTRASORB, topical estrogen cream, and ANDROSORB, a topical testosterone cream. ESTRASORB, a topical lotion for estrogen replacementtherapy is the company’s lead product candidate, and employs Novavax’s proprietary micellar nanoparticle (“MNP”) technology. ESTRASORB’sMNP formulation is designed to deliver 17ß estradiol, a naturally occurring hormone, through the skin, when applied topically in lotion form. TheCompany has completed various preclinical and human safety studies for both ESTRASORB and ANDROSORB. The Company completed amulti-center Phase III study of ESTRASORB, during the first quarter of 2001. The study was designed to measure ESTRASORB’s ability todeliver estradiol through the skin, when applied as a topical lotion. The randomized, double-blind, placebo controlled trial enrolled a total of 200women either on placebo or ESTRASORB who underwent a 13 week course of treatment. The study results indicate that there is a statisticallysignificant difference between ESTRASORB and placebo treatment with respect to the trial’s primary clinical endpoint, a reduction in the number ofhot flushes. We intend to file an NDA for ESTRASORB in the first half of 2001. The Company has also completed Phase I safety study in men ofANDROSORB; Phase II trials in testosterone deficient women were completed in the fourth quarter of 2000. In addition, the Company isundergoing preclinical development of ANDRO-JECT, a depot delivery of testosterone for testosterone deficient men. The Investigational NewDrug application (“IND”) for ANDRO-JECT is expected to be filed in the first half of 2001. Third Party Drug Delivery and Vaccine Adjuvant Applications. Formulations of the Company’s lipid technologies are expected to have broadapplication as vehicles for the encapsulation and delivery of drugs developed by other companies. Moreover, the Company believes that certain ofits organized lipid structures may provide effective and safe adjuvant carrier systems for a variety of vaccines. The Company plans to leveragethese technologies by licensing its drug delivery, encapsulation and adjuvant technologies to third parties for specific therapeutic indications. Vaccine Development. BSD is involved in three areas of vaccine development: virology, tissue culture and molecular virology. BSD’sexperimental virology research and development may lead to live virus vaccine production in the embryonated hens’ eggs and in designated tissueculture systems. Tissue culture involves the growth, maintenance and characterization of cell systems as potential substrates for virus growth andvaccine production as well as cell systems for safety testing, plaque-purification and virus titers. BSD’s work in molecular virology involvesrecombinant DNA cloning of viral and human genes, protein expression of these genes in prokaryotic and eukaryotic systems includingbaculoviruses, protein purification of the recombinant protein products, and biophysical characterization of recombinant proteins leading to vaccineand related product development. Anti-Microbial Agents. The Company is also applying its lipid technologies to develop anti-microbial agents that are capable of acting onviruses, bacteria, spores and sperm. Potential product candidates include Helicore®, an oral anti-bacterial preparation for the treatment ofHelicobacter pylori (“H. Pylori”) infection, and two anti-microbial agents targeting biological threat agents such as Bacillus anthracis and influenzaA, respectively, as well as a spermicide product candidate.Product Technology Platforms Novavax has developed proprietary topical, oral and injectable drug delivery technologies using microscopic, organized, non-phospholipidstructures, including Novasome® non-phospholipid vesicles (“Novasomes”), MNP’s and non-antibiotic, anti-microbial lipid emulsions. TheCompany believes these structures may be useful for targeted delivery and controlled release of certain drugs, along with inactivation of bacteria,enveloped viruses, spores and sperm. Moreover, the Company believes that certain of its organized lipid structures may provide effective and safeadjuvant carrier systems for a variety of vaccines. Although other companies have developed liposome technologies, most commercial liposomes are composed of delicate phospholipids. Dueto their inherent lack of stability and carrying capacity, only a limited number of drugs may be used with these phospholipid liposomes. Whilecapable of encapsulating certain (principally water-soluble) drugs, phospholipid liposomes have a number of other significant disadvantagesincluding their expense and the4Table of Contentsneed to use potentially hazardous organic solvents in their manufacture. In addition, the standard, multi-step phospholipid manufacturing processis relatively expensive. The Company believes its non-phospholipid technologies may allow for a more cost-effective delivery of a wider variety of drugs and othertherapeutics than commercially available phospholipid liposomes and other delivery vehicles. Its technologies may also be preferred over otheravailable transdermal delivery systems because its technologies may reduce side effects such as skin irritation. Future applications may showadvantages over injectable delivery technologies, which are invasive, inconvenient and sometimes painful. In addition, the Company’s anti-microbial lipid emulsions may avoid the problem of pathogen mutation and resistance because of their non-antibiotic method of action. Novasome Non-Phospholipid Vesicles. Novasomes are proprietary structures in which drugs or other materials can be encapsulated fordelivery into the body topically or orally. Novasomes are made using the Company’s patented manufacturing processes from a variety of readilyavailable chemicals called amphiphiles, which include fatty alcohols and acids, ethoxylated fatty alcohols and acids, glycol esters of fatty acids,glycerol fatty acid mono and diesters, ethoxylated glycerol fatty acid esters, glyceryl ethers, fatty acid diethanolamides and dimethyl amides, fattyacyl sarcosinates, alkyds and phospholipids. The Company plans to commercialize its Novasome technology in part through products it develops itself and in part through third party drugdelivery application licenses. The Company believes that certain of its organized lipid structures may provide effective and safe adjuvant carriersystems for a variety of vaccines. In addition, the Company has developed structures for delivery of biologically active molecules like antisense,genes and proteins. Micellar Nanoparticle Emulsion. MNPs are proprietary, submicron-sized, water miscible, non-phospholipid structures that have differentstructural characteristics and are generally smaller than Novasome non-phospholipid vesicles. MNP’s, like Novasome non-phospholipid vesicles,are derived from amphiphilic molecules. Novavax scientists have demonstrated that MNP’s are able to incorporate alcohol soluble drugs, pesticides, vaccine adjuvants, proteins,whole viruses, flavors, fragrances and colors. MNP’s also have the ability to entrap ethanol or methanol soluble drugs, and to deliver certain ofthese drugs transdermally through intact skin. The MNP formulations used by Novavax for the transdermal delivery of drugs have cosmeticproperties similar to creams and lotions. These transdermal formulations have the advantage over injectable delivery systems of being lessinvasive and/or inconvenient and the may also cause less skin irritation than patch transdermal delivery systems. MNP’s are the fundamentaltechnology platform for Novavax’s hormone replacement therapies.Vaccine Research and Development BSD is engaged in contract research, development and pilot manufacturing of human vaccines for the Company’s own use and for governmentlaboratories and other vaccine companies. The Director of our vaccine programs is Louis Potash, Ph.D., one of the original scientists to work onboth the Salk-type inactivated polio vaccines and inactivated whole influenza virus vaccines during the 1950s. This acquisition significantlyexpanded Novavax’s internal vaccine developmental capabilities and allows the Company to combine its adjuvant technology with BSD’s 35 yearsof experience in developing and manufacturing vaccines. BSD’s facility is a vaccine research and development laboratory producing Phase I and II clinical materials in accordance with the FDA’scurrent Good Manufacturing Practice (“cGMP”) regulations. The facility develops and produces live virus suspensions and vaccines andrecombinant proteins from baculovirus infected insect cells and E. coli for government, industrial pharmaceutical, biotech and academic clients atlab bench and pilot production scales. Services include experimental vaccine development, in vivo and in vitro vaccine safety testing, large-scalevirus seed pool production in tissue culture and embryonated hens’ eggs, the production and testing of tissue culture systems, and final containerfilling in ampules, in cryules and in aluminum-crimped cap vials. Additionally,5Table of Contentsrepository management including specimen receipt, storage, tracking, and shipment for thousands of biological samples is available. BSD is one of the few locations in the world that produces experimental live viral vaccines for Phase I and II clinical trials. Our professionalexpertise lies in live virus suspensions (both attenuated and wild type), recombinant live virus suspensions, inactivated virus suspensions,recombinant baculovirus expression, recombinant virus-like particles (“VLP”s), recombinant protein purification, and cancer immunotherapeutics.VLP’s are non-infectious, self-assembled macro-molecules comprised of viral capsid proteins that elicit neutralizing antibodies and cellular immuneresponse. Novavax has developed several VLP’s using its proprietary design and manufacturing processes. Some of our recent achievements in the vaccine field include: • More than 200 final virus vaccines for clinical studies with no untoward effects, including those for influenza,parainfluenza, rotaviruses and vaccinia recombinants • The development of several Phase I therapeutic cancer vaccines • The development of VLP’s subunit vaccines for human caliciviruses, rotaviruses, human papillomavirus, hepatitisand others Virology Laboratory The virology laboratory, has produced and safety tested experimental live virus vaccines and suspensions propagated in tissue cultures and inembryonated hens’ eggs for the NIH, commercial, and academic clients since 1964. The laboratory, currently staffed by a senior staff scientist/co-Principal investigator and five research technicians, has produced and safety tested over 200 live virus vaccines and suspensions. Thesevaccines have consisted of wild type parent strains as well as attenuated and/or mutant strains of viruses such as rotaviruses (human, human Xbovine, human X rhesus, and human x human reassortants), influenza viruses (human H3N2, H1N1, H2N2 and B; avian and avian X humanreassortants), respiratory syncytial viruses (subgroups A and B), parainfluenza viruses (human types 1, 2 and 3; bovine type 3), dengue,cytomegalovirus, and vaccinia virus recombinants. Release/ Manufacturing Protocols, written in a format suitable for submission to the FDA aspart of IND applications, are submitted to the Regulatory Affairs Branch of the sponsoring organization. The majority of the virus suspensions andvaccines produced have received FDA approval for use in Phase I and II clinical studies. The rotaviruses have been administered orally, whereasthe respiratory viruses (influenza, parainfluenza and respiratory syncytial viruses) have been administered intranasally in newborns as well as ingeriatric populations and in-between age groups. Other viruses studied include herpes, hepatitis A, hepatitis B, Coxsackie, polioviruses and bovinvirus diarrhea virus (“BVD”). The virology laboratory possesses its proprietary characterized and patented African Green monkey kidney cell line used for the production ofexperimental live virus fluids and vaccines as well as for virus isolation from human specimens such as nasal swabs, throat washes and feces.This serially passaged monkey kidney cell line has a Master Drug File with the FDA, as does the proprietary characterized Merieux line of Verocells. In addition, BSD has stocks of other similarly characterized cell lines suitable for virus vaccine production such as FRhL-2 and CV-1 cellsas well as many other cell lines suitable for research and development efforts and for diagnostic purposes. BSD has the capability for finalcontainer filling in ampules, in cryules, in screw cap vials, and in aluminum crimped-cap vials in its newly renovated and validated filling room. Molecular Virology Laboratory The molecular virology laboratory, under the direction of Dr. Robin Robinson, is staffed by three senior scientists, and four researchtechnicians. The scope of the laboratory expertise ranges from molecular DNA cloning to protein production and purification from prokaryotic andeukaryotic expression systems to biophysical characterization of protein molecules. These expression systems include numerous plasmids in E.coli, baculovirus in insect cells, and semliki forest virus, adenovirus, and other virus expression in mammalian cells including primate and humancells. Proprietary insect lines for production of clinical materials have been developed and validated.6Table of Contents Cloning genes of interest is performed in BSD’s plasmid and viral vectors, which are designed for maximal protein expression and to facilitateprotein purification and formulation. Cell fermentation in BSD’s proprietary cell lines ranges from 50 milliliter shaker flasks to 30 liter bioreactors.Protein purification utilizes conventional, expanded bed adsorption, and affinity–TAG chromatographic techniques using FPLC and HPLC systems.Development and production VLPs from multiple virus systems are available for single and chimeric-particles. Available analytical methods forprotein characterization include gel electrophoresis, immunodetection by Western blotting and quantitative ELISA, glycosylation analyses by DIG-labeling glycan binding assays, immunoelectro-focusing, quantitative HPLC methods, peptide mapping, automated amino acid sequencing andcomposition determination, and mass spectroscopy. Other capabilities include virus removal from hybridoma and ascites fluids. These servicesrepresent a comprehensive program to deliver genes from the lab bench to vectors compatible for commercial production to express high levels ofrecombinant proteins as secreted and/or intracellular molecules, and to purify these proteins to homogeneity by technology easily transferred tolarge-scale commercial production.Novavax Product Candidates Hormone Replacement Therapy The Company is using its MNP technology in the development of ESTRASORB, a cream designed for the delivery of 17b estradiol (estrogenhormone) through the skin. Estrogen replacement therapy is currently used worldwide by menopausal and post-menopausal women to preventosteoporosis, cardiovascular disease and other menopausal symptoms (such as “hot flushes”). The hormone replacement market in the US isapproximately $1.7 billion. This market is believed to represent only 15-20% of the estimated 60.3 million women over 40 years of age in the USwho could potentially benefit from hormone replacement therapy. Current estrogen replacement products include oral tablets and, more recently, transdermal patches. Oral estrogen tablets, however, havebeen associated with side effects primarily resulting from blood hormone level fluctuations. Because of these side effects, transdermal patches forestrogen replacement were developed. While these patches help reduce blood hormone fluctuations, they may cause skin irritation and patientinconvenience associated with wearing and changing an external patch. The Company believes that ESTRASORB may offer several advantages over existing therapies used for estrogen replacement. ESTRASORBmay be applied to the skin much like a typical cosmetic lotion. The Company believes ESTRASORB will be able to deliver a continuous amount ofestrogen to the patient without the fluctuations in blood hormone levels associated with oral tablets. In addition, ESTRASORB does not containmaterials that may cause the skin irritation associated with transdermal patches. The Company has completed five clinical studies with ESTRASORB. The first three studies demonstrated transdermal delivery of the drugand no skin irritation was noted. A Phase II, randomized, double blind, placebo-controlled, dose-ranging study was completed in the first quarter of1999. This study involved a 35 day dosing protocol and included 120 patients at six clinical sites located in the United States. This study indicatedthat ESTRASORB, administered daily to menopausal women, significantly reduced the number of hot flushes per day and significantly increasedtheir