Vaxart
Annual Report 2018

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K (Mark One)þ ANNUAL REPORT PURSUANT TO SECTION 13 OR15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2018 OR o TRANSITION REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934 For the transition period from to Commission file number: 001-35285 Vaxart, Inc. (Exact Name of Registrant as Specified in its Charter) Delaware 59-1212264 (State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.) 290 Utah Ave., Suite 200, South San Francisco, CA 94080 (Address of principal executive offices) (Zip Code) (650) 550-3500(Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act:Title of Each Class: Name of Each Exchange on Which Registered: Common Stock, par value $0.10 per share The Nasdaq Capital Market Securities registered pursuant to Section 12(g) of the Act: None 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 þ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (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 þ No ¨ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 ofthis chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨ Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to thebest of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “largeaccelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ¨Accelerated filer ¨Non-accelerated filer þSmaller reporting company þ Emerging growth company ¨ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financialaccounting standards provided pursuant to Section 13(a) of the Exchange Act. oIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ The aggregate market value of the Registrant’s common stock held by non-affiliates of the Registrant as of the last business day of the Registrant’s most recently completed secondfiscal quarter, June 30, 2018, based on the last reported sales price of the Registrant’s common stock of $3.03 per share was $12,181,506. As of February 4, 2019, the registrant had a total of 7,141,189 shares of common stock issued and outstanding. DOCUMENTS INCORPORATED BY REFERENCENone.  TABLE OF CONTENTS Page FORWARD-LOOKING STATEMENTS 1 PART I ITEM 1.Business 2 ITEM 1A.Risk Factors 37 ITEM 1B.Unresolved Staff Comments 74 ITEM 2.Properties 74 ITEM 3.Legal Proceedings 74 ITEM 4.Mine Safety Disclosures 74 PART II ITEM 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 75 ITEM 6.Selected Financial Data 75 ITEM 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations 76 ITEM 8.Financial Statements and Supplementary Data 84 ITEM 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 116 ITEM 9A.Controls and Procedures 116 ITEM 9B.Other Information 117 PART III ITEM 10.Directors, Executive Officers and Corporate Governance 118 ITEM 11.Executive Compensation 122 ITEM 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 128 ITEM 13.Certain Relationships and Related Transactions, and Director Independence 129 ITEM 14.Principal Accounting Fees and Services 130 PART IV ITEM 15.Exhibits and Financial Statement Schedules 134 EXHIBIT INDEX 135 ITEM 16.Form 10-K Summary 137 SIGNATURES 138 Table of Contents FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K for the year ended December 31, 2018, contains forward-looking statements within the meaning of Section 27A of theSecurities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, whichare subject to the “safe harbor” created by those sections, concerning our business, operations, and financial performance and condition as well as ourplans, objectives, and expectations for business operations and financial performance and condition. Any statements contained herein that are not ofhistorical facts may be deemed to be forward-looking statements. You can identify these statements by words such as “anticipate,” “assume,” “believe,”“could,” “estimate,” “expect,” “intend,” “may,” “plan,” “should,” “will,” “would,” and other similar expressions that are predictions of or indicate futureevents and future trends. These forward-looking statements are based on current expectations, estimates, forecasts, and projections about our business andthe industry in which we operate and management's beliefs and assumptions and are not guarantees of future performance or development and involveknown and unknown risks, uncertainties, and other factors that are in some cases beyond our control. As a result, any or all of our forward-lookingstatements in this Annual Report on Form 10-K may turn out to be inaccurate. Factors that could materially affect our business operations and financialperformance and condition include, but are not limited to, those risks and uncertainties described herein under “Item 1A - Risk Factors.” You are urged toconsider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on the forward-lookingstatements. The forward-looking statements are based on information available to us as of the filing date of this Annual Report on Form 10-K. Unlessrequired by law, we do not intend to publicly update or revise any forward-looking statements to reflect new information or future events or otherwise. Youshould, however, review the factors and risks we describe in the reports we will file from time to time with the Securities and Exchange Commission, or theSEC, after the date of this Annual Report on Form 10-K. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based uponinformation available to us as of the date of this prospectus, and while we believe such information forms a reasonable basis for such statements, suchinformation may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or reviewof, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon thesestatements. This Annual Report on also contains market data related to our business and industry. These market data include projections that are based on a number ofassumptions. If these assumptions turn out to be incorrect, actual results may differ from the projections based on these assumptions. As a result, our marketsmay not grow at the rates projected by these data, or at all. The failure of these markets to grow at these projected rates may harm on our business, results ofoperations, financial condition and the market price of our common stock. 1Table of ContentsPART IItem 1. Business OverviewVaxart Biosciences, Inc. was originally incorporated in California in March 2004, under the name West Coast Biologicals, Inc. and changed its name toVaxart, Inc., or Private Vaxart, in July 2007, and reincorporated in the state of Delaware.On February 13, 2018, Private Vaxart completed a reverse merger, or the Merger, with Aviragen Therapeutics, Inc., or Aviragen, pursuant to which PrivateVaxart survived as a wholly owned subsidiary of Aviragen. Under the terms of the Merger, Aviragen changed its name to Vaxart, Inc. and Private Vaxartchanged its name to Vaxart Biosciences, Inc. Unless otherwise indicated, all references to “Vaxart,” “we,” “us,” “our” or the “Company” in this AnnualReport on Form 10-K mean Vaxart, Inc., the combined company. We are a clinical-stage biotechnology company focused on the development of oral recombinant vaccines based on our proprietary oral vaccine platform.Our oral vaccines are designed to generate broad and durable immune responses that protect against a wide range of infectious diseases and may be useful forthe treatment of chronic viral infections and cancer. Our vaccines are administered using a convenient room temperature-stable tablet, rather than byinjection. We are developing prophylactic vaccine candidates that target a range of infectious diseases. These include norovirus, a widespread cause of acute gastro-intestinal enteritis, for which two Phase 1 human studies have been completed; seasonal influenza, for which our vaccine protected patients in a recent Phase2 challenge study; and respiratory syncytial virus, or RSV, a common cause of respiratory tract infections. In addition, we are developing our first therapeuticimmune-oncology vaccine targeting cervical cancer and dysplasia caused by human papillomavirus, or HPV. Vaccines have been essential in eradicating or significantly reducing multiple devastating infectious diseases, including polio, smallpox, mumps, measles,diphtheria, hepatitis B, influenza, human papillomavirus and several others. According to a recent MarketsandMarkets research report “Vaccines Market -Global Forecast to 2023”, the global market for vaccines is expected to reach $50.42 billion by 2023 from $36.45 billion in 2018, at a compound annualgrowth rate of 6.7%. We believe our oral tablet vaccine candidates offer several important advantages: First, they are designed to generate broad and durable immune responses, including systemic, mucosal and T cell responses, which may enhance protectionagainst certain infectious diseases, such as influenza, norovirus and RSV, and may have potential clinical benefit for certain cancers and chronic viralinfections, such as those caused by HPV. Second, our tablet vaccine candidates are designed to provide a more efficient and convenient method of administration, enhance patient acceptance andreduce distribution bottlenecks, which we believe will improve the effectiveness of vaccination campaigns. For example, according to the U.S. Centers forDisease Control and Prevention, or CDC, in the 2017/2018 seasonal influenza season, only approximately 42% of the U.S. population was vaccinated againstinfluenza, with particularly low vaccination rates among adults between ages 18 and 49. Finally, we believe that utilizing our recombinant methods and production process will allow us to manufacture vaccines at scale more efficiently and withinshorter time frames than conventional vaccines manufactured using traditional methods. Our Product Pipeline We are developing the following tablet vaccine candidates, which are all based on our proprietary platform:· Norovirus Vaccine. We are developing an oral tablet vaccine for norovirus, a leading cause of acute gastroenteritis in the United States and Europe.Because norovirus infects the small intestine, we believe that our vaccine, which is designed to produce mucosal antibodies locally in the intestinein addition to systemic antibodies in the blood, will better protect against norovirus infection than an injectable vaccine. Clinical evidence thatvaccines based on our platform technology can protect against infection is described under “Clinical Trial Update” in the “Seasonal InfluenzaVaccine” section below.Norovirus is the leading cause of vomiting and diarrhea from acute gastroenteritis among people of all ages in the United States. Each year, onaverage, norovirus causes 19 to 21 million cases of acute gastroenteritis and contributes to 56,000 to 71,000 hospitalizations and 570 to 800 deaths,mostly among young children and older adults. Typical symptoms include dehydration, vomiting, diarrhea with abdominal cramps, and nausea. In astudy conducted by Pittsburg School of Medicine in 2012, the total economic burden of norovirus in the United States was estimated at $5.5 billion.In a more recent study by CDC and Johns Hopkins University, the global economic impact of norovirus disease was estimated at $60 billion, $34billion of which occurred in high income countries including the United States, Europe and Japan. Virtually all norovirus disease is caused bynorovirus GI and GII genotypes, and we are developing a bivalent vaccine designed to protect against both. 2Table of Contents Clinical Trial Update. We have completed two Phase 1 clinical trials with our monovalent oral tablet vaccine for the GI.1 norovirus strain. Thevaccine was well-tolerated and generated broad systemic and mucosal immune responses. In the clinical Phase 1b dose optimization study inhealthy adults in which we evaluated four different dosing regimens, all vaccine recipients (100%) in the high dose group responded as measured bya significant increase in norovirus-specific B cells of both IgA and IgG subtypes. In the same group, there was at least a two-fold increase ofnorovirus-specific antibody titers in serum in more than 90% of recipients.We are preparing for two norovirus clinical trials, a bivalent Phase 1 study designed to assess safety and immunogenicity of our norovirus GI.1 andGII.4 vaccines administered concurrently, and a monovalent Phase 2 challenge study designed to assess the protective efficacy of our norovirus GI.1vaccine against live norovirus GI.1 challenge in humans. The Phase 1 bivalent study and the Phase 2 challenge study will both be conducted underan open IND. Clinical protocols for both studies have been submitted to the FDA. In preparation for the Phase 2 challenge study, we have conducteda virus titration study to help determine the appropriate quantity of the norovirus GI.1 virus to be used to challenge patients in the study. The bivalent study is conducted using both the norovirus GI.1 and GII.4 vaccines. The challenge study is conducted using only the norovirus GI.1vaccine. As announced in November 2018, the norovirus GI.1 vaccine tablets that we manufactured in 2018 failed release testing, causing bothstudies that were scheduled to begin before the end of 2018 to be delayed. Since then, we have manufactured two new lots of bulk GI.1 vaccine thatare scheduled to be processed and tableted in the coming weeks. If processing and tableting is successful and the vaccine passes all required releasetesting, the norovirus GI.1 vaccine tablets are expected to become available for the currently planned clinical trials during the second quarter of2019. The norovirus GII.4 vaccine tablets we manufactured in 2018 have passed all required release testing and are available for use in ourclinical trials, subject to final review of the Certificate of Analysis by the FDA. For more information on our manufacturing process, capabilities andstrategy, please see the paragraph “Manufacturing” in this business section below. · Seasonal Influenza Vaccine. Influenza is a major cause of morbidity and mortality in the U.S. and worldwide and, according to the CDC, only 42%of eligible U.S. citizens were vaccinated in 2017/2018, with particularly low vaccination rates among adults between ages 18 and 49. We believeour oral tablet vaccine has the potential to improve the protective efficacy of currently available influenza vaccines and increase flu vaccinationrates.Influenza is one of the most common global infectious diseases, causing mild to life-threatening illness and even death. It is estimated that at least350 million cases of seasonal influenza occur annually worldwide, of which three to five million cases are considered severe, causing 290,000 to650,000 deaths per year globally. During the most recent flu season 2017 – 2018, there were 79,400 flu related deaths in the U.S. alone, according tothe CDC. Very young children and the elderly are at the greatest risk. In the United States, between 5% and 20% of the population contractsinfluenza, 226,000 people are hospitalized with complications of influenza, and between 3,000 and 49,000 people die from influenza and itscomplications each year, with up to 90% of the influenza-related deaths occurring in adults older than 65. The total economic burden of seasonalinfluenza has been estimated to be $87.1 billion, including medical costs which average $10.4 billion annually, while lost earnings due to illnessand loss of life amount to $16.3 billion annually.We believe our tablet vaccine candidate has the potential to address many of the limitations of current injectable egg-based influenza vaccines,because: our tablet vaccine candidates are designed to create broad and durable immune responses, which may provide more effective immunity andprotect against additional strain variants; our vaccine is delivered as a room temperature-stable tablet, which should provide a more convenientmethod of administration to enhance patient acceptance, and should simplify distribution and administration; and, by using recombinant methods,we believe our tablet vaccine may be manufactured more rapidly than vaccines manufactured using egg-based methods and should eliminate therisk of allergic reactions to egg protein.Clinical Trial Update. In September 2018, we completed a $15.7 million contract with the U.S. Government through the Office of BiomedicalAdvanced Research and Development Authority, or BARDA, under which a Phase 2 challenge study of our H1N1 flu vaccine candidate wasconducted. Previously, we had announced that, in healthy volunteers immunized and then experimentally infected with H1 influenza, our H1influenza oral tablet vaccine reduced clinical disease by 39% relative to placebo, a result that was superior to that of Fluzone, the market-leadinginjectable quadrivalent influenza vaccine, which reduced clinical disease by only 27%. Our tablet vaccine also showed a favorable safety profile,indistinguishable from placebo. On October 4, 2018, we presented data from the study demonstrating that our vaccine elicited a significantexpansion of mucosal homing receptor plasmablasts to approximately 60% of all activated B cells, while Fluzone only maintained baseline levels of20%. We believe plasmablasts are a key indicator of a protective mucosal immune response and a unique feature of our vaccines. This data alsoprovided evidence that our vaccines protect through mucosal immunity, the first line of defense against mucosal infections such as flu, norovirus,RSV and others, a potential key advantage over injectable vaccines for these indications. 3Table of Contents At this time, we aim to finance development and commercialization of our seasonal quadrivalent influenza oral tablet vaccine through third-partycollaboration and licensing arrangements, and/or non-dilutive funding. In the future, we may also consider equity offerings and/or debt financingsto fund the program. · HPV Therapeutic Vaccine. Our first therapeutic oral vaccine candidate targets HPV-16 and HPV-18, the two strains responsible for 70% of cervicalcancers and precancerous cervical dysplasia. Cervical cancer is the fourth most common cancer in women worldwide and in the United States with about 13,000 new cases diagnosed annually inthe United States according to the National Cervical Cancer Coalition. We have tested our HPV-16 vaccine candidate in two different HPV-16 solid tumor models in mice. The vaccine elicited T cell responses andpromoted migration of the activated T cells into the tumors, leading to tumor cell killing. Mice that received our HPV-16 vaccine showed asignificant reduction in volume of their established tumors. In October 2018, we filed a pre-IND meeting request for our HPV therapeutic vaccines, VXA-HPV16.1 and VXA-HPV18.1, with the FDA, and wesubsequently submitted a pre-IND briefing package. We received feedback from the FDA in January 2019 providing guidance for the IND we plan tosubmit. Based on this feedback, we expect to be able to file an IND for this product candidate in the course of 2019. · RSV Vaccine. RSV is a major respiratory pathogen with a significant burden of disease in the very young and in the elderly. Based on the positive results of our cotton rat study, we believe our proprietary oral vaccine platform is the optimal vaccine delivery system forRSV, offering significant advantages over injectable vaccines. We aim to develop a tablet RSV vaccine by licensing one or more RSV proteinantigens that have demonstrated protection against RSV infection in clinical studies, or by partnering with a third party with RSV antigens that canbe delivered with our platform.Additional Objectives· Develop Other Tablet Vaccine Candidates Based On Our Proprietary Platform. Our technology platform employs a modular approach using theAd5 vector-adjuvant construct with disease-specific antigens and can be used to create new tablet vaccine candidates for a wide range of infectiousdiseases. We may consider exploring additional infectious diseases including RSV, Chikungunya, Hepatitis B and Herpes Simplex Virus 2, or HSV-2. In addition, we intend to leverage our vaccine formulation expertise to develop oral formulations suitable for pediatric populations.· Further Strengthen Our Intellectual Property Portfolio. We intend to continue to strengthen our patent portfolio by filing and prosecuting currentand future patent applications in the United States and international jurisdictions. In addition, we have established in-house formulation andtableting capabilities which we believe will allow us to further improve and optimize our proprietary techniques and know-how.· Maximize the Commercial Value of Our Tablet Vaccine Candidates. We believe that we own worldwide rights for the research, development,manufacturing, marketing and commercialization of our tablet vaccine candidates. As we further develop our product candidates, we may seekpartners to maximize the commercial opportunity of such tablet vaccine candidates.Anti-Virals· Through our merger with Aviragen Therapeutics, Inc., or Aviragen, we acquired two royalty earning products, Relenza and Inavir, and three Phase 2clinical stage antiviral compounds.· Relenza and Inavir are antivirals for the treatment of influenza that are marketed by GSK and Daiichi Sankyo, respectively. We earn royalties on thenet sales of Relenza and Inavir in Japan. Sales of Relenza and Inavir vary significantly from one year to the next, depending on the intensity of theflu season and competition from other antivirals such as Tamiflu. Importantly, on February 23, 2018, Xofluza, a new drug to treat influenzadeveloped by Shionogi, was approved in Japan. The drug may gain significant market share, substantially reducing sales of Inavir.· The three Phase 2 antiviral compounds obtained through the merger with Aviragen are: 1) BTA074, or teslexivir, an antiviral treatment forcondyloma caused by human papillomavirus types 6 & 11; 2) vapendavir, a capsid inhibitor for the prevention or treatment of rhinovirus upperrespiratory infections; and 3) BTA585, or enzaplatovir, a fusion protein inhibitor for the treatment of RSV infections. We have discontinued all threeprograms.4Table of ContentsOur PipelineFig. 1. The following table outlines the status of our oral vaccine development programs and our two marketed products: Our Tablet Vaccine PlatformVaccines based on our oral adjuvant-vector platform are designed to generate broad local and systemic immune responses, which may offer importantadvantages in addressing a wide range of infectious diseases.Platform ComponentsOur platform technology employs a vector-based approach and consists of the following components:· A vector, which is a virus used as a carrier to deliver DNA coding for vaccine antigens and an adjuvant selected to activate the immune system of thegut. Specifically, we use non-replicating adenovirus type 5, or Ad5, which delivers the DNA for both the antigen and adjuvant to the cells of thesmall intestine, where both the antigen and adjuvant are co-expressed.· A protein antigen, which is a viral or bacterial protein that stimulates an immune response to the selected pathogen. We use a different antigen foreach of our current clinical vaccine candidates.· An adjuvant, which is a substance that enhances the immune-stimulating properties of the vaccine. We use a Toll-like receptor 3, or TLR3, agonist,which was selected specifically for its ability to activate the immune system of the gut.· Our proprietary enteric-coated tablet which is designed to deliver the Ad5 vector to the small intestine. 5Table of Contents Fig. 2. Our VAAST Platform. Caption. Vector-Adjuvant-Antigen Standardized Technology PlatformOur Platform. Combination of the vector-based delivery system, with antigen and adjuvant expressed by the vector.Adenovirus 5 VectorAd5 is an extensively studied and well-characterized vector. Over 200 clinical trials conducted by others have used Ad5 for a wide range of applications, andwe believe that using the same adenovirus in our tablet vaccine candidates will reduce regulatory risk, given that it is known to regulatory authorities.Recombinant AntigenOur vector contains cloning space where DNA encoding for any recombinant antigen can be inserted. In the vaccine programs pursued to date, we havechosen recombinant antigens that are known to be key targets of the immune system with the ability to generate protection against the correspondingpathogen. The Ad5 vector-adjuvant gene cassette allows for a modular approach.AdjuvantWe use a short section of double-stranded RNA, or dsRNA, as an adjuvant to enhance the immunogenicity of our tablet vaccine candidates. dsRNA is a TollLike Receptor 3 (TLR3) agonist and is recognized by the innate immune system as a signal that an undesired viral replication is ongoing, triggering it tomount an immune response in defense. dsRNA is one of the few signals available for use in the intestine as the natural large reservoir of bacteria (the“microbiome”) makes it difficult to use bacteria- related signals. We chose this adjuvant because of its ability to complement the non-replicating adenoviruswhen administered orally, and because very few pathways of immune system recognition signals occur in the small intestine. Importantly, our adjuvant isexpressed within a cell, not provided as a separate component, resulting in a more localized response when compared with adjuvants contained in injectablevaccines.Enteric-Coated TabletWhile tablets are typically used to deliver small molecules to the intestine, we have designed our tablets to deliver the much larger adenovirus particles. Wehold intellectual property related to the composition and formulation of our tablet vaccine candidates. Our tablet manufacturing does not require sterile filland finish processing, such as for injectables, but rather uses standard tableting equipment.How Our Tablet Vaccine Candidates WorkOur tablets are designed to deliver vaccines to the small intestine. The tablets are covered with a protective coating that remains intact in the low pHenvironment of the stomach and protects the active ingredient contained in the tablet core from the acidic environment in the stomach. The coating isdesigned to dissolve in the neutral pH environment of the small intestine which we are targeting to generate an optimal immune response. Once the coatinghas dissolved, the tablets disintegrate, and the vaccine is released into the small intestine where it can reach and enter the mucosal cells lining the intestine.Once inside the mucosal cells, the antigen protein and adjuvant are expressed, or manufactured, by the cells. The adjuvant is molecular in nature and alwaysproduced within the exact same intestinal cells that also produce the antigen. Importantly, unlike current recombinant vaccines that are manufactured ininsect cells or yeast which may introduce subtle structural changes to the protein antigen, the production of antigens delivered using our approach isidentical to that of the actual pathogen when it invades the mucosa. In addition, we believe that delivering the replication incompetent Ad5-vectored vaccinevia tablet directly to the gut avoids neutralization by blood or muscle tissue-based immune cells, an advantage over injected vector-based vaccines. 6Table of Contents Fig. 3. Our Oral Recombinant Vaccine Platform. Caption. 1. Enteric-coated tablet is administered. The tablet coating protects the active ingredient from stomach acid degradation. 2. When the tabletreaches the small intestine, it releases the active ingredient, the viral vector, that can then transfect the epithelial cells in the mucosal epithelium anddeliver the genes for the two payloads (antigen and adjuvant). 3. Expression of the antigen and adjuvant in the epithelial cells then leads to the TLR3signaling cascade that can activate B and T cells.Immune cells come in contact with proteins, and if the protein elicits an immune recognition signal, the immune cell becomes activated. This eventuallyleads to an immune response, producing either memory cells or large quantities of antibodies that bind to a key antigen. The expressed antigen and adjuvantof its platform, like other vaccines, cause induction of B and T cells specific for the antigen. Induction is believed to begin when an immature dendritic cell(specialized immune cell) absorbs an epithelial cell expressing both the antigen and adjuvant that were delivered by the Ad5 vector. Upon induction,dendritic cells migrate to the regional lymph nodes where they interact with recirculating naive B and T cells. The dendritic cell presents pieces of theantigen on its surface to stimulate T cells, and some of the antigen drains into the lymph node to stimulate B cells. Upon recognizing its specific antigen,small B or T cells stop migrating and enlarge. These then multiply in a clonal fashion and eventually recirculate to the tissues. B cells secrete antibodies thatrecognize the antigen and T cells find cells that have antigen presented on their surface and either kill the presenting cell or stimulate a local inflammatoryresponse. A successful vaccination occurs if the B cells and T cells can form either memory cells (cells specialized to respond quickly to the protectiveantigen upon subsequent exposure) or enough antibody to a key antigen is made in large quantity to block infection.The Significance of Mucosal Immunity and T Cell ResponsesThe immune system has developed defenses against pathogens by creating a special class of immune effectors, such as mucosal antibodies that are directed towet surfaces and killer T cells that can kill pathogen infected cells. Most vaccines available today have been developed primarily to elicit blood circulating,or systemic B cell responses. However, there remain many infections, such as norovirus and RSV for which no vaccines exist. These and other pathogens mayneed greater immune responses outside of serum antibodies. Organisms that cause these infections largely evade the antibody immune response generated byserum antibodies in the blood because the pathogenic organism can pass through cells that line the open, mucosal membranes without coming into directcontact with blood. Alternatively, the serum antibodies are unable to penetrate into the cells infected by the pathogen.Injectable vaccines available today typically do not induce mucosal immune responses, and subunit vaccines do not typically induce strong killer T cellimmune responses, which are required to produce an effective level of immunization against several difficult pathogens. Administering vaccines throughnon-mucosal routes often leads to poor protection against mucosal pathogens primarily because such vaccines do not generate memory lymphocytes thatmigrate to mucosal surfaces. Although mucosal vaccination induces mucosa homing memory lymphocytes, we believe no complete mucosal recombinantoral vaccines are commercially available. Live attenuated vaccines can pose safety risks, whereas killed pathogens or molecular antigens are usually weakimmunogens when applied to intact mucosa. Moreover, the immune mechanisms of protection against many mucosal infections are poorly understood. 7Table of Contents One of the key benefits of our technology is delivery to the gastrointestinal tract, enabling the vaccine to directly enter the mucosal surface of the intestineand activate the immune system of the gut. Mucosal vaccine delivery is believed to enhance protection against mucosal pathogens by generating immunityat the very surface where such pathogens invade. Our tablet vaccine candidates target the mucosal immune cells with a vector-based approach and aredesigned to create a more potent cytotoxic T cell response and mucosal antibody response, which may provide more effective immunity for certain diseases.Besides robust mucosal and systemic antibody responses, we observed potent and poly-functional T cell responses in our human clinical trials,demonstrating that our tablet vaccine candidates efficiently activate both B and T cells.Oral Non-Replicating Ad5 Vector is Designed to Circumvent Anti-Vector IssuesInjected Ad5 vectored vaccines generate strong anti-Ad5 responses, with up to a 100-fold increase in the anti-Ad5 neutralizing antibody titers. In contrast,our oral Ad5 vectored vaccine is designed to circumvent the complications related to anti-Ad5 immunity, allowing the platform to be used for multiplevaccines and repeat annual and booster vaccinations.Anti-vector responses have been studied in our H1 influenza Phase 1 and Phase 2 studies, as well as in the two norovirus Phase 1 studies. In the first H1influenza oral tablet vaccine study in 12 subjects, there were no significant rises in the neutralizing antibody titers to Ad5 following immunization. Achallenge study was recently performed using the same H1 flu oral tablet vaccine in more than 60 subjects. This study found a 2.2 geometric fold rise inneutralizing antibody titers to Ad5, compared to a rise of 1.1-fold in the placebo group. Finally, the rise in vaccine anti-vector immune responses weremonitored in the two Phase 1 norovirus vaccine studies, study #101 and study #102. There were no significant increases in the neutralizing anti-Ad5antibody titers following either one or two doses of vaccine, even at the high dose (see figure below).Fig. 4. Anti-vector titers pre- and post-immunization. Caption. In the single dose 101 study, anti-vector titers were measured 28 days after the only dose. In the two-dose 102 study, these were measured 28 daysafter the second dose. No significant increase in Ad5 titers were observed in any group in the two studies. In addition, in all studies to date, immune responses to the antigen of choice appeared to be independent from the recipient’s pre-existing anti-Ad5 immunestatus. In studies with our Ad5 vectored H1 influenza oral tablet vaccine, the pre-existing antibody titers to Ad5 had no effect on the ability of the vaccine toinduce a neutralizing antibody response (by hemagglutinin inhibition or microneutralization assay) to influenza. In the two recently completed Phase 1studies with our Ad5 vectored norovirus GI.1 oral tablet vaccine, the ability of the vaccine to generate a rise in antibody titers to norovirus or specificallyblocking titers to norovirus virus-like particles, or VLP (BT50 assay), was not reduced in subjects with pre-existing anti-Ad5 antibody titers. These results areshown below. In conclusion, performance of our Ad5 vectored vaccine delivered orally does not appear to be adversely affected by the pre-existing serumantibody status of the recipient. 8Table of ContentsFig. 5. Anti-vector immunity had no effect on the ability of the norovirus vaccine to induce BT50 titers. Caption. Subjects in the high dose groups were divided based on the preexisting anti-Ad5 titers on day 0. Those with titers ≥ 100 were considered Ad5positive, those <100 were considered Ad5 negative. The fold increase in BT50 titers for each subject were plotted. Average increase in the BT50 titers forthe Ad5 positive group were not lower than the BT50 Ad5 negative group.Our Norovirus ProgramMarket OverviewNorovirus is the leading cause of vomiting and diarrhea from acute gastroenteritis among people of all ages in the United States. Each year, on average,norovirus causes 19 to 21 million cases of acute gastroenteritis, and contributes to 56,000 to 71,000 hospitalizations and 570 to 800 deaths, mostly amongyoung children and older adults. Typical symptoms include dehydration, which is the most common complication, vomiting, diarrhea with abdominalcramps, and nausea. In a study conducted by the CDC and Pittsburg School of Medicine in 2012, the total economic burden of norovirus in the United Stateshas been estimated at $5.5 billion. In the U.S., we believe a norovirus vaccine would be beneficial for high risk groups such as children 0-5 years old, olderadults and the elderly, as well as for workers in the food and travel industries, for healthcare, childcare and elderly care workers, first responders, the military,and finally leisure travelers as well as business travelers. In a study published by Johns Hopkins University and the CDC in 2016, the total global economicburden of norovirus was estimated at $60 billion, $34 billion of which occurred in high income countries including the United States, Europe and Japan.There are currently no approved vaccines or therapies to prevent or treat norovirus infection.Our Norovirus Vaccine CandidateWe plan to develop a VP1-based bivalent oral tablet vaccine that protects against norovirus GI and norovirus GII, the two major norovirus genogroupsaffecting humans, by targeting the norovirus GI.1 Norwalk strain and the norovirus GII.4 Sydney strain. We believe that our tablet vaccine would haveimportant advantages over the injectable vaccine in development by Takeda. Because norovirus is an enteric pathogen that infects epithelial cells of thesmall intestine, we believe that a vaccine that produces antibodies in the intestine against norovirus locally in the intestine, such as our tablet vaccinecandidate which is delivered directly to the gut, may be optimal at protecting against infection. The main isotype of antibodies found at the intestinalmucosal surface is IgA, whereas the main isotype of protective antibodies found in serum is IgG. We have demonstrated in our seasonal influenza clinicaltrials and in preclinical norovirus studies that our vaccine candidates can generate mucosal IgA antibodies to the antigen encoded in our vaccine.Preclinical ResultsWe have conducted multiple preclinical studies of our norovirus vaccine candidate in mice and ferrets. Overall, as compared with injectable VP1 proteinvaccine, our norovirus vaccine candidate generated comparable levels of serum antibody and superior levels of mucosal antibody to the VP1 injectableprotein vaccine.Clinical TrialsWe have completed two Phase 1 studies with our monovalent norovirus GI.1 oral tablet vaccine, one of the two strains that will be included in the bivalentvaccine. In both Phase 1 studies, the primary endpoint was safety and the secondary endpoint was immunogenicity. 9Table of Contents Study 101. Placebo Controlled StudyIn the Phase 1 study designed to evaluate the norovirus vaccine (VXA-GI.1-NN), 66 healthy adults were randomized in three groups, with 23 subjectsreceiving a single low dose of 1 x 1010 infectious units, or IU, 23 subjects receiving a single high dose of 1 x 1011 IU, and 20 subjects randomized to theplacebo control.Safety Results. 101 StudySolicited Events. In the first 7 days following study drug administration, 35 study subjects had at least one solicited adverse event (AE) reported with 25/46(54%) subjects in the VXA-GI.1-NN vaccine groups and 10/20 (50%) of subjects in the placebo group (See table below). All of the solicited AEs reported(n=46) were grade 1 or 2 in severity with the majority being mild events (44 grade 1 and 2 grade 2 events). The percentage of subjects with any solicitedsymptoms was similar among treatments (See table below). Diarrhea and headache were the most common solicited symptoms following VXA‑GI.1‑NNadministration, both reported by 15 (33%) subjects in the treated groups. Headache and nausea were reported evenly across treatments, including placebo.The only solicited symptom demonstrating a statistically significant difference from placebo was diarrhea (p = 0.0275), reported by 11 subjects in the highdose group. Nine of the 11 subjects reported mild severity diarrhea, while 2 subjects reported moderate severity episodes following the high dose vaccine.Onset of diarrhea (verbatim term “loose stools”) ranged from day 1 to day 6 following vaccine administration, and most episodes resolved within 1 day. At nopoint did any of the loose stools impact normal activity such as work or school, and none required treatment with anti-diarrheal medications or rehydrationtherapy. In summary, the vaccine appeared well-tolerated without causing any dose limiting toxicities.Table 1. Norovirus Study 101 Solicited Systems – Number and Percent of Subjects Reporting Treatment Emergent Adverse Events.Adverse Events*PlaceboN=20Low DoseN=23High DoseN=23Number of Subjects with Any Symptoms10 (50%)11 (48%)14 (61%)Gastrointestinal disorders Abdominal pain2 (10%)5 (22%)0 (0%) Diarrhea3 (15%)4 (17%)11 (48%) Nausea4 (20%)4 (17%)3 (13%)General disorders and administration site conditions Malaise2 (10%)1 (4%)3 (13%)Nervous system disorders Headache8 (40%)8 (35%)7 (30%)Solicited symptoms were collected from subjects for 7 days following immunization.Unsolicited Events. A total of 83 unsolicited Treatment Emergent Adverse Events, or TEAEs, were reported by 33 of the 66 subjects within the first 28 dayspost dosing, with slightly more placebo subjects 12/20 (60%) reporting AEs than low dose 11/23 (48%) or high dose vaccinated subjects 10/23 (44%).Headache was the most common AE reported in all treatments. Most TEAEs were mild or moderate in severity. The PI considered 28 TEAEs possibly related,42 unlikely related, and 13 not related.Study 102. Dose and Schedule OptimizationThe study was designed to evaluate the norovirus vaccine (VXA-GI.1-NN) in 60 subjects given multiple doses, with some differences in schedule for thelower dose groups. The first three groups enrolled (N=15 each) used low doses of 1 x 1010 infectious units (IU). Group A received two doses of VXA-GI.1-NNon days 0 and 7, group B received three doses on days 0, 2, and 4, and group C received two doses on days 0 and 28. The fourth group, group D (N=15),evaluated two high doses of 1 x 1011 IU given on days 0 and 28. The vaccine study was an open labeled study, and enrolled more or less sequentially fromgroup A to group D. The primary endpoint of the study was to evaluate the safety of all dosing regimens and the secondary endpoint was to compareimmunogenicity between groups by BT50 titers and antibody secreting cells (ASC) counts. 