Novavax
Annual Report 2010

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 Form 10-K xx ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2010OR oo TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to .Commission File No. 0-26770 NOVAVAX, INC.(Exact name of Registrant as specified in its charter) Delaware 9920 Belward Campus Drive,Rockville, Maryland 20850 22-2816046(State of incorporation) (Address of principal executive offices) (I.R.S. Employer Identification No.)Registrant’s telephone number, including area code: (240) 268-2000 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registeredCommon Stock, Par Value $0.01 per share The NASDAQ Global MarketSecurities registered pursuant to Section 12(g) of the Act: Not Applicable Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yes o No xIndicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.Yes o No xIndicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and(2) has been subject to such filing requirements for the past 90 days.Yes x No oIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every InteractiveData File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12months (or for such shorter period that the registrant was required to submit and post such files).Yes o No oIndicate 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. xIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smallerreporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of theExchange Act. (Check one): Large accelerated filer o Accelerated filer x Non-accelerated filer o(Do not check if a smaller reporting company) Smaller reporting company oIndicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes o No xThe aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant (based on the lastreported sale price of Registrants common stock on June 30, 2010 on the NASDAQ Global Market) was $160,600,000.As of March 22, 2011, there were 111,570,284 shares of the Registrant’s common stock outstanding.Portions of the Registrant’s Definitive Proxy Statement to be filed no later than 120 days after the fiscal year ended December 31, 2010 inconnection with the Registrant’s 2011 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K.  TABLE OF CONTENTSEXPLANATORY NOTERestatement of Consolidated Financial StatementsIn July 2008, we completed a registered direct offering of 6,686,650 units, raising approximately $17.5 million in net proceeds. Eachunit consisted of one share of common stock and a warrant to purchase 0.5 shares of common stock (the Warrants) at a price of $2.68 perunit. The Warrants represent the right to acquire an aggregate of 3,343,325 shares of common stock at an exercise price of $3.62 per shareand are exercisable between January 31, 2009 and July 31, 2013. The Company previously recorded the fair value of the Warrants instockholders’ equity.On December 21, 2010, we received a comment letter from the Securities and Exchange Commission (SEC) concerning its review of ourAnnual Report on Form 10-K for the year ended December 31, 2009. The comment letter specifically noted the Company’s classification ofthe Warrants in the Stockholders’ equity section of the Consolidated Financial Statements. After review, the Company concluded thatbecause the Warrant agreements do not explicitly preclude net cash settlement in the event registered shares are not available to satisfyexercise of the Warrants, the Warrants should be classified as a liability, with changes in the fair value of the Warrants reported in ourstatements of operations. When we initially assessed the impact of reclassifying the Warrants as a liability and marking the Warrants to fairvalue at each reporting period, we utilized a Black-Scholes option-pricing model to estimate the fair value. Based upon discussions with theSEC staff and further review of the Warrant agreement, we determined that a more dynamic pricing model would be appropriate to estimatethe fair value of the Warrants because the Warrants provide for a net cash settlement in the event of certain Fundamental Transactions,which include a consolidation or merger with or into another corporation or the sale, transfer or other disposition of all or substantially allour property, assets or business to another corporation. Because the Monte Carlo Simulation model of estimating the fair value of ourWarrants can include a probability of a Fundamental Transaction occurring in valuing a warrant, we concluded that it would be theappropriate valuation methodology for the Warrants.As a result, on March 14, 2011, our Audit Committee determined that the previously issued consolidated financial statements includedin our Annual Reports on Form 10-K for the years ended December 31, 2009 and 2008 and in our Quarterly Reports on Form 10-Q for theperiods ended March 31, 2010, June 30, 2010, September 30, 2010, March 31, 2009, June 30, 2009, September 30, 2009 and September30, 2008 should not be relied upon, which we reported under a Current Report on Form 8-K filed on March 17, 2011. We have restatedsuch financial statements in this Annual Report of Form 10-K for the year ended December 31, 2010.The adjustments made as a result of the restatement are more fully discussed in Note 2 — Restatement of Consolidated FinancialStatements in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.i  TABLE OF CONTENTSTABLE OF CONTENTS PageRESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS i PART I Item 1.BUSINESS 1 Item 1A.RISK FACTORS 12 Item 2.PROPERTIES 29 Item 3.LEGAL PROCEEDINGS 30 PART II Item 5.MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATEDSTOCKHOLDER MATTERS 31 Item 6.SELECTED FINANCIAL DATA 33 Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS 33 Item 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 47 Item 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 47 Item 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ONACCOUNTING AND FINANCIAL DISCLOSURE 47 Item 9A.CONTROLS AND PROCEDURES 47 Item 9B.OTHER INFORMATION 49 PART III Item 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 50 Item 11.EXECUTIVE COMPENSATION 50 Item 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS ANDMANAGEMENT AND RELATED STOCKHOLDER MATTERS 50 Item 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, ANDDIRECTOR INDEPENDENCE 50 Item 14.PRINCIPAL ACCOUNTING FEES AND SERVICES 50 PART IV Item 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 51 When used in this Annual Report on Form 10-K, except where the context otherwise requires, the terms “we”, “us”, “our”, “Novavax”and “the Company” refer to Novavax, Inc.ii  TABLE OF CONTENTSPART IItem 1. BUSINESSThis Annual Report on Form 10-K contains forward-looking statements, within the meaning of the Private Securities LitigationReform Act that involve risks and uncertainties. In some cases, forward-looking statements are identified by words such as “believe,”“anticipate,” “intend,” “plan,” “will,” “may” and similar expressions. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this report. All of these forward-looking statements are based on informationavailable to us at this time, and we assume no obligation to update any of these statements. Actual results could differ from thoseprojected in these forward-looking statements as a result of many factors, including those identified in the section titled “RiskFactors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere. We urge youto review and consider the various disclosures made by us in this report, and those detailed from time to time in our filings with theSecurities and Exchange Commission, that attempt to advise you of the risks and factors that may affect our future results.OverviewNovavax, Inc. (“Novavax,” the “Company,” “we” or “us”) is a clinical stage biopharmaceutical company focused on developing novel,highly potent recombinant vaccines. Our goal is to become a profitable vaccine company that is aggressively driving towards development,licensure and commercialization of important vaccine candidates.Our technology platform is based on proprietary virus-like particles (VLPs). Our VLPs are genetically engineered three-dimensionalnanostructures, which incorporate immunologically important recombinant proteins. Recombinant protein-based vaccines are widely usedand accepted. Examples of vaccines currently available that use recombinant protein particle technology include Recombivax® HB (Merck)and Engerix® (GlaxoSmithKline), which protect against Hepatitis B, and Gardasil® (Merck) and Cervarix® (GlaxoSmithKline), whichprotect against human papillomavirus. Our product pipeline targets several infectious diseases. Currently, we have vaccine productcandidates that are in or have completed clinical trials that target pandemic influenza (H5N1), seasonal influenza and Respiratory SyncytialVirus (RSV).Influenza VaccinesWe have a significant amount of experience in developing recombinant VLP influenza vaccines. To date, among other things, we have:•conducted five clinical trials for our seasonal and pandemic influenza vaccine candidates;•administered our seasonal and pandemic influenza VLPs (seven distinct strains) to over 4,200 subjects demonstrating vaccinetolerability and immunogenicity;•completed four animal toxicology studies without any safety issues;•conducted multiple ferret studies demonstrating efficacy of VLP influenza vaccine candidates;•conducted vaccine production under current good manufacturing practices (cGMP) and manufactured more than 35 batches of VLPvaccine with over a dozen different influenza strains; and•scaled-up vaccine production to 1,000 liter single-use bioprocessing capacity.We believe our influenza VLP vaccines have potential immunological advantages over currently available products. Our influenza VLPscontain three of the major structural influenza virus proteins, which we believe are important to combat influenza: hemagglutinin (HA) andneuraminidase (NA), both of which stimulate the body to produce antibodies that neutralize the influenza virus and prevent its spreadthrough the cells in the respiratory tract, and matrix 1 (M1), which stimulates cytotoxic T lymphocytes to kill cells that may already beinfected. Further, our VLPs are not made from a live virus and have no genetic nucleic material in their inner core, which renders themincapable of replicating and causing disease.1  TABLE OF CONTENTSOur production technology uses insect cells rather than chicken eggs or mammalian cells. This platform offers several potentialsignificant advantages over traditional vaccine production methods, including: (1) higher yields than traditional mammalian or egg-basedsystem, (2) faster facility commissioning time, (3) significantly lower capital expenditures on infrastructure, (4) competitive cost of goods,(5) shorter lead time to produce vaccine than egg-based technology, and (6) a scalable production process that can respond rapidly topandemic outbreaks.Pandemic Influenza (H1N1)Pandemic influenza refers to a situation where there is a significant disease outbreak resulting from an influenza virus appearing inhumans for which the majority have no immunities. Pandemic influenzas are a major concern to world health groups because such diseasescan quickly and easily spread worldwide and can cause serious illness or death before there are vaccines available to prevent the disease.There have been notorious examples of pandemic influenza crises; most recently the H1N1 strain of influenza was announced by the WorldHealth Organization (WHO) as a pandemic in 2009 (the H1N1 strain of influenza has been referred to in the media as the “swine flu”).During 2009, we dedicated significant resources to develop a recombinant VLP vaccine against H1N1 influenza.In May 2009, we announced that we had produced a first batch of non-cGMP influenza A (H1N1) VLP vaccine candidate three weeksafter the Center for Disease Control and Protection (CDC) announced the genetic sequence of the novel H1N1 virus. Our purified H1N1VLP vaccine candidate was sent to scientists at the CDC and an agreement was made with the Division of Microbiology and InfectiousDiseases (DMID) of the National Institute of Allergy and Infectious Diseases and the National Institutes of Health (NIH) for further studies.To further demonstrate the capability of recombinant VLP technology, we manufactured an H1N1 VLP vaccine candidate under cGMP atour vaccine manufacturing facility in Rockville, MD within eleven weeks after receiving the gene sequence from the CDC.In 2011, we publicized the final data results from our Phase II trial of our H1N1 VLP vaccine candidate that we initiated in 2009 inMexico in collaboration with Laboratorio Avi-Mex S.A. de C.V. and GE Healthcare. We presented the final data in February 2011 at theWorld Health Organization (WHO) Meeting for the Evaluation of Pandemic Influenza Vaccines in Clinical Trials. The first stage of thestudy evaluated the vaccine’s safety, immunogenicity and efficacy in 1,000 subjects, including 750 vaccine recipients and 250 placeborecipients, which we reported that at all dose levels robust immune responses were observed and that the vaccine was well-tolerated. Thesecond stage of the study was conducted to evaluate the safety of the vaccine in a larger cohort of 3,500 subjects (2,500 vaccine and 1,000placebo recipients). The final data results we reported indicated that H1N1 VLP vaccine exceeded the immunogenicity criteria for seasonalinfluenza vaccine licensure at all dose levels, including the lowest 5μg dose. Additionally, we reported that a single administration of theVLP vaccine induced high levels of hemagglutinin inhibition (HAI) titers in subjects without pre-existing detectable immunity to H1N1influenza. The data indicate that our H1N1 VLP vaccine was both well-tolerated and immunogenic.H1N1 influenza has been officially categorized by WHO as being in “post-pandemic” status. The H1N1 strain of influenza is nowbeing addressed by WHO and CDC as an active strain in the determination of ongoing seasonal trivalent influenza strains, and thus theneed for a monovalent H1N1 vaccine has been largely eliminated. Going forward, we expect that the data from our H1N1 clinical trials willbe used to support our pandemic (H5N1) and seasonal influenza VLP vaccine programs in the United States and in other countries.Pandemic Influenza (H5N1)Although not currently a pandemic, the H5N1 strain of influenza has been identified by WHO as having the potential for a pandemicconcern (the H5N1 strain of influenza has commonly been referred to in the media as the “avian flu”). We have made significant progress inthe development of our vaccine that targets the H5N1 influenza. In 2007, we released results from an important pre-clinical study in whichferrets that received our H5N1 vaccine candidate were protected from a lethal challenge of the H5N1 virus. After filing an InvestigationalNew Drug (IND) application, we initiated a Phase I/IIa clinical trial. We released interim human data from the first portion of this clinicaltrial in December 2007. These interim results demonstrated that our pandemic influenza vaccine can generate a protective immune response.We conducted the second2  TABLE OF CONTENTSportion of the Phase I/IIa trial in 2008 to gather additional subject immunogenicity and safety data and determine a final dose through thecompletion of this clinical trial. In August 2008, we reported favorable results from this clinical trial, which demonstrated strongneutralizing antibody titers across all three doses tested. A final clinical study report was completed and the vaccine was well-tolerated at alldosages as compared with placebo. No serious adverse events were reported. In February 2009, we announced that the vaccine inducedrobust hemagglutination inhibition (HAI) responses, which have been shown to be important for protection against influenza disease.Seasonal InfluenzaWe continue to progress the development of our VLP trivalent vaccine that targets the seasonal influenza virus. In 2008, we announcedpositive results from an immunogenicity study in ferrets inoculated with our seasonal influenza vaccine candidate. Subsequently, weconducted a Phase IIa clinical trial to evaluate the safety and immunogenicity of different doses of our seasonal influenza vaccine. InDecember 2008, we announced favorable safety and immunogenicity results from this Phase IIa seasonal trial in healthy adults (agedbetween 18 and 49 years). A final clinical study report was completed and no vaccine-related serious adverse events were reported. In May2009, we enrolled subjects in a second Phase II trial in healthy adults. In September 2009, we announced favorable safety andimmunogenicity results from this Phase II trial in healthy adults that supported a Phase II dose-ranging trial in elderly patients (60 years ofage or older), head-to-head with a marketed vaccine that we commenced in November 2009.In April 2010, we reported the final results of our Phase II trial in older adults (60 years or higher in age) in a dose-ranging studycomparing our trivalent seasonal influenza VLP vaccine with a commercially available inactivated trivalent influenza vaccine (TIV). Theresults showed that the vaccine was both safe and immunogenic against the 2009 – 2010 seasonal influenza virus strains in older adults.The Center for Disease Control and Prevention (CDC) has indicated that currently approved seasonal influenza vaccines have shown to beonly 30% to 70% effective in preventing hospitalization for pneumonia and influenza in older adults; however, we believe that our trivalentseasonal influenza VLP vaccine has the potential to address this unmet medical need.HHS BARDA Contract Award for Recombinant Influenza VaccinesIn September 2009, we responded to the United States government, through the Department of Health and Human Services, BiomedicalAdvanced Research and Development Authority (HHS BARDA) request for proposal (RFP) for a potential contract award for the advanceddevelopment of recombinant influenza vaccines. In April 2010, we were notified by HHS BARDA that our proposal was within thecompetitive range for award consideration. On September 30, 2010, at the request of HHS BARDA, we submitted final technical andbusiness proposal revisions to the RFP. In February 2011, we were awarded a contract from HHS BARDA valued at $97 million for thefirst 36 month base-period, with an option period of 24 months valued at $82 million, for a total contract value of up to $179 million. TheHHS BARDA contract award provides significant funding for the continued ongoing clinical development and product scale-up of ourseasonal and pandemic influenza vaccine candidates. This is a cost-plus-fixed-fee reimbursement contract in which HHS BARDA willreimburse us for direct contract costs incurred plus allowable indirect costs and a fee earned in the further development of our seasonal andpandemic H5N1 influenza vaccines.Respiratory Syncytial Virus (RSV)We also have developed a vaccine candidate for RSV that has demonstrated positive results in two separate studies with mice, laterconfirmed in two additional studies in cotton rats, which are generally accepted as the best model to evaluate the safety of candidate RSVvaccines. In February 2009, we announced favorable results from an RSV pre-clinical study performed in mice against the viral fusion (F)protein, which fuses with cells in the respiratory tract and causes illness. The vaccine induced neutralizing antibodies against the viralfusion protein and also protected against RSV infection. In January 2010, we announced positive pre-clinical results with a recombinantRSV fusion (F) particle vaccine in cotton rats. The RSV F vaccine candidate completely protected the vaccinated animals and there was noevidence of enhanced disease in the lungs of vaccinated animals following challenge with live RSV, an effect that was observed in an earlierversion of RSV vaccines developed by other companies. We also announced the successful scale-up and cGMP manufacturing of thevaccine and the initiation of a rabbit toxicology study in preparation for3  TABLE OF CONTENTSsubmission of an RSV IND application that we filed with the FDA in September 2010. We addressed a specific question from the FDAaround our chemistry, manufacturing and controls (CMC) that caused the agency to put our planned Phase I trial on temporary clinicalhold, and in December 2010, the temporary clinical hold was lifted. In December 2010, we began patient enrollment in our Phase I clinicaltrial to assess the safety, immunogenicity and tolerability of our RSV vaccine candidate. This blinded, placebo-controlled, escalating-dosestudy of healthy adults (18 to 49 years in age) will be tested in a total of 100 subjects.Other ProjectsWe worked on certain other vaccine projects with sponsoring organizations. These projects, described below, were funded and controlledby other parties. As is typical with these research contracts, we do not currently have commercial rights to these products.SARS VLP Vaccine. Severe acute respiratory syndrome (SARS) is a viral respiratory illness cased by a corona virus. In 2005, the NIHawarded us a $1.1 million, three year grant to develop a vaccine to prevent SARS. We successfully completed the NIH grant in January2009 and successfully demonstrated that a SARS VLP vaccine candidate was effective in inducing immunity in an animal model that fullyprotected against a lethal challenge with SARS virus.E-Selectin Tolerogen. In collaboration with the National Institute of Neurological Disorders and Stroke (NINDS) and the NIH, wedeveloped E-selectin-based molecularly-derived products for the prevention of strokes and successfully completed a contract with NINDSfor the development and manufacture of E-selectin tolerogen for preclinical use. NINDS scientists have shown in a stroke-prone rat animalmodel that the Novavax E-selectin can induce immunological tolerance and significantly reduce strokes in treated animals.Research and Development TechnologyVirus Like Particles (VLPs)Our vaccine technology platform is based on VLPs, which are self-assembling protein structures that resemble viruses. These arenoninfectious particles that, for many viral diseases, have been shown in animal studies and clinical trials to make effective vaccines.VLPs closely mimic natural virus particles with repeating protein structures that can elicit broad and strong antibody and cellular immuneresponses, but lack the genetic material required for replication. VLP technology is a proven technology that is employed in currentlymarketed products such as Merck’s Gardasil®. Our proprietary VLPs are more advanced than earlier approaches and they include multipleproteins and lipids and can be tailored to induce robust and broad immune responses similar to natural infections. Our advanced VLPtechnology has the potential to develop vaccines for a wide range of human infectious diseases where there are significant unmet medicalneeds, some of which have not been addressed by other technologies. We have used formal criteria based upon medical need, technicalfeasibility and commercial value to select vaccine candidates. We believe that our influenza vaccines are designed to address many of thesignificant unmet needs related to seasonal and pandemic influenza. There are several points of differentiation of our influenza vaccineswhen compared to traditional egg-based, or new mammalian-based approaches that form the basis to address unmet medical needs andcapitalize on commercial opportunities. Our influenza VLPs contain components that provide a broad and robust immune response.Specifically, the VLPs contain the viral components hemagglutinin (HA), neuraminidase (NA) and matrix protein (M1). Traditional egg-based vaccines contain meaningful levels of HA, but not of NA or M1. The HA sequence in our VLPs is the same as in the wild-type virusand could prove more effective/immunogenic than influenza vaccines produced using egg or mammalian cell lines, which alter HA. Inaddition, the NA and M1 in our VLPs may play a role in reducing the severity of the disease by inducing antibody responses and cellmediated immunity. NA and M1 are both highly conserved, and immunity to these viral components may help provide additional protectionthroughout an entire influenza season, even as strains mutate. Data from our Phase IIa trial in healthy adults showed that 50 to 73% of thevolunteers immunized with our VLP vaccine had a 4-fold increase in the antibody that blocks NA activity. Finally, because of the VLPstructure and components, they may have greater immunogenicity in two vulnerable populations — pediatric and elderly patients.4  TABLE OF CONTENTSVLP Vaccine ManufacturingCurrently approved influenza vaccines are produced by growing virus in chicken eggs, from which the virus is extracted and furtherprocessed. This 50-year-old egg-based production method requires four to six months of lead time for production of a new strain of virusand significant investment in fixed production facilities, with production yields that vary from strain to strain. In addition, sometimes theinfluenza virus strain must be changed in order for it to be produced efficiently in the egg. The vaccine shortage during the 2004 influenzaseason (caused in part by a contamination issue at a facility in the United Kingdom) highlighted the limitations of current productionmethods and the need for increased vaccine manufacturing capacity. It also heightened concerns regarding manufacturers’ capacity torespond to a pandemic, when the number of vaccine doses required will be higher than the number required for seasonal influenza vaccinesand manufacturing lead times will be even shorter. This concern was borne out again in the 2009 H1N1 pandemic as, even with expeditedregulatory approvals for companies that already had approved vaccines, production of H1N1 vaccines took six months before significantdoses were distributed.Our production process involves the use of genetic information and no viral seed is required. This shortens the time of creating a newvaccine by several weeks compared to the egg-based process. Furthermore, the production process for manufacturing our VLP vaccines isalso unique because the equipment we use in the cell culture process is largely portable and utilizes single-use bioprocessing disposables. Afacility to produce VLP-based vaccines can be constructed and validated in significantly less time as compared to traditional egg-basedfacilities.We produce VLPs using a baculovirus expression system in insect cells with low cost equipment that can be readily dispersed bothnationally and internationally. By not requiring significant production batch sizes, production capacity can be employed quickly; estimatedto be built and validated within twelve to eighteen months compared to the current approved manufacturing technology that can take fouryears or more to deploy.CompetitionThe biopharmaceutical industry and the vaccine market are intensely competitive and are characterized by rapid technological progress.There are a number of companies developing and selling vaccines for pandemic and seasonal influenza employing current technology withsome modifications, as well as new technologies. Our technology is based upon utilizing the baculovirus expression system in insect cells tomake VLPs. We believe this system offers many advantages when compared to other technologies and is uniquely suited for developingpandemic and seasonal influenza vaccines, as well as other infectious diseases. The table below provides a list of major vaccine competitorsand corresponding influenza vaccine technologies. Company Competing Technology Descriptionsanofi pasteur, Inc. Inactivated sub-unit (egg-based)MedImmune, LLC (a subsidiary of AstraZeneca PLC) Nasal, live attenuated (egg-based)GlaxoSmithKline plc Inactivated (egg-based)Novartis, Inc. Inactivated sub-unit (cell and egg-based)Merck & Co., Inc. Inactivated sub-unit (egg-based)In general, competition among pharmaceutical products is based in part on product efficacy, safety, reliability, availability, price andpatent position. An important factor is the relative timing of the market introduction of our products and our competitors’ products.Accordingly, the speed with which we can develop products, complete the clinical trials and approval processes and supply commercialquantities of the products to the market is an important competitive factor. Our competitive position also depends upon our ability to showdifferentiation in the seasonal influenza space with a product that is more efficacious, particularly in the elderly population, and/or be lessexpensive and quicker to manufacture. It also depends upon our ability to attract and retain qualified personnel, obtain patent protection orotherwise develop proprietary products or processes and secure sufficient capital resources for the often substantial period betweentechnological conception and commercial sale.5  TABLE OF CONTENTSThere are many seasonal influenza vaccines currently approved and marketed. Competition in the sale of these seasonal influenzavaccines is intense. Therefore, newly developed and approved products must be differentiated from existing vaccines in order to havecommercial success. In order to show differentiation in the seasonal influenza space, a product should be more efficacious, particularly inthe elderly population, and/or be less expensive and quicker to manufacture. Many of our competitors are working on new products andnew generations of current products, often by adding an adjuvant that is used to increase the efficacy of the current product, each of whichis intended to be more efficacious than products currently being marketed. Our seasonal influenza product may not prove to be moreefficacious than current products or products under development by our competitors. Further, our manufacturing system may not provideenough savings of time or money to provide the required differentiation for commercial success.Patents and Proprietary RightsWe generally seek patent protection for our technology and product candidates in the United States and abroad. The patent position ofbiopharmaceutical firms generally is highly uncertain and involves complex legal and factual questions. Our success will depend, in part,on whether we can:•obtain patents to protect our own technologies and products;•obtain licenses to use the technologies of third-parties, which may be protected by patents;•protect our trade secrets and know-how; and•operate without infringing the intellectual property and proprietary rights of others.Patent rights; licenses. We have intellectual property (patents, licenses, know-how) related to our vaccines, manufacturing processand other technologies. Currently, we have or have rights to over 105 United States patents and corresponding foreign patents and patentapplications relating to vaccines and biologics. Our core vaccine-related intellectual property extends beyond the year 2025.In March 2007, we secured additional intellectual property through a license agreement with the University of Massachusetts MedicalSchool (UMMS) using their proprietary paramyxoviruses as a core for building VLP vaccines. In July 2007, we entered into a non-exclusivelicense agreement with Wyeth Holdings Corporation, a subsidiary of Pfizer Inc (Wyeth), to obtain rights to a family of patent applicationscovering VLP technology for use in human vaccines in certain fields of use.In July 2010, U.S. Patent No. 7,763,450 for Functional Influenza Virus-Like Particles was issued by the U.S. Patent & TrademarkOffice. The patent covers the use of influenza gene sequences for high-yield production of consistent influenza VLP vaccines to protectagainst current and future seasonal and pandemic strains of influenza viruses.The Federal Technology Transfer Act of 1986 and related statutory guidance encourages the dissemination of science and technologyinnovation. While our recent contract with HHS BARDA provides us with the right to retain ownership in our inventions that may ariseduring performance of that contract, with respect to certain other collaborative research efforts with the United States government (forexample, our SARS and e-selectin programs), certain developments and results that may have commercial potential are to be freelypublished, not treated as confidential and we may be required to negotiate a license to developments and results in order to commercializeproducts.There can be no assurance that we will be able to successfully obtain any such license at a reasonable cost, or that such developmentsand results will not be made available to our competitors on an exclusive or non-exclusive basis.Trade Secrets. To a more limited extent, we rely on trade secret protection and confidentiality agreements to protect our interests. It isour policy to require employees, consultants, contractors, manufacturers, collaborators, and other advisors to execute confidentialityagreements upon the commencement of employment, consulting or collaborative relationships with us. We also require signed confidentialityagreements from any entity that is to receive confidential information from us. With respect to employees, consultants and contractors, theagreements generally provide that all inventions made by the individual while rendering services to us shall be assigned to us as ourproperty.6  TABLE OF CONTENTSGovernment RegulationsThe development, production and marketing of pharmaceutical and biological products developed by Novavax or our collaborators aresubject to regulation for safety, efficacy and quality by numerous governmental authorities in the United States and other countries. In theUnited States, the development, manufacturing and marketing of human pharmaceuticals and vaccines are subject to extensive regulationunder the Federal Food, Drug, and Cosmetic Act, and biological products are subject to regulation under provisions of that Act and thePublic Health Service Act. The FDA assesses the safety and efficacy of products and regulates, among other things, the testing,manufacture, labeling, storage, record keeping, advertising and promotion. The process of obtaining FDA approval for a new product iscostly and time-consuming.Vaccine clinical development follows the same general pathway as drugs and other biologics. Before applying for FDA approval tomarket any new vaccine candidate, we must first submit an IND that explains to the FDA the results of pre-clinical testing conducted inlaboratory animals, the method of manufacture and quality control tests for release and what we propose to do for human testing. At thisstage, the FDA decides whether it is reasonably safe to move forward with testing the vaccine in humans. We must then conduct Phase Iclinical trials and larger-scale Phase II and III clinical trials that demonstrate the safety and efficacy of our vaccine candidate to thesatisfaction of the FDA. Once these trials are complete, a Biologics License Application (BLA) (the biologic equivalent to a New DrugApplication or NDA) can be filed with the FDA requesting approval of the vaccine for marketing based on the vaccine’s effectiveness andsafety.During the FDA’s review of a BLA, the proposed manufacturing facility undergoes a pre-approval inspection during which productionof the vaccine as it is in progress is examined in detail. Vaccine approval also requires the provision of adequate product labeling to allowhealth care providers to understand the vaccine’s proper use, including its potential benefits and risks, to communicate with patients andparents and to safely deliver the vaccine to the public. Until a vaccine is given to the general population, all potential adverse events cannotbe anticipated. Thus, many vaccines undergo Phase IV trials after a BLA has been approved and the vaccine is licensed and on the market.In addition to obtaining FDA approval for each product, each domestic manufacturing establishment must be registered with the FDA,is subject to FDA inspection and must comply with cGMP regulations. To supply products for use either in the United States or outside theUnited States, including clinical trials, United States and foreign manufacturing establishments, including third-party facilities, mustcomply with cGMP regulations and are subject to periodic inspection by the FDA or by corresponding regulatory agencies in their homecountry.The development process for a new drug or biological product typically takes a long period of time to complete. Pre-clinical studies maytake several years to complete and there is no guarantee that the FDA will permit an IND based on those studies to become effective or theproduct to advance to clinical testing. Clinical trials may take several years to complete. After the completion of the required phases ofclinical trials, if the data indicate that the drug or biologic product is safe and effective, a BLA or NDA (depending on whether the productis a biologic or pharmaceutical product) is filed with the FDA to approve the marketing and commercial shipment of the drug. This processtakes substantial time and effort and the FDA may not accept the BLA or NDA for filing. Even if filed and accepted, the FDA might notgrant approval. FDA approval of a BLA or NDA may take up to two years and may take longer if substantial questions about the filingarise. The FDA may require post-marketing testing and surveillance to monitor the safety of the applicable products.In addition to regulatory approvals that must be obtained in the United States, an investigational product is also subject to regulatoryapproval in other countries in which it is intended to be marketed. No such product can be marketed in a country until the regulatoryauthorities of that country have approved an appropriate marketing application. FDA approval does not assure approval by other regulatoryauthorities. In addition, in many countries, the government is involved in the pricing of the product. In such cases, the pricing review periodoften begins after market approval is granted.7  TABLE OF CONTENTSWe are also subject to regulation under the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic SubstancesControl Act, the Resource Conservation and Recovery Act and other present and potential federal, state or local regulations. These and otherlaws govern our use, handling and disposal of various biological and chemical substances used in, and waste generated by, our operations.Our research and development involves the controlled use of hazardous materials, chemicals and viruses. Although we believe that oursafety procedures for handling and disposing of such materials comply with the standards prescribed by state and federal regulations, therisk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such an accident, we couldbe held liable for any damages that result, and any such liability could exceed our resources. Additionally, for formulations containingcontrolled substances, we are subject to Drug Enforcement Act regulations.There have been a number of federal and state proposals during the last few years regarding the pricing of pharmaceutical and biologicalproducts, government control and other changes to the healthcare system of the United States. It is uncertain what legislative proposals willbe adopted or what actions federal, state or private payers for medical goods and services may take in response to any healthcare reformproposals or legislation. We cannot predict the effect medical or healthcare reforms may have on our business, and no assurance can begiven that any such reforms will not have a material adverse effect.ManufacturingWe have constructed a 10,000 square foot cGMP facility to produce clinical trial material, as well as modest commercializationquantities of our VLP vaccines at our corporate headquarters. Construction for the pilot plant facility commenced in the fourth quarter of2007 and was completed within 120 days of ground breaking. The total cost of the project, including demolition, construction andinstallation of laboratory and production equipment, was approximately $5 million. The facility had existing mechanical systems in place(pharmaceutical air and water system) that were not included in the total cost. Any plans to further expand our manufacturing capabilities atour corporate headquarters, including the facilities necessary to expand manufacturing quantities, test and package an adequate supply offinished products in order to meet any long-term commercial needs, will require additional resources and will be subject to ongoinggovernment approval and oversight.Although we have scaled-up our bioprocessing production to commercial levels, we have not yet manufactured vaccine productcandidates at full capacity and the process requires further scale-up and yield improvement. In October 2009, we engaged Xcellerex, Inc.