Novavax
Annual Report 2002

Plain-text annual report

SECURITIES 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, 2002Commission File No. 0-26770NOVAVAX, INC.(Exact name of Registrant as specified in its charter) Delaware(State or other jurisdiction ofincorporation or organization) 22-2816046(I.R.S. Employer Identification No.) 8320 Guilford Road, Columbia, Maryland(Address of principal executive offices) 21046(Zip code)Registrant’s telephone number, including area code: (301) 854-3900Securities registered pursuant to Section 12(b) of the Act: NONESecurities registered pursuant to Section 12(g) of the Act:Common Stock ($.01 par value) 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 ExchangeAct of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days. Yes [ü] 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. [ ] Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [ü] No [ ] The aggregate market value of 21,196,365 shares of the Registrant’s Common Stock, par value $.01 per share, held by non-affiliates of theRegistrant at June 28, 2002, as computed by reference to the closing price of such stock, was approximately $89,000,000. The number of shares of the Registrant’s Common Stock, par value $.01 per share, outstanding at March 14, 2003 was 29,722,051 shares.Documents Incorporated By Reference Portions of the Registrant’s Proxy Statement to be filed not later than 120 days after December 31, 2002, in connection with the Registrant’s2002 Annual Meeting of Stockholders, referred to herein as the “Proxy Statement,” are incorporated by reference into Part III of thisForm 10-K.  PART IItem 1. BusinessOverview Novavax is a fully-integrated specialty pharmaceutical company focused on the research, development and commercialization of productsutilizing our proprietary drug delivery and vaccine technologies for large and growing markets, concentrating on the areas of women’s health andinfectious diseases. Our lead product candidate, ESTRASORB™, is the first topical emulsion for estrogen replacement therapy for which a NewDrug Application has been accepted for review by the Food and Drug Administration. The NDA for ESTRASORB was submitted in June 2001 andwas accepted for review in August 2001. In April 2002, we were informed by the FDA that the agency had completed their review of the NDA forESTRASORB. At that time, the agency did not raise any issues regarding the efficacy or safety of ESTRASORB, but did request additionalinformation with respect to the Chemistry, Manufacturing and Controls section of the filing. We determined that the most advantageous approachto resolving the outstanding CMC questions was to voluntarily withdraw the NDA and resubmit it once all of the responses to the CMC questionshad been prepared. In September 2002, we resubmitted the New Drug Application, which was accepted for review by the FDA in November 2002.We are seeking FDA approval of ESTRASORB for the reduction of hot flushes in menopausal women and, if approved, we believe ESTRASORBwill be competitively positioned to address the estimated $1.8 billion estrogen replacement therapy market in the United States. In 2002, Novavaxreported on its Phase III clinical trial results at two major medical conferences. The study demonstrated that ESTRASORB treatment caused astatistically significant reduction in moderate and severe vasomotor symptoms (hot flushes) at weeks four, eight and twelve of the clinical trial. Inaddition, a high percentage of women achieved cessation of moderate to severe hot flushes during the twelve-week clinical trial. Our micellar nanoparticle technology involves the use of patented oil and water emulsions that we believe can be used as vehicles for thetopical delivery of a wide variety of drugs and other therapeutic products, including hormones. We believe that our technology represents the firsttime that ethanol soluble hormones, such as estrogen and testosterone, have been encapsulated and delivered. In addition to ESTRASORB, ourproduct candidates using these technologies include ANDROSORB™, a topical testosterone emulsion that has completed two Phase I clinicaltrials; TESTESTRASORB™, a topical estrogen and testosterone emulsion; PROGESTSORB™ NE, a topical progestin emulsion; andPROESTRASORB™, a topical estrogen and progestin emulsion. Other drug delivery technologies, like our Novasome® and Sterisome®technologies are being utilized to develop other products. Novasomes are used as adjuvants to enhance vaccine effectiveness. Sterisomes arebeing used as subcutaneous injections that can deliver long-acting drug effects. We also conduct research and development on preventativevaccines and proteins, for infectious diseases, cancers and immunotherapies. Over the past two years we have entered into co-promotion agreements with King Pharmaceuticals, Inc. for the promotion and marketing ofESTRASORB and ANDROSORB within the United States and Puerto Rico, and we have licensed to King the right to sell these products outsidethe United States. Our relationship with King has the potential to provide us with broader women’s health market coverage for ESTRASORB andANDROSORB. Under the terms of our co-promotion agreements with King, we will record all of the product sales, returns and allowances and costof sales for ESTRASORB and ANDROSORB in the United States and Puerto Rico. The resultant gross margin will be shared equally with Kingand the payment to King will be recorded as a selling and marketing expense on our statement of operations. In addition, following productapproval by the FDA, both parties will also share equally in approved marketing expenses for the products. All direct marketing expenses will berecorded by us, for which King will reimburse us fifty percent. We received licensing fees of $3.0 million and milestone payments totaling$5.0 million from King upon the submission to the FDA and acceptance for review of the ESTRASORB NDA. We have also received from King$20.0 million in December 2000, $10.0 million in September 2001 and $10.0 million in June 2002, in the form of convertible note financings. We currently market, sell and distribute a line of prescription pharmaceuticals and prenatal vitamins through our 64 person sales force that hasextensive experience selling to obstetricians, gynecologists, managed care organizations, wholesalers and retail pharmacies throughout the UnitedStates. In 2002, these products generated revenues of $12.8 million. If we receive marketing approval from the FDA, we expect to sellESTRASORB through both our sales force and King’s sales force. We intend to manufacture ESTRASORB for commercial sale in our dedicated,state-of-the-art 24,000 square foot facility in Philadelphia, Pennsylvania, which was substantially completed in December 2002.2 Our Strategy The primary elements of our strategy include: • Maximize the commercial impact of ESTRASORB. We are currently developing commercialization and manufacturing infrastructures,programs facilities and systems in anticipation of approval of our ESTRASORB NDA by the FDA in 2003. We believe that our sales andmarketing plan will enable ESTRASORB to capture a meaningful share of the estimated $1.8 billion estrogen replacement therapymarket in the United States. We expect that the introduction of ESTRASORB, if approved, will increase our presence in the women’shealth market, thereby enabling us to more effectively commercialize future products that we develop, acquire or in-license. Our co-promotion agreement with King should provide us with additional marketing and selling expertise that will assist us in achieving broadermarket coverage for ESTRASORB. • Leverage our unique drug delivery technology platforms to commercialize additional pharmaceutical products. A keycomponent of our growth strategy is the introduction of new products based on our proprietary drug delivery technologies. In addition toESTRASORB and ANDROSORB, we have three hormone replacement therapy product candidates in preclinical development. We willcontinue to focus on developing improvements to existing therapies. We intend to target large markets where our products can bedifferentiated through increased efficacy and improved delivery technique. • Continue to develop our capabilities as a fully-integrated specialty pharmaceutical company. We intend to enhance our internalcapabilities in the developing, testing, manufacturing and marketing of our product candidates. We believe that this fully-integratedplatform differentiates us from many specialty pharmaceutical companies and enhances our ability to successfully introduce newproducts such as ESTRASORB, and to grow our existing line of women’s health products. We plan to continue to focus our researchand development efforts on advancing our existing product candidates towards commercialization and on identifying andcommercializing new therapies using our unique drug delivery techniques. We have substantially completed the build-out of ourESTRASORB manufacturing facility, and we are validating and expanding our manufacturing capabilities in anticipation of thecommercial launch of ESTRASORB. We have a 64 person sales force with experience in the area of women’s health, and intend tocontinue to build that sales team as we are able to commercialize, acquire and in-license new products. • Continue to expand our product lines through acquisition of new products and technologies. We believe we can continue to growthrough the acquisition of product lines, individual products or additional technologies. Numerous opportunities exist to acquire suchproducts and technologies as large pharmaceutical companies seek to divest many non-core product areas. Our fully-integratedcapabilities assist us in identifying, acquiring and successfully implementing new product and company acquisitions. We have demonstrated our ability to successfully acquire and integrate products and research capabilities. We acquired FieldingPharmaceutical Company in December 2000, which enabled us to expand our women’s health product line and gave us an establishednational sales force with experience calling on obstetricians and gynecologists throughout the United States. In order to provide us withadditional products to sell through our sales force, in January 2001 we purchased the AVC product line from King, and in July 2002 weentered into an agreement with privately-held Ferndale Laboratories, Inc. to co-promote Analpram HC®. • Exploit our expertise in vaccine technology to develop products for a large and underserved market. We currently have severalvaccine candidates in clinical and preclinical development. In particular, we are pursuing development of a Novasome adjuvantedinactivated smallpox vaccine, and an E-selectin tolerogen for use in stroke prevention, both of which, if approved,we believe couldaddress large and underserved markets. In order to pursue a number of vaccine development programs, we intend to collaborate withprivate companies, academic institutions and governmental agencies.Our Products and Product Candidates We are focused on the successful introduction of new product candidates and the continued sales growth of the products we currently market.The table below provides a summary of our marketed products and product candidates, which are discussed elsewhere in further detail:3 Product or Product Candidate Product Description Partner Status Nestabs® Prescription prenatal vitamins — Marketed Gynodiol™ Oral estrogen replacement therapy — Marketed AVC™ cream andsuppositories Vaginal bacterial infection — Marketed Analpram HC® Topical prescriptioncorticosteroids for hemorrhoids Ferndale Marketed ESTRASORB™ Topical emulsion forestrogen replacement King NDA filed ANDROSORB™ Topical emulsion fortestosterone replacement King Phase I TESTESTRASORB™ Topical emulsion for estrogen andtestosterone replacement — Preclinical PROGESTSORB™ NE Topical emulsion for progestinreplacement — Preclinical PROESTRASORB™ Topical emulsion for estrogen andprogestin replacement — Preclinical PROSTERISORB™ Progesterone containingSterisome for vaginalapplications — Preclinical ANDRO-JECT™ A subcutaneous injectableSterisome containingtestosterone — Preclinical Inactivated smallpoxvaccine Smallpox (vaccinia) — Preclinical E-Selectin tolerogens Stroke immunotherapy NIH Preclinical Our Lead Product Candidates—ESTRASORB and ANDROSORB ESTRASORB is our lead product candidate and utilizes our patented micellar nanoparticle technology to deliver estrogen, in the form of 17ß-estradiol, through the skin when applied topically in the form of an emulsion. We submitted a New Drug Application for ESTRASORB to the Foodand Drug Administration in June 2001, which was accepted for review in August 2001. In April 2002, the FDA informed us that the agency hadcompleted their review of the NDA for ESTRASORB. At that time, the agency did not raise any issues regarding the efficacy or safety ofESTRASORB, but did request additional information with respect to the Chemistry, Manufacturing and Controls section of the filing. Wedetermined that the most advantageous approach to resolving the outstanding CMC questions was to voluntarily withdraw the NDA and resubmit itonce all of the responses to the CMC questions had been prepared. In September 2002 we resubmitted the NDA, which was accepted for reviewby the FDA in November 2002. We are seeking FDA approval of ESTRASORB for the reduction of hot flushes in menopausal women. In 2002Novavax reported on its Phase III clinical trial results at two major medical conferences. The study demonstrated that ESTRASORB treatmentcaused a statistically significant reduction in moderate and severe vasomotor symptoms (hot flushes) at weeks four, eight and twelve of theclinical trial. In addition, a high percentage of women achieved cessation of moderate to severe hot flushes during the twelve-week clinical trial.We believe that ESTRASORB offers advantages over competing therapies in the estimated $1.8 billion estrogen replacement market in the UnitedStates. Market Overview. As a woman approaches menopause, ovulation becomes less frequent and the production of estrogen decreases.Eventually, the estrogen produced is insufficient to bring about menstruation. Menopause is typically diagnosed when there has been an absenceof menstruation for at least one year accompanied by the presence of hot flushes. Women are entering menopause at the rate of approximately4,000 per day. An estimated 10 million women are currently on estrogen-only replacement therapy. This number is forecast to increase to12.8 million in 2004 as diagnosis and medication efficacy increase and side effects associated with therapy decrease. The demographic expansionof the “baby boomer” generation will cause an increase in the estrogen replacement therapy market as more women reach the age associated withmenopause and seek medical attention for their symptoms. Estrogen replacement therapy is currently used worldwide by menopausal women to treat the symptoms of menopause, such as hot flushes,and by post-menopausal women to prevent osteoporosis and other adverse health conditions. Current estrogen replacement products include oraltablets and, more recently, transdermal patches. Users of oral estrogen tablets may sometimes experience the side effect of nausea. Transdermalpatches for estrogen replacement were developed in large part to eliminate this side effect of nausea and first became commercially available inthe mid 1980’s. Patches generally use alcohol to drive the estrogen through the skin to achieve therapeutic blood levels. These patches maycause skin irritation and the inconvenience to the patient associated with wearing and changing an external patch. For the 12 months endedSeptember 30, 2002, the estrogen replacement4 market in the U.S. was approximately $1.8 billion, with approximately 75% of the market using oral estrogen replacement therapy, 14% of themarket using transdermals, and 11% of the market using vaginal and other products. Clinical Trials of ESTRASORB. We have completed several preclinical and human safety and efficacy studies for ESTRASORB. A Phase IIstudy completed in the first quarter of 1999 involved a 35-day dosing protocol and included 120 patients at six clinical sites in the United States.This study indicated that ESTRASORB, administered daily to post-menopausal women, significantly reduced the number of hot flushes per day. Inthe first quarter of 2001, we completed a Phase III pivotal study at 21 centers in the U.S. designed to determine the efficacy of ESTRASORB inreducing the frequency of hot flushes in post-menopausal women. The Phase III study was a randomized, double-blind, placebo-controlled,parallel-group study involving 200 participants. During this study, a 3.0-gram daily dose of either ESTRASORB or placebo emulsion wasadministered to the thighs and calves of each participant, with 100 participants receiving ESTRASORB and the remainder receiving the placeboemulsion. The study demonstrated that ESTRASORB treatment caused a statistically significant reduction in moderate and severe vasomotorsymptoms (hot flushes) at weeks four, eight and twelve of the clinical trial. In addition, a high percentage of women achieved cessation ofmoderate to severe flushes during the twelve-week clinical trial. The Phase III study further demonstrated that ESTRASORB had no clinicallyrelevant adverse effect on laboratory safety parameters, vital signs or dermal assessments. Marketing of ESTRASORB. The United States marketplace for estrogen replacement therapy is highly competitive. In response, we haveprepared an aggressive sales launch and marketing strategy for ESTRASORB. Our marketing efforts will target the high-volume prescribers andearly adopters of women’s health products. These efforts will be further supplemented by a publications strategy aimed toward the inclusion inspecialty medical publications of in-depth clinical information regarding ESTRASORB. In July 2002, the Journal of the American Medical Association published data from the Women’s Health Initiative, a large-scale study toexamine the long-term health effects of hormone replacement therapy in healthy women. Preliminary results of the trial indicated that the group ofwomen on combination HRT (in this case a single product combining conjugated equine estrogens and a synthetic progestin) showed overall healthrisks that warranted the discontinuation of this group in the study. The results have had a negative impact primarily on orally administered,combination HRT products although there has also been uncertainty by women as to whether or not to continue with any form of HRT therapy. It is important to keep in mind that ESTRASORB is a single agent HRT product intended for short-term use for the relief of vasomotorsymptoms. This is in marked contrast to the products identified in the study. Specifically, ESTRASORB differs from the products used in thestudy in the following critical ways: (1) ESTRASORB utilizes a proprietary topical delivery system versus oral administration; (2) ESTRASORBcontains 17ß-estradiol, (which is the most naturally occurring estrogen in a woman’s body) versus conjugated equine estrogens combined with asynthetic progestin; and (3) ESTRASORB is being evaluated for short-term use for the relief of vasomotor symptoms associated with menopauseversus the long-term administration of HRT products in the study. ANDROSORB. ANDROSORB utilizes our patented micellar nanoparticle technology to deliver testosterone through the skin, when appliedtopically as an emulsion. Although generally associated with men, testosterone is also a naturally occurring hormone in women. As a woman ages,she may experience a variety of symptoms of testosterone deficiency, including poor libido or sexual responsiveness, depression, andcardiovascular, musculoskeletal and urological problems. ANDROSORB may be useful to treat the symptoms of testosterone deficiency, acondition that is increasingly prevalent in our aging population. To date, there have been no approved testosterone therapy products for women in the U.S. other than a product that combines estrogen andmethyltestosterone. Current testosterone replacement therapy products for men include deep intramuscular injections, transdermal patches andgels. The injections require frequent visits to a physician and may be associated with pain at the injection site and abscess. The transdermalpatches may cause skin irritation and patient inconvenience associated with wearing and changing external patches. We believe thatANDROSORB may offer several advantages over these current therapies. ANDROSORB is a emulsion that may be applied to the skin, thuseliminating the need for intramuscular injections. In addition, ANDROSORB does not contain materials that may cause the skin irritationassociated with transdermal patches. We completed a Phase I study in 2000 and completed a second study in 2002. Currently Marketed Products Our acquisition of Fielding in 2000 enabled us to expand our women’s health product line and provided us with an established national salesforce having extensive experience in selling to obstetricians and gynecologists throughout the United States. The acquisition included theNestabs® product line and Gynodiol™, described below, and a sales force of 64 people. We believe that the expertise gained through themarketing of these products positions us for a successful launch of ESTRASORB, if approved by the FDA. We currently market the following fourwomen’s health prescription products:5 Nestabs®. Nestabs is a complete line of prenatal multivitamins for use before, during and after pregnancy. Nestabs provides a convenient,once-a-day dosing regimen and a patient-friendly, small, easy to swallow tablet. The Nestabs product line generated $8.8 million in sales in 2002. GynodiolTM. Gynodiol is a safe, effective and economical option for women who require an oral estrogen replacement therapy, and is availablein four dosage strengths. Gynodiol is indicated for the relief of moderate to severe vasomotor symptoms associated with menopause, thetreatment of vulval and vaginal atrophy, the treatment of hypoestrogenism and the prevention of osteoporosis. The total sales for Gynodiol in 2002were $1.7 million. AVC™ Cream and Suppositories. AVC is an established line of women’s hygiene products effective for the treatment of vaginal infection. Weacquired the AVC product line from King for $3.3 million in 2001 and we believe there is opportunity for sales growth because AVC is the onlysulfanilamide on the market. The AVC product line generated $2.0 million in sales in 2002. Analpram HC®. Analpram HC is a topical prescription of corticosteroids that are anti-inflammatory and anti-pruritic agents targeted at womensuffering from hemorrhoids. We began selling this product in August 2002 after entering into a co-promotion agreement with Ferndale in July 2002. Infectious Diseases We develop and produce live virus suspensions and vaccines for governmental, commercial and academic clients. Our capabilities includeexperimental vaccine development, vaccine safety testing, production and testing of tissue culture systems. In addition, we have one of the fewlocations in the world that produces experimental live viral vaccines for Phase I clinical trials. We also develop recombinant virus-like particles andsub-unit proteins for use as vaccines against infectious diseases. Our vaccine product candidates include the following: Inactivated Smallpox Vaccine. Based upon the potential threat of a smallpox outbreak due to terrorist activity, there is an urgent need for asafe and effective smallpox vaccine that can be administered to the entire U.S. population. The current live virus smallpox vaccine cannot safelybe given to all persons. There are a significant number of people, up to 20% of the total population by some estimates, who may experiencesevere reactions to a live vaccine due to weakened immune systems. For example, people with HIV/AIDS, the elderly, transplant recipients andpeople on chemotherapy may have compromised immune systems. Novasomes are our non-phospholipid liposome technology used to adjuvantvaccines. We have in pre-clinical development a Novasome adjuvanted inactivated smallpox vaccine that may have a better safety profile thanthat of existing live virus vaccines. Initial animal studies indicate that our Novasome adjuvanted, inactivated smallpox vaccine achievedneutralizing antibodies to the virus. E-Selectin Tolerogen. Under a Cooperative Research and Development Agreement (CRADA), Novavax and the National Institute ofNeurological Disorders and Stroke have been developing E-selectin-based molecularly derived products for the prevention of strokes. InSeptember 2002, a published report in the professional journal Stroke provided experimental evidence on prevention of stroke in stroke-prone rats.These results provided supportive evidence that E-selectin tolerization may someday be useful in the prevention of strokes. Collaborative Agreements We have significant involvement in collaborations, sponsored research agreements and preclinical and clinical testing agreements withacademic institutions and with U.S. government agencies in connection with the development of our pharmaceutical product candidates and ourvaccine adjuvants. We have executed a Cooperative Research and Development Agreement with the NIH that is directed towards our work withthe Stroke Branch of the National Institute of Neurological Disorders area of the NIH. The principal goal of this agreement is to evaluate the safetyof therapeutics (recombinant e-selectin proteins) for the prevention of strokes. These and other collaborative agreements provide us with theopportunity to utilize the technical expertise and staff of the institutions involved and to gain access to clinical evaluation models, patients andrelated technologies.6 Our Platform Technologies Technology Description Products Micellar Nanoparticles An oil and water nanoemulsion (under 1 micron in diameter) thatallows topical delivery of alcohol-soluble materials ESTRASORB, ANDROSORB,TESTESTRASORB,PROGESTSORB NE andPROESTRASORB Novasomes® Non-phospholipid liposomes that can be used as an adjuvant toenhance vaccine effectiveness Novasome adjuvantedsmallpox vaccine Virus-like particles Non-infectious, self-assembling protein vaccines Chimeric HPV 16 vaccine Sterisomes® Sterol and oil free emulsion ANDRO-JECT,PROSTERISORB Viral vaccines Tissue culture derived live or attenuated vaccines Smallpox vaccine Recombinant proteins Sub-unit protein vaccines and immunotherapeutics E-selectin tolerogen Our product development efforts are focused on the research and development of proprietary topical, and injectable drug delivery systems andvaccine technologies and the applications of those technologies. Our technology platforms involve the use of proprietary microscopic structures asvehicles for the delivery of a wide variety of drugs, including hormones, and vaccine adjuvants. In addition, our vaccine technology can be utilizedfor the development of prophylactic vaccines. We believe our innovative technologies may allow for a more cost-effective and stable delivery of awider variety of drugs and other therapeutics than commercially available phospholipid liposomes and other delivery vehicles. Our topical deliverytechnology may also be preferred over other available injectable delivery technologies that are invasive, inconvenient and sometimes painful. Micellar Nanoparticle Emulsions. Micellar nanoparticles are proprietary, oil and water nanoemulsions. We believe that our micellar nanoparticleemulsions are the first substances able to encapsulate ethanol soluble materials. The micellar nanoparticle emulsion formulations we use for thetopical delivery of drugs have properties similar to creams and lotions. Micellar nanoparticle emulsions are the fundamental technology platform forour hormone replacement therapies, including our ESTRASORB and ANDROSORB product candidates. We believe that our patent on thistechnology lasts until 2015. Novasome Non-Phospholipid Vesicles. In addition to our micellar nanoparticle emulsion technology, we have developed Novasome non-phospholipid liposomes. Novasomes are proprietary liposomes in which vaccines can either be encapsulated in, or mixed with, for delivery into thebody by injection. They are made using our patented manufacturing processes from a variety of readily available chemicals called amphiphiles.We believe that our Novasome technology may provide effective and safe adjuvant carrier systems for a variety of vaccines. Our initial use of thistechnology will be in the development of vaccines for smallpox and other infectious diseases. Virus-Like Particles. We also develop recombinant virus-like particles for use as vaccines against infectious diseases. Virus-like particles areself-assembling protein structures that resemble viruses. These are non-infectious particles that can generate immune responses whenadministered as vaccines. We have several ongoing development programs involving virus-like particles including human papillomavirus vaccinesand influenza vaccines. Sterisomes. Sterisomes are our proprietary oil free drug delivery system comprised of predominately water. Sterisomes can be used as a depotdelivery system for certain steroidal hormones. We currently have in preclinical development a long-acting subcutaneous injectable formulation oftestosterone and a vaginal progesterone product utilizing this delivery system.Manufacturing The development and manufacture of our products are subject to good laboratory practices and current good manufacturing practicesprescribed by the FDA and to other standards prescribed by the appropriate regulatory agencies in other countries. We currently utilize third partycontract manufacturers to manufacture our existing marketed product line, but we do have the ability to produce limited quantities of productsneeded to support our current research and development program and clinical trials. For research and clinical trials we have manufacturedESTRASORB in 100 kilo-size batches at a