10 Table of Contents Safety Results. 102 StudyIn the first 7 days following study drug administration, there were 27 subjects reporting adverse events, distributed across the groups with the highest numberof reporting adverse events in group C (11/15) and the lowest in group D (3/15). The most common adverse event reported was headache, reported in 21subjects out of 60. Group C reported the highest number of headaches, and adverse events overall. This group was given two low dose vaccines 28 days apart.This was not observed in group D, a vaccine group given the exact same dosing schedule, but receiving two 10-fold higher doses of vaccine.Table 2. Norovirus Study 102 Solicited Systems – Number and Percent of Subjects Reporting Treatment Emergent Adverse Events.SYSTEMIC ORGAN CLASS /Preferred TermGroup AN=15Group BN=15Group CN=15Group DN=15Total Number Reporting an Adverse Event5 (33.3%)8 (53.3%)11 (73.3%)3 (20%)GASTROINTESTINAL DISORDERS Diarrhea01 (7%)5 (33%)1 (7%) Abdominal Pain1 (7%)03 (20%)1 (7%) Nausea1 (7%)2 (13%)2 (13.3%)0 Abdominal Pain, Upper01 (7%)00GENERAL DISORDERS Malaise2 (13%)02 (13%)1(7%) Feeling Hot01 (7%)00NERVOUS SYSTEM DISORDERS Headache4 (27%)7 (47%)9 (60%)1 (7%) Group A: Low Dose - Day 0, 7 Group B: Low Dose - Day 0, 2, 4 Group C: LowDose - Day 0, 28 Group D: High Dose - Day 0, 28Solicited symptoms were collected from subjects for 7 days following immunization. Safety Summary from the Two Studies.106 subjects were treated with VXA-GI.1-NN in the two norovirus vaccine studies. The vaccine was well tolerated, with no severe adverse events reported ineither study. The most common solicited adverse event was headache, but this was relatively similar among all the dosing groups including 40% of subjectsreceiving the placebo in the 101 study. In the 101 study, there was a higher incidence of diarrhea reported in the high dose group versus the other groups.However, in the high dose group in the 102 study, there was only 1 subject (6.7%) reporting diarrhea even after receiving two high doses. These results intotal suggest that there were no dose dependent effects that impacted safety.Immunogenicity Results-Study 101BT50 Titers. The primary immunological endpoint was to measure antibody titers by an assay that assessed the ability of antibodies to block interaction of anorovirus VLP to histogroup blood antigen (HGBA). This assay is known as the BT50 (for 50% inhibition of blocking titer) assay. BT50 titers were assessedusing Leb synthetic glycan as the coating antigen. Titers rose in the vaccine recipients, and at all timepoints (Figure 6). By the Leb BT50 assay, 14/23 (61%)of the subjects in the low dose group, and 18/23 (78%) in the high dose group, had at least a two-fold rise. One subject in the placebo group had a greaterthan two-fold rise. On Day 28, the geometric mean titer (GMT) for the low dose vaccine group was 59.0, a 2.3-fold geometric mean fold rise (GMFR) over theinitial GMT of 26.2 at baseline. The GMT for the high dose vaccine group was 98.5, a 3.8-fold GMFR over the initial GMT of 25.8 at baseline. The high dosegroup was significantly increased over placebo on day 28 (P=0.0003). Complete results are given in the table below. 11Table of Contents GMT for Leb BT50 assaysTable 3. Study 101, Least Squared Geometric Mean Titer (LSGMT) for Leb BT50 assay.HBGALebGroupD0 LSGMT(95 CI)D28 LSGMT(95 CI)LSGMRp value*Low26.2(16.6-41.2)59.0(33.0-105.4)2.30.0459High25.8(18.3-36.2)98.5(64.4-150.7)3.80.0003Placebo24.6(15.3-39.3)27.4(17.0-44.2)1.1Reference Overall significance0.0017*Significance by Mann-Whitney vs placebo; overall significance by Kruskal-Wallis Test.Antibody Secreting Cell (ASC). The ability of the vaccine to induce norovirus specific B cells in the peripheral blood was measured by ASC assay. Thisassay essentially counts the number of B cells that emerge after immunization and recognize norovirus in the peripheral blood. The number that circulate inthe blood pre-immunization is very low, so the assay is a meaningful way to evaluate the vaccine specific effects. In the low dose group, 16/23 (70%) ofsubjects responded and in the high dose group, 19/23 (83%) of subjects responded on day 7 for both IgA and IgG ASCs (Figure 7). Background ASCs weregenerally negligible on day 0. For the high dose vaccine treated group, an average of 561 IgA ASCs and 278 IgG ASCs each per 1 x 106 peripheral bloodmononuclear cells, or PBMC, were found on day 7. For the low dose vaccine treated group, an average of 372 IgA ASCs and 107 IgG ASCs were found onday 7. The placebo group had no responders with an average of 3.3 spots for IgA ASCs and 2.2 spots for IgG ASCs per 1 x 106 PBMC on day 7. The treatedgroups were significantly different than placebo in terms of the ability to elicit an IgG or an IgA ASC response at day 7 (P<0.0001, Mann-Whitney). Therewas no statistical difference in the number of spots for IgA and IgG ASCs between the high and low dose groups (P=0.21 for IgA, P=0.28 for IgG).Enzyme-linked immunosorbent assay (ELISA) IgA and IgG. Serum antibody responses were measured by IgG and IgA ELISA, and the changes in titers atEC50 between days 0 and 28 were calculated for each subject. Most subjects had an increase in antibody titers post immunization. The average change inEC50 for the low dose group was 16 and 7.1-fold in IgA and IgG respectively. Similarly, the average change in the EC50 for the high dose group were 9 and5.4-fold for IgA and IgG respectively. The change in EC50 are plotted for each subject, separated by group (Figure 8).Memory Cells. Memory cells are long-lived cells that are important for the rapid induction of immunity following infection. A goal of most vaccines is tosafely induce immunological memory to protect people from actual infection. Antigen specific memory B cells were investigated after culturing PMBCs withpolyclonal stimulators. VP1 specific IgG memory B cells were higher than IgA memory B cells in the day 0 samples (Figure 9). Post immunization, theresponse at day 7 was higher for IgA memory B cells, with a geometric mean fold rise, or GMFR, of 15.3 for IgA versus 6.5 for IgG between day 0 and 7,before declining again at day 28. In the low dose group, the GMFR was 7.4 for IgA and 3.7 for IgG was observed between days 0 and 7. This decline from day7 to day 28 may have resulted from homing of circulating B cells from the peripheral blood to the intestinal lymphoid tissues via expression of high levels ofthe mucosal homing receptor, a4b7. In the high dose group at day 7, 20/23 (87%) IgA and 19/23 (83%) for IgG showed ≥ 2-fold increase over day 0. In thelow dose group at day 7, 18/23 (78%) for IgA and 13/23 (57%) for IgG showed ≥2-fold increase over day 0.Fecal and Saliva IgA. Norovirus VP1 specific mucosal IgA was explored directly by looking at fecal and saliva samples. Because the quantity of IgA ishighly variable within these samples, total IgA was also measured and the ratio between VP1- specific IgA/total IgA for each sample was examined. Sampleswith IgA levels below the detection limit were excluded from analysis. The increase in the ratio of specific IgA to total IgA was measured between baselineand day 28 (and baseline and day 180 for fecal IgA). In the high dose group, 9/19 (47%) fecal samples were responders with a four-fold rise or greater IgAresponse at day 28, and 9/21 (43%) at day 180 (Figure 10). The average fold increases in specific IgA/total IgA ratio were 17.2 and 9.7. These results aresignificantly higher than the placebo group where 2/18 (11%) and 0/16 (0%) were found to have 4-fold or better increases on days 28 and 180 (P=0.029 andP=0.0049 respectively), with average increases of 1.8 and 1.0 (Figure 10). The low dose group had a similar response as the high dose, with 7/20 (35%) and5/16 (31%) with 4-fold or greater increases on days 28, and 180 respectively. The number of responders trended higher than placebo on day 28, but thedifference was statistically significant on day 180 (P=0.13 and 0.043). The low dose group had a 36.2-fold increase on day 28, and a 5.6-fold increase on day180 (Figure 10). Fewer subjects had detectable increases in the specific IgA to total IgA ratios in saliva samples of treated subjects at day 28 (Figure 11). Theaverage increase in the specific IgA/total IgA ratio was 2.0 for the low dose, 2.9 for the high dose group, and 1.2 for the placebo group. The high dose and lowdose groups had each had 4 subjects with a 4-fold rise in the specific response, versus none for the placebo group. These results demonstrate that the vaccinecan induce antibody responses that are measured in the mucosa, particularly in the intestinal mucosa, which is the site of norovirus infection. 12Table of ContentsFig. 6. Geometric Mean Titers vs Time. Caption. Geomean Serum BT50 Titers over time for Leb. Fig. 7. ASC Titers on Day 7 post immunization. Caption: ASC counts on day 7 for both IgG and IgA responses to norovirus VLP. This assay measures antigen specific B cells in the peripheral blood thatoccur post vaccination.Fig. 8. ELISA antibody changes post immunization. Caption. Change in IgA or IgG ELISA titers post immunization between days 0 and 28 for all subjects divided by treatment group. Each symbol representsan individual subject. The long horizontal line represents the mean, with the smaller lines the 95% confidence interval. 13Table of Contents Fig. 9. Memory Cell Responses pre- and post-immunization. Caption: Norovirus VP1 specific memory B cell counts were plotted for each time point. Each symbol represents an individual subject. The long horizontalline represents the geometric mean.Fig. 10. Fold Induction in Norovirus Specific Fecal IgA Responses Post Immunization. Caption. Fecal responses to the vaccine, with fold increase in specific IgA/total IgA for each subject (divided by group and each timepoint) plotted. Averageincrease is the black bar.Fig. 11. Fold Rise in Norovirus Specific Responses in Saliva. Caption. Saliva IgA responses were measured. The plot shows fold rise of specific IgA/ total IgA post immunization. Responses were compared between days0 and 28.Immunological Results - 102 StudyBT50 Titers. The objective of the study was to compare schedules and dosing for the ability to elicit immune responses, particularly by evaluating BT50titers. BT50 titers were assessed at multiple times points, given that multiple doses were given. In the high dose group, 12 of 15 subjects had a 2-fold orgreater increase in BT50 titers after the first dose and 14 of 15 subjects (92%) had a 2-fold or greater increase in BT50 titers after 2 doses. The GMT titer rosefrom 21.3 on day to 85.1 on day 28 for a 3.8 GMFR. The GMT at day 56 were measured to be 75.8, a GMFR of 3.6 over the baseline values. Other groupsgiven lower doses of vaccine had lower response rates. Groups A and C had higher increases in the titers compared to Group B, although this is notstatistically significant. An ANCOVA model was used to determine the statistical significance of the increases in GMFR. Least-squares, or LS, geometricmean titers, or LSGMTs, and LS geometric mean fold rises (LSGMFRs) were calculated by exponentiating the LSMs from the ANCOVA model, whichincluded log-transformed post baseline titer or log-transformed change from baseline titer as a dependent variable, cohort as a factor, and baseline log-titer asa covariate. The significance in the different groups to increase the GMFR (test is LSGMFR=0), was found to be P=0.0008, 0.1224, 0.0004, and <0.0001 forgroups A through D respectively at day 56. This means all groups had statistically significant increases in the GMT with the exception of group B, which hada more modest increase in the titers. 14Table of Contents102 Study. BT50 Titers, LebTable 4. Study 102, Geometric Mean Titer(GMT) for Leb BT50 assay roger.GroupDescriptionDO GMTD28 (or D36)GMFRGMT D56GMFR D56ALow, 2X, 7 days apart32.264.52.066.02.0BLow, 3X, 2 days apart31.551.21.642.51.4CLow, 2X, 28 days apart29.466.02.264.52.2DHigh, 2X, 28 days apart21.385.13.875.83.6 ASCs. Additional immunological analysis was performed by comparing the ASC responders between groups. The high dose group had 14 out of 15 subjectsrespond to the vaccine, with an average IgA ASC count of 698 per 1X106 cells. Following a second dose, the subject that didn’t respond the first time had asignificant increase in ASC counts so all 15 subjects (100%) were able to elicit an ASC response following two doses. As typical, subjects that had a highnumber of ASC counts after the first immunization had a low response after the 2nd dose. The low dose groups were compared by examining the overallresponse rate, since the dosing and the analysis were performed at different intermediate timepoints. Group A had the highest overall response rate where12/14 subjects (86%) were able to induce meaningful ASC responses after 1 or 2 doses. Slightly lower responders were observed in group B, where only a fewsubjects had a response after the first dose, but more subjects responded after additional vaccine doses. Group C had the most variable responses of any group.The average number of spots was 839 per 1X106 cells after the first dose, but this was the result of several subjects having extremely high numbers of spots (3subjects had greater than 1500 per 1X106), mixed with many subjects that didn’t respond at all.By Fisher’s Exact test, the high dose group induced a higher number of responders than group C p=0.02), but only trended higher than groups A and B (0.22,0.07). Similar results were observed for the IgG ASC responses, with slightly lower values on average.Fig. 12. IgA ASC Counts for the 102 study. Caption. The different groups were assessed for IgA ASC counts at each time point taken for each group. Because there were different dosing regiments foreach group, there were different timepoints assessed. Response rates at each timepoint are indicated by a fraction and a percentage below each timepoint.The overall response rate (the total number of subjects that responded at any time point) is given near the top of each group. For example, in the last group,15/15 (100%) subjects responded at either D7 or D35. 15Table of ContentsFig. 13. IgG ASC Counts for the 102 Study. Caption. The different groups were assessed IgG ASC counts at each time point taken for each group. Because there were different dosing regiments foreach group, there were different timepoints assessed. Response rates at each timepoint are indicated by a fraction and a percentage below each timepoint.The overall response rate (the total number of subjects that responded at any time point) is given near the top of each group. For example, in the last group,15/15 (100%) subjects responded at either D7 or D35.Norovirus Oral Tablet Vaccine Clinical Development PathwayPhase 1 Bivalent Norovirus Trial. The bivalent Phase 1 trial is designed to assess the safety and immunogenicity of the two individual GI.1 and GII.4norovirus vaccines, and to evaluate potential interference between the two vaccines. The trial is scheduled to begin during the first half of 2019.Phase 2 Norovirus GI.1 strain Challenge Study. We plan to commence a challenge study with our monovalent GI.1 norovirus vaccine candidate in the firsthalf of 2019.Phase 2 Efficacy and Safety Trial. After successfully completing the trials described above, a Phase 2 trial would be conducted. This trial will be designed toassess the safety, immunogenicity and possibly the efficacy of the bivalent vaccine in an expanded population of adults ranging in age from 18 to 49 years.Path to Approval. After completing the Phase 2 trial, we expect to request an End-of-Phase 2 meeting with the FDA to discuss the design of a Phase 3 trialthat would support licensure.Additional Age Groups· Older Adults, Elderly Population. Following successful completion of the bivalent Phase 1 trial in healthy adults age 18 – 49, we plan to conductsequential Phase 1 and Phase 2 clinical trials in healthy adults age 50 – 64 years and age 65 and older, designed to support licensure of our tabletvaccine candidate for these age groups. Following these studies, we expect to engage in discussions with the FDA to determine the requirements forPhase 3 and licensure.· Pediatric Population. Our current tablet vaccine candidates are designed for delivery to the gut in solid dosage form using an enteric-coated tabletwhich we believe is the optimal vaccine delivery system for the adult population and children 8 years and older. For children 6 months to 8 years inage, we plan to develop proprietary liquid formulations that can deliver the vectored vaccine intact to the gut. Development of our norovirusvaccine product candidate in the pediatric population will proceed stepwise through progressively younger age segments (i.e. 9-17 years, 5-8 years,2-4 years, 6 weeks-2 years).Our Seasonal Influenza ProgramMarket OverviewInfluenza is one of the most common global infectious diseases, causing mild to life-threatening illness with symptoms such as sore throat, nasal discharge,fever, and even death. It is estimated that at least 350 million cases of seasonal influenza occur annually worldwide, of which 3 million to 5 million cases areconsidered severe, causing 290,000 to 650,000 deaths per year globally. Very young children and the elderly are at greatest risk from death. In the UnitedStates, between 5% and 20% of the population contracts influenza, 226,000 people are hospitalized with complications of influenza, and between 3,000 and49,000 people die from influenza and its complications each year, with up to 90% of influenza-related deaths occurring in adults older than 65. 16Table of Contents According to a CDC commissioned-report based on 2003 population figures, in the United States, seasonal influenza costs an average of over 600,000 life-years lost, 3.1 million hospitalized days, and 31.4 million outpatient visits annually. The total economic burden of seasonal influenza has been estimated tobe $87.1 billion, including medical costs which average $10.4 billion annually, while lost earnings due to illness and loss of life amount to $16.3 billionannually.The CDC generally recommends that individuals 6 months and older be vaccinated annually against influenza. In the U.S., this means an influenzavaccination is recommended for more than 300 million people. During the 2017/2018 influenza season, approximately 137 million doses of the influenzavaccine were delivered in the United States. Differentiated flu vaccines in the U.S. market continue to demonstrate the ability to ask for premium prices basedon the additional value they provide to public health. According to a 2017 Datamonitor Healthcare report the seasonal influenza vaccines market within theUnited States and five major European Union markets (France, Germany, Italy, Spain, and the UK) will increase from $2.7 billion in the 2016/17 season to$3.4 billion in the 2025/26 season. We believe, worldwide, the primary drivers of market growth include increasing awareness, increasing vaccinationcoverage in emerging countries, rising government support for immunization against seasonal influenza, pricing increases due to product differentiation andincreased focus on the production and advancement of vaccination treatments.Limitations of Current Seasonal Influenza VaccinesDespite the number of cases of influenza diagnosed in the United States, according to the CDC, in the 2017/2018 seasonal influenza season, onlyapproximately 42% of the total U.S. population was vaccinated against influenza, with particularly low vaccination rates among adults between ages 18 and49. According to the CDC, less than 27% of adults between ages 18 and 49 were vaccinated during the 2017/2018 influenza season. We believe the lowvaccination rates among this population are largely attributed to the following limitations of injectable vaccine administration:Limitations for Providers· longer manufacturing, shipping and handling time for suppliers;· cold storage requirement throughout the logistics chain;· the need for healthcare professional oversight during and after the vaccination procedure;· potential for needle injuries; and· medical waste.Limitations for Users· inconvenience and time commitment required to obtain vaccine at a clinic or pharmacy;· fear of needles;· pain at injection site; and· potential for allergic reactions to the egg component of the vaccine.Our Seasonal Influenza Vaccine CandidateWe are developing a tablet vaccine candidate for the immunization of healthy adults against seasonal influenza. Our seasonal influenza vaccine candidate isbeing designed to cover the four-strain, or quadrivalent, seasonal influenza vaccine consisting of two circulating influenza A lineage viruses as well as twocirculating influenza B lineage viruses, matching the seasonally updated recommendations by the FDA. We envision formulating our tablet vaccinecandidate as one tablet per strain, or four tablets in total for the quadrivalent vaccine. We believe this modularity will allow for enhanced flexibility. Forinstance, in the event of a late season strain change, the tablet containing the obsolete strain could be easily replaced without having to discard the threecorrectly matched vaccine tablets. Further, given stability of the tablets, excess tablets from one season could be stored and utilized in the next season, whilefully formulated quadrivalent vaccines would have to be discarded at the end of each season as is the case with currently marketed influenza vaccines.Alternatively, we have the option to formulate all four strains into a single tablet. This format would be the simplest to administer, but would take away someof the flexibility advantages that separate tablets would afford. We will assess the final formulation of our tablet vaccine candidates after conducting marketstudies to evaluate market acceptance closer to commercialization. 17Table of ContentsWe believe our tablet vaccine candidates have the potential to address many of the limitations of current injectable, egg-based seasonal influenza vaccines.First, our tablet vaccine candidates are designed to create broad and durable immune responses, which may provide more effective immunity and protectagainst additional strain variants. Second, by providing a more convenient method of administration to enhance patient acceptance and simplify distributionand administration. Finally, by using recombinant methods, we believe our tablet vaccine candidates may be manufactured more rapidly than vaccinesmanufactured using egg-based methods, eliminate the risk of allergic reactions to egg protein, and alleviate issues caused by egg-adaptation of a mammalianvirus.Seasonal Influenza Clinical TrialsTo date, we have completed two Phase 1 trials and have conducted the active portion of a Phase 2 challenge trial of our H1N1 influenza vaccine candidate.We have also completed a Phase 1 trial of an influenza B vaccine candidate.Phase 1 Trial, VXA02-001, H1N1 Influenza Vaccine Candidate, 109 and 1010 IU DosesThe first Phase 1 H1N1 trial was conducted at doses of 1 x 109 and 1 x 1010 IU. Two doses were given one month apart. The tablet vaccine candidategenerated a favorable safety and tolerability profile. The trial also demonstrated robust T cell responses and modest hemagglutination inhibition assay, orHAI, responses, each dependent on the dosage level.Phase 1 Trial VXA02-003, H1N1 Influenza Vaccine Candidate, 1011 IU DoseThe second H1N1 trial was a tablet vaccine trial at a dose of 1 x 1011 IU, delivered in a single administration. We observed a favorable safety and tolerabilityprofile at this dose level. An HAI seroconversion rate of 75% was measured in the vaccine group, compared to 0% in the placebo group. 92% of subjects hada four-fold increase in Micro Neutralization, or MN, titer after the single administration of tablets. Both the HAI seroconversion rate and the MN responseswere substantially higher than the respective rates that we observed at lower doses in Trial VXA02-001. The side effects of the vaccine or placebo in the firstseven days following administration were mild with no serious adverse effects. In the first seven days following administration, there were eight totalsolicited adverse events, or AEs, reported in the vaccine and placebo groups (four in each group). All of these AEs were grade 1 in severity. The most frequentAE was headache (two in placebo, and one in the vaccine group). There were no serious adverse events and no new onsets of chronic illnesses related to theadjuvant recorded during the entire one year follow up period of the study.The table below summarizes the trial design and results (serum antibody responses) of our two placebo-controlled Phase 1 H1N1 clinical trials.Table 5. Overview: H1 Influenza Phase 1 Placebo-Controlled Studies. TRIAL NO./# SUBJECTSTRIAL DESIGNSTUDY GROUPS DOSE/SCHEDULEKEY IMMUNOGENICITY FINDINGSPhase 1Trial VXA02-001N = 36Dose-escalation, placebo-controlled,double-blind with enteric-coatedcapsules109, 1010 IU of VXA-A1.1 (H1) vaccine orplacebo on Day 0 and Day 28, administered intablet form109 dose level:• No HAI seroconversion 1010 dose level:• 27% HAI seroconversion• 64% MN (4X rise)Phase 1Trial VXA02-003N = 24Placebo-controlled, double-blind,with enteric-coated tablets1011 IU VXA-A1.1 (H1) vaccine or placeboon Day 0, single administration in table form• 75% HAI seroconversion• 92% MN (4X rise)Phase 1 Trial. Influenza BIn 2015 and 2016, we conducted a randomized, double-blind, placebo-controlled Phase 1 trial to test the safety and immunogenicity of an influenza B tabletvaccine. A total of 54 healthy adults age 18-49 were enrolled, with 38 receiving the vaccine and 16 receiving placebo. To participate in this trial, subjectswere required to have an initial HAI measure of no greater than 1:20. The active phase of the trial was through day 28, with the follow-up phase formonitoring safety to continue for one year. All subjects who received the vaccine received a single dose of either 1 x 10 10 IU or 1 x 1011 IU on Day 0. 18Table of ContentsSafety. The side effects of the vaccine or placebo in the first seven days following administration were generally mild with no serious adverse events. Therewere no notable differences between the active dose groups and placebo in safety and tolerability.HAI. In the placebo group, HAI GMT remained essentially unchanged (1:33) at day 28 post dosing. The GMFR of HAI titers both active treated groups atday 28 post dosing was about 2‑fold, and independent of dose. For the vaccinated groups receiving either 1×1010 IU or 1×1011 IU, seroconversion wasobserved in 5/19 subjects (26.3%) and 3/19 subjects (15.8%), respectively. There were no seroconversions in the placebo group.Antibody Secreting Cells (ASCs). In order to measure total antibody responses to HA, the numbers of circulating B cells that recognize influenza HA inperipheral blood were measured by ASC assay on days 0 and 7 after immunization. Results show that ASCs could be reliably measured on day 7 in thevaccine-treated groups. Background ASCs were generally negligible on day 0. By IgG ASC, 68% of 1×1010 IU dose subjects responded, and 84% of subjectsin the 1×1011 IU dose group responded. For the 1×1011 IU dose vaccine treated group, an average of 21 IgA ASCs (95% CI: 7 – 35) and 73 IgG ASCs(95% CI: 35 – 111) each per 1×106 peripheral blood mononuclear cell (PBMC) were found at day 7. For the 1×1010 IU dose vaccine treated group, anaverage of 16 IgA ASCs (95% CI: 2 – 29) and 44 IgG ASCs (95% CI: 21 – 66) were found at day 7. The placebo group had no responders, and negligibleaverage number of spots (1 or less) on Day 7 (95% CI: -0.6 – -2).H1N1 Influenza Phase 2 Challenge Study Funded by BARDAIn 2015, we were awarded a $13.9 million contract by BARDA, part of the U.S. Department of Health and Human Services. This two-year contract wasawarded under a Broad Agency Announcement issued to support the advanced development of more effective influenza vaccines to improve seasonal andpandemic influenza preparedness. The contract primarily funded a Phase 2 challenge study in human volunteers, designed to evaluate whether our H1N1tablet vaccine candidate offers broader and more durable protection than currently marketed injectable vaccines. The contract with BARDA wassubsequently increased to $15.7 million and the term was extended until September 2018.In this Phase 2 study, volunteers were randomized into three groups. One group received our oral H1N1 influenza tablet vaccine candidate, a second groupreceived a commercially licensed inactivated influenza vaccine by intramuscular injection, and a third group received placebo. Three months followingimmunization, volunteers were challenged (deliberate experimental administration) with live H1N1 (A/H1N1 pdm09) influenza virus by intranasaladministration. The placebo group served as the control group to determine how many unvaccinated volunteers became infected and how severe theirinfluenza symptoms became. Data from our vaccine candidate group and the commercially licensed inactivated vaccine group were compared to placebo todetermine each vaccine’s efficacy in this challenge study. Importantly, the two vaccines were also compared head-to-head. The goal of the study is tocompare the efficacy of our vaccine to protect volunteers from illness caused by H1N1 influenza challenge, compared to both the injectable vaccine andplacebo three months after immunization.Clinical Trial Results VXA-CHAL-201The Phase 2 challenge study was enrolled during 2016 and 2017. During this time, 179 subjects that cleared the screening requirements were randomized toreceive a single dose of our tablet vaccine, the commercial injectable vaccine, or placebo. Of these 179 subjects, 143 subjects were subsequently challengedwith live H1N1 influenza virus 90 to 120 days months after dosing.· Safety. The side effects of the vaccines or placebo in the first seven days following administration were generally mild. In the first seven daysfollowing administration, the solicited adverse events (AEs) reported in the vaccine and placebo groups were mostly grade 1 in severity, and nonewere above grade 2. The most frequent solicited AE was headache in our tablet vaccine group (7%), injection site tenderness in the commerciallylicensed inactivated vaccine group (26%) and headache in the placebo group (19%). There were no serious adverse events and no new onsets ofchronic illnesses related to our vaccine adjuvant recorded during the follow up period of the study. The graphs below show the distribution andseverity over time of local and systemic (Figures 14 and 15) solicited AEs. 19Table of ContentsFig. 14. Maximum Severity of Solicited Local Symptoms. Caption. Solicited local symptoms were collected for seven days following immunization. The severity of solicited symptoms is indicated for each treatmentgroup over time. All events were mild. Fig. 15. Maximum Severity of Solicited Systemic Symptoms. Caption. Solicited systemic symptoms were collected for seven days following immunization. The severity of solicited symptoms is indicated for eachtreatment group over time.Efficacy – Reduction of PCR Confirmed Influenza Illness.The primary efficacy objective was to determine vaccine efficacy of our tablet vaccine following the challenge with the wild-type influenza A H1 virus strain(A/H1N1 pdm09). The primary efficacy endpoint was illness. The illness rate was 29% for our tablet vaccine, 35% for the commercial inactivated influenzavaccine, and 48% for subjects in the placebo group. Our tablet vaccine had a lower rate of illness than the commercial vaccine (-6% difference in illness ratein favor of our vaccine), although given the small size of the study, these differences were not statistically significant. Similarly, the difference in illness ratesbetween our tablet vaccine and placebo (-19.1%) and the commercial injected vaccine and placebo (-13.2%) trended toward protection but were notstatistically significant. These results suggest that our vaccine is no worse, and trended better than the commercial vaccine for protection. The ability to showclinical efficacy in humans is a major step forward for our oral influenza product. These results are summarized in the table below. 20Table of ContentsTable 6. H1 Influenza Phase 2 Challenge Study: Illness Rates*.VAXARTCommercialVAXART-CommercialPlacebon% (95% CI)n% (95% CI)Rate Difference (95% CI)n% (95% CI)5829.3 (18.1, 42.7)5435.2 (22.7, 49.4)-5.9 (-24.3, 12.5)3148.4 (30.2, 66.9)*Illness was defined as a combination of symptoms reported on a patient reported outcome tool (Flu-PROTM) and quantitative reverse transcriptasepolymerase chain reaction (qRT-PCR) detectable shed influenza virus.Efficacy – Flu-PRO symptom ScoresThere were no statistically significant differences between the commercial inactivated influenza vaccine and our tablet vaccine for the Flu-PROquestionnaire, a validated patient recorded outcome tool used in influenza clinical trials in the community. However, our vaccine trended lower for overallsymptom severity. Subjects in the VXA-A1.1 group showed a lower overall median Flu-PRO score (2.0 [0, 72]) than the QIV group (5.0 [0, 59]) or the placebogroup (5.0 [0, 52]).Efficacy – SheddingShedding represents influenza virus that is detected in nasal swabs post infection and is representative of viral infection and replication. In the study, 44.8%of subjects in VXA-A1.1 had at least one day positive for shedding, versus the commercial injected vaccine where 53.7% were positive for shedding andwhere 71.0% of placebo subjects were positive for shedding. There were no statistically significant differences observed between our tablet vaccine and thecommercial inactivated influenza vaccine for viral shedding area under the curve (AUC). However, AUC was calculated using a standard logarithmictrapezoidal method and included only detectable shedding during the first 5 days of the duration of shedding, with subjects removed from the analysis thatdidn’t shed influenza for 5 days (a zero value cannot be used in log calculations and integrated). This may have led to an underestimate of the effect on viralshedding for the two vaccines relative to placebo. Therefore, in order to better determine the effect of the vaccines on shedding, an alternative method wasused in which volunteers were defined as infected if they had detectable viral shedding at any time 36 hours after challenge. This approach eliminatedpossible issues related to calculations (log calculations of zero values) and of large doses of challenge virus (first 36 hours might be pass through rather thanreplicating influenza). In a Bayesian analysis, both vaccines significantly reduced the probability of shedding relative to placebo (Bayesian posteriorp=0.001 for our tablet vaccine and p=0.009 for the commercial inactivated influenza vaccine). There is also trend toward greater efficacy for our vaccine withan ~80% posterior probability (Table 7).Table 7. H1 Influenza Phase 2 Challenge Study: Infection Rates*.Treatment ArmNNumber InfectedPercent (95% CI)Posterior PPlacebo312271% (55-85%)-Commercial542444% (32-58%)0.009Vaxart Vaccine582136% (24-49%)0.001 *Infection was defined as any positive quantitative reverse transcriptase polymerase chain reaction (qRT-PCR) detectable shed influenza virus on any dayafter 36 hours from viral challenge. In a Bayesian analysis, both vaccines provide a statistically significant protection against infection. There is also trendtoward greater efficacy for our vaccine with an ~80% posterior probability.ImmunogenicityHAI responses. HAI measures the ability of serum antibodies that can disrupt binding of influenza virus to red blood cells. Historically, HAI correlates toprotection for injected influenza vaccines. HAI responses were measured 30 days following immunization to determine the number and percentage ofvolunteers that seroconverted. In our tablet vaccine group, 32% of volunteers achieved seroconversion. In the commercial inactivated influenza vaccinegroup 84% of volunteers achieved HAI seroconversion at 30 days post vaccination. This difference was statistically significant (P < 0.001, Fisher’s Exacttest). There were no subjects in the placebo group who achieved seroconversion at 30 days post vaccination. Since 32% of subjects seroconverted in theVaxart tablet vaccine group achieved HAI seroconversion, but 71% of subjects were protected from illness following influenza challenge, HAIseroconversion appeared not to be a reliable indicator of protection for the Vaxart vaccine. The table below summarizes the HAI data. The GMT, GMFR,percentage of volunteers who had a 4-fold rise in their HAI and the percentage of subjects who seroconverted are reported. 21Full Analysis Set - Vaccination Phase Baseline (Pre-Dosing)30 Days Post DosingTreatment GroupNGMT (95% CI)NGMT (95% CI)GMFR (95% CI)% 4-Fold Rise (95%CI)% Seroconversion(95% CI)Strain: A/California/7/2009Vaxart Tablet Vaccine7011.13(9.55, 12.96)6929.99(23.72, 37.93)2.72(2.18, 3.39)36.2(25.0, 48.7)31.9(21.2, 44.2)Commercial Inactivated InfluenzaVaccine729.84(8.33, 11.63)70273.13(182.15, 409.54)27.50(19.44, 38.90)90.0(80.5, 95.9)84.3(73.6, 91.9)Placebo3510.49(8.37, 13.15)3510.40(8.15, 13.29)0.99(0.88, 1.11)0.0(0.0, 10.0)0.0(0.0, 10.0)Table of ContentsTable 8. Hemagglutination Antibody Inhibition (HAI) Geometric Mean Titer (GMT) and Geometric Mean Fold Rise (GMFR) Results Post Dosing with 95%Confidence Intervals by Strain, Study Day and Treatment Group. IgA Antibody Secreting Cells. B cells specific for influenza HA (IgA antibody secreting cells or IgA ASCs) were measured at baseline and 8 days followingimmunization in order to determine the B cell responses to the vaccines. At 8 days following vaccination, subjects in the commercial inactivated influenzavaccine group had significantly higher mean numbers of spots per 106 cells (p<0.001, Wilcoxon test) and significantly higher percentages of subjects withgreater than 8 spots per 106 cells (p<0.001, Fisher exact). At Day 8, the commercial inactivated influenza vaccine group had mean spots 286 per 106 cellscompared to mean spots of 116 per 106 cells for the Vaxart tablet vaccine. Additionally, the commercial inactivated influenza vaccine group had a 96%response rate compared to 71% in the Vaxart tablet vaccine group. The table below summarizes these data.Table 9. ASC Response for IgA and IgG Assays by Study Day and Treatment Group – Vaccination Phase. Vaccination Phase Baseline (Pre-Dosing)Day 8 (Post-Dosing)AssayTreatment GroupNMeanMedian [Range]At Least 8 Spotsn (%)NMeanMedian [Range]At Least 8 Spotsn (%)IgA ASCVaxart Tablet Vaccine702.00.0 [0, 18]6 (8.6)70116.032.0[0, 3251]50 (71.4)Commercial InactivatedInfluenza Vaccine711.50.0 [0, 13]8 (11.3)71286.4153.0[3, 1753]68 (95.8)Placebo362.80.0 [0, 26]6 (16.7)3616.31.0 [0, 256]8 (22.2)Correlation of IgA ASCs with Illness for the Vaxart Tablet Vaccine. As stated above the absolute mean number of ASCs was higher for the commercialinactivated influenza vaccine group (286 spots per 106 cells) than for the Vaxart tablet vaccine (116 spots per 106 cells). However, when a comparison wasmade between the two vaccines of the ratio of IgA ASCs in volunteers that were not ill divided by volunteers that were ill following challenge, the Vaxarttablet vaccine group had a ratio of 4.7 versus a ratio of 1.4 for the commercial injected vaccine. In a logistics fit model with illness versus non-illness as theoutcome, and IgA ASC as the independent variable, the model showed that the Vaxart tablet vaccine IgA ASC could predict ill versus non-ill, but thelogistics fit model for the commercial inactivated influenza vaccine could not (p=0.0005 for our vaccine, p=0.3066 for the commercial injected vaccine forwhole logistic model). These data suggest that IgA ASC is important for protection against influenza for our oral vaccine, but not for injected commercialvaccines. These data also suggest that there are qualitative differences between B cells induced post immunization by different methods. We are activelyexploring these qualitative differences. 22Table of ContentsFig. 