(Xcellerex) to perform scale-up activities and manufacture our 2009 H1N1 VLP vaccine candidate for potential sale in Mexico. Theagreement with Xcellerex expired by its own terms on February 15, 2010. Although the H1N1 manufacturing campaign with Xcellerex didnot result in the manufacturing of acceptable vaccine to Novavax, we did achieve proof of concept by scaling-up to a commercial gradebioreactor. The success in scaling-up our VLPs in stir tank bioreactors using single-use disposables potentially provides an additional pathto large-scale, commercially viable vaccine production. During 2010, we manufactured multiple large-scale VLP production runs using our1,000 liter bioreactor in our Rockville, MD facility and have successfully demonstrated that we can produce VLPs at high-yields, acompetitive cost per dose of manufactured vaccine at acceptable quality standards. Nevertheless, we may encounter unexpected expenses ordelays as we, or our third-party vendors, continue our efforts to improve efficiencies of our manufacturing process.Sources of SupplyMost of the raw materials and other supplies required in our business are generally available from various suppliers in quantitiesadequate to meet our needs. In some cases, we have only qualified one supplier for certain of our manufacturing components. We have plansin place to qualify multiple suppliers for all critical supplies before the time we would put any of our product candidates into commercialproduction. One of our major suppliers is GE Healthcare (GEHC), which supplies disposable components used in our manufacturingprocess. GEHC utilizes a sophisticated, in depth process to qualify multiple vendors for the products that are supplied to us. All thematerials and vendors that supply manufacturing materials to the Company are audited for compliance with cGMP standards.8  TABLE OF CONTENTSBusiness DevelopmentWe believe our proprietary VLP technology affords us a range of traditional and non-traditional commercialization options that arebroader than those of existing vaccine companies. We strive to create sustainable value by working to obtain non-dilutive funding forconducting Phase III trials for both seasonal and pandemic influenza, to continue development of our vaccine product candidates until suchvaccines can be licensed on a regional basis, to retain commercial rights in major markets and generate product sales revenue and, in certainmarkets, to commercialize our products through partners and other strategic relationships.In addition to our aforementioned contract with HHS BARDA, some examples of our strategic relationships are our collaboration withGEHC, our joint venture with Cadila Pharmaceuticals, Ltd. and our recently announced licensing agreement with LG Life Sciences, Ltd.(LGLS).We have entered into a co-marketing agreement with GEHC for a pandemic influenza vaccine solution for select international countries.The collaboration incorporates GEHC’s bioprocess solutions and design expertise with Novavax’s VLP manufacturing platform.In March 2009, we entered into a Joint Venture Agreement with Cadila Pharmaceuticals Ltd., a private company incorporated under thelaws of India (Cadila), pursuant to which we and Cadila formed CPL Biologicals Private Limited, a joint venture (the JV), of which 80% isowned by Cadila and 20% is owned by Novavax. The JV will develop and manufacture our pandemic and seasonal influenza vaccinecandidates and Cadila’s biogeneric products and other diagnostic products for the territory of India. We also contribute and plan tocontribute to the JV technology for the development of several other VLP vaccine candidates against diseases of public health concern in theterritory. Cadila has committed to contribute approximately $8 million over three years to support the JV’s operations. The JV is responsiblefor clinical testing and registration of products that will be marketed and sold in India. In June 2010, the JV opened its newly constructedstate-of-the-art manufacturing facility, 100% funded by Cadila, to be used to produce pandemic and seasonal influenza vaccines.In June 2009, we announced that we had signed a non-binding letter of intent to license our VLP vaccine technology to ROVIPharmaceuticals of Spain (ROVI). On February 5, 2010, we terminated negotiations with ROVI. The decision to terminate negotiations wasmade because of the companies’ inability to agree on acceptable terms of the proposed collaboration and to obtain the necessary fundingcommitments for the program. We are free to seek a new partner for our pandemic and seasonal influenza vaccine development efforts inEurope in the future.In February 2011, we entered into a licensing agreement with LGLS that will allow LGLS to use our VLP technology to develop andcommercially sell our influenza vaccines in South Korea and certain other emerging-market countries. LGLS received an exclusive license toour influenza VLP technology in South Korea and a non-exclusive license in the other specified countries. At its own cost, LGLS isresponsible for funding its clinical development of the influenza VLP vaccines and completing a manufacturing facility in South Korea.Novavax receives upfront payment and potential milestone payments in addition to double-digit royalty payments from LGLS’s futurecommercial sales.EmployeesAs of March 22, 2011, we had 88 full-time employees and 1 part-time employee for a total of 89 employees, of whom 15 hold M.D. orPh.D. degrees and 23 of whom hold other advanced degrees. Of our total workforce, 67 are engaged primarily in research, development andmanufacturing activities and 22 are engaged primarily in executive, business development, finance and accounting and administrativefunctions. None of our employees are represented by a labor union or covered by a collective bargaining agreement and we consider ouremployee relations to be good.9  TABLE OF CONTENTSExecutive OfficersOur executive officers hold office until the first meeting of the Board of Directors following the Annual Meeting of Stockholders anduntil their successors are duly chosen and qualified, or until they resign or are removed from office in accordance with our By-laws.The following table provides certain information with respect to our executive officers. Name Age Principal Occupation and Other Business Experience During the Past Five YearsStanley C. Erck 62 Executive Chairman and Director of Novavax since February 2010, and a Directorsince June 2009. From 2000 to 2008, Mr. Erck served as President and ChiefExecutive Officer of Iomai Corporation, a developer of vaccines and immune systemtherapies, which was acquired in 2008 by Intercell. He also previously held leadershippositions at Procept, a publicly traded immunology company, Integrated Genetics,now known as Genzyme, and Baxter International. Mr. Erck also serves on the Boardof Directors of BioCryst Pharmaceuticals, MaxCyte, Inc. and MdBio Foundation.Rahul Singhvi, Sc.D. 46 President and Chief Executive Officer and Director of Novavax since August2005. Senior Vice President and Chief Operating Officer of Novavax from April 2005to August 2005 and Vice President, Pharmaceutical Development and ManufacturingOperations from April 2004 to April 2005. For 10 years prior to joining the Company,Dr. Singhvi served in several positions with Merck & Co., culminating as Director ofthe Merck Manufacturing Division from 1999 to 2004.Frederick W. Driscoll 60 Vice President, Chief Financial Officer and Treasurer of Novavax since August2009. Prior to joining the Company, Mr. Driscoll served as Chief Executive Officer ofGenelabs Technologies, Inc. from September 2008 to January 2009, as Interim ChiefExecutive Officer from February 2008 to August 2008 and as Chief Financial Officerfrom September 2007 to February 2008. Prior to that, from 2000 to 2006, Mr. Driscollwas employed by OXIGENE, Inc., where he served as President and Chief ExecutiveOfficer from 2002 to 2006.John Trizzino 51 Senior Vice President, Business Development of Novavax since April, 2010.Senior Vice President, International and Government Alliances of the Company fromJuly 2009 to April, 2010. Prior to joining the Company, Mr. Trizzino served as VicePresident of the vaccine franchise at MedImmune, Inc. from 2006 to 2009, SeniorVice President of business development at ID Biomedical from 2004 to 2006, andserved as Vice President within the Henry Schein, Inc. medical division in businessdevelopment and General Manager of their GIV division from 1997 to 2004.Gregory Glenn, M.D. 57 Senior Vice President, Chief Medical Officer of Novavax since January 2011.Senior Vice President and Chief Scientific Officer from July 2010 to January 2011.Prior to joining the Company, Dr. Glenn was the Chief Scientific Officer and founderof IOMAI (now Intercell), an associate in international health at Johns HopkinsUniversity’s School of Public Health and a clinical and basic research scientist atWalter Reed Army Institute of Research.Availability of InformationNovavax was incorporated in 1987 under the laws of the State of Delaware. Our principal executive offices are located at 9920 BelwardCampus Drive, Rockville, Maryland, 20850. Our telephone number is (240) 268-2000 and our website address is www.novavax.com. Thecontents of our website are not part of this Annual Report on Form 10-K.10  TABLE OF CONTENTSWe make available, free of charge and through our website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q,Current Reports on Form 8-K, and any amendments to any such reports filed or furnished pursuant to Section 13(a) or 15(d) of theSecurities Exchange Act of 1934, as amended, as soon as reasonably practicable after filed with or furnished to the Securities and ExchangeCommission. Previously filed Annual Reports on Form 10-K and Quarterly Reports on 10-Q for periods affected by the restatement have notbeen amended, nor does the Company plan to amend such previously filed reports. Accordingly, investors should no longer rely upon thepreviously issued consolidated financial statements for these periods and any earnings release or similar communications for those periods.11  TABLE OF CONTENTSItem 1A. RISK FACTORSYou should carefully consider the following risk factors in evaluating our business. There are a number of risk factors that could causeour actual results to differ materially from those that are indicated by forward-looking statements. Some of the risks described relateprincipally to our business and the industry in which we operate. Others relate principally to the securities market and ownership of ourcommon stock. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that we areunaware of, or that we currently deem immaterial, also may become important factors that affect us. If any of the following risks occur, ourbusiness, financial condition or results of operations could be materially and adversely affected. You should also consider the otherinformation included in this Annual Report on Form 10-K.RISKS RELATED TO OUR BUSINESSWe have a history of losses and our future profitability is uncertain.Our expenses have exceeded our revenue since our formation in 1987, and our accumulated deficit at December 31, 2010 was $310.3million (including restated amounts from prior periods). Our revenue for the last three fiscal years from continuing operations was $0.3 in2010, $0.3 million in 2009 and $1.1 million in 2008. We have recorded limited revenue from research contracts, licenses and agreements toprovide vaccine candidates, services and technologies. We cannot be certain that we will be successful in entering into strategic alliances orcollaborative arrangements with other companies that will result in significant revenue to offset our expenses. Our net losses for the last threefiscal years were $35.7 million in 2010, $40.3 million (as restated) in 2009 and $34.5 million (as restated) in 2008, including discontinuedoperations.Our recent historical losses have predominantly resulted from research and development expenses for our vaccine product candidates,manufacturing-related expenses, costs related to protection of our intellectual property and for other general operating expenses. Our expenseshave exceeded our revenue since inception. We believe our expenses will continue to increase, as a result of higher research and developmentefforts to support the development of our vaccines, particularly our pandemic and seasonal influenza vaccines.Although certain specified costs associated with the development of our influenza vaccines may be reimbursed under the contract withHHS BARDA, nevertheless we expect to continue to incur significant operating expenses and anticipate that our expenses and losses willincrease in the foreseeable future as we seek to:•complete Phase II and initiate Phase III clinical trials for our seasonal influenza vaccine;•conduct clinical trials for RSV;•conduct pre-clinical studies for other early-stage vaccine candidates;•comply with the FDA’s manufacturing facility requirements;•scale-up our manufacturing process for commercial scale and cost efficiency; and•maintain, expand and protect our intellectual property portfolio.As a result, we expect our cumulative operating losses to increase until such time, if ever, that product sales, licensing fees, royalties,milestones, contract research and other sources generate sufficient revenue to fund our continuing operations. We cannot predict when, ifever, we might achieve profitability and cannot be certain that we will be able to sustain profitability, if achieved.We have limited financial resources and we are not certain that we will be able to maintain our current level of operations orbe able to fund the further development of our product candidates.We do not expect to generate revenue from product sales, licensing fees, royalties, milestones, contract research or other sources in anamount sufficient to fully fund our operations for the foreseeable future, and we will therefore use our cash resources and expect to requireadditional funds to maintain our operations, continue our research and development programs, commence future pre-clinical studies andclinical trials, seek regulatory approvals and manufacture and market our products. We will seek such additional funds through public orprivate equity or debt financings, collaborative licensing and development arrangements, government12  TABLE OF CONTENTSgrants and other sources. While we continue to apply for grants from academic institutions, non-profits and governmental entities, there areno assurances that we would be successful. We cannot be certain that adequate additional funding will be available to us on acceptableterms, if at all. If we cannot raise the additional funds required for our anticipated operations, we may be required to delay significantly,reduce the scope of or eliminate one or more of our research or development programs, downsize our general and administrativeinfrastructure, or seek alternative measures to avoid insolvency, including arrangements with collaborative partners or others that mayrequire us to relinquish rights to certain of our technologies, product candidates or products. If we raise additional funds through futureofferings of shares of our common stock or other securities, such offerings would cause dilution of current stockholders’ percentageownership in the Company, which could be substantial. Future offerings also could have a material and adverse effect on the price of ourcommon stock.The current capital and credit market conditions may adversely affect our access to capital, cost of capital, and ability toexecute our business plan as scheduled.Access to capital markets is critical to our ability to operate. Traditionally, biopharmaceutical companies have funded their research anddevelopment expenditures through raising capital in the equity markets. Declines and uncertainties in these markets in the past have severelyrestricted raising new capital and have affected companies’ ability to continue to expand or fund existing research and development efforts.We require significant capital for research and development for our product candidates and clinical trials. The general economic and capitalmarket conditions, both in the United States and worldwide, have been extremely volatile over the past thirty months and have adverselyaffected our access to capital and increased the cost of capital, and any recovery will likely be very slow. There is no certainty that thecapital and credit markets will recover to the point where we could raise additional capital on terms similar to the terms that companiesraised capital prior to the deterioration. If these economic conditions continue or become worse, our future cost of equity or debt capital andaccess to the capital markets could be adversely affected. In addition, our inability to access the capital markets on favorable terms due toour low stock price, could affect our ability to execute our business plan as scheduled. Moreover, we rely and intend to rely on third-parties,including our clinical research organizations, third-party manufacturers and certain other important vendors and consultants. As a result ofthe global economic situation, there may be a disruption or delay in the performance of our third-party contractors and suppliers. If suchthird-parties are unable to adequately satisfy their contractual commitments to us in a timely manner, our business could be adverselyaffected.We may not be able to win government, academic institution or non-profit grants.From time to time, we may apply for grants from academic institutions, government agencies and non-profit entities. Such grants orcontracts can be highly attractive because they provide capital to fund the ongoing development of our technologies and product candidateswithout diluting our stockholders. However, there is often significant competition for these grants. Grantors may have requirements to applyfor or to otherwise be eligible to receive certain grants that our competitors may be able to satisfy that we cannot. In addition, grantors maymake arbitrary decisions as to whether to make grants, to whom the grants will be awarded and the size of the grants to each awardee. Evenif we are able to satisfy the award requirements, there is no guarantee that we will be a successful awardee. Therefore, we may not be able towin any grants in a timely manner, if at all.Even with the HHS BARDA contract award, we may not be able to fully fund our influenza programs.The HHS BARDA contract is a cost-plus-fixed-fee reimbursement contract that only reimburses certain specified activities that havebeen previously authorized by HHS BARDA. There is no guarantee that additional activities will not be needed and, if so, that HHSBARDA will reimburse us for these activities. Additionally, we have no experience meeting the significant requirements of a federalgovernment contractor, which includes having appropriate accounting, project tracking and earned-value management systems implementedand operational, and we may not be able to meet these requirements in a timely way or at all. Performance under the HHS BARDA contractrequires that we comply with appropriate regulations and operational mandates, with which we have minimal or no operational experience.Our ability to be regularly and fully reimbursed for our activities will depend on our ability to comply and demonstrate compliance withsuch requirements.13  TABLE OF CONTENTSA portion of our investments are auction rate securities which present potential liquidity concerns.As of December 31, 2010, we had $5.1 million invested in three auction rate securities, which were classified as short-term investmentsavailable-for-sale and carried at their estimated fair value of $4.1 million. Auction rate securities are long-term debt instruments that provideliquidity through a competitive bidding process known as a “Dutch Auction” that resets the applicable interest rates at pre-determinedcalendar intervals. Although two auction rate securities were redeemed during the year ended December 31, 2009, as a result of the issuesthat presently exist in the credit markets, we may be unable to liquidate some or all of our remaining auction rate securities when we are inneed of the cash to fund operations at prices that are acceptable to us. Even if we are able to liquidate the investments, the sales may be at aloss. In addition, given the complexity of auction rate securities and their valuations, our estimates of their fair value may differ from theactual amount we would be able to collect in the ultimate sale. It is uncertain as to when the liquidity issues relating to these investments willimprove.Our collaborations with regional partners, such as Cadila and LGLS, expose us to additional risks associated with doingbusiness outside the United States, and any adverse event could have a material negative impact on our operations.We have formed a joint venture with Cadila in India, entered into a license agreement with LGLS in South Korea, and have entered intoother agreements and arrangements with companies in other countries. We plan to continue to enter into collaborations or partnerships withcompanies, non-profit organizations and local governments in other parts of the world. Risks of conducting business outside the UnitedStates include:•multiple regulatory requirements could affect the ability to develop, manufacture and sell products in such local markets;•compliance with anti-bribery laws such as the United States Foreign Corrupt Practices Act and similar anti-bribery laws in otherjurisdictions;•trade protections measures and import and export licensing requirements;•different labor regulations;•changes in environmental, health and safety laws;•exchange rates;•potentially negative consequences from changes in or interpretations of tax laws;•political instability and actual or anticipated military or potential conflicts;•economic instability, inflation, recession and interest rate fluctuations;•minimal or diminished protection of intellectual property in some countries; and•possible nationalization and expropriation.These risks, individually or in the aggregate, could have a material adverse effect on our business, financial conditions, results ofoperations and cash flows.Our strategy to enter into regional relationships may hinder our ability to engage in a larger transaction.We have entered into regional collaborations to develop our product candidates in certain parts of the world, and we may enter intoadditional regional collaborations. Our relationships with Cadila and LGLS are examples of this strategy. These relationships are likely toinvolve the licensing of our technology to our partner or entering into a distribution agreement, frequently on an exclusive basis. Generally,these exclusive agreements are restricted to certain territories. Because we have entered into exclusive license and distribution agreements,larger companies may not be interested, or able, to enter into collaborations with us on a worldwide scale. Also, these regional relationshipsmay make us an unattractive target for an acquisition.14  TABLE OF CONTENTSWe are a biopharmaceutical company and face significant risk in developing, manufacturing and commercializing ourproducts.We focus our research and development activities on vaccines, an area in which we have particular strengths and a technology thatappears promising. The outcome of any research and development program is highly uncertain. Only a small fraction of biopharmaceuticaldevelopment programs ultimately result in commercial products or even product candidates and a number of events could delay ourdevelopment efforts and negatively impact our ability to obtain regulatory approval for, and to manufacture, market and sell, a productcandidate. Product candidates that initially appear promising often fail to yield successful products. In many cases, pre-clinical studies orclinical trials will show that a product candidate is not efficacious or that it raises safety concerns or has other side effects that outweigh itsintended benefit. Success in pre-clinical or early clinical trials may not translate into success in large-scale clinical trials. Further, success inclinical trials will likely lead to increased investment, accelerating cumulative losses, to bring such products to market. Even if clinical trialresults are positive, we may face challenges when scaling-up the production process to commercial levels. Even after a product is approvedand launched, general usage or post-marketing trials may identify safety or other previously unknown problems with the product, whichmay result in regulatory approvals being suspended, limited to narrow indications or revoked, which may otherwise prevent successfulcommercialization. Intense competition in the vaccine industry could also limit the successful commercialization of our products.The HHS BARDA contract award does not guarantee that we will be successful in future clinical trials or that the vaccinecandidates will be licensed by the FDA.The HHS BARDA contract provides a cost-plus-fixed-fee reimbursement opportunity for certain specified clinical and developmentactivities, but Novavax remains fully responsible for conducting these activities. The award of the HHS BARDA contract does notguarantee that any of these activities will be successful. Novavax’s inability to be successful with certain key clinical or developmentactivities could jeopardize our ability to get FDA licensure to sell our vaccines.Many of our competitors have significantly greater resources and experience, which may negatively impact our commercialopportunities and those of our current and future licensees.The biotechnology and pharmaceutical industries are subject to intense competition and rapid and significant technological change. Wehave many potential competitors, including major drug and chemical companies, specialized biotechnology firms, academic institutions,government agencies and private and public research institutions. Many of our competitors have significantly greater financial and technicalresources, experience and expertise in:•research and development;•pre-clinical testing;•designing and implementing clinical trials;•regulatory processes and approvals;•production and manufacturing; and•sales and marketing of approved products.Principal competitive factors in our industry include:•the quality and breadth of an organization’s technology;•management of the organization and the execution of the organization’s strategy;•the skill and experience of an organization’s employees and its ability to recruit and retain skilled and experienced employees;•an organization’s intellectual property portfolio;15  TABLE OF CONTENTS•the range of capabilities, from target identification and validation to drug discovery and development to manufacturing andmarketing; and•the availability of substantial capital resources to fund discovery, development and commercialization activities.Large and established companies such as Merck & Co., Inc., GlaxoSmithKline plc, Novartis, Inc., sanofi pasteur, Inc. andMedImmune, LLC (a subsidiary of AstraZeneca PLC), among others, compete in the vaccine market. In particular, these companies havegreater experience and expertise in securing government contracts and grants to support their research and development efforts, conductingtesting and clinical trials, obtaining regulatory approvals to market products, and manufacturing such products on a broad scale andmarketing approved products.There are many seasonal influenza vaccines currently approved and marketed. Competition in the sale of these seasonal influenzavaccines is intense. Therefore, newly developed and approved products must be differentiated from existing vaccines in order to havecommercial success. In order to show differentiation in the seasonal influenza space, a product must be more efficacious, particularly in theelderly population, and/or be less expensive and quicker to manufacture. Many of our competitors are working on new products and newgenerations of current products, often by adding an adjuvant that is used to increase the efficacy of the current product, each of which isintended to be more efficacious than products currently being marketed. Our seasonal influenza product may not prove to be moreefficacious than current products or products under development by our competitors. Further, our manufacturing system may not provideenough savings of time or money to provide the required differentiation for commercial success.Smaller or early-stage companies and research institutions may also prove to be significant competitors, particularly throughcollaborative arrangements with large and established pharmaceutical or other companies. As these companies develop their technologies,they may develop proprietary positions, which may prevent or limit our product development and commercialization efforts. We will alsoface competition from these parties in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sitesand subject registration for clinical trials, and in acquiring and in-licensing technologies and products complementary to our programs orpotentially advantageous to our business. If any of our competitors succeed in obtaining approval from the FDA or other regulatoryauthorities for their products sooner than we do or for products that are more effective or less costly than ours, our commercial opportunitycould be significantly reduced.In order to effectively compete, we will have to make substantial investments in development, testing, manufacturing and sales andmarketing or partner with one or more established companies. There is no assurance that we will be successful in gaining significant marketshare for any product or product candidate. Our technologies and products also may be rendered obsolete or non-competitive as a result ofproducts introduced by our competitors to the marketplace more rapidly and at a lower cost.If we lose or are unable to attract key management or other personnel, we may experience delays in product development.We depend on our senior executive officers, as well as key scientific and other personnel. The loss of these individuals could harm ourbusiness and significantly delay or prevent the achievement of research, development or business objectives. We have had several turnoversituations in key executive positions and the lack of management continuity and resulting lack of long-term history with our Companyalong with the learning curve that executives experience when they join our management team could result in operational and administrativeinefficiencies and added costs. If we were to experience additional turnover at the executive level, these risks would be exacerbated.We may not be able to attract qualified individuals for other key management or other personnel positions on terms acceptable to us.Competition for qualified employees is intense among pharmaceutical and biotechnology companies, and the loss of qualified employees, oran inability to attract, retain and motivate additional highly skilled employees required for the expansion of our activities, could hinder ourability to complete clinical trials successfully and develop marketable products.16  TABLE OF CONTENTSWe also rely from time-to-time on outside advisors who assist us in formulating our research and development and clinical strategy. Wemay not be able to attract and retain these individuals on acceptable terms, which could have a material adverse effect on our business,financial condition and results of operations.We may have product liability exposure.The administration of drugs or vaccines to humans, whether in clinical trials or after marketing clearances are obtained, can result inproduct liability claims. We maintain product liability insurance coverage in the total amount of $20 million aggregate for all claims arisingfrom the use of products in clinical trials prior to FDA approval. Coverage is relatively expensive, and the market pricing can significantlyfluctuate. Therefore, we may not be able to maintain insurance at a reasonable cost. There can be no assurance that we will be able tomaintain our existing insurance coverage or obtain coverage for the use of our other products in the future. This insurance coverage and ourresources may not be sufficient to satisfy all liabilities resulting from product liability claims. A successful claim may prevent us fromobtaining adequate product liability insurance in the future on commercially desirable items, if at all. Even if a claim is not successful,defending such a claim would be time-consuming and expensive, may damage our reputation in the marketplace, and would likely divertmanagement’s attention.Regardless of merit or eventual outcome, liability claims may result in:•decreased demand for our products;•impairment of our business reputation;•withdrawal of clinical trial participants;•costs of related litigation;•substantial monetary awards to subjects or other claimants;•loss of revenue; and•inability to commercialize our product candidates.The restatement of our historical financial statements has already consumed a significant amount of our time and resourcesand may continue to do so.As described in Item 7 — Management’s Discussion and Analysis of Financial Conditions and Results of Operations — Restatement ofConsolidated Financial Statements, we have restated our consolidated financial statements for the periods discussed herein. The restatementprocess was highly time and resource-intensive and involved substantial attention from management, as well as significant legal andaccounting costs. Although we have now completed the restatement, we cannot guarantee that we will have no further inquiries from the SECor Nasdaq regarding our restated consolidated financial statements or matters relating thereto.Any future inquiries from the SEC or Nasdaq as a result of the restatement of our historical financial statements will, regardless of theoutcome, likely consume a significant amount of our resources in addition to those resources already consumed in connection with therestatement itself.Further, many companies that have been required to restate their historical financial statements have experienced a decline in stock priceand stockholder lawsuits related thereto.If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately reportour financial results, and current and potential stockholders may lose confidence in our financial reporting.We are required by the Sarbanes Oxley Act of 2002 to establish and maintain adequate internal control over financial reporting thatprovides reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements in accordancewith generally accepted accounting principles (GAAP). We are likewise required, on an annual basis, to evaluate the effectiveness of ourinternal controls and to disclose on a quarterly basis any material changes in those internal controls.17  TABLE OF CONTENTSAs described in Item 9A — Controls and Procedures elsewhere in this Annual Report on Form 10-K, in connection with the restatementprocess, we identified a material weakness in our internal control over financial reporting with regard to having sufficient technical resourcesto appropriately analyze and account for complex derivative instruments, specifically with regard to our prior interpretation of ASC 815,Derivatives and Hedging, as it related to the initial classification and subsequent accounting of registered warrants as equity instrumentsdating back to July 2008. Upon a reassessment, we determined that we should have accounted for these Warrants as liabilities instead ofequity. Given this material weakness, management concluded that we did not maintain effective internal control over financial reporting asof December 31, 2010.We plan to devote resources to the remediation and improvement of our internal control over financial reporting, in particular overhandling of complex derivative accounting issues. As the Company enters into transactions that involve complex accounting issues, it willconsult with third party professionals with expertise in these matters as necessary to insure appropriate accounting treatment for suchtransactions. The elements of our remediation plan can only be accomplished over time and we can offer no assurance that these initiativeswill ultimately have the intended effects. Any failure to maintain such internal controls could adversely impact our ability to report ourfinancial results on a timely and accurate basis. If our financial statements are not accurate, investors may not have a completeunderstanding of our operations or may lose confidence in our reported financial information. Likewise, if our financial statements are notfiled on a timely basis as required by the SEC and Nasdaq, we could face severe consequences from those authorities. In either case, itcould result in a material adverse effect on our business or have a negative effect on the trading price of our common stock. We can give noassurance that the measures we have taken and plan to take in the future will remediate the material weakness identified or that anyadditional material weaknesses or restatements of our financial statements will not arise in the future due to a failure to implement andmaintain adequate internal control over financial reporting or circumvention of those controls.The value of our warrants outstanding is subject to potentially material increases and decreases based on fluctuations in theprice of our common stock.In July 2008, we completed a registered direct offering of 6,686,650 units, raising approximately $17.5 million in net proceeds. Eachunit consisted of one share of common stock and a Warrant to purchase 0.5 shares of common stock at a price of $2.68 per unit. TheWarrants represent the right to acquire an aggregate of 3,343,325 shares of common stock at a price of $3.62 per share and are exercisablebetween January 31, 2009 and July 31, 2013. These Warrants are discussed above in the Explanatory Note — Restatement of ConsolidatedFinancial Statements in this Annual Report on Form 10-K.We account for the Warrants as a derivative instrument, and changes in the fair value of the Warrants are included under other income(expense) in the Company’s statements of operations for each reporting period. At December 31, 2010, the aggregate fair value of the Warrantliability included in the Company’s consolidated balance sheet was $2.8 million. We use the Monte Carlo Simulation model to determine thefair value of the Warrants. As a result, the valuation of this derivative instrument is subjective, and the option-pricing model requires theinput of highly subjective assumptions, including the expected stock price volatility and probability of a Fundamental Transaction.Changes in these assumptions can materially affect the fair value estimate. We could, at any point in time, ultimately incur amountssignificantly different than the carrying value.There are outstanding loans owed by certain of our former directors which may