facility owned by Cardinal Health. In February 2002, we entered into an agreement with Cardinal Healthto lease a 24,000 square foot facility at this same location. We have substantially completed the build-out of this facility to our requirements, andhave installed manufacturing equipment to accommodate commercial production of ESTRASORB. Products at this facility will be manufacturedusing our machinery and employees.7 Cardinal will perform the final fill and packaging of these products on a dedicated line and we have selected Cord Logistics, Inc., a division ofCardinal Health, to distribute the products. Despite the addition of this new facility, we may also need to rely on collaborators, licensees or directaccess to other manufacturing facilities for future later-stage clinical trials and commercial production efforts. There can be no assurance that wewill be able to enter into such relationships or obtain needed facilities to manufacture products in a timely manner at acceptable quality and prices,or that we or our suppliers will be able to comply with good laboratory practices or good manufacturing practices, as applicable, or manufacture anadequate supply of product.Competition The specialty biopharmaceutical industry is intensely competitive and is characterized by rapid technological progress. We compete withspecialized biopharmaceutical firms and large pharmaceutical companies, in the United States, Europe and elsewhere, that are engaged in thediscovery, development and marketing of hormone replacement therapies, vaccine products and other products that do or could compete with ourcurrently marketed products and our product candidates. These companies, as well as academic institutions, governmental agencies and privateresearch organizations, also compete with us in recruiting and retaining highly qualified scientific personnel and consultants. Many large companies currently produce and sell estrogen products for clinical indications identical to those that we seek for ESTRASORB. Inthe oral product segment of the estrogen replacement therapy market, which accounts for approximately 75% of the market, Wyeth commitssignificant resources to the sale and marketing of its product, Premarin®, in order to maintain its market leadership position. Warner-Chillcot alsocompetes in the branded oral product segment with its product, Estrace®. ESTRASORB, if approved, will also compete with products producedand sold by generic manufacturers in the oral product segment of the market, such as Watson Pharmaceutical, Inc., with its generic product,Estropipate®. In the transdermal patch segment of the estrogen replacement therapy market, which accounts for approximately 14% of the market, severalcompanies sell transdermal estrogen patches with which ESTRASORB will compete, if approved. For example, Novartis Pharma AG currentlymarkets and sells its Vivelle® and Estraderm® topical products and Berlex Laboratories, Inc. and Forest Laboratories, Inc. co-promote theClimara® transdermal patch. Several companies currently market estrogen gels, which deliver estrogen topically, outside the U.S. We are also aware of at least one U.S.company with a gel-based estrogen replacement product in clinical trials. Our currently marketed products also face significant competition. The prenatal vitamin market, for example, is very fragmented with manycompetitors. A number of companies that are larger than us, and have greater resources than we do, sell prenatal vitamins that compete withNestabs, including Warner-Chillcot, Solvay Pharmaceuticals, Mead Johnson and many generic manufacturers. The competition to develop newFDA-approved prenatal vitamins is also intense. In addition, Gynodiol, our oral estrogen replacement therapy product, competes with the estrogenreplacement therapy products described above. In general, competition among pharmaceutical products will be based in part on product efficacy, safety, reliability, availability, price and patentposition. An important factor will be the relative timing of market introduction of our products and our competitors’ products. Accordingly, the speedwith which we can develop products, complete the clinical trials and approval processes and supply commercial quantities of the products to themarket, is expected to be an important competitive factor. Our competitive position will also depend upon our ability to attract and retain qualifiedpersonnel, to obtain patent protection or otherwise develop proprietary products or processes and to secure sufficient capital resources for theoften substantial period between technological conception and commercial sale.Patents and Proprietary Information We currently have 55 U.S. patents and approximately 150 foreign patents and patent applications covering our technologies. We have 2pending U.S. patent applications in both the U.S. and worldwide covering the composition, manufacture and use of our organized lipid structuresand related technologies. We recently filed 8 new patent applications directed towards innovative discoveries made in the field of humanpapillomavirus and virus-like particles. A current U.S. patent issued in 1997 covers our micellar nanoparticles technology and methods of their production. Micellar nanoparticles arethe structures that allow for ESTRASORB’s topical delivery of estradiol. Consistent with statutory guidelines issued under the Federal Technology Transfer Act of 1986, designed to encourage the dissemination ofscience and technology innovation and provide sharing of technology that has commercial potential the Company’s collaborative research effortswith the government or with other private entities receiving federal funding provide that developments8 and results will be freely published, that information or materials supplied by us will not be treated as confidential and that we will be required tonegotiate a license to any such developments and results in order to commercialize products. There can be no assurance that we will be able tosuccessfully obtain any such license at a reasonable cost or that such developments and results will not be made available to our competitors onan exclusive or nonexclusive 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. In the United States, the development, manufacturing and marketing of human pharmaceuticals are subject toregulation for safety and efficacy by the FDA in accordance with the Food, Drug and Cosmetic Act. 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 Investigational New Drug application, which must be approved before human clinical trials commence, (iii) adequate and well-controlled human clinical trials to establish the safety and efficacy of the product, (iv) submission of a New Drug Application for a new drug and(v) FDA approval of the New Drug Application or Product License Application prior to any commercial sale or shipment of the product. Preclinicaltests include laboratory evaluation of product formulation and animal studies (if an appropriate animal model is available) to assess the potentialsafety and efficacy of the product. Formulations must be manufactured according to good manufacturing practices and preclinical safety testsmust be conducted by laboratories that comply with FDA regulations regarding good laboratory practices. The results of the preclinical tests are submitted to the FDA as part of an Investigational New Drug application and are reviewed by the FDAprior to the commencement of human clinical trials. There can be no assurance that submission of an Investigational New Drug application willresult in FDA authorization to commence clinical trials. The FDA may deny a New Drug Application or Product License Application if applicableregulatory criteria are not satisfied, additional testing or information is required, or post-marketing testing and surveillance to monitor the safety ofthe applicable products is required. In addition to obtaining FDA approval for each Product License Application, an Establishment License Application must be filed and approvedby the FDA for the manufacturing facilities of a biologic product before commercial marketing of the biologic product is permitted. This regulatoryprocess may take 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. 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 We currently have 121 full-time employees, of whom 31 are in research and development. Of those 31 employees in research anddevelopment, seven have earned PhD degrees and one is a medical doctor. We have no collective bargaining agreement with our employees andbelieve that our employee relations are good.Risks and Uncertainties You should carefully read the following risk factors in evaluating our business. Some of the following risks relate principally to our business andthe industry in which we operate. Other risks relate principally to the securities market and ownership of our common stock. If any of the followingrisks occur, our business, financial condition or operating results could be adversely affected. You should also consider the other informationdescribed in this report.9 Our success is heavily dependent on FDA approval and market acceptance of ESTRASORB Our New Drug Application for ESTRASORB was accepted for review by the FDA in November 2002. There is no guarantee that the FDA willapprove our application and allow us to begin selling ESTRASORB in the United States. If we do not receive FDA approval of our application, ourinability to sell ESTRASORB in the United States would have a significant negative effect on our business and results of operations. Even ifESTRASORB is approved by the FDA, there is no guarantee that we and King Pharmaceuticals, Inc., our marketing partner for ESTRASORB, willbe able to successfully commercialize ESTRASORB. Many factors could negatively affect our ability to successfully commercializeESTRASORB, including: • a failure or delay in ESTRASORB gaining a meaningful share of the estrogen replacement therapy market, which currently is dominatedby Premarin®, an oral estrogen tablet sold by Wyeth and estrogen patches sold by several companies including Novartis Pharma AG,Berlex Laboratories, Inc. and Forest Pharmaceuticals, Inc.; • our inability to effectively promote and sell ESTRASORB with King in the United States, or King’s inability to do so in the rest of theworld; • delays in the manufacture of ESTRASORB in commercial quantities; and • the inability to obtain coverage and favorable reimbursement rates for ESTRASORB from insurers and other third party payors. We will face substantial competition in connection with the sale of ESTRASORB and our other product candidates We compete with numerous other companies worldwide that have developed or are developing products that compete or may compete with ourproduct candidates. These competitors include both large and small pharmaceutical companies, biotechnology firms, universities and otherresearch institutions. We may not succeed in developing technologies and products that are more effective than those being developed by ourcompetitors. Many large companies currently produce and sell estrogen products for clinical indications identical to those that we seek for ESTRASORB. Inthe oral product segment of the estrogen replacement therapy market, which accounts for approximately 75% of the market, Wyeth commitssignificant resources to the sale and marketing of its product, Premarin®, in order to maintain its market leadership position. Warner-Chillcot alsocompetes in the branded oral product segment with its product, Estrace®. In addition, ESTRASORB will also compete with products produced andsold by generic manufacturers in the oral product segment of the market, such as Watson Pharmaceutical, Inc., with its generic product,Estropipate®. In the patch segment of the market, which accounts for approximately 14% of the estrogen replacement therapy market, severalcompanies market transdermal estrogen patches with which ESTRASORB will compete, if approved. For example, Novartis Pharma AG currentlymarkets and sells its Vivelle® and Estraderm® patches and Berlex Laboratories, Inc. and Forest Pharmaceuticals Inc. co-promote the Climara®transdermal patch. Several companies also currently market ethanol-based estrogen gels and ointments outside the United States. For example,Schering Canada sells its estrogen gel, Estrogel®, in Canada. These and other products sold by our competitors have all been approved for saleand have achieved some degree of market penetration. If ESTRASORB is approved for sale in the Untied States, it will compete for market sharewith these products and we cannot guarantee that together with King, we will be able to effectively promote ESTRASORB against thesecompetitive products. In order to effectively compete, we may make substantial investments in sales and marketing. Many of these products aresold by companies with greater resources than we have and there is no assurance that we will be successful in gaining significant market share forESTRASORB or in earning a return on that investment. Our technologies and products may be rendered obsolete or noncompetitive as a result of products introduced by competitors. Most of ourcompetitors have substantially greater financial and technical resources, production and marketing capabilities, and related experience than we do.The greater resources, capabilities and experience of our competitors may enable them to develop, manufacture and market their products moresuccessfully and at a lower cost than we can. In addition, many of our competitors have significantly greater experience than we do in conductingpreclinical testing and clinical trials of human pharmaceuticals and obtaining regulatory approvals to market such products. Accordingly, ourcompetitors may succeed in obtaining FDA approval for products more rapidly than we will which may give them an advantage over us inachieving market acceptance of their products. We need additional capital to grow and operate our business and we are uncertain about obtaining future financing We estimate that following our $16.6 million financing in February 2003, our existing cash resources will be sufficient to finance our operationsat current and projected levels of development and general corporate activity for the next 12 to 15 months. We cannot be certain that we will beable to generate sufficient revenues from product sales in the near term or at all. We may require additional10 funds to continue our research and development, commence future preclinical and clinical trials, seek regulatory approvals, establish commercial-scale manufacturing capabilities and market our products. We may seek additional funds through public or private equity or debt financings,collaborative arrangements with pharmaceutical companies and other sources. We cannot be certain that adequate additional funding will beavailable to us on acceptable terms, if at all. If we cannot raise the additional funds we may need to continue our current and anticipatedoperations, we may be required to delay significantly, reduce the scope of, or eliminate one or more of our research or development programs. Ifthat is the case, we will seek other alternatives to avoid insolvency, including arrangements with collaborative partners or others that may requireus to relinquish rights to certain of our technologies, product candidates or products. 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, 2002 was $87.5 million.Our revenues for the last three years were $15.0 million in 2002, $24.0 million in 2001 and $2.5 million in 2000. Sales of products that we acquiredas a result of our acquisition of Fielding Pharmaceutical Company in 2000 have generated modest revenues, but based on our current businessplan these revenues will not be sufficient to offset our expenses in the future. We cannot be certain of when or if we will generate substantialrevenues from the sale of ESTRASORB. We have received a very limited amount of product-related revenue from research contracts, licensesand agreements to provide vaccine products, services and adjuvant technologies. We cannot be certain that we will be successful in entering intostrategic alliances or collaborative arrangements with other companies that will result in other significant revenues to offset our expenses. Our netlosses for the last three years were $22.7 million in 2002, $9.7 million in 2001 and $12.1 million in 2000. Our losses have resulted from researchand development expenses, pre-launch sales and marketing expenses in the anticipation of FDA approval for ESTRASORB, protection of ourintellectual property and other general operating expenses. Our annual losses may increase depending on the timing of the FDA approval andlaunch of ESTRASORB as we expand our manufacturing capacity, sales and marketing capabilities and conduct additional and larger clinical trialsfor other product candidates. Therefore, we expect our cumulative operating loss to increase until such time, if ever, as product sales, licensingfees and royalty payments generate sufficient revenue to fund our continuing operations. We cannot predict when, if ever, we might achieveprofitability and cannot be certain that we will be able to sustain profitability, if achieved. We intend to allocate a significant portion of our sales force’s time to the product launch of ESTRASORB, if and when it is approved by theFDA. Accordingly, the sales of our other women’s health products could be adversely affected by the efforts we allocate to the ESTRASORBproduct launch. The costs of maintaining our own sales force to market our current products and ESTRASORB, if approved, may in the futureexceed product revenues. If we continue to market ESTRASORB or future products directly, significant additional expenditures and managementresources may be required to increase the size of our internal sales force. Our sales and marketing plan for ESTRASORB depends in large part on the success of our relationship with King We have entered into a co-promotion agreement with King for the marketing and promotion of ESTRASORB in the United States using oursales and marketing personnel and King’s sales and marketing personnel. We have also granted King exclusive rights to promote, market anddistribute ESTRASORB outside the United States. In return, we received certain milestone payments, potential future milestone payments,licensing fees and royalties on future sales. While our agreements with King give us some limited protections with respect to King’s marketing andsales efforts and, we believe, creates financial incentives for King consistent with our own, we cannot control the amount and timing of marketingefforts that King devotes to ESTRASORB, or make any assurances that our and King’s co-promotion of ESTRASORB in the United States andKing’s marketing of ESTRASORB in the rest of the world will be successful. Our success in marketing other potential future products will also depend in large part on our relationship with King. Our co-promotionagreement with King also provides for co-promotion in the United States with King of our product candidate ANDROSORB™. If this product isapproved for marketing by the FDA, King has an exclusive worldwide license, except in the United States, to market this future product. Under ourco-promotion agreement, King has the right to co-promote certain future hormone replacement therapy products in the field of women’s health. Inthe future, we might enter into other licensing or co-promotion arrangements with King or other third parties for the marketing and sale of otherfuture products. Any revenues we receive from sales of ANDROSORB and other future products will depend in large part on the terms of theseagreements and the efforts of King and any other third-party marketing partners. Our agreements with King reduce the likelihood that we could be acquired by another company Our co-promotion agreement and license agreement with King for the marketing of ESTRASORB and ANDROSORB contain several provisionsthat would take effect upon a change of control of the Company. One provision allows King several options in the11 event of a change in control of Novavax including (i) terminating our right to co-promote King products, (ii) terminating our rights to promoteESTRASORB and ANDROSORB and certain other hormone therapies for women or (iii) requiring Novavax to assign and transfer to King all relatedrights of ownership for ESTRASORB and ANDROSORB and certain other hormone replacement therapies for women and license to King on anexclusive and perpetual basis all intellectual property rights and know how. If King chooses to exercise its rights under either clause (ii) or(iii) above, King will pay us royalties on net sales of the products. In addition, King will pay us for the cost of manufacturing, plus a markupconsistent with the terms of the license agreement for the handling costs. King could also require that we redeem the outstanding promissorynotes, currently in the amount of $40.0 million, at 101% of the outstanding principal and accrued interest. These provisions may have the effect ofmaking us less attractive as an acquisition candidate. We need additional manufacturing capability to commercialize our products We do not have any experience with the large capacity manufacturing required for commercial sale of a product. Although we have had theability to produce the limited quantities of products needed to support our current research and development program and clinical trials, we willneed more production capacity for larger, later-stage clinical studies and commercial sales. Our potential products may be too difficult or costly tomanufacture on a large scale, to develop into commercially viable products or to market. We have validated our manufacturing methods for ESTRASORB, which is required under FDA guidelines and have received approval of thesemethods. We currently manufacture ESTRASORB at a facility of Cardinal Health, in Philadelphia, Pennsylvania. In February 2002, we entered intoan agreement with Cardinal Health to lease approximately 24,000 square feet of space within their facility. Under the terms of this agreement,Cardinal Health will provide packaging services for the product we manufacture in their facility. We have substantially completed the build out ofthe facility to meet our requirements and have installed manufacturing equipment at this facility with the capacity required for commercialproduction of ESTRASORB. Now that this new equipment is installed, we need to validate that the ESTRASORB made using this new equipmentis identical to that used in our clinical trials. If we are unable to make ESTRASORB on a commercial scale or are delayed in validating the productmanufactured with our new equipment, the commercialization of ESTRASORB would be delayed. In the near term, we will be manufacturing ESTRASORB only in the Philadelphia facility. If ESTRASORB is approved by the FDA, we plan toqualify at least one additional site for the manufacture of ESTRASORB. If we were unable to utilize the Philadelphia facility to manufactureESTRASORB prior to our qualification of a second site, however, we would not have immediate access to ESTRASORB and would be required toreestablish our validation process at a different facility that would cause us to lose sales of ESTRASORB and would adversely affect ourbusiness. We currently utilize third party contract manufacturers to manufacture our other products. Any contract manufacturer’s facility that we may use,including the Cardinal Health facility, must adhere to the FDA’s regulations on current good manufacturing practices, which are enforced by theFDA through its facilities inspection program. These facilities are subject to periodic inspection by the FDA. The manufacture of products at thesefacilities will be subject to strict quality control testing and recordkeeping requirements. We may not be able to enter into alternative manufacturingarrangements at commercially acceptable rates, if at all. Moreover, the manufacturers utilized by us may not provide quantities of productsufficient to meet our specifications or our delivery, cost and other requirements. If we decide to manufacture our own products, we will need to acquire additional manufacturing facilities and to improve our manufacturingtechnology. Establishing additional manufacturing facilities will require us to spend substantial funds, hire and retain a significant number ofadditional personnel and comply with extensive regulations applicable to such facilities here and abroad, including the current good laboratorypractices and good manufacturing practices required by the FDA. If we elect to or need to manufacture our own products, we risk the possibilitythat we may not be able to do so in a timely fashion at acceptable quality and prices or in compliance with good laboratory practices and goodmanufacturing practices. We have not completed the development of many of our products and we may not succeed in obtaining the FDA approval necessaryto sell any additional 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 clinical trialsthat demonstrate the safety and efficacy of a product in order to apply for regulatory approval to market the product. Only a few of our productshave been approved for sale and our application to sell ESTRASORB in the United States is currently being reviewed by the FDA. Our productcandidate, ANDROSORB, has completed two Phase I human clinical studies. Our other product candidates are in preclinical laboratory or animalstudies. Before applying for FDA approval to market any additional product candidates, we must conduct larger-scale Phase II and III humanclinical trials that demonstrate the safety and efficacy of our12 products to the satisfaction of the FDA or other regulatory authorities. These processes are expensive and can take many years to complete. Wemay not be able to demonstrate the safety and efficacy of our products to the satisfaction of the FDA or other regulatory authorities. We may alsobe required to demonstrate that our proposed products represent an improved form of treatment over existing therapies and we may be unable todo so without conducting further clinical studies. We may fail to obtain regulatory approval for our products on a timely basis. Delays in obtaining regulatory approval can be extremely costly interms of lost sales opportunities and increased clinical trial costs. The speed with which we complete our clinical trials and our applications formarketing 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, the proximity of patientsto clinical sites, the eligibility criteria for the study and the nature of the protocol; • institutional review board approval of the protocol and the informed consent form; • prior regulatory agency review and approval; • analysis of data obtained from preclinical and clinical activities which are susceptible to varying interpretations, which interpretationscould 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 the appropriate regulatoryapplications. We have limited experience in conducting and managing the preclinical 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 preclinical 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 theindicated 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. 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. We currently have 55 U.S. patents and approximately 150 foreign patentsand patent applications covering our technologies. We recently filed 8 new patent applications in the US and worldwide directed towards innovativediscoveries made in the field of human papillomavirus virus-like particles. However, patent issues relating to pharmaceuticals involve complexlegal, scientific and factual questions. To date, no consistent policy has emerged regarding the breadth of biotechnology patent claims that aregranted by the United States Patent and Trademark Office or enforced by the federal courts. Therefore, we do not know whether our applicationswill result in the issuance of patents, or that any patents issued to us will provide us with any competitive advantage. We also cannot be sure thatwe will develop additional proprietary products that are patentable. Furthermore, there is a risk that others will independently develop or duplicatesimilar technology or products or circumvent the patents issued to us. 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 suits or in filing suits against others to have their patents declared invalid or claiminfringement. It is also possible that we may be required to obtain licenses from third parties to avoid infringing third-party patents or otherproprietary rights. We cannot be assured that such third-party licenses would be available to us on acceptable terms, if at all. If we are unable toobtain required third-party licenses, we may be delayed in or prohibited from developing, manufacturing or selling products requiring such licenses. Although our patents include claims covering various features of our product candidates, including composition, methods of manufacture anduse, our patents do not provide us with complete protection against the development of competing products. For13 example, our patents do not prohibit third parties from developing and selling products for estrogen replacement therapy that deliver estrogenthrough a topical emulsion, ointment or similar medium. 