16. IgA ASCs Correlate with Illness for Vaxart Tablet Vaccine. Vaxart Tablet Vaccine Commercial Inactivated VaccineCaption. Logistic fit regression analysis demonstrates a statistically significant fit for the Vaxart Tablet Vaccine for IgA ASCs and illness. The correlationbetween higher ASCs and a lower rate of illness is observed. The same model fit is not observed with the commercial inactivated vaccine.This work was funded in whole or in part with Federal funds from the Department of Health and Human Services; Office of the Assistant Secretary forPreparedness and Response; Biomedical Advanced Research and Development Authority.Preclinical ResultsWe have completed several animal challenge studies for influenza. In an H1N1 influenza challenge study, mice immunized orally with our tablet vaccinecandidate were protected against sickness and death compared to unimmunized, control animals. Similarly, our oral H5N1 vaccine candidate protected ferretsand mice against a lethal avian influenza challenge compared to unimmunized animals when the vaccine construct expressed an avian influenza HAconstruct.Cross Protection of Vaxart Quadrivalent Seasonal Flu Vaccine against Avian Flu in Ferret Challenge ModelA more recent ferret challenge experiment was completed in 2017 to compare an oral quadrivalent vaccine that we designed with the commercial vaccineFluzone for protection against a virulent avian influenza strain. There are no components of seasonal influenza vaccines that are matched to the HA made byavian influenza virus, so the virus represents a severe case of vaccine mismatched to virus. Our quadrivalent vaccine was made by mixing four recombinantadenoviruses, each expressing a different HA that matches the HAs in the commercial vaccine, not the HA of the challenge. Two different doses wereevaluated; the high dose was used at 1:10 of a Vaxart human dose (Vaxart Quad) and the low dose (Vaxart Quad Low) was used at 1:100 of the human dose.The Fluzone group (QIV) was given at 1:10 of the human dose to directly compare to the Vaxart quadrivalent high dose group. Vaxart animals and thenegative control (PBS) animals were given vaccine delivered by endoscope. The QIV animals were intramuscularly injected. Animals were vaccinated ondays 0 and 28. Animals were challenged on day 56 with approximately 102.69 TCID50/mL of wild type A/Vietnam/1203/2004 (A/VN). Results show that theVaxart quadrivalent vaccines were able to protect against mismatched A/VN, trending better than Fluzone. The high dose group was able to protect all ferretsagainst death whereas the low dose Vaxart group protected 75% of ferrets. 23Table of ContentsFig. 17. Survival in ferrets vaccinated with seasonal influenza and challenged with H5N1 Vietnam. Caption. The percent survival was measured for each group at each time point. The Vaxart Quad vaccine group were 100% protected against mismatchedavian influenza over the 14 days that survival was assessed. The other groups were not as well protected.This work was funded in whole or in part with federal funds from the Department of Health and Human Services; Office of the Assistant Secretary forPreparedness and Response; Biomedical Advanced Research and Development Authority.Seasonal Influenza Clinical Development Strategy and PathwayWe aim to partner and/or to obtain funding from the U.S. federal government to finance the development and commercialization of our seasonal quadrivalentinfluenza oral tablet vaccine. In the future, we may also consider equity offerings and/or debt financings to fund the program.Our Human Papillomavirus (HPV) Therapeutic Vaccine CandidateIn previous clinical studies with our H5 influenza vaccine candidate, we observed robust T-cell responses that appeared to compare favorably with publishedresults of other flu vaccines, including an adjuvanted vaccine as well as an attenuated live viral vaccine. Specifically, our vaccine generated high levels ofpolyfunctional cytotoxic CD4 and CD8 cells, T-cells that are likely required to obtain a therapeutic benefit in chronic viral infection and cancer. It was basedon these observations that we embarked on the development of our first therapeutic vaccine, targeting HPV -associated dysplasia and cervical cancer.Medical Need, Commercial OpportunityHPV is a family of more than 120 viruses which are extremely common globally. At least 13 HPV types are cancer-causing. HPV is primarily transmittedthrough sexual contact and infection is very prevalent following the onset of sexual activity. Nearly all cases of cervical cancer are attributable to HPVinfection, with two HPV types – HPV16 and HPV18 – responsible for 70% of cervical cancers and precancerous cervical lesions. Cervical cancer is the fourthmost common cancer in women worldwide, and about 13,000 new cases are diagnosed annually in the United States according to the National CervicalCancer Coalition. Studies have indicated a high lifetime probability of any HPV infection by both men and women in the United States, with some estimatesindicating at least 80% of women and men acquire HPV by age 45. The CDC estimates 80 million U.S. citizens are currently infected with HPV, representing25% of the population, with about 14 million new infections per year. A report by BCC Research expects the global cervical cancer drug and diagnosticmarket to exceed $15 billion by 2018.In women, many HPV infections of the cervix will spontaneously resolve and clear within 2-3 years, but women who have a persistent infection are at highrisk of developing cellular abnormalities known as cervical intraepithelial neoplasia (CIN) which can progress to invasive cancer over time. More than400,000 women are diagnosed with CIN annually in the United States, with an annual incidence estimate for CIN1 and CIN2/3 at 1.6 and 1.2 per 1,000women, respectively.There are currently no approved therapeutic vaccines to treat HPV infection. Current treatment options for women infected with HPV (see below) includemonitoring CIN status, surgical procedures to remove affected tissue, and chemotherapeutic or radiation therapies to treat localized or metastatic cervicalcancer. Thus, a medical need remains for a therapeutic vaccine to treat women presenting with CIN, or who have progressed to cervical cancer. 24Table of ContentsOur HPV Therapeutic Vaccine CandidateOur plan is to develop a bivalent HPV vaccine against HPV 16 and 18, the strains responsible for approximately 70% of cases of cervical cancer. We plan totarget the E6 and E7 gene products of each strain, which are the primary oncogenic proteins responsible for progression through the stages of CIN to invasivecervical cancer. In pre-clinical studies, we have demonstrated immunogenicity for both our HPV16 and our HPV18 vaccine candidates. Specifically, micegiven our HPV16 or HPV18 vaccines induced T cell responses to HPV as measured by IFN gamma ELISPOT. In addition, our HPV16 vaccine hasdemonstrated tumor growth suppression as well as increased survival in a robust HPV tumor model in mice. We believe that our HPV vaccine has severaladvantages over current treatment options for both CIN and cervical cancer. Current treatment options for CIN are invasive and can lead to seriouscontraindications for pregnancy. In addition, surgical treatments for CIN do not treat the underlying HPV, but rather remove infected tissue. As a result,current CIN treatment options have a significant failure rate which can increase the risk for progression to cervical cancer. Our vaccines have demonstrated afavorable safety and tolerability profile in clinical subjects dosed to date. Current treatment options for cervical cancer, such as chemotherapy and radiationtreatment, have multiple side effects such as hair loss, loss of appetite, and severe nausea.T cells responses to HPV-16 can shrink solid tumors derived from transformed HPVThe ability of T cell responses to HPV-16 to produce a therapeutic response was tested in a solid tumor growth model. TC-1 cells (an HPV-16 transformedcell-line) were injected subcutaneously into the hind flank of B6 mice, and allowed to grow for several days before mice were immunized with vaccine orcontrols. In study 1, mice were immunized on days 7, 14, and 21. For groups 4 and 5, the vaccine expressed the HPV16 antigens E6/E7 (Ad-HPV). Acheckpoint inhibitor (an antibody to PD-1) was used along with the vaccine in group 5, and an isotype control (Iso) to the checkpoint inhibitor was used ingroup 4. A recombinant rAd vector identical to Ad-HPV, but which doesn’t express the HPV antigens (Ad-nr), was used in groups 1 or 2 to control for non-specific effects. Untreated animals were not given any vaccine.The results in study 1 showed that Ad-HPV groups were able to the stop tumor growth, and actually shrink the tumor. This occurred whether the checkpointinhibitor was used or not. The checkpoint inhibitor alone was not able to stop tumor progression, and eventually all these animals perished. Other controlanimals without Ad-HPV didn’t survive as well. The use of the checkpoint inhibitor with the Ad-HPV vaccine trended slightly better for survival (10/10versus 9/10 survived), but this was not significant.In study 2, the TC-1 tumor was transplanted as before, but allowed to grow longer before immunization occurred. Immunizations occurred on days 13, 20, and27. In this study, mice that received the Ad-HPV vaccine plus the checkpoint inhibitor were able to control the tumor, up through day 40 before a few micestarted to perish. More than 70% of animals in this group survived through the end of the experiment on day 80. Ad-HPV immunized mice in the absence ofthe checkpoint inhibitor were also able to substantially control the tumor through 60 days (33 days after the last immunization), before several additionalanimals perished. No control groups in the absence of the Ad-HPV were able to control any of the tumors, and all mice perished before day 40.Fig. 18. Small Tumor Vaccine Study. Caption. In the small tumor vaccine study (Study 1), tumors were allowed to grow for 7 days before beginning the immunization schedule. Animals given theVaxart HPV vaccine (Ad-HPV) were protected against tumor growth and survived better. This was the case whether or not a checkpoint inhibitor was used. 25Table of ContentsFig. 19. Large Tumor Vaccine Study. Caption. In the large tumor vaccine study (Study 2), tumors were allowed to grow for 13 days before the vaccines were given. Again, animals given the Ad-HPV were better protected against tumor growth. The addition of the checkpoint inhibitor improved survival.The T cells induced post immunization in the tumor model were believed to traffic back to the solid tumor to attack and destroy the cancer cells. This wastested in an additional tumor model experiment. Tumors were transplanted as before, and immunizations were performed on days 13 and 21. Tumors wereharvested from the experiment on day 24, and flow cytometry was used to enumerate the T cells infiltrating the tumors. The HPV16 vaccine groups (witheither the checkpoint inhibitor or an isotype control antibody) had T cell infiltrates of both CD4 and CD8 positive T cells. The CD8 T cell numbers from theAd-HPV groups were significantly better than control treated animals in terms of infiltrating lymphocytes. The CD4 T cells were significantly better in theAd-HPV + checkpoint group, and trended higher in the Ad-HPV + isotype control group.Fig. 20. The Ad-HPV vaccine induces T cells that migrate to the tumors. Caption. The number of CD4 and CD8 T cells found within the tumor were analyzed by flow cytometry. The Ad-HPV groups were found to elicit T cells thattransited to the tumor, with the Ad-HPV plus checkpoint inhibitor creating slightly more T cell transit than the Ad-HPV vaccine alone. 26Table of ContentsNear Term HPV Vaccine Development StrategyPreclinicalThe next steps in the vaccine development are to complete the nonclinical studies, which may include a Good Laboratory Practices, GLP, toxicology study,to support an investigational new drug, or IND, filing for this vaccine. The exact nature of these studies will be determined in consultation with the FDA.ClinicalWe will propose to test the vaccine in subjects with cervical dysplasia related to HPV16 or HPV18, and to evaluate the ability of the vaccine to clear HPVinfection, reduce the cervical dysplasia score, and induce T cells known to be important in the clearance of HPV. T cells will be measured by flow cytometryas well as by IFN-g ELISPOT. The primary endpoint will be safety and the secondary endpoint will be immunogenicity by examining T cell responses.Although clinical responses will be tracked, it is expected that the first study may not be powered to obtain statistically significant efficacy readouts.Other IndicationsWe currently have preliminary data in animal models for indications such as RSV, Chikungunya, Hepatitis B and HSV-2. ManufacturingManufacturing our oral tablet vaccines consists of two main stages, the production of bulk vaccine (drug substance), and the formulation and tabletingthereof (drug product). Drug substance manufacturing consists primarily of the production and purification of the active ingredient. Bulk drug substance isthen lyophilized, formulated and subsequently tableted and coated using a proprietary formulation and tableting process that we developed.From 2012 through December of 2017, we relied on a third-party contract manufacturer, Lonza Houston, Inc. or Lonza Houston, to manufacture clinical bulkdrug substance for our tablet vaccine candidates. During 2017 and early 2018, we developed our own bulk vaccine manufacturing process and thenestablished a cGMP bulk manufacturing facility at our corporate headquarters in California. We believe having an in-house bulk facility provides a numberof important strategic advantages, including control of our manufacturing schedule and enhanced integration of process development and cGMPmanufacturing operations.Our facility is fully operational and was used to make our norovirus GII.4 vaccine tablets and the norovirus GI.1 bulk vaccine lots that are scheduled to beprocessed and tableted in the first quarter of 2019. However, we have not yet achieved the productivity levels we initially projected and we continue to seekimprovements in productivity. We are also making modifications to our purification process to further improve purity and yield.Our facility and equipment is sized to support manufacturing of cGMP product for our Phase 1 and Phase 2a trials, but is not adequate to supportlarger Phase 2b and Phase 3 trials. Accordingly, we are exploring opportunities to establish a long-term relationship with an established CMO todevelop large scale bulk vaccine production capabilities adequate to support larger trials and commercial product launch. We believe such arelationship would also allow us to access additional manufacturing expertise and further improve our manufacturing process.From 2012 through December of 2017, we also contracted with Lonza Houston for the manufacture, labeling, packaging, storage and distribution of our drugproduct. The tablets used for our clinical studies to date, including the influenza A and B phase 1 studies, the norovirus phase 1 studies, the RSV phase 1study and the H1 influenza phase 2 challenge study, as well as all placebo for those studies, were manufactured at Lonza Houston. During 2016, weestablished drug product manufacturing capabilities at our corporate headquarters and all drug product has been manufactured at our facility since then.Our facility is licensed by the State of California Department of Public Health Food and Drug Branch to manufacture drug product for clinical trials.We have limited experience with process development, and the manufacture, testing, quality release, storage and distribution of drug substance and drugproduct according to current Good Manufacturing Practices, or cGMP, and regulatory filings. The cGMP regulations include requirements relating to theorganization of personnel, buildings and facilities, equipment, control of components and drug product containers and closures, production and processcontrols, packaging and labeling controls, holding and distribution, laboratory controls, records and reports, and returned or salvaged products. Our facility,and our third-party manufacturers, are subject to periodic inspections by FDA and local authorities, which include, but are not limited to procedures andoperations used in the testing and manufacture of our vaccine candidates to assess our compliance with applicable regulations. If we or our third-partmanufacturers fail to comply with statutory and regulatory requirements we and they could be subject to possible legal or regulatory action, includingwarning letters, the seizure or recall of products, injunctions, consent decrees placing significant restrictions on or suspending manufacturing operations andcivil and criminal penalties. These actions could have a material adverse impact on the availability of our tablet vaccine candidates. Similar to contractmanufactures, we have in the past encountered difficulties involving production yields, quality control and quality assurance, and if we are not able toproduce drug product or drug substance in sufficient quantities are ability to conduct our clinical trials and commercialize our tablet vaccine candidates, ifapproved, will be impaired. 27Table of ContentsResearch and DevelopmentIn the ordinary course of business, we enter into agreements with third parties, such as clinical research organizations, medical institutions, clinicalinvestigators and contract laboratories, to conduct our clinical trials and aspects of our research and preclinical testing. These third parties provide projectmanagement and monitoring services and regulatory consulting and investigative services.CompetitionThe biotechnology and pharmaceutical industries are characterized by intense competition to develop new technologies and proprietary products. While webelieve that our proprietary tablet vaccine candidates provide competitive advantages, we face competition from many different sources, includingbiotechnology and pharmaceutical companies, academic institutions, government agencies, as well as public and private research institutions. Any productsthat we may commercialize will have to compete with existing products and therapies as well as new products and therapies that may become available in thefuture.There are other organizations working to improve existing therapies, vaccines or delivery methods, or to develop new vaccines, therapies or delivery methodsfor their selected indications. Depending on how successful these efforts are, it is possible they may increase the barriers to adoption and success of ourvaccine candidates, if approved.We anticipate that we will face intense and increasing competition as new vaccines enter the market and advanced technologies become available. We expectany tablet or other oral delivery vaccine candidates that we develop and commercialize to compete on the basis of, among other things, efficacy, safety,convenience of administration and delivery, price, availability of therapeutics, the level of generic competition and the availability of reimbursement fromgovernment and other third-party payors.Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have feweror less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA or otherregulatory approval for their products more rapidly than we can obtain approval for our vaccine candidates, which could result in our competitorsestablishing a strong market position before we are able to enter the market. In addition, our ability to compete may be affected in many cases by insurers orother third-party payors seeking to encourage the use of generic products.Seasonal Influenza Vaccine CandidateWe believe our seasonal influenza vaccine candidate will compete directly with approved vaccines in the market, which include non-recombinant andrecombinant products that are administered via injection or intranasally. The major global non-recombinant injectable vaccine competitors include AstellasPharma Inc., Abbott Laboratories, AstraZeneca UK Limited, Baxter International Inc., Research Foundation for Microbial Diseases of Osaka University,Seqirus-bioCSL Inc., GlaxoSmithKline plc, or GlaxoSmithKline, Sanofi S.A., or Sanofi, Pfizer Inc., and Takeda Pharmaceutical Company Limited, or Takeda.Non-recombinant intranasal competition includes MedImmune, Inc., or MedImmune, and potentially others. Recombinant injectable competitors includeSanofi, Medicago and Novavax, Inc., or Novavax. Many other groups are developing new or improved flu vaccine or delivery methods.Norovirus Vaccine CandidateThere is currently no approved norovirus vaccine for sale globally. While we are not aware of all of our competitors’ efforts, we believe that Takeda isdeveloping a norovirus vaccine that would be delivered by injection.HPV Therapeutic Vaccine CandidateThere is currently no approved HPV therapeutic vaccine for sale globally; however, a number of vaccine manufacturers, academic institutions and otherorganizations currently have, or have had, programs to develop such a vaccine. We believe that several companies are in various stages of developing anHPV therapeutic vaccine including Inovio, Advaxis, Genexine, and several others. 28Table of ContentsInavirOther anti influenza antivirals are marketed in Japan, including Tamiflu and Relenza. On February 23, 2018, Osaka-based drug maker Shionogi & Co gainedmarketing approval for Xofluza, a new drug to treat influenza in Japan. The drug was approved for use against type A and B influenza viruses and requiresonly a single dose regardless of age. Xofluza may gain significant market share from Inavir in Japan, substantially reducing the sales of Inavir. This wouldsignificantly decrease the royalty payments we receive from Daiichi Sankyo.Intellectual PropertyWe strive to protect and enhance the proprietary technology, inventions and improvements that are commercially important to our business, includingseeking, maintaining, and defending patent rights. We also rely on trade secrets relating to our platform and on know-how, continuing technologicalinnovation to develop, strengthen and maintain our proprietary position in the vaccine field. In addition, we rely on regulatory protection afforded throughdata exclusivity, market exclusivity and patent term extensions where available. We also utilize trademark protection for our company name and expect to doso for products and/or services as they are marketed.Our commercial success will depend in part on our ability to obtain and maintain patent and other proprietary protection for commercially importanttechnology, inventions and know-how related to our business; defend and enforce our patents; preserve the confidentiality of our trade secrets; and operatewithout infringing the valid enforceable patents and proprietary rights of third parties. Our ability to stop third parties from making, using, selling, offering tosell or importing our tablet vaccine candidates may depend on the extent to which we have rights under valid and enforceable patents or trade secrets thatcover these activities. With respect to company-owned intellectual property, we cannot be sure that patents will be granted with respect to any of our pendingpatent applications or with respect to any patent applications we may file in the future, nor can we be sure that any of our existing patents or any patents thatmay be granted to us in the future will be commercially useful in protecting our commercial products and methods of manufacturing the same.We have developed numerous patents and patent applications and own substantial know-how and trade secrets related to our platform and tablet vaccinecandidates.· Vaccine Platform Technology. As of December 31, 2018, we hold three U.S. patents with granted claims relating to our platform technology. Two ofthese U.S. patents include claims related to our seasonal influenza vaccine candidate. These patents will expire in 2027, or later if patent termextension applies. As of December 31, 2018, we hold more than 50 issued foreign patents and one pending foreign patent application related to ourplatform technology and/or our vaccine candidates. These patents will expire in 2027, or later if patent term extension applies.· Tablet Vaccine Formulation. We own considerable know-how and hold one Singapore patent and 16 pending applications in the United States andaround the world related to our tablet vaccine formulation technology. This patent and any patents issuing from these applications will expire in2035, or later if patent term extension applies.· Influenza, Norovirus and RSV Vaccine Candidates. As of December 31, 2018, we have filed 12 applications in the United States and around theworld relating to our norovirus and RSV vaccine candidates. Any patents issuing from these applications will expire in 2036, or later if patent termextension applies. We have been issued 13 foreign patents related to our current H1N1 influenza vaccine candidate. These patents will expire in2030,or later if patent term extension applies.· Relenza. As of December 31, 2018, we own one Japanese patent related to Relenza, which is exclusively licensed to GSK. This patent will expire inJuly 2019. All other Relenza patents have expired.In addition to the above, we have established expertise and development capabilities focused in the areas of preclinical research and development,manufacturing and manufacturing process scale-up, quality control, quality assurance, regulatory affairs and clinical trial design and implementation. Webelieve that our focus and expertise will help us develop products based on our proprietary intellectual property.29Table of ContentsThe term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In most countries in which we file, thepatent term is 20 years from the date of filing the non-provisional application. In the United States, a patent’s term may be lengthened by patent termadjustment, which compensates a patentee for administrative delays by the U.S. Patent and Trademark Office in granting a patent, or may be shortened if apatent is terminally disclaimed over an earlier-filed patent.The term of a patent that covers an FDA-approved drug may also be eligible for patent term extension, which permits patent term restoration of a U.S. patentas compensation for the patent term lost during the FDA regulatory review process. The Hatch-Waxman Act permits a patent term extension of up to fiveyears beyond the expiration of the patent. The length of the patent term extension is related to the length of time the drug is under regulatory review. A patentterm extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only one patent applicable toan approved drug may be extended. Moreover, a patent can only be extended once, and thus, if a single patent is applicable to multiple products, it can onlybe extended based on one product. Similar provisions are available in Europe and other foreign jurisdictions to extend the term of a patent that covers anapproved drug. When possible, depending upon the length of clinical trials and other factors involved in the filing of a new drug application, or NDA, weexpect to apply for patent term extensions for patents covering our vaccine candidates and their methods of use. Trade SecretsWe rely, in some circumstances, on trade secrets to protect our technology. However, trade secrets can be difficult to protect. We seek to protect ourproprietary technology and processes, in part, by entering into confidentiality agreements with our employees, consultants, scientific advisors andcontractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises andphysical and electronic security of our information technology systems. While we have confidence in these procedures, agreements or security measures maybe breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independentlydiscovered by competitors. To the extent that our consultants, contractors or collaborators use intellectual property owned by others in their work for us,disputes may arise as to the rights in related or resulting know-how and inventions.Government Regulation and Product ApprovalFederal, state and local government authorities in the United States and in other countries extensively regulate, among other things, the research,development, testing, manufacturing, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of biological and pharmaceutical products such as those we are developing. Ourvaccine candidates must be approved by the FDA before they may be legally marketed in the United States and by the appropriate foreign regulatory agencybefore they may be legally marketed in foreign countries. Generally, our activities in other countries will be subject to regulation that is similar in nature andscope as that imposed in the United States. The process for obtaining regulatory marketing approvals and the subsequent compliance with appropriatefederal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources.U.S. Product Development ProcessIn the United States, the FDA regulates pharmaceutical and biological products under the Federal Food, Drug and Cosmetic Act, Public Health Service Act, orPHSA, and implementing regulations. Products are also subject to other federal, state and local statutes and regulations. The process of obtaining regulatoryapprovals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial timeand financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process orafter approval, may subject an applicant to administrative or judicial sanctions. FDA sanctions could include, among other actions, refusal to approvepending applications, withdrawal of an approval, a clinical hold, warning letters, product recalls or withdrawals from the market, product seizures, total orpartial suspension of production or distribution injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties.Any agency or judicial enforcement action could have a material adverse effect on us. The process required by the FDA before a drug or biological productmay be marketed in the United States generally involves the following:· completion of nonclinical laboratory tests and animal studies according to good laboratory practices, or GLPs, and applicable requirements for thehumane use of laboratory animals or other applicable regulations;· submission to the FDA of an IND which must become effective before human clinical trials may begin;· performance of adequate and well-controlled human clinical trials according to the FDA’s regulations commonly referred to as good clinicalpractices, or GCPs, and any additional requirements for the protection of human research subjects and their health information, to establish the safetyand efficacy of the proposed biological product for its intended use;· submission to the FDA of a Biologics License Application, or BLA, for marketing approval that meets applicable requirements to ensure thecontinued safety, purity, and potency of the product that is the subject of the BLA based on results of nonclinical testing and clinical trials;· satisfactory completion of an FDA inspection of the manufacturing facility or facilities where the biological product is produced, to assesscompliance with cGMP, to assure that the facilities, methods and controls are adequate to preserve the biological product’s identity, strength,quality and purity;· potential FDA audit of the nonclinical study and clinical trial sites that generated the data in support of the BLA; and· FDA review and approval, or licensure, of the BLA. 30Table of ContentsBefore testing any biological vaccine candidate, including our tablet vaccine candidates, in humans, the vaccine candidate enters the preclinical testingstage. Preclinical tests, also referred to as nonclinical studies, include laboratory evaluations of product chemistry, toxicity and formulation, as well as animalstudies to assess the potential safety and activity of the vaccine candidate. The conduct of the preclinical tests must comply with federal regulations andrequirements including GLPs. The clinical trial sponsor must submit the results of the preclinical tests, together with manufacturing information, analyticaldata, any available clinical data or literature and a proposed clinical protocol, to the FDA as part of the IND. Some preclinical testing may continue even afterthe IND is submitted. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA raises concerns or questions regarding theproposed clinical trials and places the trial on a clinical hold within that 30-day time period. In such a case, the IND sponsor and the FDA must resolve anyoutstanding concerns before the clinical trial can begin. The FDA may also impose clinical holds on a biological product candidate at any time before orduring clinical trials due to safety concerns or non-compliance. If the FDA imposes a clinical hold, trials may not recommence without FDA authorizationand then only under terms authorized by the FDA. Accordingly, we cannot be sure that submission of an IND will result in the FDA allowing clinical trials tobegin, or that, once begun, issues will not arise that suspend or terminate such trials.Clinical trials involve the administration of the biological product candidate to healthy volunteers or patients under the supervision of qualifiedinvestigators, generally physicians not employed by or under the trial sponsor’s control. Clinical trials are conducted under protocols detailing, among otherthings, the objectives of the clinical trial, dosing procedures, subject selection and exclusion criteria, and the parameters to be used to monitor subject safety,including stopping rules that assure a clinical trial will be stopped if certain adverse events should occur. Each protocol and any amendments to the protocolmust be submitted to the FDA as part of the IND. Clinical trials must be conducted and monitored in accordance with the FDA’s regulations composing theGCP requirements, including the requirement that all research subjects provide informed consent. Further, each clinical trial must be reviewed and approvedby an independent institutional review board, or IRB, at or servicing each institution at which the clinical trial will be conducted. An IRB is charged withprotecting the welfare and rights of trial participants and considers such items as whether the risks to individuals participating in the clinical trials areminimized and are reasonable in relation to anticipated benefits. The IRB also approves the form and content of the informed consent that must be signed byeach clinical trial subject or his or her legal representative and must monitor the clinical trial until completed. Human clinical trials are typically conductedin three sequential phases that may overlap or be combined:· Phase 1. The biological product is initially introduced into healthy human subjects and tested for safety. In the case of some products for severe orlife-threatening diseases, especially when the product may be too inherently toxic to ethically administer to healthy volunteers, the initial humantesting is often conducted in subjects.· Phase 2. The biological product is evaluated in a limited patient population to identify possible adverse effects and safety risks, to preliminarilyevaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance, optimal dosage and dosing schedule.· Phase 3. Clinical trials are undertaken to further evaluate dosage, clinical efficacy, potency, and safety in an expanded patient population atgeographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk to benefit ratio of the product and providean adequate basis for product labeling.Post-approval clinical trials, sometimes referred to as Phase 4 clinical trials, may be conducted after initial marketing approval. These clinical trials are usedto gain additional experience from the treatment of patients in the intended therapeutic indication, particularly for long-term safety follow-up.31Table of ContentsDuring all phases of clinical development, regulatory agencies require extensive monitoring and auditing of all clinical activities, clinical data, and clinicaltrial investigators. Annual progress reports detailing the results of the clinical trials must be submitted to the FDA. Written IND safety reports must bepromptly submitted to the FDA and the investigators for serious and unexpected adverse events, any findings from other studies, tests in laboratory animalsor in vitro testing that suggest a significant risk for human subjects, or any clinically important increase in the rate of a serious suspected adverse reactionover that listed in the protocol or investigator brochure. The sponsor must submit an IND safety report within 15 calendar days after the sponsor determinesthat the information qualifies for reporting. The sponsor also must notify the FDA of any unexpected fatal or life-threatening suspected adverse reactionwithin seven calendar days after the sponsor’s initial receipt of the information. Phase 1, Phase 2 and Phase 3 clinical trials may not be completedsuccessfully within any specified period, if at all. The FDA or the sponsor or its data safety monitoring board may suspend or terminate a clinical trial at anytime on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. Similarly, an IRB can suspend orterminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the biologicalproduct has been associated with unexpected serious harm to subjects.Concurrently with clinical trials, companies usually complete additional studies and must also develop additional information about the physicalcharacteristics of the biological product as well as finalize a process for manufacturing the product in commercial quantities in accordance with cGMPrequirements. To help reduce the risk of the introduction of adventitious agents with use of biological products, the PHSA emphasizes the importance ofmanufacturing control for products whose attributes cannot be precisely defined. The manufacturing process must be capable of consistently producingquality batches of the product candidate and, among other criteria, the sponsor must develop methods for testing the identity, strength, quality, potency andpurity of the final biological product. Additionally, appropriate packaging must be selected and tested, and stability studies must be conducted todemonstrate that the biological product candidate does not undergo unacceptable deterioration over its shelf life.U.S. Review and Approval ProcessesAfter the completion of clinical trials of a biological product, FDA approval of a BLA must be obtained before commercial marketing of the biologicalproduct. The BLA must include results of product development, laboratory and animal studies, human trials, information on the manufacture andcomposition of the product, proposed labeling and other relevant information. The FDA may grant deferrals for submission of data, or full or partial waivers.The testing and approval processes require substantial time and effort and there can be no assurance that the FDA will accept the BLA for filing and, even iffiled, that any approval will be granted on a timely basis, if at all.Under the Prescription Drug User Fee Act, or PDUFA, as amended, each BLA must be accompanied by a significant user fee. The FDA adjusts the PDUFA userfees on an annual basis. PDUFA also imposes an annual program fee for biological products. Fee waivers or reductions are available in certain circumstances,including a waiver of the application fee for the first application filed by a small business.Within 60 days following submission of the application, the FDA reviews a BLA submitted to determine if it is substantially complete before the agencyaccepts it for filing. The FDA may refuse to file any BLA that it deems incomplete or not properly reviewable at the time of submission, and may requestadditional information. In this event, the BLA must be resubmitted with the additional information. The resubmitted application also is subject to reviewbefore the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review of the BLA. The FDA reviewsthe BLA to determine, among other things, whether the proposed product is safe, potent, and/or effective for its intended use, and has an acceptable purityprofile, and whether the product is being manufactured in accordance with cGMP to assure and preserve the product’s identity, safety, strength, quality,potency and purity. The FDA may refer applications for novel biological products or biological products that present difficult questions of safety or efficacyto an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether theapplication should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers suchrecommendations carefully when making decisions. During the biological product approval process, the FDA also will determine whether a Risk Evaluationand Mitigation Strategy, or REMS, is necessary to assure the safe use of the biological product. If the FDA concludes a REMS is needed, the sponsor of theBLA must submit a proposed REMS. The FDA will not approve a BLA without a REMS, if required.Before approving a BLA, the FDA will inspect the facilities at which the product is manufactured. The FDA will not approve the product unless it determinesthat the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product withinrequired specifications. Additionally, before approving a BLA, the FDA will typically inspect one or more clinical sites to assure that the clinical trials wereconducted in compliance with IND trial requirements and GCP requirements. To assure cGMP and GCP compliance, an applicant must incur significantexpenditure of time, money and effort in the areas of training, record keeping, production, and quality control. 