not be repaid.Two of our former directors have outstanding promissory notes due to the Company. The promissory notes were initially delivered bythe former directors to us in March 2002 as payment of the exercise price of certain of their individual stock options. As security, the formerdirectors pledged shares of our common stock as collateral. As of December 31, 2010, the outstanding principal and interest for these twopromissory notes was $2.0 million. Both promissory notes are currently in default.18  TABLE OF CONTENTSWe are uncertain about the ultimate collectability of these promissory notes. At our current market prices, we do not expect to recover thefull amount outstanding under either promissory note upon a sale of the pledged shares alone. We have initiated law suits to collect underboth of these promissory notes, however litigation is uncertain and potentially expensive. Even with a successful verdict, there are noassurances that the former directors will be able to repay the promissory notes in full.Raising additional capital by issuing securities or through collaboration and licensing arrangements may cause dilution toexisting stockholders or require us to relinquish rights to our technologies or product candidates.If we are unable to partner with a third-party to advance the development of one or more of our vaccine candidates, we will need to raisemoney through additional debt or equity financings. To the extent that we raise additional capital by issuing equity securities, ourstockholders will experience immediate dilution which may be significant. To the extent that we raise additional capital through licensingarrangements or arrangements with collaborative partners, we may be required to relinquish, on terms that may not be favorable to us,rights to some of our technologies or product candidates that we would otherwise seek to develop or commercialize ourselves. In addition,current economic conditions may also negatively affect the desire or ability of potential collaborators to enter into transactions with us. Theymay also have to delay or cancel research and development projects or reduce their overall budgets.PRODUCT DEVELOPMENT RISKSBecause our vaccine product development efforts depend on new and rapidly evolving technologies, we cannot be certain thatour efforts will be successful.Our vaccine work depends on new, rapidly evolving technologies and on the marketability and profitability of our products.Commercialization of our vaccine products could fail for a variety of reasons, and include the possibility that:•our VLP technology, any or all of the products based on VLP technology or our proprietary manufacturing process will beineffective or unsafe, or otherwise fail to receive necessary regulatory clearances or commercial viability;•we are unable to scale-up our manufacturing capabilities in a cost effective manner;•the products, if safe and effective, will be difficult to manufacture on a large-scale or uneconomical to market;•our pilot plant manufacturing facility will fail to continue to pass regulatory inspections;•proprietary rights of third-parties will prevent us or our collaborators from exploiting technologies, manufacturing or marketingproducts; and•third-party competitors will gain greater market share due to superior products or marketing capabilities.We have not completed the development of vaccine products and we may not succeed in obtaining the FDA approval necessaryto sell additional products.The development, manufacture and marketing of our pharmaceutical and biological products are subject to government regulation in theUnited States and other countries. In the United States and most foreign countries, we must complete rigorous pre-clinical testing andextensive clinical trials that demonstrate the safety and efficacy of a product in order to apply for regulatory approval to market the product.None of our vaccine products have yet gained regulatory approval in the United States or elsewhere. We also have product candidates inclinical trials and pre-clinical laboratory or animal studies.The steps required by the FDA before our proposed investigational products may be marketed in the United States include:•performance of pre-clinical (animal and laboratory) tests;19  TABLE OF CONTENTS•submissions to the FDA of an IND which must become effective before clinical trials may commence;•performance of adequate and well-controlled clinical trials to establish the safety and efficacy of the investigational product in theintended target population;•performance of a consistent and reproducible manufacturing process intended for commercial use, including appropriatemanufacturing data and regulatory inspections;•submission to the FDA of a BLA or a NDA; and•FDA approval of the BLA or NDA before any commercial sale or shipment of the product.The processes are expensive and can take many years to complete, and we may not be able to demonstrate the safety and efficacy of ourproducts to the satisfaction of regulatory authorities. The start of clinical trials can be delayed or take longer than anticipated for many andvaried reasons, many of which are out of our control. Safety concerns may emerge that could lengthen the ongoing trials or require additionaltrials to be conducted. Regulatory authorities may also require additional testing, and we may be required to demonstrate that our proposedproducts represent an improved form of treatment over existing therapies, which we may be unable to do without conducting further clinicaltrials. Moreover, if the FDA or foreign regulatory body grants regulatory approval of a product, the approval may be limited to specificindications or limited with respect to its distribution. Expanded or additional indications for approved products may not be approved,which could limit our revenue. Foreign regulatory authorities may apply similar limitations or may refuse to grant any approval.Consequently, even if we believe that pre-clinical and clinical data are sufficient to support regulatory approval for our product candidates,the FDA and foreign regulatory authorities may not ultimately grant approval for commercial sale in any jurisdiction. If our vaccinecandidates are not approved, our ability to generate revenue will be limited and our business will be adversely affected.If we are unable to manufacture our vaccines in sufficient quantities, at sufficient yields or are unable to obtain regulatoryapprovals for a manufacturing facility for our vaccines, we may experience delays in product development, clinical trials,regulatory approval and commercial distribution.Completion of our clinical trials and commercialization of our vaccine product candidates require access to, or development of, facilitiesto manufacture our product candidates at sufficient yields and at commercial scale. We have limited experience manufacturing any of ourproduct candidates in the volumes that will be necessary to support large-scale clinical trials or commercial sales. Efforts to establishcapabilities may not meet initial expectations as to scheduling, scale-up, reproducibility, yield, purity, cost, potency or quality.If we are unable to manufacture our product candidates in clinical quantities or, when necessary, in commercial quantities and atsufficient yields, then we must rely on third-parties. Other third-party manufacturers must also receive FDA approval before they canproduce clinical material or commercial products. Our vaccines may be in competition with other products for access to these facilities andmay be subject to delays in manufacture if third-parties give other products greater priority. We may not be able to enter into any necessarythird-party manufacturing arrangements on acceptable terms, or on a timely basis. In addition, we have to enter into technical transferagreements and share our know-how with the third-party manufacturers, which can be time-consuming and may result in delays.Influenza vaccines are intensely seasonal in nature. If a vaccine is not available early enough in the influenza season, we would likelyhave difficulty selling the vaccine. Further, pandemic outbreaks present only short-term opportunities for the Company. There is no way topredict when there will be a pandemic outbreak, the strain of the influenza or how long the pandemic will last. For these reasons, any delayin the delivery of an influenza vaccine could result in lower sales volumes, lower sale prices, or no sales. Because the strain of the seasonalinfluenza changes annually, inventory of seasonal vaccine cannot be sold during a subsequent influenza season. Any delay in themanufacture of our influenza vaccines could adversely affect our ability to sell the vaccines.20  TABLE OF CONTENTSOur reliance on contract manufacturers may adversely affect our operations or result in unforeseen delays or other problems beyond ourcontrol. Because of contractual restraints and the limited number of third-party manufacturers with the expertise, required regulatoryapprovals and facilities to manufacture our bulk vaccines on a commercial scale, replacement of a manufacturer may be expensive andtime-consuming and may cause interruptions in the production of our vaccine. A third-party manufacturer may also encounter difficulties inproduction. These problems may include:•difficulties with production costs, scale-up and yields;•availability of raw materials and supplies;•quality control and assurance;•shortages of qualified personnel;•compliance with strictly enforced federal, state and foreign regulations that vary in each country where product might be sold; and•lack of capital funding.As a result, any delay or interruption could have a material adverse effect on our business, financial condition, results of operations andcash flows.Our vaccine products may contain adventitious agents.Because our vaccines are produced in animal cell substrates, there are risks that infectious diseases that are unique to the animalsubstrates can be transmitted to human recipients. The FDA seeks to ensure that vaccine products do not contain adventitious agents or, ifthey do, that such adventitious agents create a benefit to the vaccine and are not harmful to the recipient. Identifying that adventitious agentsin vaccines are not present or, if they are present, that they are not harmful is potentially difficult and expensive. Even with significanttesting, we may not be able to demonstrate to the FDA that our vaccines are either free of adventitious agents or that any adventitious agentsthat do occur are beneficial to the vaccine and harmless to the recipient.We must identify products and product candidates for development with our VLP technology and establish successful third-party relationships.The near and long-term viability of our vaccine product candidates will depend in part on our ability to successfully establish newstrategic collaborations with pharmaceutical and biotechnology companies, non-profit organizations and government agencies. Establishingstrategic collaborations and obtaining government funding is difficult and time-consuming. Potential collaborators may reject collaborationsbased upon their assessment of our financial, regulatory or intellectual property position or based on their internal pipeline; governmentagencies may reject contract or grant applications based on their assessment of public need, the public interest, our products’ ability toaddress these areas, or other reasons beyond our expectations or control. If we fail to establish a sufficient number of collaborations orgovernment relationships on acceptable terms, we may not be able to commercialize our vaccine product candidates or generate sufficientrevenue to fund further research and development efforts.Even if we establish new collaborations or obtain government funding, these relationships may never result in the successfuldevelopment or commercialization of any vaccine product candidates for several reasons, including the fact that:•we may not have the ability to control the activities of our partner and cannot provide assurance that they will fulfill their obligationsto us, including with respect to the license, development and commercialization of products and product candidates, in a timelymanner or at all;•such partners may not devote sufficient resources to our products and product candidates or properly maintain or defend ourintellectual property rights;21  TABLE OF CONTENTS•any failure on the part of our partners to perform or satisfy their obligations to us could lead to delays in the development orcommercialization of our products and product candidates, and affect our ability to realize product revenue; and•disagreements, including disputes over the ownership of technology developed with such collaborators, could result in litigation,which would be time-consuming and expensive, and may delay or terminate research and development efforts, regulatory approvals,and commercialization activities.Our collaborators will be subject to the same regulatory approval of their manufacturing facility and process as Novavax. Before wecould begin commercial manufacturing of any of our product candidates, we and our collaborators must pass a pre-approval inspectionbefore FDA approval and comply with the FDA’s cGMP. If our collaborators fail to comply with these requirements, our product candidateswould not be approved. If our collaborators fail to comply with these requirements after approval, we would be subject to possible regulatoryaction and may be limited in the jurisdictions in which we are permitted to sell our products.If we or our partners fail to maintain our existing agreements or in the event we fail to establish agreements as necessary, we could berequired to undertake research, development manufacturing and commercialization activities solely at our own expense. These activitieswould significantly increase our capital requirements and, given our lack of sales, marketing and distribution capabilities, significantlydelay the commercialization of products and product candidates.Because we depend on third-parties to conduct some of our laboratory testing, clinical trials, and manufacturing, we mayencounter delays in or lose some control over our efforts to develop products.We are dependent on third-party research organizations to conduct some of our laboratory testing, clinical trials and manufacturingactivities. If we are unable to obtain any necessary services on acceptable terms, we may not complete our product development efforts in atimely manner. We may lose some control over these activities and become too dependent upon these parties. These third-parties may notcomplete testing or manufacturing activities on schedule, within budget, or when we request. We may not be able to secure and maintainsuitable research organizations to conduct our laboratory testing, clinical trials and manufacturing activities. We have not manufactured anyof our product candidates at a commercial level and may need to identify additional third-party manufacturers to scale-up and manufactureour products.We are responsible for confirming that each of our clinical trials is conducted in accordance with its general investigational plan andprotocol. Moreover, the FDA and foreign regulatory agencies require us to comply with regulations and standards, commonly referred to asgood clinical practices, for conducting, recording and reporting the results of clinical trials to assure that data and reported results arecredible and accurate and that the trial participants are adequately protected. The FDA and foreign regulatory agencies also require us tocomply with good manufacturing practices. Our reliance on third-parties does not relieve us of these responsibilities and requirements. Ifthese third-parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if the third-parties need to be replaced or if the quality or accuracy of the data they obtain is compromised or the product they manufacture iscontaminated due to the failure to adhere to our clinical and manufacturing protocols or regulatory requirements or for other reasons, our pre-clinical development activities of clinical trials may be extended, delayed, suspended or terminated, and we may not be able to obtainregulatory approval of, or commercially manufacture, our product candidates.Our collaborations may not be profitable.We have entered into a co-marketing agreement with GEHC for a pandemic influenza vaccine solution for select international countries.The collaboration incorporates GEHC’s bioprocess solutions and design expertise with Novavax’s VLP manufacturing platform. We haveformed a joint venture with Cadila in India. In connection with this joint venture, we agreed to a Master Services Agreement under which wecurrently are obligated to purchase $7.4 million of services from Cadila or pay Cadila all or a portion of the shortfall before March 2012.We have entered into a license agreement with LGLS that allows them to use our22  TABLE OF CONTENTSmanufacturing and production technology to develop and sell our influenza vaccines. We cannot predict when, if at all, these relationshipswill lead to approved products, sales, or otherwise provide revenue to the Company or become profitable.We have limited marketing capabilities, and if we are unable to enter into collaborations with marketing partners or developour own sales and marketing capability, we may not be successful in commercializing any approved products.We currently have no sales, marketing or distribution capabilities. As a result, we will depend on collaborations with third-parties thathave established distribution systems and sales forces. To the extent that we enter into co-promotion or other licensing arrangements, ourrevenue will depend upon the efforts of third-parties, over which we may have little or no control. If we are unable to reach and maintainagreements with one or more pharmaceutical companies or collaborators, we may be required to market our products directly. Developing amarketing and sales force is expensive and time-consuming and could delay a product launch. We cannot be certain that we will be able toattract and retain qualified sales personnel or otherwise develop this capability.Our product candidates may never achieve market acceptance even if we obtain regulatory approvals.Even if we receive regulatory approvals for the commercial sale of our product candidates, the commercial success of these productcandidates will depend on, among other things, their acceptance by physicians, patients, third-party payers such as health insurancecompanies and other members of the medical community as a vaccine and cost-effective alternative to competing products. If our productcandidates fail to gain market acceptance, we may be unable to earn sufficient revenue to continue our business. Market acceptance of, anddemand for, any product that we may develop and commercialize will depend on many factors, including:•our ability to provide acceptable evidence of safety and efficacy;•the prevalence and severity of adverse side effects;•whether our vaccines are differentiated from other vaccines based on immunogenicity;•availability, relative cost and relative efficacy of alternative and competing treatments;•the effectiveness of our marketing and distribution strategy;•publicity concerning our products or competing products and treatments; and•our ability to obtain sufficient third-party insurance coverage or reimbursement.In particular, there are significant challenges to market acceptance for seasonal influenza vaccines. For our seasonal vaccine to beaccepted in the market, we must demonstrate differentiation from other seasonal vaccines that are currently approved and marketed. Thiscan mean that the vaccine is more effective in certain populations, such as the elderly, or cheaper and quicker to produce. There are noassurances that our vaccine will be more efficacious than other vaccines.If our product candidates do not become widely accepted by physicians, patients, third-party payers and other members of the medicalcommunity, our business, financial condition and results of operations would be materially and adversely affected.If reforms in the health care industry make reimbursement for our potential products less likely, the market for our potentialproducts will be reduced, and we could lose potential sources of revenue.Our success may depend, in part, on the extent to which reimbursement for the costs of vaccines will be available from third-partypayers such as government health administration authorities, private health insurers, managed care programs and other organizations. Overthe past decade, the cost of health care has risen significantly, and there have been numerous proposals by legislators, regulators and third-party health care payers to curb these costs. Some of these proposals have involved limitations on the amount of reimbursement for certainproducts. Similar federal or state health care legislation may be adopted in the future and any products that we or our collaborators seek tocommercialize may not be considered cost-effective. Adequate23  TABLE OF CONTENTSthird-party insurance coverage may not be available for us to establish and maintain price levels that are sufficient for realization of anappropriate return on our investment in product development. Moreover, the existence or threat of cost control measures could cause ourcorporate collaborators to be less willing or able to pursue research and development programs related to our product candidates.REGULATORY RISKSWe may fail to obtain regulatory approval for our products on a timely basis or comply with our continuing regulatoryobligations after approval is obtained.Delays in obtaining regulatory approval can be extremely costly in terms of lost sales opportunities, losing any potential marketingadvantage of being early to market and increased trial costs. The speed with which we begin and complete our pre-clinical studies necessaryto begin clinical trials, clinical trials and our applications for marketing approval will depend on several factors, including the following:•our ability to manufacture or obtain sufficient quantities of materials for use in necessary pre-clinical studies and clinical trials;•prior regulatory agency review and approval;•Institutional Review Board approval of the protocol and the informed consent form;•the rate of subject or patient enrollment and retention, which is a function of many factors, including the size of the subject orpatient population, the proximity of subjects and patients to clinical sites, the eligibility criteria for the trial and the nature of theprotocol;•negative test results or side effects experienced by trial participants;•analysis of data obtained from pre-clinical and clinical activities, which are susceptible to varying interpretations and whichinterpretations could delay, limit or prevent further studies or regulatory approval;•the availability of skilled and experienced staff to conduct and monitor clinical trials and to prepare the appropriate regulatoryapplications; and•changes in the policies of regulatory authorities for drug or vaccine approval during the period of product development.We have limited experience in conducting and managing the pre-clinical studies and clinical trials necessary to obtain regulatorymarketing approvals. We may not be permitted to continue or commence additional clinical trials. We also face the risk that the results ofour clinical trials may be inconsistent with the results obtained in pre-clinical studies or clinical trials of similar products, or that the resultsobtained in later phases of clinical trials may be inconsistent with those obtained in earlier phases. A number of companies in thebiopharmaceutical and product development industry have suffered significant setbacks in advanced clinical trials, even after experiencingpromising results in early animal and human testing.Regulatory agencies may require us or our collaborators to delay, restrict or discontinue clinical trials on various grounds, including afinding that the subjects or patients are being exposed to an unacceptable health risk. In addition, we or our collaborators may be unable tosubmit applications to regulatory agencies within the time frame we currently expect. Once submitted, applications must be approved byvarious regulatory agencies before we or our collaborators can commercialize the product described in the application. All statutes andregulations governing the conduct of clinical trials are subject to change in the future, which could affect the cost of such clinical trials. Anyunanticipated costs or delays in our clinical trials could delay our ability to generate revenue and harm our financial condition and results ofoperations.Failure to obtain regulatory approval in foreign jurisdictions would prevent us from marketing our products internationally.We intend to have our product candidates marketed outside the United States. In furtherance of this objective, we have entered intorelationships with Cadila in India and LGLS in South Korea. In order to market our products in the European Union, India, Asia andmany other non-United States jurisdictions, we must obtain separate regulatory approvals and comply with numerous and varyingregulatory requirements.24  TABLE OF CONTENTSThe approval procedure varies among countries and can involve additional testing and data review. The time required to obtain foreignregulatory approval may differ from that required to obtain FDA approval. The foreign regulatory approval process may include all of therisks associated with obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. Approval by aregulatory agency, such as the FDA, does not ensure approval by any other regulatory agencies, for example in other foreign countries.However, a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval processin other jurisdictions, including approval by the FDA. The failure to obtain regulatory approval in foreign jurisdictions could harm ourbusiness.Even if regulatory approval is received for our product candidates, the later discovery of previously unknown problems with aproduct, manufacturer or facility may result in restrictions, including withdrawal of the product from the market.Even if a product gains regulatory approval, such approval is likely to limit the indicated uses for which it may be marketed, and theproduct and the manufacturer of the product will be subject to continuing regulatory review, including adverse event reporting requirementsand the FDA’s general prohibition against promoting products for unapproved uses. Failure to comply with any post-approval requirementscan, among other things, result in warning letters, product seizures, recalls, substantial fines, injunctions, suspensions or revocations ofmarketing licenses, operating restrictions and criminal prosecutions. Any of these enforcement actions, any unanticipated changes inexisting regulatory requirements or the adoption of new requirements, or any safety issues that arise with any approved products, couldadversely affect our ability to market products and generate revenue and thus adversely affect our ability to continue our business.We also may be restricted or prohibited from marketing or manufacturing a product, even after obtaining product approval, ifpreviously unknown problems with the product or its manufacture are subsequently discovered and we cannot provide assurance thatnewly discovered or developed safety issues will not arise following any regulatory approval. With the use of any vaccine by a wide patientpopulation, serious adverse events may occur from time to time that initially do not appear to relate to the vaccine itself, and only if thespecific event occurs with some regularity over a period of time does the vaccine become suspect as having a causal relationship to theadverse event. Any safety issues could cause us to suspend or cease marketing of our approved products, possibly subject us to substantialliabilities, and adversely affect our ability to generate revenue and our financial condition.Because we are subject to environmental, health and safety laws, we may be unable to conduct our business in the mostadvantageous manner.We are subject to various laws and regulations relating to safe working conditions, laboratory and manufacturing practices, theexperimental use of animals, emissions and wastewater discharges, and the use and disposal of hazardous or potentially hazardoussubstances used in connection with our research, including infectious disease agents. We also cannot accurately predict the extent ofregulations that might result from any future legislative or administrative action. Any of these laws or regulations could cause us to incuradditional expense or restrict our operations.Our facility in Maryland is subject to various local, state and federal laws and regulations relating to safe working conditions,laboratory and manufacturing practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardoussubstances, including chemicals, microorganisms and various hazardous compounds used in connection with our research anddevelopment activities. In the United States, these laws include the Occupational Safety and Health Act, the Toxic Test Substances ControlAct and the Resource Conservation and Recovery Act. We cannot eliminate the risk of accidental contamination or discharge or injury fromthese materials. Federal, state, and local laws and regulations govern the use, manufacture, storage, handling and disposal of thesematerials. We could be subject to civil damages in the event of an improper or unauthorized release of, or exposure of individuals to, thesehazardous materials. In addition, claimants may sue us for injury or contamination that results from our use or the use by third-parties ofthese materials, and our liability may exceed our total assets. Compliance with environmental laws and regulations may be expensive, andcurrent or future environmental regulations may impair our research, development or production efforts.25  TABLE OF CONTENTSAlthough we have general liability insurance, these policies contain exclusions from insurance against claims arising from pollutionfrom chemical or pollution from conditions arising from our operations. Our collaborators are working with these types of hazardousmaterials in connection with our collaborations. In the event of a lawsuit or investigation, we could be held responsible for any injury we orour collaborators cause to persons or property by exposure to, or release of, any hazardous materials. However, we believe that we arecurrently in compliance with all applicable environmental and occupational health and safety regulations.INTELLECTUAL PROPERTY RISKSOur success depends on our ability to maintain the proprietary nature of our technology.Our success in large part depends on our ability to maintain the proprietary nature of our technology and other trade secrets. To do so,we must prosecute and maintain existing patents, obtain new patents and pursue trade secret and other intellectual property protection. Wealso must operate without infringing the proprietary rights of third-parties or allowing third-parties to infringe our rights. We currently haveor have rights to over 105 United States patents and corresponding foreign patents and patent applications covering our technologies.However, patent issues relating to pharmaceuticals and biologics involve complex legal, scientific and factual questions. To date, noconsistent policy has emerged regarding the breadth of biotechnology patent claims that are granted by the United States Patent andTrademark Office or enforced by the federal courts. Therefore, we do not know whether our patent applications will result in the issuance ofpatents, or that any patents issued to us will provide us with any competitive advantage. We also cannot be sure that we will developadditional proprietary products that are patentable. Furthermore, there is a risk that others will independently develop or duplicate similartechnology or products or circumvent the patents issued to us.There is a risk that third-parties may challenge our existing patents or claim that we are infringing their patents or proprietary rights. Wecould incur substantial costs in defending patent infringement suits or in filing suits against others to have their patents declared invalid orclaim infringement. It is also possible that we may be required to obtain licenses from third-parties to avoid infringing third-party patents orother proprietary rights. We cannot be sure that such third-party licenses would be available to us on acceptable terms, if at all. If we areunable to obtain required third-party licenses, we may be delayed in or prohibited from developing, manufacturing or selling productsrequiring such licenses.Although our patent filings include claims covering various features of our products and product candidates, including composition,methods of manufacture and use, our patents do not provide us with complete protection against the development of competing products.Some of our know-how and technology is not patentable. To protect our proprietary rights in unpatentable intellectual property and 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.If we infringe or are alleged to infringe the intellectual property rights of third-parties, it will adversely affect our business,financial condition and results of operations.Our research, development and commercialization activities, including any product candidates or products resulting from theseactivities, may infringe or be claimed to infringe patents owned by third-parties and to which we do not hold licenses or other rights. Theremay be rights we are not aware of, including applications that have been filed but not published that, when issued, could be asserted againstus. These third-parties could bring claims against us, and that would cause us to incur substantial expenses and, if successful against us,could cause us to pay substantial damages. Further, if a patent infringement suit were brought against us, we could be forced to stop ordelay research, development, manufacturing or sales of the product or biologic drug candidate that is the subject of the suit.As a result of patent infringement claims, or in order to avoid potential claims, we may choose or be required to seek a license from thethird-party. These licenses may not be available on acceptable terms, or at all. Even if we are able to obtain a license, the license would likelyobligate us to pay license fees or royalties or both, and the rights granted to us might be non-exclusive, which could result in our competitorsgaining access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or be forced to ceasesome aspect of our business operations, if, as a result of actual or threatened patent26  TABLE OF CONTENTSinfringement claims, we are unable to enter into licenses on acceptable terms. All of the issues described above could also impact ourcollaborators, which would also impact the success of the collaboration and therefore us.There has been substantial litigation and other proceedings regarding patent and other intellectual property rights in the pharmaceuticaland biotechnology industries. In addition to infringement claims against us, we may become a party to other patent litigation and otherproceedings, including interference proceedings declared by the United States Patent and Trademark Office and opposition proceedings inthe European Patent Office, regarding intellectual property rights with respect to our products and technology.We may become involved in lawsuits to protect or enforce our patents or the patents of our collaborators or licensors, whichcould be expensive and time-consuming.Competitors may infringe our patents or the patents of our collaborators or licensors. As a result, we may be required to file infringementclaims to counter infringement for unauthorized use. This can be expensive, particularly for a company of our size, and time-consuming. Inaddition, in an infringement proceeding, a court may decide that a patent of ours is not valid or is unenforceable, or may refuse to stop theother party from using the technology at issue on the grounds that our patents do not cover its technology. An adverse determination of anylitigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put ourpatent applications at the risk of not issuing.Interference proceedings brought by the United States Patent and Trademark Office may be necessary to determine the priority ofinventions with respect to our patent applications or those of our collaborators or licensors. Litigation or interference proceedings may failand, even if successful, may result in substantial costs and distraction to our management. We may not be able, alone or with ourcollaborators and licensors, to prevent misappropriation of our proprietary rights, particularly in countries where the laws may not protectsuch rights as fully as in the United States.Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a riskthat some of our confidential information could be compromised by disclosure during this type of litigation. In addition, during the courseof this kind of litigation, there could be public announcements of the results of hearings, motions or other interim proceedings ordevelopments. If investors perceive these results to be negative, the market price for our common stock could be significantly harmed.We may need to license intellectual property from third-parties and, if our right to use the intellectual property we license isaffected, our ability to develop and commercialize our product candidates may be harmed.We expect that we will need to license intellectual property from third-parties in the future and that these licenses will be material to ourbusiness. We will not own the patents or patent applications that underlie these licenses, and we will not control the enforcement of thepatents. We will rely upon our licensors to properly prosecute and file those patent applications and prevent infringement of those patents.Our license agreement with Wyeth, which gives us rights to a family of patent applications covering VLP technology for use in humanvaccines in certain fields of use, is non-exclusive. These applications are very significant to our business. If each milestone is achieved forany particular product candidate, we would be obligated to pay an aggregate of $14 million to Wyeth for each product candidate developedand commercialized under the agreement. Achievement of each milestone is subject to many risks, including those described in these “RiskFactors.” Annual license maintenance fees under the Wyeth agreement aggregate to $0.2 million per year. Our license with UMMS gives usexclusive rights to develop and commercialize vaccines incorporating certain virus-like particles for use in human vaccines.While many of the licenses under which we have rights provide us with rights in specified fields, the scope of our rights under theseand other licenses may be subject to dispute by our licensors or third-parties. In addition, our rights to use these technologies and practicethe inventions claimed in the licensed patents and patent applications are subject to our licensors abiding by the terms of those licenses andnot terminating27  TABLE OF CONTENTSthem. Any of our licenses may be terminated by the licensor if we are in breach of a term or condition of the license agreement, or in certainother circumstances.Our product candidates and potential product candidates will require several components that may each be the subject of a licenseagreement. The cumulative license fees and royalties for these components may make the commercialization of these product candidatesuneconomical.If patent laws or the interpretation of patent laws change, our competitors may be able to develop and commercialize ourdiscoveries.Important legal issues remain to be resolved as to the extent and scope of available patent protection for biopharmaceutical products andprocesses in the United States and other important markets outside the United States, such as Europe and Japan. Foreign markets may notprovide the same level of patent protection as provided under the United States patent system. We expect that litigation or administrativeproceedings will likely be necessary to determine the validity and scope of certain of our and others’ proprietary rights. Any such litigationor proceeding may result in a significant commitment of resources in the future and could force us to do one or more of the following: ceaseselling or using any of our products that incorporate the challenged intellectual property, which would adversely affect our revenue; obtain alicense from the holder of the intellectual property right alleged to have been infringed, which license may not be available on reasonableterms, if at all; and redesign our products to avoid infringing the intellectual property rights of third-parties, which may be time-consumingor impossible to do. In addition, changes in, or different interpretations of, patent laws in the United States and other countries may result inpatent laws that allow others to use our discoveries or develop and commercialize our products. We cannot provide assurance that the patentswe obtain or the unpatented technology we hold will afford us significant commercial protection.RISKS RELATED TO OUR COMMON STOCK AND ORGANIZATIONAL STRUCTUREBecause our stock price has been and will likely continue to be highly volatile, the market price of our common stock may belower or more volatile than expected.Our stock price has been highly volatile. The stock market in general and the market for biopharmaceutical companies in particularhave experienced extreme volatility that has often been unrelated to the operating performance of particular companies. From January 1, 2010through December 31, 2010, the closing price of our common stock has been as low as $2.01 per share and as high as $3.02 per share. Themarket price of our common stock may be influenced by many factors, including:•future announcements about our Company or our collaborators or competitors, including the results of testing, technologicalinnovations or new commercial products;•clinical trial results;•depletion of our cash reserves;•sale of equity securities or issuance of additional debt;•announcement by us of significant strategic partnerships, collaborations, joint ventures, capital commitments or acquisitions;•changes in government regulations;•developments in our relationships with our collaboration partners;•announcements relating to health care reform and reimbursement levels for new vaccines;•sales of substantial amounts of our stock by existing stockholders (including stock by insiders or 5% stockholders);•development, spread or new announcements related to pandemic influenza;•litigation;•public concern as to the safety of our products;•significant set-backs or concerns with the industry or the market as a whole;28  TABLE OF CONTENTS•regulatory inquiries, reviews and potential action, including from the FDA or the SEC; and•the other factors described in this “Risk Factors” section.The stock market has experienced extreme price and volume fluctuations that have particularly affected the market price for manyemerging and biopharmaceutical companies. These fluctuations have often been unrelated to the operating performance of these companies.These broad market fluctuations may cause the market price of our common stock to be lower or more volatile than expected.We have never paid dividends on our capital stock, and we do not anticipate paying any such dividends in the foreseeablefuture.We have never paid cash dividends on our common stock. We currently anticipate that we will retain all of our earnings for use in thedevelopment of our business and do not anticipate paying any cash dividends in the foreseeable future. As a result, capital appreciation, ifany, of our common stock would be the only source of gain for stockholders until dividends are paid, if at all.Provisions of our Certificate of Incorporation and By-laws, Delaware law, and our Shareholder Rights Plan could delay orprevent the acquisition of the Company, even if such acquisition would be beneficial to stockholders, and could impede changesin our Board.Our organizational documents could hamper a third-party’s attempt to acquire, or discourage a third-party from attempting to acquirecontrol of, the Company. We also have adopted a shareholder rights plan, or “poison pill,” that empowers our Board to delay or negotiate,and thereby possibly thwart, any tender offer or takeover attempt the Board opposes. Stockholders who wish to participate in thesetransactions may not have the opportunity to do so. These provisions also could limit the price investors are willing to pay in the future forour securities and make it more difficult to change the composition of our Board in any one year. These provisions include the right of theBoard to issue preferred stock with rights senior to those of common stock without any further vote or action by stockholders, the existenceof a staggered Board with three classes of directors serving staggered three-year terms and advance notice requirements for stockholders tonominate directors and make proposals.The Company also is afforded the protections of Section 203 of the Delaware General Corporation Law, which will prevent us fromengaging in a business combination with a person who acquires at least 15% of our common stock for a period of three years from the datesuch person acquired such common stock, unless advance board or stockholder approval was obtained.Any delay or prevention of a change of control transaction or changes in our Board of Director or management could deter potentialacquirers or prevent the completion of a transaction in which our stockholders could receive a substantial premium over the then currentmarket price for their shares.Item 2. PROPERTIESWe have current operations in one leased facility. We lease approximately 51,200 square feet in Rockville, Maryland, which serves asour corporate headquarters and includes administrative offices, vaccine research and development, as well as a manufacturing facility. Wecontinue to lease approximately 32,900 square feet of administrative office and research and development space at our former corporateheadquarters in Malvern, Pennsylvania, all of which is currently subleased. We believe that our corporate facility in Rockville, Maryland issufficient for our current needs. We have additional space in our current facility to accommodate our anticipated growth over the next severalyears.29  TABLE OF CONTENTSA summary of our current facilities is set forth below. Property Location ApproximateSquare Footage Rockville, MD 51,200 Corporate headquarters and vaccine research and development Malvern, PA 32,900 Former corporate headquarters and research and development Total square footage 84,100 Malvern, PA sublease (32,900) Net square footage 51,200 Item 3. LEGAL PROCEEDINGSSince March 2010, when we initiated legal proceedings against Mr. Mitchell Kelly in the Supreme Court of the State of New York, NewYork County, and Dr. Denis O’Donnell in the Superior Court of the Commonwealth of Massachusetts, Middlesex County for collection oftheir respective indebtedness due to the Company, we have been actively pursuing these lawsuits and attending to pretrial matters. Mr. Kellyand Dr. O’Donnell are former directors of the Company that have each defaulted on outstanding notes due to the Company in the aggregateprincipal amount of $1,572,000. Preliminary document discovery has been conducted on these matters and, subject to each State court’sschedule, we plan to go to trial on these matters in 2011.30  TABLE OF CONTENTSPART IIItem 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERSOur common stock trades on The NASDAQ Global Market under the symbol “NVAX”. The following table sets forth the range of highand low closing sale prices for our common stock as reported on The NASDAQ Global Market for each quarter in the two most recentyears: Quarter Ended High LowDecember 31, 2010 $2.67 $2.11 September 30, 2010 $2.34 $2.01 June 30, 2010 $2.97 $2.17 March 31, 2010 $3.02 $2.05 December 31, 2009 $4.41 $2.53 September 30, 2009 $6.65 $2.51 June 30, 2009 $3.28 $0.76 March 31, 2009 $2.04 $0.56 On March 22, 2011, the last sale price reported on The NASDAQ Global Market for our common stock was $2.62. Our commonstock was held by approximately 495 stockholders of record as of March 22, 2011, one of which is Cede & Co., a nominee for DepositoryTrust Company (or DTC). All of the shares of common stock held by brokerage firms, banks and other financial institutions as nomineesfor beneficial owners are deposited into participant accounts at DTC, and are therefore considered to be held of record by Cede & Co. as onestockholder. We have not paid any cash dividends on our common stock since our inception. We do not anticipate declaring or paying anycash dividends in the foreseeable future.Securities Authorized for Issuance under our Equity Compensation PlansInformation regarding our equity compensation plans, including both stockholder approved plans and non-stockholder approved plans,is included in Item 12 of this Annual Report on Form 10-K.31  TABLE OF CONTENTSThe graph below compares the cumulative total stockholders return on our common stock for the last five fiscal years with thecumulative total return on the NASDAQ Composite Index and the NASDAQ Pharmaceutical Index (which includes Novavax) over thesame period, assuming the investment of $100 in our common stock, the NASDAQ Composite Index and the NASDAQ PharmaceuticalIndex on December 31, 2005, and reinvestments of all dividends.COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*Among Novavax, Inc., the NASDAQ Composite Indexand the NASDAQ Pharmaceutical Index*$100 invested on 12/31/05 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.Value of $100 invested on December 31, 2005 in stock or index, including reinvestment of dividends, for fiscal years ended December31: 12/31/05 12/31/06 12/31/07 12/31/08 12/31/09 12/31/10Novavax, Inc. $100.00 $106.49 $86.49 $49.09 $69.09 $63.12 NASDAQ Composite Index $100.00 $111.16 $124.64 $73.80 $107.07 $125.99 NASDAQ Pharmaceutical Index $100.00 $100.74 $97.94 $91.84 $98.07 $105.79 This graph is not “soliciting material”, is not deemed “filed” with the Securities and Exchange Commission and is not to beincorporated by reference in any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act, whether madebefore or after the date hereof and irrespective of any general incorporation language in any such filing.32  TABLE OF CONTENTSItem 6. SELECTED FINANCIAL DATAThe following table sets forth selected financial data for each of the years in the five-year period ended December 31, 2010, which hasbeen derived from our audited consolidated financial statements. The financial data set forth below as of and for the years ended December31, 2009 and 2008 have been restated to reflect adjustments to our previously issued consolidated financial statements as more fullydiscussed in Item 7 — Management’s Discussion and Analysis of Financial Condition and Note 2 — Restatement of ConsolidatedFinancial Statements in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. The informationbelow should be read in conjunction with our financial statements and notes thereto and “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” included elsewhere in this Annual Report on Form 10-K. These historical results are notnecessarily indicative of results that may be expected for future periods. For The Years Ended December 31, 2010 2009 2008 2007 2006 (As Restated) (As Restated) (in thousands, except per share amounts)Statements of Operations Data: Revenue $343 $325 $1,064 $1,513 $1,738 Loss from continuing operations (35,708) (40,346) (34,784) (28,590) (19,577) Income (loss) from discontinued operations — — 273 (6,175) (3,491) Net loss $(35,708) $(40,346) $(34,511) $(34,765) $(23,068) Basic and diluted net loss per share: Loss per share from continuing operations $(0.34) $(0.47) $(0.51) $(0.47) $(0.33) Loss per share from discontinued operations — — — (0.10) (0.06) Basic and diluted net loss per share $(0.34) $(0.47) $(0.51) $(0.57) $(0.39) Weighted average shares used in computingbasic and diluted net loss per share 104,768 85,555 68,174 61,101 58,664 As of December 31, 2010 2009 2008 2007 2006 (As Restated) (As Restated) Balance Sheet Data: Cash and short-term investments $31,676 $42,950 $33,900 $46,489 $73,595 Total current assets 33,337 44,503 35,096 49,016 77,342 Working capital(1) 23,071 36,476 7,379 42,810 72,003 Total assets 74,844 85,605 76,625 91,291 121,877 Long-term debt, less current portion 320 406 480 21,629 22,458 Accumulated deficit (310,292) (274,584) (234,238) (199,727) (164,962) Total stockholders’ equity 59,050 69,952 42,948 63,065 94,001 (1)Working capital is computed as the excess of current assets over current liabilities.Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONSCertain statements contained or incorporated by reference herein constitute forward-looking statements. In some cases, these statementscan be identified by the use of forward-looking terminology such as “expect(s)”, “intends”, “plans”, “seeks”, “estimates”, “could”,“should”, “feel(s)”, “believe(s)”, “will”, “would”, “may”, “can”, “anticipate(s)”, “potential” and similar expressions or the negative of theseterms. Such forward-looking statements are subject to risks and uncertainties that may cause the actual results, performance orachievements of the Company, or industry results, to be materially different from those expressed or implied by such forward-lookingstatements.33  TABLE OF CONTENTSForward-looking statements in this Annual Report on Form 10-K include, without limitation, statements regarding:•potential commercialization of our product candidates;•our expectation that we will have adequate capital resources available to operate at planned levels for at least the next twelve months;•our expected 2011 capital expenditures;•our expectations for future revenue under the contract with the Department of Health and Human Services, Biomedical AdvancedResearch and Development Authority (HHS BARDA) and funding requirements and capital raising activity, including anticipatedproceeds from our At Market Issuance Sales Agreement with MLV;•our expectations on financial or business performance, conditions or strategies and other financial and business matters, includingexpectations regarding operating expenses, use of cash, and the fluctuations in expenses and capital requirements associated withpre-clinical studies, clinical trials and other research and development activities;•our expectations on clinical development and anticipated milestones, including under the contract with HHS BARDA;•our expectations that our trivalent seasonal influenza VLP vaccine could potentially address an unmet medical need in older adults;•our expectations regarding payments to Wyeth and UMMS;•our expectations for the use of results from our Pandemic H1N1 clinical trial in Mexico to support the development of our influenzavaccines in other countries, including the United States;•the impact of new accounting pronouncements; and•our expectations concerning payments under existing license agreements.Factors that may cause actual results to differ materially from the results discussed in the forward-looking statements or historicalexperience include, but are not limited to those described under Item 1A. Risk Factors of this Annual Report on Form 10-K.The Company assumes no obligation to update any such forward-looking statements, except as required by law. We caution readers notto place considerable reliance on the forward-looking statements contained in this Annual Report on Form 10-K.Restatement of Consolidated Financial StatementsIn July 2008, we completed a registered direct offering of 6,686,650 units, raising approximately $17.5 million in net proceeds. Eachunit consisted of one share of common stock and a Warrant to purchase 0.5 shares of common stock at a price of $2.68 per unit. TheWarrants represent the right to acquire an aggregate of 3,343,325 shares of common stock at an exercise price of $3.62 per share and areexercisable between January 31, 2009 and July 31, 2013. The Warrants do not explicitly preclude net cash settlement in the event registeredshares are not available to satisfy exercise of the Warrants. In addition, the Warrants include a provision whereby in certain FundamentalTransactions, which include a consolidation or merger with or into another corporation or the sale, transfer or other disposition of all orsubstantially all our property, assets or business to another corporation, Warrant holders would be entitled to require the Company topurchase such Warrant in exchange for a cash payment as determined in accordance with the Warrant agreement. The Company previouslyrecorded the fair value of the Warrants in stockholders’ equity.On December 21, 2010, we received a comment letter from the SEC concerning its review of our Annual Report on Form 10-K for theyear ended December 31, 2009. The comment letter specifically noted the treatment of the Warrants as equity. After further review, theCompany concluded that because the Warrant agreements do not explicitly preclude net cash settlement in the event registered shares are notavailable to satisfy exercise of the Warrants, the Warrants should be classified as a liability, with changes in the fair value34  TABLE OF CONTENTSof the Warrants reported in our statements of operations. When we initially assessed the impact of reclassifying the Warrants as a liabilityand marking the Warrants to fair value at each reporting period, we utilized a Black-Scholes option-pricing model. Based upon discussionswith the SEC staff and further review of the Warrant agreement, we determined that a more dynamic pricing model would be appropriate toestimate the fair value of the Warrants because the Warrants permit holders of such Warrants to require the Company to purchase theWarrant from its holder in exchange for a cash payment in the event of a Fundamental Transaction. Because the Monte Carlo Simulationmodel of estimating the fair value of our Warrants can include a probability of a Fundamental Transaction occurring in valuing a warrant,we concluded that it would be the appropriate valuation methodology for the Warrants.As a result, on March 14, 2011, our Audit Committee determined that the previously issued consolidated financial statements includedin our Annual Reports on Form 10-K for the years ended December 31, 2009 and 2008 and in our Quarterly Reports on Form 10-Q for theperiods ended March 31, 2010, June 30, 2010, September 30, 2010, March 31, 2009, June 30, 2009, September 30, 2009 and September30, 2008 should not be relied upon, which we reported under a Current Report on Form 8-K filed on March 17, 2011. We have restatedsuch financial statements in this Annual Report of Form 10-K for the year ended December 31, 2010.The adjustments made as a result of the restatement are more fully discussed in Note 2 — Restatement of Consolidated FinancialStatements in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.The restatements reflect the recalculation of the estimated fair value of the Warrants using a Monte Carlo Simulation model, applyingcritical assumptions provided by Management, including the possibility of a Fundamental Transaction occurring, reflecting conditions ateach valuation date. The Company recomputed the estimated fair value of the Warrants at the end of each quarterly reporting period usingsubjective input assumptions consistently applied for each period. If the Company were to alter its assumptions or the numbers input basedon such assumptions, the resulting fair value estimate could be materially different.The revaluation of the estimated fair value of the Warrants at each subsequent balance sheet date results in a change in the carryingvalue of the liability, which is recorded as “Change in fair value of warrant liability” in our consolidated statements of operations. The neteffect of these changes for the years ended December 31, 2009 and 2008, and for each of the three months ended March 31, 2010, June 30,2010, September 30, 2010, March 31, 2009, June 30, 2009, September 30, 2009, December 31, 2009, September 30, 2008 and December31, 2008 are as follows: Reporting Period Warrant Liability(in thousands) Other Income(Expense) Resultingfrom Change inFair Value ofWarrant Liability(in thousands) Net Decrease(Increase) on LossPer ShareAnnual Year ended December 31, 2009 $4,513 $(1,972) $(0.02) Year ended December 31, 2008 2,541 1,538 0.02 Interim (Unaudited) Quarter ended September 30, 2010 2,742 133 0.00 Quarter ended June 30, 2010 2,875 569 0.00 Quarter ended March 31, 2010 3,444 1,069 0.01 Quarter ended December 31, 2009 4,513 3,678 0.04 Quarter ended September 30, 2009 8,191 (1,738) (0.02) Quarter ended June 30, 2009 6,453 (5,417) (0.06) Quarter ended March 31, 2009 1,036 1,505 0.02 Quarter ended December 31, 2008 2,541 2,374 0.02 Quarter ended September 30, 2008 4,915 (836) (0.01) 35  TABLE OF CONTENTSWe have not amended our previously filed Annual Reports on Form 10-K for the years ended December 31, 2009 and 2008 andQuarterly Reports on Form 10-Q for the periods ended March 31, 2010, June 30, 2010, September 30, 2010, March 31, 2009, June 30,2009, September 30, 2009 and September 30, 2008 to correct these misstatements, and thus the financial statements and related financialstatement information contained in those previously filed reports should no longer be relied upon.OverviewNovavax, Inc., a Delaware corporation (“Novavax,” the “Company,” “we,” or “us”), was incorporated in 1987, and is a clinical-stagebiopharmaceutical company focused on developing novel, highly potent recombinant vaccines. These vaccines leverage our virus-likeparticle (VLP) platform technology coupled with a single-use bioprocessing production system.VLPs are genetically engineered three-dimensional nanostructures that incorporate immunologically important lipids and recombinantproteins. Our VLPs resemble the virus they were engineered to mimic, but lack the genetic material to replicate the virus. Our single-usebioprocessing production technology uses insect cells rather than chicken eggs or mammalian cells. Our current product targets includevaccines against pandemic and seasonal influenza, including the H5N1 and H1N1 pandemic strains, and Respiratory Syncytial Virus(RSV).CPL Biologicals Private Limited (the JV), our joint venture formed in 2009 between us and Cadila Pharmaceuticals Ltd., a privatecompany incorporated under the laws of India (Cadila), is 80% owned by Cadila and 20% is owned by us. The JV will develop andmanufacture our pandemic and seasonal influenza vaccine candidates and Cadila’s biogeneric products and other diagnostic products forthe territory of India. In June 2010, the JV opened its newly constructed state-of-the-art manufacturing facility, 100% funded by Cadila, to beused to produce our pandemic and seasonal influenza vaccines. Because we do not control the JV, we account for our investment using theequity method. Since the carrying value of our contribution was nominal and there is no guarantee or commitment to provide future funding,we have not recorded nor do we expect to record losses related to this investment in the future.A current summary of our significant research and development programs and status of development follows: Program Development PhasePandemic Influenza (H1N1) Phase II (ended)Pandemic Influenza (H5N1) Phase IISeasonal Influenza Phase IIRespiratory Syncytial Virus (RSV) Phase IPandemic Influenza (H1N1)In 2010, we completed our clinical trial of our H1N1 influenza VLP vaccine in Mexico in collaboration with Laboratorio Avi-Mex S.A.de C.V. and GE Healthcare. This randomized, blinded, placebo-controlled clinical trial was designed to evaluate the safety andimmunogenicity of our H1N1 influenza VLP vaccine in healthy adults. We initially completed enrollment of stage-one and reported positiveresults on the vaccine’s safety and immunogenicity in the first 1,000 subjects. We initiated stage-two of the trial to evaluate the safety of thevaccine in a larger cohort and completed enrollment of more than 3,500 subjects. The 6-month safety evaluation of the subjects in thesecond-stage of the clinical trial was completed in September 2010, and no vaccine-related serious adverse events were reported. The positivefinal results of this trial were presented in February 2011 at the 7th World Health Organization Meeting on Evaluation of Pandemic InfluenzaVaccines in Clinical Trials. These results are expected to support development of our H5N1 pandemic and seasonal influenza VLP vaccinesin other countries, including the United States.Pandemic Influenza (H5N1)In 2007, we released results from a pre-clinical study in which ferrets that received our H5N1 vaccine candidate were protected from alethal challenge of the H5N1 virus. After filing an Investigational New Drug (IND) application, we initiated a Phase I/IIa clinical trial. Wereleased interim data from the first portion of this clinical trial in December 2007. These interim results demonstrated that our pandemicinfluenza vaccine36  TABLE OF CONTENTScan generate a protective immune response. We conducted the second portion of the Phase I/IIa trial in 2008 to gather additional subjectimmunogenicity and safety data and determine a final dose through the completion of this clinical trial. In August 2008, we reportedfavorable results from this clinical trial, which demonstrated strong neutralizing antibody titers across all three doses tested. A final clinicalstudy report was completed and the vaccine was well-tolerated at all dosages as compared with the placebo. No serious adverse events werereported. In February 2009, we announced that the vaccine induced robust hemagglutination inhibition (HAI) responses, which have beenshown to be important for protection against influenza disease.Seasonal InfluenzaIn April 2010, we reported the final results of our Phase II trial in older adults (60 years or higher in age) in a dose-ranging studycomparing our trivalent seasonal influenza VLP vaccine with a commercially available inactivated trivalent influenza vaccine (TIV). Theresults showed that the vaccine was both safe and immunogenic against the 2009-2010 seasonal influenza virus strains in older adults. TheCenter for Disease Control and Prevention (CDC) has indicated that currently approved seasonal influenza vaccines have shown to be only30% to 70% effective in preventing hospitalization for pneumonia and influenza in older adults; however, we believe that our trivalentseasonal influenza VLP vaccine has the potential to address this unmet medical need.In March 2010, we released final results of the Phase II trial in healthy adults (18 to 49 years in age) immunized with our trivalentseasonal influenza VLP vaccine. The results showed the vaccine was well-tolerated and immunogenic.Respiratory Syncytial Virus (RSV)Our RSV vaccine candidate has completed a pre-clinical safety and efficacy study in cotton rats; the results of which were used tosupport an IND application that we filed with the FDA in September 2010. We addressed a specific question from the FDA around ourchemistry, manufacturing and controls (CMC) that caused the agency to put our planned Phase I trial on temporary clinical hold, and inDecember 2010, the temporary clinical hold was lifted. In December 2010, we began patient enrollment in our Phase I clinical trial to assessthe safety, immunogenicity and tolerability of our RSV vaccine candidate. This blinded, placebo-controlled, escalating-dose study ofhealthy adults (18 to 49 years in age) will be tested in a total of 100 subjects.Summary of Significant Transactions in 2010 and First Quarter of 2011HHS BARDA Contract Award for Recombinant Influenza VaccinesIn September 2009, we responded to the HHS BARDA request for proposal (RFP) for a potential contract award for the advanceddevelopment of recombinant influenza vaccines. In April 2010, we were notified by HHS BARDA that our proposal was within thecompetitive range for award consideration. On September 30, 2010, at the request of HHS BARDA, we submitted final technical andbusiness proposal revisions to the RFP. In February 2011, we were awarded a contract from HHS BARDA valued at $97 million for thefirst 36 month base-period, with an HHS BARDA option for an additional period of 24 months valued at $82 million, for a total contractvalue of up to $179 million. The HHS BARDA contract award provides significant funding for our continued ongoing clinical developmentand product scale-up of our seasonal and pandemic influenza vaccine candidates. This is a cost-plus-fixed-fee reimbursement contract inwhich HHS BARDA will reimburse us for direct contract costs incurred plus allowable indirect costs and a fee earned in the furtherdevelopment of our seasonal and pandemic H5N1 influenza vaccines. Billings under the contract will be based on approved provisionalindirect billing rates, which permit recovery of fringe benefits, overhead and general and administrative expenses not exceeding certainlimits. These indirect rates will be subject to review by HHS BARDA’s auditor on an annual basis. When the final determination of theallowable costs for any year has been made, revenue and billings may be adjusted accordingly.License Agreement with LG Life Sciences, Ltd.In February 2011, we entered into a licensing agreement with LG Life Sciences, Ltd. (LGLS) that allows LGLS to use our VLPtechnology to develop and commercially sell our influenza vaccines in South Korea and certain other emerging-market countries. LGLSreceived an exclusive license to our influenza VLP technology in South Korea and a non-exclusive license in the other specified countries. Atits own cost, LGLS is37  TABLE OF CONTENTSresponsible for funding its clinical development of the influenza VLP vaccines and completing a manufacturing facility in South Korea. Wewill receive (i) a guaranteed upfront payment, (ii) potential milestone payments and (iii) double-digit royalty payments from LGLS’s futurecommercial sales of influenza VLP vaccines.At the Market Sales IssuancesIn March 2010, we terminated previous At the Market Sales Agreements with Wm Smith & Co. and entered into an At the Market SalesAgreement with McNicoll, Lewis & Vlak LLC (MLV), as sales agent, under which we could sell an aggregate of $50 million in grossproceeds of our common stock. Our Board of Directors has authorized the sale of up to 25 million shares of our common stock pursuant tothe At the Market Sales Agreement. During 2010, we sold 10,513,849 shares of our common stock at a range of $2.10 –$2.55 and receivednet proceeds of approximately $23 million under the At the Market Sales Agreement.Therapeutic Tax CreditIn July 2010, we submitted applications for qualifying therapeutic discovery project credits under §48D of the Internal Revenue Code,as amended (the “Code”), as added to the Code by section 9023(a) of the Patient Protection and Affordable Care Act of 2010. In October2010, we were awarded grants totaling approximately $1.0 million related to our applications, of which $0.8 million was received in 2010.The remainder of such grants could be received in 2011.ROVI Pharmaceuticals of Spain (ROVI)In February 2010, we terminated negotiations on a licensing arrangement with ROVI. The decision to terminate negotiations was madebecause of our inability to agree on acceptable terms of the proposed collaboration and to obtain the necessary funding commitment for theprogram. As a result, we are free to seek a new partner for our pandemic and seasonal influenza vaccine development efforts in Europe.Critical Accounting Policies and Use of EstimatesThe discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements,which have been prepared in accordance with accounting principles generally accepted in the United States.The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amountsof assets, liabilities and equity and disclosure of contingent assets and liabilities at the date of the financial statements and the reportedamounts of revenue and expenses during the reporting period. These estimates, particularly estimates relating to accounting for the valuationof our short-term investments, stock-based compensation, long-lived assets, goodwill, and valuation of our Warrants and net deferred taxassets have a material impact on our financial statements and are discussed in detail throughout our analysis of the results of operationsdiscussed below.We base our estimates on historical experience and various other assumptions that we believe are reasonable under the circumstances, theresults of which form the basis for making judgments about the carrying value of assets, liabilities and equity that are not readily apparentfrom other sources. Actual results and outcomes could differ from these estimates and assumptions.Short-Term InvestmentsOur short-term investments are classified as available-for-sale securities and are carried at fair value. Unrealized gains and losses onthese securities, if determined to be temporary, are included in accumulated other comprehensive income (loss) in stockholders’ equity. Weassess the recoverability of our short-term investments and, if an impairment is indicated, we measure the amount of such impairment bycomparing the fair value to the carrying value. Other-than-temporary impairments are included in the consolidated statements of operations.We invested in auction rate securities for short periods of time as part of our cash management program. Uncertainties in the credit marketshave prevented us from liquidating certain holdings of auction rate securities as the amount of securities submitted for sale during theauction has exceeded the amount of purchase orders. Although an event of an auction failure does not necessarily mean that a security isimpaired, we consider various factors to assess the fair value and the classification of the securities as short-term38  TABLE OF CONTENTSinvestments. Fair value was determined with the assistance of an independent valuation firm using two valuation methods — a discountedcash flow method and a market comparable method. Certain factors used in these methods include, but are not necessarily limited to,comparable securities traded on secondary markets, timing of the failed auction, specific security auction history, quality of underlyingcollateral, rating of the security and the bond insurer, our ability and intent to retain the securities for a period of time to allow for anticipatedrecovery in the market value and other factors. We recorded an other-than-temporary impairment charge of $1.3 million related to thesesecurities in 2009, which was partially offset by realized gains of $0.8 million relating to redemptions of several auction rate securities.Since that time, changes in the fair value of our auction rate securities have been included in other comprehensive income on the consolidatedbalance sheets. At December 31, 2010, we have recorded $0.8 million in unrealized gains on the auction rate securities held by us at year-end. The remainder of our short-term investments are corporate debt securities with maturities of one year or less.Stock-Based CompensationWe account for our stock-based compensation in accordance with Accounting Standards Codification (ASC) 718, Compensation-Stock Compensation. This standard requires us to measure the cost of employee services received in exchange for equity share optionsgranted based on the grant-date fair value of the options. Employee stock-based compensation is estimated at the date of grant based on theaward’s fair value using the Black-Scholes option-pricing model and is recognized as an expense on a straight-line basis over the requisiteservice period. The Black-Scholes option-pricing model requires the use of certain assumptions, the most significant of which are ourestimates of the expected volatility of the market price of our common stock and the expected term of the award. Our estimate of the expectedvolatility is based on historical volatility over the look-back period corresponding to the expected life. The expected term represents the periodduring which our stock-based awards are expected to be outstanding. In 2010, we estimated this amount based on historical experience ofsimilar awards, giving consideration to the contractual terms of the awards, vesting requirements, and expectation of future employeebehavior, including post-vesting exercise and forfeiture history. We review our valuation assumptions at each grant date and, as a result, ourassumptions in future periods may change. Also, the accounting estimate of stock-based compensation expense is reasonably likely tochange from period to period as further stock options are granted and adjustments are made for stock option cancellations.Impairments of Long-Lived AssetsWe account for the impairment of long-lived assets by performing a periodic evaluation of the recoverability of the carrying value oflong-lived assets and identifiable intangibles and whenever events or changes in circumstances indicate that the carrying value of the assetmay not be recoverable. Examples of events or changes in circumstances that indicate that the recoverability of the carrying value of an assetshould be assessed include, but are not limited to, the following: a significant decrease in the market value of an asset, a significant changein the extent or manner in which an asset is used, a significant physical change in an asset, a significant adverse change in legal factors orin the business climate that could affect the value of an asset, an adverse action or assessment by a regulator, an accumulation of costssignificantly in excess of the amount originally expected to acquire or construct an asset, a current period operating or cash flow losscombined with a history of operating or cash flow losses, and/or a projection or forecast that demonstrates continuing losses associated withan asset used for the purpose of producing revenue. We consider historical performance and anticipated future results in our evaluation ofpotential impairment. Accordingly, when indicators of impairment are present, we evaluate the carrying value of these assets in relation to theoperating performance of the business and future undiscounted cash flows expected to result from the use of these assets. Impairment lossesare recognized when the sum of expected future cash flows is less than the assets’ carrying value.39  TABLE OF CONTENTSGoodwillGoodwill originally resulted from a business acquisition in 2000. Assets acquired and liabilities assumed were recorded at their fairvalues; the excess of the purchase price over the identifiable net assets acquired is recorded as goodwill. Goodwill is not amortized, but issubject to impairment tests annually, or more frequently should indicators of impairment arise. We utilize the market approach and, ifconsidered necessary, the income approach to determine if we have an impairment of our goodwill. The market approach serves as theprimary approach and is based on market value of invested capital. The concluded fair value significantly exceeded the carrying value ofour goodwill at December 31, 2010 and 2009. The income approach is used as a confirming look to the market approach. Goodwillimpairment is deemed to exist if the carrying value of a reporting unit exceeds its estimated fair value. We perform the required annualimpairment test in our fourth quarter of each year.Given the current economic conditions and the uncertainties regarding