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 our trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure. Health care insurers and other payors may not pay for our products or may impose limits on reimbursement Our ability to commercialize ESTRASORB and our future products will depend, in part, on the extent to which reimbursement for such productswill be available from third-party payors, such as Medicare, Medicaid, health maintenance organizations, health insurers and other public andprivate payors. If we succeed in bringing ESTRASORB or other products in the future to market, we cannot assure you that third-party payors willpay for ESTRASORB or will establish and maintain price levels sufficient for realization of an appropriate return on our investment in productdevelopment. For example, ESTRASORB, if approved for commercial sale in the United States, would be sold as an outpatient prescription drug.Medicare does not cover the costs of most outpatient prescription drugs. We expect that ESTRASORB will be treated the same as other estrogenreplacement therapy products with respect to government and third-party payor reimbursement. However, we cannot be assure that ESTRASORBwill receive similar reimbursement treatment. Many health maintenance organizations and other third-party payors use formularies, or lists of drugs for which coverage is provided under ahealth care benefit plan, to control the costs of prescription drugs. Each payor that maintains a drug formulary makes its own determination as towhether a new drug will be added to the formulary and whether particular drugs in a therapeutic class will have preferred status over other drugs inthe same class. This determination often involves an assessment of the clinical appropriateness of the drug and sometimes the cost of the drug incomparison to alternative products. We cannot be assured that ESTRASORB or any of our future products will be added to payor’s formularies,whether our products will have preferred status to alternative therapies, nor whether the formulary decisions will be conducted in a timely manner.We may also decide to enter into discount or formulary fee arrangements with payors, which could result in us receiving lower or discounted pricesfor ESTRASORB or future products. We may have product liability exposure The administration of drugs to humans, whether in clinical trials or after marketing clearances are obtained, can result in product liability claims.We maintain product liability insurance coverage in the total amount of $18.0 million for claims arising from the use of our currently marketedproducts and products in clinical trials prior to FDA approval. Coverage is becoming increasingly expensive, however, and we may not be able tomaintain insurance at a reasonable cost. We cannot be assured that we will be able to maintain our existing insurance coverage or obtain coveragefor the use of our other products in the future. This insurance coverage and our resources may not be sufficient to satisfy liabilities resulting fromproduct liability claims. A successful claim may prevent us from obtaining adequate product liability insurance in the future on commerciallydesirable terms, if at all. Even if a claim is not successful, defending such a claim may be time-consuming and expensive and may damage ourreputation in the marketplace. The price of our common stock has been, and may continue to be, volatile Historically, the market price of our common stock has fluctuated over a wide range. In fiscal 2002, our common stock traded in a range from alow of $1.59 to a high of $14.00. It is likely that the price of our common stock will fluctuate in the future. The market prices of securities of smallcapitalization biopharmaceutical companies, including ours, from time to time experience significant price and volume fluctuations unrelated to theoperating performance of particular companies. In particular, over the next year, the market price of our common stock may fluctuate significantlydue to a variety of factors, including: • governmental agency actions, including the FDA’s determination with respect to our pending NDA for ESTRASORB; • our ability to obtain financing; and • sales of our products, particularly ESTRASORB, if it is approved for sale. In addition, the occurrence of any of the risks described in this “Risks and Uncertainties” section could have a dramatic and adverse impact onthe market price of our common stock.14 Our substantial debt could adversely affect our cash flow and prevent us from fulfilling our obligations We currently have $41.3 million of outstanding debt. Our substantial amount of debt could have important consequences to you. For example,it: • could increase our vulnerability to general adverse economic and industry conditions; • will require us to dedicate a substantial portion of our cash flow from operations to service payments on our debt, reducing theavailability of our cash flow to fund future capital expenditures, working capital, execution of our growth strategy, research anddevelopment costs and other general corporate requirements; • could limit our flexibility in planning for, or reacting to, changes in our business and the pharmaceutical industry, which may place us ata competitive disadvantage compared with competitors that have less debt; and • could limit our ability to borrow additional funds, even when necessary to maintain adequate liquidity. We may incur additional debt for various reasons, which, if over a certain amount, must be approved by King. Any such additional debt wouldincrease the risks associated with our substantial leverage. We have made loans to certain of our directors, and have guaranteed a brokerage margin loan for one of these directors that couldhave a negative impact on our stock price In 2002, pursuant to our Stock Option Plan, we approved the payment of the exercise price of options by two directors through the delivery offull recourse, interest bearing promissory notes, in the aggregate amount of approximately $1.5 million, secured by a pledge of the underlyingshares. In addition, in 2002 we executed a conditional guaranty of a brokerage margin account for a director in the amount of $500,000. Due toheightened sensitivity in the current environment surrounding related party transactions, these transactions could be viewed negatively in themarket and our stock price could be negatively affected. The Company makes available free of charge on its website, www.novavax.com, copies of its Annual Report on Form 10-K, its QuarterlyReports on Form 10-Q, its Current Reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after suchmaterial is electronically filed with or furnished to the Commission.Item 2. Properties We currently have operations in six facilities. We lease approximately 12,000 square feet of administrative offices for our corporateheadquarters in Columbia, Maryland. We lease two facilities in Rockville, Maryland. One facility is approximately 6,000 square feet and containsour certified animal facility and laboratories for our drug research and biologics development, which includes our vaccine adjuvant product andservices group. In the other facility in Rockville, we lease approximately 12,000 square feet of space. This facility is for contract vaccine research,development and manufacturing of Phase I products. We have another 2,150 square foot facility in Pacific Grove, California for research anddevelopment activities. Our Fielding subsidiary leases a facility in Maryland Heights, Missouri. This facility is approximately 12,000 square feetand is used for administrative offices, repackaging and warehousing. In addition, in February 2002, we entered into a facilities reservationagreement through which we lease approximately 24,000 square feet of manufacturing space to meet our current and anticipated future productionrequirements for ESTRASORB. Recently, we substantially completed the build-out and construction of this manufacturing space. A summary ofthese facilities is set forth below. Property Square Footage Purpose Columbia, Maryland 12,000 Corporate headquartersRockville, Maryland 6,000 Research and development activities and office spaceRockville, Maryland 12,000 Research and development activities and office spaceMaryland Heights, Missouri 12,000 Administrative, repackaging, warehousing and distributionPhiladelphia, Pennsylvania 24,000 Manufacturing and packaging of ESTRASORB, and office spacePacific Grove, California 2,150 Research and development activities We believe our facilities are adequate to accommodate our current business plan and anticipated short-term needs and that we will be able tolease additional comparable space, if necessary. However, if we choose to expand our manufacturing capacity, the lease or acquisition of, and thereceipt of required regulatory approvals for, additional pharmaceutical manufacturing space may be time-15 consuming and expensive. In addition, we might not be able to obtain such additional manufacturing space on a timely basis or on termsacceptable to us, if at all.Item 3. Legal Proceedings We are not a party to any pending 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, 2002.16 Executive Officers of the Registrant Our executive officers hold office until the first meeting of the Board of Directors following the annual meeting of stockholders and until theirsuccessors are duly chosen and qualified, or until they resign or are removed from office in accordance with the our By-laws. The following table provides certain information with respect to our executive officers. Principal Occupation and Other BusinessName Age Experience During the Past Five Years Mitchell J. Kelly 43 President and Chief Executive Officer since September 2002. Also, President and ChiefExecutive Officer from August 1998 until May 1999. Chairman of the Board, ChiefExecutive Officer and Managing Member of Anaconda Capital Management, LLC, aninvestment management company, since 1995, and in various capacities with affiliatesof Anaconda Capital since 1993. Denis M. O’Donnell, M.D 49 Chairman of the Board of Directors of Novavax, Inc. since May, 2000. General Partnerat Seaside Partners, LP, a private equity limited partnership, since 1997. ViceChairman of the Board of Directors of Novavax, Inc. from June, 1999 to May 2000.Senior Advisor to Novavax from 1997 to 1998. President of Novavax from 1995 to1997. Vice President, Business Development of Novavax from 1992 to 1995. D. Craig Wright, M.D 52 Chief Scientific Officer of Novavax since 1993. Dennis W. Genge 50 Vice President, Chief Financial Officer and Treasurer since October 2000. VicePresident and Controller of Pyxis Corporation from April 1999 to September 2000.Executive Director of Accounting and Finance and Controller of LigandPharmaceuticals, Inc. from July 1991 to March 1999. Ann P. McGeehan 33 General Counsel since February 2002. Registered Patent Attorney of Covington &Burling from July 2000 to January 2002. Intellectual Property and Corporate Associateof McDermott Will & Emery from November 1998 to January 2000. Intellectual Propertyand Corporate Associate of Pepper Hamilton from January 1998 to September 1998.Intellectual Property Associate of Seidel Gonda Lavorgna Monaco from June 1996 toJanuary 1998.17 PART IIItem 5. Market For Registrant’s Common Equity and Related Stockholder Matters Our common stock was held by approximately 684 stockholders of record as of March 14, 2003. We have never paid cash dividends on ourcommon stock. We currently anticipate that we will retain all of our earnings for use in the development of our business and do not intend to payany cash dividends in the foreseeable future. Our common stock ($.01 par value) is traded on the Nasdaq National Market under the symbol NVAX. Prior to July 2001, our common stockwas traded on the American Stock Exchange under the symbol NOX. The following table sets forth, for the periods presented, the high and lowsales prices for our common stock, on the applicable exchange. Quarter Ended: High Low December 31, 2002 $4.37 $2.13 September 30, 2002 4.81 1.59 June 30, 2002 11.98 3.57 March 31, 2002 14.00 8.77 December 31, 2001 $15.55 $10.51 September 30, 2001 14.50 9.06 June 30, 2001 11.00 6.35 March 31, 2001 11.00 7.10 Recent Sales of Unregistered Securities In February 2003, we issued 4,750,000 shares of common stock, for net proceeds of $16.6 million, to SJ Strategic Investments LLC. Theshares were issued in a private placement in reliance on Section 4(2) of the Securities Act and a resale registration statement will be filed with theCommission within 60 days of the closing. See Part III, Item 12 for information regarding securities authorized for issuance under our equity compensation plans.Item 6. Selected Financial Data The selected financial data set forth below has been derived from our audited consolidated financial statements. This information should beread in conjunction with the financial statements and the related notes thereto, “Management’s Discussion and Analysis of Financial Condition andResults of Operations” in Item 7 and other financial information included elsewhere in this Annual Report on Form 10-K. For the years ended December 31, 1998 1999 2000 2001 2002 (amounts in thousands, except share and per share information)Statement of Operations Data: Revenues $681 $1,181 $2,475 $24,066 $15,005 Loss from operations (5,152) (4,566) (12,742) (9,255) (21,558)Net loss (4,817) (4,506) (12,191) (9,745) (22,697)Loss applicable to commonstockholders (7,045) (4,506) (12,191) (9,745) (22,697)Basic and diluted per shareinformation: Loss applicable to commonstockholders $(0.57) $(0.31) $(0.64) $(0.43) $(0.93)Weighted average number ofshares outstanding 12,428,246 14,511,081 19,015,719 22,670,274 24,433,868 As of December 31, 1998 1999 2000 2001 2002 Balance Sheet Data: Total current assets $1,207 $1,143 $17,036 $25,027 $6,242 Working capital 349 (480) 12,331 18,030 378 Total assets 3,819 4,463 56,529 67,115 57,505 Convertible debt — — 20,000 30,000 40,000 Stockholders’ equity 2,961 2,840 31,824 27,493 8,073 18 Summarized Quarterly Financial Information for the Years ended December 31, 2002 and 2001: Quarter Ended Previously Previously Previously Reported Restated Reported Restated Reported Restated March 31 March 31 June 30 June 30 September 30 September 30 December 31 (in thousands except per share data) unaudited2002 Revenues $6,094 $5,713 $4,745 $4,464 $2,467 $2,328 $2,499 Cost of sales 1,057 1,057 1,008 1,008 762 762 732 Research and developmentcosts 2,942 2,942 3,205 3,205 3,702 3,702 1,652 Selling and marketing 4,375 4,375 3,549 3,549 2,713 2,713 2,211 General and administrative 2,814 2,814 2,217 2,217 1,629 1,629 1,996 Net loss (5,342) (5,722) (5,497) (5,778) (6,714) (6,853) (4,344)Net loss per share $(.22) $(.24) $(.22) $(.24) $(.27) $(.28) $(.18)2001 Revenues $4,966 $7,945 $5,038 $6,117 Cost of sales 1,043 1,061 822 1,126 Research and developmentcosts 2,592 3,837 1,757 2,589 Selling and marketing 1,352 1,602 2,828 2,757 General and administrative 2,132 3,127 2,003 2,693 Net loss (2,232) (1,808) (2,513) (3,192)Net loss per share $(.10) $(.08) (.11) $(.14) During the fourth quarter we reassessed the remaining costs, progress and milestones outstanding on four contracts. Based on this review wedetermined that estimated costs to complete had been underestimated throughout the year. We have reevaluated the estimated costs to completeon all contracts. The effect of this reevaluation is an $800,000 reduction to revenue, $600,000 of which relates to two of the contracts, with nocorresponding reduction in expenses. The impact of this adjustment affects previously disclosed revenues in our 2002 quarterly reports.Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion may contain statements that are not purely historical. Certain statements contained herein or as may otherwise beincorporated by reference herein constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.Forward-looking statements include, but are not limited to, statements regarding product sales, future product development and related clinicaltrials and statements regarding future research and development, including Food and Drug Administration approval. Such forward-lookingstatements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievementsof the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by suchforward-looking statements. Such factors include, among other things, the following: general economic and business conditions; competition; unexpected changes intechnologies and technological advances; ability to obtain rights to technology; ability to obtain and enforce patents; ability to commercialize andmanufacture products; ability to establish and maintain commercial-scale manufacturing capabilities; ability to enter into future collaboration withindustry partners; results of clinical studies; progress of research and development 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. All forward-looking statements contained in this document are based on information available to the Company on the date hereof, and theCompany assumes no obligation to update any such forward-looking statements, except as specifically required by law. Accordingly, past resultsand trends should not be used to anticipate future results or trends.Overview Novavax is a fully-integrated specialty pharmaceutical company focused on the research, development and commercialization of productsutilizing our proprietary drug delivery and vaccine technologies for large and growing markets, concentrating on the areas of women’s health andinfectious diseases.19 Our micellar nanoparticle technology involves the use of patented oil and water emulsions that we believe can be used as vehicles for thetopical delivery of a wide variety of drugs and other therapeutic products, including hormones, and vaccine adjuvants, which are substances addedto vaccines to enhance their effectiveness. We believe that our technology represents the first time that ethanol soluble hormones, such asestrogen and testosterone, have been encapsulated and delivered. In addition to ESTRASORB, our product candidates using these technologiesinclude ANDROSORB™, a topical testosterone emulsion that has completed two Phase I clinical trials; TESTESTRASORB™, a topical estrogenand testosterone emulsion; PROGESTSORB™ NE, a topical progestin emulsion; and PROESTRASORB™, a topical estrogen and progestinemulsion. Other drug delivery technologies, like our Novasome® and Sterisome® technologies, are being utilized to develop other products.Novasomes are used as adjuvants to enhance vaccine effectiveness. Sterisomes are being used for, among other things, subcutaneous injectionsthat can deliver long-acting drug effects. We also conduct research and development on preventative vaccines and proteins, for infectiousdiseases, cancers and immunotherapies. We are seeking FDA approval of ESTRASORB for the reduction of hot flushes in menopausal women and, if approved, we believeESTRASORB will be competitively positioned to address the estimated $1.8 billion estrogen replacement therapy market in the United States. In2002, Novavax reported on its Phase III clinical trial results at two major medical conferences. The study demonstrated that ESTRASORBtreatment caused a statistically significant reduction in moderate and severe vasomotor symptoms (hot flushes) at weeks four, eight and twelve ofthe clinical trial. In addition, a high percentage of women achieved cessation of moderate to severe hot flushes during the twelve-week clinical trial. A New Drug Application for ESTRASORB was submitted to the U.S. Food and Drug Administration in June 2001 and was accepted for reviewin August 2001. In April 2002, we were informed by the FDA that the agency had completed their review of the New Drug Application forESTRASORB. At that time, the agency did not raise any issues regarding the efficacy or safety of ESTRASORB, but did request additionalinformation with respect to the Chemistry, Manufacturing and Controls (“CMC”) section of the filing. We determined that the most advantageousapproach to resolving the outstanding CMC questions was to voluntarily withdraw the New Drug Application and resubmit it once all of theresponses to the CMC questions have been prepared. In September 2002 we resubmitted the New Drug Application, which was accepted forreview by the FDA in November 2002. In December 2000, we acquired privately-owned Fielding Pharmaceutical Company, based in St. Louis, Missouri, which sells, markets anddistributes a proprietary line of pharmaceutical products focused on women’s health. Under the terms of the acquisition agreement, we acquired100% of the outstanding shares of Fielding for $36.5 million. The acquisition has been accounted for in the accompanying financial statementsunder the purchase method of accounting for business combinations. In December 2000 we entered into a Note Purchase Agreement with King Pharmaceuticals, Inc. whereby we agreed to issue to King 4% seniorconvertible promissory notes up to $25.0 million. On that same date, we issued a 4% senior convertible promissory note with King for $20.0 millionin principal. In September 2001, we issued two additional 4% senior convertible promissory notes for $5.0 million each and in June 2002 we issuedanother 4% senior convertible promissory note for $10.0 million. All of the notes, totaling $40.0 million (the “Notes”), are due December 19, 2007with interest payable in semi-annual installments in cash, or in certain circumstances, up to 50% in stock. In January 2001, we entered into a co-promotion agreement with King for the Company’s topical estrogen replacement therapy, ESTRASORB,in the United States and Puerto Rico (the “Territory”). We also entered into a license agreement with King for many countries outside the UnitedStates. In June 2001, we expanded and amended the agreements (the “Amended Agreements”). The Amended Agreements grant King exclusiverights to promote, market and distribute ESTRASORB in Canada, and five additional countries in Europe, and added ANDROSORB, a topicaltestosterone replacement therapy for testosterone deficient women. We feel this partnership has the potential to provide us with broaderpenetration into the women’s health market for ESTRASORB and ANDROSORB. Under the terms of the Amended Agreements, we received$3.0 million from King in up-front licensing fees, and we will also receive additional milestone payments of $1.0 million upon ESTRASORB’sapproval in Canada and $2.0 million upon the first approval of ESTRASORB in any one of the five additional countries in Europe. We will alsoreceive royalties on future sales outside the Territory. Under the Amended Agreements, we also received a milestone payment from King of$2.5 million for our submission of the ESTRASORB New Drug Application, in June 2001, and an additional milestone payment of $2.5 million forthe acceptance for review of our New Drug Application by the FDA in August 2001. In June 2002, we further amended the co-promotion agreementrelated to ANDROSORB. We will share equally in approved pre-launch marketing costs for ANDROSORB with King, while we will be solelyresponsible for the research and development expenses for ANDROSORB. In addition, King will pay us a $1.0 million milestone payment upon thereceipt of all approvals necessary for commercialization of ANDROSORB.20 We entered into two product agreements in 2001 and 2002. In January 2001, we acquired AVC Cream and Suppositories from King for$3.3 million, which had previously been marketed by King for the treatment of vaginal bacterial infections. In July, 2002, we entered into agreementwith privately-held Ferndale Laboratories, Inc. of Ferndale, Michigan. Under the agreement, we will co-promote Analpram HC®, a prescriptioncorticosteroid and anti-pruritic product targeted at women suffering from hemorrhoids. Subsequent to year-end, in February 2003, we announced that we had completed a private placement of 4,750,000 common shares at $3.50per share to SJ Strategic Investments LLC, for total proceeds of $16.6 million. We believe this recent equity infusion will provide us with thenecessary financial resources to launch ESTRASORB, if approved by the FDA later this year, as well as to continue to pursue our other corporateactivities.Critical Accounting Policies and Changes to Accounting Policies The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires managementto make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities atthe date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differfrom those estimates. We have identified below some of our more critical accounting policies and changes to accounting policies. For further discussion of ouraccounting policies see Footnote 2 “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements.Revenue Recognition We recognize revenue in accordance with the provisions of Staff Accounting Bulletin No. 101. For our product sales, revenue is recognizedwhen all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, theseller’s price to the buyer is fixed or determinable and collectibility is reasonably assured. We recognize these sales net of allowances for returns,rebates and chargebacks. A large part of our product sales are to distributors who resell the products to their customers. We provide rebates tomembers of certain buying groups who purchase from our distributors, to distributors that sell to their customers at prices determined under acontract between us and the customer or to state agencies, which administer various programs such as the federal Medicaid and Medicareprograms. Rebate amounts are usually based upon the volume of purchases or by reference to a specific price for a product. We estimate theamount of the rebate that will be paid, and record the liability as a reduction of revenue when we record our sale of the products. Settlement of therebate generally occurs from three to 12 months after sale. We regularly analyze the historical rebate trends and make adjustments to recordedreserves for changes in trends and terms of rebate programs. For up-front payments and licensing fees related to our contract research or technology, we defer and recognize revenue as earned over the lifeof the related agreement. Milestone payments are recognized as revenue upon achievement of contract-specified events and when there are noremaining performance obligations. Revenue earned under certain research contracts is recognized on the percentage of completion method. The extent of progress towardcontract completion is measured on the cost-to-cost method that also included an assessment of the remaining costs required to complete thecontract or reach particular milestones. Revenues from contracts with acceptance terms are recognized when the customer has received andapproved the services. During the fourth quarter we reassessed the remaining costs, progress and milestones outstanding on four contracts.Based on this review we determined that estimated costs to complete had been underestimated throughout the year. We have reevaluated theestimated costs to complete on all contracts. The effect of this reevaluation is an $800,000 reduction to revenue, $600,000 of which relates to twoof the contracts, with no corresponding reduction in expenses. The impact of this adjustment affects previously disclosed revenues in our 2002quarterly reports. We have shown the 2002 quarterly effects of these adjustments in Item 6 herein.Research and Development Costs Research and development costs are expensed as incurred. We will continue to incur research and development costs as we expand ourproduct development activities in our women’s health and infectious disease programs. Our research and development costs have included, andwill continue to include, expenses for internal development personnel, supplies and facilities, clinical trials, regulatory compliance and reviews,validation of processes and start up costs to establish commercial manufacturing capabilities. At the time our product candidates are approved bythe FDA and we begin commercial manufacturing, we will no longer expense costs at our manufacturing location as research and developmentcosts.21 Depreciation and Amortization Depreciation of furniture, fixtures and equipment is provided under the straight-line method over the estimated useful lives, generally 3 to7 years. Amortization of leasehold improvements is provided over the estimated useful lives of the improvements or the term of the lease, whichever is shorter. In December 2002 we substantially completed the build-out of our new manufacturing facility in Philadelphia at a cost of approximately$7.0 million. In addition, we have purchased and installed approximately $3.0 million of manufacturing equipment in preparation of anticipated FDAapproval of ESTRASROB in 2003. We do not plan to begin recognizing amortization or depreciation on these assets until manufacturing forcommercialization begins. At that time, the yearly amortization and depreciation expense will be from $1.0 to $1.5 million per year.Goodwill and Intangibles Assets Goodwill and intangible assets principally result from business acquisitions, such as the $35.5 million of goodwill we recognized for ouracquisition of Fielding in December 2000. Assets acquired and liabilities assumed are recorded at their fair values; the excess of the purchaseprice over the identifiable net assets acquired is recorded as goodwill. Intangible assets other than goodwill, are amortized on a straight-line basisover their estimated useful lives, ranging from 5 to 15 years. The Company periodically evaluates the periods of amortization to determine whetherlater events and circumstances warrant revised estimates of useful lives. In June 2001, the FASB issued SFAS No. 142 “Goodwill and Other Intangible Assets,” which is effective for fiscal years beginning afterDecember 15, 2001. Under these rules, goodwill and intangible assets deemed to have indefinite lives are no longer amortized but will be subjectto annual impairment tests or more frequently should indicators of impairment arise. Other intangible assets will continue to be amortized over theiruseful beginning in the first quarter of 2002. The Company utilizes a discounted cash flow analysis, which includes profitability information,estimated future operating results, trends and other information in assessing whether the value of indefinite-lived intangible assets can berecovered. Under SFAS No. 142, goodwill impairment is deemed to exist if the carrying value of a reporting unit exceeds its estimated fair value.In accordance with the requirements of SFAS No. 142, the Company tested its goodwill for impairment as of January 1, 2002 and determined thatno impairment was present. In the fourth quarter of 2002, the Company performed the required annual impairment test on the carrying amount of itsgoodwill, which indicated the Company’s estimated fair value of goodwill exceeded it carrying value, therefore, no impairment was identified atDecember 31, 2002.Future Accounting for Co-promotion Agreement Under the terms of our co-promotion agreement with King Pharmaceuticals, Inc. we will be responsible for receiving orders, invoicing anddistribution, thus, we will record all of the product sales, returns and allowances and cost of sales for ESTRASORB. The resultant gross marginwill be shared equally with King and the payment to King will be recorded as a selling and marketing expense on our statement of operations.Under the co-promotion agreement, following product approval by the FDA, both parties will also share equally in approved marketing expenses forthe products. All direct marketing expenses will be recorded by us, for which King will reimburse us fifty percent.Off Balance Sheet Financing Arrangement In 2002, the Company executed a conditional guaranty of a brokerage margin account for a director, in the amount of $500,000.Results of Operations for the Years Ended 2002, 2001 and 2000Revenues Revenues for the year ended 2002 were $15.0 million compared to $24.0 million in 2001 and $2.5 million in 2000. This represents a decrease of$9.0 million, or 38%, from 2001 to 2002, and an increase of $21.6 million, or 864%, from 2000 to 2001. The decrease from 2001 to 2002 relates toa decline in product sales from $17.3 million in 2001 to $12.8 million in 2002, a decrease of $4.5 million, a decline in contract research from$2.7 million in 2001 to $1.0 million in 2002, a decrease of $1.7 million, and a decline in milestone and license fee revenue from $4.1 million in 2001to $1.2 million in 2002, a decrease of $2.9 million. Product sales were negatively impacted in 2002 primarily due to an approximately 20% declinein sales for our prenatal vitamin line, as a result of increasing competitive pressure from generic alternatives, as well as declines in AVC creamand Gynodiol sales in 2002 due to effective sales promotions following the acquisition of these products in 2001. The reduction in contractresearch is primarily due to a year-end reversal of $800,000 of revenue recognized in 2002 as previously described in “Summary of SignificantAccounting Policies22 —Revenue Recognition”. The reduction in milestone and license fee revenues was due to the one time recognition of a $2.5 million milestonereceived from King in 2001 for the timely filing of the NDA for ESTRASORB. The increase from 2000 to 2001 related primarily to $17.3 million from products sales in 2001 related to our acquisitions of Fielding and theAVC product line, $4.0 million for revenue recognized for milestone payments from King for the timely submission and subsequent acceptance ofour ESTRASORB New Drug Application by the FDA in 2001, and $125,000 for license fees. In addition to our new revenue sources, we recorded$2.7 million from research and development contracts, primarily from the National Institutes of Health and other governmental agencies. Revenuesfor 2000 included $750,000 in license fees from King and $1.7 million from research and development contracts, including $1.4 million for contractswith the NIH and other government agencies. 