trough serum estradiol levels. During the first quarter of 2001, Novavax completed a multi-center Phase III study of ESTRASORB in symptomatic menopausal women. Thestudy involved 200 subjects in 20 centers nationwide. The study was designed to measure ESTRASORB’s ability to deliver 17b estradiol throughthe skin, when applied as a topical lotion. The study results indicate that there is a statistically significant difference between ESTRASORB andplacebo treatment with respect to the trial’s primary clinical endpoint, a reduction in the number of hot flushes. The positive reactions of the women in the Phase II study coupled with the Company’s positive Phase III clinical results indicate that estrogenreplacement therapy is an excellent initial target for the Company’s topical drug delivery system. As the Company begins the final stages ofclinical development with ESTRASORB and files for an NDA, the Company will continue to investigate its topical delivery system to otherproducts. Testosterone replacement therapy is currently used by males who are testosterone deficient as a result of either primary or secondaryhypogonadism. It is believed that testosterone in males is required to maintain sexual function and libido, maintain lean body mass, increasehemoglobin synthesis and maintain bone density. There are estimated7Table of Contentsto be one million testosterone deficient men in the US. It is further estimated that only 100,000 to 150,000 men are currently being treated fortestosterone deficiency. These numbers are expected to grow with the aging of the population and the increasing awareness of the benefits ofhormone replacement therapy. Current testosterone replacement therapy products include deep intramuscular injections or transdermal patches. The injections requirefrequent visits to a physician and may be associated with pain at the injection site and abscess. The transdermal patches may cause skinirritation and patient inconvenience associated with wearing and changing external patches. The Company believes that ANDROSORB (its testosterone hormone replacement therapy product) may offer several advantages over currenttestosterone replacement therapies. ANDROSORB is a lotion that may be applied to the skin, thus eliminating the need for intramuscularinjections. In addition, ANDROSORB does not contain materials that may cause the skin irritation associated with transdermal patches. TheCompany completed human safety studies of ANDROSORB involving 10 subjects and submitted the results to the FDA in the third quarter of1997. A multiple-dose, pharmacokinetic study involving 9 subjects was completed in the fourth quarter of 1997, and a dose-rangingpharmacokinetic study involving 8 subjects was completed in the second quarter of 1998. The Company completed Phase I testing ofANDROSORB in 1999, with results that indicated ANDROSORB did not cause skin irritation in the patients tested. These studies have also alldemonstrated delivery of the drug successfully results in elevated blood hormone levels. The Company completed a Phase II dose ranging studyin testosterone deficient women in the fourth quarter of 2000. ANDRO-JECT is a new oil-free, cholesterol-free depot drug delivery system for testosterone, which is in preclinical development. ANDRO-JECT is delivered subcutaneously with a small 25 gauge needle. In animal studies therapeutic levels of testosterone were maintained for twoweeks after one subcutaneous injection. We expect to file an IND for ANDRO-JECT in the first half of 2001. Microbicides The Company has developed proprietary lipid structures that it is using in the development of a non-antibiotic, anti-bacterial preparation,Helicore, for the treatment of H. pylori infection in humans. H. pylori was recognized in 1994 by the National Institutes of Health as a causativeagent of peptic ulcer disease, antral gastritis and certain types of gastric cancer. Current therapies for the treatment of H. pylori include the use ofantibiotics alone or antibiotics in combination with drugs that inhibit acid production in the stomach. Problems associated with such therapiesinclude, but are not limited to, cost, toxicity, failure to sufficiently eradicate all the bacteria, and acquired resistance to the antibiotic. In 1995, theCompany began to test formulations of Helicore in both animal studies and Phase I human safety studies. Results from clinical studies completedin 1996 were submitted to the FDA. Novavax is not currently conducting preclinical or clinical studies on Helicore. The Company has also developed BCTP, a lipid emulsion that acts on various microbials, including enveloped viruses, as well as spores andbacteria. The product has also demonstrated spermicidal action. The Company believes that the emulsion acts on the target by first fusing ormerging with the lipid envelope or outer membrane of the target. The Company believes that BCTP has many potential applications. Preclinicalstudies indicate that viruses and spores vulnerable to BCTP include influenza A and bacillus anthracis, but it may also be appropriate for herpes,measles, mumps, rubella and many other microbes and pathogens. While influenza vaccines are relatively effective at preventing the flu, BCTPunlike vaccines, does not appear to promote mutation and resistance. Other advantages of BCTP appear to include a low toxicity profile,inexpensive scale-up and manufacturing costs, and a rapid and broad spectrum of killing. Vaccine Adjuvants Adjuvants are substances that make vaccines more effective. The Company believes that its Novasome lipid vesicles may provide effectiveand safe adjuvant carrier systems for a variety of vaccines in a variety of circumstances, including: (i) encapsulation and protection fromdestruction by the body’s normal enzymatic processes of delicate antigenic materials; (ii) encapsulation of toxic materials, such as endotoxins andother potent toxins, for gradual release, thereby providing protection of the body from the toxin while generating an immune8Table of Contentsresponse to the toxic antigen; and (iii) presentation of small peptide antigens or proteins to elicit both heightened antibody and cellular immuneresponses. Vaccine Projects The Company’s BSD operation currently has two products in clinical trials with collaborators at NIH. The first, an HPV-16 VLP vaccine is inPhase II clinical trials and is intended to prevent HPV-16 infection. The second product, a Hepatitis E vaccine, will be tested in a Phase II trial inNepal. In October 2000, BSD became a part of a team assembled by Science Applications International Corporation (“SAIC”) for a contract awardedto SAIC for “Malaria Vaccine Production and Support Services”, funded by the National Institute of Allergy and Infectious Diseases (“NIAID”) of theNIH. Under the terms of the agreement, we will work closely with SAIC to evaluate the process of developing malaria protein vaccine candidatesusing multiple expression systems, as well as bacterial and viral vectors. We will also be responsible for process development and GMPmanufacturing and testing of the vaccine candidates. The seven-year subcontract commenced on or about January 1, 2001 and is estimated to bevalued at $10.5 million. In October 2000, we extended our initial 1999 contract with the NCI, to manufacture recombinant monomeric and chimeric VLP’s against HPV.The novel recombinant VLP’s are non-infectious vaccine candidates designed to either treat or prevent HPV infections that cause genital wartsand cervical cancer. The current contract value is approximately $2.0 million. The HPV vaccines were developed by research and developmentteams lead by Robin Robinson, Ph.D., Associate Director of BSD and Douglas Lowy, M.D. of the Laboratory of Cellular Oncology at NCI. Dr.Robinson will serve as Principal Investigator on this new HPV vaccine project. In January 2001, we also granted King an exclusive license to useour proprietary cell line to develop and potentially commercialize recombinant HPV vaccines. Novavax and King are currently working together onmanufacturing HPV-16 VLP vaccines for an NCI Phase II study, expected to commence during the second half of 2001 in Costa Rica. The BSD operations also has a contract with NIH for the “Operation of an Experimental Virus Vaccine Production Facility” throughNovember 2002. Current efforts are stressing dengue and parainfluenza virus reassortant vaccines.Manufacturing The development and manufacture of the Company’s products are subject to good laboratory practices (“GLP”) and cGMP requirementsprescribed by the FDA and to other standards prescribed by the appropriate regulatory agency in the country of use. The Company has the abilityto produce quantities of Novasome lipid vesicles and MNPs sufficient to support its needs for early-stage clinical trials. It does not presently haveFDA-certified facilities capable of producing the larger quantities of pharmaceutical products required for larger scale clinical trials or commercialproduction. The Company will need to rely on collaborators, licensees or contract manufacturers or acquire such manufacturing facilities for laterstage clinical trials and commercial production of its own pharmaceuticals. Novavax has entered into a supply agreement with PCI, Inc., a divisionof Cardinal Health, Inc., to produce ESTRASORB. This GMP facility, located in Philadelphia, Pennsylvania, has the capacity to meet Novavax’scurrent and future production requirements for ESTRASORB. Additionally, Novavax has entered into an agreement with Parkedale, Inc. asubsidiary of King Pharmaceuticals, Inc., whereby Novavax can use manufacturing facilities at Parkedale to manufacture vaccines for Phase IIIclinical trials. There can be no assurance that the Company will be able to obtain such facilities or manufacture such products in a timely fashionat acceptable quality and prices, that it or its suppliers will be able to comply with GLP or GMP, as applicable, or that it or its suppliers will be ableto manufacture an adequate supply of product.Marketing The Company plans to market its current healthcare products and pharmaceutical products for which it obtains regulatory approvals in thefuture either through its recently acquired marketing and distribution operations in St. Louis, Missouri, joint ventures or corporate partneringarrangements. The Company expects that such arrangements could include technology licenses, research funding, milestone payments,collaborative product development, royalties and equity investments in Novavax. We expect the level of advertising and promotional spending tosupport9Table of Contentsthese products to be in line with industry standards. The success of our strategy will depend on many factors including general market conditions,marketplace acceptance of the products, financial resources available to us and the influence of competition.Competition All of the markets in which Novavax competes are intensely competitive. The pre-natal vitamin market is very fragmented with manycompetitors. A number of companies that are larger than us, and have greater resources than we do, compete in the market, including, Warner-Chillcot, Solvay Pharmaceuticals, Mead Johnson, and many generic and controlled brand manufacturers. The competition to develop FDAapproved prenatal vitamins is intense and no assurance can be given that our product candidates will continue to be commercially successfulproducts. Many large companies, such as American Home Products (“AHP”), Apothecon, Watson Pharmaceutical, Solvay Pharmaceuticals, and anumber of generic manufacturers currently produce and sell estrogen products for clinical indications identical to those the Company seeks for itslead product. In addition, the Wyeth-Ayerst division of AHP commits significant resources in the sales and marketing of its products to maintain itsmarket leadership position. In the transdermal segment of the market, Novartis markets a transdermal estrogen patch and Watson currentlymarkets a transdermal testosterone patch. A number of other companies including Merck, Glaxo-SmithKline, Novartis, Pharmacia, and AHP have been working on vaccines and vaccineadjuvants for use as human drug products. The competition to develop FDA-approved human vaccines and vaccine adjuvants is intense and noassurance can be given that our vaccine and vaccine adjuvant product candidates will be developed into commercially successful products. Primary competitors in the development of lipid structure and vesicle encapsulation technologies are Elan, Alza, Gilead and L’Oreal, as well asother pharmaceutical, vaccine and chemical companies. We believe that, except for L’Oreal, these companies have focused their developmentefforts on pharmaceutical carrier systems for the treatment of infections and certain cancers. To our knowledge, Elan, Alza and Gilead all basetheir lipid vesicle technologies on phospholipids. Most of our competitors are larger than we are and have substantially greater financial, marketing and technical resources. In addition, manyof these competitors have substantially greater experience than we have in developing, testing and obtaining FDA and other approvals ofpharmaceuticals. Furthermore, when we commence commercial sales of pharmaceuticals, we will also be competing with respect to manufacturingefficiency and marketing capabilities, areas in which we have limited or no experience. If any of the competitors develop new encapsulationtechnologies that are superior to our Novasome and MNP technologies, our ability to expand into the pharmaceutical and vaccine adjuvantmarkets will be materially and adversely affected. Competition among products will be based, among other things, on product efficacy, safety, reliability, availability, price and patent position.An important factor will be the timing of market introduction of our competitors’ products. Accordingly, the relative speed with which we candevelop products, complete the clinical trials, and approval processes and supply commercial quantities of the products to the market, is expectedto be an important competitive factor. Our competitive position will also depend upon our ability to attract and retain qualified personnel, to obtainpatent protection or otherwise develop proprietary products or processes and to secure sufficient capital resources for the often substantial periodbetween technological conception and commercial sales.Research and Development Our research is focused principally on the development and commercialization of formulations for topical drug delivery and therapeuticproducts, including anti-bacterial and anti-viral products and adjuvants for vaccines. We intend to use third party funding when available, throughcollaborations, joint ventures or strategic alliances with other companies. Because of the substantial funds required for clinical trials, we may haveto obtain additional financing for our future human clinical trials. No assurance can be given that such financing will be available on terms attractiveto us, if at all. We base our development decisions on costs and potential return on investment, regulatory considerations, and the interest, sponsorship andavailability of funding from third parties. As of December 31, 2000, our research and10Table of Contentsdevelopment staff numbered 31 individuals. In addition to its internal research and development efforts, we encourage the development of productcandidates in areas related to our present lines by working with universities and government agencies. Our research and developmentexpenditures approximated $9.4 million, $3.4 million and $3.4 million in the years ended December 31, 2000, 1999 and 1998, respectively.Patents and Proprietary Information Through a wholly-owned subsidiary, we hold 50 U.S. patents and have approximately 125 foreign patents and patent applications covering ourtechnologies (which include a wide variety of component materials, its continuous flow vesicle production process and its Novamix® productionequipment). We believe that these patents are important for the protection of our technology as well as certain of the development processes thatunderlie that technology. In addition, three U.S. patent applications are pending covering the composition, manufacture and use of its organizedlipid structures and related technologies. We expect to engage in collaborations, sponsored research agreements and preclinical testing agreements in connection with our futurepharmaceutical products and vaccine adjuvants, as well as clinical testing agreements with academic and research institutions and U.S.government agencies, such as the NIH, to take advantage of the technical expertise and staff of these institutions and to gain access to clinicalevaluation models, patients and related technologies. Consistent with pharmaceutical industry and academic standards, and the rules andregulations promulgated under the federal Technology Transfer Act of 