their impact on us, there can be no assurance that the estimatesand assumptions made for purposes of our goodwill impairment testing will prove to be accurate predictions of the future, or that anychange in the assumptions or the current economic conditions will not trigger more frequently than on an annual basis. If our assumptionsare not achieved or economic conditions deteriorate further, we may be required to record goodwill impairment charges in future periods.Warrant AccountingWe account for Warrants in accordance with applicable accounting guidance in ASC 815, Derivatives and Hedging, as derivativeliabilities. As such, Warrants have been classified as a non-current liability in the Company’s consolidated statements of operations. Incompliance with applicable accounting standards, registered warrants that require the issuance of registered shares upon exercise and do notsufficiently preclude an implied right to cash settlement are accounted for as derivative liabilities. We use the Monte Carlo Simulation modelto determine the fair value of the Warrants. As a result, the valuation of Warrants is subjective, and the option-pricing model requires theinput of highly subjective assumptions, including the expected stock price volatility and probability of a Fundamental Transaction.Changes in these assumptions can materially affect the fair value estimate. We could, at any point in time, ultimately incur amountssignificantly different than the carrying value.Income TaxesWe recognize deferred tax assets and liabilities for expected future tax consequences of temporary differences between the carryingamounts and tax basis of assets and liabilities. Income tax receivables and liabilities, and deferred tax assets and liabilities, are recognizedbased on the amounts that more likely than not would be sustained upon ultimate settlement with taxing authorities.Developing our provision for income taxes and analyzing our tax position requires significant judgment and knowledge of federal andstate income tax laws, regulations and strategies, including the determination of deferred tax assets and liabilities and any valuationallowances that may be required for deferred tax assets.We assess the likelihood of realizing our deferred tax assets to determine whether an income tax valuation allowance is required. Basedon such evidence that can be objectively verified, we determine whether it is more likely than not that all or a portion of the deferred taxassets will be realized. The main factors that we consider include: cumulative losses in recent years; income/losses expected in future years;the applicable statute of limitations; and potential limitations on available net operating loss and tax credit carryforwards.Tax benefits associated with uncertain tax positions are recognized in the period in which one of the following conditions is satisfied: (1)the more likely than not recognition threshold is satisfied; (2) the position is ultimately settled through negotiation or litigation; or (3) thestatute of limitations for the taxing authority to examine and challenge the position has expired. Tax benefits associated with an uncertain taxposition are reversed in the period in which the more likely than not recognition threshold is no longer satisfied.40  TABLE OF CONTENTSA valuation allowance is established when necessary to reduce net deferred tax assets to the amount expected to be realized. We concludedthat the realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain.Accordingly, our net deferred tax assets have been fully offset by a valuation allowance.Recent Accounting Guidance Not Yet AdoptedIn September 2009, ASU 2009-13, Revenue Recognition (Topic 605) — Multiple-Deliverable Revenue Arrangements, was issuedand changed the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables)separately rather than as a combined unit. Specifically, this guidance amends the criteria in Subtopic 605-25, RevenueRecognition — Multiple-Element Arrangements, for separating consideration in multiple-deliverable arrangements. This guidanceestablishes a selling price hierarchy for determining the selling price of a deliverable, which is based on: (a) vendor-specific objectiveevidence; (b) third-party evidence; or (c) estimates. This guidance also eliminates the residual method of allocation and requires thatarrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method. Inaddition, this guidance significantly expands required disclosures related to a vendor’s multiple-deliverable revenue arrangements. ASU2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15,2010, with early adoption permitted. The impact of ASU 2009-13 on our consolidated financial statements will depend on the nature andterms of our revenue arrangements entered into or materially modified after the adoption date. However, based on our current customerarrangements, we do not believe the adoption of this ASU will have a material impact on our consolidated financial statements.In January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820) — ImprovingDisclosures about Fair Value Measurements, which amends Topic 820 to add new requirements for disclosures about transfers into andout of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements related to Level 3 measurements. ASU2010-06 also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used tomeasure fair value. The ASU was effective for the first reporting period beginning after December 15, 2009, except for the requirements toprovide the Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which will be effective for fiscal yearsbeginning after December 15, 2010, and for interim periods within those fiscal years. Early adoption is permitted. We do not believe theadoption of Level 3 activity will have a material impact on our consolidated financial statements.In March 2010, ASU 2010-17, Revenue Recognition — Milestone Method (Topic 605): Milestone Method of RevenueRecognition — a consensus of the FASB Emerging Issues Task Force, was issued and will amend the accounting for revenuearrangements under which a vendor satisfies its performance obligations to a customer over a period of time, when the deliverable or unit ofaccounting is not within the scope of other authoritative literature and when the arrangement consideration is contingent upon theachievement of a milestone. The amendment defines a milestone and clarifies whether an entity may recognize consideration earned from theachievement of a milestone in the period in which the milestone is achieved. This amendment is effective on a prospective basis formilestones achieved on or after January 1, 2011, with early adoption permitted. The amendment may be applied retrospectively to allarrangements or prospectively for milestones achieved after the effective date. We expect to prospectively apply the amended guidance tomilestones achieved on or after January 1, 2011. The new guidance is consistent with our current revenue recognition policies forarrangements with milestones. As a result, we do not believe the adoption of this ASU will have a material impact on our consolidatedfinancial statements.Results of Operations for Fiscal Years 2010, 2009 and 2008 (amounts in tables are presented in thousands, except per shareinformation)The following is a discussion of the historical consolidated financial condition and results of operations of Novavax, Inc. and its whollyowned subsidiary and should be read in conjunction with the consolidated financial statements and notes thereto set forth in this AnnualReport on Form 10-K. Additional information concerning factors that could cause actual results to differ materially from those in ourforward-looking statements is described under Item 1A. Risk Factors of this Annual Report on Form 10-K.41  TABLE OF CONTENTSRevenue: 2010 2009 2008 Change2009 to2010 Change2008 to2009Revenue: Total revenue $343 $325 $1,064 $18 $(739) Revenue for 2010 and 2009 was $0.3 million. Contract research and development revenue resulted from work under governmentcontracts.Revenue for 2009 was $0.3 million as compared to $1.1 million for 2008, a decrease of $0.8 million. The decrease in revenue in 2009,as compared to 2008, was due to lower contract research and development revenue primarily as a result of timing of work under agovernment contract.Operating Expenses: 2010 2009 2008 Change2009 to2010 Change2008 to2009Operating Expenses: Research and development $28,032 $25,780 $24,334 $2,252 $1,446 General and administrative 10,805 11,928 11,090 (1,123) 838 Total operating expenses $38,837 $37,708 $35,424 $1,129 $2,284 Research and Development ExpensesResearch and development expenses increased to $28.0 million for 2010 from $25.8 million for 2009, an increase of $2.2 million, or9%. The increase in expense was primarily due to higher employee-related costs of $1.4 million and increased depreciation expense of $0.2million.Research and development expenses increased to $25.8 million for 2009 from $24.3 million for 2008, an increase of $1.5 million, or6%, primarily due to higher research and development spending to support our clinical trials related to our H1N1 and seasonal influenzaproduct candidates. Our outside-testing costs increased by $1.9 million, which was partially offset by a decrease in facility costs of $0.4million related to the exiting of our Taft Court facility in 2008.We track our research and development expenses by the type of costs incurred in identifying, developing, manufacturing and testingvaccine candidates. We evaluate and prioritize our activities according to functional area and therefore believe that project-by-projectinformation would not form a reasonable basis for disclosure to our investors. These expenses consist primarily of salaries and relatedexpenses for personnel, costs associated with contract research and manufacturing organizations, manufacturing supplies and outsideanimal and pre-clinical testing. At December 31, 2010, we had 66 employees dedicated to our research and development programs.Historically, we did not account for internal research and development expenses by project, since our employees work time is spread acrossmultiple programs and our internal manufacturing clean-room facility produces multiple vaccine candidates.The following summarizes our research and development expenses by functional area for the year ended December 31, 2010 (inmillions). Manufacturing $12.3 Vaccine Discovery 3.7 Clinical & Regulatory Affairs 12.0 Total research & development expenses $28.0 We do not provide forward-looking estimates of costs and time to complete our research programs due to the many uncertaintiesassociated with vaccine development. As we obtain data from pre-clinical studies and clinical trials, we may elect to discontinue or delaytrials in order to focus our resources on more promising vaccine candidates. Completion of trials may take several years or more, but thelength of time can vary42  TABLE OF CONTENTSsubstantially depending upon the phase, size of trial, primary and secondary endpoints and the intended use of the vaccine candidate. Thecost of clinical trials may vary significantly over the life of a project as a result of a variety of factors, including:•the number of patients who participate in the trials;•the number of sites included in the trials;•if trial locations are domestic, international or both;•the time to enroll patients;•the duration of treatment and follow-up;•the safety and efficacy profile of the vaccine candidate; and•the cost and timing of, and the ability to secure, regulatory approvals.As a result of these uncertainties, we are unable to determine with any significant degree of certainty the duration and completion costs ofour research and development projects or when, and to what extent, we will generate future cash flows from our research projects.General and Administrative ExpensesGeneral and administrative expenses decreased to $10.8 million in 2010 from $11.9 million for 2009, a decrease of $1.1 million, or9%. The decrease in expenses was primarily due to lower professional fees of $0.9 million.General and administrative expenses were $11.9 million in 2009 compared to $11.1 million in 2008, an increase of $0.8 million, or8%. The increase in expenses was primarily due to increased employee-related costs of $0.5 million and professional fees of $0.4 million.Other Income (Expense): 2010 2009 2008 Change2009 to2010 Change2008 to2009 (As Restated) (As Restated) Other Income (Expense): Interest income $189 $285 $959 $(96) $(674) Interest expense (9) (786) (1,683) 777 897 Other income (expense) 485 — — 485 — Impairment of short-term investments — (1,338) (1,238) 1,338 (100) Realized gains on short-term investments — 848 — (848) 848 Change in fair value of warrant liability 1,671 (1,972) 1,538 3,643 (3,510) Total other income (expense) $2,336 $(2,963) $(424) $5,299 $(2,539) We had total other income of $2.3 million for 2010 compared to total other expense of $3.0 million for 2009, a change of $5.3 million.Interest expense decreased $0.8 million to less than $0.1 million for 2010 from $0.8 million for 2009 as a result of our payment of theconvertible notes in 2009. Other income increased to $0.5 million for 2010 primarily resulting from the receipt of grants under ourapplication of qualifying therapeutic discovery project credits. In 2009, we recorded an impairment of $1.3 million relating to our auctionrate securities, which was partially offset by realized gains of $0.8 million relating to redemptions of several auction rate securities. AtDecember 31, 2010, we have recorded $0.8 million in unrealized gains on the auction rate securities held by us at year-end in othercomprehensive income on the consolidated balance sheet. We are required to calculate the fair value of our warrant liability at each reportingperiod. For 2010, the change in fair value of the warrant liability resulted in a $3.6 million increase in total43  TABLE OF CONTENTSother income (expense) as compared to 2009. We will continue to mark the warrant liability to fair value at each reporting period until thewarrants are either exercised or otherwise expire.We had total other expense of $3.0 million for 2009 compared to total other expense of $0.4 million for 2008, a change of $2.6 million.Interest income decreased by $0.7 million to $0.3 million in 2009 from $1.0 million in 2008 primarily due to the decline in our cash, cashequivalents and short-term investment balances and a decrease in the rates of return on our investments. Interest expense decreased by $0.9million to $0.8 million in 2009 from $1.7 million in 2008 as a result of our payment of the convertible notes in 2009. We recorded animpairment of $1.3 million and $1.2 million in 2009 and 2008, respectively, relating to our auction rate securities, which was partiallyoffset by realized gains of $0.8 million in 2009 relating to redemptions of several auction rate securities. For 2009, the change in fair valueof the warrant liability resulted in a $3.5 million decrease in total other income (expense) as compared to 2008.Discontinued Operations:In February 2008, we sold certain assets related to our former Estrasorb business to Graceway Pharmaceuticals, LLC (Graceway) inexchange for an upfront payment. In connection with the sale, we agreed to manufacture and supply additional units of Estrasorb forGraceway, which we completed in August 2008. In 2008, we recorded income from discontinued operations of $0.3 million from our formerEstrasorb business.Income Tax: 2010 2009 2008 Change2009 to2010 Change2008 to2009Income Tax: Income tax benefit $450 $— $— $450 $— During 2010, we recorded a deferred income tax provision of $0.5 million related to a refundable income tax credit received and grantsreceived as a result of qualifying therapeutic discovery projects under Internal Revenue Code Section 48D.Net Loss: 2010 2009 2008 Change2009 to2010 Change2008 to2009 (As Restated) (As Restated) Net Loss: Net loss $(35,708) $(40,346) $(34,511) $4,638 $(5,835) Net loss per share $(0.34) $(0.47) $(0.51) $0.13 $0.04 Weighted average sharesoutstanding 104,768 85,555 68,174 19,213 17,381 Net loss for 2010 was $35.7 million, or $0.34 per share, as compared to $40.3 million, or $0.47 per share, for 2009, a decreased netloss of $4.6 million. The decreased net loss, excluding the $3.6 million favorable impact from the change in fair value of warrant liability,was primarily due to increased total other income and lower general and administrative expenses, partially offset by higher research anddevelopment spending to support our clinical trials related to our H1N1 and seasonal influenza product candidates.Net loss for 2009 was $40.3 million, or $0.47 per share, as compared to $34.5 million, or $0.51 per share, for 2008, an increased netloss of $5.8 million. The increased net loss, excluding the $3.5 million unfavorable impact from the change in fair value of warrantliability, was primarily due to higher research and development spending to support our clinical trials related to our H1N1 and seasonalinfluenza product candidates, partially offset by reduced total other expenses in 2009.The increase in weighted average shares outstanding for 2010 and 2009 is primarily a result of sales of our common stock in theaggregate of 10,513,849 shares and 27,884,098 shares, respectively.44  TABLE OF CONTENTSLiquidity Matters and Capital ResourcesOur future capital requirements depend on numerous factors including, but not limited to, the commitments and progress of ourresearch and development programs, the progress of pre-clinical and clinical testing, the time and costs involved in obtaining regulatoryapprovals, the costs of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights, and manufacturingcosts. We plan to continue to have multiple vaccines and products in various stages of development, and we believe our research anddevelopment, as well as general and administrative expenses and capital requirements will fluctuate depending upon the timing of certainevents, such as the scope, initiation, rate and progress of our pre-clinical studies and clinical trials and other research and developmentactivities.As of December 31, 2010, we had $8.1 million in cash and cash equivalents and $23.6 million in short-term investments as comparedto $38.8 million and $4.2 million, respectively, at December 31, 2009.The following table summarizes cash flows for the years ended December 31, 2010 and 2009 (in thousands): 2010 2009 Change2009 to 2010Summary of Cash Flows: Net cash (used in) provided by: Operating activities $(32,852) $(32,830) $(22) Investing activities (21,273) 2,355 (23,628) Financing activities 23,429 42,294 (18,865) Net increase (decrease) in cash and cash equivalents (30,696) 11,819 (42,515) Cash and cash equivalents at beginning of year 38,757 26,938 11,819 Cash and cash equivalents at end of year $8,061 $38,757 $(30,696) Net cash used in operating activities remained relatively flat with cash usage of $32.9 million for 2010 as compared to $32.8 million for2009.During 2010 and 2009, our investing activities consisted of purchases and maturities of short-term investments and capitalexpenditures. We purchased short-term investments in 2010 to increase our rate of return on our investments. Capital expenditures for 2010and 2009 were $1.6 million and $0.7 million, respectively. The increase in capital expenditures was primarily due to the purchase oflaboratory equipment relating to our production scale-up. For 2011, we expect our level of capital expenditures to increase in connection withthe work to be performed under the HHS BARDA contract.The decrease in our financing activities consists primarily of lower sales of our common stock. In 2010, we received net proceeds ofapproximately $23 million from the sale of our common stock through our At the Market Sales Agreement. In 2009, we received netproceeds of approximately $56 million from the sale of our common stock through our At the Market Sales Agreement, a public offeringand sales to Cadila and ROVI, partially offset by the repayment of our convertible notes of $14.4 million.We have entered into agreements with outside providers to support our clinical development. As of December 31, 2010, $4.4 millionremains unpaid on certain of these agreements in the event our outside providers complete their services in 2011. However, under the termsof the agreements, we have the option to terminate, but we would be obligated to pay the provider for all costs incurred through the effectivedate of termination.We have licensed certain rights from Wyeth and UMMS. The Wyeth license, which provides for an upfront payment, annual licensefees, milestone payments and royalties on any product sales, is a non-exclusive, worldwide license to a family of patent applicationscovering VLP technology for use in human vaccines in certain fields of use; the license may be terminated by Wyeth only for cause andmay be terminated by us only after we have provided ninety (90) days notice that we have absolutely and finally ceased activity, includingthrough any affiliate or sublicense, related to the manufacturing, development, marketing or sale of products covered by the license. In May2010, we amended the license, effective as of March 17, 2010, under which the parties agreed that we would not be obligated to make amilestone payment45  TABLE OF CONTENTSin the event our H1N1 pandemic vaccine candidate received regulatory approval in the country of Mexico, provided that we increase certainsubsequent milestone payments. Payments under the agreement to Wyeth from 2007 through 2010 aggregated $5.1 million. We do not expectto make a milestone payment to Wyeth in the next twelve months. The UMMS license, which provides for milestone payments and royaltieson product sales, is an exclusive worldwide license of VLP technology to develop VLP vaccines for the prevention of any viral diseases inhumans. As of December 31, 2010, our payments made to UMMS in the aggregate are not material. Also, we believe that all payments underthe UMMS agreement will not be material in the next twelve months.Based on our cash, cash equivalents and short-term investment balances as of December 31, 2010, anticipated revenue under the HHSBARDA contract awarded in February 2011, anticipated proceeds from the sales of our common stock under our At the Market SalesAgreement and our current business operations, we believe we will have adequate capital resources available to operate at planned levels forat least the next twelve months. Additional capital will be required in the future to develop our product candidates through clinicaldevelopment, manufacturing and commercialization. Our ability to generate revenue under the HHS BARDA contract and raise funds underour At the Market Sales Agreement is subject to our business performance and market conditions. Further we will seek additional capitalthrough further public or private equity offerings, debt financing, additional strategic alliance and licensing arrangements, non-dilutivegovernment contracts, collaborative arrangements, or some combination of these financing alternatives. Any capital raised by an equityoffering will likely be substantially dilutive to the existing stockholders and any licensing or development arrangement may require us togive up rights to a product or technology at less than its full potential value. Other than our At the Market Sales Agreement with MLV, wehave not secured any additional commitments for new financing nor can we provide any assurance that new financing will be available oncommercially acceptable terms, if at all. If we are unable to perform under the HHS BARDA contract and obtain additional capital, we willassess our capital resources and will likely be required to delay, reduce the scope of, or eliminate one or more of our product research anddevelopment programs, downsize our organization, or reduce our general and administrative infrastructure.Contractual ObligationsThe following table summarizes our contractual obligations as of December 31, 2010 (in thousands): Contractual Obligations: Total Less thanOne Year 1 – 3Years 3 – 5Years More than5 YearsOperating leases $12,797 $2,087 $4,311 $4,167 $2,232 Notes payable 400 80 320 — — Purchase obligations 7,384 994 6,390 — — Total contractual obligations $20,581 $3,161 $11,021 $4,167 $2,232 Our purchase obligations include our anticipated timing of future purchases for services pursuant to the master services agreement withCadila. We are required to purchase from Cadila through March 2012 services for biologic research, pre-clinical development, clinicaldevelopment, process development, manufacturing scale-up, and general manufacturing related services. As of December 31, 2010, ourremaining obligation to Cadila under the master services agreement is $7.4 million.Off-Balance Sheet ArrangementsWe are not involved in any off-balance sheet agreements that have or are reasonably likely to have a material future effect on ourfinancial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures, or capitalresources.46  TABLE OF CONTENTSItem 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKThe primary objective of our investment activities is to preserve our capital until it is required to fund operations while at the same timemaximizing the income we receive from our investments without significantly increasing risk. As of December 31, 2010, we had cash andcash equivalents of $8.1 million, short-term investments of $23.6 million and working capital of $23.1 million.Our exposure to market risk is primarily confined to our investment portfolio. As of December 31, 2010, our short-term investmentswere classified as available-for-sale. We do not believe that a change in the market rates of interest would have any significant impact on therealizable value of our investment portfolio. Changes in interest rates may affect the investment income we earn on our investments whenthey mature and the proceeds are reinvested into new investments and, therefore, could impact our cash flows and results of operations.We had previously invested in auction rate securities for short periods of time as part of our cash management program. Short-terminvestments at December 31, 2010 include investments in three auction rate securities with a par value of $5.1 million and a fair value of$4.1 million. We recorded an other-than-temporary impairment charge of $1.3 million and $1.2 million related to these securities in 2009and 2008 respectively, which was partially offset by realized gains of $0.8 million in 2009 relating to redemptions of several auction ratesecurities. At December 31, 2010, we have recorded $0.8 million in unrealized gains on the auction rate securities included in othercomprehensive income on the consolidated balance sheet. These investments are classified within current assets because we may need toliquidate these securities within the next year to fund our ongoing operations.Interest and dividend income is recorded when earned and included in interest income. Premiums and discounts, if any, on short-terminvestments are amortized or accreted to maturity and included in interest income. The specific identification method is used in computingrealized gains and losses on the sale of our securities.We are headquartered in the United States where we conduct the vast majority of our business activities. Accordingly, we have not hadany material exposure to foreign currency rate fluctuations.We do not have material debt and, as such, do not believe that we are exposed to any material interest rate risk as a result of ourborrowing activities.Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAThe information required by this item is set forth on pages F-1 to F-35.Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIALDISCLOSURENone.Item 9A. CONTROLS AND PROCEDURESEvaluation of Disclosure Controls and ProceduresThe term “disclosure controls and procedures” (defined in SEC Rule 13a-15(e)) refers to the controls and other procedures of a companythat are designed to ensure that information required to be disclosed by a company in the reports that it files under the Securities ExchangeAct of 1934 (the Exchange Act) is recorded, processed, summarized and reported, within time periods specified in the rules and forms of theSecurities and Exchange Commission. “Disclosure controls and procedures” include, without limitation, controls and procedures designedto ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act isaccumulated and communicated to the company’s management, including its principal executive and principal financial officers, or personsperforming similar functions, as appropriate to allow timely decisions regarding required disclosure.47  TABLE OF CONTENTSThe Company’s management, with the participation of the chief executive officer and the chief financial officer, has evaluated theeffectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this annual report (the EvaluationDate). Based on that evaluation and management’s identification of a material weakness in its internal control over financial reporting, asdisclosed below, the Company’s chief executive officer and chief financial officer have concluded that, as of the Evaluation Date, suchcontrols and procedures were not effective.Management’s Report on Internal Control over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control overfinancial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act, as a process designed by, or under thesupervision of, the Company’s principal executive officer and principal financial officer and effected by the Company’s board of directors,management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with GAAP. Such internal control includes those policies and procedures that:•pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of theassets of the Company;•provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordancewith GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations ofmanagement and directors of the Company; and•provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of theCompany’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, orthat the degree of compliance with the policies or procedures may deteriorate.Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2010. In making thisassessment, our management used the criteria set forth in Internal Control — Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission (COSO). A material weakness in internal control is a deficiency in internal control,or combination of control deficiencies, that adversely affects the Company’s ability to initiate, authorize, record, process, or report externalfinancial data reliably in accordance with GAAP such that there is more than a remote likelihood that a material misstatement of theCompany’s annual or interim financial statements will not be prevented or detected. In the course of making our assessment of theeffectiveness of internal control over financial reporting, we identified one material weakness in our internal control over financial reporting.The material weakness related to having sufficient technical resources to appropriately analyze and account for complex derivativeinstruments, specifically with regard to our prior interpretation of ASC 815, Derivatives and Hedging, as it related to the initialclassification and subsequent accounting of our Warrants as equity instruments dating back to July 2008. Given this material weaknesswith regard to our treatment of these Warrants, management concluded that we did not maintain effective internal control over financialreporting as of December 31, 2010.We plan to devote resources to the remediation and improvement of our internal control over financial reporting, in particular overhandling of complex derivative accounting issues. As the Company enters into transactions that involve complex accounting issues, it willconsult with third party professionals with expertise in these matters as necessary to insure appropriate accounting treatment for suchtransactions.Grant Thornton LLP has issued an attestation report on our internal control over financial reporting. This report is included in theReport of Independent Registered Public Accounting Firm in Item 15.48  TABLE OF CONTENTSChanges in Internal Control over Financial ReportingOur management, including our chief executive officer and chief financial officer, has evaluated any changes in our internal control overfinancial reporting that occurred during the quarterly period ended December 31, 2010, and has concluded that there was no change thatoccurred during the quarterly period ended December 31, 2010 that materially affected, or is reasonably likely to materially affect, ourinternal control over financial reporting.Item 9B. OTHER INFORMATIONIn December 2010, the Company amended its sublease agreement with PuriCore, Inc. (“PuriCore”) to extend the term of the subleasethrough August 2014 and modify PuriCore base rent amounts and its security deposit obligation.49  TABLE OF CONTENTSPART IIIItem 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEWe incorporate herein by reference the information concerning our directors, officers and corporate governance to be included in ourdefinitive Proxy Statement for our 2011 Annual Meeting of Stockholders scheduled to be held on June 15, 2011 (the 2011 Proxy Statement).We expect to file the 2011 Proxy Statement within 120 days after the close of the fiscal year ended December 31, 2010.Item 11. EXECUTIVE COMPENSATIONWe incorporate herein by reference the information concerning executive compensation to be contained in the 2011 Proxy Statement.Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATEDSTOCKHOLDER MATTERSWe incorporate herein by reference the information concerning security ownership of certain beneficial owners and management andrelated stockholder matters to be contained in the 2011 Proxy Statement.The following table provides our equity compensation plan information as of December 31, 2010. Under these plans, our commonstock may be issued upon the exercise of options. See also the information regarding our stock options in Note 10 to the ConsolidatedFinancial Statements included herewith.Equity Compensation Plan Information Plan Category Number of Securitiesto be IssuedUpon Exercise ofOutstanding Options,Warrants and Rights (a) Weighted-AverageExercise Price ofOutstanding Options,Warrants and Rights (b) Number of SecuritiesRemaining Availablefor Future IssuanceUnder EquityCompensation Plans(Excluding SecuritiesReflected in Column(a) (c)Equity compensation plans approved bysecurity holders(1) 5,794,644 $2.62 2,652,655 Equity compensation plans not approvedby security holders N/A N/A N/A (1)Includes our 2005 Stock Incentive Plan and 1995 Stock Option Plan.Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEWe incorporate herein by reference the information concerning certain related party transactions set forth in Note 15 to our ConsolidatedFinancial Statements included herewith. We incorporate herein by reference the information concerning certain other relationships and relatedtransactions and director independence to be contained in the 2011 Proxy Statement.Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICESWe incorporate herein by reference the information concerning principal accountant fees and services to be contained in the 2011 ProxyStatement.50  TABLE OF CONTENTSPART IVItem 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES(a)The following documents are filed as part of the Annual Report on Form 10-K:(1)Index to Consolidated Financial Statements Reports of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets as of December 31, 2010 and 2009 F-4 Consolidated Statements of Operations for the years ended December 31, 2010, 2009 and 2008 F-5 Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2010, 2009and 2008 F-6 Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008 F-7 Notes to Consolidated Financial Statements F-8 (2)Consolidated Financial Statement SchedulesSchedule II — Valuation and Qualifying AccountsAll other financial statement schedules are omitted because they are not applicable, not required under the instructions or all theinformation required is set forth in the financial statements or notes thereto.(3)ExhibitsExhibits marked with a single asterisk (*) are filed herewith.Exhibits marked with a double plus sign (††) refer to management contracts, compensatory plans or arrangements.Confidential treatment has been granted for portions of exhibits marked with a triple asterisk (**).All other exhibits listed have previously been filed with the Commission and are incorporated herein by reference. 3.1 Amended and Restated Certificate of Incorporation of the Registrant (Incorporated by reference to Exhibit 3.1to the Company’s Annual Report on Form 10-K for the year ended December 31, 1996, filed March 21,1997), as amended by the Certificate of Amendment dated December 18, 2000 (Incorporated by reference toExhibit 3.4 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000, filedMarch 29, 2001), as further amended by the Certificate of Amendment dated July 8, 2004 (Incorporated byreference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30,2004, filed August 9, 2004), as further amended by the Certificate of Amendment dated May 13, 2009(Incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarterended June 30, 2009) 3.2 Amended and Restated By-Laws of the Company, as amended on August 2, 2007 (Incorporated byreference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed August 8, 2007) 4.1 Specimen stock certificate for shares of common stock, par value $.01 per share (Incorporated by referenceto Exhibit 4.1 to the Company’s Registration Statement on Form 10, File No. 0-26770, filed September 14,1995) 4.2 Rights Agreement, dated as of August 8, 2002, by and between the Company and Equiserve TrustCompany, which includes the Form of Summary of Rights to Purchase Series D Junior ParticipatingPreferred Stock as Exhibit A, the Form of Right Certificate as Exhibit B and the Form of Certificate ofDesignation of Series D Junior Participating Preferred Stock as Exhibit C (Incorporated by reference toExhibit 4.1 to the Company’s Current Report on Form 8-K, filed August 9, 2002)51  TABLE OF CONTENTS 4.3 Registration Rights Agreement between Novavax, Inc. and Satellite Overseas (Holdings) Limited, datedMarch 31, 2009 (Incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009) 4.4 Form of Common Stock Purchase Warrant (Incorporated by reference to Exhibit 4.1 to the Company’sCurrent Report on Form 8-K, filed July 30, 2008)10.1†† Novavax, Inc. 1995 Stock Option Plan, as amended (Incorporated by reference to Appendix A of theCompany’s Definitive Proxy Statement filed March 31, 2003 in connection with the Annual Meeting held onMay 7, 2003)10.2†† Novavax, Inc. Amended and Restated 2005 Stock Incentive Plan (Incorporated by reference to Exhibit 10.2of the Company’s Current Report on Form 8-K, filed January 5, 2009)10.3†† Employment Agreement of Stanley C. Erck, dated as of February 15, 2010 (Incorporated by reference toExhibit 10.1 to the Company’s Current Report on Form 8-K, filed June 1, 2010)10.4†† Amended and Restated Employment Agreement of Rahul Singhvi, effective July 20, 2009 (Incorporated byreference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed July 22, 2009)10.5†† Amendment to Amended and Restated Employment Agreement of Rahul Singhvi, dated May 27, 2010(Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed June 1,2010)10.6†† Amended and Restated Employment Agreement, dated as of August 2, 2007, originally effective November9, 2005, by and between the Company and Raymond J. Hage, Jr. (Incorporated by reference to Exhibit 10.4to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007, filed August 9,2007)10.7†† Amendment to the Amended and Restated Employment Agreement of Raymond Hage, Jr., dated October 2,2008 (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filedOctober 10, 2008)10.8†† Second Amendment to Amended and Restated Employment Agreement of Raymond Hage, Jr., effective July20, 2009 (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filedJuly 22, 2009)10.9†† Severance Agreement of Raymond J. Hage, Jr., dated April 7, 2010 (Incorporated by reference to Exhibit10.47 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, filed May10, 2010)10.10†† Severance Agreement of James Robinson dated February 1, 2010 (Incorporated by reference to Exhibit 10.11to the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, filed March 16,2010)10.11†† Employment Agreement between Novavax, Inc. and Frederick Driscoll dated August 6, 2009 (Incorporatedby reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed August 7, 2009)10.12†† Employment Agreement of Thomas Johnston dated September 23, 2008 (Incorporated by reference toExhibit 10.13 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, filedMarch 16, 2010)10.13†† Amendment to the Employment Agreement of Thomas Johnston dated as of July 20, 2009 (Incorporated byreference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the year ended December 31,2009, filed March 16, 2010)10.14†† Employment Agreement of John Trizzino dated July 16, 2009 (Incorporated by reference to Exhibit 10.15 tothe Company’s Annual Report on Form 10-K for the year ended December 31, 2009, filed March 16, 2010)10.15†† Employment Agreement of Mark Thornton dated May 6, 2010 (Incorporated by reference to Exhibit 10.1 tothe Company’s Current Report on Form 8-K, filed May 25, 2010)52  TABLE OF CONTENTS 10.16†† Employment Agreement of Gregory Glenn dated July 1, 2010 (Incorporated by reference to Exhibit 10.1 tothe Company’s Current Report on Form 8-K, filed July 6, 2010)10.17†† Consulting Agreement, dated as of April 1, 2010, between the Company and John Lambert (Incorporated byreference to Exhibit 10.50 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30,2010, filed August 6, 2010) )10.18†† Novavax, Inc. Amended and Restated Change in Control Severance Benefit Plan, (Incorporated by referenceto Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed January 5, 2009)10.19†† Form of Indemnity Agreement, as of January 1, 2010 (Incorporated by reference to Exhibit 10.19 to theCompany’s Annual Report on Form 10-K for the year ended December 31, 2009, filed March 16, 2010)10.20 Lease Agreement, dated as of July 15, 2004, between Liberty Property Limited Partnership and theCompany (Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report in Form 10-Q forthe quarter ended June 30, 2004, filed August 9, 2004)10.21 Sublease Agreement, dated April 28, 2006, by and between the Company and Sterilox Technologies, Inc.