2002 2001 2000 Product sales $12,809 $17,252 $— Contract research and development 971 2,689 1,725 Milestone and licensing fees 1,225 4,125 750 Total revenue $15,005 $24,066 $2,475 Net Losses Net loss for 2002 was $22.7 million, or $(0.93) per share, compared to $9.7 million, or $(0.43) per share for 2001, and $12.2 million, or $(0.64)per share in 2000. The increased loss of $13.0 million from 2001 to 2002 related primarily to reduced product sales of $4.5 million, a reduction incontract research revenues of $1.7 million, a decrease in milestone revenues of $2.9 million as previously described, increases in selling andmarketing expenses of $4.3 million in preparation of the anticipated approval and product launch of ESTRASORB and an increase of $0.7 million inresearch and development expenses for manufacturing start up activities. The improvement from 2000 to 2001 of $2.5 million or $.21 per sharerelated primarily to the gross margin on product sales due to our acquisitions of Fielding and the AVC product line and milestone revenue forpayments from King, offset in 2001 by additional selling, general and administrative to support those product sales, the initiation ofcommercialization activities for ESTRASORB and additional research and development costs.Cost of Sales Cost of sales was $3.6 million in 2002 compared to $4.1 million in 2001. We had no product sales or cost of sales in 2000. The decrease in2002 was primarily due to related decreases in product sales. As a percentage of product sales, the cost of sales increased from 23% in 2001 to28% in 2002.Research and Development Expenses Research and development expenses were $11.5 million for 2002, compared to $10.8 million for 2001 and $9.4 million in 2000. The increasefrom 2001 to 2002 of $0.7 million, or 6%, was primarily due to increases in manufacturing start-up costs related to preparing our manufacturingfacility for commercial production of ESTRASORB, offset by decreases in 2002 for clinical trial and NDA preparation costs when compared to2001. The manufacturing start-up costs relate primarily to facility lease expenses, validation services, product stability testing and personnelcosts. The increase from 2000 to 2001 of $1.4 million or 15% was primarily due to costs associated with the preparation of the NDA forESTRASORB and also for internal development costs associated with our infectious diseases programs, offset by a decrease in clinical trialexpenses. Prior to 2000, we did not track all of our research and development total costs by project. We have, however, tracked all of our external directcosts incurred for all projects, as well as our internal direct labor for our vaccine projects. Overhead and indirect costs have been allocated to ourvaccine projects based on direct labor hours incurred and we will be expanding that policy to our other projects in 2003. In 2001, we began trackingcosts for each project.23 Reconciliation of Significant Research and Development Projects The following table reconciles the direct and indirect costs tracked and incurred to date for our major projects to our total research anddevelopment expense. Project 2002 2001 2000 ESTRASORB $4,738 $4,327 $3,902 ANDROSORB 678 — — Infectious disease vaccines 3,755 3,348 2,219 Allocated project costs 9,171 7,675 6,121 Other unallocated costs 2,330 3,100 3,237 Total $11,501 $10,775 $9,358 Estimated Cost and Time to Complete Major Projects The amounts of the expenditures that will be necessary to execute our business plan are subject to numerous uncertainties, which mayadversely affect our liquidity and capital resources. As of December 31, 2002, several of our proprietary product candidates were in various stagesof development. Due to the inherent nature of our development, future market demand for products and factors outside of our control, such asclinical results and regulatory approvals, we are unable to estimate the completion dates and the estimated total costs for several of our products.However, due to the late stage status of our ESTRASORB project we believe that the duration and estimated cost to complete is reasonablypredictable. We have included that information in the following table. 2003 Estimated Development EstimatedProject Current Status Costs Completion Dates ESTRASORB NDA filed $3-4 million 2003 Last year we estimated the 2002 cost to complete the ESTRASORB project to be from $1 to $3 million. We based those projections on theanticipation that the ESTRASORB NDA would be approved by mid-2002. As previously discussed, we did not receive approval at that time and weresubmitted the NDA in September 2002. Our additional costs in 2002 and our estimate for the completion of ESTRASORB in 2003, above,include costs for manufacturing start-up, regulatory issues, clinical studies, and re-filing expenses due to the new timeline. In addition to the project listed above we are currently developing other product candidates such as, ANDROSORB, but do not believe that it ispossible to estimate the completion date or cost to complete. The duration and the cost of clinical trials may vary significantly over the life of aproject as a result of differences arising during clinical trial protocol, including, among others, the following: • number of patients that ultimately participate in the trial; • duration of the patient follow-up that seems appropriate in view of the results; • number of clinical sites included in the trials; and • length of time required to enroll suitable patient subjects. In addition, we test our potential products in numerous preclinical studies to identify among other things the daily dosage amounts. We mayconduct multiple clinical trials to cover a variety of indications for each product candidate. As we obtain results for our trials we may elect todiscontinue clinical trials for certain product candidates or indications. We further believe that it is not possible to predict the length of regulatoryapproval time. Factors that are outside our control could significantly delay the approval and marketability of our product candidates. As a result of the uncertainties discussed above, among others, the duration and completion costs of our research and development projectsare difficult to estimate and are subject to numerous variations. Our ability to complete our research and development projects in a timely mannercould significantly increase our capital requirements and could adversely impact our liquidity. These uncertainties could force us to seekadditional, external sources of financing from time to time in order to continue with our business strategy. For more discussion of the risk anduncertainties and our liquidity, see “Risks and Uncertainties” and “Liquidity and Capital Resources”.24 Selling and Marketing Expenses Selling and marketing expenses were $12.8 million for 2002, compared to $8.5 million in 2001. Prior to our acquisition of Fielding and the AVCproduct line in December 2000 and January 2001, respectively, and the anticipated approval of ESTRASORB, we had no sales or marketingexpense. In 2002 and 2001, we incurred $8.5 million and $6.5 million, respectively, of selling expenses, and $4.3 million and $2.0 million,respectively, of marketing costs, to support our current product sales, as well as pre-launch selling and marketing expenses for our anticipatedlaunch of ESTRASORB. Selling and marketing costs both increased in 2002 with the anticipated commercialization of ESTRASORB. When thelaunch was delayed, we took steps to reduce or defer previous levels of selling and marketing expenses. We expect selling and marketing costs toincrease substantially with the anticipated FDA approval and commercialization of ESTRASORB. In addition, all payments made to King inconnection with the co-promotion of ESTRASORB will be recorded as selling and marketing expenses in our statement of operations.General and Administrative General and administrative expenses were $8.6 million in 2002, compared to $10.0 million in 2001 and $5.9 million in 2000. The decrease from2001 to 2002 of $1.4 million is primarily due to the accounting change for goodwill amortization, as described above in “Goodwill and IntangibleAssets,” offset by increases in administrative and executive personnel over the past year to support our growth for the anticipated initiation ofcommercialization activities for ESTRASORB and increases in legal costs related to patent filings and research contract reviews. The increasefrom 2000 to 2001 of $4.1 million, or 69%, was due to a number of factors, including approximately $2.8 million of goodwill and intangible assetamortization related to our acquisitions of Fielding and the AVC product line, the increase in personnel from the Fielding acquisition, and the fulleffect of increases in administrative and executive employees hired during 2000 to support our growth.Interest Income/(Expense) Net interest expense was $1.1 million in 2002, compared to $490,000 in 2001 and interest income of $551,000 in 2000. The increase in interestexpense from 2001 to 2002, of $0.6 million, is due to the issuance of an additional $10.0 million of Notes to King and overall lower cash balancesduring 2002. The $1.0 million increase in the interest expense in 2001 related to the issuance of $30.0 million of the Notes from King, offset byadditional interest income from higher cash balances during 2001 compared to 2000.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 commercialization of our productcandidates, the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights, competingtechnological and market developments, and changes in our development of commercialization activities and arrangements. We plan to havemultiple products in various stages of product development and we believe our research and development as well as selling, marketing and generaladministrative expenses and capital requirements will continue to increase. Future activities including clinical development, the establishment ofcommercial-scale manufacturing capabilities and the development of sales and marketing programs are subject to our ability to raise funds throughdebt or equity financing, or collaborative arrangements with industry partners. From 2000 through December 31, 2002 we have financed ouroperations primarily from: • the private placement of 2,813,850 shares of common stock in 2000 with net proceeds of approximately $10.5 million; • proceeds of approximately $40.0 million from 2000 to 2002 from the Notes with King (for details on this transaction, refer to ourdiscussion in the Overview section above); • proceeds of $8.0 million from King in 2001 licensing fees and milestone payments (for details on these transactions refer to ourdiscussion in the Overview section above); and • and net proceeds of $15.4 million from 2000 through 2002 for the exercise of stock options and warrants. In addition, in February 2003, we completed the private placement of 4,750,000 shares of common stock at $3.50 per share net proceeds of$16.6 million (“the February 2003 Financing”).25 At December 31, 2002 we had cash and cash equivalents of $3.0 million, compared to $20.0 million at December 31, 2001. We invest our cashand cash equivalents in highly liquid, interest bearing, investment grade and government securities in order to preserve principal. The $17.0 milliondecrease in 2002 was due to our cash used in operations of $21.1 million and our investments in capital equipment of $9.7 million, offset by$13.7 million of financing activities from the net issuance of $9.4 million of convertible notes, the net exercise of $2.9 million in options andwarrants, and proceeds from equipment loans of $1.3 million. Of the net $21.1 million used in operations, we used approximately $11.5 million tofund the activities of our research and development programs including costs associated with obtaining regulatory approval and clinical testing andmanufacturing start up costs. Working capital was $378,000 at December 31, 2002 compared to $18.0 million at December 31, 2001. Thedecrease in working capital was primarily due to the cash flow activities above. Our year-end cash balance and working capital were substantiallyincreased with the February 2003 Financing. Due to the April 2002 withdrawal of our NDA for ESTRASORB in order to provide additional information with respect to the CMC section of thefiling, the previsoulsy anticipated launch date for ESTRASORB has been delayed pending the resubmission, which occurred in September 2002,and subsequent anticipated approval by the Food and Drug Administration. The costs related to the re-submission of the ESTRASORB NDA werein the range of $1.0 to $1.5 million. The delay in the launch date for ESTRASORB has had, and will continue to have, a negative effect on cashflow due to the related delays in revenues and some committed pre-launch costs and capital expenditures that could not be eliminated or deferred.We have been able to reduce or defer some, but not all, of the selling, marketing and manufacturing expenses and capital expenditure associatedwith ESTRASORB’s product introduction. We substantially completed the build-out of our manufacturing facility in 2002, but we have delayed thefinal delivery and acceptance of some manufacturing equipment until the first quarter of 2003. Upon withdrawal of the ESTRASORB NDA in April we prepared revised business plans for 2002, and later in the year for 2003, which assumedthat we would obtain additional financing sufficient to fund our planned operations until the anticipated approval of ESTRASORB. In June 2002, weissued a $10.0 million convertible note to King and subsequent to year-end, in February 2003, we completed the private placement of 4,750,000shares of common stock for $16.6 million. In December 2002 and January 2003, we also received a total of $1.5 million of equipment financingfrom the Philadelphia Industrial Development Corporation. In addition to these fundings, we may require additional funds in excess of our presentworking capital to complete the development of our product candidates and commercialization activities, including the final commercial scale-up ofour manufacturing facility. We will continue to pursue raising capital through public or private equity or debt financing, collaborative arrangementswith pharmaceutical companies and government agency contracts to defray the costs of clinical trials, product development, product lineexpansion and other related activities. There can be no assurance that additional financing will be available at all or on acceptable terms to permitsuccessful commercialization of our technologies and products. If we are unable to raise additional capital, we may be required to significantlydelay, reduce the scope of or eliminate one or more of our research or development programs, downsize our selling, marketing, general andadministrative infrastructure or programs, or seek alternative measures including arrangements with collaborative partners or others that mayrequire us to relinquish rights to certain of our technologies, product candidates or products. Based on our assessment of our current businessplans, in the absence of new financing, we believe we have adequate resources to meet our obligations for the next 12 to 15 months.Contractual Obligations and Commitments The following table summarizes our current obligations and commitments: Less than 1 - 3 4 5 AfterCommitments & Obligations Total 1 Year Years Years 5 Years Convertible notes $40,000 $— $— $40,000 $— Operating leases 2,032 1,037 868 127 — Financing Leases 1,639 245 477 458 459 Manufacturing facility lease 6,690 1,587 3,343 1,760 — Total commitments & obligations $50,361 $2,869 $4,688 $42,345 $459 26 Item 7A. Quantitative and Qualitative Disclosures about Market Risk Information required under this section is contained in Part I, Item I of this report under the caption “Risk and Uncertainties” and in Item 8 ofthis report, and is incorporated herein by reference.Item 8. Financial Statements and Supplementary Data The financial statements and notes thereto listed in the accompanying index to financial statements (Item 15) are filed as part of this AnnualReport on Form 10-K and are incorporated herein by reference.Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Not applicable.27 PART 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 our Proxy Statement for our Annual Meeting of Stockholders to be held on May 7, 2003 (the “2003 Proxy Statement”)under the captions “Proposal 1 — Election of Directors” and “Beneficial Ownership of Common Stock” and is incorporated herein by this reference.We expect to file the 2003 Proxy Statement within 120 days after the close of the fiscal year ended December 31, 2002.Item 11. Executive Compensation The information required by this item is contained in the 2003 Proxy Statement under the captions “Executive Compensation” and “DirectorCompensation” and is incorporated herein by reference.Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this item is contained in the 2003 Proxy Statement under the captions “Beneficial Ownership of Common Stock”and “Equity Compensation Plan Information” and is incorporated herein by reference.Item 13. Certain Relationships and Related Transactions The information required by this item is contained in the 2003 Proxy Statement under the caption “Certain Relationships and RelatedTransactions” and is incorporated herein by reference.Item 14. Controls and Procedures The Company’s chief executive officer and chief financial officer have reviewed and evaluated the effectiveness of the Company’s disclosurecontrols and procedures (as defined in Rules 240.13a-14 (c) and 15d-14 (c) promulgated under the Securities Exchange Act of 1934) as of a datewithin ninety days before the filing date of this annual report. Based on that review and evaluation, which included inquires made to certain otheremployees of the Company, the chief executive officer and chief financial officer have concluded that the Company’s current disclosure controlsand procedures, as designed and implemented, are reasonably adequate to ensure that they are provided with material information relating to theCompany required to be disclosed in the reports the Company files or submits under the Securities Exchange Act of 1934. As a result of thesereviews, and in connection with the situation noted below, the Company has both added to an expanded its previously existing internal controlprocedures. In October 2002 the Company discovered that a former employee had apparently embezzled approximately $450,000 from the Company overapproximately a ten-month period. The Company engaged Ernst & Young LLP to perform forensic accounting and investigative services and,based on such investigation, concluded that the loss was limited to the aforementioned amount. Subsequent to year-end $200,000 of the loss wasrecovered by insurance coverage. We believe that the remaining balance may be recovered from other parties. The Company has been workingwith the appropriate governmental authorities for investigation and prosecution. The net loss has been recorded as an expense in the current year.No potential recovery, above the $200,000 received, has been accrued to offset the expense at this time.28 PART IVItem 15. 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, 2002 and 2001; Consolidated Statements ofOperations for the years ended December 31, 2002, 2001 and 2000; Consolidated Statements of Cash Flows for the years endedDecember 31, 2002, 2001 and 2000; Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2002, 2001and 2000; 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 statements or notesthereto. Condensed financial information of Novavax is omitted since there are no substantial amounts of restricted net assetsapplicable to Novavax’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 refer to management contracts,compensatory plans or arrangements, filed in response to Item 14 (a)(3) of the instructions to Form 10-K. The other exhibits listedhave 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 the Company’sAnnual 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”)), as amended by the Certificate of Amendment dated December 18, 2000 (Incorporated by reference to Exhibit 3.4 to theRegistrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000, File No. 0-26770, filed March 29, 2001 (the“2000 Form 10-K”)) 3.2 Amended and Restated By-Laws of the Registrant (Incorporated by reference to Exhibit 3.5 to the Registrant’s Quarterly Report onForm 10-Q for the fiscal quarter ended June 30, 2001, File No. 0-26770, filed August 13, 2001 (the “2001 Q2 Form 10-Q”)) 4.1 Specimen stock certificate for shares of common stock, par value $.01 per share (Incorporated by reference to Exhibit 4.1 to theCompany’s Registration Statement on Form 10, File No. 0-26770, filed September 14, 1995 (the “Form 10”)) 4.2 Rights Agreement dated as of August 8, 2002, by and between Novavax, Inc. and Equiserve Trust Company, which includes theForm of Summary of Rights to Purchase Series D Junior Participating Preferred Stock as Exhibit A, the Form of Right Certificate asExhibit B and the Form of Certificate of Designation of Series D Junior Participating Preferred Stock as Exhibit C (Incorporated byreference to the Company’s Current Report on Form 8-K File No. 26770, filed August 9, 2002) ††10.1 1995 Stock Option Plan, as amended (Incorporated by reference to Appendix A of the Company’s Proxy Statement in connectionwith the Annual Meeting held on May 8, 2002) ††10.2 Director Stock Option Plan (Incorporated by reference to Exhibit 10.5 to the Form 10) ††10.3 Employment Agreement dated March 31, 1998, by and between the Company and D. Craig Wright (Incorporated by reference toExhibit 10.14 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1998, File No. 0-26770, filedApril 15, 1999 (the “1998 Form 10-K”)) ††10.4 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”))29 ††10.5 Employment Agreement dated January 1, 2002 by and between the Company and James R. Mirto (Incorporated by reference to theCompany’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001, File No. 0-26770, filed March 15, 2002 (the“2001 Form 10-K”)) ††10.6 Employment Agreement dated January 1, 2002 by and between the Company and Dennis W. Genge (Incorporated by reference toExhibit 10.8 to the 2001 Form 10-K) ††10.7 Offer Letter dated January 14, 2002 by and between the Company and Ann O. McGeehan (Incorporated by reference to Exhibit 10.1to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, File No. 0-26770, filed August 14, 2002) ††10.8 Offer Letter dated March 4, 2002 by and between the Company and Marvin A. Heuer M.D. (Incorporated by reference to Exhibit 10.2to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, File No. 0-26770, filed August 14, 2002) *10.9 Secured Promissory Note dated March 21, 2002 by and between the Company and Mitchell J. Kelly *10.10 Pledge Agreement dated March 21, 2002 by and between the Company and Mitchell J. Kelly *10.11 Secured Promissory Note dated March 21, 2002 by and between the Company and Denis M. O’Donnell, M.D *10.12 Pledge Agreement dated March 21, 2002 by and between the Company and Denis M. O’Donnell, M.D *10.13 Guaranty of Account dated April 29, 2002 by and between the Company and CIBC World Markets Corporation for Denis M. O’Donnell,M.D. 10.14 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) 10.15 Agreement of Lease by and between W.M. Rickman Construction Co. and DynCorp Advanced Technology Services, Inc. datedMarch 30, 1995, as assigned to the Company by letter from W.M. Rickman Construction Co. dated September 1, 1999, and asamended letter from Company dated September 29, 1999 (Incorporated by reference to Exhibit 10.10 to the 2001 Form 10-K) 10.16 Agreement of Lease by and between GPG Enterprises, L.L.C. and The Fielding Pharmaceutical Company dated September 1, 2000(Incorporated by reference to Exhibit 10.11 to the 2001 Form 10-K) 10.17 Agreement of Lease by and between Association of Entrepreneurs Sciences, Inc. and Novavax Inc. dated March 8, 2002(Incorporated by reference to Exhibit 10.12 to the 2001 Form 10-K) 10.18 Facilities Reservation Agreement dated as of February 11, 2002, between the Company and Packaging Coordinators, Inc.(Incorporated by reference to Exhibit 10.13 to the 2001 Form 10-K Company’s Annual Report on Form 10-Q, filed December 31, 2001) 10.19 License Agreement between IGEN, Inc. and Micro-Pak, Inc. (Incorporated by reference to Exhibit 10.3 to the Company’s AnnualReport on Form 10-K for the fiscal year ended December 31, 1995, File No. 0-26770, filed April 1, 1996) 10.20 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) 10.21 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) 10.22 Agreement for Purchase and Sale of Assets Relating to AVCTM Product Line dated as of January 8, 2001, between the Companyand King Pharmaceuticals, Inc. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filedJanuary 19, 2001)30 10.23 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) 10.24 First Amendment to the Copromotion Agreement dated as of June 29, 2001, between the Company and King Pharmaceuticals, Inc.(Incorporated by reference to Exhibit 10.1 to the 2001 Q2 Form 10-Q) 10.25 Second Amendment to the Copromotion Agreement dated as of June 29, 2001, between the Company and King Pharmaceuticals,Inc. (Incorporated by reference to Exhibit 10.2 to the 2001 Q2 Form 10-Q) 10.26 Third Amendment to the Copromotion Agreement dated June 26, 2002 between Novavax, Inc. and King Pharmaceuticals, Inc.(Incorporated by reference to Exhibit 99.5 to the Company’s Current Report on Form 8-K, filed July 2, 2002 (the “July 2002 Form 8-K”)) 10.27 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) 10.28 First Amendment to the Exclusive License and Distribution Agreement dated as of June 29, 2001, between the Company and KingPharmaceuticals, Inc. (Incorporated by reference to Exhibit 10.3 to the 2001 Q2 Form 10-Q) 10.29 Second Amendment to the Exclusive License and Distribution Agreement dated as of June 29, 20001, between the Company andKing Pharmaceuticals, Inc. (Incorporated by reference to Exhibit 10.4 to the 2001 Q2 Form 10-Q) 10.30 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) 10.31 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) 10.32 September 2001 Note Purchase Agreement dated as of September 7, 2001 between the Company and King Pharmaceuticals, Inc.(Incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K, filed September 5, 2001) 10.33 June 2002 Note Purchase Agreement dated June 26, 2002 between Novavax, Inc. and King Pharmaceuticals, Inc. (Incorporated byreference to Exhibit 99.2 to the July 2002, Form 8-K) 10.34 Amended and Restated Investor Rights Agreement dated June 26, 2002 between Novavax, Inc. and King Pharmaceuticals, Inc.