32Table of ContentsNotwithstanding the submission of relevant data and information, the FDA may ultimately decide that the BLA does not satisfy its regulatory criteria forapproval and deny approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than we interpret thesame data. If the agency decides not to approve the BLA in its present form, the FDA will issue a complete response letter that describes all of the specificdeficiencies in the BLA identified by the FDA. The deficiencies identified may be minor, for example, requiring labeling changes, or major, for example,requiring additional clinical trials. Additionally, the complete response letter may include recommended actions that the applicant might take to place theapplication in a condition for approval. If a complete response letter is issued, the applicant may either resubmit the BLA, addressing all of the deficienciesidentified in the letter, or withdraw the application.If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwisebe limited, which could restrict the commercial value of the product. 33Table of ContentsFurther, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling. The FDA may impose restrictionsand conditions on product distribution, prescribing, or dispensing in the form of a risk management plan, or otherwise limit the scope of any approval. Inaddition, the FDA may require post marketing clinical trials, sometimes referred to as Phase 4 clinical trials, designed to further assess a biological product’ssafety and effectiveness, and testing and surveillance programs to monitor the safety of approved products that have been commercialized.In addition, under the Pediatric Research Equity Act, a BLA or supplement to a BLA must contain data to assess the safety and effectiveness of the productfor the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which theproduct is safe and effective. The FDA may grant deferrals for submission of data or full or partial waivers.Post-Approval RequirementsAny products for which we receive FDA approvals are subject to continuing regulation by the FDA, including, among other things, record-keepingrequirements, reporting of adverse experiences with the product, providing the FDA with updated safety and efficacy information, product sampling anddistribution requirements, and complying with FDA promotion and advertising requirements, which include, among others, standards for direct-to-consumeradvertising, restrictions on promoting products for uses or in patient populations that are not described in the product’s approved uses, known as ‘off-label’use, limitations on industry-sponsored scientific and educational activities, and requirements for promotional activities involving the internet. Althoughphysicians may prescribe legally available products for off-label uses, if the physicians deem to be appropriate in their professional medical judgment,manufacturers may not market or promote such off-label uses.In addition, quality control and manufacturing procedures must continue to conform to applicable manufacturing requirements after approval to ensure thelong-term stability of the product. cGMP regulations require among other things, quality control and quality assurance as well as the correspondingmaintenance of records and documentation and the obligation to investigate and correct any deviations from cGMP. Manufacturers and other entitiesinvolved in the manufacture and distribution of approved products are required to register their establishments with the FDA and certain state agencies, andare subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP and other laws. Accordingly,manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance. Discovery ofproblems with a product after approval may result in restrictions on a product, manufacturer, or holder of an approved BLA, including, among other things,recall or withdrawal of the product from the market. In addition, changes to the manufacturing process are strictly regulated, and depending on thesignificance of the change, may require prior FDA approval before being implemented. Other types of changes to the approved product, such as adding newindications and claims, are also subject to further FDA review and approval.Discovery of previously unknown problems with a product or the failure to comply with applicable FDA requirements can have negative consequences,including adverse publicity, judicial or administrative enforcement, warning letters from the FDA, mandated corrective advertising or communications withdoctors, and civil or criminal penalties, among others. Newly discovered or developed safety or effectiveness data may require changes to a product’sapproved labeling, including the addition of new warnings and contraindications, and also may require the implementation of other risk managementmeasures. Also, new government requirements, including those resulting from new legislation, may be established, or the FDA’s policies may change, whichcould delay or prevent regulatory approval of our tablet vaccine candidates under development.Other U.S. Healthcare Laws and Compliance RequirementsIn the United States, our activities are potentially subject to regulation by various federal, state and local authorities in addition to the FDA, including butnot limited to, the Centers for Medicare and Medicaid Services, or CMS, other divisions of the U.S. Department of Health and Human Services, for instancethe Office of Inspector General, the U.S. Department of Justice, or DOJ, and individual U.S. Attorney offices within the DOJ, and state and local governments.For example, sales, marketing and scientific/educational grant programs must comply with the anti-fraud and abuse provisions of the Social Security Act, thefalse claims laws, the physician payment transparency laws, the privacy and security provisions of the Health Insurance Portability and Accountability Act, orHIPAA, as amended by the Health Information Technology and Clinical Health Act, or HITECH, and similar state laws, each as amended.The federal anti-kickback statute prohibits, among other things, any person or entity, from knowingly and willfully offering, paying, soliciting or receivingany remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or in return for purchasing, leasing, ordering or arranging for thepurchase, lease or order of any item or service reimbursable under Medicare, Medicaid or other federal healthcare programs. The term remuneration has beeninterpreted broadly to include anything of value. The anti-kickback statute has been interpreted to apply to arrangements between pharmaceuticalmanufacturers on one hand and prescribers, purchasers, and formulary managers on the other. There are a number of statutory exceptions and regulatory safeharbors protecting some common activities from prosecution. The exceptions and safe harbors are drawn narrowly and practices that involve remunerationthat may be alleged to be intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exception orsafe harbor. Our practices may not in all cases meet all of the criteria for protection under a statutory exception or regulatory safe harbor. Failure to meet all ofthe requirements of a particular applicable statutory exception or regulatory safe harbor, however, does not make the conduct per se illegal under the anti-kickback statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all of its facts andcircumstances. 34Table of ContentsAdditionally, the intent standard under the anti-kickback statute was amended by the Affordable Care Act to a stricter standard such that a person or entity nolonger needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition, the Affordable CareAct codified case law that a claim including items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulentclaim for purposes of the federal False Claims Act, as discussed below.The civil monetary penalties statute imposes penalties against any person or entity that, among other things, is determined to have presented or caused to bepresented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false orfraudulent.The federal False Claims Act prohibits, among other things, any person or entity from knowingly presenting, or causing to be presented, a false claim forpayment to, or approval by, the federal government or knowingly making, using, or causing to be made or used a false record or statement material to a falseor fraudulent claim to the federal government. As a result of a modification made by the Fraud Enforcement and Recovery Act of 2009, a claim includes “anyrequest or demand” for money or property presented to the U.S. government. Recently, several pharmaceutical and other healthcare companies have beenprosecuted under these laws for allegedly providing free product to customers with the expectation that the customers would bill federal programs for theproduct. Other companies have been prosecuted for causing false claims to be submitted because of the companies’ marketing of the product for unapproved,and thus non-reimbursable, uses.HIPAA created new federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud or to obtain, bymeans of false or fraudulent pretenses, representations or promises, any money or property owned by, or under the control or custody of, any healthcarebenefit program, including private third-party payors and knowingly and willfully falsifying, concealing or covering up by trick, scheme or device, a materialfact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services.Similar to the federal anti-kickback statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order tohave committed a violation.Also, many states have similar fraud and abuse statutes or regulations that apply to items and services reimbursed under Medicaid and other state programs,or, in several states, apply regardless of the payor.We may be subject to data privacy and security regulations by both the federal government and the states in which we conduct our business. HIPAA, asamended by the HITECH Act, imposes requirements relating to the privacy, security and transmission of individually identifiable health information. Amongother things, HITECH makes HIPAA’s privacy and security standards directly applicable to business associates independent contractors or agents of coveredentities that receive or obtain protected health information in connection with providing a service on behalf of a covered entity. HITECH also created fournew tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneysgeneral new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costsassociated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in specified circumstances, manyof which differ from each other in significant ways, thus complicating compliance efforts.Additionally, the Federal Physician Payments Sunshine Act under the Affordable Care Act, and its implementing regulations, require that certainmanufacturers of drugs, devices, biological and medical supplies for which payment is available under Medicare, Medicaid or the Children’s HealthInsurance Program, with certain exceptions, to report information related to certain payments or other transfers of value made or distributed to physicians andteaching hospitals, or to entities or individuals at the request of, or designated on behalf of, the physicians and teaching hospitals and to report annuallycertain ownership and investment interests held by physicians and their immediate family members. Failure to submit timely, accurately, and completely therequired information may result in civil monetary penalties of up to an aggregate of $150,000 per year and up to an aggregate of $1 million per year for“knowing failures”. Certain states also mandate implementation of compliance programs, impose restrictions on pharmaceutical manufacturer marketingpractices and/or require the tracking and reporting of gifts, compensation and other remuneration to healthcare providers and entities. 35Table of ContentsIn order to distribute products commercially, we must also comply with state laws that require the registration of manufacturers and wholesale distributors ofdrug and biological products in a state, including, in certain states, manufacturers and distributors who ship products into the state even if such manufacturersor distributors have no place of business within the state. Some states also impose requirements on manufacturers and distributors to establish the pedigree ofproduct in the chain of distribution, including some states that require manufacturers and others to adopt new technology capable of tracking and tracingproduct as it moves through the distribution chain. Several states have enacted legislation requiring pharmaceutical and biotechnology companies toestablish marketing compliance programs, file periodic reports with the state, make periodic public disclosures on sales, marketing, pricing, clinical trials andother activities, and/or register their sales representatives, as well as to prohibit pharmacies and other healthcare entities from providing certain physicianprescribing data to pharmaceutical and biotechnology companies for use in sales and marketing, and to prohibit certain other sales and marketing practices.All of our activities are potentially subject to federal and state consumer protection and unfair competition laws.If our operations are found to be in violation of any of the federal and state healthcare laws described above or any other governmental regulations that applyto us, we may be subject to penalties, including without limitation, civil, criminal and/or administrative penalties, damages, fines, disgorgement, exclusionfrom participation in government programs, such as Medicare and Medicaid, injunctions, private “qui tam” actions brought by individual whistleblowers inthe name of the government, or refusal to allow us to enter into government contracts, contractual damages, reputational harm, administrative burdens,diminished profits and future earnings, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate ourbusiness and our results of operations.Coverage, Pricing and ReimbursementSignificant uncertainty exists as to the coverage and reimbursement status of any tablet vaccine candidates for which we obtain regulatory approval. In theUnited States and markets in other countries, sales of any products for which we receive regulatory approval for commercial sale will depend, in part, on theextent to which third-party payors provide coverage, and establish adequate reimbursement levels for such products. In the United States, third-party payorsinclude federal and state healthcare programs, private managed care providers, health insurers and other organizations. The process for determining whether athird-party payor will provide coverage for a product may be separate from the process for setting the price of a product or for establishing the reimbursementrate that such a payor will pay for the product. Third-party payors may limit coverage to specific products on an approved list, also known as a formulary,which might not include all of the FDA-approved products for a particular indication. Third-party payors are increasingly challenging the price, examiningthe medical necessity and reviewing the cost-effectiveness of medical products, therapies and services, in addition to questioning their safety and efficacy.We may need to conduct expensive pharmaco-economic studies in order to demonstrate the medical necessity and cost-effectiveness of our tablet vaccinecandidates, in addition to the costs required to obtain the FDA approvals. Our tablet vaccine candidates may not be considered medically necessary or cost-effective. A payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. Further, one payor’sdetermination to provide coverage for a product does not assure that other payors will also provide coverage for the product. Adequate third-partyreimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in productdevelopment.Different pricing and reimbursement schemes exist in other countries. Some jurisdictions operate positive and negative list systems under which productsmay only be marketed once a reimbursement price has been agreed. To obtain reimbursement or pricing approval, some of these countries may require thecompletion of clinical trials that compare the cost-effectiveness of a particular product candidate to currently available therapies. Other countries allowcompanies to fix their own prices for medicines, but monitor and control company profits. The downward pressure on health care costs has become veryintense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced markets exert a commercial pressure on pricing within a country.The marketability of any tablet vaccine candidates for which it receives regulatory approval for commercial sale may suffer if the government and third-partypayors fail to provide adequate coverage and reimbursement. In addition, emphasis on managed care in the United States has increased and we expect thepressure on healthcare pricing will continue to increase. Coverage policies and third-party reimbursement rates may change at any time. Even if favorablecoverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies andreimbursement rates may be implemented in the future. 36Table of ContentsUS Healthcare ReformWe anticipate that current and future U.S. legislative healthcare reforms may result in additional downward pressure on the price that we receive for anyapproved product, if covered, and could seriously harm our business. Any reduction in reimbursement from Medicare and other government programs mayresult in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent usfrom being able to generate revenue, attain profitability or commercialize our tablet vaccine candidates. In addition, it is possible that there will be furtherlegislation or regulation that could harm our business, financial condition and results of operations.Foreign RegulationIn order to market any product outside of the United States, we would need to comply with numerous and varying regulatory requirements of other countriesand jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical trials, marketing authorization, commercial sales anddistribution of our products. Whether or not we obtain FDA approval for a product, we would need to obtain the necessary approvals by the comparableforeign regulatory authorities before we can commence clinical trials or marketing of the product in foreign countries and jurisdictions. Although many of theissues discussed above with respect to the United States apply similarly in the context of the European Union, the approval process varies between countriesand jurisdictions and can involve additional product testing and additional administrative review periods. The time required to obtain approval in othercountries and jurisdictions might differ from and be longer than that required to obtain FDA approval. Regulatory approval in one country or jurisdictiondoes not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction may negatively impactthe regulatory process in others.EmployeesOur management and scientific teams possess considerable experience in vaccine and anti-infective research, manufacturing, clinical development andregulatory matters. Our research team includes Ph.D.-level scientists with expertise in mucosal immunology, T cells, viral vectors and virology. As ofDecember 31, 2018, we had 34 full-time employees. Of these, 26 employees are engaged in research and development and eight employees are engaged infinance, human resources, administration, business and general management. We have no collective bargaining agreements with our employees and we havenot experienced any work stoppages. We consider our relations with our employees to be good.Item 1A. Risk FactorsYou should carefully consider the following risk factors, as well as the other information in this Annual Report on Form 10-K, including our financialstatements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, as well as our otherpublic filings. The occurrence of any of the following risks could harm our business, financial condition, results of operations and/or growth prospects orcause our actual results to differ materially from those contained in forward-looking statements we have made in this Annual Report on Form 10-K andthose we may make from time to time. You should consider all of the risk factors described when evaluating our business.We operate in a rapidly changing environment that involves a number of risks, some of which are beyond our control. This discussion highlights some of therisks that may affect future operating results. These are the risks and uncertainties we believe are most important to consider. We cannot be certain that wewill successfully address these risks. If we are unable to address these risks, our business may not grow, our stock price may suffer and we may be unable tostay in business. Additional risks and uncertainties not presently known to us, which we currently deem immaterial or which are similar to those faced byother companies in our industry or business in general, may also impair our business operations.Risks Related to Our Business, Financial Position and Capital RequirementsWe have a limited operating history and have generated only limited product revenue.Even though we generate royalty revenue from our two commercialized influenza products, we are at an early stage in our clinical development process andhave not yet successfully completed a large-scale, pivotal clinical trial, obtained marketing approval, manufactured our tablet vaccine or small-moleculeantiviral drug candidates at commercial scale, or conducted sales and marketing activities that will be necessary to successfully commercialize our productcandidates. Consequently, predictions about our future success or viability may not be as accurate as they could be if we had a longer operating history or ahistory of successfully developing and commercializing product candidates. 37Table of ContentsOur ability to generate significant revenue and achieve and maintain profitability will depend upon our ability to successfully complete the development ofour tablet vaccine candidates for the treatment of norovirus, seasonal influenza, respiratory syncytial virus, or RSV, cervical cancer and dysplasia caused byhuman papillomavirus, or HPV, and other infectious diseases, and to obtain the necessary regulatory approvals.Even if we receive regulatory approval for the sale of any of our product candidates, we do not know when we will begin to generate significant revenue, if atall. Our ability to generate significant revenue depends on a number of factors, including our ability to:· set an acceptable price for our product candidates and obtain coverage and adequate reimbursement from third-party payors;· receive royalties on our products and product candidates including in connection with sales of Relenza and Inavir;· establish sales, marketing, manufacturing and distribution systems;· add operational, financial and management information systems and personnel, including personnel to support our clinical, manufacturing andplanned future clinical development and commercialization efforts and operations as a public company;· develop manufacturing capabilities for bulk materials and manufacture commercial quantities of our product candidates at acceptable cost levels;· achieve broad market acceptance of our product candidates in the medical community and with third-party payors and consumers;· attract and retain an experienced management and advisory team;· launch commercial sales of our product candidates, whether alone or in collaboration with others; and· maintain, expand and protect our intellectual property portfolio.Because of the numerous risks and uncertainties associated with vaccine development and manufacturing, we are unable to predict the timing or amount ofincreased development expenses, or when we will be able to achieve or maintain profitability, if at all. Our expenses could increase beyond expectations ifwe are required by the U.S. Food and Drug Administration, or the FDA, or comparable non-U.S. regulatory authorities, to perform studies or clinical trials inaddition to those we currently anticipate. Even if our product candidates are approved for commercial sale, we anticipate incurring significant costsassociated with the commercial launch of and the related commercial-scale manufacturing requirements for our product candidates. If we cannot successfullyexecute on any of the factors listed above, our business may not succeed.We have incurred significant losses since our inception and expect to continue to incur significant losses for the foreseeable future and may never achieveor maintain profitability.We have generated only limited product revenues and we expect to continue to incur substantial and increasing losses as we continue to develop our productcandidates. Our product candidates have not been approved for marketing in the United States and may never receive such approval. As a result, we areuncertain when or if we will achieve profitability and, if so, whether we will be able to sustain it. Our ability to generate significant revenue and achieveprofitability is dependent on our ability to complete development, obtain necessary regulatory approvals, and have our product candidates manufactured andsuccessfully marketed. We cannot be sure that we will be profitable even if we successfully commercialize one of our product candidates. If we dosuccessfully obtain regulatory approval to market our tablet vaccine candidates, our revenues will be dependent, in part, upon the size of the markets in theterritories for which regulatory approval is received, the number of competitors in such markets, the price at which we can offer our product candidates andwhether we own the commercial rights for that territory. If the indication approved by regulatory authorities is narrower than we expect, or the treatmentpopulation is narrowed by competition, physician choice or treatment guidelines, we may not generate significant revenue from sales of our productcandidates, even if approved. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. If wefail to become and remain profitable, the market price of our common stock and our ability to raise capital and continue operations will be adversely affected.We expect research and development expenses to increase significantly for any of our tablet vaccines, including those for the prevention of norovirus,influenza and RSV infection, as well as those for the treatment of HPV related dysplasia and cancer, and any other chronic viral infections and cancer. Inaddition, even if we obtain regulatory approval, significant sales and marketing expenses will be required to commercialize the tablet vaccine candidates. Asa result, we expect to continue to incur significant and increasing operating losses and negative cash flows for the foreseeable future. These losses have hadand will continue to have an adverse effect on our financial position and working capital. As of December 31, 2018, we had an accumulated deficit of $98.0million.38Table of ContentsWe recently completed the Merger with Aviragen and the failure to successfully integrate could adversely affect our future results.Our success will depend, in significant part, on our ability to integrate successfully and to manage successfully the challenges presented by the integrationprocess in the Merger with Aviragen that was completed in February 2018. Potential difficulties that may be encountered in the integration process includethe following:· using our cash and assets efficiently to develop our business;· appropriately managing our liabilities;· potential unknown or currently unquantifiable liabilities associated with the Merger and our operations;· difficulties in operating with a new management team as a public company; and· performance shortfalls as a result of the diversion of the management’s attention caused by integrating the companies’ operations, in particularoperating as a public company immediately post-merger with Aviragen.We are largely dependent on the success of our tablet vaccine for the prevention of norovirus infection which is still in early-stage clinical development,and if this tablet vaccine does not receive regulatory approval or is not successfully commercialized, our business may be harmed.None of our product candidates are in late-stage clinical development or approved for commercial sale and we may never be able to develop marketabletablet vaccine candidates. We expect that a substantial portion of our efforts and expenditures over the next few years will be devoted to our tablet vaccinecandidate for norovirus. Accordingly, our business currently depends heavily on the successful development, regulatory approval and commercialization ofour norovirus tablet vaccine. Our norovirus tablet vaccine may not receive regulatory approval or be successfully commercialized even if regulatory approvalis received. The research, testing, manufacturing, labeling, approval, sale, marketing and distribution of tablet vaccine candidates are and will remain subjectto extensive regulation by the FDA and other regulatory authorities in the United States and other countries that each have differing regulations. We are notpermitted to market our norovirus tablet vaccine in the United States until we receive approval of a biologics license application, or BLA, from the FDA, or inany foreign countries until we receive the requisite approval from such countries. To date, we have only completed Phase 1 clinical trials for one of the twostrains necessary for our bivalent norovirus tablet vaccine candidate. As a result, we have not submitted a BLA to the FDA or comparable applications toother regulatory authorities and do not expect to be in a position to do so for the foreseeable future. Obtaining approval of a BLA is an extensive, lengthy,expensive and inherently uncertain process, and the FDA may delay, limit or deny approval of our norovirus tablet vaccine for many reasons, including:· We may not be able to demonstrate that our norovirus tablet vaccine is safe and effective to the satisfaction of the FDA;· the FDA may not agree that the completed Phase 1 clinical trials of the norovirus vaccine satisfy the FDA’s requirements and may require us toconduct additional testing;· the results of our clinical trials may not meet the level of statistical or clinical significance required by the FDA for marketing approval;· the FDA may disagree with the number, design, size, conduct or implementation of one or more of our clinical trials;· the contract research organizations, or CROs, that we retain to conduct clinical trials may take actions outside of our control that materially andadversely impact our clinical trials;· the FDA may not find the data from our preclinical studies and clinical trials sufficient to demonstrate that the clinical and other benefits of ourtablet vaccines outweigh the safety risks;· the FDA may disagree with our interpretation of data from our preclinical studies and clinical trials;· the FDA may not accept data generated at our clinical trial sites;· if our NDA or BLA is reviewed by an advisory committee, the FDA may have difficulties scheduling an advisory committee meeting in a timelymanner or the advisory committee may recommend against approval of our application or may recommend that the FDA require, as a condition ofapproval, additional preclinical studies or clinical trials, limitations on approved labeling or distribution and use restrictions;· the FDA may require development of a risk evaluation and mitigation strategy, or REMS, as a condition of approval;· the FDA may identify deficiencies in our manufacturing processes or facilities; or· the FDA may change its approval policies or adopt new regulations.39Table of ContentsWe believe that there is substantial doubt about our ability to continue as a going concern.We have concluded that there is substantial doubt about our ability to continue as a going concern within one year after the date that the financial statementsare issued. Our independent auditors included an explanatory paragraph in their report on our financial statements as of and for the year ended December 31,2018, indicating that, because we have experienced losses and negative cash flows from operations and have an accumulated deficit and debt obligations,there is substantial doubt about our ability to continue as a going concern. We do not believe that this substantial doubt has been alleviated. As of December31, 2018, we had $11.5 million of cash and cash equivalents. We believe these funds, along with our projected revenue, are sufficient to fund our operationsinto, but possibly not beyond, the second quarter of 2019. If we are unable to continue as a going concern, we may be forced to liquidate our assets and thevalues we receive for our assets in liquidation or dissolution could be significantly lower than the values reflected in our financial statements.We will require additional capital to fund our operations, and if we fail to obtain necessary financing, we may not be able to complete the developmentand commercialization of our tablet vaccine candidates.We expect to spend substantial amounts to complete the development of, seek regulatory approvals for and commercialize our tablet vaccine candidates.Even with the cash acquired in the Merger and from the acquired royalty streams, we will require substantial additional capital to complete the developmentand potential commercialization of our tablet vaccine candidates for norovirus, seasonal influenza, RSV, HPV, and the development of other productcandidates. If we are unable to raise capital or find appropriate partnering or licensing collaborations, when needed or on acceptable terms, we could beforced to delay, reduce or eliminate one or more of our development programs or any future commercialization efforts. In addition, attempting to secureadditional financing may divert the time and attention of our management from day-to-day activities and harm our development efforts.Raising finance via the issuance of securities to the public generally entails filing documents with the SEC and, in the normal course of business, obtainingregulatory approval. The process is time-consuming and can result in delays in seeking potential investors. Further, the ongoing partial shutdown of thegovernment means that SEC staff have been furloughed and are not available to review registration statements. This has already caused, and continues tocause, a delay in one potential source of financing via a registration statement that we filed with the SEC on December 27, 2018, and will continue to restrictour ability to raise finance via this and other potential alternatives until the SEC is fully staffed, and possibly beyond as a backlog is cleared.As of December 31, 2018, we had $11.5 million of cash and cash equivalents. We believe these funds, along with our projected revenue, are sufficient to fundour operations under our current operating plan into, but possibly not beyond, the second quarter of 2019. Our estimate as to what we will be able toaccomplish is based on assumptions that may prove to be inaccurate, and we could exhaust our available capital resources sooner than is currently expected.Because the length of time and activities associated with successful development of our product candidates is highly uncertain, we are unable to estimate theactual funds we will require for development and any approved marketing and commercialization activities. Our future funding requirements, both near andlong-term, will depend on many factors, including, but not limited to:· the initiation, progress, timing, costs and results of our planned clinical trials;· the outcome, timing and cost of meeting regulatory requirements established by the FDA, the European Medicines Agency, or EMA, and othercomparable foreign regulatory authorities;· the cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights;· the cost of defending potential intellectual property disputes, including any patent infringement actions brought by third parties against us now orin the future;· the effect of competing technological and market developments;· the cost of establishing sales, marketing and distribution capabilities in regions where we choose to commercialize our product candidates on ourown; and· the initiation, progress, timing and results of the commercialization of our product candidates, if approved, for commercial sale.40Table of ContentsAdditional funding may not be available on acceptable terms, or at all. If we are unable to raise additional capital in sufficient amounts or on termsacceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of our product candidates orpotentially discontinue operations.Raising additional funds by issuing securities may cause dilution to existing stockholders, and raising funds through lending and licensing arrangementsmay restrict our operations or require us to relinquish proprietary rights.We expect that significant additional capital will be needed in the future to continue our planned operations. Until such time, if ever, as we can generatesubstantial product revenues, we expect to finance our cash needs through a combination of equity offerings, royalties, debt financings, strategic alliancesand license and development agreements in connection with any collaborations. We do not currently have any committed external source of funds. To theextent that we raise additional capital by issuing equity securities, our existing stockholders’ ownership may experience substantial dilution, and the terms ofthese securities may include liquidation or other preferences that adversely affect our common stockholders’ rights. Debt financing and preferred equityfinancing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additionaldebt, making capital expenditures, declaring dividends, creating liens, redeeming our stock or making investments.If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have torelinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not befavorable to us. If we are unable to raise additional funds through equity or debt financings when needed, or through collaborations, strategic alliances ormarketing, distribution or licensing arrangements with third parties on acceptable terms, we may be required to delay, limit, reduce or terminate our productdevelopment or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise develop and marketourselves.The terms of our debt facility place restrictions on our operating and financial flexibility.In December 2016, we entered into a loan and security agreement, or the Loan Agreement, with Oxford Finance, LLC, or Oxford, as amended, under which weborrowed $5 million. Our outstanding debt facility with Oxford is collateralized by substantially all of our assets, except for intellectual property, which issubject to a negative pledge, and contains customary financial and operating covenants limiting our ability to transfer or dispose of assets, merge with oracquire other companies, make investments, pay dividends, incur additional indebtedness and liens and conduct transactions with affiliates. We thereforemay not be able to engage in any of the foregoing transactions until our current debt obligations are paid in full or we obtain the consent from Oxford.Compliance with these covenants may limit our flexibility in operating our business and our ability to take actions that might be advantageous to us and ourstockholders.Under the Loan Agreement, an event of default will occur if, among other things:· we fail to make payments when due under the Loan Agreement;· we breach any of our covenants under the Loan Agreement, subject to specified cure periods with respect to certain breaches;· there occurs an event that has a material adverse effect on:· our business, operations, properties, assets or financial condition;· our ability to perform or satisfy our obligations under the Loan Agreement as they become due or Oxford’s ability to enforce its rights orremedies with respect to our obligations under the Loan Agreement; or· the collateral or liens securing our obligations under the Loan Agreement;· we or our assets become subject to certain legal proceedings, such as bankruptcy or insolvency proceedings, or attachments;· we are unable to pay our debts as they become due; or· we default on certain contracts with third parties which would permit Oxford to accelerate the maturity of such indebtedness or that could have amaterial adverse effect on us. 41Table of ContentsWe may not have enough available cash or be able to raise additional funds through equity or debt financings to repay such indebtedness to Oxford at thetime any such event of default occurs. In that case, we may be required to delay, limit, reduce or terminate our clinical development efforts or grant rights todevelop and market product candidates to others that we would otherwise prefer to develop and market ourselves. Oxford could also exercise its rights ascollateral agent to take possession and dispose of the collateral securing the Loan Agreement for its benefit as the secured lender. Our business would beharmed as a result of any of these events.Our stock price is expected to be volatile, and the market price of our common stock has fallen since the Merger.The market price of our common stock has been subject to significant fluctuations following the Merger. Market prices for securities of early-stagepharmaceutical, biotechnology and other life sciences companies have historically been particularly volatile. Some of the factors that cause the market priceof our common stock to fluctuate include:· our ability to develop product candidates and conduct clinical trials that demonstrate our product candidates are safe and effective;· our ability to negotiate and receive royalty payments on the sales of our product candidates including Relenza and Inavir;· our ability to obtain regulatory approvals for our product candidates, and delays or failures to obtain such approvals;· failure of any of our product candidates to demonstrate safety and efficacy, receive regulatory approval and achieve commercial success;· failure to maintain our existing third-party license, manufacturing and supply agreements;· our failure, or that of our licensors, to prosecute, maintain, or enforce our intellectual property rights;· changes in laws or regulations applicable to our product candidates;· any inability to obtain adequate supply of product candidates or the inability to do so at acceptable prices;· adverse regulatory authority decisions;· introduction of new or competing products by our competitors;· failure to meet or exceed financial and development projections that we may provide to the public;· the perception of the pharmaceutical industry by the public, legislatures, regulators and the investment community;· announcements of significant acquisitions, strategic partnerships, joint ventures, or capital commitments by us or our competitors;· disputes or other developments relating to proprietary rights, including patents, litigation matters, and our ability to obtain intellectual propertyprotection for our technologies;· additions or departures of key personnel;· significant lawsuits, including intellectual property or stockholder litigation;· if securities or industry analysts do not publish research or reports about us, or if they issue adverse or misleading opinions regarding our businessand stock;· changes in the market valuations of similar companies;· general market or macroeconomic conditions;· sales of our common stock by our existing stockholders in the future;· trading volume of our common stock;· adverse publicity relating to our markets generally, including with respect to other products and potential products in such markets;· changes in the structure of health care payment systems; and· period-to-period fluctuations in our financial results. 