(now PuriCore, Inc.) (Incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form10-Q for the quarter ended June 30, 2006, filed August 14, 2006)10.22 Amendment dated as of October 25, 2006 to the Sublease Agreement, dated April 28, 2006, by andbetween the Company and Sterilox Technologies, Inc. (now PuriCore, Inc.) (Incorporated by reference toExhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006,filed November 14, 2006)10.23 Second Amendment to Sublease Agreement between Novavax, Inc. and PuriCore, Inc., dated April 22,2009 (Incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report for the quarter endedJune 30, 2009, filed August 10, 2009)10.24* Third Amendment to Sublease Agreement between Novavax, Inc. and PuriCore, Inc., dated December 29,201010.25 Lease, commencing April 1, 2005, by and between United Health Care Services, Inc. and the Company(Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterended June 30, 2005, filed August 9, 2005)10.26 Lease Agreement between GP Rock One, LLC and Novavax, Inc., dated as of May 7, 2007 (Incorporatedby reference to Exhibit 10.4 to the Company’s Quarterly Report for the quarter ended June 30, 2008, filedAugust 11, 2008)10.27 First Amendment to Lease Agreement between GP Rock One, LLC and Novavax, Inc., dated as of May 30,2008 (Incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report for the quarter endedJune 30, 2008, filed August 11, 2008)10.28 Second Amendment to Lease Agreement between BMR-9920 Belward Campus Q, LLC (formerly GP RockOne, LLC) and Novavax, Inc., dated as of June 26, 2008 (Incorporated by reference to Exhibit 10.6 to theCompany’s Quarterly Report for the quarter ended June 30, 2008, filed August 11, 2008)10.29 License Agreement between IGEN, Inc. and the Company (Incorporated by reference to Exhibit 10.3 to theCompany’s Annual Report on Form 10-K for the fiscal year ended December 31, 1995, filed April 1,1996)10.30** Exclusive License Agreement, dated February 26, 2007, between the Company and the University ofMassachusetts (Incorporated by reference to Exhibit 10.34 to the Company’s Annual Report on Form 10-Kfor the fiscal year ended December 31, 2006, filed March 14, 2007)10.31** License Agreement, dated July 5, 2007, between the Company and Wyeth Holdings Corporation(Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterended June 30, 2007, filed August 9, 2007)53  TABLE OF CONTENTS 10.32** Amendment No. 1 to License Agreement, effective as of March 17, 2010, between the Company and WyethHoldings Corporation (Incorporated by reference to Exhibit 10.49 to the Company’s Quarterly Report onForm 10-Q for the quarter ended June 30, 2010, filed August 6, 2010)10.33 Form of Investor Rights Agreement dated July 29, 2008 (Incorporated by reference to Exhibit 10.2 to theCompany’s Current Report on Form 8-K, filed July 30, 2008)10.34 Forbearance and Pledge Agreement among Denis O’Donnell and the Company, dated May 7, 2007, relatingto Secured Promissory Note and Pledge Agreement, each dated March 21, 2002 and filed as Exhibits 10.11and 10.12 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002(Incorporated by reference to Exhibit 10.32 to the Company’s Amendment No. 1on Form 10-K/A for theyear ended December 31, 2007, filed on December 12, 2008)10.35 Amended and Restated Promissory Note by Mitchell J. Kelly to the Company, dated May 7, 2008, relatingto Secured Promissory Note, dated March 21, 2002 and filed as Exhibit 10.9 to the Company’s AnnualReport on Form 10-K for the fiscal year ended December 31, 2002 (Incorporated by reference to Exhibit10.33 to the Company’s Amendment No. 1on Form 10-K/A for the year ended December 31, 2007, filed onDecember 12, 2008)10.36 Amended and Restated Pledge Agreement among Mitchell J. Kelly and the Company, dated May 7, 2008,relating to Pledge Agreement, dated March 21, 2002 and filed as Exhibit 10.10 to the Company’s AnnualReport on Form 10-K for the fiscal year ended December 31, 2002 (Incorporated by reference to Exhibit10.34 to the Company’s Amendment No. 1on Form 10-K/A for the year ended December 31, 2007, filed onDecember 12, 2008)10.37 At Market Issuance Sales Agreement, dated September 15, 2009, by and between Novavax, Inc. and Wm.Smith & Co. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K,filed on September 15, 2009)10.38 At Market Issuance Sales Agreement, dated March 15, 2010, by and between Novavax, Inc. andMcNicoll, Lewis and Vlak, LLC (Incorporated by reference to Exhibit 10.37 to the Company’s AnnualReport on Form 10-K for the year ended December 31, 2009, filed March 16, 2010)10.39 Stock Purchase Agreement between Novavax, Inc. and Satellite Overseas (Holdings) Limited, dated March31, 2009 (Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q forthe quarter ended March 31, 2009)10.40** Amended and Restated Joint Venture Agreement between Novavax Inc. and Cadila Pharmaceuticals Limited,dated as of June 29, 2009 (Incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report onForm 10-Q for the quarter ended June 30, 2009, filed on August 10, 2009)10.41** Amended and Restated Master Services Agreement between Novavax, Inc. and Cadila PharmaceuticalsLimited, dated as of June 29, 2009 (Incorporated by reference to Exhibit 10.5 to the Company’s QuarterlyReport on Form 10-Q for the quarter ended June 30, 2009, filed on August 10, 2009)10.42** Amended and Restated Supply Agreement between Novavax, Inc. and CPL Biologicals Limited, dated as ofJune 29, 2009 (Incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Qfor the quarter ended June 30, 2009, filed on August 10, 2009)10.43** Amended and Restated Technical Services Agreement between Novavax, Inc. and CPL Biologicals Limited,dated as of June 29, 2009 (Incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report onForm 10-Q for the quarter ended June 30, 2009, filed on August 10, 2009)10.44** Amended and Restated Seasonal / Other License Agreement between Novavax, Inc. and CPL BiologicalsLimited, dated as of June 29, 2009 (Incorporated by reference to Exhibit 10.8 to the Company’s QuarterlyReport on Form 10-Q for the quarter ended June 30, 2009, filed on August 10, 2009)54  TABLE OF CONTENTS 10.45** Amended and Restated Option to Obtain License between Novavax, Inc. and CPL Biologicals Limited,dated as of June 29, 2009 (Incorporated by reference to Exhibit 10.9 to the Company’s Quarterly Report onForm 10-Q for the quarter ended June 30, 2009, filed on August 10, 2009)10.46** H1N1 License to Agreement between Novavax, Inc. and CPL Biologicals Private Limited, dated October 6,2009 (Incorporated by reference to Exhibit 10.45 to the Company’s Annual Report on Form 10-K for theyear ended December 31, 2010)10.47** Materials Transfer Agreement by and between Novavax, Inc. and Laboratorio Avi-Mex S.A. de C.V., datedOctober 19, 2009 (Incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form10-Q for the quarter ended September 30, 2009, filed on November 9, 2009)14 Code of Business Conduct and Ethics(Incorporated by reference to Exhibit 14 to the Company’s AnnualReport on Form 10-K for the year ended December 31, 2010, filed on March 16, 2010)23.1* Consent of Grant Thornton LLP, Independent Registered Public Accounting Firm31.1* Certification of chief executive officer pursuant to Rule 13a-14(a) or 15d-14(e) of the Securities ExchangeAct31.2* Certification of chief financial officer pursuant to Rule 13a-14(a) or 15d-14(e) of the Securities ExchangeAct32.1* Certification of chief financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section906 of the Sarbanes-Oxley Act of 200232.2* Certification of chief financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section906 of the Sarbanes-Oxley Act of 200255  TABLE OF CONTENTSSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned, thereunto duly authorized. NOVAVAX, INC. By:/s/ Rahul SinghviPresident and Chief Executive Officerand DirectorDate: March 28, 2011Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons onbehalf of the Registrant and in the capacities and on the dates indicated: Name Title Date/s/ Rahul SinghviRahul Singhvi President and Chief Executive Officer and Director(Principal Executive Officer) March 28, 2011/s/ Frederick W. DriscollFrederick W. Driscoll Vice President, Chief Financial Officer and Treasurer(Principal Financial Officer and Principal AccountingOfficer) March 28, 2011/s/ Stanley C. ErckStanley C. Erck Executive Chairman of the Board of Directors March 28, 2011/s/ Gary C. EvansGary C. Evans Lead Independent Director March 28, 2011/s/ Richard H. DouglasRichard H. Douglas Director March 28, 2011/s/ John O. Marsh, Jr.John O. Marsh, Jr. Director March 28, 2011/s/ Michael A. McManusMichael A. McManus Director March 28, 2011/s/ Rajiv ModiRajiv Modi Director March 28, 2011/s/ James F. YoungJames F. Young Director March 28, 201156  TABLE OF CONTENTSINDEX TO CONSOLIDATED FINANCIAL STATEMENTSYears ended December 31, 2010, 2009 and 2008 Contents Reports of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets as of December 31, 2010 and 2009 F-4 Consolidated Statements of Operations for the years ended December 31, 2010, 2009 and 2008 F-5 Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2010, 2009 and 2008 F-6 Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008 F-7 Notes to Consolidated Financial Statements F-8 Schedule II — Valuation and Qualifying Accounts F-1  TABLE OF CONTENTSREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMBoard of Directors and Shareholders ofNovavax, Inc. and SubsidiaryWe have audited the accompanying consolidated balance sheets of Novavax, Inc. (a Delaware corporation) and its subsidiary(collectively the “Company”) as of December 31, 2010 and 2009, and the related consolidated statements of operations, stockholders’equity, and cash flows for each of the three years in the period ended December 31, 2010. Our audits of the basic financial statementsincluded the financial statement schedule listed in the index appearing under Item 15(a)(2). These financial statements and financialstatement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financialstatements and financial statement schedule based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements arefree of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in theconsolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall consolidated financial statement presentation. We believe our audits provide a reasonable basisfor our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position ofNovavax, Inc. and subsidiary as of December 31, 2010 and 2009, and the results of its operations and its cash flows for each of the threeyears in the period ended December 31, 2010 in conformity with accounting principles generally accepted in the United States of America.Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole,presents fairly, in all material respects, the information set forth therein.As discussed in Note 2, the 2009 and 2008 consolidated financial statements have been restated to correct a misstatement related to theaccounting for registered warrants.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), theCompany’s internal control over financial reporting as of December 31, 2010, based on criteria established in InternalControl — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and ourreport dated March 28, 2011 expressed an adverse opinion thereon./s/ Grant Thornton LLP McLean, VirginiaMarch 28, 2011F-2  TABLE OF CONTENTSREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMBoard of Directors and Shareholders ofNovavax, Inc. and SubsidiaryWe have audited Novavax, Inc. (a Delaware Corporation) and its subsidiary’s internal control over financial reporting as of December31, 2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO). Novavax Inc. and its subsidiary’s management is responsible for maintainingeffective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting,included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express anopinion on Novavax Inc. and its subsidiary’s internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financialreporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting,assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based onthe assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our auditprovides a reasonable basis for our opinion.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accountingprinciples. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance ofrecords that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generallyaccepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations ofmanagement and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections ofany evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes inconditions, or that the degree of compliance with the policies or procedures may deteriorate.A material weakness is a deficiency, or combination of control deficiencies, in internal control over financial reporting, such that there isa reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented ordetected on a timely basis. The following material weakness has been identified and included in management’s assessment. Novavax, Inc.and its subsidiary did not have sufficient technical resources to appropriately analyze and account for complex derivative instruments.Specifically, the process and procedures for the classification and subsequent accounting of registered warrants as liabilities or equityinstruments were not effective.In our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria,Novavax, Inc and its subsidiary have not maintained effective internal control over financial reporting as of December 31, 2010, based oncriteria established in Internal Control — Integrated Framework issued by COSO.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), theconsolidated financial statements of Novavax Inc. and subsidiary for each of the three years in the period ended December 31, 2010. Thematerial weakness identified above was considered in determining the nature, timing, and extent of audit tests applied in our audit of the2010 financial statements, and this report does not affect our report dated March 28, 2011 which expressed an unqualified opinion on thosefinancial statements./s/ Grant Thornton LLP McLean, VAMarch 28, 2011F-3  TABLE OF CONTENTSNOVAVAX, INC. CONSOLIDATED BALANCE SHEETS December 31, 2010 2009 (As Restated) (in thousands, except share andper share information)ASSETS Current assets: Cash and cash equivalents $8,061 $38,757 Short-term investments available-for-sale 23,615 4,193 Accounts and other receivables 54 258 Prepaid expenses and other current assets 1,607 1,295 Total current assets 33,337 44,503 Property and equipment, net 8,206 7,801 Goodwill 33,141 33,141 Other non-current assets 160 160 Total assets $74,844 $85,605 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $3,572 $2,098 Accrued expenses and other current liabilities 6,273 5,417 Current portion of notes payable 80 80 Deferred revenue — 150 Deferred rent 341 282 Total current liabilities 10,266 8,027 Warrant liability 2,842 4,513 Non-current portion of notes payable 320 406 Deferred rent 2,366 2,707 Total liabilities 15,794 15,653 Commitments and contingences — — Stockholders’ equity: Preferred stock, $0.01 par value, 2,000,000 shares authorized; no shares issued andoutstanding — — Common stock, $0.01 par value, 200,000,000 shares authorized; and 111,492,014shares issued and 111,036,584 shares outstanding at December 31, 2010 and100,717,890 shares issued and 100,262,460 shares outstanding at December 31,2009 1,115 1,007 Additional paid-in capital 371,477 346,731 Notes receivable from former directors (1,572) (1,572) Accumulated deficit (310,292) (274,584) Treasury stock, 455,430 shares, cost basis (2,450) (2,450) Accumulated other comprehensive income 772 820 Total stockholders’ equity 59,050 69,952 Total liabilities and stockholders’ equity $74,844 $85,605 The accompanying notes are an integral part of these consolidated financial statements.F-4  TABLE OF CONTENTSNOVAVAX, INC. CONSOLIDATED STATEMENTS OF OPERATIONS For the Years ended December 31, 2010 2009 2008 (As Restated) (As Restated) (in thousands, except per share information)Revenue $343 $325 $1,064 Operating expenses: Research and development 28,032 25,780 24,334 General and administrative 10,805 11,928 11,090 Total operating expenses 38,837 37,708 35,424 Loss from continuing operations before other income (expense) (38,494) (37,383) (34,360) Other income (expense): Interest income 189 285 959 Interest expense (9) (786) (1,683) Other income (expense) 485 — — Impairment of short-term investments — (1,338) (1,238) Realized gains on short-term investments — 848 — Change in fair value of warrant liability 1,671 (1,972) 1,538 Loss from continuing operations before income tax (36,158) (40,346) (34,784) Income tax benefit 450 — — Loss from continuing operations (35,708) (40,346) (34,784) Income from discontinued operations — — 273 Net loss $(35,708) $(40,346) $(34,511) Basic and diluted net loss per share: Loss per share from continuing operations $(0.34) $(0.47) $(0.51) Loss per share from discontinued operations — — — Net loss per share $(0.34) $(0.47) $(0.51) Basic and diluted weighted average number of common shares outstanding 104,768 85,555 68,174 The accompanying notes are an integral part of these consolidated financial statements.F-5  TABLE OF CONTENTSNOVAVAX, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITYFor the Years ended December 31, 2010, 2009 and 2008 Common Stock AdditionalPaid-inCapital NotesReceivableFrom FormerDirectors AccumulatedDeficit TreasuryStock AccumulatedOtherComprehensiveIncome TotalStockholders’Equity Shares Amount (As Restated) (As Restated) (As Restated) (in thousands, except share information)Balance at January 1, 2008 62,356,977 624 264,618 — (199,727) (2,450) — 63,065 Non-cash compensation costs for stockoptions and restricted stock — — 2,070 — — — — 2,070 Exercise of stock options 176,394 1 328 — — — — 329 Issuance of common stock, net of issuancecosts of $420 6,686,650 67 13,357 — — — — 13,424 Reclassification of former directors’ notesreceivable — — 143 (1,572) — — (1,429) Net loss — — — (34,511) — (34,511) Balance at December 31, 2008 69,220,021 692 280,516 (1,572) (234,238) (2,450) — 42,948 Non-cash compensation cost for stockoptions and restricted stock — — 1,533 — — — — 1,533 Exercise of stock options 546,832 5 947 — — — — 952 Restricted stock issued as compensation 10,000 — — — — — — — Issuance of common stock to Cadila, net ofissuance costs of $406 12,500,000 125 10,469 — — — — 10,594 Issuance of common stock to Rovi, net ofissuance costs of $23 1,094,891 11 2,966 — — — — 2,977 Conversion of convertible debt 3,056,939 31 7,629 — — — — 7,660 Issuance of common stock under ATM,net of issuance costs of $682 7,489,207 75 21,930 — — — — 22,005 Issuance of common stock, net of issuancecosts of $1,631 6,800,000 68 20,741 — — — — 20,809 Unrealized gain (loss) on short-terminvestments — — — — — — 820 820 Net loss — — — (40,346) — — (40,346) Balance at December 31, 2009 100,717,890 1,007 346,731 (1,572) (274,584) (2,450) 820 69,952 Non-cash compensation costs for stockoptions and restricted stock — — 1,339 — — — — 1,339 Exercise of stock options 261,942 3 423 — — — — 426 Restricted stock issued as compensation 75,000 1 (1) — — — — — Restricted stock cancelled (76,667) (1) 1 — — — — — Issuance of common stock under ATM,net of issuance costs of $468 10,513,849 105 22,984 — — — — 23,089 Unrealized gain (loss) on short-terminvestments — — — — — — (48) (48) Net loss — — — (35,708) — — (35,708) Balance at December 31, 2010 111,492,014 1,115 $371,477 $(1,572) $(310,292) $(2,450) $772 $59,050 The accompanying notes are an integral part of these consolidated financial statements.F-6  TABLE OF CONTENTSNOVAVAX, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years ended December 31, 2010 2009 2008 (As Restated) (As Restated) (in thousands)Operating Activities: Net loss $(35,708) $(40,346) $(34,511) Less income from discontinued operations — — (273) Net loss from continuing operations (35,708) (40,346) (34,784) Reconciliation of net loss to net cash used in operating activities: Change in fair value of warrant liability (1,671) 1,972 (1,538) Depreciation and amortization 1,372 1,194 893 Amortization of deferred financing costs — 147 258 Amortization of debt discount — 222 409 Loss on disposal of property and equipment 35 21 258 Impairment of long-lived assets 162 23 994 Amortization of net premiums (discounts) on short-term investments 247 — (181) Reserve for notes receivable and accrued interest — — (534) Deferred rent (282) (279) (123) Non-cash stock-based compensation 1,339 1,533 2,070 Lease incentives received — — 3,000 Net impairment of short-term investments — 490 1,238 Changes in operating assets and liabilities: Accounts and other receivables 204 32 438 Prepaid expenses and other current assets (312) (536) 674 Other non-current assets — — 18 Accounts payable and accrued expenses 1,912 2,547 141 Deferred revenue (150) 150 — Net cash used in operating activities from continuing operations (32,852) (32,830) (26,769) Net cash provided by operating activities from discontinued operations — — 2,459 Net cash used in operating activities (32,852) (32,830) (24,310) Investing Activities: Capital expenditures (1,556) (745) (5,689) Proceeds from disposal of property and equipment — — 121 Purchases of short-term investments (38,717) — (15,650) Proceeds from maturities of short-term investments 19,000 3,100 49,770 Net cash (used in) provided by investing activities from continuing operations (21,273) 2,355 28,552 Net cash provided by investing activities from discontinued operations — — 1,354 Net cash (used in) provided by investing activities (21,273) 2,355 29,906 Financing Activities: Principal payments of notes payable (86) (15,043) (1,040) Proceeds from other borrowings — — 200 Net proceeds from sales of common stock 23,089 56,385 17,503 Proceeds from the exercise of stock options 426 952 329 Net cash provided by financing activities 23,429 42,294 16,992 Net (decrease) increase in cash and cash equivalents (30,696) 11,819 22,588 Cash and cash equivalents at beginning of year 38,757 26,938 4,350 Cash and cash equivalents at end of year $8,061 $38,757 $26,938 Supplemental disclosure of non-cash activities: Conversion of convertible debt and accrued interest to common stock $— $7,660 $— Equipment purchases included in accounts payable $418 $66 $— Financed insurance premiums $— $— $570 Supplemental disclosure of cash flow information: Cash interest payments $— $817 $1,040 The accompanying notes are an integral part of these consolidated financial statements.F-7  TABLE OF CONTENTSNOVAVAX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2010, 2009 and 2008RestatementThe accompanying Consolidated Balance Sheet as of December 31, 2009 and the Consolidated Statements of Operations, Stockholders’Equity and Cash Flows for the years ended December 31, 2009 and 2008, have been restated in this Annual Report on Form 10-K toreclassify certain warrants as a liability and to mark such liability to fair value for each reporting period based on a reassessment of theapplicable accounting guidance, as discussed further in Note 2.Note 1 — OrganizationNovavax, Inc. (the “Company”), is a clinical-stage biopharmaceutical company focused on developing novel, highly potent recombinantvaccines. These vaccines leverage the Company’s virus-like particle (“VLP”) platform technology coupled with a single-use bioprocessingproduction system. VLPs are genetically engineered three-dimensional nanostructures that incorporate immunologically important lipids andrecombinant proteins. The Company’s VLPs resemble the virus they were engineered to mimic, but lack the genetic material to replicate thevirus and its single-use bioprocessing production technology uses insect cells rather than chicken eggs or mammalian cells. The Company’scurrent product targets include vaccines against pandemic and seasonal influenza, including H5N1 and H1N1 pandemic strains, andRespiratory Syncytial Virus (“RSV”).In 2009, the Company formed a joint venture (the “JV”) with Cadila Pharmaceuticals Ltd. (“Cadila”) named CPL Biologicals PrivateLimited to develop and manufacture vaccines, biological therapeutics and diagnostics in India. The Company owns 20% of the JV, andCadila owns the remaining 80% (see Note 5).Note 2 — Restatement of Consolidated Financial StatementsIn July 2008, the Company completed a registered direct offering of 6,686,650 units, raising approximately $17.5 million in netproceeds. Each unit consisted of one share of common stock and a warrant to purchase 0.5 shares of common stock (the “Warrants”) at aprice of $2.68 per unit. The Warrants represent the right to acquire an aggregate of 3,343,325 shares of common stock at an exercise price of$3.62 per share and are exercisable between January 31, 2009 and July 31, 2013. The Company previously recorded the fair value of theWarrants in stockholders’ equity.During the fourth quarter in 2010, the Company concluded that because the Warrant agreements do not explicitly preclude net cashsettlement in the event registered shares are not available to satisfy exercise of the Warrants, the Warrants should have been classified as aliability, with changes in the fair value of the Warrants reported in its statements of operations. When the Company initially assessed theimpact of reclassifying the Warrants as a liability and marking the Warrants to fair value at each reporting period, it utilized a Black-Scholes option-pricing model. Based upon further review of the Warrant agreement, the Company determined that a dynamic pricing modelwould be more appropriate to estimate the fair value of the Warrants because the Warrants permit Warrant holders to require the Company topurchase such Warrants in exchange for a cash payment in the event of certain Fundamental Transactions, which include a consolidation ormerger with or into another corporation or the sale, transfer or other disposition of all or substantially all our property, assets or business toanother corporation. Because the Monte Carlo Simulation model of estimating the fair value of the Company’s Warrants can include aprobability of a Fundamental Transaction occurring, the Company concluded that it would be the appropriate valuation methodology for theWarrants.As a result, on March 14, 2011, the Company’s Audit Committee determined that the previously issued consolidated financialstatements included in its Annual Reports on Form 10-K for the years ended December 31, 2009 and 2008 and in its Quarterly Reports onForm 10-Q for the periods ended March 31, 2010, June 30, 2010, September 30, 2010, March 31, 2009, June 30, 2009, September 30,2009 and September 30, 2008 should not be relied upon. The Company has restated such consolidated financial statements in this AnnualReport of Form 10-K for the year ended December 31, 2010.F-8  TABLE OF CONTENTSNOVAVAX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2010, 2009 and 2008Note 2 — Restatement of Consolidated Financial Statements – (continued)The restatements reflect the recalculation of the estimated fair value of the Warrants using a Monte Carlo Simulation model, applyingcritical assumptions provided by Management, including the possibility of a Fundamental Transaction occurring, reflecting conditions ateach valuation date. The Company recomputed the fair value of the Warrants at the end of each quarterly reporting period using subjectiveinput assumptions consistently applied for each period. If the Company were to alter its assumptions or the numbers input based on suchassumptions, the resulting estimated fair value could be materially different.The fair value of the Warrants at the end of each reporting period from September 30, 2008 to December 31, 2010 was estimated usingthe following assumptions: January 1, 2010throughDecember 31, 2010 January 1, 2009throughDecember 31, 2009 July 31, 2008throughDecember 31, 2008Underlying price of common stock pershare $2.17 – $2.43 $1.02 – $3.96 $1.89 – $2.90 Exercise price per share $3.62 $3.62 $3.62 Risk-free interest rate 0.60% – 1.76% 1.50% – 2.13% 1.44% – 3.25% Dividend yield None None None Volatility 75.2% – 82.9% 76.6% – 84.3% 65.8% – 69.5% Expected life (in years) 2.58 – 3.33 years 3.58 – 4.33 years 4.58 – 5.00 years Probability of a Fundamental Transaction 0% – 5% 0% – 60% 5% – 20% The revaluation of the estimated fair value of warrants at each subsequent balance sheet date results in a change in the carrying value ofthe liability, which is recorded as “Change in fair value of warrant liability” in the Company’s consolidated statements of operations. Thenet effect of these changes for the years ended December 31, 2009 and 2008, and for each of the three months ended March 31, 2010, June30, 2010, September 30, 2010, March 31, 2009, June 30, 2009, September 30, 2009, December 31, 2009, September 30, 2008 andDecember 31, 2008 are as follows: Reporting Period Warrant Liability(in thousands) Other Income(Expense) Resultingfrom Change inFair Value ofWarrant Liability(in thousands) Net Decrease(Increase) on LossPer ShareAnnual Year ended December 31, 2009 $4,513 $(1,972) $(0.02) Year ended December 31, 2008 2,541 1,538 0.02 Interim (Unaudited) Quarter ended September 30, 2010 2,742 133 0.00 Quarter ended June 30, 2010 2,875 569 0.00 Quarter ended March 31, 2010 3,444 1,069 0.01 Quarter ended December 31, 2009 4,513 3,678 0.04 Quarter ended September 30, 2009 8,191 (1,738) (0.02) Quarter ended June 30, 2009 6,453 (5,417) (0.06) Quarter ended March 31, 2009 1,036 1,505 0.02 Quarter ended December 31, 2008 2,541 2,374 0.02 Quarter ended September 30, 2008 4,915 (836) (0.01) F-9  TABLE OF CONTENTSNOVAVAX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2010, 2009 and 2008Note 2 — Restatement of Consolidated Financial Statements – (continued)The Company has not amended its previously filed Annual Reports on Form 10-K for the years ended December 31, 2009 and 2008 orits Quarterly Reports on Form 10-Q for the periods ended March 31, 2010, June 30, 2010, September 30, 2010, March 31, 2009, June 30,2009, September 30, 2009 and September 30, 2008 to correct these misstatements, and thus the financial statements and related financialstatement information contained in these previously filed reports should no longer be relied upon.The following tables summarize the effects of the restatement on each affected line item in the accompanying consolidated financialstatements as of and for the years ended December 31, 2009 and 2008, and for each of the three months ended March 31, 2010, June 30,2010, September 30, 2010, March 31, 2009, June 30, 2009, September 30, 2009, December 31, 2009, September 30, 2008 and December31, 2008: Annual Consolidated Balance Sheets(in thousands) (As PreviouslyReported) (As Restated)December 31, 2009 Warrant liability $— $4,513 Total liabilities 11,140 15,653 Stockholders’ equity: Additional paid-in-capital 350,810 346,731 Accumulated deficit (274,150) (274,584) Total stockholders’ equity 74,465 69,952 December 31, 2008 Warrant liability $— $2,541 Total liabilities 31,136 33,677 Stockholders’ equity: Additional paid-in-capital 284,595 280,516 Accumulated deficit (235,776) (234,238) Total stockholders’ equity 45,489 42,948 F-10  TABLE OF CONTENTSNOVAVAX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2010, 2009 and 2008Note 2 — Restatement of Consolidated Financial Statements – (continued) Interim (Unaudited) Consolidated Balance Sheets(in thousands) (As PreviouslyReported) (As Restated)September 30, 2010 Warrant liability $— $2,742 Total liabilities 12,321 15,063 Stockholders’ equity: Additional paid-in-capital 374,384 370,305 Accumulated deficit (305,344) (304,007) Total stockholders’ equity 66,993 64,251 June 30, 2010 Warrant liability $— $2,875 Total liabilities 11,422 14,297 Stockholders’ equity: Additional paid-in-capital 354,776 350,697 Accumulated deficit (294,988) (293,784) Total stockholders’ equity 57,523 54,648 March 31, 2010 Warrant liability $— $3,444 Total liabilities 12,238 15,682 Stockholders’ equity: Additional paid-in-capital 350,957 346,878 Accumulated deficit (285,562) (284,927) Total stockholders’ equity 63,139 59,695 September 30, 2009 Warrant liability $— $8,191 Total liabilities 8,863 17,054 Stockholders’ equity: Additional paid-in-capital 329,646 325,567 Accumulated deficit (260,195) (264,307) Total stockholders’ equity 67,017 58,826 June 30, 2009 Warrant liability $— $6,453 Total liabilities 13,500 19,953 Stockholders’ equity: Additional paid-in-capital 315,037 310,958 Accumulated deficit (252,665) (255,039) Total stockholders’ equity 59,721 53,268 March 31, 2009 Warrant liability $— $1,036 Total liabilities 30,168 31,204 Stockholders’ equity: Additional paid-in-capital 285,248 281,169 Accumulated deficit (244,125) (241,082) Total stockholders’ equity 37,794 36,758 September 30, 2008 Warrant liability $— $4,915 Total liabilities 33,387 38,302 Stockholders’ equity: Additional paid-in-capital 284,158 280,079 Accumulated deficit (224,696) (225,532) Total stockholders’ equity 56,132 51,217 F-11  TABLE OF CONTENTSNOVAVAX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2010, 2009 and 2008Note 2 — Restatement of Consolidated Financial Statements – (continued) Annual Consolidated Statements of Operations(in thousands) (As PreviouslyReported) (As Restated)Year Ended December 31, 2009 Change in fair value of warrant liability $— $(1,972) Net loss (38,374) (40,346) Loss per share (0.45) (0.47) Year Ended December 31, 2008 Change in fair value of warrant liability $— $1,538 Net loss (36,049) (34,511) Loss per share (0.53) (0.51) The following tables, which reflect unaudited quarterly statements for each quarter during the nine month period ended September 30,2010 and for each quarter of during the years ended December 31, 2009 and 2008, summarize the effects of the restatement starting with thesubtotal prior to the affected line item in the accompanying quarterly statements of operations: Quarter Ended March 31 June 30 September 30 (As PreviouslyReported) (As PreviouslyReported) (As PreviouslyReported) (in thousands, except per share data)2010: Loss from operations before other income (expense) $(11,454) $(9,468) $(10,539) Interest income 44 44 50 Interest (expense) (2) (2) (2) Other income (expense) — — 136 Change in fair value of warrant liability — — — Loss before income tax (11,412) (9,426) (10,355) Income tax benefit — — — Net loss $(11,412) $(9,426) $(10,355) Net loss per share $(0.11) $(0.09) $(0.10) Quarter Ended March 31 June 30 September 30 (As Restated) (As Restated) (As Restated) (in thousands, except per share data)2010: Loss from operations before other income (expense) $(11,454) $(9,468) $(10,539) Interest income 44 44 50 Interest (expense) (2) (2) (2) Other income (expense) — — —(1) Change in fair value of warrant liability 1,069 569 133 Loss before income tax (10,343) (8,857) (10,358) Income tax benefit — — 136(1) Net loss $(10,343) $(8,857) $(10,222) Net loss per share $(0.10) $(0.09) $(0.10) (1)The Company reclassified a refundable income tax credit received in the three months ended September 30, 2010.F-12  TABLE OF CONTENTSNOVAVAX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2010, 2009 and 2008Note 2 — Restatement of Consolidated Financial Statements – (continued) Quarter Ended March 31 June 30 September 30 December 31 (As PreviouslyReported) (As PreviouslyReported) (As PreviouslyReported) (As PreviouslyReported) (in thousands, except per share data)2009: Loss from operations before other income(expense) $(7,137) $(7,830) $(8,262) $(14,154) Interest income 104 75 59 45 Interest (expense) (437) (326) (19) (2) Other income (expense) — — — — Impairment of short-term investments (879) (459) — — Realized gains on short-term investments — — 692 156 Change in fair value of warrant liability — — — — Net loss $(8,349) $(8,540) $(7,530) $(13,955) Net loss per share $(0.12) $(0.10) $(0.08) $(0.15) Quarter Ended March 31 June 30 September 30 December 31 (As Restated) (As Restated) (As Restated) (As Restated) (in thousands, except per share data)2009: Loss from operations before other income(expense) $(7,137) $(7,830) $(8,262) $(14,154) Interest income 104 75 59 45 Interest (expense) (437) (326) (19) (2) Other income (expense) — — — — Impairment of short-term investments (879) (459) — — Realized gains on short-term investments — — 692 156 Change in fair value of warrant liability 1,505 (5,417) (1,738) 3,678 Net loss $(6,844) $(13,957) $(9,268) $(10,277) Net loss per share $(0.10) $(0.16) $(0.10) $(0.11) F-13  TABLE OF CONTENTSNOVAVAX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2010, 2009 and 2008Note 2 — Restatement of Consolidated Financial Statements – (continued) Quarter Ended March 31 June 30 September 30 December 31 (As PreviouslyReported) (As PreviouslyReported) (As PreviouslyReported) (As PreviouslyReported) (in thousands, except per share data)2008: Loss from continuing operations beforeother income (expense) $(7,220) $(8,204) $(9,726) $(9,210) Interest income 543 322 (170) 264 Interest (expense) (426) (432) (434) (391) Impairment