(Incorporated by reference to Exhibit 99.4 to the July 2002 Form 8-K) *10.35 Note dated December 20, 2002 by and between the Company and PIDC Local Development Corporation *10.36 Security Agreement dated December 20, 2002 by and between the Company and PIDC Local Development Corporation *10.37 Note dated December 20, 2002 by and between the Company and PIDC Local Development Corporation *10.38 Security Agreement dated December 20, 2002 by and between the Company and PIDC Local Development Corporation 21 List of Subsidiaries (Incorporated by reference to Exhibit 21 to the 2001 Form 10-K). *23 Consent of Ernst & Young LLP, Independent Auditors. *99.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by MitchellJ. Kelly, President and Chief Executive Officer of the Company *99.2 Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by DennisW. Genge, Vice President and Chief Financial Officer of the Company31 (b) Reports on Form 8-K: On July 2, 2002, the Company filed a current report on Form 8-K under Item 5 to report the issuance of $10.0 million in convertiblenotes. On August 9, 2002, the Company filed a current report on Form 8-K under Item 5 to report the adoption of a Stockholder Rights Plan. On September 10, 2002, the Company filed a current report on Form 8-K under Item 5 to announce the submission of a New DrugApplication with the U.S. Food and Drug Administration, for ESTRASORB ™, an estradiol topical emulsion. Separately, the Companyannounced that John A. Spears had resigned from the positions of President, CEO and Director of the Company and that James R.Mirto had resigned as Senior Vice President and Chief Operating Officer. On February 18, 2003, the Company filed a current report on Form 8-K to report the completion of a private placement of 4,750,000common shares at $3.50 per share to SJ Strategic Investments LLC, for total proceeds from the share sale of $16,625,000. Inconjunction with the private placement of shares, the Company has waived the provisions of its Stockholder Rights Plan with respect toSJ Strategic Investments LLC. In addition to the waiver, the Company also entered into a one-year standstill agreement with SJStrategic Investments LLC that allows SJ Strategic Investments LLC to increase its ownership position in Novavax voting shares to25.0%.32 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to besigned on its behalf by the undersigned, thereunto duly authorized.Date: March 27, 2003 NOVAVAX, INC. By:/s/ Mitchell J. KellyPresident 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. Name Title Date /s/ MITCHELL J. KELLYMitchell J. Kelly President and Chief ExecutiveOfficer and Director March 27, 2003 /s/ DENNIS W. GENGEDennis W. Genge Vice President and Chief FinancialOfficer (Principal Financial and March 27, 2003 /s/ GARY C. EVANSGary C. Evans Accounting Officer)Director March 27, 2003 /s/ J. MICHAEL LAZARUS, M.D.J. Michael Lazarus, M.D. Director March 27, 2003 /s/ JOHN O. MARSH, JR.John O. Marsh, Jr. Director March 27, 2003 /s/ MICHAEL A. MCMANUSMichael A. McManus Director March 27, 2003 /s/ DENIS M. O’DONNELL, M.D.Denis M. O’Donnell, M.D. Director March 27, 2003 /s/ RONALD H. WALKERRonald H. Walker Director March 27, 200333 CERTIFICATIONSI, Mitchell J. Kelly, certify that: 1. I have reviewed this Annual Report on Form 10-K of Novavax, Inc. 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances under which such statements were made, not misleading withrespect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in allmaterial respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented inthis annual report; 4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annualreport is being prepared; b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filingdate of this annual report (the “Evaluation Date”); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on ourevaluation as of the Evaluation Date; 5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and theaudit committee of registrant’s board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability torecord, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses ininternal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’sinternal controls; and 6. The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes ininternal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation,including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 27, 2003By:/s/ Mitchell J. KellyPresident and CEO34 CERTIFICATIONSI, Dennis W. Genge, certify that: 1. I have reviewed this Annual Report on Form 10-K of Novavax, Inc. 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances under which such statements were made, not misleading withrespect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in allmaterial respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented inthis annual report; 4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annualreport is being prepared; b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filingdate of this annual report (the “Evaluation Date”); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on ourevaluation as of the Evaluation Date; 5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and theaudit committee of registrant’s board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability torecord, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses ininternal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’sinternal controls; and 6. The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes ininternal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation,including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 27, 2003By:/s/ Dennis W. GengeVice President and Chief Financial Officer35 INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTSYears ended December 31, 2002, 2001and 2000Contents Reports of Independent Auditors F-2 Consolidated Financial Statements: Consolidated Balance Sheets as of December 31, 2002 and 2001 F-3 Consolidated Statements of Operations for each of the three years in the period ended December 31, 2002 F-4 Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended December 31, 2002 F-5 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2002 F-6 Notes to the Consolidated Financial Statements F-7 F-1 REPORT OF INDEPENDENT AUDITORSBoard of DirectorsNovavax, Inc. We have audited the accompanying consolidated balance sheets of Novavax, Inc. as of December 31, 2002 and 2001 and the relatedconsolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2002.These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financialstatements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we planand perform the audits 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 audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Novavax,Inc. at December 31, 2002 and 2001 and the consolidated results of its operations and its cash flows for each of the three years in the periodended December 31, 2002, in conformity with accounting principles generally accepted in the United States. As discussed in Note 2 to the financial statements, in 2002 the Company changed its method for accounting for goodwill and other intangibleassets to comply with the accounting provisions of Statement of Financial Accounting Standards No. 142. /s/ Ernst and Young LLPFebruary 28, 2003McLean, VirginiaF-2 NOVAVAX, INC.CONSOLIDATED BALANCE SHEETS(in thousands, except share information) December 31, 2002 2001 ASSETS Current assets: Cash and cash equivalents $3,005 $20,045 Trade accounts receivable, net 1,882 3,878 Inventory, net 633 537 Prepaid expenses and other current assets 722 567 Total current assets 6,242 25,027 Property and equipment, net 13,655 4,326 Goodwill, net 33,141 33,141 Other intangible assets, net 3,966 4,621 Other long term assets 501 — Total assets $57,505 $67,115 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $2,534 $1,410 Accrued expenses 2,844 4,337 Deferred revenue — current 275 1,250 Current portion of long term debt and capital lease obligations 211 — Total current liabilities 5,864 6,997 Convertible notes 40,000 30,000 Deferred revenue — non-current 2,375 2,625 Long term debt, capital lease obligations and other 1,193 — Stockholders’ equity: Preferred stock, $.01 par value, 2,000,000 shares authorized; no shares issued and outstanding — — Common stock, $.01 par value, 50,000,000 shares authorized; 25,222,110 issued and 24,972,050outstanding at December 31, 2002, and 23,871,794 issued and 23,294,633 outstanding atDecember 31, 2001 252 239 Additional paid-in capital 102,361 97,861 Notes receivable from directors (1,480) — Accumulated deficit (87,527) (64,830) Treasury stock, 557,752 and 577,161 shares, cost basis, at December 31, 2002 and 2001,respectively (5,533) (5,777) Total stockholders’ equity 8,073 27,493 Total liabilities and stockholders’ equity $57,505 $67,115 See accompanying notes.F-3 NOVAVAX, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except share and per share information) For the years ended December 31, 2002 2001 2000 Revenues Product sales $12,809 $17,252 $— Contract research and development 971 2,689 1,725 Milestone and licensing fees 1,225 4,125 750 Total revenues 15,005 24,066 2,475 Operating cost and expenses: Cost of sales 3,559 4,052 — Research and development 11,501 10,775 9,358 Selling and marketing 12,848 8,539 — General and administrative 8,655 9,955 5,859 Total operating costs and expenses 36,563 33,321 15,217 Loss from operations (21,558) (9,255) (12,742)Interest (expense)/income, net (1,139) (490) 551 Net loss $(22,697) $(9,745) $(12,191) Basic and diluted loss per share $(0.93) $(0.43) $(0.64) Basic and diluted weighted average number of commonshares outstanding 24,433,868 22,670,274 19,015,719 See accompanying notes.F-4 NOVAVAX, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITYFor the Years Ended December 31, 2002, 2001 and 2000(in thousands, except share information) Note Common Stock Additional Deferred Receivable Total Paid-in Accumulated Stock From Treasury Stockholders' Shares Dollars Capital Deficit Compensation Directors Stock Equity Balance, December 31, 1999 15,173,688 $152 $45,622 $(42,894) $(5) $-- $(35) $2,840 Amortization of deferredcompensation — — — — 5 — — 5 Private sale of common stock,net 2,813,850 28 10,470 — — — — 10,498 Stock issued for acquisition 2,312,501 23 18,477 — — — — 18,500 Acquisition obligation — — 5,000 — — — — 5,000 Exercise of stock options andwarrants 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 Exercise of stock options andwarrants 1,285,490 13 6,250 — — — (849) 5,414 Net loss — — — (9,745) — — — (9,745) Balance, December 31, 2001 23,871,794 239 97,861 (64,830) — — (5,777) 27,493 Exercise of stock options andwarrants 987,998 9 4,392 — — — — 4,401 Warrants issued ascompensation — — 108 — — — — 108 Notes receivable fromdirectors — — — — — (1,480) — (1,480)Shares issued to Fieldingshareholders 362,318 4 — — — — — 4 Shares issued to King — — — — — — 232 232 Shares issued to 401K plan — — — — — — 12 12 Net loss — — — (22,697) — — — (22,697) Balance, December 31, 2002 25,222,110 $252 $102,361 $(87,527) $— $(1,480) $(5,533) $8,073 See accompanying notes.F-5 NOVAVAX, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) For the years ended December 31, 2002 2001 2000 Operating Activities Net loss $(22,697) $(9,745) $(12,191)Reconciliation of net loss to net cash used by operating activities: Loss on disposal/sale of asset — 137 — Amortization 655 3,136 362 Depreciation 483 353 232 Provision for bad debt 73 70 — Non-cash compensation expense 108 — 5 Deferred rent expense 90 — — Non-cash net interest 235 — — Changes in operating assets and liabilities: Accounts receivable 1,923 (2,994) 220 Inventory (96) (76) (211) Prepaid expenses and other assets (95) 190 (555) Accounts payable and accrued expenses (520) 592 2,740 Deferred revenue (1,225) 3,771 (646) Net cash used by operating activities (21,066) (4,566) (10,044) Investing activities Acquisition of businesses, net of cash acquired — — (12,466)Acquisition of product lines — (3,332) — Capital expenditures (9,661) (2,335) (831)Deferred patent costs — — (86) Net cash used in investing activities (9,661) (5,667) (13,383) Financing activities Proceeds from issuance of convertible notes 9,448 10,000 20,000 Net proceeds from equipment loans 1,332 — — Payment of capital lease obligations (18) — (111)Proceeds from private placements of common stock — — 10,498 Proceeds from the exercise of stock options and warrants 2,925 5,414 7,172 Net cash provided by financing activities 13,687 15,414 37,559 Net change in cash and cash equivalents (17,040) 5,181 14,132 Cash and cash equivalents at beginning of year 20,045 14,864 732 Cash and cash equivalents at end of year $3,005 $20,045 $14,864 See accompanying notes.F-6 NOVAVAX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2002, 2001 and 20001. 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 prescription pharmaceuticals and prenatal vitamins. The Company’s principal technologyplatform involves the use of patented oil and water emulsions which are used as vehicles for the delivery of a wide variety of drugs and othertherapeutic products. These include certain hormones, and vaccine adjuvants, which are substances added to vaccines to enhance theireffectiveness. In addition, Novavax conducts research and development on preventative and therapeutic vaccines for a variety of infectiousdiseases. In June 2001, Novavax filed a New Drug Application with the Food and Drug Administration for ESTRASORB™, a topical emulsion for estrogenreplacement therapy. In April 2002, Novavax was informed by the Food and Drug Administration that the agency had completed their review of theNew Drug Application for ESTRASORB. At that time, the agency did not raise any issues regarding the efficacy or safety of ESTRASORB, but didrequest additional information with respect to the Chemistry, Manufacturing and Controls (“CMC”) section of the filing. Novavax determined that themost advantageous approach to resolving the outstanding CMC questions was to voluntarily withdraw the New Drug Application and resubmit itonce all of the responses to the CMC questions have been prepared. In September 2002 Novavax resubmitted the New Drug Application, whichwas accepted for review by the FDA in November 2002. Novavax has several product candidates in pre-clinical and human clinical trials, includingANDROSORB™, a topical emulsion for testosterone replacement therapy that we expect to begin Phase III testing in 2003. The products currently under development or in clinical trials by the Company will require significant additional research and developmentefforts, including extensive preclinical 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. The Company will continue to pursue raising capital through the public or private sale of securities of the Company. There can be no assurancethat the Company will be able to raise additional financing or that if such financing is available, that the terms of the financing will be satisfactoryto the Company. If we are unable to raise additional capital, we may be required to delay, reduce the scope of, or eliminate one or more of ourproduct research and development programs, downsize our sales force, reduce or defer our marketing expenses, or reduce general andadministrative infrastructure. Based on our assessment of the availability of capital and the above described actions, in the absence of newfinancing, we believe we will have adequate resources to meet our 2003 obligations as they become due.2. Summary of Significant Accounting PoliciesBasis of Presentation The accompanying consolidated financial statements include the accounts of the corporation and its wholly owned subsidiaries. All significantintercompany accounts and transactions have been eliminated in consolidation.Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires managementto make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities atthe date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differfrom those estimates.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. Substantially all cash equivalents are held in short-term money market accounts with banks andbrokerage accounts with large, high quality financial institutions.F-7 NOVAVAX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2002, 2001 and 2000 — (Continued)2. Summary of Significant Accounting Policies — (Continued)Financial Instruments and Concentration of Credit Risk Financial instruments, which possibly expose the Company to concentration of credit risk, consist primarily of cash and cash equivalents,accounts receivable and convertible notes payable. The Company maintains its cash and cash equivalents in bank and brokerage accounts withhigh credit quality financial institutions. The balances, at times, may exceed federally insured limits. The Company has not experienced anylosses on such accounts and management believes the risk of loss to be minimal. Accounts receivable consist principally of amounts due fromcredit worthy wholesale drug distributors, the federal government and other large institutions. The Company extends credit to its customersgenerally without requiring collateral. The Company monitors the balances of individual customer accounts to assess collectibility and hasprovided a reserve for potential bad debts and product returns of $193,000 and $120,000 as of December 31, 2002 and 2001, respectively. Creditlosses have historically been within management’s expectations. The carrying value of cash and cash equivalents and accounts receivableapproximates their fair value based on their short-term maturities at December 31, 2002 and 2001. The fair values of convertible notes approximatetheir fair value as of December 31, 2002, and 2001 based on rates currently available to the Company for debt with similar terms and remainingmaturities. As of December 31, 2002, three customers accounted for 63% of the Company’s revenues and 60% of the Company’s accounts receivable.Inventories Inventories are priced at the lower of cost or market using the first-in-first-out method and consist of the following: December 31, 2002 2001 Raw materials $479,000 $263,000 Finished goods 154,000 274,000 $633,000 $537,000 Property and Equipment Property and equipment are recorded at cost. Depreciation of furniture, fixtures and equipment is provided under the straight-line method overthe 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. Repairs and maintenance costs are expensed as incurred.Patent Costs 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 identifiable net assets acquired is recorded as goodwill. Intangible assets are amortized on astraight-line basis over their estimated useful lives, ranging from 5 to 15 years. Accumulated amortization expense was $5.0 million and$4.4 million as of December 31, 2002 and 2001, respectively. In June 2001, the FASB issued SFAS No. 142 “Goodwill and Other Intangible Assets,” which is effective for fiscal years beginning afterDecember 15, 2001. Under these rules, goodwill and intangible assets deemed to have indefinite lives are no longer amortized but will be subjectto annual impairment tests or more frequently should indicators of impairment arise. Other intangible assets are to be amortized over their usefullives beginning in the first quarter of 2002. The Company utilizes a discounted cash flow analysis, which includes profitability information,estimated future operating results, trends and other information in assessing whether the value of indefinite-lived intangible assets can berecovered. Under SFAS No. 142, goodwill impairment is deemed to exist if the carrying value of a reporting unit exceeds its estimated fair value.In accordance with the requirements of SFAS No. 142, the Company tested its goodwill for impairment as of January 1, 2002 and determined thatno impairment was present. In the fourth quarter of 2002, the Company performed the required annual impairment test on the carrying amount of itsgoodwill, which indicated the Company’s estimated fair value of goodwill exceeded it carrying value, therefore, no impairment was identified atDecember 31, 2002.F-8 NOVAVAX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)December 31, 2002, 2001 and 20002. Summary of Significant Accounting Policies (Continued) Goodwill and Intangible Assets — (continued) If goodwill and other intangible assets had been accounted for in accordance with this guidance from the date of acquisition, net income andEPS would be as follows: 2002 2001 2000 Net loss reported $(22,697) $(9,745) $(12,191)Amortization expense — 2,450 — Pro forma net loss $(22,697) $(7,295) $(12,191)EPS reported $(0.93) $(0.43) $(0.64)EPS pro forma $(0.93) $(0.32) $(0.64)Impairment of Long-Lived Assets and Recoverability of Intangibles The Company periodically evaluates the recoverability of the carrying value of its long-lived assets and identifiable intangibles and wheneverevents or changes in circumstances indicate that the carrying value of the asset may not be recoverable. Examples of events or changes incircumstances that indicate that the recoverability of the carrying value of an asset should be assessed include but are not limited to the following:a significant decrease in the market value of an asset, a significant change in the extent or manner in which an asset is used or a significantphysical change in an asset, a significant adverse change in legal factors or in the business climate that could affect the value of an asset or anadverse action or assessment by a regulator, an accumulation of costs significantly in excess of the amount originally expected to acquire orconstruct an asset, and/or a current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection orforecast that demonstrates continuing losses associated with an asset used for the purpose of producing revenue. The Company considershistorical performance and anticipated future results in its evaluation of potential impairment. Accordingly, when indicators of impairment arepresent, the Company evaluates the carrying value of these assets in relation to the operating performance of the business and future discountedand undiscounted cash flows expected to result from the use of these assets. Impairment losses are recognized when the sum of expected futurecash flows are less than the assets’ carrying value. No such impairment losses have been recognized to date.Revenue Recognition The Company recognizes revenue in accordance with the provisions of Staff Accounting Bulletin No. 101, Revenue Recognition in FinancialStatements, whereby revenue is not recognized until it is realized or realizable and earned. Revenue is recognized when all of the following criteriaare met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller’s price to the buyer isfixed or determinable and collectibility is reasonably assured. Revenues from product sales are recognized upon shipment, net of allowances forreturns, rebates and charge backs. The Company is obligated to accept from customers the return of pharmaceuticals that have reached theirexpiration date. A large part of our product sales are to distributors who resell the products to their customers. We provide rebates to members ofcertain buying groups who purchase from our distributors, to distributors that sell to their customers at prices determined under a contract betweenus and the customer or to state agencies, which administer various programs such as the federal Medicaid and Medicare programs. Rebateamounts are usually based upon the volume of purchases or by reference to a specific price for a product. We estimate the amount of the rebatethat will be paid, and record the liability as a reduction of revenue when we record our sale of the products. Settlement of the rebate generallyoccurs from three to 12 months after sale. We regularly analyze the historical rebate trends and make adjustments to recorded reserves forchanges in trends and terms of rebate programs. Up-front payments and licensing fees are deferred and recognized as earned over the life of the related agreement. Milestone payments arerecognized as revenue upon achievement of contract-specified events and when there are no remaining performance obligations.F-9 NOVAVAX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)December 31, 2002, 2001 and 20002. Summary of Significant Accounting Policies (Continued)Revenue Recognition — (continued) Revenues earned under research contracts are recognized on the percentage of completion method as described in Statement of Position 81-1,Accounting for Performance of Construction-Type and Certain Production-Type Contracts. The extent of progress toward completion is measuredon the cost-to-cost method. When the current estimates of total contract revenue and contract cost indicate a loss, a provision for the entire losson the contract is made. Revenues from contracts with acceptance terms are recognized when the customer has received and approved theservices. During the fourth quarter we reassessed the remaining costs, progress and milestones outstanding on four contracts. Based on thisreview we determined that estimated costs to complete had been underestimated throughout the year. We have reevaluated the estimated costs tocomplete on all contracts. The effect of this reevaluation is an $800,000 reduction to revenue, with no corresponding reduction in expenses. Theimpact of this adjustment affects previously disclosed revenues in our 2002 quarterly reports.Net Loss per Share Basic loss per share is computed by dividing the net loss available to common shareholders (the numerator) by the weighted average numberof common shares outstanding (the denominator), during the period. Shares issued during the period and shares reacquired during the period areweighted for the portion of the period that they were outstanding. The computation of diluted loss per share is similar to the computation of basicloss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding ifthe dilutive potential common shares had been issued. Potentially dilutive common shares are not included in the computation of dilutive earningsper share if they are anti-dilutive. Net loss per share as reported was not adjusted for potential common shares, as they are anti-dilutive.Stock-Based Compensation The Company recognizes expense for stock-based compensation arrangements in accordance with the provisions of Accounting PrinciplesBoard Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. Accordingly, compensation cost is recognized forthe excess of the estimated fair value of the stock at the grant date over the exercise price, if any. The Company accounts for equity instrumentsissued to non-employees in accordance with EITF 96-18, Accounting for Equity Instruments that are Issued to Other Than Employees forAcquiring, or in Conjunction with Selling, Goods, or Services. In accordance with SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure (SFAS 148), the effect on net lossand net loss per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensationis as follows: Year Ended December 31, 2002 2001 2000 Net loss, as reported $(22,697) $(9,745) $(12,191)Deduct: Total stock-based employee compensation expensedetermined under fair value based method for all awards (3,204) (5,780) (2,418)Pro forma net loss $(25,901) $(15,525) $(14,609)Net loss per share: Basic and diluted — as reported $(0.93) $(0.43) $(0.64) Basic and diluted — pro forma $(1.06) $(0.68) $(0.77) These pro forma amounts are not necessarily indicative of future effects of applying the fair value-based method due to, among other things,the vesting period of the stock options and the fair value of the additional stock options issued in future years.Advertising and Promotion Costs All costs associated with advertising and promotions are expensed as incurred. Advertising and promotion expense was $3.8 million in 2002and $1.9 million in 2001. Prior to 2001, the Company incurred no material advertising or promotional expenses.F-10 NOVAVAX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)December 31, 2002, 2001 and 20002. Summary of Significant Accounting Policies (Continued)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 future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and theirrespective tax basis and operating loss carry forward. Deferred tax assets and liabilities are measured using enacted tax rates expected to applyto taxable income in the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of changes in tax rates is recognized in income in the period that includes the enactment date.A valuation allowance is established when necessary to reduce net deferred tax assets to the amount expected to be realized. The Company hasprovided a full valuation allowance against its net deferred tax assets as of December 31, 2002 and 2001.Comprehensive Loss Under Financial Accounting Standards No. 130, “Reporting Comprehensive Income”, the Company is required to display comprehensive lossand its components as part of the consolidated financial statements. Comprehensive loss is comprised of the net loss and other comprehensiveincome (loss), which includes certain changes in equity that are excluded from the net loss. Comprehensive loss for the Company was the sameas net loss for the years ended December 31, 2002, 2001 and 2000.Segment Information The Company currently operates in one business segment, which is the development and commercialization of products focused on women’shealth and infectious diseases. The Company is managed and operated as one business. A single management team that reports to the ChiefExecutive Officer comprehensively manages the entire business. The Company does not operate separate lines of business with respect to itsproducts or product candidates. Accordingly, the Company does not have separately reportable segments as defined by FASB Statement No. 131,Disclosure about Segments of an Enterprise and Related Information.Recent Accounting Pronouncements In December 2002, the Financial Accounting Standards Board issued SFAS No. 148, Accounting for Stock-Based Compensation — Transitionand Disclosure. SFAS 148 amends SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition toSFAS 123’s fair value method of accounting for stock-based employee compensation. It also amends the disclosure provisions of SFAS 123 andAPB Opinion No. 128, Interim Financial Reporting, to require disclosure in the summary of significant accounting policies the effects of an entity’saccounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interimfinancial statements. SFAS 148 is effective for fiscal years ending after December 31, 2002. T he Company does not expect adoption of SFAS148 to have material effect on its financial condition, results of operations or liquidity. In November 2002, the Emerging Issues Task Force reached consensus on EITF Issue No. 00-21, Accounting for Revenue Arrangements withMultiple Deliverables (“EITF 00-21”). EITF 00-21 provides a model for how to account for arrangements that may involve the delivery orperformance of multiple products, services and/or rights to use assets. The model requires that revenue arrangements with multiple deliverablesshould be divided into separate units of accounting if the deliverables in the arrangements meet certain criteria. EITF 00-21 is effective for fiscalperiods beginning after June 15, 2003. The Company does not expect adoption of EITF 00-21 to have a material effect on its financial condition,results of operations or liquidity. In November 2002, the Financial Accounting Standards Board issued Interpretation No. 45, Guarantor’s Accounting and DisclosureRequirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (“FIN 45”). FIN 45 elaborates on the disclosures to bemade by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifiesthat a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing theguarantee. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued ormodified after December 31, 2002. The disclosure requirements of FIN 45F-11 NOVAVAX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)December 31, 2002, 2001 and 20002. Summary of Significant Accounting Policies (Continued)Recent Accounting Pronouncements — (continued)are effective for financial statements of interim or annual periods ending after December 31, 2002. The Company does not expect adoption of FIN45 to have a material effect on its financial condition, results of operations, or liquidity. In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, Consolidation of Variable Interest Entities (“FIN 46”).FIN 46 clarifies the application of Accounting Research Bulletin No. 51. Consolidated Financial Statements, to certain entities in which equityinvestors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance itsactivities without additional subordinated financial support from other parties. FIN 46 applies immediately to variable interest entities created afterJanuary 31, 2003 and for periods beginning after June 15, 2003 for all other variable interest entities. The Company is currently in the process ofevaluating what impact, if any, FIN 46 will have on its financial condition, results of operations or liquidity.Reclassifications Certain prior year amounts have been reclassified to conform to the current year presentation.3. Product Agreements and AcquisitionsKing Pharmaceuticals Agreements In January 2001, we entered into co-promotion agreement with King Pharmaceuticals, Inc., (“King”) for the Company’s topical estrogenreplacement therapy, ESTRASORB™ in the U.S. and Puerto Rico (the “Territory”). We also entered into a license agreement with King for manycountries outside the United States. The co-promotion and license agreements (the “Agreements”) grant King the right to share equally in therevenues and expenses for manufacturing and marketing ESTRASORB in the Territory and exclusive rights to many countries outside the U.S.The Agreements also entitled us to receive up to $5.0 million in milestone payments from King for achievement of milestones outlined in theAgreements. In addition, we agreed to combine U.S. sales efforts payments with King to begin co-promoting one of King’s products already on themarket, Nordette®, a birth control pill. In June 2001, we amended the Agreements (the “Amended Agreements”). The Amended Agreement clarified the terms of the milestonepayments and in June 2001, we recognized $2.5 million as the first milestone was achieved upon the filing of the ESTRASORB New DrugApplication with the Food and Drug Administration. The second milestone was achieved upon the acceptance for review of the New DrugApplication by the FDA in August 2001. This entitled us to receive an additional $2.5 million milestone payment, which was received in September2001. The Amended Agreements also grant King exclusive rights to promote, market and distribute ESTRASORB in Canada, Switzerland, Greece,Italy, Spain and the Netherlands, the only countries excluded from the original license agreement. In addition the Amended Agreements includedthe co-promotion and license of ANDROSORB, a topical testosterone replacement therapy for testosterone deficient women. Under the terms ofthe Amended Agreements we received $3.0 million from King in up-front licensing fees, which were recorded as deferred revenue and isrecognized over the term of the Amended Agreements. We will also receive additional milestone payments of $1.0 million upon ESTRASORB’sregulatory approval in Canada and $2.0 million upon regulatory approval of ESTRASORB in any one of the five European countries listed above.We are also entitled to receive royalties on future sales of ESTRASORB and ANDROSORB outside the United States. In January 2001, we alsoacquired the rights to AVC™ Cream and Suppositories (“AVC”) from King for approximately $3.3 million in cash. The AVC product line generated$3.5 million in revenue in 2001, and $2.0 million in 2002. In June 2002, we further amended the co-promotion agreement related to ANDROSORB. We will share equally in approved pre-launchmarketing costs for ANDROSORB with King, while we will be solely responsible for the research and development expenses for ANDROSORB. Inaddition, King will pay us a $1.0 million milestone payment upon the receipt of all approvals necessary for commercialization of ANDROSORB.F-12 NOVAVAX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)December 31, 2002, 2001 and 20003. Product Agreements and Acquisitions (Continued)King Pharmaceuticals Agreements — (continued) The Amended Agreements also have a change of control provision. The provision allows King several options in the event of a change incontrol at Novavax including, (i) terminating our right to co-promote King Products, (ii) terminating our rights to promote ESTRASORB andANDROSORB and certain other hormone therapies for women for which King is paying 50% of the development cost or (iii) requiring Novavax toassign and transfer to King all related rights of ownership for ESTRASORB and ANDROSORB and certain other hormone replacement therapiesfor women and license to King on an exclusive and perpetual basis all intellectual property rights and know how. If King chooses to exercise itsrights under clause (ii) or (iii) above, King will have to pay royalties on net sales of the products. In addition, King will have to pay for the cost ofmanufacturing plus a markup consistent with the terms of the license agreement for the handling cost.Fielding Pharmaceutical Company In December 2000, Novavax acquired privately-owned Fielding Pharmaceutical Company (“Fielding”), based in St. Louis, Missouri. Fieldingsells, markets and distributes a proprietary line of pharmaceutical products focused on women’s health. The purchase method of accounting wasused to account for the transaction. The total purchase price and related expenses of $38.7 million consisted of $18.5 million in Novavax common stock, $13.0 million in cash, a$5.0 million accrual for future conditional consideration based on earnings and revenue targets for 2001, $1.1 million in assumed liabilities and$1.1 million in transaction costs. The $5.0 million conditional consideration was subsequently determined to be earned and was paid in 362,318shares of common stock in January 2002, at the then current 15 day trading average of $13.80 per share. The aggregate consideration of $38.7 million was allocated to cash ($1.7 million), accounts receivable and inventory ($1.2 million), property andequipment ($275,000) and goodwill ($35.5 million).4. Supplemental Financial DataProperty and Equipment Property and equipment is comprised of the following at December 31: 2002 2001 (in thousands)Construction in progress and deposits on machinery $10,382 $1,422 Machinery and equipment 3,429 2,772 Leasehold improvements 1,119 1,086 Computer software and hardware 432 269 15,362 5,549 Less accumulated depreciation (1,707) (1,223) $13,655 $4,326 Depreciation expense was $483,000, $353,000, and $232,000 for the years ended December 31, 2002, 2001 and 2000, respectively.F-13 NOVAVAX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)December 31, 2002, 2001 and 20004. Supplemental Financial Data — (Continued)Goodwill and Intangible Assets Goodwill and other intangible assets consist of the following at December 31: 2002 2001 (in thousands)Goodwill — Fielding acquisition $35,590 $35,590 Goodwill — Biomedical Services acquisition 542 542 Accumulated amortization (2,991) (2,991) $33,141 $33,141 Non-compete — Biomedical Services acquisition $148 $148 AVC — Product acquisition 3,332 3,332 Patents 2,525 2,525 6,005 6,005 Accumulated amortization (2,039) (1,384) $3,966 $4,621 Amortization expense was $655,000, $3,136,000, $362,000 and for the years ended December 31, 2002, 2001 and 2000, respectively.Estimated future amortization expenses for Intangible Assets as of December 31, 2002 are as follows: Year Amortization Expense 2003 $655 2004 643 2005 626 2006 626 2007 626 Thereafter 509 $3,685 Accrued Expenses Accrued expenses consist of the following at December 31: 2002 2001 (in thousands)Operating expenses $696 $2,469 Employee benefit and compensation 643 1,082 Property and equipment 705 554 Interest 800 232 $2,844 $4,337 F-14 NOVAVAX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)December 31, 2002, 2001 and 20005. Long-term debt Notes payable At December 31, 2002 notes payable consisted of the following: Note payable; bears interest at 3.00% per annum; principal and interest due in monthly installments of$6,061 through December 2009 $271 Note payable; bears interest at 2.85% per annum; principal and interest due in monthly installments of$6,573 through January 2010 500 Note payable; bears interest at 2.38% per annum; principal and interest due in monthly installments of$6,468 through January 2010 500 Total 1,271 Less current portion (187) Long-term portion $1,084 The notes are secured by the Company’s machinery, equipment, leasehold improvements and furniture and fixtures located in the Company’smanufacturing suite in Philadelphia, Pennsylvania. Convertible notes On December 19, 2000, Novavax entered into a Note Purchase Agreement with King whereby it agreed to issue to King 4% senior convertiblepromissory notes in the aggregate amount up to $25.0 million. On that same date, the Company issued a 4% senior convertible promissory note toKing for $20.0 million in principal. On September 7, 2001, the Company issued a second 4% senior convertible promissory note to King for$5.0 million in principal. These notes are currently convertible into Novavax common stock at $8.99 per share or 2,780,558 shares. On September 7, 2001 the Company entered into a second Note Purchase Agreement with King and issued a third 4% senior convertiblepromissory note to King for $5.0 million principal. The third note is currently convertible into common stock at $12.21 per share or 409,668 shares. On June 26, 2002 the Company entered into a third Note Purchase Agreement with King and issued a 4% senior convertible promissory notefor $10.0 million principal. The fourth note is currently convertible into Novavax common stock at $5.31 per share, or 1,885,014 shares.F-15 NOVAVAX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)December 31, 2002, 2001 and 20005. Long-term debt — (Continued) Convertible notes — (continued) All of the notes, which total $40.0 million, mature on December 19, 2007 with interest payable in semi-annual installments on June 30 andDecember 31. Up to 50% of the interest may be paid in common stock of the Company, subject to certain conditions. The conversion prices on allthe notes represents an 18% premium to the trailing 20 day average stock price prior to the agreed upon lock-in dates, with subsequentadjustments in 2002 and 2003 for anti-dilutive provisions related to equity offerings below the original conversion prices. Each note has aconversion feature, that allows us to convert the notes to common stock of the Company from January 2002 through December 31, 2004 if theclosing price of our common stock exceeds 180% of the conversion price of the note for at least 30 trading days in any period of 45 consecutivetrading days. After December 31, 2004, the notes can be redeemed by the Company at 102%, 101% and 100% of face value during the yearsended December 31, 2005, 2006 and 2007, respectively. For the year ended December 31, 2002 we made cash interest payments of $600,000 and accrued an additional $800,000 for interest expenseat year-end for which King agreed to accept payment in our common stock. In February 2003 we issued 307,692 shares of common stock, at theyear-end price of $2.60 per share to King, for payment of the accrual. Of the total interest on the Notes, the Company has capitalized $173,915 forinterest incurred on debt used to finance the build out of it’s manufacturing facility. The notes and related agreements also have covenants thatrequire the Company to obtain written approval from King prior to entering into transactions above defined limits, to secure additional indebtedness,or acquire additional product lines or businesses. In addition to the covenants, the notes have a change in control provision as well. In the event ofa change of control, the Company will be required to repurchase the notes at 101% of the principal amount, plus accrued interest within sixty daysof the change in control. Aggregate future minimum principal payments on long-term debt at December 31, 2002 are as follows: Year Amount 2003 $187 2004 201 2005 208 2006 210 2007 40,146 Thereafter 319 $41,271 6. Stockholders’ Equity In January 2000, the Company closed a private placement of 2,813,850 shares of its 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 0.25 additional shares at an exercise price of $6.75. The related warrants had a three-year term and have subsequently beenexercised or expired. Gross proceeds from the 2000 Private Placement were $11,255,400. The Company issued non-transferable warrants to theplacement agent 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-yearterm, which have also subsequently been exercised or expired. In addition, the placement agent received fees of approximately $675,000. TheCompany incurred other costs in conjunction with the 2000 Private Placement of approximately $80,000. Net proceeds to the Company from the2000 Private Placement were approximately $10.5 million. On August 7, 2002, the Company adopted a Shareholder Rights Plan which provided for the issuance of rights to purchase shares of Series DJunior Participating Preferred Stock, par value $0.01 per share (the “Preferred Shares”), of the Company. Under the Shareholder Rights Plan, theCompany distributed one preferred share purchase right (a “Right”) for each outstanding share of common stock, par value $0.01 (the “CommonShares”), of the Company. The Rights were distributed to stockholders of record on August 16, 2002. Each Right entitles the holder to purchase from the Company one-thousandth of a Preferred Share at a price of $40, subject to adjustment, perone one-thousandth of a Preferred Share. The rights become exercisable, with certain exceptions, ten business days after any party, without priorapproval of the Board of Directors, acquires or announces an offer to acquire beneficial ownership of 15% or more of the Company’s CommonShares. In the event that any party acquires 15% or more of the Company’s Common Stock, the Company enters into a merger or other businesscombination, or if a substantial amount of the Company’s assets are sold after the time that the Rights become exercisable, the Rights providethat the holder will receive, upon exercise, shares of the common stock of the surviving or acquiring company, as applicable, having a marketvalue of twice the exercise price of the Right.F-16 NOVAVAX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)December 31, 2002, 2001 and 20006. Stockholders’ Equity — (Continued) The Rights expire August 7, 2012, and are redeemable by the Company at a price of $0.00025 per Right at any time prior to the time that anyparty acquires 15% or more of the Company’s Common Shares. Until the earlier of the time that the Rights become exercisable, are redeemed orexpire, the Company will issue one Right with each new Common Share issued.7. Stock Options and Warrants 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 8,000,000 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”) provided for the issuance of up to 500,000 shares of Novavax Common Stock. Theexercise price is the fair market value per share of the Company’s common stock on the date of grant. Options granted to eligible directors areexercisable in full, beginning six months after the date of grant and expire ten years from the grant date. All options available under the DirectorPlan have been granted. 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). Activity under the 1995 Stock Option Plan and 1995 Director Stock Option Plan was as follows: 1995 Stock Option Plan 1995 Director Stock Option Plan Weighted Average Weighted Average Stock Options Exercise Price Stock Options Exercise Price Balance, December 31, 1999 3,388,453 $3.58 440,000 $3.66 Granted 1,019,500 7.62 60,000 5.63 Exercised (485,728) 3.87 (80,000) 3.25 Expired or canceled (28,040) 3.75 — — Balance, December 31, 2000 3,894,185 4.60 420,000 4.02 Granted 1,227,601 9.47 — — Exercised (668,980) 3.18 (70,000) 3.95 Expired or canceled (52,400) 4.95 — 4.14 Balance, December 31, 2001 4,400,406 6.17 350,000 4.03 Granted 539,470 8.77 — — Exercised (410,902) 4.69 (50,000) 4.14 Expired or canceled (927,178) 8.60 — — Balance, December 31, 2002 3,601,796 $6.10 300,000 $4.01 Shares exercisable at December 31, 2000 2,278,428 $3.48 420,000 $4.02 Shares exercisable at December 31, 2001 2,282,578 4.41 350,000 4.03 Shares exercisable at December 31, 2002 2,540,483 $5.17 300,000 $4.01 Available for grant at December 31, 2002 1,522,371 — F-17 NOVAVAX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)December 31, 2002, 2001 and 20007. Stock Options and Warrants (Continued) The weighted-average fair value of the stock options granted during 2002, 2001 and 2000 is estimated as $8.32, $9.47 and $7.62 per share,respectively. The fair of awards was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions: Year Ended December 31 2002 2001 2000 Risk-free interest rate 4.0% 5.0% 6.0%Dividend yield 0.0% 0.0% 0.0%Volatility 85.0% 58.0% 80.0%Expected life (in years): Employees 6.0 6.0 6.0 Directors 3.0 3.0 3.0 The following table provides certain information with respect to stock options outstanding and exercisable at December 31, 2002: Number of Weighted Average Weighted Options Remaining Average Number of Weighted Average Outstanding Contractual Life Exercise Price Options Exercisable Exercise Price Options issued at below market value: $0.00 - $1.17 210,144 3.0 $0.01 210,144 $0.01 Options issued at market value: $1.17 - $2.33 46,094 5.7 1.85 46,094 1.85 $2.33 - $3.50 411,733 5.3 3.27 299,233 3.23 $3.50 - $4.66 989,153 3.1 3.78 932,653 3.79 $4.66 - $5.83 441,500 4.3 5.26 434,625 5.26 $5.83 - $6.99 266,666 1.2 6.26 233,333 6.19 $6.99 - $8.16 175,000 5.3 7.43 150,000 7.33 $8.16 - $9.32 779,251 6.7 9.00 415,956 8.96 $9.32 - $10.49 431,505 6.4 10.05 70,758 9.34 $10.49- $11.65 150,750 3.8 11.39 47,687 11.23 3,901,796 4.6 $6.03 2,840,483 $5.05 Common Stock Warrants In connection with the 2000 Private Placement the Company granted warrants to purchase an additional 703,460 shares at an exercise price of$6.75. In addition, warrants to purchase 281,385 shares were issued to the placement agent at an exercise price of $6.75 per share. The warrantshad a three-year term. As of December 31, 2002, 714,283 of these warrants have been exercised and 270,562 were outstanding. The outstandingwarrants expired without any additional exercises subsequent to year-end.8. Employee Benefits The Company maintains a defined contribution 401(k) retirement plan, pursuant to which employees who have completed ninety days ofservice may elect to contribute up to 15% of their compensation on a tax deferred basis up to the maximum amount permitted by the InternalRevenue Code, as amended. The Company currently matches 25% of the first 6% of the participants’ deferral. Contributions to the 401(k) Plan vest equally over a three-yearperiod. The Company has expensed approximately $48,000, $35,000, and $28,000 in 2002, 2001, and 2000, respectively.F-18 NOVAVAX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)December 31, 2002, 2001 and 20009. Income Taxes Deferred tax assets (liabilities) consist of the following at December 31: 2002 2001 (in thousands)Net operating losses $23,246 $13,540 Research tax credits 1,978 1,464 Disqualifying stock options 673 673 Alternative-minimum tax credit 94 94 Equipment and furniture 0 34 Intangibles from acquisition 276 184 Allowance for doubtful accounts 75 47 Accrued vacation pay 52 52 Deferred revenues 1,023 1,496 Total deferred tax assets 27,417 17,584 Deferred patent costs (486) (544)Depreciation (69) — Deferred Rent (35) — Total deferred tax liabilities (590) (544) Net deferred tax assets 26,827 17,040 Less valuation allowance $(26,827) $(17,040)Deferred tax assets, net — — The differences between the U.S. federal statutory tax rate and the Company’s effective tax rate are as follows: 2002 2001 Statutory federal tax rate (34)% (34)%State income taxes, net of federal benefit (5) (3)Research and development credit (2) (3)Other — 9 Change in valuation allowance 41 31 —% —% Realization of net deferred tax assets 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, 2002 and 2001. Novavax has recorded no net benefit for income taxes in 2002, 2001 and 2000 in the accompanying consolidated financial statements due tothe uncertainty 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: 2002 (in thousands)Federal net operating losses expiring through the year 2021 $60,191 State net operating losses expiring through the year 2021 60,191 Research tax credits expiring through the year 2021 1,978 Alternative-minimum tax credit (no expiration) 94 F-19 NOVAVAX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)December 31, 2002, 2001 and 200010. Commitments and Contingencies Novavax leases manufacturing, laboratory and office space, machinery and equipment and automobiles under non-cancelable operating leaseagreements expiring at various dates through January 2007. Future minimum rental commitments under non-cancelable leases as ofDecember 31, 2002 are as follows: Capital OperatingYear Leases Leases (in thousands)2003 $28 $2,624 2004 19 2,305 2005 — 1,906 2006 — 1,887 Total minimum lease payments $47 $8,722 Less amounts representing interest (5) Present value of minimum lease payments $42 Less current portion of capital lease obligation (24) Long-term portion $18 The cost and accumulated depreciation of assets recorded under capital lease obligations approximated $50,000 and $2,500, respectively atDecember 31, 2002. Aggregate rental expenses approximated $3,750,000, $1,050,000, and $411,000 in 2002, 2001 and 2000, respectively. In connection with one of the leases for office and laboratory facilities, the Company is required to maintain a “Net Asset Value” of $2.0 million.The term “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. Related Party Transaction On March 21, 2002, pursuant to our Stock Option Plan, the Company approved the payment of the exercise price of options by two of itsdirectors, through the delivery of full recourse, interest bearing promissory notes in the aggregate amount of $1,479,268. The borrowings accrueinterest at 5.07% per annum and are secured by an aggregate of 261,667 shares of common stock owned by the directors. The notes are payableupon the earlier to occur of the following: (i) payable in full upon the date on which the director ceases for any reason to be a director of theCompany, (ii) payable in part to the extent of net proceeds, upon the date on which the director sells all or any portion of the pledged shares or(iii) payable in full on March 21, 2007. In addition, in 2002 we executed a conditional guaranty of a brokerage margin account for a director, in theamount of $500,000.12. Subsequent Events In February 2003, we completed the private placement of 4,750,000 shares of Common Stock at $3.50 per share to an accredited investor fornet proceeds of $16.6 million.F-20 Exhibit 10.9SECURED PROMISSORY NOTE $447,600.00 March 21, 2002 FOR VALUE RECEIVED, the undersigned, Mitchell J. Kelly, residing at 730 Fifth Avenue, New York, New York 10019 (the “Director”) herebypromises to pay to Novavax, Inc., a Delaware corporation with an address 8320 Guilford Road, Columbia, Maryland 21046 (hereinafter with anysubsequent holder called the “Holder”) the principal sum of FOUR HUNDRED AND FORTY SEVEN THOUSAND SIX HUNDRED DOLLARS($447,600.00), in lawful money of the United States of America or by delivery to the Holder of shares of Common Stock of Novavax, Inc. or in anycombination of the foregoing, with interest from the date hereof on the whole amount of such principal sum remaining from time to time unpaid atthe rate per annum of five and seven one-hundredths percent (5.07%), payable upon the earlier to occur of the following: (i) payable in full upon thedate on which the Director ceases for any reason to be a director of Novavax, Inc., (ii) payable in part, to the extent of net proceeds, upon the dateon which the Director sells all or any portion of the Pledged Shares (as defined below) or (iii) payable in full on March 21, 2007. Interest shallaccrue and be payable whenever any payment of principal is due hereunder. Interest shall be computed on the basis of a 365 or 366-day year, asapplicable, and shall be paid for the actual number of days on which principal is outstanding. Whenever shares of Novavax, Inc. Common Stockare delivered in payment of all or any portion of the principal or interest due hereunder, such shares shall be valued at the closing price of theNovavax Inc. Common Stock on the principal market for such stock on the date of payment. This Note is secured by the pledge of 95,000 shares of common stock of Novavax, Inc. (the “Pledged Shares”) pursuant to a PledgeAgreement of even date herewith. The Director may prepay the principal amount outstanding under this Note, in whole or in part, at any time without premium or penalty. Anypartial prepayment shall be applied first against all accrued interest through the date of the prepayment and second against the principal amountoutstanding. All payments of principal and interest on this Note shall be payable to the Holder at the above address, or at such other place in the UnitedStates of America as the Holder may from time to time designate in writing at least ten days before such payment is due. The entire unpaid balance of principal of, and all accrued unpaid interest on, this Note shall, at the option of the Holder, become forthwith dueand payable without notice or demand upon the happening of any of the following events of default: (a) default in payment as required hereunderand such default continues for 15 days after written notice that such payment is past due; or (b) appointment of a receiver of any property,common law assignment or trust mortgage for the benefit of creditors, the commencement of any kind of insolvency proceedings, or the filing ofany proceedings under any bankruptcy or other law relating to the relief of debtors (and, if such action or proceeding is involuntary  on the part of the Director, such action or proceeding is not dismissed within 60 days), of, by or against the Director. No delay or omission by the Holder in exercising or enforcing any of its powers, rights, privileges, remedies or discretions hereunder shalloperate as a waiver thereof on that or any other occasion, and no single or partial exercise of any right hereunder shall preclude other or futureexercise thereof. No waiver of any right or remedy hereunder on any occasion shall be construed as a bar or waiver of any such right or remedy onany future occasion, nor as a continuing waiver. The Director agrees that no variance, extension or renewal of this Note shall affect the absoluteand unconditional liability of the Director hereunder. The Director hereby waives presentment, demand, notice of protest, suretyship defenses, and all other demands and notices in connection withthe delivery, acceptance, performance, default and/or enforcement of this Note or of any rights hereunder. The Director will pay to the Holder ondemand all reasonable costs and expenses, including attorneys’ fees, relating to the collection and/or enforcement of this Note or of any rightshereunder. This Note shall be governed by and construed and enforced in accordance with the laws of the State of Delaware. If any provision of this Noteis held to be invalid or unenforceable by a court of competent jurisdiction, the other provisions of this Note shall remain in full force and effect. IN WITNESS WHEREOF, the Director has caused this Note to be executed as a sealed instrument, all as of the day, month, and year firstwritten above. Witness Mitchell J. Kelly  Exhibit 10.10PLEDGE AGREEMENT AGREEMENT made as of March 21, 2002 by and between Mitchell J. Kelly, residing at 703 Fifth Avenue, New York, New York 10019 (the“Pledgor”) and Novavax, Inc., a Delaware corporation with an address 8320 Guilford Road, Columbia, Maryland 21046 (the “Pledgee”). WHEREAS, the Pledgor has borrowed monies from the Pledgee to acquire stock of Pledgee upon the exercise of options held by Pledgor, asevidenced by a Secured Promissory Note of even date herewith (the “Note”); and WHEREAS, as a condition to the Note the Pledgee requires that the Pledgor pledge all shares of capital stock acquired pursuant to theexercise of such stock options; NOW, THEREFORE, in consideration of the foregoing and for $1.00 and other good and valuable consideration, the receipt of which thePledgor hereby acknowledges, the Pledgor hereby agrees as follows: 1. Pledge. The Pledgor hereby assigns, transfers, sets over and pledges to the Pledgee as collateral to secure the payment and performanceof any and all liabilities and obligations of the Pledgor to the Pledgee arising under the Note, 95,000 shares of common stock of Novavax, Inc. (the“Pledged Shares”), and herewith delivers to the Pledgee the certificates evidencing the same, endorsed in blank or with duly executed stockpowers attached. 