42Table of ContentsMoreover, the stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of individualcompanies. These broad market fluctuations may also adversely affect the trading price of our common stock.In the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted class action securities litigationagainst those companies. Such litigation, if instituted, could result in substantial costs and diversion of management attention and resources, which couldsignificantly harm our operations, financial performance and reputation.We do not anticipate that we will pay any cash dividends in the foreseeable future.The current expectation is that we will retain our future earnings, if any, to fund the development and growth of our business. As a result, capital appreciation,if any, of our common stock will be the sole source of gain, if any, for our stockholders.Future sales of shares by existing stockholders could cause our stock price to decline.If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market, the trading price of ourcommon stock could decline. As of December 31, 2018, our officers, directors and their affiliate entities held 3.1 million shares of our common stock. Sales ofa substantial number of shares of our common stock in the public market, or the perception that the sales might occur, could depress the market price of ourcommon stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that sales mayhave on the prevailing market price of our common stock.One stockholder owns a significant percentage of our stock and, together with our management, will be able to exert significant control over matterssubject to stockholder approval.As of December 31, 2018, entities affiliated with Care Capital, a venture capital fund, owned 39.2% of our common stock, and Care Capital together with ourexecutive officers and directors owned 44.2% of our common stock. Therefore, these stockholders may be able to determine all matters requiring stockholderapproval, and the entities affiliated with Care Capital alone will have significant ability to influence decisions through their ownership position. Forexample, this concentration of ownership may enable a small number of stockholders to influence or control elections of directors, amendments to ourorganizational documents, or approval of any merger, sale of assets, or other major corporate transaction.Because the Merger resulted in an ownership change under Section 382 of the Code for Aviragen, pre-merger U.S. net operating loss carryforwards andcertain other tax attributes are subject to limitations.If a corporation undergoes an “ownership change” within the meaning of Section 382 of the Code, the corporation’s U.S. net operating loss carryforwards andcertain other tax attributes arising from before the ownership change are subject to limitations on use after the ownership change. In general, an ownershipchange occurs if there is a cumulative change in the corporation’s equity ownership by certain stockholders that exceeds 50% over a three-year period.Similar rules may apply under state and foreign tax laws. The Merger resulted in an ownership change for Aviragen, and probably Vaxart; accordingly,Aviragen’s U.S. net operating loss carryforwards and certain other tax attributes are subject to limitations on their use. Annual usage may be restricted to1.97% of Aviragen’s value on February 13, 2018. Additional ownership changes in the future could result in additional limitations on the combinedorganization’s net operating loss carryforwards. Consequently, even if we achieve profitability, we may not be able to utilize a material portion of our netoperating loss carryforwards and other tax attributes, which could have a material adverse effect on cash flow and results of operations.Changes in tax laws and regulations or in our operations may impact our effective tax rate and may adversely affect our business, financial condition andoperating results.Changes in tax laws in any jurisdiction in which we operate, or adverse outcomes from any tax audits that we may be subject to in any such jurisdictions,could result in an unfavorable change in our effective tax rate in the future, which could adversely affect our business, financial condition, and operatingresults.Anti-takeover provisions under Delaware law could make an acquisition more difficult and may prevent attempts by our stockholders to replace or removeour management.Because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the DGCL, which prohibits stockholders owning in excess of15% of the outstanding company voting stock from merging or combining with the company. Although we believe these provisions collectively provide foran opportunity to receive higher bids by requiring potential acquirers to negotiate with our board of directors, they would apply even if the offer wasconsidered beneficial by some stockholders. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or removemanagement by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members ofmanagement.43Table of ContentsIf we fail to obtain or maintain adequate reimbursement and insurance coverage for our product candidates, our ability to generate significant revenuecould be limited.The availability and extent of reimbursement by governmental and private payors is essential for most patients to be able to afford expensive treatments.Sales of any of our product candidates that receive marketing approval will depend substantially, both in the United States and internationally, on the extentto which the costs of our product candidates will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare managementorganizations, or reimbursed by government health administration authorities, private health coverage insurers and other third-party payors. If reimbursementis not available, or is available only on a limited basis, we may not be able to successfully commercialize our product candidates. Even if coverage isprovided, the approved reimbursement amount may not be high enough to allow us to establish or maintain adequate pricing that will allow us to realize asufficient return on our investment.Outside the United States, international operations are generally subject to extensive governmental price controls and other market regulations, and webelieve the increasing emphasis on cost-containment initiatives in Europe, Canada and other countries may cause us to price our product candidates on lessfavorable terms that we currently anticipate. In many countries, particularly the countries of the European Union, the prices of medical products are subject tovarying price control mechanisms as part of national health systems. In these countries, pricing negotiations with governmental authorities can takeconsiderable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required toconduct a clinical trial that compares the cost-effectiveness of our product candidates to other available therapies. In general, the prices of products undersuch systems are substantially lower than in the United States. Other countries allow companies to fix their own prices for products, but monitor and controlcompany profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our productcandidates. Accordingly, in markets outside the United States, the level of reimbursement for our products is likely to be reduced compared with the UnitedStates and may be insufficient to generate commercially reasonable revenues and profits.Moreover, increasing efforts by governmental and third-party payors, in the United States and internationally, to cap or reduce healthcare costs may causesuch organizations to limit both coverage and level of reimbursement for newly approved products and, as a result, they may not cover or provide adequatepayment for our product candidates. We expect to experience pricing pressures in connection with the sale of any of our product candidates due to the trendtoward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure onhealthcare costs in general, particularly prescription drugs and surgical procedures and other treatments, has become very intense. As a result, increasinglyhigh barriers are being erected to the entry of new products into the healthcare market.Our future success depends on our ability to retain executive officers and attract, retain and motivate qualified personnel.We are highly dependent on our executive officers and the other principal members of the executive and scientific teams, particularly our President and ChiefExecutive Officer, Wouter W. Latour and our Chief Scientific Officer, Sean N. Tucker. The employment of our executive officers is at-will and our executiveofficers may terminate their employment at any time. The loss of the services of any of our senior executive officers could impede the achievement of ourresearch, development and commercialization objectives. We do not maintain “key person” insurance for any executive officer or employee.Recruiting and retaining qualified scientific, clinical, manufacturing and sales and marketing personnel is also critical to our success. We may not be able toattract and retain these personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similarpersonnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. Our industry hasexperienced an increasing rate of turnover of management and scientific personnel in recent years. In addition, we rely on consultants and advisors, includingscientific and clinical advisors, to assist us in devising our research and development and commercialization strategy. Our consultants and advisors may beemployed by third parties and have commitments under consulting or advisory contracts with other entities that may limit their availability to advance ourstrategic objectives. If any of these advisors or consultants can no longer dedicate a sufficient amount of time to us, our business may be harmed.44Table of ContentsWe will need to expand our organization, and may experience difficulties in managing this growth, which could disrupt operations.Our future financial performance and our ability to commercialize our product candidates, continue to earn royalties and compete effectively will depend, inpart, on our ability to effectively manage any future growth. As of December 31, 2018, we had 34 full-time employees. We expect to hire additionalemployees for our managerial, clinical, scientific and engineering, operational, manufacturing, sales and marketing teams. We may have operationaldifficulties in connection with identifying, hiring and integrating new personnel. Future growth would impose significant additional responsibilities on ourmanagement, including the need to identify, recruit, maintain, motivate and integrate additional employees, consultants and contractors. Also, ourmanagement may need to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time tomanaging these growth activities. We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in ourinfrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Ourexpected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of ourproduct candidates. If we are unable to effectively manage our growth, our expenses may increase more than expected, our ability to generate and/or growrevenues could be reduced, and we may not be able to implement our business strategy.Many of the other pharmaceutical companies that we compete against for qualified personnel and consultants have greater financial and other resources,different risk profiles and a longer history in the industry than us. They may also provide more diverse opportunities and better chances for careeradvancement. Some of these characteristics may be more appealing to high-quality candidates and consultants than what we are able to offer. If we are unableto continue to attract and retain high-quality personnel and consultants, the rate and success at which we can select and develop our product candidates andour business will be limited.Our employees, independent contractors, principal investigators, consultants, commercial collaborators, service providers and other vendors may engagein misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could have an adverse effect onour results of operations.We are exposed to the risk that our employees and contractors, including principal investigators, consultants, commercial collaborators, service providers andother vendors may engage in fraudulent or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct orother unauthorized activities that violate the laws and regulations of the FDA and other similar regulatory bodies, including those laws that require thereporting of true, complete and accurate information to such regulatory bodies, manufacturing standards, federal and state healthcare fraud and abuse andhealth regulatory laws and other similar foreign fraudulent misconduct laws, or laws that require the true, complete and accurate reporting of financialinformation or data. Misconduct by these parties may also involve the improper use or misrepresentation of information obtained in the course of clinicaltrials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter third-party misconduct, andthe precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us fromgovernmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions areinstituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our businessand financial results, including the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, possible exclusion fromparticipation in Medicare, Medicaid and other federal healthcare programs, reputational harm, diminished profits and future earnings, and curtailment of ouroperations, any of which could adversely affect our ability to operate our business and our results of operations.Our business and operations would suffer in the event of system failures.Our computer systems and those of our service providers, including our CROs, are vulnerable to damage from computer viruses, unauthorized access, naturaldisasters (including earthquakes), terrorism, war and telecommunication and electrical failures. If such an event were to occur and cause interruptions in ouror their operations, it could result in a material disruption of our development programs. For example, the loss of preclinical or clinical trial data fromcompleted, ongoing or planned trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce thedata. To the extent that any disruption or security breach were to result in a loss of or damage to data or applications, or inappropriate disclosure of personal,confidential or proprietary information, we could incur liability and the further development of our product candidates could be delayed.45Table of Contents We have identified a material weakness in our internal control over financial reporting, and if we are unable to maintain proper and effective internalcontrols over financial reporting, the accuracy and timeliness of our financial reporting may be adversely affected.In connection with the audits of our financial statements for each of the years ended December 31, 2015 through 2018, our management and our independentauditors identified a material weakness in our internal control over financial reporting. A “material weakness” is a deficiency, or a combination ofdeficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interimfinancial statements will not be prevented or detected on a timely basis. The material weakness relates to us lacking consistent processes to appropriatelyperform effective and timely review of account reconciliations and non-routine transactions. We have already taken steps to remediate this material weakness. We have increased the depth and experience within our accounting and financeorganization, in part by hiring a Corporate Controller and an Associate Director of SEC Reporting. We are also designing and implementing improvedprocesses and internal controls. However, our efforts to remediate this material weakness may not be effective or prevent any future material weakness orsignificant deficiency in our internal control over financial reporting. If our efforts are not successful, or other material weaknesses or control deficienciesoccur in the future, we may be unable to report our financial results accurately on a timely basis, which could cause our reported financial results to bematerially misstated and result in the loss of investor confidence and cause the market price of our common stock to decline.We are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a quarterly report by management on, among other things, the effectiveness ofour internal control over financial reporting. This assessment needs to include disclosure of any material weaknesses identified by our management in ourinternal control over financial reporting. Our independent registered public accounting firm will be required to attest annually to the effectiveness of ourinternal control over financial reporting in the future should our public float exceed $75 million. We are required to disclose changes made in our internalcontrol over financial reporting on a quarterly basis.We are incurring significant additional costs and demands upon management as a result of complying with the laws and regulations affecting publiccompanies.We incur significant legal, accounting and other expenses associated with public company reporting requirements. We also incur costs associated withcorporate governance requirements, including requirements under the Sarbanes-Oxley Act, as well as rules implemented by the SEC and The Nasdaq StockMarket LLC. These rules and regulations impose significant legal and financial compliance costs and make some activities more time-consuming andcostlier. For example, our management team includes certain executive officers who have not previously managed and operated a public company. Theseexecutive officers and other personnel need to devote substantial time to gaining expertise regarding operations as a public company and compliance withapplicable laws and regulations.We may be subject to securities litigation, which is expensive and could divert management attention.The market price of our common stock has been and may continue to be volatile, and in the past companies that have experienced volatility in the marketprice of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigationagainst us could result in substantial costs and divert management’s attention from other business concerns, which could seriously harm our business.If securities or industry analysts do not publish research, or publish inaccurate or unfavorable rating, about our business, our stock price and tradingvolume could decline.The trading market for our common stock is influenced by independent research and reports that securities or industry analysts publish about us or ourbusiness from time to time. At present, there are no analysts covering our stock, which means we have low visibility in the financial markets, which couldcause a low trading volume, which would tend to cause our stock price to decline. There can be no assurance that analysts will cover our stock in the futureor, if they do, provide favorable ratings. If any analysts who cover us downgrade our stock, change their opinion of our stock or disseminate negativeinformation regarding our business, our share price may decline.46Table of ContentsRisks Related to Clinical Development, Regulatory Approval and CommercializationIf we fail to continue to develop and refine the formulations of our tablet vaccine candidates, we may not obtain regulatory approvals, and even ifapproved, the commercial acceptance of our tablet vaccine candidates would likely be limited.In our H1N1 influenza Phase 2 trial we used vaccine tablets that contained approximately 1.5 x 1010 IU of vaccine. Accordingly, subjects in this trial wererequired to take 7 tablets in a single setting to reach the aggregate dose of 1 x 1011 IU, the target dose for this trial. We believe that in order to fully capturethe commercial success of our seasonal influenza vaccine candidate, we will need to continue to refine our formulation and develop influenza vaccine tabletsthat contain the desired dose for each vaccine strain in a single tablet, resulting in a vaccination regime of no more than four tablets. Increasing the potencyof the vaccine tablets may affect the stability profile of the vaccine and we may not be able to reduce the vaccination regime for an influenza strain to a singletablet or combine the four influenza strains into one vaccine tablet. In addition, increasing the potency of the vaccine tablets or combining the influenzastrains necessary to create a quadrivalent vaccine may adversely affect manufacturing yields and render such tablets too costly to manufacture at commercialscale. Our efforts to develop tablet vaccine candidates for norovirus and RSV face similar formulation challenges. If we are unable to further develop andrefine the formulations of our tablet vaccine candidates, we may be unable to obtain regulatory approval from the FDA or other regulatory authorities, andeven if approved, the commercial acceptance of our tablet vaccine candidates would likely be limited. Clinical trials are very expensive, time-consuming, difficult to design and implement and involve an uncertain outcome, and if they fail to demonstratesafety and efficacy to the satisfaction of the FDA, or similar regulatory authorities, we will be unable to commercialize our tablet vaccine candidates.Our tablet vaccine candidates for norovirus and seasonal influenza are still in early-stage clinical development. Both will require extensive additionalclinical testing before we are prepared to submit a BLA for regulatory approval for either indication or for any other treatment regime. We cannot predict withany certainty if or when we might submit a BLA for regulatory approval for any of our tablet vaccine candidates, which are currently in clinical development,or whether any such BLAs will be approved by the FDA. Human clinical trials are very expensive and difficult to design and implement, in part because theyare subject to rigorous regulatory requirements. For instance, the FDA may not agree with our proposed endpoints for any clinical trial we propose, whichmay delay the commencement of our clinical trials. The clinical trial process is also time-consuming. We estimate that the clinical trials we need to conductto be in a position to submit BLAs for our tablet vaccine candidates for seasonal influenza, norovirus and RSV will take several years to complete.Furthermore, failure can occur at any stage of the trials, and we could encounter problems that cause us to abandon or repeat clinical trials. Our vaccinecandidates in the later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies andinitial clinical trials. Also, the results of early clinical trials of the tablet vaccine candidates for seasonal influenza, norovirus and RSV may not be predictiveof the results of subsequent clinical trials. Furthermore, the FDA may impose additional requirements to conduct preclinical studies to advance the HPVtherapeutic vaccine candidates which could delay initiation of Phase 1 studies. A number of companies in the biopharmaceutical industry have sufferedsignificant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials.Moreover, preclinical and clinical data are often susceptible to multiple interpretations and analyses. Many companies that have believed their vaccinecandidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products. Success inpreclinical testing and early clinical trials does not ensure that later clinical trials, which involve many more subjects and, for influenza, all four strains ratherthan the one strain we have studied in Phase 1 clinical trials to date and the results of later clinical trials may not replicate the results of prior clinical trialsand preclinical testing.We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approvalor commercialize our tablet vaccine candidates, including that:· regulators or institutional review boards may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at aprospective trial site;· we may experience delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trialsites;· clinical trials of our tablet vaccine candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, toconduct additional clinical trials or abandon product development programs; 47Table of Contents· the number of subjects required for clinical trials of our tablet vaccine candidates may be larger than we anticipate; enrollment in these clinical trialsmay be slower than we anticipate, or participants may drop out of these clinical trials at a higher rate than we anticipate;· Our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;· regulators or institutional review boards may require that we or our investigators suspend or terminate clinical research for various reasons,including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks;· the cost of clinical trials of our tablet vaccine candidates may be greater than we anticipate; and · the supply or quality of our tablet vaccine candidates or other materials necessary to conduct clinical trials may be insufficient or inadequate.If we are required to conduct additional clinical trials or other testing of our tablet vaccine candidates beyond those that we currently contemplate, if we areunable to successfully complete clinical trials of our tablet vaccine candidates or other testing, if the results of these trials or tests are not positive or are onlymodestly positive or if there are safety concerns, we may:· be delayed in obtaining marketing approval for our tablet vaccine candidates;· not obtain marketing approval at all;· obtain approval for indications or patient populations that are not as broad as intended or desired;· obtain approval with labeling that includes significant use or distribution restrictions or safety warnings, including boxed warnings;· be subject to additional post-marketing testing requirements; or· have the product removed from the market after obtaining marketing approval.Product development costs will also increase if we experience delays in testing or in receiving marketing approvals. We do not know whether any clinicaltrials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant clinical trial delays also could shorten anyperiods during which we may have the exclusive right to commercialize our tablet vaccine candidates, could allow our competitors to bring products tomarket before we do, and could impair our ability to successfully commercialize our tablet vaccine candidates, any of which may harm our business andresults of operations.Our platform includes a novel vaccine adjuvant and all of our current tablet vaccine candidates include this novel adjuvant, which may make it difficultfor us to predict the time and cost of tablet vaccine development as well as the requirements the FDA or other regulatory agencies may impose todemonstrate the safety of the tablet vaccine candidates.Novel vaccine adjuvants, included in some of our tablet vaccine candidates, may pose an increased safety risk to patients. Adjuvants are compounds that areadded to vaccine antigens to enhance the activation and improve immune response and efficacy of vaccines. Development of vaccines with novel adjuvantsrequires evaluation in larger numbers of patients prior to approval than would be typical for therapeutic drugs. Guidelines for evaluation of vaccines withnovel adjuvants have been established by the FDA and other regulatory bodies and expert committees. Our current tablet vaccine candidates, including fornorovirus, include a novel adjuvant, and future vaccine candidates may also include one or more novel vaccine adjuvants. Any vaccine, because of thepresence of an adjuvant, may have side effects considered to pose too great a risk to patients to warrant approval of the vaccine. Traditionally, regulatoryauthorities have required extensive study of novel adjuvants because vaccines typically get administered to healthy populations, in particular infants,children and the elderly, rather than to people with disease. Such extensive study has often included long-term monitoring of safety in large generalpopulations that has at times exceeded 10,000 subjects. This contrasts with the few thousand subjects typically necessary for approval of novel therapeutics.To date, the FDA and other major regulatory agencies have only approved vaccines containing five adjuvants, which makes it difficult to determine howlong it will take or how much it will cost to obtain regulatory approvals for our tablet vaccine candidates in the United States or elsewhere. 48Table of ContentsEnrollment and retention of subjects in clinical trials is an expensive and time-consuming process and could be made more difficult or renderedimpossible by multiple factors outside our control.We may encounter delays in enrolling, or be unable to enroll, a sufficient number of participants to complete any of our clinical trials. Once enrolled, we maybe unable to retain a sufficient number of participants to complete any of our trials. Late-stage clinical trials of our tablet vaccine candidate for norovirus, inparticular, will require the enrollment and retention of large numbers of subjects. Subject enrollment and retention in clinical trials depends on many factors,including the size of the subject population, the nature of the trial protocol, the existing body of safety and efficacy data with respect to the study drug, thenumber and nature of competing treatments and ongoing clinical trials of competing drugs for the same indication, the proximity of subjects to clinical sitesand the eligibility criteria for the study. Further, since there are no reliable animal models to norovirus infection, human challenge studies have been used tounderstand viral activity and possible immune correlates that prevent infection making trials costlier than animal-based studies.Furthermore, any negative results we may report in clinical trials of our tablet vaccine candidates may make it difficult or impossible to recruit and retainparticipants in other clinical trials of that same tablet vaccine candidate. Delays or failures in planned subject enrollment or retention may result in increasedcosts, program delays or both, which could have a harmful effect on our ability to develop our tablet vaccine candidates, or could render further developmentimpossible. In addition, we expect to rely on CROs and clinical trial sites to ensure proper and timely conduct of our future clinical trials and, while weintend to enter into agreements governing their services, we will be limited in our ability to compel their actual performance in compliance with applicableregulations. Enforcement actions brought against these third parties may cause further delays and expenses related to our clinical development programs.We face significant competition from other biotechnology and pharmaceutical companies, and our operating results will suffer if we fail to competeeffectively.Vaccine development is highly competitive and subject to rapid and significant technological advancements. We face competition from various sources,including larger and better funded pharmaceutical, specialty pharmaceutical and biotechnology companies, as well as academic institutions, governmentalagencies and public and private research institutions. In particular, our influenza vaccine candidate would compete with products that are available and havegained market acceptance as the standard treatment protocol. Further, it is likely that additional drugs or other treatments will become available in the futurefor the treatment of the diseases we are targeting.For tablet vaccines, we face competition from approved vaccines, against which new tablet vaccines must demonstrate compelling advantages in efficacy,convenience, tolerability and safety, and from competitors working to patent, discover, develop or commercialize medicines before we can do the same withtablet vaccines.Many of our existing or potential competitors have substantially greater financial, technical and human resources than we do and significantly greaterexperience in the discovery and development of products for the treatment of diseases, as well as in obtaining regulatory approvals of those products in theUnited States and in foreign countries. Our current and potential future competitors also have significantly more experience commercializing drugs that havebeen approved for marketing. Mergers and acquisitions in the pharmaceutical and biotechnology industries could result in even more resources beingconcentrated among a small number of our competitors.Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment inthese industries. Our competitors may succeed in developing, acquiring or licensing, on an exclusive basis, drugs that are more effective or less costly thanany tablet vaccine candidate that we may develop.We will face competition from other drugs currently approved or that will be approved in the future for the treatment of the other infectious diseases we arecurrently targeting. Therefore, our ability to compete successfully will depend largely on our ability to:· develop and commercialize tablet vaccine candidates that are superior to other vaccines in the market;· demonstrate through our clinical trials that our tablet vaccine candidates are differentiated from existing and future therapies;· attract qualified scientific, vaccine development and commercial personnel;· obtain patent or other proprietary protection for our tablet vaccine candidates;· obtain required regulatory approvals; 49Table of Contents· obtain coverage and adequate reimbursement from, and negotiate competitive pricing with, third-party payors; and· successfully develop and commercialize, independently or with collaborators, new tablet vaccine candidates.The availability of our competitors’ vaccines could limit the demand, and the price we are able to charge, for any tablet vaccine candidate we develop. Theinability to compete with existing or subsequently introduced vaccines would have an adverse impact on our business, financial condition and prospects.Established pharmaceutical companies may invest heavily to accelerate discovery and development of novel compounds or to in-license novel compoundsthat could make any of our tablet vaccine candidates less competitive. In addition, any new vaccine that competes with an approved vaccine mustdemonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome price competition and to be commerciallysuccessful. Accordingly, our competitors may succeed in obtaining patent protection, discovering, developing, receiving the FDA’s approval for orcommercializing medicines before we do, which would have an adverse impact on our business and results of operations.The biotechnology and pharmaceutical industries are characterized by intense competition to develop new technologies and proprietary products. While webelieve that our proprietary tablet vaccine candidates provide competitive advantages, we face competition from many different sources, includingbiotechnology and pharmaceutical companies, academic institutions, government agencies, as well as public and private research institutions. Any productsthat we may commercialize will have to compete with existing products and therapies as well as new products and therapies that may become available in thefuture.There are other organizations working to improve existing therapies, vaccines or delivery methods, or to develop new vaccines, therapies or delivery methodsfor their selected indications. Depending on how successful these efforts are, it is possible they may increase the barriers to adoption and success of ourvaccine candidates, if approved.We anticipate that we will face intense and increasing competition as new vaccines enter the market and advanced technologies become available. We expectany tablet or other oral delivery vaccine candidates that we develop and commercialize to compete on the basis of, among other things, efficacy, safety,convenience of administration and delivery, price, availability of therapeutics, the level of generic competition and the availability of reimbursement fromgovernment and other third-party payors.Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have feweror less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA or otherregulatory approval for their products more rapidly than we may obtain approval for our vaccine candidates, which could result in our competitorsestablishing a strong market position before we are able to enter the market. In addition, our ability to compete may be affected in many cases by insurers orother third-party payors seeking to encourage the use of generic products.We believe our seasonal influenza vaccine candidate will compete directly with approved vaccines in the market, which include non-recombinant andrecombinant products that are administered via injection or intranasally. The major non-recombinant injectable vaccine competitors include Astellas PharmaInc., Abbott Laboratories, AstraZeneca UK Limited, Baxter International Inc., Research Foundation for Microbial Diseases of Osaka University, Seqirus-bioCSL Inc., GlaxoSmithKline plc, or GlaxoSmithKline, Sanofi S.A., or Sanofi, Pfizer Inc., and Takeda Pharmaceutical Company Limited, or Takeda. Non-recombinant intranasal competition includes MedImmune, Inc., or MedImmune, and potentially others. Recombinant injectable competitors include Sanofiand Novavax, Inc., or Novavax. Many other groups are developing new or improved flu vaccine or delivery methods.There is currently no approved norovirus vaccine for sale globally. While we are not aware of all of our competitors’ efforts, we believe that Takeda is alsodeveloping a virus-like particle-based norovirus vaccine that would be delivered by injection.There is currently no approved RSV vaccine for sale globally; however, a number of vaccine manufacturers, academic institutions and other organizationscurrently have, or have had, programs to develop such a vaccine. In addition, many other companies are developing products to prevent disease caused byRSV using a variety of technology platforms, including monoclonal antibodies, small molecule therapeutics, as well as various viral vector and VLP basedvaccine technologies. While we are not aware of all of our competitors’ efforts, we believe that several companies are in various stages of developing an RSVvaccine including GlaxoSmithKline, Johnson & Johnson, Bavarian Nordic, Astellas, MedImmune, Novavax, and Sanofi, as well as the National Institute ofAllergy and Infectious Diseases, an institute under the U.S. National Institutes of Health, and possibly others. 50Table of ContentsThere is currently no approved HPV therapeutic vaccine for sale globally; however, a number of vaccine manufacturers, academic institutions and otherorganizations currently have, or have had, programs to develop such a vaccine. We believe that several companies are in various stages of developing anHPV therapeutic vaccine including Inovio, Advaxis, Genexine, and possibly others.Our tablet vaccine candidates may cause adverse effects or have other properties that could delay or prevent their regulatory approval or limit the scope ofany approved label or market acceptance.Adverse events caused by our tablet vaccine candidates could cause reviewing entities, clinical trial sites or regulatory authorities to interrupt, delay or haltclinical trials and could result in the denial of regulatory approval. If an unacceptable frequency or severity of adverse events are reported in clinical trials forour tablet vaccine candidates, our ability to obtain regulatory approval for such tablet vaccine candidates may be negatively impacted. Furthermore, if any of our tablet vaccines are approved and then cause serious or unexpected side effects, a number of potentially significant negativeconsequences could result, including:· regulatory authorities may withdraw their approval of the tablet vaccine candidates or impose restrictions on their distribution or other riskmanagement measures;· regulatory authorities may require the addition of labeling statements, such as warnings or contraindications;· we may be required to change the way our tablet vaccine candidates are administered or to conduct additional clinical trials;· we could be sued and held liable for injuries sustained by patients;· we could be subject to the Vaccine Injury Compensation Program;· we could elect to discontinue the sale of our tablet vaccine candidates; and· our reputation may suffer.Any of these events could prevent us from achieving or maintaining market acceptance of the affected tablet vaccine candidate and could substantiallyincrease the costs of commercialization.If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals, we will not be able to commercialize, or will be delayed incommercializing, our tablet vaccine candidates, and our ability to generate significant revenue will be impaired.Our tablet vaccine and small-molecule antiviral candidates and the activities associated with their development and commercialization, including theirdesign, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, are subject tocomprehensive regulation by the FDA and other regulatory agencies in the United States and by comparable authorities in other countries. Failure to obtainmarketing approval for a tablet vaccine candidate will prevent us from commercializing the tablet vaccine candidate. We have not received approval tomarket any of our tablet vaccine candidates from regulatory authorities in any jurisdiction. We have only limited experience in filing and supporting theapplications necessary to gain marketing approvals and expect to rely on CROs to assist us in this process. Securing regulatory approval requires thesubmission of extensive preclinical and clinical data and supporting information to the various regulatory authorities for each therapeutic indication toestablish the tablet vaccine candidate’s safety and efficacy. Securing regulatory approval also requires the submission of information about the productmanufacturing process to, and inspection of manufacturing facilities by, the relevant regulatory authority. Our tablet vaccine candidates may not be effective,may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude usobtaining marketing approval or prevent or limit commercial use.The process of obtaining marketing approvals, both in the United States and elsewhere, is expensive, may take many years and can vary substantially basedupon a variety of factors, including the type, complexity and novelty of the tablet vaccine candidates involved. We cannot be sure that we will ever obtainany marketing approvals in any jurisdiction. Changes in marketing approval policies during the development period, changes in or the enactment ofadditional statutes or regulations or changes in regulatory review for each submitted product application may cause delays in the approval or rejection of anapplication. The FDA and comparable authorities in other countries have substantial discretion in the approval process and may refuse to accept anyapplication or may decide that our data is insufficient for approval and require additional preclinical or other studies, and clinical trials. In addition, varyinginterpretations of the data obtained from preclinical testing and clinical trials could delay, limit or prevent marketing approval of a tablet vaccine candidate.Additionally, any marketing approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that render the approvedproduct not commercially viable.51Table of ContentsEven if we obtain FDA approval in the United States, we may never obtain approval for or commercialize our tablet vaccine candidates in any otherjurisdiction, which would limit our ability to realize each product’s full market potential.In order to market any of our tablet vaccine candidates in a particular jurisdiction, we must establish and comply with numerous and varying regulatoryrequirements on a country-by-country basis regarding safety and efficacy. Approval by the FDA in the United States does not ensure approval by regulatoryauthorities in other countries or jurisdictions. In addition, clinical trials conducted in one country may not be accepted by regulatory authorities in othercountries, and regulatory approval in one country does not guarantee regulatory approval in any other country. Approval processes vary among countries andcan involve additional tablet vaccine candidate testing and validation and additional administrative review periods. Seeking foreign regulatory approvalcould result in difficulties and costs for us and require additional preclinical studies or clinical trials which could be costly and time consuming. Regulatoryrequirements can vary widely from country to country and could delay or prevent the introduction of our tablet vaccine candidates in those countries. We donot have any tablet vaccine candidates approved for sale in any jurisdiction, including in international markets, and we do not have experience in obtainingregulatory approval in international markets. If we fail to comply with regulatory requirements in international markets or to obtain and maintain requiredapprovals, or if regulatory approvals in international markets are delayed, our target market will be reduced and our ability to realize the full market potentialof any tablet vaccine candidate we develop will be unrealized.Even if we obtain regulatory approval, we will still face extensive ongoing regulatory requirements and our tablet vaccine candidates may face futuredevelopment and regulatory difficulties.Any tablet vaccine candidate for which we obtain marketing approval, along with the manufacturing processes, post- approval clinical data, labeling,packaging, distribution, adverse event reporting, storage, recordkeeping, export, import, advertising and promotional activities for such tablet vaccinecandidate, among other things, will be subject to extensive and ongoing requirements of and review by the FDA and other regulatory authorities. Theserequirements include submissions of safety, efficacy and other post-marketing information and reports, establishment registration and drug listingrequirements, continued compliance with current Good Manufacturing Practice, or cGMP, requirements relating to manufacturing, quality control, qualityassurance and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping andcurrent GCP requirements for any clinical trials that we conduct post-approval. Even if marketing approval of a tablet vaccine candidate is granted, theapproval may be subject to limitations on the indicated uses for which the tablet vaccine candidates may be marketed or to the conditions of approval. If atablet vaccine candidate receives marketing approval, the accompanying label may limit the approved use of that tablet vaccine, which could limit sales.The FDA may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety and/or efficacy of our tabletvaccine candidates. The FDA closely regulates the post-approval marketing and promotion of drugs to ensure drugs are marketed only for the approvedindications and in accordance with the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers’ communicationsregarding off-label use and if we do not market our tablet vaccine candidates for their approved indications, we may be subject to enforcement action for off-label marketing. Violations of the Federal Food, Drug, and Cosmetic Act relating to the promotion of prescription drugs may lead to FDA enforcementactions and investigations alleging violations of federal and state health care fraud and abuse laws, as well as state consumer protection laws.In addition, later discovery of previously unknown adverse events or other problems with our tablet vaccine candidates, manufacturers or manufacturingprocesses, or failure to comply with regulatory requirements, may yield various results, including:· restrictions on manufacturing such tablet vaccine candidate;· restrictions on the labeling or marketing of a tablet vaccine candidate;· restrictions on tablet vaccine distribution or use;· requirements to conduct post-marketing studies or clinical trials;· warning letters;· withdrawal of the tablet vaccine candidate from the market;· refusal to approve pending applications or supplements to approved applications that we submit;52Table of Contents· recall of such tablet vaccine candidate;· fines, restitution or disgorgement of profits or revenues;· suspension or withdrawal of marketing approvals;· refusal to permit the import or export of such tablet vaccine candidate;· tablet vaccine candidate seizure; or· injunctions or the imposition of civil or criminal penalties.The FDA’s policies may change, and additional government regulations may be enacted, that could prevent, limit or delay regulatory approval of any of ourtablet vaccine candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we arenot able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained.Even if our tablet vaccine candidates receive marketing approval, they may fail to achieve market acceptance by physicians, patients, third-party payors orothers in the medical community necessary for commercial success.If our tablet vaccine candidates, including our vaccine for norovirus, receive marketing approval, they may nonetheless fail to gain sufficient marketacceptance by physicians, patients, third-party payors and others in the medical community. If they do not achieve an adequate level of acceptance, we maynot generate significant revenues and become profitable. The degree of market acceptance, if approved for commercial sale, will depend on a number offactors, including but not limited to:· the efficacy and potential advantages compared to alternative treatments;· effectiveness of sales and marketing efforts;· the cost of treatment in relation to alternative treatments;· our ability to offer our tablet vaccine candidates for sale at competitive prices;· the convenience and ease of administration compared to alternative treatments;· the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;· the willingness of the medical community to offer customers our tablet vaccine candidate option in addition to, or in the place of, injectablevaccines;· the strength of marketing and distribution support;· the availability of third-party coverage and adequate reimbursement;· the prevalence and severity of any side effects; and· any restrictions on the use of our tablet vaccine together with other medications.Because we expect sales of our tablet vaccine candidate for norovirus, if approved, to generate substantially all of our revenues for the foreseeable future, thefailure of this tablet vaccine to achieve market acceptance would harm our business and could require us to seek additional financing sooner than we wouldotherwise plan.If we fail to comply with state and federal healthcare regulatory laws, we could face substantial penalties, damages, fines, disgorgement, exclusion fromparticipation in governmental healthcare programs, and the curtailment of our operations, any of which could harm our business.Although we do not provide healthcare services or submit claims for third-party reimbursement, we are subject to healthcare fraud and abuse regulation andenforcement by federal and state governments, which could significantly impact our business. The laws that may affect our ability to operate include, but arenot limited to:· the federal anti-kickback statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting, receiving,offering, or paying remuneration, directly or indirectly, in cash or in kind, in exchange for or to induce either the referral of an individual for, or thepurchase, lease, order or recommendation of, any good, facility, item or service for which payment may be made, in whole or in part, under federalhealthcare programs such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of this statute or specific intent toviolate it; 53Table of Contents· the civil False Claims Act, or FCA, which prohibits, among other things, individuals or entities from knowingly presenting, or causing to bepresented, claims for payment from Medicare, Medicaid or other third-party payors that are false or fraudulent; knowingly making, using, or causingto be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the government; or knowingly making, using, orcausing to be made or used, a false record or statement to avoid, decrease or conceal an obligation to pay money to the federal government;· the criminal FCA, which imposes criminal fines or imprisonment against individuals or entities who make or present a claim to the governmentknowing such claim to be false, fictitious or fraudulent;· the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created federal criminal laws that prohibit executing ascheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;· the federal civil monetary penalties statute, which prohibits, among other things, the offering or giving of remuneration to a Medicare or Medicaidbeneficiary that the person knows or should know is likely to influence the beneficiary’s selection of a particular supplier of items or servicesreimbursable by a Federal or state governmental program;· the federal physician sunshine requirements under the Affordable Care Act, which require certain manufacturers of drugs, devices, biologics, andmedical supplies to report annually to the U.S. Department of Health and Human Services information related to payments and other transfers ofvalue to physicians, other healthcare providers, and teaching hospitals, and ownership and investment interests held by physicians and otherhealthcare providers and their immediate family members; and· state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may apply to items or services reimbursed byany third-party payor, including commercial insurers; state laws that require pharmaceutical companies to comply with the device industry’svoluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or otherwise restrict payments thatmay be made to healthcare providers and other potential referral sources; and state laws that require device manufacturers to report informationrelated to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures.Further, the Affordable Care Act, among other things, amended the intent requirements of the federal anti-kickback statute and certain criminal statutesgoverning healthcare fraud. A person or entity can now be found guilty of violating the statute without actual knowledge of the statute or specific intent toviolate it. In addition, Affordable Care Act provided that the government may assert that a claim including items or services resulting from a violation of thefederal Anti- Kickback Statute constitutes a false or fraudulent claim for purposes of the FCA. Moreover, while we do not, and will not, submit claims and ourcustomers will make the ultimate decision on how to submit claims, we may provide reimbursement guidance to our customers from time to time. If agovernment authority were to conclude that we provided improper advice to our customers or encouraged the submission of false claims for reimbursement,we could face action against us by government authorities. Any violations of these laws, or any action against us for violation of these laws, even if wesuccessfully defend against it, could result in a material adverse effect on our reputation, business, results of operations and financial condition.We have entered into consulting and scientific advisory board arrangements with physicians and other healthcare providers. Compensation for some of thesearrangements includes the provision of stock options. While we have worked to structure our arrangements to comply with applicable laws, because of thecomplex and far-reaching nature of these laws, regulatory agencies may view these transactions as prohibited arrangements that must be restructured, ordiscontinued, or for which we could be subject to other significant penalties. We could be adversely affected if regulatory agencies interpret our financialrelationships with providers who influence the ordering of and use our products to be in violation of applicable laws.The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in lightof the lack of applicable precedent and regulations. Federal and state enforcement bodies have recently increased their scrutiny of interactions betweenhealthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcareindustry.Responding to investigations can be time- and resource-consuming and can divert management’s attention from the business. Additionally, as a result ofthese investigations, healthcare providers and entities may have to agree to additional onerous compliance and reporting requirements as part of a consentdecree or corporate integrity agreement. Any such investigation or settlement could increase our costs or otherwise have an adverse effect on our business. 54Table of ContentsProduct liability lawsuits against us could cause us to incur substantial liabilities and could limit the commercialization of any tablet vaccine candidateswe may develop.We face an inherent risk of product liability exposure related to the testing of our tablet vaccine candidates in human clinical trials and will face an evengreater risk if we commercially sell any products that we may develop after approval. For instance, since our norovirus tablet challenge study is beingconducted in healthy human volunteers, any adverse reactions could result in claims from these injuries and we could incur substantial liabilities. Regardlessof merit or eventual outcome, liability claims may result in:· decreased demand for any tablet vaccine candidates that it may develop;· injury to our reputation and significant negative media attention;· withdrawal of clinical trial participants;· significant costs to defend any related litigation;· substantial monetary awards to trial subjects or patients;· loss of revenue; and· the inability to commercialize any products we may develop.Although we maintain product liability insurance coverage in the amount of up to $5 million per claim and in the aggregate, it may not be adequate to coverall liabilities that we may incur. Additionally, seasonal influenza is a covered vaccine of the National Vaccine Injury Compensation Program, and ourparticipation in that program may require time and resources that impede product uptake, if approved. We anticipate that we will need to increase ourinsurance coverage as we continue clinical trials and if we successfully commercialize any products. Insurance coverage is increasingly expensive. We maynot be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.If a product liability claim is successfully brought against us for uninsured liabilities, or such claim exceeds our insurance coverage, we could be forced topay substantial damage awards that could materially harm our business.The use of any of our existing or future product candidates in clinical trials and the sale of any approved pharmaceutical products may expose us tosignificant product liability claims. We currently have product liability insurance coverage for our ongoing clinical trials in the amount of $5 million.Further, we also require clinical research and manufacturing organizations that assist us in the conduct of our trials or manufacture materials used in thesetrials to carry product liability insurance against such claims. This insurance coverage may not protect us against any or all of the product liability claims thatmay be brought against us in the future. We may not be able to acquire or maintain adequate product liability insurance coverage at a commerciallyreasonable cost or in sufficient amounts or scope to protect ourselves against potential losses. In the event a product liability claim is brought against us, wemay be required to pay legal and other expenses to defend the claim, as well as uncovered damage awards resulting from a claim brought successfully againstus. In the event any of our product candidates are approved for sale by the FDA or similar regulatory authorities in other countries and commercialized, wemay need to substantially increase the amount of our product liability coverage. Defending any product liability claim or claims could require us to expendsignificant financial and managerial resources, which could have an adverse effect on our business.If we are unable to establish sales, marketing and distribution capabilities either on our own or in collaboration with third parties, we may not besuccessful in commercializing our tablet vaccine candidates, if approved.We do not have any infrastructure for the sales, marketing or distribution of our tablet vaccine candidates, and the cost of establishing and maintaining suchan organization may exceed the cost-effectiveness of doing so. In order to market any tablet vaccine candidates that may be approved, it must build our sales,distribution, marketing, managerial and other non-technical capabilities or make arrangements with third parties to perform these services. To achievecommercial success for any tablet vaccine candidates for which we have obtained marketing approval, we will need a sales and marketing organization.While we expect to partner our tablet vaccines for seasonal influenza and RSV, we expect to build a focused sales, distribution and marketing infrastructureto market our other tablet vaccine candidates in the United States, if approved. There are significant expenses and risks involved with establishing our ownsales, marketing and distribution capabilities, including our ability to hire, retain and appropriately incentivize qualified individuals, generate sufficientsales leads, provide adequate training to sales and marketing personnel, and effectively manage a geographically dispersed sales and marketing team. Anyfailure or delay in the development of our internal sales, marketing and distribution capabilities could delay any tablet vaccine candidate launch, whichwould adversely impact commercialization. 55Table of ContentsFactors that may inhibit our efforts to commercialize our tablet vaccine candidates on our own include:· our inability to recruit, train and retain adequate numbers of effective sales and marketing personnel;· the inability of sales personnel to obtain access to physicians or attain adequate numbers of physicians to administer our tablet vaccines; and· unforeseen costs and expenses associated with creating an independent sales and marketing organization.We intend to pursue collaborative arrangements regarding the sale and marketing of our tablet vaccine candidates, if approved, for certain internationalmarkets; however, we may not be able to establish or maintain such collaborative arrangements and, if able to do so, our collaborators may not have effectivesales. To the extent that we depend on third parties for marketing and distribution, any revenues we receive will depend upon the efforts of such third parties,and there can be no assurance that such efforts will be successful.If we are unable to build our own sales force in the United States or negotiate a collaborative relationship for the commercialization of our tablet vaccinecandidates outside the United States we may be forced to delay the potential commercialization or reduce the scope of our sales and marketing activities. Wecould have to enter into arrangements with third parties at an earlier stage than we would otherwise choose and we may be required to relinquish rights to ourintellectual property or otherwise agree to terms unfavorable to us, any of which may have an adverse effect on our business, operating results and prospects.We may be competing with many companies that currently have extensive and well-funded marketing and sales operations. Without an internal team or thesupport of a third-party to perform marketing and sales functions, we may be unable to compete successfully against these more established companies.If we obtain approval to commercialize any tablet vaccine candidates outside of the United States, a variety of risks associated with internationaloperations could harm our business.If our tablet vaccine candidates are approved for commercialization, we intend to enter into agreements with third parties to market them in certainjurisdictions outside the United States. We expect that we will be subject to additional risks related to international operations or entering into internationalbusiness relationships, including:· different regulatory requirements for drug approvals and rules governing drug commercialization in foreign countries;· reduced protection for intellectual property rights;· unexpected changes in tariffs, trade barriers and regulatory requirements;· economic weakness, including inflation, or political instability in particular foreign economies and markets;· compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;· foreign reimbursement, pricing and insurance regimes;· foreign taxes;· foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doingbusiness in another country;· workforce uncertainty in countries where labor unrest is more common than in the United States;· potential noncompliance with the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act 2010 and similar anti-bribery and anticorruption laws inother jurisdictions;· tablet vaccination shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and· business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floodsand fires.We have no prior experience in these areas. In addition, there are complex regulatory, tax, labor and other legal requirements imposed by both the EuropeanUnion and many of the individual countries in Europe with which we will need to comply. 56Table of ContentsRecently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of, and to commercialize, our tabletvaccine candidates and affect the prices we may obtain.In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding thehealthcare system that could, among other things, prevent or delay marketing approval of our tablet vaccine candidates, restrict or regulate post-approvalactivities and affect our ability to profitably sell any tablet vaccine candidates for which it obtains marketing approval.For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care Education Reconciliation Act, collectively theAffordable Care Act, was enacted to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies againstfraud and abuse, add new transparency requirements for health care and health insurance industries, impose new taxes and fees on the health industry andimpose additional health policy reforms. Although the full effect of the Affordable Care Act may not yet be fully understood, the law has continued thedownward pressure on pharmaceutical pricing, especially under the Medicare program, and increased the industry’s regulatory burdens and operating costs.Moreover, the Drug Supply Chain Security Act imposes obligations on manufacturers of prescription drugs in finished dosage forms. We have not yetadopted the significant measures that will be required to comply with this law. We are not sure whether additional legislative changes will be enacted, orwhether the current regulations, guidance or interpretations will be changed, or what the impact of such changes on our business, if any, may be.We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal andstate governments will pay for healthcare vaccines, which could result in reduced demand for our tablet vaccine candidates or additional pricing pressures.Government involvement may limit the commercial success of our tablet vaccine candidates for influenza.If an influenza outbreak occurs and is classified as a pandemic or large epidemic by public health authorities, it is possible that one or more governmententities may take actions that directly or indirectly have the effect of abrogating some of our rights or opportunities. We have not manufactured a pandemicvaccine to date, but if we were to do so, the economic value of such a vaccine to us could be limited.Various government entities, including the U.S. government, are offering incentives, grants and contracts to encourage additional investment by commercialorganizations into preventative and therapeutic agents against influenza, which may have the effect of increasing the number of competitors and/orproviding advantages to known competitors. Accordingly, there can be no assurance that we will be able to successfully establish a competitive market sharefor our influenza vaccines.In addition, current influenza vaccines are generally trivalent (containing three strains) or quadrivalent (containing four strains). If the FDA requires orrecommends, changes in influenza vaccines, for example for a monovalent vaccine or for use of a strain that is not currently circulating in the humanpopulation, it is uncertain whether we will be able to produce or manufacture such a vaccine at commercially reasonable rates.The seasonal nature of our target indications, in particular influenza, and competition from new products may cause unpredictable royalty revenues fromRelenza and Inavir and significant fluctuations in our operating results.Influenza is seasonal in nature with sales of current vaccines occurring primarily in the first and fourth quarters of the calendar year. In addition, outbreaks ofnorovirus and RSV typically occur in the winter season. This seasonal concentration of product sales could cause quarter-to-quarter operating results to varywidely and can exaggerate the consequences of revenues of any manufacturing or supply delays, any sudden loss of inventory, any inability to satisfyproduct demand, the inability to estimate the effect of returns and rebates, normal or unusual fluctuations in customer buying patterns, or of any unsuccessfulsales or marketing strategies during the sales seasons.We currently earn royalty revenue from the net sales of Relenza and Inavir, which are marketed by our licensees. Although the royalty rates paid to us by ourlicensees are fixed at a proportion of the licensees’ net sales of these products, our periodic and annual revenues from these royalties have historically beenvariable and subject to fluctuation based on the seasonal incidence and severity of influenza. In addition, returns of products to our licensees that were soldin prior years are taken into account in the calculation of net sales for purposes of determining the royalty revenue we receive and the amount of such returnsare generally unpredictable. Our licensees may encounter competition from new products entering the market, including generic copies of Relenza andInavir, which could adversely affect our royalty income. The last patent related to Inavir is set to expire in December 2029 in Japan, at which time royaltyrevenue will cease. However, the patent covering the laninamivir octanoate compound expires in 2024, at which time generic competition may enter themarket, potentially decreasing or eliminating the royalties received. On February 23, 2018, Osaka-based drug maker Shionogi & Co gained marketingapproval for Xofluza, a new drug to treat influenza in Japan. The drug was approved for use against type A and B influenza viruses and requires only a singledose regardless of age. Xofluza may gain significant market share from Inavir in Japan, substantially reducing the sales of Inavir. This would significantlydecrease the royalty payments we receive from Daiichi Sankyo. 57Table of ContentsIn addition, most of our Relenza patents have expired and the only substantial remaining intellectual property related to the Relenza patent portfolio isscheduled to expire in July 2019 in Japan. Further, we sold a portion of our Inavir royalties to HealthCare Royalty Partners III, L.P., or HCRP, in April2016. We cannot predict with any certainty what our royalty revenues are likely to be in any given year.If safety, tolerability, resistance, drug-drug interactions, competing products or efficacy concerns should arise with Relenza or Inavir, our future royaltyrevenue may be reduced, which would adversely affect our financial condition and business.We currently earn royalty revenue from Relenza and Inavir, which are marketed by our licensees. Data supporting the marketing approvals and forming thebasis for the safety warnings in the product labels for these products were obtained in controlled clinical trials of limited duration in limited patientpopulations and, in some cases, from post-approval use. As these marketed products are used over longer periods of time and by more patients, some withunderlying health problems or taking other medicines, new issues such as safety, tolerability, resistance or drug-drug interaction issues could arise, whichmay require our licensees to provide additional warnings or contraindications on their product labels, or otherwise narrow the approved indications. Further,additional information from ongoing research or clinical trials of these products that raise any doubts or concerns about their efficacy may arise, or competingproducts may be introduced and limit the market penetration of our product candidates. If serious safety, tolerability, resistance, drug-drug interaction,efficacy, competing products, or any other concerns or issues arise with respect to Relenza and Inavir, sales of these products could be impaired, limited orabandoned by our licensees or by regulatory authorities, in which case our royalty revenue would decrease.Our success depends largely upon our ability to advance our product candidates through the various stages of drug development. If we are unable tosuccessfully advance or develop our product candidates, our business will be materially harmed.Even though we generate royalty revenue from our two commercialized influenza products, all of our remaining product candidates are in early stages ofdevelopment and their commercial viability remains subject to the successful outcome of future preclinical studies, clinical trials, manufacturing processes,regulatory approvals and the risks generally inherent in the development of pharmaceutical product candidates. Failure to advance the development of one ormore of our product candidates may have a material adverse effect on our business. For example, the Phase 2 trial of teslexivir, a product acquired through themerger with Aviragen, was costly and diverted resources from our other product candidates, did not achieve the primary efficacy endpoint. The long-termsuccess of our business ultimately depends upon our ability to advance the development of our product candidates through preclinical studies and clinicaltrials, appropriately formulate and consistently manufacture them in accordance with strict specifications and regulations, obtain approval of our productcandidates for sale by the FDA or similar regulatory authorities in other countries, and ultimately have our product candidates successfully commercialized,either by us or by a strategic partner or licensee. We cannot be sure that the results of our ongoing or future research, preclinical studies or clinical trials willsupport or justify the continued development of our product candidates, or that we will ultimately receive approval from the FDA, or similar regulatoryauthorities in other countries, to advance the development of our product candidates.Our product candidates must satisfy rigorous regulatory standards of safety, efficacy and manufacturing before we can advance or complete theirdevelopment and before they can be approved for sale by the FDA or similar regulatory authorities in other countries. To satisfy these standards, we mustengage in expensive and lengthy studies and clinical trials, develop acceptable and cost-effective manufacturing processes, and obtain regulatory approvalof our product candidates. Despite these efforts, our product candidates may not:· demonstrate clinically meaningful therapeutic or other medical benefits as compared to a patient receiving no treatment or over existing drugs orother product candidates in development to treat the same patient population;· be shown to be safe and effective in future preclinical studies or clinical trials;· have the desired therapeutic or medical effects;· be tolerable or free from undesirable or unexpected side effects;· meet applicable regulatory standards;· be capable of being appropriately formulated and manufactured in commercially suitable quantities or scale and at an acceptable cost; or 58Table of Contents· be successfully commercialized, either by us or by our licensees or collaborators.Even if we demonstrate favorable results in preclinical studies and early-stage clinical trials, we cannot be sure that the results of late-stage clinical trials willbe sufficient to support the continued development of our product candidates. Many, if not most, companies in the pharmaceutical and biopharmaceuticalindustries have experienced significant delays, setbacks and failures in all stages of development, including late-stage clinical trials, even after achievingpromising results in preclinical testing or early-stage clinical trials. Accordingly, results from completed preclinical studies and early-stage clinical trials ofour product candidates may not be predictive of the results we may obtain in future late-stage trials. Furthermore, even if the data collected from preclinicalstudies and clinical trials involving any of our product candidates demonstrate a satisfactory safety, tolerability and efficacy profile, such results may not besufficient to obtain regulatory approval from the FDA in the United States, or other similar regulatory agencies in other jurisdictions, which is required tomarket and sell the product.If the actual or perceived therapeutic benefits, or the safety or tolerability profile of any of our product candidates are not equal to or superior to othercompeting treatments approved for sale or in clinical development, we may terminate the development of any of our product candidates at any time, andour business prospects and potential profitability could be harmed.We are aware of a number of