of short-term investments — — — (1,238) Change in fair value of warrant liability — — — — Loss from continuing operations (7,103) (8,314) (10,330) (10,575) (Loss) income from discontinuedoperations (652) (1,058) 2,488 (505) Net loss $(7,755) $(9,372) $(7,842) $(11,080) Net loss per share $(0.13) $(0.15) $(0.12) $(0.15) Quarter Ended September 30 December 31 (As Restated) (As Restated) (in thousands, except per share data)2008: Loss from continuing operations before other income (expense) $(9,726) $(9,210) Interest income (170) 264 Interest (expense) (434) (391) Impairment of short-term investments — (1,238) Change in fair value of warrant liability (836) 2,374 Loss from continuing operations (11,166) (8,201) (Loss) income from discontinued operations 2,488 (505) Net loss $(8,678) $(8,706) Net loss per share $(0.13) $(0.13) The net income (loss) per share was calculated for each three-month period on a stand-alone basis. As a result, the sum of the net income(loss) per share for the four quarters may not equal the net income (loss) per share for the respective twelve-month period.Note 3 — Liquidity MattersSince its inception, the Company has incurred, and continues to incur, significant losses from operations. At December 31, 2010, theCompany had cash and cash equivalents of $8.1 million and short-term investments with a fair value of $23.6 million.The Company’s vaccine candidates currently under development will require significant additional research and development efforts,including extensive pre-clinical and clinical testing, and regulatory approval prior to commercial use. The Company’s research anddevelopment efforts may not be successful and any potential vaccine candidates may not prove to be safe and effective in clinical trials.Even if developed, these vaccine candidates may not receive regulatory approval or be successfully introduced and marketed at pricesF-14  TABLE OF CONTENTSNOVAVAX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2010, 2009 and 2008Note 3 — Liquidity Matters – (continued)that would permit the Company to operate profitably. The commercial launch of any vaccine is subject to significant risks including, butnot limited to, manufacturing scale-up and market acceptance.Based on the Company’s cash, cash equivalents and short-term investments balances as of December 31, 2010, anticipated revenueunder the HHS BARDA contract awarded in February 2011, anticipated proceeds from sales of the Company’s common stock under its AtMarket Issuance Sales Agreement with McNicoll, Lewis & Vlak LLC (“MLV”) and its current business operations, the Company believesit will have adequate capital resources available to operate at planned levels for at least the next twelve months. Additional capital will berequired in the future to develop its vaccine candidates through clinical development, manufacturing and commercialization. TheCompany’s ability to generate revenue under the HHS BARDA contract and raise funds under its At Market Issuance Sales Agreement issubject to its business performance and market conditions. Further, the Company will seek additional capital through public or privateequity offerings, debt financing, strategic alliance and licensing arrangements, government contracts, collaborative arrangements, or somecombination of these financing alternatives. Any capital raised by an equity offering, whether public or private, will likely be substantiallydilutive to the existing stockholders and any licensing or development arrangement may require the Company to give up rights to a productor technology at less than its full potential value. The Company has not secured any additional commitments for new financing nor can theCompany provide any assurance the Company’s financing will be available on commercially acceptable terms, if at all. If the Company isunable to perform under the HHS BARDA contract and obtain additional capital, it will assess its capital resources and will likely berequired to delay, reduce the scope of, or eliminate one or more of its research and development programs, and/or downsize the organization,including its general and administrative infrastructure.Note 4 — Summary of Significant Accounting PoliciesBasis of PresentationThe accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, FieldingPharmaceutical Company (“Fielding”). All significant intercompany accounts and transactions have been eliminated in consolidation.Fielding had been an inactive subsidiary with no assets or liabilities for several years, and effective December 31, 2010, the Companydissolved this legal entity.As a result of the Company’s sale of its Estrasorb business in 2008, the consolidated financial statements and the related notedisclosures reflect the operations of the Estrasorb business as a discontinued operation. In 2008, the Company recorded income fromdiscontinued operations of $0.3 million from its former Estrasorb business.Use of EstimatesThe preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United Statesrequires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reportingperiod. Actual results could differ materially from those estimates.Cash and Cash EquivalentsCash and cash equivalents consist of highly liquid investments with maturities of three months or less from the date of purchase.Short-Term InvestmentsShort-term investments at December 31, 2010 consist of commercial paper, corporate notes and investments in three auction ratesecurities. All marketable securities had original maturities greater than 90 days, but less than one year. In 2009 and 2008, the Companyrecorded other-than-temporary impairmentF-15  TABLE OF CONTENTSNOVAVAX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2010, 2009 and 2008Note 4 — Summary of Significant Accounting Policies – (continued)charges related to its auction rate securities of $1.3 million and $1.2 million, respectively, because of the uncertainties in the credit marketsand management’s belief these securities could not be sold at par value, but are saleable at a discount from their par value. In 2009, theCompany realized gains of $0.8 million relating to redemptions of several auction rate securities from its portfolio.The Company had invested in auction rate securities for short periods of time as part of its cash management program. Uncertainties inthe credit markets have prevented the Company from liquidating certain holdings of auction rate securities as the amount of securitiessubmitted for sale during the auction has exceeded the amount of purchase orders. Although an event of an auction failure does notnecessarily mean that a security is impaired, the Company considered various factors to assess the fair value and the classification of thesecurities as short-term investments. Fair value was determined through an independent valuation using two valuation methods — adiscounted cash flow method and a market comparable method. Certain factors used in these methods include, but are not necessarilylimited to, comparable securities traded on secondary markets, timing of the failed auction, specific security auction history, quality ofunderlying collateral, rating of the security and the bond insurer, the Company’s ability and intent to retain the securities for a period of timeto allow for anticipated recovery in the market value, and other factors.The Company has classified its short-term investments as available-for-sale since the Company may need to liquidate these securitieswithin the next year. The available-for-sale securities are carried at fair value and unrealized gains and losses on these securities, ifdetermined to be temporary, are included in accumulated other comprehensive income (loss) in stockholders’ equity. Short-term investmentsare evaluated periodically to determine whether a decline in value is “other-than-temporary.” The term “other-than-temporary” is not intendedto indicate a permanent decline in value. Rather, it means that the prospects for a near term recovery of value are not necessarily favorable,or that there is a lack of evidence to support fair values equal to, or greater than, the carrying value of the security. Management reviewscriteria, such as the magnitude and duration of the decline, as well as the Company’s ability to hold the securities until market recovery, topredict whether the loss in value is other-than-temporary. If a decline in value is determined to be other-than-temporary, the value of thesecurity is reduced and the impairment is recorded in the consolidated statements of operations. The specific identification method is used incomputing realized gains and losses on sale of the Company’s securities.Short-term investments classified as available-for-sale as of December 31, 2010 and 2009 were comprised of (in thousands): December 31, 2010 December 31, 2009 AmortizedCost GrossUnrealizedGains GrossUnrealizedLosses Fair Value AmortizedCost GrossUnrealizedGains GrossUnrealizedLosses Fair ValueAuction ratesecurities $3,373 $773 $— $4,146 $3,373 $820 $— $4,193 Corporate debtsecurities 19,470 — (1) 19,469 — — — — Total $22,843 $773 $(1) $23,615 $3,373 $820 $— $4,193 Financial Instruments and Concentration of Credit RiskFinancial instruments, which possibly expose the Company to concentration of credit risk, consist primarily of cash and cashequivalents and short-term investments. The Company’s investment policy limits investments to certain types of instruments, includingauction rate securities, high-grade corporate debt securities and money market instruments, places restrictions on maturities andconcentrations in certain industries and requires the Company to maintain a certain level of liquidity. At times, the Company maintainscash balances in financial institutions, which may exceed federally insured limits. The Company has notF-16  TABLE OF CONTENTSNOVAVAX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2010, 2009 and 2008Note 4 — Summary of Significant Accounting Policies – (continued)experienced any losses relating to such accounts and believes it is not exposed to a significant credit risk on its cash and cash equivalents.The carrying value of cash and cash equivalents approximates their fair value based on their short-term maturities at December 31, 2010and 2009.Fair Value MeasurementsThe Company adopted Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures, forfinancial and non-financial assets and liabilities.ASC 820 discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present valueof future income or cash flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). The statementutilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. Thefollowing is a brief description of those three levels:•Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.•Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These includequoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities inmarkets that are not active.•Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.Financial assets and liabilities measured a fair market value on a recurring basis as of December 31, 2010 and 2009 are summarizedbelow (in thousands): Fair Value at December 31, 2010 Fair Value at December 31, 2009 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3Assets Corporate debt securities $— $23,615 $— $— $4,193 $— Total Short-term investments $— $23,615 $— $— $4,193 $— Liabilities Warrant liabilities $— $— $2,842 $— $— $4,513 The following table summarizes the activity of Level 3 inputs measured on a recurring basis for the year ended December 31, 2010 (inthousands): Fair Value Measurementsof Warrants UsingSignificant UnobservableInputs (Level 3)Balance at December 31, 2009 $4,513 Change in fair value of Warrant liability (1,671) Balance at December 31, 2010 $2,842 The amounts in the Company’s consolidated balance sheet for accounts receivable, accounts payable and notes payable approximatefair value due to their short-term nature.F-17  TABLE OF CONTENTSNOVAVAX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2010, 2009 and 2008Note 4 — Summary of Significant Accounting Policies – (continued)Accounts ReceivableAccounts receivable are reported at their net realizable value. The Company maintains an allowance for doubtful accounts that isdetermined based on historical experience and management’s expectations of future losses. Accounts deemed uncollectible are charged to theallowance based on specific identification. Accounts that are ultimately deemed uncollectible are written-off as a reduction of accountsreceivable and the allowance for doubtful accounts.Property and EquipmentProperty and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets,generally three to ten years. Amortization of leasehold improvements is provided over the shorter of the estimated useful lives of theimprovements or the term of the lease. Repairs and maintenance costs are expensed as incurred.Property and equipment is comprised of the following at December 31 (in thousands): 2010 2009Construction in progress $522 $1,351 Machinery and equipment 6,697 4,348 Leasehold improvements 4,531 4,531 Computer software and hardware 554 333 12,304 10,563 Less accumulated depreciation and amortization (4,098) (2,762) Property and equipment, net $8,206 $7,801 Depreciation and amortization expense was approximately $1.4 million, $1.2 million and $0.9 million for the years ended December 31,2010, 2009 and 2008, respectively.Goodwill and Intangible AssetsGoodwill originally resulted from a business acquisition in 2000. Assets acquired and liabilities assumed were recorded at their fairvalues; the excess of the purchase price over the identifiable net assets acquired was recorded as goodwill. Goodwill and intangible assetsdeemed to have indefinite lives are not amortized, but are subject to impairment tests annually, or more frequently should indicators ofimpairment arise. The Company utilizes primarily the market approach and, if considered necessary, the income approach to determine if ithas an impairment of its goodwill. The market approach is based on market value of invested capital. The income approach is used as aconfirming look to the market approach. Goodwill impairment is deemed to exist if the carrying value of the reporting unit exceeds itsestimated fair value.At December 31, 2010 and 2009, the Company used the market approach to determine if the Company had an impairment of itsgoodwill. Step one of the impairment test states that if the fair value of a reporting unit exceeds its carrying amount, goodwill is considerednot to be impaired. The fair value of the Company’s reporting unit was substantially higher than the carrying value, resulting in noimpairment to goodwill at December 31, 2010 and 2009.Equity Method InvestmentsThe Company has an equity investment in CPL Biologicals Private Limited. The Company accounts for this investment using theequity method (see Note 5). Under the equity method of accounting, investments are stated at initial cost and are adjusted for subsequentadditional investments and the Company’s proportionate share of earnings or losses and distributions up to the amount initially invested oradvanced.F-18  TABLE OF CONTENTSNOVAVAX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2010, 2009 and 2008Note 4 — Summary of Significant Accounting Policies – (continued)Long-Lived Assets and Discontinued OperationsThe Company accounts for the impairment of its long-lived assets in accordance with ASC 360, Property, Plant and Equipment. Thisfinancial standard requires a periodic evaluation of the recoverability of the carrying value of long-lived assets and identifiable intangibleswhenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. The Company considershistorical performance and anticipated future results in its evaluation of potential impairment. Accordingly, when indicators of impairmentare present, the Company evaluates the carrying value of these assets in relation to the operating performance of the business and futureundiscounted cash flows expected to result from the use of these assets. Impairment losses are recognized when the sum of expected futurecash flows is less than the assets’ carrying value.In 2008, the Company was unable to sell the patent related to its MNP technology, previously recorded as assets held for sale, andrecorded an impairment of $0.8 million.Revenue RecognitionThe Company performs research and development for United States government agencies. The Company recognizes revenue underresearch contracts when a contract has been executed, the contract price is fixed and determinable, delivery of services or products hasoccurred and collection of the contract price is considered probable. Revenue is earned under cost reimbursable and fixed price contracts.Direct contract costs are expensed as incurred.Under cost reimbursable contracts, the Company is reimbursed for allowable costs and paid a fixed fee. Revenue on cost reimbursablecontracts is recognized as costs are incurred plus a portion of the fee earned. Revenue for fixed price arrangements are recognized under theproportional performance method based upon the ratio of costs incurred to achieve contract milestones to total estimated cost. Losses oncontracts, if any, are recognized in the period in which they become known.For upfront payments and licensing fees related to contract research or technology, the Company follows provisions of ASC 605,Revenue Recognition, in determining if these payments and fees represent the culmination of a separate earnings process or if they shouldbe deferred and recognized as revenue over the life of the related agreement.Stock-Based CompensationThe Company accounts for stock-based compensation in accordance with ASC Topic 718, Compensation-Stock Compensation,which requires grants of employee stock options and restricted stock awards to be recognized in the financial statements based upon theirrespective grant-date fair values. The Company recognizes compensation expense on a straight-line basis over the requisite service period(generally the vesting period) of the equity awards, which typically occurs ratably over periods ranging from six months to four years. SeeNote 10 for a further discussion on stock-based compensation.The expected life of stock options granted was based on the Company’s historical option exercise experience and post vesting forfeitureexperience using the historical expected term from the vesting date. The expected volatility of the options granted was determined usinghistorical volatilities based on stock prices over a look-back period corresponding to the expected life. The risk-free interest rate wasdetermined using the yield available for zero-coupon United States government issues with a remaining term equal to the expected life of theoptions. The forfeiture rate was determined using historical pre-vesting forfeiture rates since the inception of the plans. The Company hasnever paid a dividend, and as such, the dividend yield is zero.F-19  TABLE OF CONTENTSNOVAVAX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2010, 2009 and 2008Note 4 — Summary of Significant Accounting Policies – (continued)Restricted stock awards to employees and directors have been recorded as compensation expense over the expected vesting period basedon the fair value at the award date and the number of shares ultimately expected to vest using the straight-line method of amortization. TheCompany accounts for share-based awards issued to non-employees by determining the fair value of equity awards given as considerationfor services rendered to be recognized as compensation expense over the shorter of the vesting or service periods. In cases where services arenot fully rendered, the equity award must be revalued on each subsequent reporting date until performance is complete with a cumulativecatch-up adjustment recognized for any changes in their estimated fair value.Research and Development ExpensesResearch and development expenses are expensed as incurred. These expenses consist primarily of salaries and related expenses forpersonnel, costs associated with contract research and manufacturing organizations, manufacturing supplies and outside animal and pre-clinical testing.Warrant AccountingThe Company accounts for the Warrants in accordance with applicable accounting guidance in ASC 815, Derivatives and Hedging,as derivative liabilities. As such, the Warrants have been classified as a non-current liability in the Company’s consolidated statements ofoperations. In compliance with applicable accounting standards, registered warrants that require the issuance of registered shares uponexercise and do not sufficiently preclude an implied right to cash settlement are accounted for as derivative liabilities. The Company uses theMonte Carlo Simulation model to determine the fair value of the Warrants.Income TaxesThe Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes. Under the liability method, deferredincome taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts ofexisting assets and liabilities and their respective tax basis and operating loss carryforwards. Deferred tax assets and liabilities are measuredusing enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered orsettled. The effect of changes in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes theenactment date. A valuation allowance is established when necessary to reduce net deferred tax assets to the amount expected to be realized.Tax benefits associated with uncertain tax positions are recognized in the period in which one of the following conditions is satisfied: (1)the more likely than not recognition threshold is satisfied; (2) the position is ultimately settled through negotiation or litigation; or (3) thestatute of limitations for the taxing authority to examine and challenge the position has expired. Tax benefits associated with an uncertain taxposition are reversed in the period in which the more likely than not recognition threshold is no longer satisfied.Interest and penalties related to income tax matters are recorded as income tax expense. At December 31, 2010 and 2009, the Companyhad no accruals for interest or penalties related to income tax matters.Net Loss per ShareNet loss per share is computed using the weighted average number of shares of common stock outstanding. All outstanding warrants,stock options and unvested restricted stock awards totaling 9,344,635, 9,428,319 and 9,570,135 shares at December 31, 2010, 2009 and2008, respectively, are excluded from the computation for 2010, 2009 and 2008, as their effect is anti-dilutive.F-20  TABLE OF CONTENTSNOVAVAX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2010, 2009 and 2008Note 4 — Summary of Significant Accounting Policies – (continued)Comprehensive Income (Loss)The Company accounts for comprehensive income (loss) as prescribed by ASC 220, Comprehensive Income. Comprehensive income(loss) is the total net income (loss) plus all changes in equity during the period except those changes resulting from investment by anddistribution to owners. Total comprehensive loss was $35.8 million, $39.5 million (as restated) and $34.5 million (as restated) for theyears ended December 31, 2010, 2009 and 2008, respectively.At December 31, 2010, the Company’s other comprehensive income consists of $0.8 million related to its available-for-sale securities.During 2008 and early 2009, the Company experienced a decrease in its auction rate securities and recorded other-than-temporaryimpairment charges and adjusted the carrying value of these securities.Segment InformationThe Company manages its business as one operating segment: developing novel, highly potent recombinant vaccines. The Companydoes not operate separate lines of business with respect to its vaccine candidates. Accordingly, the Company does not have separatelyreportable segments as defined by ASC 280, Segment Reporting.Recent Accounting PronouncementsIn June 2009, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance on the consolidation of variableinterest entities, which was effective for the Company beginning January 1, 2010. The new guidance requires revised evaluations of whetherentities represent variable interest entities, ongoing assessments of control over such entities, and additional disclosures for variable interests.The adoption did not have a material impact on our financial position and results of operations.In January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820) — ImprovingDisclosures about Fair Value Measurements, which amends Topic 820 to add new requirements for disclosures about transfers into andout of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements related to Level 3 measurements. ASU2010-06 also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used tomeasure fair value. The ASU was effective for the first reporting period beginning after December 15, 2009, except for the requirements toprovide the Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which will be effective for fiscal yearsbeginning after December 15, 2010, and for interim periods within those fiscal years. Early adoption is permitted. The adoption, except forthe requirement to provide the Level 3 activity, did not have a material impact on the Company’s financial position and results of operations.The Company does not believe the adoption of the Level 3 activity will have a material impact on its consolidated financial statements.In September 2009, ASU 2009-13, Revenue Recognition (Topic 605) — Multiple-Deliverable Revenue Arrangements, was issuedand changed the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables)separately rather than as a combined unit. Specifically, this guidance amends the criteria in Subtopic 605-25, Revenue Recognition — Multiple-Element Arrangements, for separating consideration in multiple-deliverable arrangements. This guidance establishes a sellingprice hierarchy for determining the selling price of a deliverable, which is based on: (a) vendor-specific objective evidence; (b) third-partyevidence; or (c) estimates. This guidance also eliminates the residual method of allocation and requires that arrangement consideration beallocated at the inception of the arrangement to all deliverables using the relative selling price method. In addition, this guidance significantlyexpands required disclosures related to a vendor’s multiple-deliverable revenue arrangements. ASU 2009-13 is effective prospectively forrevenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted.The impact of ASU 2009-13 on the Company’sF-21  TABLE OF CONTENTSNOVAVAX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2010, 2009 and 2008Note 4 — Summary of Significant Accounting Policies – (continued)consolidated financial statements will depend on the nature and terms of its revenue arrangements entered into or materially modified afterthe adoption date. However, based on the Company’s current customer arrangements, the Company does not believe the adoption of thisASU will have a material impact on its consolidated financial statements.In March 2010, ASU 2010-17, Revenue Recognition — Milestone Method (Topic 605): Milestone Method of RevenueRecognition — a consensus of the FASB Emerging Issues Task Force, was issued and will amend the accounting for revenue arrangementsunder which a vendor satisfies its performance obligations to a customer over a period of time, when the deliverable or unit of accounting isnot within the scope of other authoritative literature and when the arrangement consideration is contingent upon the achievement of amilestone. The amendment defines a milestone and clarifies whether an entity may recognize consideration earned from the achievement of amilestone in the period in which the milestone is achieved. This amendment is effective on a prospective basis for milestones achieved on orafter January 1, 2011, with early adoption permitted. The amendment may be applied retrospectively to all arrangements or prospectivelyfor milestones achieved after the effective date. The Company expects to prospectively apply the amended guidance to milestones achieved onor after January 1, 2011. The new guidance is consistent with the Company’s current revenue recognition policies for arrangements withmilestones. As a result, the Company does not believe the adoption of this ASU will have a material impact on its consolidated financialstatements.Note 5 — Joint VentureIn March 2009, the Company entered into a Joint Venture Agreement (the “JVA”) with Cadila Pharmaceuticals Ltd., a private companyincorporated under the laws of India (“Cadila”) pursuant to which the Company and Cadila formed CPL Biologicals Private Limited, ajoint venture (the “JV”), of which 80% is owned by Cadila and 20% is owned by Novavax. The JV will develop and manufacture theCompany’s seasonal influenza and pandemic vaccine candidates and Cadila’s biogeneric products and other diagnostic products for theterritory of India. The JV has the right to negotiate a definitive agreement for rights to certain future Novavax products (other than RSV) andcertain future Cadila products in India, prior to Novavax or Cadila licensing such rights to a third party. Novavax has the right to negotiatethe licensing of vaccines developed by the JV using Novavax’s technology for commercialization in every country except for India andvaccines developed by the JV using Cadila’s technology for commercialization in certain other countries, including the United States. Cadilahas committed to contribute approximately $8 million over three years to support the JV’s operations. In connection with the JVA, in March2009, the Company also entered into a license agreement, an option to enter into a license agreement, a technical services agreement and asupply agreement with the JV and a master services agreement with Cadila. Because the Company does not control the JV, the Companyaccounts for its investment using the equity method. Since the carrying value of the Company’s contribution was nominal and there is noguarantee or commitment to provide future funding, the Company has not recorded nor expects to record losses related to this investment inthe future.Also in March 2009, the Company entered into a Stock Purchase Agreement with Satellite Overseas (Holdings) Limited (“SOHL”), asubsidiary of Cadila, pursuant to which SOHL purchased 12.5 million shares of the Company’s common stock at the market price of$0.88 per share, resulting in net proceeds of approximately $10.6 million.F-22  TABLE OF CONTENTSNOVAVAX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2010, 2009 and 2008Note 6 — Accrued Expenses and Other Current LiabilitiesAccrued expenses and other current liabilities consist of the following at December 31 (in thousands): 2010 2009Employee benefits and compensation $2,293 $1,726 Research and development accruals 3,421 2,638 Other accrued expenses 535 1,038 Accrued interest 24 15 Accrued expenses and other current liabilities $6,273 $5,417 Note 7 — Long-Term DebtNotes PayableNotes payable consist of the following at December 31 (in thousands): 2010 2009Opportunity Grant Fund notes payable; non-interest bearing; principal onlypayments due in monthly installments of $6,667 through April 2012 $100 $186 Loan agreements; bear interest at 3% per annum; repayment is conditional 300 300 Total 400 486 Less current portion (80) (80) Long-term portion $320 $406 Opportunity Grant Fund Note PayableIn April 2007, the Company entered into a Settlement and Release Agreement with the Commonwealth of Pennsylvania, whereby theCompany agreed to repay the original grant of $400,000 associated with its former corporate headquarters and product development activitiesin Malvern, Pennsylvania in 60 monthly installments of $6,667 each starting May 2007. Interest does not accrue on the outstandingbalance.Loan AgreementsIn May 2008, the Company entered into loan agreements with the State of Maryland and Montgomery County whereby the repayment ofthe loan amounts and accrued interest is conditioned upon the Company meeting the capital investment and employment requirementsduring the term of the loans through 2013.Aggregate future minimum principal payments on long-term debt at December 31, 2010 are as follows (in thousands): Year Amount2011 $80 2012 20 2013 300 Total minimum principal payments $400 Convertible NotesAt December 31, 2008, the Company had convertible notes (“Notes”) outstanding, net of a discount, totaling $21.8 million. These noteshad a face value of $22 million, with interest at 4.75%, due July 15, 2009 and were convertible by the holders into 4,029,304 shares of theCompany’s common stock at $4.00 per share.F-23  TABLE OF CONTENTSNOVAVAX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2010, 2009 and 2008Note 7 — Long-Term Debt – (continued)On April 29, 2009, the Company entered into amendment agreements (the “2009 Amendments”) with holders of the outstanding Notesrepresenting $17.0 million of the $22 million outstanding principal amount of the Notes to amend the terms of the Notes to allow for earlyretirement; 70% of this principal amount plus accrued and unpaid interest was paid in cash, totaling $12.1 million, and 30% was paidthrough issuance of 2,040,000 shares of common stock at $2.50 per share.On July 15, 2009, the Company paid the $5.0 million balance of the Notes. Under the terms of the Notes, the Company paidapproximately $2.6 million of principal and accrued and unpaid interest in cash and issued 1,016,939 shares of common stock to pay theremaining $2.6 million of principal and accrued and unpaid interest, based on a price of $2.5163 per share. As of July 15, 2009, theNotes were fully paid and extinguished.Note 8 — Sales of Common StockIn March 2010, the Company terminated the January Sales Agreement and the September Sales Agreement with Wm Smith & Co.(“Wm Smith”) and entered into an At the Market Sales Agreement with McNicoll, Lewis & Vlak LLC, as sales agent, under which theCompany may sell an aggregate of $50 million of gross proceeds of the Company’s common stock. The Company’s Board of Directorsauthorized the sale of up to 25 million shares of common stock pursuant to the At the Market Sales Agreement. In 2010, the Company sold10,513,849 shares at a range of $2.10 – $2.55 and received net proceeds of approximately $23.1 million under the At the Market SalesAgreement.In November 2009, the Company issued 6,800,000 shares of common stock at $3.30 per share in an underwritten public offering. TheCompany received net proceeds of approximately $21 million.In June 2009, the Company entered into a stock purchase agreement with ROVI Pharmaceuticals of Spain for the purchase of $3 millionof common stock at $2.74 per share and issued approximately 1,094,891 shares of its common stock in this transaction.In March 2009, the Company entered into a stock purchase agreement with SOHL, pursuant to which SOHL purchased 12.5 millionshares of common stock at the market price of $0.88 per share. The Company received net proceeds of approximately $10.6 million.In January 2009, the Company entered into an At the Market Sales Agreement (the “January Sales Agreement”) with Wm Smith, underwhich the Company could sell an aggregate of up to $25 million in gross proceeds of its common stock from time to time through WmSmith, as the agent for the offer and sale of the common stock. During 2009, the Company sold 7,489,207 shares at a range of$1.75 – $5.03 and received net proceeds of approximately $22 million under the January Sales Agreement. On September 15, 2009, theCompany entered into a second At Market Issuance Sales Agreement (the “September Sales Agreement”), with Wm Smith, under which theCompany could sell an aggregate of up to $10 million in gross proceeds of the Company’s common stock from time to time through WmSmith. These agreements were terminated by the Company in 2010.In July 2008, the Company completed a registered direct offering of 6,686,650 units, with each unit consisting of one share ofcommon stock and a warrant to purchase 0.5 shares of common stock at a price of $2.68 per unit (or $2.8425 per unit for units sold toaffiliates of the Company). The warrants represent the right to acquire an aggregate of 3,343,325 shares of common stock at an exerciseprice of $3.62 per share and are exercisable between January 31, 2009 and July 31, 2013 (the “Warrants”). At December 31, 2010,3,343,325 Warrants remain outstanding. The Company received net proceeds of approximately $17.5 million in connection with theregistered direct offering (See Note 2).F-24  TABLE OF CONTENTSNOVAVAX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2010, 2009 and 2008Note 9 — Stockholders’ EquityOn August 7, 2002, the Company adopted a Shareholder Rights Plan, which provides for the issuance of rights to purchase shares ofSeries D Junior Participating Preferred Stock, par value $0.01 per share (the “Preferred Shares”), of the Company. Under the ShareholderRights Plan, the Company distributed one preferred share purchase right (a “Right”) for each outstanding share of common stock of theCompany. 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 toadjustment. The Rights become exercisable, with certain exceptions, 10 business days after any party, without prior approval of the Boardof Directors, acquires or announces an offer to acquire beneficial ownership of 15% or more of the Company’s outstanding common stock.In the event that any party acquires 15% or more of the Company’s outstanding common stock, the Company enters into a merger or otherbusiness combination, or if a substantial amount of the Company’s assets are sold after the time that the Rights become exercisable, theRights provide that the holder will receive, upon exercise, shares of the common stock of the surviving or acquiring company, as applicable,having a market value of twice the exercise price of the Right.