1986, these agreements may provide that developments and results will befreely published, that information or materials supplied by us will not be treated as confidential and that we will be required to negotiate a license toany such developments and results in order to commercialize products. There can be no assurance that we will be able to successfully obtain anysuch license at a reasonable cost or that such developments and results will not be made available to our competitors on an exclusive ornonexclusive basis.Government Regulation Our research and development activities are subject to regulation for safety, efficacy and quality by numerous governmental authorities in theUnited States and other countries. The development, manufacturing and marketing of human pharmaceuticals are subject to regulation in theUnited States for safety and efficacy by the FDA in accordance with the Food, Drug and Cosmetic Act. In the United States, human pharmaceuticals are subject to rigorous FDA regulation including preclinical and clinical testing. The process ofcompleting clinical trials and obtaining FDA approvals for a new drug is likely to take a number of years, requires the expenditure of substantialresources and is often subject to unanticipated delays. There can be no assurance that any product will receive such approval on a timely basis, ifat all. The steps required before new products for use in humans may be marketed in the United States include (i) preclinical tests, (ii) submission tothe FDA of an IND, which must be approved before human clinical trials commence, (iii) adequate and well-controlled human clinical trials toestablish the safety and efficacy of the product, (iv) submission of an NDA for a new drug or a Product License Application (“PLA”) for a newbiologic to the FDA and (v) FDA approval of the NDA or PLA prior to any commercial sale or shipment of the product. Preclinical tests include laboratory evaluation of product formulation, as well as animal studies (if an appropriate animal model is available) toassess the potential safety and efficacy of the product. Formulations must be manufactured according to GMP and preclinical safety tests mustbe conducted by laboratories that comply with FDA regulations regarding GLP. The results of the preclinical tests, are submitted to the FDA aspart of an IND and are reviewed by the FDA prior to the commencement of human clinical trials. There can be no assurance that submission of anIND will result in FDA authorization to commence clinical trials. Clinical trials involve the administration of the investigational new drug to healthyvolunteers and to patients under the supervision of a qualified principal investigator and are typically conducted in three sequential phases,although the phases may overlap. We or the FDA may suspend clinical trials at any time if the participants are being exposed to an unacceptablehealth risk. The FDA may deny an NDA or PLA if applicable regulatory criteria are not satisfied, require additional testing or information, or requirepost marketing testing and surveillance to monitor the safety of our products.11Table of Contents In addition to obtaining FDA approval for each PLA, an Establishment License Application (“ELA”) must be filed and approved by the FDA forthe manufacturing facilities of a biologic product before commercial marketing of the biologic product is permitted. The regulatory process maytake many years and requires the expenditure of substantial resources. In addition to regulations enforced by the FDA, we are also subject to regulation under the Occupational Safety and Health Act, theEnvironmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other present and potentialfuture federal, state or local regulations. 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 andfederal regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such anaccident, we could be held liable for any damages that result, and any such liability could exceed our resources. In both domestic and foreign markets, our ability to commercialize our product candidates will depend, in part, on the availability ofreimbursement from third-party payers, such as government health administration authorities, private health insurers and other organizations. Ifadequate coverage and reimbursement levels are not provided by government, and third-party payers for uses of our therapeutic products, themarket acceptance of these products would be adversely affected. There have been a number of federal and state proposals during the last few years to subject the pricing of pharmaceuticals to governmentcontrol and to make other changes to the medical care system of the United States. It is uncertain what legislative proposals will be adopted orwhat actions federal, state or private payers for medical goods and services may take in response to any medical reform proposals or legislation.We cannot predict the effect medical reforms may have on our business, and no assurance can be given that any such reforms will not have amaterial adverse effect.Employees The Company had 127 full-time employees as of December 31, 2000, of whom 31 are in research and development. Of those 31, 6 are PhD’sand 1 is an M.D. The Company has no collective bargaining agreement with its employees and believes that its employee relations are good.Risks and Uncertainties The following is a summary description of some of the many risks we face in our business. You should carefully review these risks inevaluating our business, including the business of our subsidiaries. You should also consider the other information described in this report. We have a history of losses and our future profitability is uncertain Our expenses have exceeded our revenues since our formation in 1987, and our accumulated deficit at December 31, 2000 was $55.1 million.Our revenues for the last three years were $681,000 in 1998, $1.2 million in 1999 and $2.5 million in 2000. The Fielding acquisition will generaterevenue from commercial sales of products but we cannot be certain that these revenues will be sufficient to offset our expenses in the future. Wehave received a very limited amount of product-related revenue from research contracts, licenses and agreements to provide vaccine products,services and adjuvant technologies. We cannot be certain that we will be successful in entering into strategic alliances or collaborativearrangements with other companies that will result in other significant revenues to offset our expenses. Our net losses for the last three years were$4.8 million in 1998, $4.5 million in 1999 and $12.2 million in 2000. Our losses have resulted from research and development expenses, clinicaltrials, protection of our patents and other intellectual property and other general operating expenses. We expect that our annual losses will continuein the near term as we conduct additional clinical trials and seek regulatory approval for advanced stage product candidates. Therefore, we expectour cumulative operating loss to increase until such time, if ever, as product sales, licensing fees and royalty payments generate sufficientrevenue to fund our continuing operations. We cannot predict when, if ever, we might achieve profitability and cannot be certain that we will be ableto sustain profitability, if achieved.12Table of Contents We have not completed the development of any product and our ability to do so is uncertain All of our potential products are still in various stages of pre-clinical research or clinical trials. Significant further research and development,pre-clinical and clinical testing, regulatory approval and additional financing are all necessary before the commercial sales of any of our products. We are not certain whether we will be able to complete the development of and sell any of our products. The development of pharmaceuticalproducts based on new technologies is subject to a variety of inherent risks of failure. These risks include the following: • Our potential products may be found to be unsafe, to have harmful side effects on humans, to be ineffective or mayotherwise fail to meet regulatory standards or receive necessary regulatory approvals. • Our potential products may be too difficult or costly to manufacture on a large scale, to develop into commerciallyviable products or to market. • Our potential products may not be accepted by the medical community. • Other companies may market superior or equivalent products. • Other parties may claim proprietary rights to our product technology that prevent us from marketing our products. • We may be unable to raise enough money to finance our continued product development. We have recently completed a Phase III clinical trial for our estrogen replacement therapy product, ESTRASORB and expect to file an NDA inthe first half of 2001. Our products are in various phases of testing and we cannot guarantee that these products will successfully pass suchtesting phases, and if so, will result in commercially successful products. Clinical trial results are frequently susceptible to varying interpretationsby scientists, medical personnel, regulatory personnel, statisticians and others which may delay, limit or prevent further clinical development orregulatory approvals of a product candidate. Also, the length of time that it takes for us to complete clinical trials and obtain regulatory approval forproduct marketing can vary by product and by the indicated use of a product. We are unable to predict the length of time before we complete thenecessary clinical trials and obtain regulatory approval. We may not succeed in obtaining the FDA approval necessary to sell our products The development, manufacture and marketing of our pharmaceutical products are subject to government regulation in the United States andother countries. In the United States and most foreign countries, we must complete rigorous preclinical testing and extensive human clinicalapproval to market the product. One of our product candidates, ANDROSORB, is now in Phase I human clinical studies. ESTRASORB recentlycompleted Phase III clinical trials for estrogen replacement therapy. Our other product candidates are in pre-clinical laboratory or animal studies.Before applying for FDA approval to market any particular product candidate, we must conduct larger-scale Phase II and III human clinical trialsthat demonstrate the safety and efficacy of our products to the satisfaction of the FDA or other regulatory authorities. These processes areexpensive and can take many years to complete. We may not be able to demonstrate the safety and efficacy of our products to the satisfaction ofthe FDA or other regulatory authorities. Novavax may also be required to demonstrate that its proposed product represents an improved form oftreatment over existing therapies and we may be unable to do so without conducting further clinical studies, if at all. We may fail to obtain regulatory approval for our products on a timely basis, if at all. Delays in obtaining regulatory approval can be extremelycostly in terms of lost sales opportunities and increased clinical trial costs. The speed with which we complete our clinical trials and ourapplications for marketing approval will depend on several factors, including the following: • The rate of patient enrollment, which is a function of many factors, including the size of the patient population, theproximity of patients to clinical sites, the eligibility criteria for the study and the nature of the protocol;13Table of Contents • Institutional review board approval of the protocol and the informed consent form; • Prior regulatory agency review and approval; • Analysis of data obtained from pre-clinical and clinical activities which are susceptible to varying interpretations,which interpretations could delay, limit or prevent regulatory approval; • Changes in the policies of regulatory authorities for drug approval during the period of product development; and • The availability of skilled and experienced staff to conduct and monitor clinical studies and to prepare theappropriate regulatory applications. We have limited experience in conducting and managing the pre-clinical and clinical trials necessary to obtain regulatory marketing approvals.We may not be able to obtain the approvals necessary to conduct clinical studies. Also, the results of our clinical trials may not be consistent withthe results obtained in pre-clinical studies or the results obtained in later phases of clinical trials may not be consistent with those obtained inearlier phases. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials, even afterexperiencing promising results in early animal and human testing. If regulatory approval of a drug is granted, such approval is likely to limit theindicated uses for which it may be marketed. Furthermore, even if a product of ours gains regulatory approval, the product and the manufacturer ofthe product will be subject to continuing regulatory review. We may be restricted or prohibited from marketing or manufacturing a product, evenafter obtaining product approval, if previously unknown problems with the product or its manufacture are subsequently discovered. We may need substantial additional capital to grow and operate our business and we are uncertain about obtaining future financing We estimate that our existing cash resources will be sufficient to finance our operations at current and projected levels of development andgeneral corporate activity for the next 12 to 18 months. Thereafter, we will require substantial additional funds to continue our research anddevelopment, commence future pre-clinical and clinical trials, seek regulatory approvals, establish commercial-scale manufacturing capabilitiesand market our products. We will seek to obtain additional funds through public or private equity or debt financings, collaborative arrangementswith pharmaceutical companies and other sources. We cannot be certain that adequate additional funding or bank financing will be available to uson acceptable terms, if at all. If we cannot raise the additional funds and we need to continue our current and anticipated operations, we may berequired to delay significantly, reduce the scope of or eliminate one or more of our research or development programs. If that is the case we willseek other alternatives to avoid insolvency, including arrangements with collaborative partners or others that may require Novavax to relinquishrights to certain of its technologies, product candidates or products. Our success depends on our ability to maintain the proprietary nature of our technology Our success will, in large part, depend on our ability to maintain the proprietary nature of our technology and other trade secrets. To do so, wemust prosecute and maintain existing patents, obtain new patents and pursue trade secret protection. We also must operate without infringing theproprietary rights of third parties or letting third parties infringe our rights. Novavax has 50 United States patents and approximately 125 foreignpatents covering its technologies, including its Novamix™ production equipment. However, patent issues relating to pharmaceuticals involvecomplex legal, scientific and factual questions. To date, no consistent policy has emerged regarding the breadth of biotechnology patent claimsthat are granted by the United States Patent and Trademark Office or enforced by the federal court. Therefore, we do not know whether ourapplications will result in the issuance of patents, or that any patents issued to Novavax will provide us with any competitive advantage. We alsocannot be sure that Novavax will develop additional proprietary products that are patentable. Furthermore, there is a risk that others willindependently develop or duplicate similar technology or products or circumvent the patents issued to Novavax. There is a risk that third parties may challenge our existing patents or may claim that we are infringing their patents or proprietary rights. Wecould incur substantial costs in defending patent infringement suites or in filing14Table of Contentssuits against others to have their patents declared invalid or claim infringement. It is also possible that we may be required to obtain licenses fromthird parties to avoid infringing third-party patents or other proprietary rights. We cannot be sure that such third-party licenses would be available tous 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. Some of our know-how and technology is not patentable. To protect our proprietary rights in unpatentable intellectual property and tradesecrets, we require employees, consultants, advisors and collaborators to enter into confidentiality agreements. These agreements may notprovide meaningful protection for Novavax’s trade secrets, know-how or other proprietary information in the event of any unauthorized use ordisclosure. Other organizations have greater