2. Representations; Covenants. The Pledgor represents and warrants that he has good and marketable title to all of the Pledged Shares, freeand clear of any mortgage, pledge, lien, encumbrance or charge of any nature whatsoever, except the pledge created by this Agreement in favor ofthe Pledgee, and duly and validly pledged hereby with the Pledgee in accordance with applicable law. The Pledgor covenants that it will defend thePledgee’s right, title, special property and security interest in and to the Pledged Shares against the claims of all persons whomsoever. 3. Rights Prior to Declaration of Default. (a) Unless an Event of Default (as hereafter defined) shall have occurred and be continuing, the Pledged Shares shall continue to beregistered in the name of the Pledgor and the Pledgor shall have the right to vote the same at all stockholders meetings at which the same orany part thereof may be voted and to receive any cash dividends (other than liquidating or similar dividends) allocable thereto. Stock dividendsand any other distribution with respect to the Pledged Shares shall be pledged as additional collateral and held by the Pledgee subject to theterms and conditions hereof. (b) If the stock of any corporation whose shares are pledged hereunder shall be changed into or exchanged for a different number of kindof shares of stock or other securities of such corporation or of another corporation, whether through merger, consolidation, reorganization,recapitalization, stock split, or combination of shares, there shall be substituted for each of the Pledged Shares held by the Pledgee under thisAgreement the number of shares of  stock or other securities into which each outstanding share of such capital stock shall be so changed or for which each share shall beexchanged. The Pledgor hereby agrees that any securities so substituted for the Pledged Shares pursuant to the terms of such change orexchange shall be delivered directly to the Pledgee, to be held and disposed of by the Pledgee in accordance with the terms and provisions ofthis Agreement. The Pledgor authorizes the Pledgee to surrender the Pledged Shares or take whatever other action is required to be takenwith respect to the Pledged Shares under the terms of such change or exchange and further agrees to execute and deliver to the Pledgeesuch stock powers as may be necessary to carry out the purposes of this Agreement in view of such substitution. 4. Default. If any of the following events (“Events of Default”) shall occur: (a) the Pledgor shall be in breach of any covenant contained herein or in the Note; or (b) If the Pledgor shall admit in writing its inability to pay its debts; or make an assignment for the benefit of creditors or suffer a receiveror trustee for all or substantially all of its property to be appointed and, if appointed without its consent, not to be discharged within 60 days; orsuffer proceedings under any law relating to bankruptcy, insolvency or the reorganization or relief of debtors to be instituted by or against itand, if contested by it, not to be dismissed or stayed within 60 days; or suffer any judgment to be entered against it, or any writ of attachmentor execution or any similar process to be issued or levied against a substantial part of its property, which judgment, writ or process is notsatisfied, discharged, released, stayed, bonded or vacated within 60 days after its entry, issue or levy; then, and in every such event, the Pledgee may declare the Pledgor in default and exercise the rights and remedies of a secured party underthe Uniform Commercial Code and any other rights and remedies set forth in this Agreement. 5. Rights on Default. (a) If an Event of Default shall have occurred and be continuing, the Pledgee is hereby irrevocably authorized to cause the PledgedShares to be transferred into its name or the name of its nominee on the books of the corporation issuing the same; provided, however, thatall such Pledged Shares so transferred shall continue to be held and disposed of by the Pledgee in accordance with this Agreement. ThePledgor agrees that any transfer of the Pledged Shares pursuant to this paragraph shall not be deemed a sale or disposition under theprovisions of Article 9 of the Uniform Commercial Code nor an acceptance of such stock in satisfaction of the obligations of the Pledgor to thePledgee or any portion thereof. (b) The Pledgee, upon compliance with any mandatory requirements of laws, but without further demand, attachment or notice of any kind,all of which are hereby expressly waived by the Pledgor, may sell the Pledged Shares, in whole at any time or in part from time to time, forcash, upon credit or for future delivery, at public sale or at any brokers’ board or exchange or at private sale, all at the option and in thecomplete discretion of the Pledgee. The Pledgee may be a purchaser at any such public or private sale and may apply the amount2 outstanding on obligations of the Pledgor to the Pledgee, plus interest accrued, towards the payment of the purchase price of the PledgedShares. Any such sale shall be free from any right or equity of redemption in the Pledgor, which right or equity is hereby expressly waived andreleased by the Pledgor. (c) In case of any sale by the Pledgee of any of the Pledged Shares on credit or for future delivery, the Pledged Shares sold may beretained by the Pledgee until the sales price is paid by the purchaser, but the Pledgee shall incur no liability in case of failure of the purchaserto take up and pay for the Pledged Shares so sold. In case of any such failure, such Pledged Shares so sold may be again similarly sold. (d) After deducting all costs or expenses of every kind, including reasonable attorneys’ fees, the Pledgee shall apply the proceeds fromthe sale of the Pledged Shares towards payment of all outstanding obligations of the Pledgor to the Pledgee under the Note. Any proceedsremaining after the payment in full of all such obligations shall be paid by the Pledgee to the Pledgor or to whomsoever may be lawfullyentitled to receive the same or as a court of competent jurisdiction may direct. (e) Except as otherwise expressly provided herein, after an Event of Default the Pledgee may deal with the Pledged Shares and theproceeds thereof in all respects as if the Pledged Shares and the proceeds thereof were its own property. (f) No course of dealing or delay in taking or failure to take any action with respect to any Event of Default shall affect the Pledgee’s rightto take such action at a later time. No waiver as to any one Event of Default shall affect the Pledgee’s rights upon any other Event of Default. (g) The Pledgee may exercise any or all of its rights or remedies after an Event of Default concurrently with, or independent of, andwithout regard to, the provisions of any other security agreement or other instrument which secures any obligation of the Pledgor to thePledgee. (h) The requirement of the Uniform Commercial Code that the Pledgee give the Pledgor reasonable notice of any proposed sale ordisposition of the Collateral shall be met if such notice is given at least seven days before the time of such sale or disposition. 6. Notices. Any notice under this Agreement shall be in writing and shall be deemed delivered if mailed by certified mail, postage prepaid,return receipt requested, if addressed to the Company or the Pledgee, as the case may be, at the respective addresses given at the beginning ofthis Agreement or at such other address of a party as may be specified by notice in writing given by such party to the other party after the datehereof. If notice is given by mail and is not delivered within three days of the date of the postmark, any applicable notice period shall be extendedby two days. Nothing contained herein shall prevent the giving of actual written notice in any other effective manner.3 7. Successors and Assigns. This Agreement shall be binding upon, and inure to the benefit of, the Pledgor and his heirs, executors,successors and assigns. This Agreement shall be binding upon, and inure to the benefit of, the Pledgee and its successors and assigns. 8. Term. The term of this Agreement shall be until all obligations of the Pledgor to the Pledgee under the Note have been paid and performedin full. Upon payment in full of all such obligations, this Agreement shall terminate and the Pledgee shall surrender to the Pledgor the PledgedShares which have not theretofore been sold or otherwise disposed of pursuant to this Agreement, together with any excess proceeds from anysale of the Pledged Shares which at the time may be held by the Pledgee hereunder. 9. Waivers. With respect both to obligations of the Pledgor to the Pledgee and with respect to any collateral securing said obligations,including the Pledged Shares, the Pledgor assents to any extension or postponement of the time of payment or any other indulgence, to anysubstitution, exchange or release of collateral, to the addition or release of any party or person primarily or secondarily liable, to the acceptance ofpartial payment thereof and the settlement, compromising or adjusting of any thereof, all in such manner and at such time or times as the Pledgeemay deem advisable. The Pledgee may exercise its rights with respect to the Pledged Shares without resorting to and without regard to othercollateral or sources for reimbursement for liability. The Pledgee shall not be deemed to have waived any of its rights upon or under any obligationof the Pledgor to the Pledgee or with respect to the Pledged Shares unless such waiver is in writing and signed by the Pledgee. No delay oromission on the part of the Pledgee in exercising any right shall operate as a waiver of such right or any other right. A waiver on any one occasionshall not be construed as a bar to or waiver of any right on any future occasion. All rights and remedies of the Pledgee with respect to obligationsof the Pledgor to the Pledgee or the Pledged Shares, whether evidenced hereby or by any other instrument or document, shall be cumulative andmay be exercised separately or concurrently. 10. Governing Law. This Agreement and the rights and obligations of the parties hereunder shall be governed by and construed in accordancewith the laws of the State of Delaware applicable to contracts made and to be performed entirely within such State, and shall have the effect of asealed instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement, under seal, as of the day, month and year first written above.NOVAVAX, INC. By: Mitchell J. Kelly4 Exhibit 10.11SECURED PROMISSORY NOTE $1,031,668.00 March 21, 2002 FOR VALUE RECEIVED, the undersigned, Denis M. O’Donnell, M.D., residing at 5 Westgate Road, Winchester, Massachusetts 01890 (the“Director”) hereby promises to pay to Novavax, Inc., a Delaware corporation with an address 8320 Guilford Road, Columbia, Maryland 21046(hereinafter with any subsequent holder called the “Holder”) the principal sum of ONE MILLION THIRTY ONE THOUSAND SIX HUNDRED SIXTYEIGHT DOLLARS ($1,031,668.00), in lawful money of the United States of America or by delivery to the Holder of shares of Common Stock ofNovavax, Inc. or in any combination of the foregoing, with interest from the date hereof on the whole amount of such principal sum remaining fromtime to time unpaid at the rate per annum of five and seven one-hundredths percent (5.07%), payable upon the earlier to occur of the following:(i) payable in full upon the date on which the Director ceases for any reason to be a director of Novavax, Inc., (ii) payable in part, to the extent ofnet proceeds, upon the date on which the Director sells all or any portion of the Pledged Shares (as defined below) or (iii) payable in full onMarch 21, 2007. Interest shall accrue and be payable whenever any payment of principal is due hereunder Interest shall be computed on the basisof a 365 or 366-day year, as applicable, and shall be paid for the actual number of days on which principal is outstanding. Whenever shares ofNovavax, Inc. Common Stock are delivered in payment of all or any portion of the principal or interest due hereunder, such shares shall be valuedat the closing price of the Novavax Inc. Common Stock on the principal market for such stock on the date of payment This Note is secured by the pledge of 166,667 shares of common stock of Novavax, Inc. (the “Pledged Shares”) pursuant to a PledgeAgreement of even date herewith. The Director may prepay the principal amount outstanding under this Note, in whole or in part, at any time without premium or penalty. Anypartial prepayment shall be applied first against all accrued interest through the date of the prepayment and second against the principal amountoutstanding. All payments of principal and interest on this Note shall be payable to the Holder at the above address, or at such other place in the UnitedStates of America as the Holder may from time to time designate in writing at least ten days before such payment is due. The entire unpaid balance of principal of, and all accrued unpaid interest on, this Note shall, at the option of the Holder, become forthwith dueand payable without notice or demand upon the happening of any of the following events of default: (a) default in payment as required hereunderand such default continues for 15 days after written notice that such payment is past due; or (b) appointment of a receiver of any property,common law assignment or trust mortgage for the benefit of creditors, the commencement of any kind of insolvency proceedings, or the filing ofany proceedings under any bankruptcy or other law relating to the relief of debtors (and, if such action or proceeding is involuntary  on the part of the Director, such action or proceeding is not dismissed within 60 days), of, by or against the Director. No delay or omission by the Holder in exercising or enforcing any of its powers, rights, privileges, remedies or discretions hereunder shalloperate as a waiver thereof on that or any other occasion, and no single or partial exercise of any right hereunder shall preclude other or futureexercise thereof. No waiver of any right or remedy hereunder on any occasion shall be construed as a bar or waiver of any such right or remedy onany future occasion, nor as a continuing waiver. The Director agrees that no variance, extension or renewal of this Note shall affect the absoluteand unconditional liability of the Director hereunder. The Director hereby waives presentment, demand, notice of protest, suretyship defenses, and all other demands and notices in connection withthe delivery, acceptance, performance, default and/or enforcement of this Note or of any rights hereunder. The Director will pay to the Holder ondemand all reasonable costs and expenses, including attorneys’ fees, relating to the collection and/or enforcement of this Note or of any rightshereunder. This Note shall be governed by and construed and enforced in accordance with the laws of the State of Delaware. If any provision of this Noteis held to be invalid or unenforceable by a court of competent jurisdiction, the other provisions of this Note shall remain in full force and effect. IN WITNESS WHEREOF, the Director has caused this Note to be executed as a sealed instrument, all as of the day, month, and year firstwritten above. Witness Denis M. O’Donnell, M.D.  Exhibit 10.12PLEDGE AGREEMENT AGREEMENT made as of March 21, 2002 by and between Denis M. O’Donnell, M.D., residing at 5 Westgate Road, Winchester,Massachusetts 01890 (the “Pledgor”) and Novavax, Inc., a Delaware corporation with an address 8320 Guilford Road, Columbia, Maryland 21046(the “Pledgee”). WHEREAS, the Pledgor has borrowed monies from the Pledgee to acquire stock of Pledgee upon the exercise of options held by Pledgor, asevidenced by a Secured Promissory Note of even date herewith (the “Note”); and WHEREAS, as a condition to the Note the Pledgee requires that the Pledgor pledge all shares of capital stock acquired pursuant to theexercise of such stock options; NOW, THEREFORE, in consideration of the foregoing and for $1.00 and other good and valuable consideration, the receipt of which thePledgor hereby acknowledges, the Pledgor hereby agrees as follows: 1. Pledge. The Pledgor hereby assigns, transfers, sets over and pledges to the Pledgee as collateral to secure the payment and performanceof any and all liabilities and obligations of the Pledgor to the Pledgee arising under the Note, 166,667 shares of common stock of Novavax, Inc.(the “Pledged Shares”), and herewith delivers to the Pledgee the certificates evidencing the same, endorsed in blank or with duly executed stockpowers attached. 2. Representations; Covenants. The Pledgor represents and warrants that he has good and marketable title to all of the Pledged Shares, freeand clear of any mortgage, pledge, lien, encumbrance or charge of any nature whatsoever, except the pledge created by this Agreement in favor ofthe Pledgee, and duly and validly pledged hereby with the Pledgee in accordance with applicable law. The Pledgor covenants that it will defend thePledgee’s right, title, special property and security interest in and to the Pledged Shares against the claims of all persons whomsoever. 3. Rights Prior to Declaration of Default. (a) Unless an Event of Default (as hereafter defined) shall have occurred and be continuing, the Pledged Shares shall continue to beregistered in the name of the Pledgor and the Pledgor shall have the right to vote the same at all stockholders meetings at which the same orany part thereof may be voted and to receive any cash dividends (other than liquidating or similar dividends) allocable thereto. Stock dividendsand any other distribution with respect to the Pledged Shares shall be pledged as additional collateral and held by the Pledgee subject to theterms and conditions hereof. (b) If the stock of any corporation whose shares are pledged hereunder shall be changed into or exchanged for a different number of kindof shares of stock or other securities of such corporation or of another corporation, whether through merger, consolidation, reorganization,recapitalization, stock split, or combination of shares, there shall be substituted  for each of the Pledged Shares held by the Pledgee under this Agreement the number of shares of stock or other securities into which eachoutstanding share of such capital stock shall be so changed or for which each share shall be exchanged. The Pledgor hereby agrees that anysecurities so substituted for the Pledged Shares pursuant to the terms of such change or exchange shall be delivered directly to the Pledgee,to be held and disposed of by the Pledgee in accordance with the terms and provisions of this Agreement. The Pledgor authorizes thePledgee to surrender the Pledged Shares or take whatever other action is required to be taken with respect to the Pledged Shares under theterms of such change or exchange and further agrees to execute and deliver to the Pledgee such stock powers as may be necessary to carryout the purposes of this Agreement in view of such substitution. 4. Default. If any of the following events (“Events of Default”) shall occur: (a) The Pledgor shall be in breach of any covenant contained herein or in the Note; or (b) If the Pledgor shall admit in writing its inability to pay its debts; or make an assignment for the benefit of creditors or suffer a receiveror trustee for all or substantially all of its property to be appointed and, if appointed without its consent, not to be discharged within 60 days; orsuffer proceedings under any law relating to bankruptcy, insolvency or the reorganization or relief of debtors to be instituted by or against itand, if contested by it, not to be dismissed or stayed within 60 days; or suffer any judgment to be entered against it, or any writ of attachmentor execution or any similar process to be issued or levied against a substantial part of its property, which judgment, writ or process is notsatisfied, discharged, released, stayed, bonded or vacated within 60 days after its entry, issue or levy; then, and in every such event, the Pledgee may declare the Pledgor in default and exercise the rights and remedies of a secured party underthe Uniform Commercial Code and any other rights and remedies set forth in this Agreement. 5. Rights on Default. (a) If an Event of Default shall have occurred and be continuing, the Pledgee is hereby irrevocably authorized to cause the PledgedShares to be transferred into its name or the name of its nominee on the books of the corporation issuing the same; provided, however, thatall such Pledged Shares so transferred shall continue to be held and disposed of by the Pledgee in accordance with this Agreement. ThePledgor agrees that any transfer of the Pledged Shares pursuant to this paragraph shall not be deemed a sale or disposition under theprovisions of Article 9 of the Uniform Commercial Code nor an acceptance of such stock in satisfaction of the obligations of the Pledgor to thePledgee or any portion thereof. (b) The Pledgee, upon compliance with any mandatory requirements of laws, but without further demand, attachment or notice of any kind,all of which are hereby expressly waived by the Pledgor, may sell the Pledged Shares, in whole at any time or in part from time to time, forcash, upon credit or for future delivery, at public sale or at any brokers’ board or exchange or at private sale, all at the option and in thecomplete discretion of the Pledgee. The2 Pledgee may be a purchaser at any such public or private sale and may apply the amount outstanding on obligations of the Pledgor to thePledgee, plus interest accrued, towards the payment of the purchase price of the Pledged Shares. Any such sale shall be free from any rightor equity of redemption in the Pledgor, which right or equity is hereby expressly waived and released by the Pledgor. (c) In case of any sale by the Pledgee of any of the Pledged Shares on credit or for future delivery, the Pledged Shares sold may beretained by the Pledgee until the sales price is paid by the purchaser, but the Pledgee shall incur no liability in case of failure of the purchaserto take up and pay for the Pledged Shares so sold. In case of any such failure, such Pledged Shares so sold may be again similarly sold. (d) After deducting all costs or expenses of every kind, including reasonable attorneys’ fees, the Pledgee shall apply the proceeds fromthe sale of the Pledged Shares towards payment of all outstanding obligations of the Pledgor to the Pledgee under the Note. Any proceedsremaining after the payment in full of all such obligations shall be paid by the Pledgee to the Pledgor or to whomsoever may be lawfullyentitled to receive the same or as a court of competent jurisdiction may direct. (e) Except as otherwise expressly provided herein, after an Event of Default the Pledgee may deal with the Pledged Shares and theproceeds thereof in all respects as if the Pledged Shares and the proceeds thereof were its own property. (f) No course of dealing or delay in taking or failure to take any action with respect to any Event of Default shall affect the Pledgee’s rightto take such action at a later time. No waiver as to any one Event of Default shall affect the Pledgee’s rights upon any other Event of Default. (g) The Pledgee may exercise any or all of its rights or remedies after an Event of Default concurrently with, or independent of, andwithout regard to, the provisions of any other security agreement or other instrument which secures any obligation of the Pledgor to thePledgee. (h) The requirement of the Uniform Commercial Code that the Pledgee give the Pledgor reasonable notice of any proposed sale ordisposition of the Collateral shall be met if such notice is given at least seven days before the time of such sale or disposition. 6. Notices. Any notice under this Agreement shall be in writing and shall be deemed delivered if mailed by certified mail, postage prepaid,return receipt requested, if addressed to the Company or the Pledgee, as the case may be, at the respective addresses given at the beginning ofthis Agreement or at such other address of a party as may be specified by notice in writing given by such party to the other party after the datehereof. If notice is given by mail and is not delivered within three days of the date of the postmark, any applicable notice period shall be extendedby two days. Nothing contained herein shall prevent the giving of actual written notice in any other effective manner.3 7. Successors and Assigns. This Agreement shall be binding upon, and inure to the benefit of, the Pledgor and his heirs, executors,successors and assigns. This Agreement shall be binding upon, and inure to the benefit of, the Pledgee and its successors and assigns. 8. Term. The term of this Agreement shall be until all obligations of the Pledgor to the Pledgee under the Note have been paid and performedin full. Upon payment in full of all such obligations, this Agreement shall terminate and the Pledgee shall surrender to the Pledgor the PledgedShares which have not theretofore been sold or otherwise disposed of pursuant to this Agreement, together with any excess proceeds from anysale of the Pledged Shares which at the time may be held by the Pledgee hereunder. 9. Waivers. With respect both to obligations of the Pledgor to the Pledgee and with respect to any collateral securing said obligations,including the Pledged Shares, the Pledgor assents to any extension or postponement of the time of payment or any other indulgence, to anysubstitution, exchange or release of collateral, to the addition or release of any party or person primarily or secondarily liable, to the acceptance ofpartial payment thereof and the settlement, compromising or adjusting of any thereof, all in such manner and at such time or times as the Pledgeemay deem advisable. The Pledgee may exercise its rights with respect to the Pledged Shares without resorting to and without regard to othercollateral or sources for reimbursement for liability. The Pledgee shall not be deemed to have waived any of its rights upon or under any obligationof the Pledgor to the Pledgee or with respect to the Pledged Shares unless such waiver is in writing and signed by the Pledgee. No delay oromission on the part of the Pledgee in exercising any right shall operate as a waiver of such right or any other right. A waiver on any one occasionshall not be construed as a bar to or waiver of any right on any future occasion. All rights and remedies of the Pledgee with respect to obligationsof the Pledgor to the Pledgee or the Pledged Shares, whether evidenced hereby or by any other instrument or document, shall be cumulative andmay be exercised separately or concurrently. 10. Governing Law. This Agreement and the rights and obligations of the parties hereunder shall be governed by and construed in accordancewith the laws of the State of Delaware applicable to contracts made and to be performed entirely within such State, and shall have the effect of asealed instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement, under seal, as of the day, month and year first written above. NOVAVAX, INC By: Denis M. O’Donnell, M.D.4 Exhibit 10.13CIBC World Market Corp.One World Financial Center200 Liberty StreetNew York, NY 10261GUARANTY OF ACCOUNTGentlemen: 1. In consideration of your opening, and/or continuing, an account or accounts (which separately or jointly, with and all renewals thereof, arehereinafter referred to as “said guaranteed account”) with, or otherwise giving credit in said guaranteed account to Dr. Denis O’Donnell and Mrs.Claudia O’Donnell (hereinafter referred to as the “Customer”), on such terms and conditions as may, from time to time, be agreed to between youand the Customer (notice of which is hereby waived). The undersigned (hereinafter referred to as the “Guarantor”) hereby subject to Section 3hereof, agrees to pay to you, on demand, any indebtedness which may now or hereafter be owing to you by the Customer on said guaranteedaccount, up to $500,000 (five hundred thousand). 2. The Guarantor agrees that this guaranty shall be effective not only with respect to said guaranteed account but also with respect to any andall renewals thereof; that said guaranteed account may be changed from time to time by the purchase or sale or exchange of securities or otherproperty, or by payments or by deliveries of securities or other property by or to or upon the order of the customer, and that said guaranteedaccount may be closed out by you at any time; that, in general, you may deal with and accept the orders of the Customer with respect totransactions in said guaranteed account, without notice to the Guarantor, the same as if the guaranty had not been given; and that the death of theGuarantor shall not affect the liability of the Guarantor or his estate with respect to transactions in said guaranteed account, subsequent to thedeath of the Guarantor and prior to the receipt by you or written notice thereof. 