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 timethat any party acquires 15% or more of the Company’s outstanding common stock. Until the earlier of the time that the Rights becomeexercisable, are redeemed or expire, the Company will issue one Right with each new share of common stock issued.Note 10 — Stock-Based CompensationThe Company has granted equity awards under several plans. Under the 2005 Stock Incentive Plan (the “2005 Plan”), approved inMay 2005 and amended in June 2007 by the Company’s stockholders, equity awards may be granted to officers, directors, employees,consultants and advisors to the Company and any present or future subsidiary to purchase a maximum of 5,565,724 shares of theCompany’s common stock. In addition, at the time of approval of the 2005 Plan, a maximum 5,746,468 shares of common stock subjectto stock options outstanding under the Company’s 1995 Stock Option Plan (the “1995 Plan”) may revert to and become issuable underthe 2005 Plan, if such options should expire or otherwise terminate unexercised. Although the term of the 1995 Plan has expired and no newawards may be made under the plan, stock options previously granted remain in existence in accordance with their terms.Under the 2005 Plan, the 1995 Plan and the 1995 Director Stock Option Plan (the “1995 Director Plan”) incentive stock options,having a maximum term of 10 years, can be or were granted at no less than 100% of the fair value of the Company’s common stock at thetime of grant and are generally exercisable over periods ranging from six months to four years. There is no minimum exercise price for non-statutory stock options. The 1995 Director Plan has expired and no stock options remain outstanding.The Company recorded stock-based compensation expense in the consolidated statement of operation as follows (in thousands): Years ended December 31, 2010 2009 2008Research and development $335 $539 $861 General and administrative 1,004 994 1,209 Total stock-based compensation expenses $1,339 $1,533 $2,070 F-25  TABLE OF CONTENTSNOVAVAX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2010, 2009 and 2008Note 10 — Stock-Based Compensation – (continued)Stock Options AwardsThe following is a summary of option activity under the 2005 Plan, the 1995 Plan and the 1995 Director Plan for the year endedDecember 31, 2010: 2005 Stock Incentive Plan 1995 Stock Option Plan 1995 Director StockOption Plan StockOptions Weighted-AverageExercisePrice StockOptions Weighted-AverageExercisePrice StockOptions Weighted-AverageExercisePriceOutstanding at January 1, 2010 4,878,675 $2.38 1,086,319 $5.72 30,000 $5.63 Granted 1,898,250 $2.33 — $— — $— Exercised (216,942) $1.50 (45,000) $2.21 — $— Canceled (1,345,189) $2.59 (461,469) $7.04 (30,000) $5.63 Outstanding at December 31, 2010 5,214,794 $2.34 579,850 $4.97 — $— Vested and expected to vest atDecember 31, 2010 4,811,509 $2.35 579,850 $4.97 — $— Shares exercisable at December 31,2010 2,697,481 $2.35 579,850 $4.97 — $— Shares available for grant at December31, 2010 2,652,655 The fair value of the stock options granted for the years ended December 31, 2010, 2009 and 2008, was estimated at the date of grantusing the Black-Scholes option-pricing model with the following assumptions: 2010 2009 2008Weighted average fair value of optionsgranted $1.47 $1.29 $1.59 Risk-free interest rate 0.93% – 2.89% 1.56% – 3.19% 1.97% – 3.29% Dividend yield 0% 0% 0% Volatility 97.00 – 108.02% 85.68 – 119.53% 81.14% – 87.78% Expected life (in years) 3.06 – 6.26 3.89 – 7.05 3.62 – 6.37 Expected forfeiture rate 21.07% 21.07% 21.96% The aggregate intrinsic value and weighted-average remaining contractual term of stock options exercisable as of December 31, 2010 wasapproximately $1.6 million and 5.5 years, respectively. The aggregate intrinsic value and weighted-average remaining contractual term ofoptions vested and expected to vest as of December 31, 2010 was $2.3 million and 6.7 years, respectively. The aggregate intrinsic valuerepresents the total intrinsic value (the difference between the Company’s closing stock price on the last trading day of 2010 and the exerciseprice, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holdersexercised their options on December 31, 2010. This amount is subject to change based on changes to the fair market value of the Company’scommon stock. The aggregate intrinsic value of options exercised for 2010, 2009 and 2008 was $0.3 million, $0.9 million and $0.1million, respectively.Restricted Stock AwardsUnder the 2005 Plan, the Company granted restricted stock awards subject to certain performance-based or time-based vestingconditions which, if not met, would result in forfeiture of the shares and reversal of any previously recognized related stock-basedcompensation expense.F-26  TABLE OF CONTENTSNOVAVAX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2010, 2009 and 2008Note 10 — Stock-Based Compensation – (continued)The following is a summary of restricted stock awards activity for the year ended December 31, 2010: Number ofShares Per ShareWeighted-AverageGrant-DateFair ValueOutstanding at January 1, 2010 90,000 $3.04 Restricted stock granted 75,000 $2.20 Restricted stock vested (31,667) $3.03 Restricted stock forfeited (76,667) $2.64 Outstanding at December 31, 2010 56,666 $2.47 As of December 31, 2010, there was approximately $2.3 million of total unrecognized compensation expense (net of estimatedforfeitures) related to unvested options and restricted stock awards. This unrecognized compensation expense is expected to be recognizedover a weighted average period of 1.3 years.Note 11 — Employee BenefitsThe Company maintains a defined contribution 401(k) retirement plan, pursuant to which employees who have completed 90 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 of 1986, as amended.The Company currently matches 25% of the first 6% of the participants’ deferral. Contributions to the 401(k) plan vest equally over athree-year period. The Company has expensed, net of forfeitures, approximately $71,000, $37,000 and $77,000 in 2010, 2009 and 2008,respectively.Note 12 — Therapeutic Tax CreditIn July 2010, the Company submitted applications for qualifying therapeutic discovery project credits under §48D of the InternalRevenue Code, as amended (the “Code”), as added to the Code by section 9023(a) of the Patient Protection and Affordable Care Act of 2010.In October 2010, the Company was awarded grants totaling $1.0 million related to it applications, of which $0.8 million was received in2010. The remainder of such grants could be received in 2011.Note 13 — Income TaxesThe Company recorded a current income tax expense for foreign and state income taxes of approximately $0 and $0.1 million and adeferred federal income tax benefit of $0.5 million and $0 for the years ended December 31, 2010 and 2009, respectively. The componentsof the income tax provision (benefit) are as follows (in thousands): 2010 2009Current $— $92 Deferred (450) — Net provision $(450) $92 F-27  TABLE OF CONTENTSNOVAVAX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2010, 2009 and 2008Note 13 — Income Taxes – (continued)Deferred tax assets (liabilities) consist of the following at December 31 (in thousands): 2010 2009Net operating losses $99,999 $87,698 Research tax credits 4,924 3,880 Other 3,290 3,539 Total deferred tax assets 108,213 95,117 Other (209) (264) Total deferred tax liabilities (209) (264) Net deferred tax assets 108,004 94,853 Less valuation allowance (108,004) (94,853) Deferred tax assets, net $— $— The differences between the United States federal statutory tax rate and the Company’s effective tax rate are as follows: 2010 2009 2008Statutory federal tax rate (34)% (34)% (34)% State income taxes, net of federal benefit (4)% —% (6)% Research and development credit (2)% (1)% (1)% Other 3% (4)% —% Change in valuation allowance 36% 39% 41% (1)% —% —% 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, 2010 and 2009 as management believes it ismore likely than not that the assets will not be realizable.During the year ended December 31, 2010, as a result of new legislation allowing for the partial refund of research and developmentcredits, the Company requested and received a refund of approximately $0.1 million. In addition, during the year ended December 31, 2010,the Company received grants totaling $0.8 million for qualifying therapeutic discovery projects under Internal Revenue Code Section 48D.The combination of the refundable research and development credits and the Internal Revenue Code Section 48D grant resulted in theCompany recording a deferred federal income tax benefit of $0.5 million during the year ended December 31, 2010.As of December 31, 2010, the Company had tax return reported federal net operating losses and tax credits available as follows (inthousands): AmountFederal net operating losses expiring through the year 2030 $271,052 Research tax credits expiring through the year 2030 5,578 Alternative-minimum tax credit (no expiration) 94 Utilization of the net operating loss carryforwards and credits may be subject to a substantial annual limitation due to the ownershipchange limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The Company has notperformed a detailed analysis to determine whether an ownership change under Section 382 of the Internal Revenue Code occurred. The effectof an ownership change would be the imposition of an annual limitation on the use of net operating lossF-28  TABLE OF CONTENTSNOVAVAX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2010, 2009 and 2008Note 13 — Income Taxes – (continued)carryforwards and credits attributable to periods before the change and could result in a reduction in the total net operating losses and creditsavailable.Beginning in 2006, the windfall equity-based compensation deductions are tracked off balance sheet. During 2010, 2009 and 2008, theCompany recorded $0, $0.5 million and $0.2 million, respectively, of windfall stock compensation deductions that are being tracked offbalance sheet. If and when realized, the tax benefit associated with these deductions will be credited to additional paid-in capital. Theseexcess benefit deductions are included in the total Federal net operating losses disclosed above.Tabular Reconciliation of Unrecognized Tax Benefits (in thousands): AmountUnrecognized tax benefits as of January 1, 2009 $6,539 Gross increases – tax positions in prior period — Gross decreases – tax position in prior period (2,105) Gross increases – current-period tax positions 425 Increases (decreases) from settlements — Unrecognized tax benefits as of December 31, 2009 $4,859 Gross increases – tax positions in prior period 105 Gross decreases – tax position in prior period (54) Gross increases – current-period tax positions — Increases (decreases) from settlements — Unrecognized tax benefits as of December 31, 2010 $4,910 To the extent these unrecognized tax benefits are ultimately recognized, it would affect the annual effective income tax rate.The Company and its subsidiary file income tax returns in the United States federal jurisdiction and in various states. The Companyhad tax net operating losses and credit carryforwards that are subject to examination for a number of years beyond the year in which they aregenerated for tax purposes. Since a portion of these carryforwards may be utilized in the future, many of these attribute carryforwardsremain subject to examination.The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense. As of December 31,2010 and December 31, 2009, the Company had no accruals for interest or penalties related to income tax matters.Note 14 — Commitments and ContingenciesOperating LeasesThe Company conducts its operations from a leased facility, under an operating lease with a term expiring in 2017, in Rockville,Maryland. The lease obligates the Company to pay building operating costs. The Company also leased space in Malvern, Pennsylvania, itsformer corporate headquarters, under an operating lease with a term expiring in 2014. The Company has subleased this facility under anamended sublease agreement expiring in 2014.F-29  TABLE OF CONTENTSNOVAVAX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2010, 2009 and 2008Note 14 — Commitments and Contingencies – (continued)Future minimum rental commitments under non-cancelable leases as of December 31, 2010 are as follows (in thousands): Year OperatingLeases Sublease Net OperatingLeases2011 $2,087 $(281) $1,806 2012 2,132 (288) 1,844 2013 2,179 (295) 1,884 2014 2,151 (201) 1,950 2015 2,016 — 2,016 Thereafter 2,232 — 2,232 Total minimum lease payments $12,797 $(1,065) $11,732 Total rent expenses approximated $1.6 million, $1.5 million and $2.7 million for the years ended December 31, 2010, 2009 and 2008,respectively. Rent expense for the year ended December 31, 2008 includes an accrual of $0.4 million related to the exit of the Taft Courtfacility.Purchase ObligationsIn March 2009, the Company and Cadila entered into a master services agreement (the “Master Services Agreement”) pursuant to whichthe Company may request services from Cadila in the areas of biologics research, pre-clinical development, clinical development, processdevelopment, manufacturing scale-up and general manufacturing related services in India. If, at the third anniversary of the Master ServicesAgreement, the amount of services provided by Cadila is less than $7.5 million, the Company will pay Cadila the portion of the shortfallamount that is less than or equal to $2.0 million and 50% of the portion of the shortfall amount that exceeds $2.0 million. When calculatingthe shortfall, the amount of services provided by Cadila includes amounts that have been paid under all project plans, the amounts that willbe paid under ongoing executed project plans and amounts for services that had been offered to Cadila, that Cadila was capable ofperforming, but exercised its right not to accept such project. The term of the Master Services Agreement is five years, but may beterminated by either party if there is a material breach that is not cured within 30 days of notice or, at any time after three years, providedthat 90 days prior notice is given to the other party. As of December 31, 2010, the Company’s remaining obligation to Cadila under theMaster Services Agreement is $7.4 million.ContingenciesLicense Agreement with Wyeth Holdings CorporationThe Company entered into a license agreement in 2007 with Wyeth Holdings Corporation, a subsidiary of Pfizer Inc (“Wyeth”). Thelicense is a non-exclusive, worldwide license to a family of patent applications covering VLP technology for use in human vaccines incertain fields of use. The agreement provides for an upfront payment, annual license fees, milestone payments and royalties on any productsales. If each milestone is achieved for any particular product candidate, the Company would be obligated to pay an aggregate of $14.0million to Wyeth for each product candidate developed and commercialized under the agreement. In May 2010, the Company amended thelicense, effective as of March 17, 2010, under which the parties agreed that the Company would not be obligated to make a milestonepayment in the event its H1N1 pandemic vaccine candidate received regulatory approval in the country of Mexico, provided that theCompany increase certain subsequent milestone payments. Annual license maintenance fees under the agreement total $0.2 million perannum. The royalty to be paid by the Company under the agreement, if a product is approved by the FDA for commercialization, will bebased on single digit percentage of net sales. Payments under the agreement to Wyeth as of December 31, 2010 aggregated $5.1 million. TheagreementF-30  TABLE OF CONTENTSNOVAVAX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2010, 2009 and 2008Note 14 — Commitments and Contingencies – (continued)will remain effective as long as at least one claim of the licensed patent rights cover the manufacture, sale or use of any product unlessterminated sooner at the Company’s option or by Wyeth for an uncured breach by the Company.License Agreement with University of Massachusetts Medical SchoolThe Company entered into an exclusive license agreement in 2007 with the University of Massachusetts Medical School (“UMMS”).The license is an exclusive, worldwide license of VLP technology to develop VLP vaccines for the prevention of any viral diseases inhumans. The agreement provides for an upfront payment, annual license fees, milestone payments and royalties on any product sales.Payments under the agreement as of December 31, 2010 were not material. The agreement will remain effective as long as at least one claimof the licensed patent rights cover the manufacture, sale or use of any product unless terminated sooner at the Company’s option or by eitherparty for an uncured breach by the other party.Employment AgreementsThe Company has entered into employment agreements with certain of its executive officers and key employees. The employmentagreements have one year terms that automatically renew annually and provide for base salaries and other incentives. The agreementsinclude a provision whereby if the Company terminates the employment of such an employee other than for cause, including pursuant to achange of control under its severance plan, or the employee leaves the Company for good reason, such employee shall be entitled to receivepayment of existing salary and benefits for a period that ranges from six to 24 months.Note 15 — Related Party TransactionsDr. Rajiv Modi, a director of Novavax, is also a managing director of Cadila Pharmaceuticals Ltd. (“Cadila”). The Company andCadila have formed a joint venture called CPL Biologicals Private Limited, of which the Company owns 20%. The Company and Cadilaalso have entered into a Master Services Agreement, pursuant to which Cadila may perform certain research, development andmanufacturing services for the Company up to $7.5 million. A subsidiary of Cadila owns 12.5 million shares of the Company’soutstanding common stock. Since entering into the Master Services Agreement and through December 31, 2010, the Company has incurred$0.1 million under the agreement. In addition, during 2010 the Company’s activities relating to the JV consisted of the purchase by theCompany of laboratory equipment for $0.2 million and the reimbursement by the JV of travel and administrative costs and servicesprovided to the JV totaling $0.2 million. The reimbursement of these costs and services are recorded as a reduction to operating expenses.Mr. Lambert, a former member and Executive Chairman of the Company’s Board of Directors, had a consulting agreement with theCompany, pursuant to which he assisted the Company with issues regarding the development and commercialization of its vaccinecandidates and assisted with business development predominantly in the international markets. For the years ended December 31, 2010,2009 and 2008, the Company recorded consulting expenses of $41,000, $220,000 and $220,000, respectively, in accordance with theconsulting agreement. On March 8, 2010, Mr. Lambert’s consulting agreement expired by its original terms. In June 2010, the Companyentered into a new consulting agreement with Mr. Lambert, pursuant to which, as of April 1, 2010 and concluding on September 23, 2010,he acted as a Novavax representative on the board of directors of CPL Biologicals Private Limited. During 2010, the Company incurred$32,250 for these services, of which $17,250 has been reimbursed by the JV.On February 15, 2010, the Board of Directors elected Mr. Stanley Erck as its new Executive Chairman. Mr. Erck will be paid a salaryof $300,000 per annum and has been granted equity awards.Two of the Company’s former directors have outstanding notes due to the Company in the aggregate principal amount of $1,572,000,as reflected on the Company’s balance sheet as of December 31, 2010. The notes, in the initial principal amount of $1,479,268, wereinitially delivered by the former directors to theF-31  TABLE OF CONTENTSNOVAVAX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2010, 2009 and 2008Note 15 — Related Party Transactions – (continued)Company in March 2002 as payment of the exercise price of options. In May 2008, one of the Notes was amended and restated to, amongother things, include accrued interest in the principal amount, bringing the aggregate principal amount outstanding to $1,610,516. As ofDecember 31, 2010, the Company received payments of $65,000. As security, the former directors pledged shares of the Company’scommon stock as collateral. The Company has the right to sell the pledged shares. As of December 31, 2010, the outstanding principal andinterest for these two notes was $2.0 million. The Company has not accrued interest due to collection concerns. Both notes are currently indefault and the Company is pursuing the collection of these promissory notes.Note 16 — Subsequent EventsHHS BARDA Contract Award for Recombinant Influenza VaccinesIn September 2009, the Company responded to the HHS BARDA request for proposal (“RFP”) for a potential contract award for theadvanced development of recombinant influenza vaccines. In April 2010, the Company was notified by HHS BARDA that its proposal waswithin the competitive range for award consideration. On September 30, 2010, at the request of HHS BARDA, the Company submitted finaltechnical and business proposal revisions to the RFP. In February 2011, the Company was awarded a contract from HHS BARDA valuedat $97 million for the first 36 month base-period, with an HHS BARDA option for an additional period of 24 months valued at $82million, for a total contract value of up to $179 million. The HHS BARDA contract award provides significant funding for the Company’scontinued ongoing clinical development and product scale-up of its seasonal and pandemic influenza vaccine candidates. This is a cost-plus-fixed-fee reimbursement contract in that HHS BARDA will reimburse the Company for direct contract costs incurred plus allowableindirect costs and a fee earned in the further development of its seasonal and pandemic H5N1 influenza vaccines. Billings under thecontract will be based on approved provisional indirect billing rates, which permit recovery of fringe benefits, overhead and general andadministrative expenses not exceeding certain limits. These indirect rates will be subject to review by the HHS BARDA’s auditor on anannual basis. When the final determination of the allowable costs for any year has been made, revenue and billings may be adjustedaccordingly.License Agreement with LG Life Sciences, Ltd.In February 2011, the Company entered into a licensing agreement with LG Life Sciences, Ltd. (“LGLS”) that allows LGLS to use itsVLP technology to develop and commercially sell its influenza vaccines in South Korea and certain other emerging-market countries. LGLSreceived an exclusive license to the Company’s influenza VLP technology in South Korea and a non-exclusive license in the other specifiedcountries. At its own cost, LGLS is responsible for funding its clinical development of the influenza VLP vaccines and completing amanufacturing facility in South Korea. The Company will receive (i) a guaranteed upfront payment, (ii) potential milestone payments and(iii) double-digit royalty payments from LGLS’s future commercial sales of influenza VLP vaccines.F-32  TABLE OF CONTENTSNOVAVAX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2010, 2009 and 2008Note 17 — Quarterly Financial Information (Unaudited)The following tables summarize the effects of the restatement starting with the subtotal prior to each affected line item in theaccompanying quarterly statements of operations for the years ended December 31, 2010, 2009 and 2008: Quarter Ended March 31 June 30 September 30 December 31 (As PreviouslyReported) (As PreviouslyReported) (As PreviouslyReported) (in thousands, except per share data)2010: Revenue $110 $7 $175 $51 Loss from operations before other income(expense) (11,454) (9,468) (10,539) (7,034) Interest income 44 44 50 50 Interest (expense) (2) (2) (2) (2) Other income (expense) — — 136 485 Change in fair value of warrant liability — — — (100) Loss before income tax (11,412) (9,426) (10,355) (6,601) Income tax benefit — — — 315 Net loss $(11,412) $(9,426) $(10,355) $(6,286) Net loss per share $(0.11) $(0.09) $(0.10) $(0.06) Quarter Ended March 31 June 30 September 30 (As Restated) (As Restated) (As Restated) (in thousands, except per share data)2010: Revenue $110 $7 $175 Loss from operations before other income(expense) (11,454) (9,468) (10,539) Interest income 44 44 50 Interest (expense) (2) (2) (2) Other income (expense) — — —(1) Change in fair value of warrant liability 1,069 569 133 Loss before income tax (10,343) (8,857) (10,358) Income tax benefit — — 136(1) Net loss $(10,343) $(8,857) $(10,222) Net loss per share $(0.10) $(0.09) $(0.10) (1)The Company reclassified a refundable income tax credit received in the three months ended September 30, 2010.F-33  TABLE OF CONTENTSNOVAVAX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2010, 2009 and 2008Note 17 — Quarterly Financial Information (Unaudited) – (continued) Quarter Ended March 31 June 30 September 30 December 31 (As PreviouslyReported) (As PreviouslyReported) (As PreviouslyReported) (As PreviouslyReported) (in thousands, except per share data)2009: Revenue $21 $29 $201 $75 Loss from operations before other income(expense) (7,137) (7,830) (8,262) (14,154) Interest income 104 75 59 45 Interest (expense) (437) (326) (19) (2) Other income (expense) — — — — Impairment of short-term investments (879) (459) — — Realized gains on short-term investments — — 692 156 Change in fair value of warrant liability — — — — Net loss $(8,349) $(8,540) $(7,530) $(13,955) Net loss per share $(0.12) $(0.10) $(0.08) $(0.15) Quarter Ended March 31 June 30 September 30 December 31 (As Restated) (As Restated) (As Restated) (As Restated) (in thousands, except per share data)2009: Revenue $21 $29 $201 $75 Loss from operations before other income(expense) (7,137) (7,830) (8,262) (14,154) Interest income 104 75 59 45 Interest (expense) (437) (326) (19) (2) Other income (expense) — — — — Impairment of short-term investments (879) (459) — — Realized gains on short-term investments — — 692 156 Change in fair value of warrant liability 1,505 (5,417) (1,738) 3,678 Net loss $(6,844) $(13,957) $(9,268) $(10,277) Net loss per share $(0.10) $(0.16) $(0.10) $(0.11) F-34  TABLE OF CONTENTSNOVAVAX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2010, 2009 and 2008Note 17 — Quarterly Financial Information (Unaudited) – (continued) Quarter Ended March 31 June 30 September 30 December 31 (As PreviouslyReported) (As PreviouslyReported) (As PreviouslyReported) (As PreviouslyReported) (in thousands, except per share data)2008: Revenue $458 $342 $194 $70 Loss from continuing operations beforeother income (expense) (7,220) (8,204) (9,726) (9,210) Interest income 543 322 (170) 264 Interest (expense) (426) (432) (434) (391) Impairment of short-term investments — — — (1,238) Change in fair value of warrant liability — — — — Loss from continuing operations (7,103) (8,314) (10,330) (10,575) (Loss) income from discontinuedoperations (652) (1,058) 2,488 (505) Net loss $(7,755) $(9,372) $(7,842) $(11,080) Net loss per share $(0.13) $(0.15) $(0.12) $(0.15) Quarter Ended September 30 December 31 (As Restated) (As Restated) (in thousands, except per share data)2008: Revenue $194 $70 Loss from continuing operations before other income (expense) (9,726) (9,210) Interest income (170) 264 Interest (expense) (434) (391) Impairment of short-term investments — (1,238) Change in fair value of warrant liability (836) 2,374 Loss from continuing operations (11,166) (8,201) (Loss) income from discontinued operations 2,488 (505) Net loss $(8,678) $(8,706) Net loss per share $(0.13) $(0.13) The net income (loss) per share was calculated for each three-month period on a stand-alone basis. As a result, the sum of the net income(loss) per share for the four quarters may not equal the net income (loss) per share for the respective twelve-month period.F-35  TABLE OF CONTENTSNOVAVAX, INC. SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTSDecember 31, 2010, 2009 and 2008(in thousands) Balance atBeginning ofYear Additions Deductions Balance atEnd of YearAllowance for Doubtful Accounts: 2010 $— $— $— $— 2009 218 — (218) — 2008 168 54 (4) 218 Net Deferred Tax Asset Valuation Allowance: 2010 $94,853 $13,151 $— $108,004 2009 80,799 14,054 — 94,853 2008 67,391 13,408 — 80,799 Sales Return and Rebate Allowance: 2010 $40 $— $(40) $— 2009 118 68 (146) 40 2008 371 53 (306) 118 Exhibit 10.24 THIRD AMENDMENT TO SUBLEASE AGREEMENT THIS THIRD AMENDMENT TO SUBLEASE AGREEMENT (this “Third Amendment”), dated this 29th day of December, 2010, is executedby and between Novavax, Inc., a Delaware Corporation (“Sublandlord”) and PuriCore, Inc., a Delaware Corporation, successor-in-interest to SteriloxTechnologies, Inc. (“Subtenant”). RECITALS WHEREAS, pursuant to a Lease Agreement dated July 15, 2004 (“Prime Lease”) Sublandlord leased from Liberty Property Limited Partnership, aPennsylvania limited partnership (“Prime Landlord”) approximately 32,908 rentable square feet of space on the first and second floors (the “Premises”) ofthe building located at 508 Lapp Road, Malvern, Pennsylvania 19355 (the “Property”); and WHEREAS, Prime Landlord and Sublandlord entered into an Amendment to Lease Agreement and Consent to Sublease dated June 1, 2006; and WHEREAS, Sublandlord and Subtenant entered into a Sublease Agreement dated April 28, 2006 (the “Original Sublease”) pursuant to whichSubtenant agreed to sublease a portion of the Premises (the “Sublease Premises”) from Sublandlord; and WHEREAS, Sublandlord and Subtenant entered into that certain Amendment to Sublease dated October 25, 2006 (the “First Amendment toSublease”), pursuant to which the parties amended the Original Sublease as more particularly set forth therein; WHEREAS, Sublandlord and Subtenant entered into that certain Second Amendment to Sublease Agreement dated April 22, 2009 (with an effectivedate of November 1, 2008) (the “Second Amendment to Sublease Agreement”), pursuant to which the Sublease Premises was expanded to include theentire Premises, containing 32,908 rentable square feet, as described above, and including additional amendments to the Original Sublease as moreparticularly set forth therein; WHEREAS, the Original Sublease, as amended by the First and Second Amendments to Sublease, is hereinafter referred to as the “Sublease”; and WHEREAS, Sublandlord and Subtenant now wish to further amend the Sublease as set forth in this Third Amendment. NOW, THEREFORE, for and in consideration of the agreements of the parties set forth below and intending to be legally bound, Sublandlord, andSubtenant hereby agree as follows: 1 1.Incorporation of Recitals. The parties hereto acknowledge and agree that the recitals hereinabove set forth are true and correct in all respectsand that the same are incorporated herein and made a part hereof. 2.Representations. (a)Sublandlord hereby represents and warrants to Subtenant the following facts: (1)Except as modified by this Third Amendment, the Sublease is in full force and effect and constitutes the entire rentalagreement between Sublandlord and Subtenant for the Sublease Premises; (2)There are no existing defaults on the part of Sublandlord, or to Sublandlord’s knowledge, Subtenant under theSublease; (3)Neither Prime Landlord nor Sublandlord is in default under the Prime Lease, and to Sublandlord's knowledge, thereexists no state of facts and no event has occurred which, with the passage of time or the giving of notice, or both, wouldconstitute a default by either Prime Landlord or Sublandlord under the Prime Lease; and (4)Sublandlord has paid to Prime Landlord any and all sums owed to Prime Landlord under the Prime Lease as of the dateof this Third Amendment; (5)To Sublandlord's knowledge, no part of the Security Deposit has been applied by Prime Landlord to satisfySublandlord’s obligations under the Prime Lease; (6)Sublandlord has no knowledge of any environmental condition that affects the use or operation in any way of thatportion of the Premises not currently being occupied by Subtenant. (b)Subtenant hereby represents and warrants to Sublandlord the following facts: (1)Except as modified by this Third Amendment, the Sublease is in full force and effect and constitutes the entire rentalagreement between Sublandlord and Subtenant for the Sublease Premises; (2)Subtenant is in full and complete possession of the Sublease Premises; and (3)There are no existing defaults on the part of Subtenant, or to Subtenant’s knowledge, Sublandlord, under the Sublease. 2 3.Option to Renew. Subtenant hereby exercises its Option, as described in Section 5 of the Second Amendment to Sublease Agreement. TheOption Term shall commence on October 1, 2011 and shall continue for a period of two years (2) and eleven (11) months, expiring onAugust 31, 2014. The parties hereto acknowledge and agree that the Option Term set forth herein is one (1) month less than the length ofthe Option Term as originally set forth in the Second Amendment to Sublease Agreement. Subtenant shall have no further right to extend theterm of the Sublease. 4.Rent for the Option Term. Notwithstanding anything to the contrary set forth in the Second Amendment to Sublease Agreement, Subtenantshall pay to Sublandlord, in the manner set forth in Section 6 of the Second Amendment to Sublease Agreement, the following Subrent forthe remainder of the Term and for the Option Term: Period Amount psf Annual Amount 01/01/11 – 10/31/11 $8.51 $280,047.08 11/01/11 – 10/31/12 $8.73 $287,286.84 11/01/12 – 10/31/13 $8.94 $294,197.52 11/01/13 – 08/31/14 $9.17 $301,766.36 Subtenant shall make all payments of Subrent to Sublandlord on the first day of each month via ACH wire transfer. 5.Operating Expenses/Utilities. For the remainder of the Term and continuing through the Option Term, Subtenant shall continue toreimburse Sublandlord for all Operating Expenses and Utilities pursuant to Section 6(b) of the Second Amendment to Sublease Agreement. 6.Security Deposit/Letter of Credit. Section 6(d) of the Sublease is hereby deleted, and the following new paragraph (d) is substituted in lieuthereof: “d. In lieu of a cash security deposit, Subtenant shall deliver to Sublandlord, simultaneously with the execution of this Third Amendment,a 12-month irrevocable Letter of Credit (the ‘Letter of Credit’), renewable automatically on an annual basis at the commencement of eachnew calendar year during the remaining Term of the Sublease and including the Option Term, in a form acceptable to Sublandlord, by areputable bank which is a member of the United States Federal Reserve System (the ‘Issuing Bank’), in the amount of One HundredThousand Dollars ($100,000.00), with the first half of the Letter of Credit ($50,000.00) required by January 1, 2011, and the second$50,000.00 required by March 1, 2011. Subtenant may provide two separate Letters of Credit, if necessary, which shall collectively bedeemed the ‘Letter of Credit’.” 3 7.Brokerage Commissions. Sublandlord and Subtenant represent to each other that neither party has engaged a broker or other person whomay be owed a commission in connection with the transactions contemplated by this Third Amendment other than Scheer Partners, whichrepresents Sublandlord and will be paid separately by Sublandlord pursuant to a separate written agreement, and no other broker is entitledto a leasing commission in connection with the transaction effectuated hereby. Sublandlord and Subtenant shall indemnify and hold eachother harmless against all claims, damages, costs or expenses, including reasonable attorney’s fees and litigation costs, resulting directly orindirectly from any claim by any other party for brokerage or similar fees or commissions arising as a result of its agreement or actionsrelating to the transaction effectuated hereby. 8.Continuing Agreements; Novation. Except as expressly modified hereby, the parties hereto ratify and confirm each and every provision ofthe Sublease as if the same were set forth herein. In the event that any of the terms and conditions in the Sublease conflict in any way withthe terms and provisions hereof, the terms and provisions hereof shall prevail. The parties hereto covenant and agree that the execution ofthis Third Amendment is not intended to and shall not cause or result in a novation with regard to the Sublease. 9.ENTIRE AGREEMENT. NO STATEMENTS, AGREEMENTS OR REPRESENTATIONS, ORAL OR WRITTEN, WHICH MAYHAVE BEEN MADE TO EITHER PARTY OR TO ANY EMPLOYEE OR AGENT OF EITHER PARTY, EITHER BY SUCH PARTYOR BY ANY EMPLOYEE, AGENT OR BROKER ACTING ON SUCH PARTY’S BEHALF, WITH RESPECT TO THEMODIFICATION OF THE SUBLEASE, SHALL BE OF ANY FORCE OR EFFECT, EXCEPT TO THE EXTENT STATED IN THISFIRST AMENDMENT, AND ALL PRIOR AGREEMENTS AND REPRESENTATIONS WITH RESPECT TO THE MODIFICATIONOF THE SUBLEASE ARE MERGED HEREIN. 10.Capitalized Terms. Each capitalized term used herein but not defined shall have the meaning ascribed to such term in the Sublease. 11.Captions. The captions herein set forth are for convenience only and shall not be deemed to define, limit or describe the scope or intent ofthis Third Amendment. 12.Governing Law. The provisions of this Third Amendment shall be construed, interpreted and enforced in accordance with the laws of theCommonwealth of Pennsylvania as the same may be in effect from time to time. 13.Counterparts. This Third Amendment may be executed in any number of counterparts, and each such counterpart shall be deemed to bean original. It shall not be necessary that the signature of, or on behalf of, each party, or that the signatures of the persons required to bindany party, appear on more than one counterpart. 4 14.Sublease by Subtenant. If Subtenant desires to sublet the Premises pursuant to Section 18 of the Prime Lease, Sublandlord shall usecommercially reasonable efforts to assist Subtenant in obtaining the necessary approvals from the Prime Landlord and shall be reasonablein whether or not to provide its own consent to any such sublet. IN WITNESS WHEREOF, the parties hereto have executed this Third Amendment under seal as of the date first above written. WITNESS: SUBLANDLORD: Novavax, Inc. By:/s/ Frederick W. Driscoll Name:Frederick W. Driscoll Title:VP, CFO & Treasurer WITNESS: SUBTENANT: PuriCore, Inc. By:/s/ Darren D. Weiss Name:Darren D. Weiss Title:Chief Financial Officer 5 Exhibit 23.1Consent of Independent Registered Public Accounting FirmWe have issued our report dated March 28, 2011, with respect to the consolidated financial statements and financial statement schedule and our report datedMarch 28, 2011 on internal control over financial reporting included in the Annual Report of Novavax, Inc. and subsidiary on Form 10-K for the year endedDecember 31, 2010. We hereby consent to the incorporation by reference of said reports in the Registration Statements of Novavax, Inc. and subsidiary onForms S-3 (No. 333-165496 effective April 27, 2010; No. 333-138893 effective December 11, 2006; No. 333-118210 effective August 13, 2004; No. 333-118181 effective August 12, 2004; and No. 333-22685 effective March 4, 1997) and on Forms S-8 (No. 333-145298 effective August 9, 2007; No. 33-80277 effective December 11, 1995; No. 33-80279 effective December 11, 1995; No. 333-130990 effective January 12, 2006; No. 333-110401 effectiveNovember 12, 2003; No. 333-97931 effective August 9, 2002; No. 333-46000 effective September 18, 2000 and No. 333-77611, effective May 3, 1999)./s/ Grant Thornton LLP McLean, Virginia March 28, 2011 Exhibit 31.1CERTIFICATION OF CHIEF EXECUTIVE OFFICERI, Rahul Singhvi, certify that:1. I have reviewed this Annual Report on Form 10-K of Novavax, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and we have: a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared; b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations; and d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and  b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. By: /s/ Rahul Singhvi President and Chief Executive Officer Date: March 28, 2011 Exhibit 31.2CERTIFICATION OF PRINCIPAL FINANCIAL AND ACCOUNTING OFFICERI, Frederick W. Driscoll, certify that:1. I have reviewed this Annual Report on Form 10-K of Novavax, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations; and d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and  b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. By: /s/ Frederick W. Driscoll Vice President, Chief Financial Officer and Treasurer Date: March 28, 2011 Exhibit 32.1CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANTTO 18 UNITED STATES C. §1350(SECTION 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 fiscal period ended December 31, 2010 as filed withthe Securities and Exchange Commission on the date hereof (the “Report”), I, Rahul Singhvi, President and Chief Executive Officer of the Company, herebycertify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that: 1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany for the dates and periods covered by this Report. By:/s/ Rahul Singhvi President and Chief Executive OfficerDate: March 28, 2011 Exhibit 32.2CERTIFICATION OF PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER PURSUANT TO 18 UNITED STATES C. §1350(SECTION 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 fiscal period ended December 31, 2010 as filed withthe Securities and Exchange Commission on the date hereof (the “Report”), I, Frederick W. Driscoll, Vice President, Chief Financial Officer and Treasurer,hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that: 1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany for the dates and periods covered by this Report. By:/s/ Frederick W. Driscoll Vice President, Chief Financial Officer and Treasurer Date: March 28, 2011 

Continue reading text version or see original annual report in PDF format above