resources to develop, manufacture and market competitive products We compete with numerous other companies worldwide that have developed or are developing novel drug delivery and encapsulationtechnologies. These competitors include both large and small pharmaceutical companies, biotechnology firms, universities and other researchinstitutions. Novavax may not succeed in developing technologies and products that are more effective than those being developed by ourcompetitors. Novavax’s technologies and products may be rendered obsolete or noncompetitive as a result of products introduced by competitors.Most of our competitors have substantially greater financial and technical resources, production capabilities and experience of our competitorsmay enable them to develop, manufacture and market their products more successfully and at a lower cost than Novavax. In addition, many ofNovavax’s competitors have significantly greater experience than Novavax in conducting preclinical testing and clinical trials of humanpharmaceuticals and obtaining regulatory approvals to market such products. Accordingly, Novavax’s competitors may succeed in obtaining FDAapproval for products more rapidly than Novavax which may give them an advantage over Novavax in achieving market acceptance of theirproducts. We need marketing and manufacturing partners to commercialize our products We do not have any significant manufacturing capability and our drug development capability is limited in large part by our finances. Althoughwe have the ability to produce the limited quantities of products needed to support our current research and development program and clinicaltrials, we will need more production capacity for larger, later-stage clinical studies and commercial sales. Therefore, our ability to successfullydevelop and commercialize our products depends, in large part, on our success in entering into strategic alliances or licensing arrangements withcollaborative partners, primarily pharmaceutical companies. We expect that these partners will assume various responsibilities for productcommercialization including conducting clinical trials, submitting applications for regulatory approval and manufacturing product supplies. However,we may not be able to negotiate collaborative arrangements on acceptable terms, if at all. Even if such collaborations are established, they maynot be scientifically or commercially successful. There is a risk that our collaborative partners may fail to perform their obligations to develop andmanufacture our products in which case our business may be adversely affected. We also face the risk that our collaborative partners maydevelop competing technologies for treating the diseases and conditions targeted by our products, either on their own or in collaboration withothers. In certain circumstances, it may be advantageous for us to retain manufacturing rights for some of the products that we license tocollaborative partners. However, we cannot be sure that we will be able to retain such rights on acceptable terms, if at all, or that we will have theability to produce the quantities of product required under the terms of such arrangements. Our reliance on collaborative arrangements for productdevelopment and commercialization may result in lower revenues from royalties and other payments than we could have generated had wecommercialized and marketed products ourselves. If we manufacture our own products, we will need to acquire additional manufacturing facilities and to improve our manufacturing technology.Establishing additional manufacturing facilities will require us to spend substantial funds, hire and retain a significant number of additionalpersonnel and comply with extensive regulations applicable to such facilities here and abroad, including the current good laboratory practices andgood manufacturing practices required by the FDA. If we elect to or need to manufacture our own products, we risk the possibility that we may notbe able to do so in a timely fashion at acceptable quality and prices or in compliance with good laboratory15Table of Contentspractices and good manufacturing practices. If we are not able to enter into commercial manufacturing agreements or successfully develop ourown commercial manufacturing capacity, sales of our products will be delayed or reduced. We are in the process of validating our manufacturing methods for ESTRASORB, which is required under FDA guidelines. We have enteredinto a supply agreement using one third-party contract manufacturer for our clinical and manufacturing needs. We intend to qualify at least oneadditional FDA approved manufacturing facility after receiving FDA approval. However, if we are unable to produce ESTRASORB in our currentfacility, Novavax would not have immediate access to this product. Under such circumstances Novavax would be required to reestablish itsvalidation process at a different third-party contract manufacturer. This would delay the commercialization of ESTRASORB. The Fielding acquisition may not result in a smooth integration of our future products into Fielding’s current sales and distribution channels We cannot be certain whether the acquisition of Fielding will result in a successful integration of our future products into Fielding’s sales anddistribution channels. Among the reasons we have acquired Fielding are its experienced sales representatives and seasoned management team,its existing product revenues and operating income, which will provide Fielding with the financial resources to fund the development of additionalproprietary products, and the synergies which should be created by the merger. In the event that we are unable to integrate successfully, ourresults of operations and financial condition would be materially adversely affected and we would continue to have limited revenues and largeoperating losses. In addition, our inability to integrate successfully would increase our dependence on other third party collaborations. Our bylaws contain anti-takeover provisions that may deter an acquisition of Novavax, a change of management or other events that mightbenefit stockholders Our Amended and Restated Certificate of Incorporation requires that any action required or permitted to be taken by stockholders of Novavaxmust be effected at a duly called annual or special meeting of stockholders and may not be effected by any consent in writing, and will requirereasonable advance notice by a stockholder of a proposal or director nomination which such stockholder desires to present at any annual orspecial meeting of stockholders. Special meetings of stockholders may be called only the Chief Executive Officer or, if none, the President ofNovavax or the Board of Directors. The Restated Certificate of Incorporation also provided for a classified Board of Directors and members of theBoard of Directors may be removed only for cause upon the affirmative vote of holders of a least two-thirds of the shares of capital stock ofNovavax entitled to vote. The Board of Directors also has the authority, without further action by the stockholders, to fix the rights and preferencesof, and issue shares of, preferred stock. These provisions and other provisions of our Restated Certificate of Incorporation and By-Laws may deter hostile takeovers or delay or preventchanges in control or management of Novavax, including transactions in which stockholders might otherwise receive a premium for their sharesover then current market prices. In addition, these provisions may limit the ability of stockholders to approve transactions that they believe to bebeneficial.Item 2. Properties The Company leases approximately 12,000 square feet of administrative offices and laboratory space for its corporate headquarters, andpharmaceutical product storage at 8320 Guilford Road, Columbia, Maryland. The Company leases a second facility of approximately 6,000 squarefeet of space located in Rockville, Maryland. This facility contains the Company’s certified animal facility and laboratories for its drug research andbiologics development, which includes the vaccine adjuvant product and services group. A third facility leases approximately 12,000 square feet ofspace which is also located in Rockville, Maryland. This facility is for contract vaccine research, development and manufacturing of Phase I and IIproducts. The Company’s Fielding subsidiary leases a facility in Maryland Heights, Missouri. This facility is approximately 12,000 square feet andis used for administrative offices, manufacturing and warehousing.16Table of Contents The Company believes its facilities are adequate to produce quantities of Novasome lipid vesicles, micellar nanoparticles, vaccines andadjuvants to support Phase I and Phase II clinical trials. It does not presently have FDA certified facilities capable of producing the largerquantities of pharmaceutical products required for commercial production. The Company presently relies on collaborators, licensees or contractmanufacturers for Phase III clinical trial materials and commercial production of its own pharmaceuticals.Item 3. Legal Proceedings The Company is not a party to any legal proceedings.Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 2000.Executive Officers Of The Registrant The Company’s executive officers hold office until the first meeting of the Board of Directors following the annual meeting of stockholders anduntil their successors are duly chosen and qualified, or until they resign or are removed from office in accordance with the Company’s By-laws. The following table provides certain information with respect to the Company’s executive officers. Principal Occupation and Other BusinessNameAgeExperience During the Past Five YearsJohn A. Spears 51 President, Chief Executive Officer and Director since May 1999. President and Chief Executive Officerof Vion Pharmaceuticals, Inc. from 1995 to May 1999. Presidentand Chief Executive Officer of MelaRx Pharmaceuticals, Inc.from 1993 to 1995. Senior Vice President of Immunex Corp from1989 to 1993.Denis M. O’Donnell, M.D. 47 Chairman of the Board of Directors of Novavax, Inc. since May,2000. Vice Chairman of the Board of Directors of Novavax, Inc.from June, 1999 to May 2000. General Partner at SeasidePartners, LP, a private equity limited partnership, since 1997.Senior Advisor to Novavax from 1997 to 1998. President ofNovavax from 1995 to 1997. Vice President, BusinessDevelopment of Novavax from 1992 to 1995. Vice President ofIGI, Inc. from 1991 to 1995. Director of the Clinical ResearchCenter of MTRA, Inc., a provider of contract pharmaceuticalresearch, from 1986 to 1991.D. Craig Wright, M.D. 50 Chief Scientific Officer of Novavax since 1993. Founder andSenior Director of Medical Research of Univax Biologics, Inc., abiopharmaceutical company, from 1988 to 1992.17Table of Contents Principal Occupation and Other BusinessNameAgeExperience During the Past Five YearsJames R. Mirto 58 Senior Vice President and Chief Operating Officer since May2000. Vice President, New Product Development and Licensingof Ligand Pharmaceuticals from August 1993 to February 2000.Vice President of Sales and Marketing at Adria Laboratories,from April 1990 to November 1992.Dennis W. Genge 48 Vice President and Treasurer, Chief Financial Officer sinceOctober 2000. Vice President Controller of Pyxis Corporationfrom April 1999 to September 2000. Executive Director ofAccounting and Finance and Controller of LigandPharmaceuticals, Inc. from July 1991 to March 1999.18Table of ContentsPART IIItem 5. Market For Registrant’s Common Equity and Related Stockholder Matters The Company’s Common Stock was held by approximately 813 stockholders of record as of March 9, 2001. The Company has never paidcash dividends on its Common Stock. The Company currently anticipates that it will retain all of its earnings for use in the development of itsbusiness and does not anticipate paying any cash dividends in the foreseeable future. The Company’s Common Stock ($.01 par value) is traded on the American Stock Exchange under the symbol “NOX”. The following table setsforth, for the periods presented, the high and low sales prices for the Company’s Common Stock. Quarter Ended:HighLowDecember 31, 2000 $9.48 $6.75 September 30, 2000 9.19 6.13 June 30, 2000 8.63 4.50 March 31, 2000 12.38 4.75 December 31, 1999 $6.19 $3.63 September 30, 1999 4.50 3.13 June 30, 1999 4.19 3.06 March 31, 1999 4.00 1.88 Recent Sales of Unregistered Securities In December 2000, Novavax acquired privately owned Fielding Pharmaceutical Company. Under the terms of the acquisition agreement,Novavax acquired 100% of the outstanding shares of Fielding for $31.5 million, consisting of $13 million in cash and 2,312,501 shares of Novavaxcommon stock, valued at $18.5 million. An additional $5 million in either Novavax common stock or cash will be paid to former Fieldingshareholders in March 2002.Item 6. Selected Consolidated Financial Data For the years ended December 31,19961997199819992000(amounts in thousands, except share and per share information)Statement of Operations Data: Revenues $56 $520 $681 $1,181 $2,475 Loss from operations (5,534) (4,791) (5,152) (4,566) (12,742)Net loss (5,495) (4,547) (4,817) (4,506) (12,191)Loss applicable to commonstockholders (5,495) (4,547) (7,045) (4,506) (12,191)Per share information: (basic and diluted) Loss applicable to commonstockholders $(0.54) $(0.39) $(0.57) $(0.31) $(0.64)Weighted average number ofshares outstanding 10,132,896 11,667,428 12,428,246 14,511,081 19,015,719 As of December 31,19961997199819992000Balance Sheet Data: Total current assets $3,221 $4,303 $1,207 $1,143 $17,036 Working capital 2,640 4,014 349 (480) 12,331 Total assets 5,722 6,823 3,819 4,463 56,529 Stockholders’ equity 5,117 6,522 2,961 2,840 31,824 19Table of ContentsSummarized Quarterly Financial Information for the Years ended December 31, 2000 and 1999: Quarter EndedMarch 31June 30September 30December 31(in thousands except per share data)2000 Revenues $710 $588 $370 $807 Research and development costs 1,524 2,113 2,924 2,797 General and administrative expenses 641 1,302 822 3,094 Net loss (1,350) (2,641) (3,213) (4,987)Net loss per share $(0.08) $(0.14) $(0.17) $(0.25) 1999 Revenues $76 $252 $143 $710 Research and development costs 497 627 1,119 1,111 General and administrative expenses 468 531 807 587 Net loss (881) (884) (1,769) (972)Net loss per share $(0.07) $(0.06) $(0.12) $(0.07)Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations This annual report may contain predictions, estimates and other forward-looking statements that involve a number of risks and uncertainties,including those discussed at “Risks and Uncertainties.” This outlook represents our current judgment on the future direction of our business.Forward-looking statements include, but are not limited to, statements regarding future product development and related clinical trials andstatements regarding future research and development. Such forward-looking statements involve known and unknown risks, uncertainties andother factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different fromany future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among otherthings, the following: general economic and business conditions; competition; technological advances; ability to obtain rights to technology; abilityto obtain and enforce patents; ability to commercialize and manufacture products; results of preclinical studies; results of research anddevelopment activities; business abilities and judgment of personnel; availability of qualified personnel; changes in, or failure to comply with,governmental regulations; ability to obtain adequate financing in the future; and other factors referenced herein. Past results and trends should notbe used by investors to anticipate future results or trends. We undertake no obligation to release publicly the results of any revisions to theseforward-looking statements to reflect events or circumstances arising after the date of this annual reportOverview The Company has incurred net losses since its inception from the development of its technologies for human pharmaceuticals, vaccines andvaccine adjuvants. As of December 31, 2000 our accumulated deficit was $55.1 million. We expect the losses to continue in the near-term, as weconduct additional human clinical trials and seek regulatory approval for our product candidates. We also expect to continue to incur operatinglosses over the time period required to develop our products, or until such time as revenues, to offset the losses, are sufficient to fund ourcontinuing operations. In August 1999, the Company acquired substantially all of the assets (excluding cash and accounts receivable) of the Biomedical ServicesLaboratory (“BSD”) division of DynCorp of Reston, Virginia. The total consideration and direct costs for the acquisition were $860,000. Theresearch and development activities of BSD