companies marketing or developing various classes of anti-infective product candidates or products for the treatment of patientsinfected with HPV and RSV that are either approved for sale or further advanced in clinical development than ours, such that their time to approval andcommercialization may be shorter than that for our product candidates.Effective treatments of RSV infections in pediatrics, the elderly, and the immunocompromised are very limited. Currently, only Virazole (ribavirin) isindicated for the treatment of hospitalized infants and young children with severe lower respiratory tract infections due to RSV. We are aware that thefollowing compounds are under development to treat RSV infections: Gilead’s presatovir, Johnson & Johnson’s JJ-53718678 (ALS-8176), Ablynx’s ALX-0171 and Ark Biosciences’ AK0529. The only approved drug for the prevention of RSV infections in high risk infants is MedImmune’s palivizumab(Synagis), a monoclonal antibody. There are several vaccines and antibody products designed to prevent RSV infections in clinical development. Among theclinical stage product candidates in development are Novavax’s RSV F vaccine, GSK’s GSK3003898A vaccine, GSK’s GSK3389245A vaccine, BavarianNordic’s BN RSV vaccine, MedImmune’s MEDI ÄM2-2 vaccine and MedImmune’s monoclonal antibody MEDI8897.If at any time we believe that any of our product candidates may not provide meaningful or differentiated therapeutic benefits, perceived or real, equal to orbetter than our competitors’ products or product candidates, or we believe that our product candidates may not have as favorable a safety or tolerabilityprofile as potentially competitive compounds, we may delay or terminate the future development of any of our product candidates. We cannot provide anyassurance that the future development of any of our product candidates will demonstrate any meaningful therapeutic benefits over potentially competitivecompounds currently approved for sale or in development, or an acceptable safety or tolerability profile sufficient to justify their continued development.Our product candidates may exhibit undesirable side effects when used alone or in combination with other approved pharmaceutical products, which maydelay or preclude their development or regulatory approval or limit their use if ever approved.Throughout the drug development process, we must continually demonstrate the activity, safety and tolerability of our product candidates in order to obtainregulatory approval to further advance their clinical development, or to eventually market them. Even if our product candidates demonstrate adequatebiologic activity and clear clinical benefit, any unacceptable side effects or adverse events, when administered alone or in the presence of otherpharmaceutical products, may outweigh these potential benefits. We may observe adverse or serious adverse events or drug-drug interactions in preclinicalstudies or clinical trials of our product candidates, which could result in the delay or termination of their development, prevent regulatory approval, or limittheir market acceptance if they are ultimately approved.If the results from preclinical studies or clinical trials of our product candidates, including those that are subject to existing or future license orcollaboration agreements, are unfavorable, we could be delayed or precluded from the further development or commercialization of our productcandidates, which could materially harm our business.In order to further advance the development of, and ultimately receive marketing approval to sell our product candidates, we must conduct extensivepreclinical studies and clinical trials to demonstrate their safety and efficacy to the satisfaction of the FDA or similar regulatory authorities in other countries,as the case may be. Preclinical studies and clinical trials are expensive, complex, can take many years to complete, and have highly uncertain outcomes.Delays, setbacks, or failures can and do occur at any time, and in any phase of preclinical or clinical testing, and can result from concerns about safety,tolerability, toxicity, a lack of demonstrated biologic activity or improved efficacy over similar products that have been approved for sale or are in moreadvanced stages of development, poor study or trial design, and issues related to the formulation or manufacturing process of the materials used to conductthe trials. The results of prior preclinical studies or early-stage clinical trials are not predictive of the results we may observe in late-stage clinical trials. Inmany cases, product candidates in clinical development may fail to show the desired tolerability, safety and efficacy characteristics, despite having favorablydemonstrated such characteristics in preclinical studies or early-stage clinical trials.59Table of ContentsIn addition, we may experience numerous unforeseen events during, or as a result of, preclinical studies and the clinical trial process, which could delay orimpede our ability to advance the development of, receive marketing approval for, or commercialize our product candidates, including, but not limited to: · communications with the FDA, or similar regulatory authorities in different countries, regarding the scope or design of a trial or trials, or placing thedevelopment of a product candidate on clinical hold or delaying the next phase of development until questions or issues are satisfactorily resolved,including performing additional studies to answer their queries;· regulatory authorities or institutional review boards, or IRBs, not authorizing us to commence or conduct a clinical trial at a prospective trial site;· enrollment in our clinical trials being delayed, or proceeding at a slower pace than we expected, because we have difficulty recruiting participants orparticipants drop out of our clinical trials at a higher rate than we anticipated;· our third-party contractors, upon whom we rely to conduct preclinical studies, clinical trials and the manufacturing of our clinical trial materials,failing to comply with regulatory requirements or meet their contractual obligations to us in a timely manner;· having to suspend or ultimately terminate a clinical trial if participants are being exposed to unacceptable health or safety risks;· regulatory authorities or IRBs requiring that we hold, suspend or terminate our preclinical studies and clinical trials for various reasons, includingnon-compliance with regulatory requirements; and· the supply or quality of material necessary to conduct our preclinical studies or clinical trials being insufficient, inadequate or unavailable.Even if the data collected from preclinical studies or clinical trials involving our product candidates demonstrate a satisfactory tolerability, safety andefficacy profile, such results may not be sufficient to support the submission of a BLA or NDA to obtain regulatory approval from the FDA in the UnitedStates, or other similar regulatory authorities in other foreign jurisdictions, which is required for us to market and sell our product candidates.We intend to manufacture the vaccine tablets for the upcoming clinical studies for the foreseeable future at our own facility. If we are unable to do so, orwe are delayed, or if the cost of manufacturing is not economically feasible or if we cannot find a third-party supplier, we may be unable to produce tabletvaccine candidates in a sufficient quantity to meet future demand.From 2012 through the end of December 2017, we relied on a third-party contract manufacturer, Lonza Houston, Inc., for the manufacture, labeling,packaging, storage, and distribution of vaccine tablets to supply the clinical Phase 1 and Phase 2 trials we have conducted to date. We have developed andcontinue to develop manufacturing processes under cGMP, which we are currently using to manufacture bulk product and vaccine tablets, for future Phase 1and Phase 2 clinical trials, at our own facility in South San Francisco, California. This transition has resulted in unanticipated delays and lower yields, mayresult in further unanticipated delays or lower yields or both and may cost more than expected due to a number of factors, including regulatoryrequirements.If we are unable to manufacture sufficient quantities of our tablet vaccine candidates in a timely manner, our development activities would beimpaired and we may need to partner with a third-party supplier.Our manufacturing facility and equipment is sized to support manufacturing of cGMP product for our Phase 1 and Phase 2a trials, but is notadequate to support larger Phase 2b and Phase 3 trials. Accordingly, we intend to explore opportunities to establish a long-term relationship withan established CMO to develop large scale bulk vaccine production capabilities adequate to support larger trials and commercial product launch.We may be unable to enter into a third-party supplier agreement that is economically feasible or without significant delay.60Table of ContentsOur manufacturing facility is subject to ongoing, periodic inspection by the FDA or other comparable regulatory agencies to ensure compliance with cGMP.Any failure to follow and document our adherence to such cGMP regulations or other regulatory requirements may lead to significant delays in theavailability of clinical bulk drug substance and finished vaccine tablets for clinical trials, which may result in the termination of, or a hold on, a clinical trial,and may delay or prevent filing or approval of marketing applications for our tablet vaccine candidates. We also may encounter problems with the following:· achieving adequate or clinical-grade materials that meet FDA or other comparable regulatory agency standards or specifications with consistent andacceptable production yield and costs;· shortages of qualified personnel, raw materials or key contractors; and· ongoing compliance with cGMP regulations and other requirements of the FDA or other comparable regulatory agencies.If we encounter any of these problems or are otherwise delayed, or if the cost of manufacturing at our South San Francisco facility is not economicallyfeasible and we cannot find a third-party contract manufacturer, we may not be able to produce our tablet vaccine candidates in a sufficient quantity toconduct our planned clinical trials and commercialize our vaccine tablet candidates, if approved.In the event that we need to engage or subsequently change a third-party contract manufacturer, our preclinical studies or our clinical trials and thecommercialization of our product candidates could be delayed, adversely affected or terminated, or such a change may result in the need for us to incursignificantly higher costs, which could materially harm our business.Due to various regulatory restrictions in the United States and many other countries, as well as potential capacity constraints on manufacturing that occurfrom time-to-time in our industry, various steps in the manufacture of our product candidates are sole-sourced to certain contract manufacturers. In accordancewith cGMPs, changing manufacturers may require the re-validation of manufacturing processes and procedures, and may require further preclinical studies orclinical trials to show comparability between the materials produced by different manufacturers. Engaging a third-party contract manufacturer or changing afuture contract manufacturer may be difficult and could be extremely costly and time consuming, which could result in our inability to manufacture ourproduct candidates for an extended period of time and a delay in the development of our product candidates. Further, in order to maintain our developmenttimelines in the event of a change in a third-party contract manufacturer, we may incur significantly higher costs to manufacture our product candidates.If third-party vendors, upon whom we rely to conduct our preclinical studies or clinical trials, do not perform or fail to comply with strict regulations, thesestudies or trials may be delayed, terminated, or fail, or we could incur significant additional expenses, which could materially harm our business.We have limited resources dedicated to designing, conducting and managing our preclinical studies and clinical trials. We have historically relied on, andintend to continue to rely on, third parties, including clinical research organizations, consultants and principal investigators, to assist us in designing,managing, conducting, monitoring and analyzing the data from our preclinical studies and clinical trials. We rely on these vendors and individuals toperform many facets of the clinical development process on our behalf, including conducting preclinical studies, the recruitment of sites and patients forparticipation in our clinical trials, maintenance of good relations with the clinical sites, and ensuring that these sites are conducting our trials in compliancewith the trial protocol and applicable regulations. If these third parties fail to perform satisfactorily, or do not adequately fulfill their obligations under theterms of our agreements with them, we may not be able to enter into alternative arrangements without undue delay or additional expenditures, and thereforethe preclinical studies and clinical trials of our product candidates may be delayed or prove unsuccessful.Further, the FDA, or similar regulatory authorities in other countries, may inspect some of the clinical sites participating in our clinical trials or our third-partyvendors’ sites to determine if our clinical trials are being conducted according to GCP or similar regulations. If we, or a regulatory authority, determine thatour third-party vendors are not in compliance with, or have not conducted our clinical trials according to, applicable regulations, we may be forced toexclude certain data from the results of the trial, or delay, repeat or terminate such clinical trials.We have a limited capacity for managing clinical trials, which could delay or impair our ability to initiate or complete clinical trials of our productcandidates on a timely basis and materially harm our business.We have a limited capacity to recruit and manage all of the clinical trials necessary to obtain approval for our product candidates by the FDA or similarregulatory authorities in other countries. By contrast, larger pharmaceutical and biopharmaceutical companies often have substantial staff or departmentswith extensive experience in conducting clinical trials with multiple product candidates across multiple indications and obtaining regulatory approval invarious countries. In addition, these companies may have greater financial resources to compete for the same clinical investigators, sites and patients that weare attempting to recruit for our clinical trials. As a result, we may be at a competitive disadvantage that could delay the initiation, recruitment, timing andcompletion of our clinical trials and obtaining of marketing approvals, if achieved at all, for our product candidates. 61Table of ContentsOur industry is highly competitive and subject to rapid technological changes. As a result, we may be unable to compete successfully or develop innovativeor differentiated products, which could harm our business.Our industry is highly competitive and characterized by rapid technological change. Key competitive factors in our industry include, among others, theability to successfully advance the development of a product candidate through preclinical and clinical trials; the efficacy, toxicology, tolerability, safety,resistance or cross-resistance, interaction or dosing profile of a product or product candidate; the timing and scope of marketing approvals, if ever achieved;reimbursement rates for and the average selling price of competing products and pharmaceutical products in general; the availability of raw materials andqualified contract manufacturing and manufacturing capacity to produce our product candidates; relative manufacturing costs; establishing, maintaining andprotecting our intellectual property and patent rights; and sales and marketing capabilities.Developing pharmaceutical product candidates is a highly competitive, expensive and risky activity with a long business cycle. Many organizations,including the large pharmaceutical and biopharmaceutical companies that have existing products on the market or in clinical development that may competewith our product candidates, have substantially more resources than us, as well as much greater capabilities and experience than we have in research anddiscovery, designing and conducting preclinical studies and clinical trials, operating in a highly regulated environment, formulating and manufacturing drugsubstances, products and devices, and marketing and sales. Our competitors may be more successful than us in obtaining regulatory approvals for theirproduct candidates and achieving broad market acceptance once they are approved. Our competitors’ products or product candidates may be more effective,have fewer adverse effects, be more convenient to administer, have a more favorable resistance profile, or be more effectively marketed and sold than anyproduct that we, or our potential future licensees or collaborators, may develop or commercialize. New drugs or classes of drugs from competitors may renderour product candidates obsolete or non-competitive before we are able to successfully develop them or, if approved, before we can recover the expenses ofdeveloping and commercializing them. We anticipate that we, or our potential future licensees or collaborators, will face intense and increasing competitionas new drugs and drug classes enter the market and advanced technologies or new drug targets become available. If our product candidates do notdemonstrate any meaningful competitive advantages over existing products, or new products or product candidates, we may terminate the development orcommercialization of our product candidates at any time.Our competitors, either alone or with their collaborators, may succeed in developing product candidates or products that are more effective, safer, lessexpensive or easier to administer than ours. Accordingly, our competitors may succeed in obtaining regulatory approval for their product candidates morerapidly than we can. Companies that can complete clinical trials, obtain required marketing approvals and commercialize their products before theircompetitors do so may achieve a significant competitive advantage, including certain patent and marketing exclusivity rights that could delay the ability ofcompetitors to market certain products.We also face, and expect that we will continue to face, intense competition from other companies in a number of other areas, including (i) attracting largerpharmaceutical and biopharmaceutical companies to enter into collaborative arrangements with us to acquire, license or co-develop our product candidates,(ii) identifying and obtaining additional clinical-stage development programs to bolster our pipeline, (iii) attracting investigators and clinical sites capableof conducting our clinical trials, and (iv) recruiting patients to participate in our clinical trials. There can be no assurance that product candidates resultingfrom our research and development efforts, or from joint efforts with our potential future licensees or collaborators, will be able to compete successfully withour competitors’ existing products or product candidates in development.We may be unable to successfully develop a product candidate that is the subject of an existing or future license agreement or collaboration if our licenseeor collaborator does not perform or fulfill its contractual obligations, delays the development of our product candidate, or terminates the agreement.We expect to continue to enter into and rely on license and collaboration agreements in the future, or other similar business arrangements with third parties,to further develop and/or commercialize some or all of our existing and future product candidates. Such licensees or collaborators may not perform as agreedupon or anticipated, may fail to comply with strict regulations, or may elect to delay or terminate their efforts in developing or commercializing our productcandidates even though we have met our obligations under the arrangement. 62Table of ContentsA majority of the potential revenue from existing and any future licenses and collaborations we may enter into will likely consist of contingent milestonepayments, such as payments received for achieving development or regulatory milestones, and royalties payable on the sales of approved products.Milestone and royalty revenues that we may receive under these licenses and collaborations will depend primarily upon our licensees’ or collaborators’ability to successfully develop and commercialize our product candidates. In addition, our licensees or collaborators may decide to enter into arrangementswith third parties to commercialize products developed under our existing or future collaborations using our technologies, which could reduce the milestoneand royalty revenue that we may receive, if any. In many cases, we will not be directly or closely involved in the development or commercialization of ourproduct candidates that are subject to licenses or collaborations and, accordingly, we will depend largely on our licensees or collaborators to develop orcommercialize our product candidates. Our licensees may encounter competition from new products entering the market, which could adversely affect ourroyalty income. Our licensees or collaborators may fail to develop or effectively commercialize our product candidates because they:· do not allocate the necessary resources due to internal constraints, such as limited personnel with the requisite scientific expertise, limited capitalresources, or the belief that other product candidates or internal programs may have a higher likelihood of obtaining regulatory approval, or maypotentially generate a greater return on investment;· do not have sufficient resources necessary to fully support the product candidate through clinical development, regulatory approval andcommercialization;· are unable to obtain the necessary regulatory approvals; or· prioritize other programs or otherwise diminish their support for developing and/or marketing our product candidate or product due to a change inmanagement, business operations or strategy.Should any of these events occur, we may not realize the full potential or intended benefit of our license or collaboration arrangements, and our results ofoperations may be adversely affected. In addition, a licensee or collaborator may decide to pursue the development of a competitive product candidatedeveloped outside of our agreement with them. Conflicts may also arise if there is a dispute about the progress of, or other activities related to, the clinicaldevelopment or commercialization of a product candidate, the achievement and payment of a milestone amount, the ownership of intellectual property that isdeveloped during the course of the arrangement, or other license agreement terms. If a licensee or collaborator fails to develop or effectively commercializeour product candidates for any of these reasons, we may not be able to replace them with another third party willing to develop and commercialize ourproduct candidates under similar terms, if at all. Similarly, we may disagree with a licensee or collaborator as to which party owns newly or jointly-developedintellectual property. Should an agreement be revised or terminated as a result of a dispute and before we have realized the anticipated benefits of thearrangement, we may not be able to obtain certain development support or revenues that we anticipated receiving. We may also be unable to obtain, on termsacceptable to us, a license from such collaboration partner to any of its intellectual property that may be necessary or useful for us to continue to develop andcommercialize the product candidate. There can be no assurance that any product candidates will emerge from any existing or future license or collaborationagreements we may enter into for any of our product candidates.If government and third-party payers fail to provide adequate reimbursement or coverage for our products or those that are developed through licenses orcollaborations, our revenues and potential for profitability may be harmed.In the United States and most foreign markets, product revenues or related royalty revenue, and therefore the inherent value of our products, will dependlargely upon the reimbursement rates established by third-party payers for such products. Third-party payers include government health administrationauthorities, managed-care organizations, private health insurers and other similar organizations. Third-party payers are increasingly examining the costeffectiveness of medical products, services and pharmaceutical drugs and challenging the price of these products and services. In addition, significantuncertainty exists as to the reimbursement status, if any, of newly approved pharmaceutical products. Further, the comparative effectiveness of new productsover existing therapies and the assessment of other non-clinical outcomes are increasingly being considered in the decision by payers to establishreimbursement rates. We, or our licensees or collaborators if applicable, may also be required to conduct post-marketing clinical trials in order to demonstratethe cost-effectiveness of our products. Such studies may require us to commit a significant amount of management time and financial resources. There can beno assurance that any products that we or our licensees or collaborators may successfully develop will be reimbursed in part, or at all, by any third-partypayers in any country.Many governments continue to propose legislation designed to expand the coverage, yet reduce the cost, of healthcare, including pharmaceutical products.In many foreign markets, governmental agencies control the pricing of prescription drugs. In the United States, significant changes in federal health carepolicy were approved over the past several years and continue to evolve and will likely result in reduced reimbursement rates for many pharmaceuticalproducts in the future. We expect that there will continue to be federal and state proposals to implement increased government control over reimbursementrates of pharmaceutical products. In addition, we expect that increasing emphasis on managed care and government intervention in the U.S. healthcare systemwill continue to put downward pressure on the pricing of pharmaceutical products there. Recent events have resulted in increased public and governmentalscrutiny of the cost of drugs, especially in connection with price increases following companies’ acquisitions of the rights to certain drug products. Inparticular, U.S. federal prosecutors recently issued subpoenas to a pharmaceutical company seeking information about its drug pricing practices, among otherissues, and members of the U.S. Congress have sought information from certain pharmaceutical companies relating to post-acquisition drug-price increases.Our revenue and future profitability could be negatively affected if these inquiries were to result in legislative or regulatory proposals that limit our ability toincrease the prices of our products that may be approved for sale in the future. Legislation and regulations affecting the pricing of pharmaceutical productsmay change before our product candidates are approved for sale, which could further limit or eliminate their reimbursement rates. Further, social and patientactivist groups, whose goal it is to reduce the cost of healthcare, and in particular the price of pharmaceutical products, may also place downward pressure onthe price of these products, which could result in decreases in the price of our products. 63Table of ContentsIf any product candidates that we develop independently, or through licensees or collaborators if applicable, are approved but do not gain meaningfulacceptance in their intended markets, we are not likely to generate significant revenues.Even if our product candidates are successfully developed and we or a licensee or collaborator obtains the requisite regulatory approvals to market them inthe future, they may not gain market acceptance or broad utilization among physicians, patients or third-party payers. The degree of market acceptance thatany of our products may achieve will depend on a number of factors, including:· the efficacy or perceived clinical benefit of the product, if any, relative to existing therapies;· the timing of market approval and the existing market for competitive drugs, including the presence of generic drugs;· the level of reimbursement provided by third-party payers to cover the cost of the product to patients;· the net cost of the product to the user or third-party payer;· the convenience and ease of administration of the product;· the product’s potential advantages over existing or alternative therapies;· the actual or perceived safety of similar classes of products;· the actual or perceived existence, incidence and severity of adverse effects;· the effectiveness of sales, marketing and distribution capabilities; and· the scope of the product label approved by the FDA or similar regulatory agencies in other jurisdictions.There can be no assurance that physicians will choose to prescribe or administer our products, if approved, to the intended patient population. If our productsdo not achieve meaningful market acceptance, or if the market for our products proves to be smaller than anticipated, we may never generate significantrevenues.Our headquarters is located near known earthquake fault zones. The occurrence of an earthquake, fire or any other catastrophic event could disrupt ouroperations or the operations of third parties who provide vital support functions to us, which could have a material adverse effect on our business andfinancial condition.We are vulnerable to damage from catastrophic events, such as power loss, natural disasters, terrorism and similar unforeseen events beyond our control. Ourcorporate headquarters and other facilities are located in the San Francisco Bay Area, which in the past has experienced severe earthquakes and fires.We do not have a disaster recovery and business continuity plan in place. Earthquakes or other natural disasters could severely disrupt our operations andhave a material adverse effect on our business, results of operations, financial condition and prospects.If a natural disaster, power outage or other event occurred that prevented us from using all or a significant portion of our headquarters, damaged criticalinfrastructure, such as our financial systems or manufacturing facility, or that otherwise disrupted our operations, it may be difficult or, in certain cases,impossible for us to continue business operations for a substantial period of time. 64Table of ContentsChanges in funding for the FDA, the SEC and other government agencies could hinder their ability to hire and retain key leadership and other personnel,prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performingnormal functions on which the operation of our business may rely, which could negatively impact our business.The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, abilityto hire and retain key personnel and accept payment of user fees, and statutory, regulatory, and policy changes. Average review times at the agency havefluctuated in recent years as a result. In addition, government funding of the SEC and other government agencies on which our operations may rely,including those that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved by necessary governmentagencies, which would adversely affect our business. For example, over the last several years, including most recently on December 22, 2018, the U.S.government has shut down several times and certain regulatory agencies, such as the FDA and the SEC, have had to furlough critical FDA, SEC and othergovernment employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timelyreview and process our regulatory submissions which could have a material adverse effect on our business. Further, future government shutdowns couldimpact our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.Risks Related to Dependence on Third PartiesIf third-party contract manufacturers, upon whom we may have to rely to formulate and manufacture our product candidates, do not perform, fail tomanufacture according to our specifications, or fail to comply with strict government regulations, our preclinical studies or clinical trials could beadversely affected and the development of our product candidates could be delayed or terminated, or we could incur significant additional expenses.In the event that we place reliance on third-party contract manufacturers, which in some cases may be sole sourced, we would be exposed to a number of risks,any of which could delay or prevent the completion of our preclinical studies or clinical trials, or the regulatory approval or commercialization of our productcandidates, result in higher costs, or deprive us of potential product revenues in the future. Some of these risks include, but are not limited to:· our potential contract manufacturers failing to develop an acceptable formulation to support late-stage clinical trials for, or the commercializationof, our product candidates;· our potential contract manufacturers failing to manufacture our product candidates according to their own standards, our specifications, currentgood manufacturing practices, or cGMP, or regulatory guidelines, or otherwise manufacturing material that we or regulatory authorities deem to beunsuitable for our clinical trials or commercial use;· our potential contract manufacturers being unable to increase the scale of or the capacity for, or reformulate the form of, our product candidates,which may cause us to experience a shortage in supply or cause the cost to manufacture our product candidates to increase. There can be noassurance that our potential contract manufacturers will be able to manufacture our product candidates at a suitable commercial scale, or that we willbe able to find alternative manufacturers acceptable to us that can do so;· our potential contract manufacturers placing a priority on the manufacture of other customers’ or their own products, rather than our products;· our potential contract manufacturers failing to perform as agreed or exiting from the contract manufacturing business; and· our potential contract manufacturers’ plants being closed as a result of regulatory sanctions or a natural disaster.Manufacturers of pharmaceutical drug products are subject to ongoing periodic inspections by the FDA, the U.S. Drug Enforcement Administration, or DEA,and corresponding state and other foreign agencies to ensure strict compliance with FDA-mandated cGMPs, other government regulations and correspondingforeign standards. We do not have control over our third-party contract manufacturers’ compliance with these regulations and standards and accordingly,failure by our third-party manufacturers, or us, to comply with applicable regulations could result in sanctions being imposed on us or our manufacturers,which could significantly and adversely affect our business. 65Table of ContentsIn the event that we need to engage or subsequently change a third-party contract manufacturer, our preclinical studies or our clinical trials, and thecommercialization of our product candidates could be delayed, adversely affected or terminated, or such a change may result in the need for us to incursignificantly higher costs, which could materially harm our business.Due to various regulatory restrictions in the United States and many other countries, as well as potential capacity constraints on manufacturing that occurfrom time-to-time in our industry, various steps in the manufacture of our product candidates are sole-sourced to certain contract manufacturers. In accordancewith cGMPs, changing manufacturers may require the re-validation of manufacturing processes and procedures, and may require further preclinical studies orclinical trials to show comparability between the materials produced by different manufacturers. Engaging a third-party contract manufacturer or changing afuture contract manufacturer may be difficult and could be extremely costly and time-consuming, which could result in our inability to manufacture ourproduct candidates for an extended period of time and a delay, as well as an increase in costs, in the development of our product candidates.We may not be able to manufacture our product candidates in sufficient quantities to commercialize them.In order to receive FDA approval of our product candidates, we will need to manufacture such product candidates in larger quantities. We may not be able toincrease successfully the manufacturing capacity for our product candidates in a timely or economic manner, or at all. In the event FDA approval is received,we will need to increase production of our product candidates. Significant scale-up of manufacturing may require additional validation studies, which theFDA must review and approve. If we are unable to successfully increase the manufacturing capacity for our product candidates, the clinical trials, theregulatory approval and the commercial launch of our product candidates may be delayed, or there may be a shortage in supply. Our product candidatesrequire precise, high-quality manufacturing. Failure to achieve and maintain high-quality manufacturing, including the incidence of manufacturing errors,could result in patient injury or death, delays or failures in testing or delivery, cost overruns or other problems that could harm our business, financialcondition and results of operations.The manufacture of pharmaceutical products in compliance with cGMP regulations requires significant expertise and capital investment, including thedevelopment of advanced manufacturing techniques and process controls.Manufacturers of pharmaceutical products often encounter difficulties in production, including difficulties with production costs and yields, quality control,including stability of the product candidates and quality assurance testing, or shortages of qualified personnel. If we were to encounter any of thesedifficulties or otherwise fail to comply with our obligations under applicable regulations, our ability to provide study materials in our clinical trials would bejeopardized. Any delay or interruption in the supply of clinical trial materials could delay the completion of our clinical trials, increase the costs associatedwith maintaining our clinical trial programs and, depending upon the period of delay, require us to commence new trials at significant additional expense orto terminate the studies and trials completely.We must comply with cGMP requirements enforced by the FDA through its facilities inspection program. These requirements include, among other things,quality control, quality assurance and the maintenance of records and documentation. Manufacturers of our component materials may be unable to complywith these cGMP requirements and with other FDA, state and foreign regulatory requirements. The FDA or similar foreign regulatory agencies at any timemay also implement new standards, or change their interpretation and enforcement of existing standards, for manufacture, packaging or testing of products.We have little control over our manufacturers’ compliance with these regulations and standards. A failure to comply with these requirements may result infines and civil penalties, suspension of production, suspension or delay in product approval, product seizure or recall, or withdrawal of product approval. Ifthe safety of any product supplied is compromised due to our failure, or that our third-party manufacturers, to adhere to applicable laws or for other reasons,we may not be able to obtain regulatory approval for or successfully commercialize our products, and we may be held liable for any injuries sustained as aresult. Any of these factors could cause a delay of clinical trials, regulatory submissions, approvals or commercialization of any product candidates we maydevelop or acquire in the future, or entail higher costs, or impair our reputation.We currently rely on single source vendors for key tablet vaccine components and certain strains needed in our tablet vaccine candidates, which couldimpair our ability to manufacture and supply our tablet vaccine candidates.We currently depend on single source vendors for certain raw materials used in the manufacture of our tablet vaccine candidates. Any production shortfallthat impairs the supply of the relevant raw materials could have a material adverse effect on our business, financial condition and results of operations. Aninability to continue to source product from these suppliers, which could be due to regulatory actions or requirements affecting the supplier, adverse financialor other strategic developments experienced by a supplier, labor disputes or shortages, unexpected demands or quality issues, could materially adverselyaffect our operating results or our ability to conduct clinical trials, either of which could significantly harm our business.66Table of ContentsWe intend to rely on third parties to conduct, supervise and monitor our clinical trials, and if those third parties perform in an unsatisfactory manner, itmay harm our business.We intend to rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials, and we expect to have limited influence overtheir actual performance.We intend to rely upon CROs to monitor and manage data for our clinical programs, as well as the execution of future nonclinical studies. We expect tocontrol only certain aspects of our CROs’ activities. Nevertheless, we will be responsible for ensuring that each of our studies is conducted in accordance withthe applicable protocol, legal, regulatory and scientific standards and our reliance on the CROs does not relieve us of these regulatory responsibilities.We and our CROs will be required to comply with the Good Laboratory Practices and GCPs, which are regulations and guidelines enforced by the FDA andare also required by the Competent Authorities of the Member States of the European Economic Area and comparable foreign regulatory authorities in theform of International Conference on Harmonization guidelines for any of our product candidates that are in preclinical and clinical development. TheRegulatory authorities enforce GCPs through periodic inspections of trial sponsors, principal investigators and clinical trial sites. If we or our CROs fail tocomply with GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities mayrequire us to perform additional clinical trials before approving our marketing applications. Accordingly, if our CROs fail to comply with these regulations orfail to recruit a sufficient number of subjects, we may be required to repeat clinical trials, which would delay the regulatory approval process.Our CROs will not be our employees, and we will not control whether or not they devote sufficient time and resources to our future clinical and nonclinicalprograms. These CROs may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinicaltrials, or other drug development activities which could harm our competitive position. We face the risk of potential unauthorized disclosure ormisappropriation of our intellectual property by CROs, which may reduce our trade secret protection and allow our potential competitors to access andexploit our proprietary technology. If our CROs do not successfully carry out their contractual duties or obligations, fail to meet expected deadlines, or if thequality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for anyother reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for, or successfullycommercialize, any product candidate that we develop. As a result, our financial results and the commercial prospects for any product candidate that wedevelop would be harmed, our costs could increase, and our ability to generate significant revenues could be delayed.If our relationship with these CROs terminate, we may not be able to enter into arrangements with alternative CROs or do so on commercially reasonableterms. Switching or adding additional CROs involves substantial cost and requires management time and focus. In addition, there is a natural transitionperiod when a new CRO commences work. As a result, delays occur, which can materially impact our ability to meet our desired clinical developmenttimelines. Though we intend to carefully manage our relationships with our CROs, there can be no assurance that we will not encounter challenges or delaysin the future or that these delays or challenges will not have an adverse impact on our business, financial condition and prospects.We may seek to selectively establish collaborations, and, if we are unable to establish them on commercially reasonable terms, we may have to alter ourdevelopment and commercialization plans.Our product development programs and the potential commercialization of our product candidates will require substantial additional cash to fund expenses.For some of our product candidates, including our seasonable influenza and RSV tablets, we may decide to collaborate with governmental entities oradditional pharmaceutical and biotechnology companies for the development and potential commercialization of those product candidates.We face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for a collaboration will depend, among otherthings, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposedcollaborator’s evaluation of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA orsimilar regulatory authorities outside the United States, the potential market for the subject product candidate, the costs and complexities of manufacturingand delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to our ownership oftechnology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge and industry and market conditionsgenerally. The collaborator may also consider alternative product candidates for similar indications that may be available to collaborate on and whether sucha collaboration could be more attractive than the one with us for our product candidate. 