3. Prior to demanding payment from Guarantor, you agree to first make demand for payment by Customer, then to liquidate the account andonly thereafter to demand payment from Guarantor. 4. The Guarantor hereby waives (a) any notices whatsoever as to the current condition of said guaranteed account or any changes thereinfrom time to time and the manner of conducting or closing the same or otherwise; and (b) in the event of default by the Customer, any requirementof legal or equitable proceedings or otherwise on your part against the Customer as a condition precedent to enforcing the obligations of theGuarantor hereunder. 5. This guaranty shall be binding upon the Guarantor, its successors and assigns and shall inure to the benefit of your present firm and of anysuccessor firm or firms, irrespective of any change or changes at any time in the personnel thereof, for any cause whatsoever, and of the assignsof your present firm or any successor firm.  6. By written notice to you, the Guarantor may at any time terminate his obligations and your rights hereunder in respect to future transactionsin said guaranteed account, and such termination, in respect to future transactions, shall also take place loso facto on receipt by you of writtennotice of the Guarantor’s death; but notwithstanding such termination as to future transactions the obligations of the Guarantor hereunder withrespect to any indebtedness in said guaranteed account. Including any losses incurred in liquidating said guaranteed account during a reasonabletime subsequent to the receipt of such notice, shall continue in full force and effect until such indebtedness with the interest to date of paymentthereon has been paid to you. 7. This guaranty and its enforcement shall be governed by the laws of the State of New York without giving effect to the choice of law orconflict of laws provisions thereof. 8. ARBITRATION: The Guarantor agrees to submit all controversies with you to arbitration in accordance with the provisions set forth below admy understanding that: • Arbitration is final and binding on the parties. • The parties are waiving their right to seek remedies in court, including the right to a jury trial. • Pre-arbitration discovery is generally more limited and different from court proceeding. • The arbitrator’s award is not required to include factual findings or legal reasoning and any party’s right to appeal or to seek modificationof rulings by arbitrators is strictly limited. • The panel of arbitrators will typically include a minority of arbitrators who were or are affiliated with the securities industry. All controversies which may arise between us concerning any transaction or the construction, performance or breach of this or any otheragreement between us, whether entered into prior, on, or subsequent to the date hereof, shall be determined by arbitration in accordance with theFederal Arbitration Act to the fullest extent permitted by law. The arbitration shall be determined only before and in accordance with the rules thenin effect of either the New York Stock Exchange, Inc. or the National Association of Securities Dealers, Inc. or any other exchange or self-regulatory organization of which you are a member, as the Guarantor may elect. The award of the arbitrators, or of the majority of them, shall befinal, and judgment upon the award may be entered by any court of competent jurisdiction without notice to the Guarantor. Notice preliminary to, inconjunction with, or incident to such arbitration may be sent to the Guarantor by mail and the Guarantor waives personal service thereof. Noperson shall bring putative or certified class action to arbitration, nor seek to enforce any pre-dispute arbitration agreement against any person whohas initiated in court a putative class action; or who is a member of a putative class who has not opted out of the class with respect to any claimsencompassed by the putative class action until: (i) the class certification is denied; or (ii)  the class is decertified; or (iii) the customer is excluded from the class by the court. Such forbearance to enforce an agreement to arbitrate shallnot constitute a waiver of any rights under this guaranty except to the extent stated herein.NOTICE OF THE ACCEPTANCE OF THIS GUARANTY IS HEREBY ACKNOWLEDGED Dated, April 29, 2002 Columbia MD (City) (State) /s/ John Spears, President and CEO NOTARY (REQUIRED) /s/ Jim Mirto, COO Dated: ACCEPTED: By:/s/ CIBC World Markets Corp.  Exhibit 10.35 $500,000.00December 20, 2002Philadelphia, PennsylvaniaNOTE FOR VALUE RECEIVED, NOVAVAX, INC., a Delaware Corporation, (hereinafter referred to as “Maker”) promises to pay to PIDC LOCALDEVELOPMENT CORPORATION (hereinafter referred to as “Payee”), at 2600 Centre Square West, 1500 Market Street, Philadelphia,Pennsylvania, the sum of Five Hundred Thousand Dollars and No Cents ($500,000.00) pursuant to a Commitment Letter dated October 1, 2002together with interest at the rate of 2.38% per annum with interest only payable on all sums advanced under the Commitment Letter on the 1st dayof January, 2003. Thereafter principal and interest shall be repaid in eighty four (84) equal monthly installments of Six Thousand Four HundredSixty Seven Dollars and Eighty Six Cents ($6,467.86) each commencing on the 1st day of February, 2003 and continuing on the 1st day of eachmonth thereafter. Each such installment shall first be applied on account of interest at the aforesaid rate and the balance thereon shall be appliedon account of principal. In the event any such installment due under this paragraph is more than fifteen (15) days late, Maker shall pay to Payee alate charge of three percent (3%) of such installment. On or before January 1, 2010, the balance of the principal together with interest accrued andunpaid shall be paid by Maker to Payee. In the event Maker prepays all or part of the principal due hereunder, Maker shall pay to the Philadelphia Industrial Development Corporation,agent for Payee, at the time of such prepayment, an amount equal to 1/2 of 1% of the total amount prepaid. This Note is being executed pursuant to a loan being made by the Payee to the Maker, and Maker agrees to comply with all of the terms andconditions contained in the Commitment Letter and any default under said Commitment Letter shall be an event of default hereunder. The payment of this Note is secured by a Security Agreement of even date herewith between Maker and Payee on certain of the assets ofMaker. Upon default hereunder, and after thirty (30) days written notice to Maker and the failure of Maker to cure said default within the aforesaid timeperiod, the Maker does hereby empower any attorney of any Court of Record within the United States or elsewhere to appear for Maker, with orwithout a declaration filed, and confess judgment or judgments against said Maker in favor of the Payee or any subsequent holder hereof, as ofany term, for the entire unpaid principal of this Note, and all arrearages of installment payments, together with costs of suit, attorney’s commissionof five percent (5%) for collection, and release of all errors, on which judgment, execution or executions may issue forthwith. The Maker herebywaives the right of inquisition on all property levied upon to collect the indebtedness evidenced hereby and does voluntarily condemn the same andauthorizes the Prothonotary to enter such condemnation, and waives and releases all- 2 - laws, now in force or hereinafter enacted, relating to exemption, appraisement or stay of execution. The principal indebtedness, or any balance thereof, interest thereon, and all other sums due hereunder shall bear interest at the rate of twelvepercent (12%) per annum if not paid when due. If this Note is placed in an attorney’s hands for collection, or collected by a suit or through a bankruptcy, or probate, or any other court, eitherbefore or after maturity, then in any of said events, there shall be paid to the holder of this Note reasonable attorney’s fees and all costs and otherexpenses incurred by said holder in enforcing the terms of this Note. Failure to pay any part of principal or interest of this Note when due, or failure to carry out any of the terms, covenants or conditions of saidCommitment Letter shall authorize the Payee to declare immediately due the whole of the same and exercise any and all the rights and remediesprovided by the Uniform Commercial Code as well as other rights and remedies possessed by the Payee. The Maker and endorsers of this Note severally waive demand, presentment, notice of dishonor, diligence in collection, notice of protest, andagree to all extensions and partial payments before or after maturity without prejudice to the Payee.- 3 - IN WITNESS WHEREOF, Maker has executed this Note the day and year first above written. NOVAVAX, INC. Attest: By: Secretary Vice President- 4 - Exhibit 10.36SECURITY AGREEMENT This Security Agreement is made and entered into this 20th day of December 2002, by and between NOVAVAX, INC., a Delaware Corporation,of 8320 Guilford Road, Suite C, Columbia, Maryland 21046, hereinafter referred to as the Borrower and PIDC LOCAL DEVELOPMENTCORPORATION, 2600 Centre Square West, 1500 Market Street, Philadelphia, Pennsylvania 19102 hereinafter referred to as the Secured Party,as follows: For value received, the Borrower hereby grants to the Secured Party a security interest in the following described property, hereinafter referredto as the Collateral, to wit: Certain of Borrower’s machinery, equipment, leasehold improvements, appliances, systems, (including HVAC and electrical), improvements,furnishings and fixtures together with all increases, parts, fittings, accessories and attachments as described on Exhibit “A” attached heretoand made a part hereof Said Collateral shall secure (1) the payment of a Note dated December 20, 2002 executed and delivered by Borrower to Secured Party in thesum of Five Hundred Thousand Dollars and No Cents ($500,000.00) payable as to principal and interest as therein provided; (2) future advances tobe evidenced by like Notes to be made by Secured Party to Borrower at Secured Party’s option; and (3) all liabilities of Borrower to Secured Partynow existing or hereinafter incurred, matured or unmatured, direct or contingent, and any renewals and extensions thereof and substitutionstherefor. This security interest is granted to the Secured Party in consideration of a commercial loan made to Borrower to purchase new machinery andequipment for its business. The Collateral is personal property and it is intended that it will remain personal property and will not become, or be deemed, so affixed orrelated to realty as to be a part thereof. The Collateral is located at 10381 Decatur Road, Philadelphia, Pennsylvania, which is the Borrower’s chiefplace of business. 1. Borrower warrants that, except for the security interest hereby granted and prior liens in favor of Secured Party and the Commonwealth ofPennsylvania, the Borrower has, or at acquisition will have, full fee simple title to the Collateral free from any lien, security interest, encumbranceor claim. Borrower warrants that the Collateral is used or bought for the use primarily for business purposes. 2. Borrower agrees that it: A. Will pay Secured Party all amounts payable on the Note mentioned above and all other Notes held by Secured Party as and when the sameshall be due and payable, whether at maturity, by acceleration or otherwise, and will perform all terms of said Notes and this or any other securityor loan agreement between Borrower and Secured Party; B. Will pay as part of the debt hereby secured all amounts, with interest thereon, paid by Secured Party (a) for taxes, levies, insurance, repairsto, or maintenance of the Collateral, and (b) in taking possession of, disposing of or preserving the Collateral after any default; C. Will keep the Collateral in good condition and repair, reasonable wear and tear excepted;- 2 - D. Will not permit any of the Collateral to be used primarily for purposes other than business purposes; E. Will permit Secured Party and its agents to inspect the Collateral at any time and will immediately advise Secured Party in writing of anychange in any of Borrower’s place of business, or the opening of any new place of business; F. Will maintain insurance satisfactory to Secured Party upon the Collateral, with provision for payment of losses to Secured Party as itsinterest may appear, and will upon request of Secured Party deliver all policies for such insurance or evidence thereof to Secured Party; G. Will defend the Collateral against the claims and demands of all persons; H. Will not (a) permit any liens or security interests to attach to any of the Collateral; (b) permit any of the Collateral to be levied upon underany legal process; (c) dispose of any of the Collateral without the prior written consent of Secured Party; (d) permit anything to be done that mayimpair the value of any of the Collateral or the security intended to be afforded by this agreement; or (e) permit the Collateral to be so affixed orrelated to realty as to be a part thereof, or to become an accession to other property; I. Will obtain, on demand by Secured Party, a release of any claim to an interest in the Collateral from any Mortgagee of the premises onwhich it is located, and a waiver of any right of distraint against the Collateral from any landlord of such premises;- 3 - J. Will not permit that portion of the Collateral which is designated equipment and machinery to be removed from the above mentioned locationwithout the prior written consent of the Secured Party; K. Authorizes Secured Party to file all necessary financing statements required to perfect or renew the lien of Secured Party and will pay forthe cost of all original filings and any renewals thereof. 3. The occurrence of any of the following events will be a default hereunder: (a) failure of the Borrower to perform any of its obligations toSecured Party; (b) the untruth of any warranty or representation made to Secured Party; (c) dissolution, termination of existence, insolvency,business failure, appointment of a receiver, or commencement of any proceeding under any bankruptcy or insolvency laws by or against theBorrower. 4. Until default, Borrower may retain possession of the Collateral and use it in any lawful manner not inconsistent with the agreements herein,or with the terms and conditions of any policy of insurance thereon. 5. In the event of default by Borrower in the performance of any covenant or agreement herein, or in the discharge of any liability to SecuredParty, or in the event that any warranty should prove untrue, or in the event Borrower shall be in default under its obligations under a certainCommitment Letter between Borrower and Secured Party dated October 1, 2002 then Secured Party will have all of the rights and remedies of aSecured Party under the Uniform- 4 - Commercial Code or other applicable law and all rights provided herein, in the Notes mentioned above, or in any other applicable security or loanagreement, all of which rights and remedies will, to the full extent permitted by law, be cumulative. The waiver of any default hereunder will not bea waiver of any subsequent default. 6. All rights of Secured Party hereunder shall inure to the benefit of its successors and assigns; and all obligations of Borrower will bind itsheirs, executors, administrators, successors and assigns. 7. This Agreement shall be construed under and in accordance with the Pennsylvania Uniform Commercial Code and other applicable laws ofthe Commonwealth of Pennsylvania. IN WITNESS WHEREOF, Borrower and Secured Party have executed this Agreement the day and year first above written. NOVAVAX, INC. Attest: By: Secretary Vice President PIDC LOCAL DEVELOPMENT CORPORATION Attest: By: Assistant Secretary Senior Vice President- 5 - Exhibit 10.37 $500,000.00December 20, 2002Philadelphia, PennsylvaniaNOTE FOR VALUE RECEIVED, NOVAVAX, INC., a Delaware Corporation, (hereinafter referred to as “Maker”) promises to pay to PIDC LOCALDEVELOPMENT CORPORATION (hereinafter referred to as “Payee”), at 2600 Centre Square West, 1500 Market Street, Philadelphia,Pennsylvania, the sum of Five Hundred Thousand Dollars and No Cents ($500,000.00) pursuant to a Commitment Letter dated October 1, 2002together with interest at the rate of 2.85% per annum with interest only payable on all sums advanced under the Commitment Letter on the 1st dayof January, 2003. Thereafter principal and interest shall be repaid in eighty four (84) equal monthly installments of Six Thousand Five HundredSeventy Two Dollars and Ninety Cents ($6,572.90) each commencing on the 1st day of February, 2003 and continuing on the 1st day of eachmonth thereafter. Each such installment shall first be applied on account of interest at the aforesaid rate and the balance thereon shall be appliedon account of principal. In the event any such installment due under this paragraph is more than fifteen (15) days late, Maker shall pay to Payee alate charge of three percent (3%) of such installment. On or before January 1, 2010, the balance of the principal together with interest accrued andunpaid shall be paid by Maker to Payee. In the event Maker prepays all or part of the principal due hereunder, Maker shall pay to the Philadelphia Industrial Development Corporation,agent for Payee, at the time of such prepayment, an amount equal to 1/2 of 1% of the total amount prepaid. This Note is being executed pursuant to a loan being made by the Payee to the Maker, and Maker agrees to comply with all of the terms andconditions contained in the Commitment Letter and any default under said Commitment Letter shall be an event of default hereunder. The payment of this Note is secured by a Security Agreement of even date herewith between Maker and Payee on certain of the assets ofMaker. Upon default hereunder, and after thirty (30) days written notice to Maker and the failure of Maker to cure said default within the aforesaid timeperiod, the Maker does hereby empower any attorney of any Court of Record within the United States or elsewhere to appear for Maker, with orwithout a declaration filed, and confess judgment or judgments against said Maker in favor of the Payee or any subsequent holder hereof, as ofany term, for the entire unpaid principal of this Note, and all arrearages of installment payments, together with costs of suit, attorney’s commissionof five percent (5%) for collection, and release of all errors, on which judgment, execution or executions may issue forthwith. The Maker herebywaives the right of inquisition on all property levied upon to collect the indebtedness evidenced hereby and does voluntarily condemn the same andauthorizes the Prothonotary to enter such condemnation, and waives and releases all- 2 - laws, now in force or hereinafter enacted, relating to exemption, appraisement or stay of execution. The principal indebtedness, or any balance thereof, interest thereon, and all other sums due hereunder shall bear interest at the rate of twelvepercent (12%) per annum if not paid when due. If this Note is placed in an attorney’s hands for collection, or collected by a suit or through a bankruptcy, or probate, or any other court, eitherbefore or after maturity, then in any of said events, there shall be paid to the holder of this Note reasonable attorney’s fees and all costs and otherexpenses incurred by said holder in enforcing the terms of this Note. Failure to pay any part of principal or interest of this Note when due, or failure to carry out any of the terms, covenants or conditions of saidCommitment Letter shall authorize the Payee to declare immediately due the whole of the same and exercise any and all the rights and remediesprovided by the Uniform Commercial Code as well as other rights and remedies possessed by the Payee. The Maker and endorsers of this Note severally waive demand, presentment, notice of dishonor, diligence in collection, notice of protest, andagree to all extensions and partial payments before or after maturity without prejudice to the Payee.- 3 - IN WITNESS WHEREOF, Maker has executed this Note the day and year first above written. NOVAVAX, INC. Attest: By: Secretary Vice President- 4 - Exhibit 10.38SECURITY AGREEMENT This Security Agreement is made and entered into this 20th day of December 2002, by and between NOVAVAX, INC., a Delaware Corporation,of 8320 Guilford Road, Suite C, Columbia, Maryland 21046, hereinafter referred to as the Borrower and PIDC LOCAL DEVELOPMENTCORPORATION, 2600 Centre Square West, 1500 Market Street, Philadelphia, Pennsylvania 19102 hereinafter referred to as the Secured Party,as follows: For value received, the Borrower hereby grants to the Secured Party a security interest in the following described property, hereinafter referredto as the Collateral, to wit: Certain of Borrower’s machinery, equipment, leasehold improvements, appliances, systems, (including HVAC and electrical), improvements,furnishings and fixtures together with all increases, parts, fittings, accessories and attachments as described on Exhibit “A” attached heretoand made a part hereof Said Collateral shall secure (1) the payment of a Note dated December 20, 2002 executed and delivered by Borrower to Secured Party in thesum of Five Hundred Thousand Dollars and No Cents ($500,000.00) payable as to principal and interest as therein provided; (2) future advances tobe evidenced by like Notes to be made by Secured Party to Borrower at Secured Party’s option; and (3) all liabilities of Borrower to Secured Partynow existing or hereinafter incurred, matured or unmatured, direct or contingent, and any renewals and extensions thereof and substitutionstherefor. This security interest is granted to the Secured Party in consideration of a commercial loan made to Borrower to purchase new machinery andequipment for its business. The Collateral is personal property and it is intended that it will remain personal property and will not become, or be deemed, so affixed orrelated to realty as to be a part thereof. The Collateral is located at 10381 Decatur Road, Philadelphia, Pennsylvania, which is the Borrower’s chiefplace of business. 1. Borrower warrants that, except for the security interest hereby granted and prior liens in favor of Secured Party and the Commonwealth ofPennsylvania, the Borrower has, or at acquisition will have, full fee simple title to the Collateral free from any lien, security interest, encumbranceor claim. Borrower warrants that the Collateral is used or bought for the use primarily for business purposes. 2. Borrower agrees that it: A. Will pay Secured Party all amounts payable on the Note mentioned above and all other Notes held by Secured Party as and when the sameshall be due and payable, whether at maturity, by acceleration or otherwise, and will perform all terms of said Notes and this or any other securityor loan agreement between Borrower and Secured Party; B. Will pay as part of the debt hereby secured all amounts, with interest thereon, paid by Secured Party (a) for taxes, levies, insurance, repairsto, or maintenance of the Collateral, and (b) in taking possession of, disposing of or preserving the Collateral after any default; C. Will keep the Collateral in good condition and repair, reasonable wear and tear excepted;- 2 - D. Will not permit any of the Collateral to be used primarily for purposes other than business purposes; E. Will permit Secured Party and its agents to inspect the Collateral at any time and will immediately advise Secured Party in writing of anychange in any of Borrower’s place of business, or the opening of any new place of business; F. Will maintain insurance satisfactory to Secured Party upon the Collateral, with provision for payment of losses to Secured Party as itsinterest may appear, and will upon request of Secured Party deliver all policies for such insurance or evidence thereof to Secured Party; G. Will defend the Collateral against the claims and demands of all persons; H. Will not (a) permit any liens or security interests to attach to any of the Collateral; (b) permit any of the Collateral to be levied upon underany legal process; (c) dispose of any of the Collateral without the prior written consent of Secured Party; (d) permit anything to be done that mayimpair the value of any of the Collateral or the security intended to be afforded by this agreement; or (e) permit the Collateral to be so affixed orrelated to realty as to be a part thereof, or to become an accession to other property; I. Will obtain, on demand by Secured Party, a release of any claim to an interest in the Collateral from any Mortgagee of the premises onwhich it is located, and a waiver of any right of distraint against the Collateral from any landlord of such premises;- 3 - J. Will not permit that portion of the Collateral which is designated equipment and machinery to be removed from the above mentioned locationwithout the prior written consent of the Secured Party; K. Authorizes Secured Party to file all necessary financing statements required to perfect or renew the lien of Secured Party and will pay forthe cost of all original filings and any renewals thereof. 3. The occurrence of any of the following events will be a default hereunder: (a) failure of the Borrower to perform any of its obligations toSecured Party; (b) the untruth of any warranty or representation made to Secured Party; (c) dissolution, termination of existence, insolvency,business failure, appointment of a receiver, or commencement of any proceeding under any bankruptcy or insolvency laws by or against theBorrower. 4. Until default, Borrower may retain possession of the Collateral and use it in any lawful manner not inconsistent with the agreements herein,or with the terms and conditions of any policy of insurance thereon. 5. In the event of default by Borrower in the performance of any covenant or agreement herein, or in the discharge of any liability to SecuredParty, or in the event that any warranty should prove untrue, or in the event Borrower shall be in default under its obligations under a certainCommitment Letter between Borrower and Secured Party dated October 1, 2002 then Secured Party will have all of the rights and remedies of aSecured Party under the Uniform- 4 - Commercial Code or other applicable law and all rights provided herein, in the Notes mentioned above, or in any other applicable security or loanagreement, all of which rights and remedies will, to the full extent permitted by law, be cumulative. The waiver of any default hereunder will not bea waiver of any subsequent default. 6. All rights of Secured Party hereunder shall inure to the benefit of its successors and assigns; and all obligations of Borrower will bind itsheirs, executors, administrators, successors and assigns. 7. This Agreement shall be construed under and in accordance with the Pennsylvania Uniform Commercial Code and other applicable laws ofthe Commonwealth of Pennsylvania. IN WITNESS WHEREOF, Borrower and Secured Party have executed this Agreement the day and year first above written. NOVAVAX, INC. Attest: By: Secretary Vice President PIDC LOCAL DEVELOPMENT CORPORATION Attest: By: Assistant Secretary Senior Vice President- 5 - EXHIBIT “A” The “Equipment” — the machinery, equipment and other tangible personal property listed below, and all parts, replacements and/orsubstitutions, additions and accessions, equipment, tools and operating manuals thereto, any proceeds of sale or disposition thereof and anyproceeds of insurance thereon or condemnation thereof. Type of EquipmentValueVendor/ManufacturerModel No./Serial No.Bottle Line $396,184 Liquid Line 10396-802 Capping Machine $232,000 Arol Model Euro/VP 7237 Mixing System $1,018,887 W.B. Moore, Inc. #202006 Packaging System $749,902 Klockner Medipak, Inc 20020450/20020451  [ERNST & YOUNG LETTERHEAD]CONSENT OF INDEPENDENT AUDITORSWe consent to the incorporation by reference of our report dated February 28, 2003, with respect to the consolidated financial statements ofNovavax, Inc. included in the Annual Report on Form 10-K for the year ended December 31, 2002, 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 333-97931 on Form S-8 (7) Registration Statement Number 333-22685 on Form S-3 (8) Registration Statement Number 333-77609 on Form S-3 (9) Registration Statement Number 333-32142 on Form S-3 (10) Registration Statement Number 333-53194 on Form S-3 (11) Registration Statement Number 333-69874 on Form S-3 (12) Registration Statement Number 333-76696 on Form S-3 /s/ ERNST & YOUNG LLP March 26, 2003  Exhibit 99.1CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Novavax, Inc. (the “Company”) on Form 10-K for the year ending December 31, 2002 as filed with theSecurities and Exchange Commission on the date hereof (the “Report”), I Mitchell J. Kelly, President and Chief Executive Officer of the Company,certify, pursuant to 18 U.S.C. § 906 of the Sarbanes-Oxley Act of 2002, that: 1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Act of 1934; and 2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany. By: /s/ Mitchell J. Kelly Name:Mitchell J. Kelly Title:President and Chief Executive Officer March 27, 2003 Exhibit 99.2CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Novavax, Inc. (the “Company”) on Form 10-K for the year ending December 31, 2002 as filed with theSecurities and Exchange Commission on the date hereof (the “Report”), I Dennis W. Genge, Vice-President and Chief Financial Officer of theCompany, certify, pursuant to 18 U.S.C. § 906 of the Sarbanes-Oxley Act of 2002, that: 3) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Act of 1934; and 4) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany. By: /s/ Dennis W. Genge Name:Dennis W. Genge Title:Vice-President and Chief Financial Officer March 27, 2003

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