are conducted in an approximately 12,000 square foot facility located in Rockville, Maryland. BSD isengaged in contract research, development and pilot manufacturing of human vaccines for government laboratories and other vaccine companies.The acquisition has been accounted for under the purchase method of accounting for business combinations. In December 2000, Novavax acquired privately owned Fielding Pharmaceutical Company (“Fielding”), based in St. Louis, Missouri, which sells,markets and distributes a proprietary line of pharmaceutical products focused on20Table of Contentswomen’s health. Fielding fills, packages and warehouses all of its own products, which are purchased from contract manufacturers. Novavax willoperate Fielding as a wholly owned subsidiary. Under the terms of the acquisition agreement, Novavax acquired 100% of the outstanding shares ofFielding for $31.5 million, consisting of $13 million in cash and 2,312,501 shares of Novavax common stock, valued at $18.5 million. An additional$5 million in either Novavax common stock or cash will be paid to former Fielding shareholders in March 2002. The acquisition has beenaccounted for in the accompanying financial statements under the purchase method of accounting for business combinations. In December 2000, King Pharmaceuticals, Inc., (“King”) agreed to make a $25 million convertible note investment in Novavax. The note isconvertible into Novavax Common Stock at $10.00 per share which was an 18% premium to a 20 day trading average prior to the closing. Thenote carries a 4% coupon payable semi-annually in cash and stock. As part of the transaction, Novavax received $20 million in December 2000and will receive an additional $5 million when Novavax files a New Drug Application (“NDA”) for its topical transdermal estrogen replacementtherapy, ESTRASORB™, expected to be filed in the first half of 2001. Novavax used a portion of the funds to complete its acquisition of Fieldingand will use the balance for general operating purposes. In January 2001, we also signed a co-promotion agreement with King for ESTRASORB™,in the United States. In addition, we will combine U.S. sales efforts with King to begin co-promoting one of King’s products already on the market,Nordette®, a birth control pill. We also acquired AVC™ Cream and Suppositories from King in January 2001, for $3.3 million, which had previouslybeen marketed by King for the treatment of vaginal bacterial infections. The following is a discussion of the historical consolidated financial condition and results of operations of Novavax and its subsidiaries. Thediscussion should be read in conjunction with the consolidated financial statements and notes thereto set forth in Item 8 to this Report.Year Ended December 31, 2000 (“2000”), as compared with Year Ended December 31, 1999 (“1999”) Our net loss for 2000 was $12.2 million or $(0.64) per share, compared to $4.5 million or $(0.31) per share for 1999, which is an increase of$7.7 million or $(0.33) per share. Revenues of $2.5 million were recognized during 2000, compared to $1.2 million in 1999. Revenues in 2000included $750,000 from a license agreement entered into in October 1999 with Parkedale Pharmaceuticals, Inc., a wholly-owned subsidiary ofKing. The license agreement included a non-refundable license payment of $1.0 million. We recognized $250,000 under this agreement in 1999. Inaddition revenues of $1.4 million and $370,000 were recognized in 2000 and 1999, respectively, under contracts with the National Institutes ofHealth (“NIH”) and other government agencies. General and administrative expenses were $5.9 million for 2000, compared to $2.4 million incurred in 1999, which is an increase of $3.5 millionor 145%. The increase was due primarily to costs incurred for financing and acquisition activities and the hiring of additional senior managementand personnel to support our growth. Research and development expenses were $9.4 million and $3.4 million for 2000 and 1999, respectively. This$6.0 million, or 176% increase in research and development expenses is primarily due to costs associated with our clinical trials andmanufacturing process validation activities related to our ESTRASORB product, which completed Phase III clinical trials. Additional increases in2000 are due to the effect of a full year of expenses incurred by BSD. Novavax expects costs related to its NDA submission, manufacturingprocess validation and BSD programs to continue to increase during 2001. Net interest income was $551,000 in 2000 compared to $60,000 in 1999. The increase in the interest income relates to higher average cashbalances from financing activities during 2000 compared to 1999.Year Ended December 31, 1999 (“1999”), as compared with Year Ended December 31, 1998 (“1998”) Our net loss available to common stockholders for 1999 was $4.5 million or $(0.31) per share, compared to $7.0 million or $(0.57) per share for1998, which was a decrease of $2.5 million, or $(0.26) per share. In 1998, charges for a dividend, a deemed dividend and offering costs, togethertotaling $2.2 million, relating to mandatory — redeemable convertible preferred stock resulted in the increased loss in 1998 when compared to1999. There were no similar charges for 1999.21Table of Contents Revenues of $1.2 million were received in 1999, compared to $.7 million in 1998. The $500,000 increase relates to payments under licenseand research contracts from BSD which was acquired in August 1999. In October 1999, the Company also entered into a licensing agreement withParkedale Pharmaceuticals, Inc. a wholly owned subsidiary of King. The license agreement included a non-refundable license payment of$1.0 million. We recognized $250,000 under this agreement in 1999. General and administrative expenses were $2.4 million for both 1999 and 1998. Research and development expenses were $3.4 million forboth 1999 and 1998. Increases in research costs for the newly acquired BSD operation and personnel in 1999 were offset by reductions in thenumber of products in clinical development programs. As expected costs related to our clinical trials, manufacturing process validation and BSDprograms increased during 2000. Net interest income was $60,000 in 1999 compared to $335,000 in 1998. The decrease in the interest income relates to lower average cashbalances during 1999 compared to 1998.Liquidity and Capital Resources Our capital requirements depend on numerous factors, including but not limited to the progress of our research and development programs, theprogress of preclinical and clinical testing, the time and costs involved in obtaining regulatory approvals, the costs of filing, prosecuting, defendingand enforcing any patent claims and other intellectual property rights, competing technological and market developments, and changes in ourdevelopment of commercialization activities and arrangements. We currently have two products in clinical trials. Future activities including clinicaldevelopment, the establishment of commercial-scale manufacturing capabilities and the development of sales and marketing programs are subjectto our ability to raise funds through equity financing, or collaborative arrangements with industry partners. In January 1998, the Company entered into Subscription Agreements to effectuate the private placement of 6,500 shares of Series A CustomConvertible Preferred Stock, $1,000 par value (the “Preferred Stock”). The closing occurred on January 28, 1998 (the “Issuance Date”) at anaggregate purchase price of $6.5 million. Prior to the subsequent repurchase of all the outstanding Preferred Stock, $1.5 million of the original issue had been converted into 1,043,956shares of Common Stock, pursuant to the terms and conditions of the Preferred Stock. In October 1998, we entered into agreements torepurchase the remaining Preferred Stock. We repurchased the remaining outstanding $5.0 million of Preferred Stock plus accrued dividends at theannual rate of five percent. The terms of the Preferred Stock also required us to pay the holders of the Preferred Stock $225,000 in dividends. Thisamount was paid in cash of $179,000 and through the issuance of 32,492 shares of the Company’s Common Stock. The Company incurredtransaction fees associated with the placement, conversion and repurchase of the Preferred Stock of $502,000 which are included in theaccompanying financial statements as accretion of Preferred Stock. In April 1999, we entered into Stock and Warrant Purchase Agreements for the private placement of 1,651,100 shares of our Common Stockto accredited investors (the “Private Placement”). One of the principals of one of the investors is also a director of the Company. The issuanceprice of the Common Stock was $2.50 per share. Each share was sold together with a non-transferable warrant for the purchase of .25 additionalshares at an exercise price of $3.75. The warrants have a three-year term. Net proceeds from the Private Placement were approximately$4.0 million. Placement agents fees of $215,000 were paid in cash and shares of common stock. Non-transferable warrants for the purchase of143,000 shares of our Common Stock, with an exercise price of $3.00 per share and a three-year term, were also issued to the placement agents. In January 2000, we closed a private placement of 2,813,850 shares of our Common Stock to accredited investors (the “2000 PrivatePlacement”). The issuance price of the Common Stock was $4.00 per share. Each share was sold together with a non-transferable warrant for thepurchase of .25 additional shares at an exercise price of $6.75. The warrants have a three-year term. Placement agent fees were approximately$675,000, which was paid in cash. Additionally, non-transferable warrants for the purchase of 281,385 shares of the Company’s Common Stock,with an exercise price of $6.75 per share and a three-year term, were issued to the placement agent. Net proceeds to the Company from the 2000Private Placement were approximately $10.5 million.22Table of Contents In December 2000, we acquired Fielding and also received $20 million from a convertible note from King. For details on these transactions,refer to our discussion in the Overview section above. The Company used approximately $9.4 million during the year ended December 31, 2000 to fund the activities of its research and developmentprograms and costs associated with obtaining regulatory approvals, clinical testing and manufacturing process validation. Cash balances availableto the Company, including the financings described above, funded these expenditures. Cash and cash equivalents on December 31, 2000, totaled $14.9 million, compared to $732,000 at December 31, 1999. The $14.1 millionincrease was attributable to the financing activities and Fielding acquisition previously discussed. We estimate that based on historical levels ofspending and revenues, giving effect to the recent Fielding acquisition noted above, and without giving effect to any future financing, existing cashresources will be sufficient to finance our operations for approximately 12 to 18 months. Past spending levels are not necessarily indicative offuture spending. Future expenditures for product development, including these related to outside testing and human clinical trials, are discretionaryand accordingly, can be adjusted to available cash. As we continue to progress in our clinical development activities and commercial scale-up ofproduct manufacturing, we anticipate future increases in spending associated with these activities. Moreover, we may seek to establish additionalcollaborations with industry partners, to defray the costs of clinical trials and other related activities. We will also consider sources of additionalfunds through public or private equity or debt financing, collaborative arrangements with pharmaceutical companies, government agency contractsor from other sources. There can be no assurance that additional funding or bank financing will be available at all or on acceptable terms to permitsuccessful commercialization of all our technologies and products. If adequate funds are not available, we may be required to significantly delay,reduce the scope of or eliminate one or more of its research or development programs, or seek alternative measures including arrangements withcollaborative partners or others that may require us to relinquish rights to certain of its technologies, product candidates or products.Item 7A. Quantitative and Qualitative Disclosures about Market Risks Not applicable.Item 8. Financial Statements and Supplementary Data The financial statements and notes thereto listed in the accompanying index to financial statements (Item 14) are filed as part of this AnnualReport and are incorporated herein by this reference.Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None.23Table of ContentsPART IIIItem 10. Directors and Executive Officers of the Registrant The information required by this item is contained in part under the caption “Executive Officers of the Registrant” in Part I hereof, and theremainder is contained in the Company’s Proxy Statement for the Company’s Annual Meeting of Stockholders to be held on May 9, 2001 (the“2001 Proxy Statement”) under the captions “Proposal 1 — Election of Directors” and “Beneficial Ownership of Common Stock” and is incorporatedherein by this reference. The Company expects to file the 2001 Proxy Statement within 120 days after the close of the fiscal year endedDecember 31, 2000.Item 11. Executive Compensation The information required by this item is contained in the Company’s 2001 Proxy Statement under the captions “Executive Compensation” and“Director Compensation” and is incorporated herein by reference.Item 12. Security Ownership of Certain Beneficial Owners and Management The information required by this item is contained in the Company’s 2001 Proxy Statement under the caption “Beneficial Ownership ofCommon Stock” and is incorporated herein by reference.Item 13. Certain Relationships and Related Transactions The information required by this item is contained in the Company’s 2001 Proxy Statement under the caption “Certain Relationships andRelated Transactions” and is incorporated herein by reference.24Table of ContentsPART IVItem 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a)(1) Financial Statements: Reports of Independent Accountants; Consolidated Balance Sheets as of December 31, 2000 and 1999; ConsolidatedStatements of Operations for the years ended December 31, 2000, 1999 and 1998; Consolidated Statements of Cash Flowsfor the years ended December 31, 2000, 1999 and 1998; Consolidated Statements of Stockholders’ Equity for the yearsended December 31, 2000, 1999 and 1998; Notes to Consolidated Financial Statements.(a)(2) Financial Statement Schedules: Schedules are either not applicable or not required because the information required is contained in the financial statementsor notes thereto. Condensed financial information of the Company is omitted since there are no substantial amounts ofrestricted net assets applicable to the Company’s consolidated subsidiaries.(a)(3) Exhibits Required to be Filed by Item 601 of Regulation S-K: Exhibits marked with a single asterisk are filed herewith, and exhibits marked with a double plus sign reference managementcontracts, compensatory plans or arrangements, filed in response to Item 14 (a)(3) of the instructions to Form 10-K. Theother exhibits listed have previously been filed with the Commission and are incorporated herein by reference.3.1 Amended and Restated Certificate of Incorporation of the Company [Incorporated by reference to Exhibit 3.1 to theCompany’s Annual Report on Form 10-K for the fiscal year ended December 31, 1996, File No. 0-26770, filed March 21,1997 (the “1996 Form 10-K”).]3.2 Amended and Restated By-laws of The Company [Incorporated by reference to Exhibit 3.2 to the 1996 Form 10-K.]3.3 Certificate of Designations of Series A Custom Convertible Preferred Stock dated January 28, 1998. [Incorporated byreference to Exhibit 4.2 to the Company’s Registration Statement on Form S-3, File No. 333-46409, filed February 17,1998.]*3.4 Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Company, dated December 18, 2000.4. Specimen stock certificate for shares of Common Stock, par value $.01 per share. [Incorporated by reference to Exhibit 4.1to the Company’s Registration Statement on Form 10, File No. 0-26770, filed September 14, 1995 (the “Form 10”).]10.1 License Agreement between IGEN, Inc. and Micro-Pak, Inc. [Incorporated by reference to Exhibit 10.3 to the Company’sAnnual Report on Form 10-K for the fiscal year ended December 31, 1995, File No. 0-26770, filed April 1, 1996, (the “1995Form 10-K”).]††10.2 1995 Stock Option Plan. [Incorporated by reference to Exhibit 10.4 to the Form 10.]††10.3 First Amendment to The Company 1995 Stock Option Plan approved by the stockholders of the Company on May 14, 1998,and by the Board of Directors on March 16, 1998. [Incorporated by reference to Exhibit 10.3 to the Company’s Annual Reporton Form 10-K for the fiscal year ended December 31, 1998, File No. 0-26770, filed April 15, 1999. (the “1998 Form 10-K”).]*††10.4 Second Amendment to The Company 1995 Stock Option Plan approved by the stockholders of the Company on May 9,2000, and by the Board of Directors on March 7, 2000.††10.5 Director Stock Option Plan. [Incorporated by reference to Exhibit 10.5 to the Form 10.]10.6 Agreement of Lease by and between the Company and Rivers Center Associates Limited Partnership, dated September 25,1996. [Incorporated by reference to Exhibit 10.7 to the 1996 Form 10-K.]††10.7 Employment Agreement dated March 31, 1998, by and between the Company and D. Craig Wright [Incorporated byreference to Exhibit 10.14 to the1998 Form 10-K.]25Table of Contents ††10.8 Employment Agreement dated May 13, 1999, by and between the Company and John A. Spears. [Incorporated by reference toExhibit 10.10 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999, File No. 0-26770, filedMarch 9, 2000. (the “1999 Form 10-K”).]10.9 Form of Stock and Warrant Purchase Agreement dated April 14, 1999, by and between the Company and the purchasers namedtherein. [Incorporated by reference to Exhibit 10.16 to the 1998 Form 10-K]10.11 License Agreement by and between the Company and Parkedale Pharmaceuticals, Inc. dated October 21, 1999. [Incorporated byreference to Exhibit 10.13 to the 1999 Form 10-K.]10.12 Form of Stock and Warrant Purchase Agreement dated January 28, 2000, by and between the Company and the purchasers namedtherein. [Incorporated by reference to Exhibit 10.15 to the 1999 Form 10-K.]10.13 Agreement and Plan of Merger dated October 4, 2000 between the Company and the parties identified therein. [Incorporated byreference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed October 19, 2000.]10.14 Note Purchase Agreement dated as of December 19, 2000 between the Company and King Pharmaceuticals, Inc. [Incorporated byreference to Exhibit 99.2 to the Company’s Current Report on Form 8-K, filed January 2, 2001.]10.15 Investor Rights Agreement dated December 19, 2000 between the Company and King Pharmaceuticals, Inc. [Incorporated byreference to Exhibit 99.4 to the Company’s Current Report on Form 8-K, filed January 2, 2001.]10.16 Agreement for Purchase and Sale of Assets Relating to AVC™ Product Line dated as of January 8, 2001, by and between theCompany and King Pharmaceuticals, Inc. [Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K,filed January 19, 2001.]10.17 Copromotion Agreement dated as of January 8, 2001, between the Company and King Pharmaceuticals, Inc. [Incorporated byreference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed January 19, 2001.]10.18 Exclusive License and Distribution Agreement dated as of January 8, 2001, between the Company and King Pharmaceuticals, Inc.[Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed January 19, 2001.]16. Letter regarding change in certifying accountant. [Incorporated by reference to Exhibit 16 to the Company’s Current Report onForm 8-K, filed July 25, 2000.]*21 List of Subsidiaries.*23.1 Consent of Ernst & Young LLP, Independent Accountants.*23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants.27 Financial Data Schedule26Table of Contents (b) Reports on Form 8-K: The Company filed a current report on Form 8-K on October 19, 2000 to report under Item 2 its agreement to acquireFielding Pharmaceutical Company, Inc. In addition, the Company filed an amendment to the Form 8-K on December 18,2000 to include under Item 7 the following financial information: (a) Audited Combined Financial Statements of Fielding Pharmaceutical Company and MB Packaging, Inc.: (1) Report of Independent Accountants dated October 20, 2000. (2) Combined Balance Sheets as of December 31, 1999 and 1998. (3) Combined Income Statements for the years ended December 31, 1999 and 1998. (4) Combined Statements of Changes in Stockholders’ Equity for the two years ended December 31, 1999. (5) Combined Statements of Cash Flows for the years ended December 31, 1999 and 1998. (6) Notes to the Combined Financial Statements (b) Unaudited Interim Combined Financial Statements of Fielding Pharmaceutical Company and MB Packaging, Inc.: (1) Unaudited Combined Balance Sheets as of September 30, 2000 and December 31, 1999. (2) Unaudited Combined Income Statements for the nine-month periods ended September 30, 2000 and 1999. (3) Unaudited Combined Statements of Cash Flows for the nine-month periods ended September 30, 2000 and 1999. (4) Notes to the Combined Financial Statements (c) Unaudited Pro Forma Consolidated Financial Information of The Company and Fielding Pharmaceutical Company: (1) Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 1999 (2) Unaudited Pro Forma Consolidated Statement of Operations for the nine-month period ended September 30, 1999. (3) Unaudited Pro Forma Consolidated Balance Sheet as of September 30, 2000. (4) Notes to the Unaudited Pro Forma Financial Statements. The Company filed a second amendment to the October 19, 2000 Form 8-K on December 21, 2000 to include under Item 2 astatement that the Fielding Pharmaceutical acquisition was completed on December 19, 2000 and under Item 99 a PressRelease relating to the completion of the Fielding Pharmaceutical acquisition.27Table of ContentsSIGNATURES 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 besigned on its behalf by the undersigned, thereunto duly authorized.Date: March 29, 2001 NOVAVAX, INC. By: /s/ JOHN A. SPEARS John A. Spears, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf ofthe Registrant in the capacity and on the date indicated. NameTitleDate/s/ JOHN A. SPEARSJohn A. Spears President and Chief ExecutiveOfficer and Director March 29, 2001 /s/ DENNIS W. GENGEDennis W. Genge Vice President and Chief Financial Officer(Principal Financial and Accounting Officer) March 29, 2001/s/ GARY C. EVANSGary C. Evans Director March 29, 2001/s/ MITCHELL J. KELLYMitchell J. Kelly Director March 29, 2001/s/ J. MICHAEL LAZARUS, M.D.J. Michael Lazarus, M.D. Director March 29, 2001/s/ JOHN O. MARSH, JR.John O. Marsh, Jr. Director March 29, 2001/s/ MICHAEL A. MCMANUSMichael A. McManus Director March 29, 2001/s/ DENIS M. O’DONNELL, M.D.Denis M. O’Donnell, M.D. Director March 29, 2001/s/ RONALD H. WALKERRonald H. Walker Director March 29, 2001/s/ WILLIAM E. GEORGESWilliam E. Georges Director March 29, 200128Table of ContentsINDEX TO THE CONSOLIDATED FINANCIAL STATEMENTSYears ended December 31, 2000 and 1999Contents Reports of Independent Accountants F-2Consolidated Financial Statements: Consolidated Balance Sheets as of December 31, 2000 and 1999 F-4Consolidated Statements of Operations for each of the three years in the periodended December 31, 2000 F-5Consolidated Statements of Stockholders’ Equity for each of the three years inthe period ended December 31, 2000 F-6Consolidated Statements of Cash Flows for each of the three years in the periodended December 31, 2000 F-7Notes to the Consolidated Financial Statements F-8F-1Table of ContentsREPORT OF INDEPENDENT ACCOUNTANTSBoard of DirectorsNovavax, Inc. We have audited the accompanying consolidated balance sheet of Novavax, Inc. as of December 31, 2000 and the related consolidatedstatements of operations, stockholders’ equity and cash flows for the year then ended. These consolidated financial statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we planand perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Webelieve that our audit provides a reasonable basis for our opinion. In our opinion, the 2000 financial statements referred to above present fairly, in all material respects, the consolidated financial position ofNovavax, Inc. at December 31, 2000 and the consolidated results of its operations and its cash flows for the year then ended, in conformity withaccounting principles generally accepted in the United States./s/ Ernst and Young LLPMcLean, VirginiaMarch 2, 2001F-2Table of ContentsREPORT OF INDEPENDENT ACCOUNTANTSTo the Board of Directors and Stockholders of Novavax, Inc. In our opinion, the accompanying consolidated balance sheet and related consolidated statements of operations, of cash flows and ofstockholders’ equity, present fairly, in all material respects, the consolidated financial position of Novavax, Inc. and subsidiaries at December 31,1999, and the consolidated results of their operations and their cash flows for each of the two years in the period ended December 31, 1999, inconformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of theCompany’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our auditsof these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan andperform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principlesused and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion. We have not audited the consolidated financial statements of Novavax, Inc. for any period subsequentto December 31, 1999./s/ PRICEWATERHOUSECOOPERS LLPMcLean, VirginiaFebruary 26, 2000F-3Table of ContentsNOVAVAX, INC.CONSOLIDATED BALANCE SHEETS(in thousands) December 31,20001999ASSETS Current assets: Cash and cash equivalents $14,864 $732 Accounts receivable net of allowance for doubtful accts of $50,000 and $0at December 31, 2000 and 1999 954 341 Inventory 461 — Prepaid expenses and other current assets 757 70 Total current assets 17,036 1,143 Property and equipment, net 1,927 1,053 Goodwill and other intangible assets, net 37,566 2,267 Total assets $56,529 $4,463 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $1,401 $481 Accrued expenses 3,200 281 Deferred revenue 104 750 Debt obligations — 111 Total current liabilities 4,705 1,623 Convertible note 20,000 — Commitments and contingencies Stockholders’ equity: Preferred stock, $.01 par value, 2,000,000 shares authorized; no sharesissued and outstanding — — Common stock, $.01 par value, 50,000,000 shares authorized; 22,586,304issued and 22,104,087 outstanding at December 31, 2000, and15,173,688 issued and 15,167,166 outstanding at December 31, 1999 226 152 Additional paid-in capital 91,611 45,622 Accumulated deficit (55,085) (42,894) Deferred compensation on stock options granted — (5) Treasury stock, 482,217 shares and 6,522 shares, cost basis, atDecember 31, 2000 and 1999, respectively (4,928) (35) Total stockholders’ equity 31,824 2,840 Total liabilities and stockholders’ equity $56,529 $4,463 See accompanying notes.F-4Table of ContentsNOVAVAX, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except share and per share information) For the years ended December 31,200019991998Revenues $2,475 $1,181 $681 Operating expenses: General and administrative 5,859 2,393 2,472 Research and development 9,358 3,354 3,361 Total operating expenses 15,217 5,747 5,833 Loss from operations (12,742) (4,566) (5,152)Interest income, net 551 60 335 Net loss (12,191) (4,506) (4,817)Dividends on preferred stock — — (1,808)Accretion of offering cost — — (420) Loss applicable to common stockholders $(12,191) $(4,506) $(7,045) (Basic and diluted) Loss per share applicable to commonstockholders $(0.64) $(0.31) $(0.57) Weighted average number of common shares outstanding(basic and diluted) 19,015,719 14,511,081 12,428,246 See accompanying notes.F-5Table of ContentsNOVAVAX, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(in thousands, except share information) DeferredCompensationCommon StockAdditionalOn StockTotalPaid-inAccumulatedOptionsTreasuryStockholders’SharesDollarsCapitalDeficitGrantedStockEquityBalance, December 31,1997 12,031,757 $120 $37,853 $(31,343) $25 $(83) $6,522 Company contribution toemployee 401(k) 42 1 (12) — — 33 22 Amortization of deferredcompensation — — — — 10 — 10 Private sale of preferredstock, net — — 1,583 — — — 1,583 Conversion of preferredstock 1,043,956 11 1,475 — — — 1,486 Dividend on preferredstock 32,944 — — (225) — — (225)Deemed dividend onpreferred stock — — — (1,583) — — (1,583)Accretion of offeringcosts — — — (420) — — (420)Private sale of commonstock, net — — — — — 50 50 Exercise of stock options 144,419 1 332 — — — 333 Net loss — — — (4,817) — — (4,817) Balance, December 31,1998 13,253,118 133 41,231 (38,388) (15) — 2,961 Amortization of deferredcompensation — — — — 10 — 10 Private sale of commonstock 1,651,100 17 4,111 — — — 4,128 Offering costs 42,933 — (173) — — — (173)Stock issued ascompensation — — (43) — — 158 115 Exercise of stock options 226,537 2 496 — — (193) 305 Net loss — — — (4,506) — — 4,506 Balance, December 31,1999 15,173,688 152 45,622 (42,894) (5) (35) 2,840 Amortization of deferredcompensation — — — — 5 — 5 Private sale of commonstock, net 2,813,850 28 10,470 — — — 10,498 Stock issued foracquisition 2,312,501 23 18,477 — — — 18,500 Acquisition obligation — — 5,000 — — — 5,000 Exercise of stock optionsand warrants 2,286,265 23 12,042 — — (4,893) 7,172 Net loss — — — (12,191) — — (12,191) Balance, December 31,2000 22,586,304 $226 $91,611 $(55,085) $— $(4,928) $31,824 See accompanying notes.F-6Table of ContentsNOVAVAX, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) For the years ended December 31,200019991998Operating Activities Net loss $(12,191) $(4,506) $(4,817)Reconciliation of net loss to net cash used by operating activities: Gain on sale of asset — (23) — Non-cash compensation expense 5 10 10 Amortization 362 199 129 Depreciation 232 183 152 Issuance of stock to 401(k) plan and as compensation — 115 22 Changes in operating assets and liabilities: Accounts receivable 220 (203) 112 Inventory (211) — — Prepaid expenses and other assets (555) (45) 224 Accounts payable and accrued expenses 2,740 (180) 544 Deferred revenue (646) 750 — Net cash used by operating activities (10,044) (3,700) (3,624) Investing activities Acquisition of a business, net of cash acquired (12,466) (592) — Capital expenditures (831) (48) (231)Deferred patent costs (86) (171) (146)Proceeds from sale of asset — 25 — Net cash used in investing activities (13,383) (786) (377) Financing activities Proceeds from issuance of convertible note 20,000 — — Payment of capital lease obligations (111) (73) (38)Issuance of preferred stock — — 5,998 Dividend on preferred stock — — (179)Repurchase of preferred stock — — (4,979)Proceeds from private placements of common stock 10,498 3,955 50 Proceeds from the exercise of stock options and warrants 7,172 305 333 Net cash provided by financing activities 37,559 4,187 1,185 Net change in cash and cash equivalents 14,132 (299) (2,816)Cash and cash equivalents at beginning of year 732 1,031 3,847 Cash and cash equivalents at end of year $14,864 $732 $1,031 See accompanying notes.F-7Table of ContentsNOVAVAX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2000, 1999 and 19981. Description of Business Novavax, Inc., a Delaware corporation (“Novavax” or “the Company”) was incorporated in 1987, and is a specialty biopharmaceutical companyengaged in the research, development and commercialization of proprietary products focused on women’s health and infectious diseases. TheCompany sells, markets, and distributes a line of ethical pharmaceuticals and pre-natal vitamins. The Company’s principal technology platforminvolves the use of proprietary, microscopic, organized, non-phospholipid structures as vehicles for the delivery of a wide variety of drugs andother therapeutic products. These include certain hormones, anti-bacterial, and anti-viral products and vaccine adjuvants. Novavax has severalproduct candidates in pre-clinical and human clinical trials, including ESTRASORB™, a transdermal lotion for estrogen replacement therapy whichrecently completed Phase III testing. In addition, Novavax conducts research and development on preventative and therapeutic vaccines for avariety of infectious diseases, including human papillomavirus (HPV). The products currently under development or in clinical trials by the Company will require significant additional research and developmentefforts, including extensive pre-clinical and clinical testing and regulatory approval, prior to commercial use. There can be no assurance that theCompany’s research and development efforts will be successful and that any of the Company’s potential products will prove to be safe andeffective in clinical trial. Even if developed, these products may not receive regulatory approval or be successfully introduced and marketed atprices that would permit the Company to operate profitably. The Company also recognizes that the commercial launch of any product is subject tocertain risks including but not limited to manufacturing scale-up and market acceptance. No assurance can be given that the Company cangenerate sufficient product revenue to become profitable or generate positive cash flow from operations at all or on a sustained basis.2. Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements include the accounts of Novavax and its wholly owned subsidiaries FieldingPharmaceuticals, Inc., Micro-Pak, Inc., Micro Vesicular Systems, Inc. and Lipovax, Inc. All significant intercompany accounts and transactionshave been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of thefinancial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from thoseestimates. Cash and Cash Equivalents The Company considers all highly-liquid investments with insignificant interest rate risk and original maturities of three months or less from thedate of purchase to be cash equivalents. The carrying amounts of cash and cash equivalents approximate their fair values. Concentration of Credit Risk Financial instruments, which possibly expose the Company to concentration of credit risk, consist primarily of cash and cash equivalents andaccounts receivable. The Company maintains its cash and cash equivalents in bank accounts and with high credit quality financial institutions,which, at times, may exceedF-8Table of ContentsNOVAVAX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)December 31, 2000, 1999 and 1998 2. Summary of Significant Accounting Policies — (Continued) Concentration of Credit Risk (Continued)federally insured limits. The Company has not experienced any losses on such accounts. Accounts receivable consist principally of amounts duefrom credit worthy wholesale drug distributors, the Federal Government and other large institutions. The company monitors the balances of individual accounts to assess any collectibility issues. The Company has not experienced significantcredit losses on customer accounts. As of December 31, 1999, three customers accounted for 74% of accounts receivable. Inventories Inventories consist of raw materials and are priced at the lower of cost or market, using the first-in-first-out method (FIFO). Property and Equipment Property and equipment are recorded at cost. Depreciation of furniture, fixtures and equipment is provided under the straight-line method overthe estimated useful lives, generally 3 to 7 years. Amortization of leasehold improvements is provided over the estimated useful lives of theimprovements or the term of the lease, which ever is shorter. Patent Cost Costs associated with obtaining patents, principally legal costs and filing fees, are being amortized on a straight-line basis over the remainingestimated economic lives of the respective patents. Goodwill and Intangible Assets Goodwill and intangible assets principally result from business acquisitions. Assets acquired and liabilities assumed are recorded at their fairvalues; the excess of the purchase price over the net assets acquired is recorded as goodwill. Goodwill and intangible assets are amortized on astraight-line basis over their estimated useful lives, ranging from 5 to 15 years. Impairment of Long-Lived Assets The Company periodically evaluates the recoverability of the carrying value of its long-lived assets. The Company considers historicalperformance and anticipated future results in its evaluation of potential impairment. Accordingly, when indicators of impairment are present, theCompany evaluates the carrying value of these assets in reaction to the operating performance of the business and future discounted andundiscounted cash flows expected to result from the use of these assets. Impairment losses are recognized when the sum of expected future cash flows are less than the assets’ carrying value. No such impairmentlosses have been recognized to date. Revenue Recognition Revenues from product sales are recognized upon shipment, net of allowances for returns, rebates and chargebacks. The Company isobligated to accept from customers the return of pharmaceuticals which have reached their expiration date.F-9Table of ContentsNOVAVAX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)December 31, 2000, 1999 and 1998 2. Summary of Significant Accounting Policies — (Continued) Revenue Recognition (Continued) Revenues from the sale of scientific prototype vaccines and adjuvants are recorded as the products are produced and shipped. Revenuesearned under research contracts are recognized when the related contract services are performed. Net Loss per Share Basic earnings per share is computed by dividing the net loss available to common shareholders by the weighted average number of commonshares outstanding during the period. Diluted loss per share is computed by dividing net loss available to common shareholders by the weightedaverage number of common shares outstanding after giving effect to all dilutive potential common shares that were outstanding during the period. Potential common shares are not included in the computation of dilutive earnings per share if they are antidilutive. Net loss per share asreported was not adjusted for potential common shares, as they are antidilutive. Stock-Based Compensation The Company measures compensation expense for its employee stock-based compensation using the intrinsic value method. Under theintrinsic value method of accounting for stock-based compensation, when the exercise price of options granted to employees is less than theestimated fair value of the underlying stock on the date of grant, deferred compensation is recognized and is amortized to compensation expenseover the applicable vesting period. Research and Development Costs Research and development costs are expensed as incurred. Income Taxes The Company’s income taxes are accounted for using the liability method. Under the liability method, deferred income taxes are recognized forthe tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between thefinancial statement carrying amounts and the tax basis of existing assets and liabilities. The effect on deferred taxes of changes in tax rates is recognized in income in the period that includes the enactment date. A valuationallowance is recorded based on management’s determination of the ultimate realizability of future deferred tax assets. The Company has provideda full valuation allowance against its net deferred tax assets as of December 31, 2000 and 1999. Comprehensive Loss Under Financial Accounting Standards No. 130 (“SFAS 130”), “Reporting Comprehensive Income,” the Company is required to displaycomprehensive loss and its components as part of the consolidated financial statements. Comprehensive loss is comprised of the net loss andother comprehensive income (loss), which includes certain changes in equity that are excluded from the net loss. Comprehensive loss for theCompany was the same as net loss for the years ended December 31, 2000, 1999 and 1998.F-10Table of ContentsNOVAVAX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)December 31, 2000, 1999 and 1998 2. Summary of Significant Accounting Policies — (Continued) Recent Accounting Standards In June 1998, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 133, “Accounting for Derivative Instruments and HedgingActivities,” which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded inother contracts, and for hedging activities. SFAS 133 requires that an entity recognize all derivatives as either assets or liabilities in the statementof financial position and measure those instruments at fair value. Implementation of SFAS 133 is required as of the beginning of fiscal year 2001and will not have a material effect on the Company’s financial position or results of operation. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 (“SAB 101”), “Revenue Recognition inFinancial Statement.” SAB 101 provides guidance on applying generally accepted accounting principles to revenue recognition issues in financialstatements. The adoption of SAB 101 did not have a material effect on the financial position or results of operations of the Company. In March 2000, the FASB issued Interpretation No. 44 (“FIN 44”) “Accounting for Certain Transactions Involving Stock Compensation,” whichaddresses certain accounting issues which arose under the previously established accounting principles relating to stock-based compensation.The adoption of this interpretation did not have a material effect on the Company’s financial position or results of operations. Reclassifications Certain prior year amounts have been reclassified to conform to the current year presentation.3. Acquisitions Fielding Pharmaceutical Company In December 2000, Novavax acquired privately owned Fielding Pharmaceutical Company (“Fielding”), based in St. Louis, Missouri, which sells,markets and distributes a proprietary line of pharmaceutical products focused on women’s health. Novavax will operate Fielding as a wholly ownedsubsidiary. Under the terms of the acquisition agreement, Novavax acquired 100% of the outstanding shares of Fielding. The purchase method ofaccounting was used to account for the transaction. The total purchase price of $38.7 million consisted of $18.5 million in Novavax common stock (2,312,501 shares), $13 million in cash,$5 million payable in cash or common stock to the former owners of Fielding (due March 2002), $1.1 million in assumed liabilities and $1.1 millionin transaction costs. The aggregate consideration of $38.7 million was allocated to cash ($1.7 million), accounts receivable and inventory ($1.2 million), propertyand equipment ($300,000) and goodwill ($35.5 million). The operating results of Fielding have been included in the consolidated statement of operations from the acquisition date. The followingsummary represents pro forma results of operations as if the acquisition had occurred at the beginning of 1998. These pro forma results have beenprepared for comparative purposes onlyF-11Table of ContentsNOVAVAX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)December 31, 2000, 1999 and 1998 3. Acquisitions — (Continued) Fielding Pharmaceutical Company — (Continued)and do not purport to be indicative of the results of operations that would have actually resulted had the combination been in effect and are notintended to be indicative of future results. Year ended December 31,200019991998(amounts in thousands,except per share information)Revenue $12,843 $12,750 $5,767 Net loss (13,602) (3,824) (9,408)Loss per share applicable to common stockholders (.64) (.23) (.64) Biomedical Services Laboratory On August 10, 1999, the Company acquired substantially all of the assets (excluding cash and accounts receivable) of the BiomedicalServices Laboratory (“BSD”) division of DynCorp of Reston, Virginia. In addition, DynCorp entered into a five-year non-competition agreement. Theresearch and development activities of BSD are conducted in a leased 12,000 square foot facility located in Rockville, Maryland. BSD is engagedin contract research, development and pilot manufacturing of human vaccines for government laboratories and other vaccine companies. The purchase method of accounting was used to account for the transaction. The total purchase price of $860,000 consisted of $740,000 incash, $60,000 in assumed liabilities and $60,000 in transaction costs. The aggregate consideration of $860,000 was allocated to property and equipment ($170,000) and goodwill and other intangible assets($690,000). Property and equipment consists primarily of laboratory equipment that the Company believes will continue to be used in the operations ofBSD. Other intangible assets included patents, workforce, favorable lease and approved FDA facility. Goodwill and other intangible assets arebeing amortized over their useful lives of five years. The operating results of BSD have been included in the consolidated statement of operations from the acquisition date. The followingsummary represents pro forma results of operations as if the acquisition had occurred at the beginning of 1998. These pro forma results have beenprepared for comparative purposes only and do not purport to be indicative of the results of operations that would have actually resulted had thecombination been in effect and are not intended to be indicative of future results. Year endedDecember 31,19991998(in thousands, exceptper share information)Revenue $3,597 $3,037 Net loss $(4,484) $(4,798)Loss per share applicable to common stockholders $(.31) $(.57)F-12Table of ContentsNOVAVAX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)December 31, 2000, 1999 and 19984. Supplemental Financial Data Property and Equipment Property and equipment is comprised of the following at December 31: 20001999(in thousands)Machinery and equipment $2,226 $1,433 Leasehold improvements 703 428 Furniture and fixtures 101 63 3,030 1,924 Less accumulated depreciation (1,103) (871) $1,927 $1,053 Depreciation expense was $232,000, $183,000 and $152,000 for the years ended December 31, 2000, 1999 and 1998, respectively. Goodwill and Intangible Assets Goodwill and intangible assets consist of the following at December 31: 20001999(in thousands)Goodwill — Biomedical Services Acquisition $542 $542 Non-Compete — Biomedical Services Acquisition 148 148 Goodwill — Fielding Acquisition 35,590 — Patents 2,525 2,454 38,805 3,144 Accumulated Amortization (1,239) (877) $37,566 $2,267 Accrued Expenses Accrued expenses consist of the following at December 31: 20001999(in thousands)Accrued clinical trial expenses $900 $90 Accrued acquisition costs 897 — Accrued compensation 759 126 Accrued operating expenses 618 65 Accrued interest 26 — $3,200 $281 5. Convertible note On December 19, 2000 Novavax entered into a Note Purchase Agreement with King Pharmaceuticals, Inc. (“King”) whereby it agreed to issueto King a 4% senior convertible promissory note in the aggregate amount of $25.0 million. On that same date, Novavax entered into a 4% seniorconvertible promissory note with King for $20.0 million in principal due December 19, 2007 with interest payable in semi-annualF-13Table of ContentsNOVAVAX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)December 31, 2000, 1999 and 1998 5. Convertible note — (Continued)installments on June 30 and December 31 commencing on June 30, 2001. Up to 50% of the interest due may be paid in common stock of theCompany. A second promissory note of $5.0 million is due to be executed when the Company files a New Drug Application for its ESTRASORBproduct which is expected to occur during 2001. The first note is convertible into common stock at $10.00 per share or 2,000,000 shares. The note has a mandatory conversion fromJanuary 2002 through December 31, 2004 if the closing price of Novavax common stock exceeds 180% of the conversion price for 60 tradingdays. The note can be redeemed by the Company at 102%, 101% and 100% of face value during the years ended December 31, 2005, 2006 and2007, respectively.6. Equity In January 2000, the Company closed a private placement of 2,813,850 shares of its Common Stock to accredited investors (the “2000Private Placement”). The issuance price of the Common Stock was $4.00 per share. Each share was sold together with a non-transferable warrantfor the purchase of .25 additional shares at an exercise price of $6.75. The warrants have a three-year term. Gross proceeds from the 2000 PrivatePlacement were $11,255,400. Placement agent fees were approximately $675,000, which was paid in cash. Additionally, non-transferable warrantsfor the purchase of 281,385 shares of the Company’s Common Stock, with an exercise price of $6.75 per share and a three-year term, were issuedto the placement agent. Other costs connected with the 2000 Private Placement, including legal, stock exchange listing and registration fees, wereapproximately $80,000. Net proceeds to the Company from the 2000 Private Placement were approximately $10.5 million. In April 1999, the Company entered into Stock and Warrant Purchase Agreements for the private placement of 1,651,000 shares of itsCommon Stock to accredited investors (the “Private Placement”). One of the principals of one of the investors is also a director of the Company.The issuance price of the Common Stock was $2.50 per share. Each share was sold together with a non-transferable warrant for the purchase of.25 additional shares at an exercise price of $3.75. The warrants have a three-year term. Placement agents’ fees were approximately $215,000,which was paid with cash of $107,000 and 42,933 shares of the Company’s Common Stock, which were issued together with non-transferablewarrants for the purchase of 10,733 shares of the Company’s Common Stock at an exercise price of $3.75. These warrants have a three-yearterm. Additionally, non-transferable warrants for the purchase of 143,000 shares of the Company’s Common Stock, with an exercise price of$3.00 per share and a three-year term, were issued to the placement agents. Other costs connected with the Private Placement, including legal,stock exchange listing and registration fees, were approximately $67,000. Net proceeds to the Company from the Private Placement wereapproximately $4.1 million. In 1998, the Company closed on a private placement of 6,500 shares of Series A Custom Convertible Preferred Stock, $1,000 par value pershare (the “Preferred Stock”), at an aggregate purchase price of $6.5 million. During 1998, $1,522,000 of the original shares were converted into1,043,956 shares of Common Stock, pursuant to the terms and conditions of the Preferred Stock. In October 1998, the Company repurchased theoutstanding Preferred Stock for approximately $4.9 million. The Company incurred placement agent and other transaction fees relating to theplacement, conversion and repurchase of the Preferred Stock of $502,000, which are included in the accompanying financial statements aspreferred stock offering costs. Per the terms of the Preferred Stock, the Company was required to pay the holders of the Preferred Stock dividendsof $225,000. This amount was paid in cash and shares of common stock.F-14Table of ContentsNOVAVAX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)December 31, 2000, 1999 and 1998 6. Equity — (Continued) The 1998 preferred stock transactions are summarized as follows: (in thousands)Private sale of preferred stock, net $4,415 Deemed dividend of preferred stock 1,583 Conversion or preferred stock (1,439)Accretion of offering costs 420 Repurchase of preferred stock (4,979) $— 7. Stock Options and Warrants 1995 Stock Option Plan Under the Novavax 1995 Stock Option Plan (the “Plan”), options may be granted to officers, employees and consultants or advisors toNovavax and any present or future subsidiary to purchase a maximum of 6,000,000 shares of Novavax common stock. Incentive options, having amaximum term of ten years, can be granted at no less than 100% of the fair market value of Novavax’s stock at the time of grant and aregenerally exercisable in cumulative increments over several years from the date of grant. Both incentive and non-statutory stock options may begranted under the Plan. There is no minimum exercise price for non-statutory stock options. The 1995 Director Stock Option Plan (the “Director Plan”) provides for the issuance of up to 500,000 shares of Novavax Common Stock. Theexercise price per share is the fair market value on the date of grant. Options granted to eligible directors are exercisable in full beginning sixmonths after the date of grant and terminate ten years after the date of grant. Such options cease to be exercisable at the earlier of their expiration or three years after an eligible director ceases to be a director for anyreason. In the event that an eligible director ceases to be a director on account of his death, his outstanding options (whether exercisable or not onthe date of death) may be exercised within three years after such date (subject to the condition that no such option may be exercised after theexpiration of ten years from its date of grant).F-15Table of ContentsNOVAVAX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)December 31, 2000, 1999 and 1998 7. Stock Options and Warrants — (Continued) Activity under the 1995 Stock Option Plan and 1995 Director Stock Option Plan was: 1995 Stock1995 DirectorOption PlanStock Option PlanBalance, December 31, 1997 3,203,558 310,000 Granted at weighted average price of $4.03 per share 501,000 140,000 Exercised at weighted average price of $2.06 per share (124,419) — Expired or canceled at weighted average price of $3.74 pershare (465,892) (10,000) Balance, December 31, 1998 3,114,247 440,000 Granted at weighted average price of $3.80 per share 1,078,500 — Exercised at weighted average price of $2.20 per share (226,537) — Expired or canceled at weighted average price of $4.28 pershare (577,757) — Balance, December 31, 1999 3,388,453 440,000 Granted at weighted average price of $7.50 per share 1,019,500 60,000 Exercised at weighted average price of $3.79 per share (485,728) (80,000) Expired or canceled at weighted average price of $3.75 pershare (28,040) — Balance, December 31, 2000 3,894,185 420,000 Price range $0.01 to 10.63 $1.94 to 5.81 Weighted average exercise price $3.87 $3.24 Exercisable 2,278,428 420,000 Available for grant: December 31, 2000 810,664 — Information with respect to stock options outstanding at December 31, 2000 is as follows: Number ofWeighted AverageWeightedOptionsRemainingAverageOutstandingContractual LifeExercise PriceOptions issued at below market value: $0.01 402,430 5.0 $0.01 Options issued at market value: $1.21 to 3.50 747,971 5.5 $3.07 $3.51 to 4.50 1,428,284 6.8 $3.79 $4.51 to 6.50 1,008,500 7.0 $5.70 $6.51 to 10.63 727,000 9.2 $8.32 4,314,185 6.8 $4.52 Novavax makes no charges to operations in connection with employee stock options granted at the fair market value at the date of grant. Withrespect to options which were granted below fair market value at the date of grant, the Company records compensation expense for the differencebetween the fair market value at the date of grant and the exercise price, as the options become exercisable. $5,000, $10,000, and $9,000 relatedto such options has been included as compensation expense in 2000, 1999 and 1998, respectively. Pro forma information regarding net loss and loss per share is required by SFAS No. 123, Accounting for Stock-Based Compensation, and hasbeen determined as if Novavax had accounted for its employee and director stock options under the fair value method of that Statement. The fairvalue for these options was estimated at the date of grant using the Black-Scholes option pricing model.F-16Table of ContentsNOVAVAX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)December 31, 2000, 1999 and 1998 7. Stock Options and Warrants — (Continued) The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vestingrestrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expectedstock price volatility. Because Novavax employee and director stock options have characteristics significantly different from those of tradedoptions, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, theexisting models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures below, the estimated fair value of the options is amortized to expense over the option’s vesting period.Novavax’s pro forma information follows: Year ended December 31,200019991998(in thousands)Net loss applicable to common stockholders: As reported (in thousands) $(12,191) $(4,506) $(7,045) Pro forma (in thousands) $(14,609) $(6,430) $(7,983)Basic and diluted loss per share: As reported $(.64) $(.31) $(.57) Pro forma $(.77) $(.44) $(.64)Risk-free interest rates 6.0% 5.8% 6.0%Expected life in years: Employees 6.0 6.0 6.0 Directors 3.0 3.0 3.0 Dividend yield 0.0% 0.0% 0.0%Volatility 80% 69% 105%Weighted average remaining contractual life in years 6.8 6.8 6.7 Weighted average fair value at date of grant $5.87 $3.56 $1.21 The Company has entered into agreements to receive advisory and consulting services from several individuals, four of whom serve on theNovavax Scientific Advisory Board. Non-qualified stock options have been granted to these individuals under the 1995 Stock Option Plan. Common Stock Warrants In connection with the October 1996 private stock sale, the Company provided the underwriter warrants for the purchase of 50,000 shares ofcommon stock. The warrants are fully exercisable at $3.75 per share and expire in October 2001. After giving effect to the anti-dilution provision,the warrants were revised to allow for the purchase of 54,924 shares at $3.54 per share. In November 1996, in consideration for servicesperformed by a consultant, the Company also issued warrants for 50,000 shares of common stock. The warrants are exercisable at $5.00 pershare and expire in November 2001. In March 1997, Novavax privately placed 1,200,000 shares of common stock. As part of the transaction,Novavax also granted warrants to purchase an additional 600,000 shares at a price of $6.00 per share and 600,000 shares at a price of $8.00 pershare. After giving effect to the anti-dilution provision, the warrants were revised to allow for the purchase of 659,090 shares at $5.46 per share and659,090 shares at $7.28 per share. The warrants had a three-year term and were exercised in March 2000 for cash of $3.6 million and a “cashless”exercise of 465,410 shares of common stock which were placed into treasury shares. In April 1999, Novavax privately placed 1,651,100 shares ofcommon stock. As part of the transaction, Novavax also granted warrants to purchase 412,775 additional shares at an exercise price of $3.75.The placement agent for this transaction was givenF-17Table of ContentsNOVAVAX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)December 31, 2000, 1999 and 1998 7. Stock Options and Warrants — (Continued)warrants to purchase 10,733 additional shares at $3.75 and 143,000 additional shares at $3.00. These warrants have a three-year term and expirein April 2002. As of December 31, 2000, 136,204 of these warrants had been exercised. After giving effect to the anti-dilutive provisions of thesewarrants, the warrants outstanding were revised to allow for the purchase of 394,410 shares at $3.54 per share and 59,772 shares at $2.84 pershare. In connection with the 2000 Private Placement the Company granted warrants to purchase an additional 703,462 shares at an exerciseprice of $6.75. In addition, warrants of 251,385 shares were issued to the placement agent at an exercise price of $6.75 per share. The warrantshave a three year term. As of December 31, 2000, 35,127 of these warrants have been exercised. Information with respect to warrants to purchase the Company’s common stock at December 31, 2000 is as follows: Number ofWarrantsExerciseExpirationOutstandingPriceDate54,924 $3.54 October 2001 50,000 $5.00 November 2001 394,410 $3.54 April 2002 59,772 $2.84 April 2002 919,720 $6.75 January 2003 1,478,826 8. Employee Benefits The Company has a defined contribution 401(k) retirement plan (the Plan), pursuant to which employees who have completed ninety days ofemployment with the Company as of specified dates may elect to contribute to the Plan, in whole percentages, up to 15% of their compensationand a maximum contribution of $10,500, $10,500 and 10,000 in 2000, 1999 and 1998, respectively. The Company matches 25% of the first 5% of compensation contributed by the participant and $4.00 per week of employment during the year.At the option of the Company matching contributions to the Plan can be made in the form of the Company’s common stock. All contributions tothe Plan are immediately vested. The Company has recorded charges to expenses related to the Plan of approximately $28,000, $16,000 and$23,000 in 2000, 1999 and 1998, respectively.F-18Table of ContentsNOVAVAX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)December 31, 2000, 1999 and 19989. Income Taxes Deferred tax assets (liabilities) included in the balance sheets consist of the following: 20001999(in thousands)Net operating losses $12,513 $8,420 Research tax credits 1,229 1,024 Disqualifying stock options 673 671 Alternative-minimum tax credit 94 94 Equipment and furniture 44 51 Intangibles from acquisition 12 15 Deferred patent costs (602) (626)Accrued vacation pay 28 28 Deferred revenues 40 290 Allowance for Doubtful Accounts 19 — 14,050 9,967 Less valuation allowance $(14,050) $(9,967) Deferred tax assets, net — — The differences between the U.S. federal statutory tax rate and the Company’s effective tax rate are as follows: 20001999Statutory federal tax rate (34)% (34)% State income taxes, net of federal benefit (5)% (4)% Disqualifying stock options 0% 3% Research and development credit (2)% (8)% Alternative-minimum credit 0% (1)% Other 1% (1)% Change in valuation allowance 40% 45% — — Realization of net deferred tax assets at the balance sheet dates is dependent on the Company’s ability to generate future taxable income,which is uncertain. Accordingly, a full valuation allowance was recorded against these assets as of December 31, 2000 and 1999. Novavax has recorded no net benefit for income taxes in 2000, 1999 and 1998 in the accompanying financial statements due to theuncertainty regarding ultimate realization of certain net operating losses and other tax credit carryforwards. Federal net operating losses and tax credits available to the Company are as follows: 2000(in thousands)Federal net operating losses expiring through the year 2020 $32,400 State net operating losses expiring through the year 2015 37,142 Research tax credits expiring through the year 2020 1,229 Alternative-minimum tax credit (no expiration) 94 F-19Table of ContentsNOVAVAX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)December 31, 2000, 1999 and 199810. Commitments and Contingencies Novavax leases laboratory and office space, machinery and equipment under capital and non-cancelable operating lease agreements expiringat various dates through 2006. Future minimum rental commitments under non-cancelable leases as of December 31, 2000 are as follows: OperatingYearLeases(in thousands)2001 $781 2002 598 2003 509 2004 370 2005 377 Thereafter 165 $2,800 Aggregate rental expenses approximated $411,000, $299,000, and $219,000 in 2000, 1999 and 1998, respectively. In connection with the lease for office and laboratory facilities, the Company is required to maintain a “Net Asset Value” of $2.0 million. Theterm “Net Asset Value” is defined as the difference between the total assets and the total liabilities. If the Net Asset Value falls below $2.0 million,the Company is required to provide other reasonable financial assurances to the landlord within five days of the landlord’s request.11. Subsequent Event In January 2001, the Company signed a co-promotion agreement with King for the distribution of one of the Company’s products in the UnitedStates. Additionally, the Company and King will combine U.S. sales efforts to begin co-promoting one of King’s products that is already on themarket. The Company also paid King $3.3 million for the rights to a product that King has been marketing.F-20Exhibit 3.4CERTIFICATE OF AMENDMENTtoAMENDED AND RESTATED CERTIFICATE OF INCORPORATIONofNOVAVAX, INC.Pursuant to Section 242of the General Corporation Law of the State of Delaware Novavax, Inc. (the “Corporation”), a corporation organized and existing under and by virtue of the General Corporation Law of the State ofDelaware, does hereby certify as follows: 1. That the Amended and Restated Certificate of Incorporation of the Corporation is hereby amended by striking out the first sentence ofArticle FOURTH thereof and substituting therefor the following sentence: “The total number of shares of all classes of stock which the Corporation shall have authority to issue is (i) fifty million(50,000,000) shares of Common Stock, $.01 par value per share (“Common Stock”), and (ii) two million (2,000,000)shares of Preferred Stock, $.01 par value per share (“Preferred Stock”), which may be issued from time to time in oneor more series as set forth in Part B of this Article FOURTH.” 2. That said amendment has been duly proposed and declared advisable by the Board of Directors of the Corporation and duly adopted by theholders of a majority of the outstanding stock of each class of stock of the Corporation, all in accordance with the provisions of Section 242 of theGeneral Corporation Law of the State of Delaware. The undersigned President of the Corporation hereby makes this certificate, declaring and certifying that the facts stated herein are true, andaccordingly has hereunto set his hand this 18th day of December, 2000. NOVAVAX, INC.ATTEST: By: /s/ JOHN A. SPEARS _______________________________________ John A. Spears, President/s/ DAVID A. WHITE David A. White, SecretaryExhibit 21LIST OF SUBSIDIARIES OF NOVAVAX, INC. Micro-Pak, Inc., a Delaware corporation Micro Vesicular Systems, Inc., a Delaware corporation Lipovax, Inc., a Delaware corporation Fielding Pharmaceutical Company, a Delaware corporationExhibit 23.1CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference of our report dated March 2, 2001, with respect to the consolidated financial statements ofNovavax, Inc. included in the Annual Report on Form 10-K for the year ended December 31, 2000, in the following Registration Statements: (1) Registration Statement Number 33-80277 on Form S-8 (2) Registration Statement Number 33-80279 on Form S-8 (3) Registration Statement Number 333-3384 on Form S-8 (4) Registration Statement Number 333-46000 on Form S-8 (5) Registration Statement Number 333-77611 on Form S-8 (6) Registration Statement Number 333-22685 on Form S-3 (7) Registration Statement Number 333-77609 on Form S-3 (8) Registration Statement Number 333-32142 on Form S-3 (9) Registration Statement Number 333-53194 on Form S-3/s/ ERNST & YOUNG LLPMcLean, VirginiaMarch 28, 2001Exhibit 23.2CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-22685, 333-77609, 333-32142 and333-53194) and Form S-8 (Nos. 33-80277, 33-80279, 333-3384, 333-46000 and 333-77611) of Novavax, Inc. of our report dated February 26, 2000relating to the financial statements, which appears in this Form 10-K.PricewaterhouseCoopers LLPMcLean, VirginiaMarch 27, 2001

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