67Table of ContentsOur relationships with customers and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws andregulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and futureearnings.Healthcare providers, physicians and third-party payors play a primary role in the recommendation and prescription of any product candidates for which weobtain marketing approval. Our future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and otherhealthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute ourmedicines for which we obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations include the following:· the federal healthcare anti-kickback statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving orproviding remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order orrecommendation of, any good or service, for which payment may be made under federal and state healthcare programs such as Medicare andMedicaid;· the federal FCA imposes criminal and civil penalties, including civil whistleblower or qui tam actions, against individuals or entities for knowinglypresenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement toavoid, decrease or conceal an obligation to pay money to the federal government;· the federal HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, imposes criminal and civil liability forexecuting a scheme to defraud any healthcare benefit program and also imposes obligations, including mandatory contractual terms, with respect tosafeguarding the privacy, security and transmission of individually identifiable health information;· the federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materiallyfalse statement in connection with the delivery of or payment for healthcare benefits, items or services;· the federal transparency requirements under the Affordable Care Act requires manufacturers of drugs, devices, biologics and medical supplies toreport to the Department of Health and Human Services information related to physician payments and other transfers of value and physicianownership and investment interests; and· analogous state laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claimsinvolving healthcare items or services reimbursed by non- governmental third-party payors, including private insurers, and some state laws requirepharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidancepromulgated by the federal government in addition to requiring vaccine manufacturers to report information related to payments to physicians andother health care providers or marketing expenditures.Risks Related to Intellectual PropertyIf we are unable to obtain and maintain patent protection for our oral vaccine platform technology and product candidates or if the scope of the patentprotection obtained is not sufficiently broad, we may not be able to compete effectively in our markets.Our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries. We seek to protect ourproprietary position by filing patent applications in the United States and abroad related to our development programs and product candidates. The patentprosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications, or maintainand enforce any patents that may issue from such patent applications, at a reasonable cost or in a timely manner.It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. Thepatent applications that we own may fail to result in issued patents with claims that cover any of our product candidates in the United States or in othercountries. There is no assurance that the entire potentially relevant prior art relating to our patents and patent applications has been found, which caninvalidate a patent or prevent a patent from issuing from a pending patent application. Even if patents do successfully issue, third parties may challenge theirvalidity, enforceability or scope, which may result in such patents being narrowed, invalidated, or held unenforceable. Any successful challenge to thesepatents or any other patents owned by or licensed to us could deprive us of rights necessary for the successful commercialization of any product candidates orcompanion diagnostic that we may develop. Further, if we encounter delays in regulatory approvals, the period of time during which we could market aproduct candidate and companion diagnostic under patent protection could be reduced. 68Table of ContentsIf the patent applications we hold with respect to our platform technology and product candidates fail to issue, if their breadth or strength of protection isthreatened, or if they fail to provide meaningful exclusivity for our product candidates, it could dissuade companies from collaborating with us to developproduct candidates and threaten our ability to commercialize future drugs. Any such outcome could harm our business.The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has inrecent years been the subject of much litigation. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of theUnited States. For example, European patent law restricts the patentability of methods of treatment of the human body more than U.S. law does. Publicationsof discoveries in scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typicallynot published until 18 months after filing, or in some cases not at all. Therefore, we cannot know with certainty whether we were the first to make theinventions claimed in our owned or licensed patents or pending patent applications, or that we were the first to file for patent protection of such inventions.As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Our pending and future patentapplications may not result in patents being issued which protect our technology or product candidates, in whole or in part, or which effectively preventothers from commercializing competitive technologies and vaccines. Even if our patent applications issue as patents, they may not issue in a form that willprovide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Ourcompetitors may be able to circumvent our patents by developing similar or alternative product candidates in a non-infringing manner. Changes in either thepatent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of ourpatent protection.Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement ordefense of our issued patents. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-SmithAct includes a number of significant changes to United States patent law. These include provisions that affect the way patent applications are prosecuted andmay also affect patent litigation. The U.S. Patent Office recently developed new regulations and procedures to govern administration of the Leahy-Smith Act,and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, only became effectiveon March 16, 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement ordefense of our issued patents, all of which could have an adverse effect on our business and financial condition.Moreover, we may be subject to a third-party pre-issuance submission of prior art to the U.S. Patent and Trademark Office, or USPTO, or become involved inderivation, reexamination, inter partes review, post-grant review or interference proceedings challenging our patent rights or the patent rights of others. Inother countries, we may be subject to or become involved in opposition proceedings challenging our patent rights or the patent rights of others. An adversedetermination in any such submission or proceeding could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize ourtechnology or product candidates and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize productcandidates without infringing third-party patent rights. In addition, if the breadth or strength of protection provided by our patents and patent applications isthreatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates.The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our owned and licensed patents may be challenged inthe courts or patent offices in the United States and abroad. Such challenges may result in patent claims being narrowed, invalidated or held unenforceable, inwhole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and tablet vaccines, or limit theduration of the patent protection of our technology and product candidates. Moreover, patents have a limited lifespan. In the United States and othercountries, the natural expiration of a patent is generally 20 years after it is filed. Various extensions may be available, however, the life of a patent, and theprotection it affords, is limited. Without patent protection for our current or future tablet vaccine candidates, we may be open to competition from genericversions of such product candidates. Given the amount of time required for the development, testing and regulatory review of new product candidates,patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patentportfolio may not provide us with sufficient rights to exclude others from commercializing product candidates similar or identical to ours. 69Table of ContentsIf we are unable to adequately protect or expand our intellectual property related to products acquired in the Merger, our business prospects could beharmed.We can protect our proprietary intellectual property rights from unauthorized use by third parties only to the extent that our proprietary rights are covered byvalid and enforceable patents or are effectively maintained as trade secrets. The patent position of pharmaceutical and biopharmaceutical companies involvescomplex legal and factual questions, and, therefore, we cannot predict with certainty whether we will be able to ultimately enforce our patents or proprietaryrights or avoid infringing on the patents or proprietary rights of others. Any issued patents that we own or otherwise have rights to may be challenged,invalidated or circumvented, and may not provide us with the protection against competitors that we anticipate.The degree of future protection of our proprietary intellectual property rights is uncertain because issued patents and other legal means of establishingproprietary rights afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage. Our futurepatent position will be influenced by the following factors:· we, or our licensors, may not have been the first to discover the inventions covered by each of our, or our licensors’, pending patent applications andissued patents, and we may have to engage in expensive and protracted interference proceedings to determine priority of invention;· our, or our licensors’, pending patent applications may be denied and may not result in issued patents;· our, or our licensors’, issued patents may not provide a basis for commercially viable products, may not provide us with any competitive advantages,or may be challenged by third parties; and· third parties may develop intellectual property that circumvents our, or our licensors’, patent claims, or design competitive intellectual property andultimately product candidates that fall outside the scope of our, or our licensors’, patents.Due to the extensive time required for the development, testing and regulatory review and approval of a product candidate, it is possible that before ourproduct candidates may be approved for sale and commercialized, our relevant patent rights may expire, or such patent rights may remain in force for only ashort period following marketing approval. We currently rely on certain patents to provide us and our licensees with exclusive rights for certain of ourproducts. When all patents underlying a license expire, our revenue from that license may cease, and there can be no assurance that we will be able to replaceit with revenue from new or existing licenses.Zanamivir, a neuraminidase inhibitor (“NI”) approved for the treatment and prevention of influenza A and B, is marketed worldwide as Relenza by GSK.Most of our Relenza patents have expired and the only substantial remaining intellectual property related to the Relenza patent portfolio, which we own andhave exclusively licensed to GSK, is scheduled to expire in July 2019 in Japan.Patent rights may not provide us with adequate proprietary protection or competitive advantages against competitors with or developing similar technologiesor approaches to ours. The laws of certain foreign countries do not protect intellectual property rights to the same extent as do the laws of the United States,and certain countries may lack adequate rules and procedures for defending our intellectual property rights. For example, we may not be able to prevent athird-party from infringing our patents in a country that does not recognize or enforce patent rights, or that imposes compulsory licenses on, or restricts theprices of, drugs. Changes in either patent laws or in interpretations of patent laws in the United States and other countries may diminish the value of ourintellectual property. We may need to in-license certain technologies to successfully develop and commercialize our product candidates. We may notdevelop or obtain rights to products or processes that are patentable. Even if we, or our licensors, do obtain patents, such patents may not adequately protectthe products or technologies licensed, or may otherwise be limited in scope. In addition, we may not have total control over the patent prosecution of subjectmatter that we license from others. Accordingly, we may be unable to exercise the same degree of control over this intellectual property as we would over ourown. Others may challenge, seek to invalidate, infringe or circumvent any pending or issued patents we own or license, and rights we receive under thoseissued patents may not provide us with competitive advantages. There can be no assurance of the degree of protection that will be afforded by any of ourissued or pending patents, or those we license.There can be no assurance that any patents will be issued from the patent applications we own or have licensed or, should any patents be issued, that we willbe provided with adequate protection against potentially competitive products. Furthermore, we cannot be sure that patents issued or licensed to us will be ofany commercial value, or that private parties or competitors will not successfully challenge these patents or circumvent our patent position in the UnitedStates or abroad. In the absence of adequate patent protection, our business may be adversely affected by competitors who develop comparable technology orproducts. 70Table of ContentsWe may be involved in lawsuits to protect or enforce our patents, the patents of our licensors or our other intellectual property rights, which could beexpensive, time consuming and unsuccessful.Competitors may infringe or otherwise violate our patents, the patents of our licensors or our other intellectual property rights. To counter infringement orunauthorized use, we may be required to file legal claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a courtmay decide that a patent of ours or our licensors is not valid, or is unenforceable, or may refuse to stop the other party from using the technology at issue onthe grounds that such patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more ofour patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing. The initiation of a claim against athird-party may also cause the third-party to bring counter claims against us such as claims asserting that our patents are invalid or unenforceable. In patentlitigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could bean alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, non-enablement or lack of statutory subject matter.Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant materialinformation from the USPTO, or made a materially misleading statement, during prosecution. Third parties may also raise similar validity claims before theUSPTO in post-grant proceedings such as inter partes review, or post-grant review, or oppositions or similar proceedings outside the United States, in parallelwith litigation or even outside the context of litigation. The outcome following legal assertions of invalidity and unenforceability is unpredictable. Wecannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. For the patents and patentapplications that we have licensed, we may have limited or no right to participate in the defense of any licensed patents against challenge by a third-party. Ifa defendant were to prevail on a legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps all, of any future patent protectionon our current or future product candidates. Such a loss of patent protection could harm our business.We may not be able to prevent, alone or with our licensors, misappropriation of our intellectual property rights, particularly in countries where the laws maynot protect those rights as fully as in the United States. Our business could be harmed if in litigation the prevailing party does not offer us a license oncommercially reasonable terms. Any litigation or other proceedings to enforce our intellectual property rights may fail, and even if successful, may result insubstantial costs and distract our management and other employees.Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of ourconfidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results ofhearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have anadverse effect on the price of our common stock.If a third party claims we are infringing on its intellectual property rights, we could incur significant expenses, or be prevented from further developing orcommercializing our product candidates, which could materially harm our business.Our success will largely depend on our ability to operate without infringing the patents and other proprietary intellectual property rights of third parties. Thisis generally referred to as having the “freedom to operate.” However, our research, development and commercialization activities may be subject to claimsthat we infringe or otherwise violate patents or other intellectual property rights owned or controlled by third parties. Numerous U.S. and foreign issuedpatents and pending patent applications, which are owned by third parties, exist in the fields in which we are pursuing development candidates. As thebiotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our current or future product candidates may besubject to claims of infringement of the patent rights of third parties. The biotechnology and pharmaceutical industries are characterized by extensivelitigation regarding patents and other intellectual property rights. The defense and prosecution of intellectual property claims, interference proceedings andrelated legal and administrative proceedings, both in the United States and internationally, involve complex legal and factual questions. As a result, suchproceedings are lengthy, costly and time-consuming, and their outcome is highly uncertain. We may become involved in protracted and expensive litigationin order to determine the enforceability, scope and validity of the proprietary rights of others, or to determine whether we have the freedom to operate withrespect to the intellectual property rights of others.Patent applications in the United States are, in most cases, maintained in secrecy until approximately 18 months after the patent application is filed. Thepublication of discoveries in scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made.Therefore, patent applications relating to product candidates similar to ours may have already been filed by others without our knowledge. In the event that athird party has also filed a patent application covering our product candidate or other claims, we may have to participate in an adversarial proceeding, knownas an interference proceeding, in the USPTO, or similar proceedings in other countries, to determine the priority of invention. In the event an infringementclaim is brought against us, we may be required to pay substantial legal fees and other expenses to defend such a claim and, should we be unsuccessful indefending the claim, we may be prevented from pursuing the development and commercialization of a product candidate and may be subject to injunctionsand/or damage awards. 71Table of ContentsIn the future, the USPTO or a foreign patent office may grant patent rights to our product candidates or other claims to third parties. Subject to the issuance ofthese future patents, the claims of which will be unknown until issued, we may need to obtain a license or sublicense to these rights in order to have theappropriate freedom to further develop or commercialize them. Any required licenses may not be available to us on acceptable terms, if at all. If we need toobtain such licenses or sublicenses, but are unable to do so, we could encounter delays in the development of our product candidates, or be prevented fromdeveloping, manufacturing and commercializing our product candidates at all. If it is determined that we have infringed an issued patent and do not have thefreedom to operate, we could be subject to injunctions, and/or compelled to pay significant damages, including punitive damages. In cases where we have in-licensed intellectual property, our failure to comply with the terms and conditions of such agreements could harm our business.It is becoming common for third parties to challenge patent claims on any successfully developed product candidate or approved drug. If we or our licenseesor collaborators become involved in any patent litigation, interference or other legal proceedings, we could incur substantial expense, and the efforts andattention of our technical and management personnel could be significantly diverted. A negative outcome of such litigation or proceedings may expose us tothe loss of our proprietary position or to significant liabilities or require us to seek licenses that may not be available from third parties on commerciallyacceptable terms, if at all. We may be restricted or prevented from developing, manufacturing and selling our product candidates in the event of an adversedetermination in a judicial or administrative proceeding, or if we fail to obtain necessary licenses.Obtaining and maintaining our patent protection depends on compliance with various procedures, document submission, fee payment and otherrequirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with theserequirements.Periodic maintenance fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the patent.The USPTO and various foreign governmental patent agencies require compliance with a number of procedures, documentary fee payments and otherprovisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means inaccordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application,resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patentor patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure toproperly legalize and submit formal documents. If we and our licensors fail to maintain the patents and patent applications covering our product candidates,our competitive position would be adversely affected.Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our product candidates.The United States has recently enacted and implemented wide-ranging patent reform legislation. The United States Supreme Court has ruled on several patentcases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certainsituations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertaintywith respect to the value of patents, once obtained. Depending on actions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulationsgoverning patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce patents that we have licensed or thatwe might obtain in the future.We may not be able to protect our intellectual property rights throughout the world, which could impair our business.Filing, prosecuting and defending patents covering our product candidates throughout the world would be prohibitively expensive. Competitors may use ourtechnologies in jurisdictions where we have not obtained patent protection to develop their own vaccines and, further, may export otherwise infringingvaccines to territories where we may obtain patent protection, but where patent enforcement is not as strong as that in the United States. These vaccines maycompete with our product candidates in jurisdictions where we do not have any issued or licensed patents and any future patent claims or other intellectualproperty rights may not be effective or sufficient to prevent them from so competing.72Table of ContentsWe may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information ofthird parties or that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.Many of our employees, including our senior management, were previously employed at universities or other biotechnology or pharmaceutical companies.These employees typically executed proprietary rights, non-disclosure and non-competition agreements in connection with their previous employment.Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claimsthat it or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’sformer employer. We are not aware of any threatened or pending claims related to these matters, but in the future litigation may be necessary to defendagainst such claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights orpersonnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our tradesecrets will be misappropriated or disclosed.We seek to protect our proprietary technology in part by entering into confidentiality agreements with third parties and, if applicable, material transferagreements, consulting agreements or other similar agreements with our advisors, employees, third-party contractors and consultants prior to beginningresearch or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information,including our trade secrets. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and otherconfidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology ofothers, or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, acompetitor’s discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have an adverse effect onour business and results of operations.In addition, these agreements typically restrict the ability of our advisors, employees, third-party contractors and consultants to publish data potentiallyrelating to our trade secrets, although our agreements may contain certain limited publication rights. Despite our efforts to protect our trade secrets, ourcompetitors may discover our trade secrets, either through breach of our agreements with third parties, independent development, or publication ofinformation by any of our third-party collaborators. A competitor’s discovery of our trade secrets would impair our competitive position and have an adverseimpact on our business.Patent terms may be inadequate to protect our competitive position on our product candidates for an adequate amount of time.Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from itsearliest U.S. non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Even if patentscovering our product candidates are obtained, once the patent life has expired for a product candidate, we may be open to competition from competitivevaccines and medications, including generic medications. Given the amount of time required for the development, testing and regulatory review of newproduct candidates, patents protecting such product candidates might expire before or shortly after such product candidates are commercialized. As a result,our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing product candidates similar oridentical to ours.Depending upon the timing, duration and conditions of any FDA marketing approval of our product candidates, one or more of our U.S. patents may beeligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-WaxmanAmendments, and similar legislation in the European Union. The Hatch-Waxman Amendments permit a patent term extension of up to five years for a patentcovering an approved product as compensation for effective patent term lost during product development and the FDA regulatory review process. However,we may not receive an extension if we fail to exercise due diligence during the testing phase or regulatory review process, fail to apply within applicabledeadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. Moreover, the length of the extension couldbe less than we request. Only one patent per approved product can be extended, the extension cannot extend the total patent term beyond 14 years fromapproval and only those claims covering the approved drug, a method for using it or a method for manufacturing it may be extended. If we are unable toobtain patent term extension or the term of any such extension is less than we request, the period during which we can enforce our patent rights for theapplicable product candidate will be shortened and our competitors may obtain approval to market competing products sooner. As a result, our revenue fromapplicable products could be reduced. Further, if this occurs, our competitors may take advantage of our investment in development and trials by referencingour clinical and preclinical data and launch their product earlier than might otherwise be the case, and our competitive position, business, financialcondition, results of operations and prospects could be materially harmed. 73Table of ContentsWe may be subject to claims challenging the inventorship of our patents and other intellectual property.We or our licensors may be subject to claims that former employees, collaborators or other third parties have an interest in our patents, trade secrets, or otherintellectual property as an inventor or co-inventor. For example, we or our licensors may have inventorship disputes arise from conflicting obligations ofemployees, consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and otherclaims challenging inventorship or our or our licensors’ ownership of our patents, trade secrets or other intellectual property. If we or our licensors fail indefending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, orright to use, intellectual property that is important to our product candidates. Even if we are successful in defending against such claims, litigation couldresult in substantial costs and be a distraction to management and other employees. Any of the foregoing could have a material adverse effect on ourbusiness, financial condition, results of operations and prospects.Item 1B. Unresolved Staff CommentsNone.Item 2. PropertiesWe do not own any real property. Our leased facilities as of December 31, 2018, are as follows:Location Square Feet Primary Use Lease Terms South San Francisco, CA 22,427 sq ft Laboratory and office Four leases expiring between August 2019 andApril 2020 Alpharetta, GA 11,788 sq ft Office Lease expires February 2021; entire officesubleased We believe that our existing facilities are adequate for our current needs. We plan to consolidate our facilities in South San Francisco in 2019 and believethat sufficient options are available to us on commercially reasonable terms.Item 3. Legal ProceedingsFrom time to time we may be involved in claims arising in connection with our business. Based on information currently available, we believe that theamount, or range, of reasonably possible losses in connection with any pending actions against us, in excess of established reserves, in the aggregate, not tobe material to our consolidated financial condition or cash flows. However, losses may be material to the Company’s operating results for any particularfuture period, depending on the level of income for such period.Item 4. Mine Safety DisclosuresNot applicable.74Table of ContentsPART IIItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesTrading InformationSince February 14, 2018, our common stock has traded on the Nasdaq Capital Market under the symbol “VXRT”. Prior to that, since April 13, 2016, ourcommon stock traded under the symbol “AVIR”, prior to which it had traded under the symbol “BOTA” since November 8, 2012, prior to which it had tradedunder the symbol “NABI”. The transfer agent for our common stock is American Stock Transfer & Trust Company, LLC at 6201 15th Avenue, Brooklyn, NY11219. All of our electronic filings are available on the SEC’s website at www.sec.gov. We maintain our own website on the internet at www.vaxart.com.As of January 31, 2019, there were approximately 6,608 holders of record of our common stock.Dividend PolicyWe have never declared or paid dividends on shares of our common stock. We intend to retain future earnings, if any, to support the development of ourbusiness and therefore do not anticipate paying cash dividends for the foreseeable future. Payment of future dividends, if any, will be at the discretion of ourboard of directors after taking into account various factors, including current financial condition, operating results and current and anticipated cash needs.Our ability to declare and pay dividends on shares of our common stock is restricted by our credit facility with Oxford Finance, LLC.Item 6. Selected Financial DataWe are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide theinformation under this item. 75Table of ContentsItem 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe following discussion and analysis of our financial condition and results of operations should be read in conjunction with the other sections of thisAnnual Report on Form 10-K, including our consolidated financial statements and notes thereto included elsewhere. This discussion contains a number offorward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in the Annual Report on Form10-K, particularly in Item 1A – “Risk Factors.” The forward-looking statements made in this Annual Report on Form 10-K are made only as of the datehereof.Company OverviewWe are a clinical-stage biotechnology company focused on the development of oral recombinant vaccines based on our proprietary oral vaccine platform.Our oral vaccines are designed to generate broad and durable immune responses that protect against a wide range of infectious diseases and may be useful forthe treatment of chronic viral infections and cancer. Our vaccines are administered using a convenient room temperature-stable tablet, rather than byinjection.We are developing prophylactic vaccine candidates that target a range of infectious diseases. These include norovirus, a widespread cause of acute gastro-intestinal enteritis, for which two Phase 1 human studies have been completed; seasonal influenza, for which our vaccine protected patients in a recent Phase2 challenge study; and respiratory syncytial virus, or RSV, a common cause of respiratory tract infections. In addition, we are developing our first therapeuticimmune-oncology vaccine targeting cervical cancer and dysplasia caused by human papillomavirus, or HPV.Through our merger with Aviragen Therapeutics, Inc., or Aviragen, we acquired three Phase 2 clinical stage antiviral compounds, which we are no longeractively pursuing: (1) BTA074, or teslexivir, an antiviral treatment for condyloma caused by human papillomavirus types 6 & 11; (2) vapendavir, a capsidinhibitor for the prevention or treatment of rhinovirus upper respiratory infections; and (3) BTA585, or enzaplatovir, a fusion protein inhibitor for thetreatment of RSV infections. We have discontinued all three programs.Merger with AviragenVaxart Biosciences, Inc. was originally incorporated in California in March 2004, under the name West Coast Biologicals, Inc. and changed its name toVaxart, Inc., or Private Vaxart, in July 2007, and reincorporated in the state of Delaware.On February 13, 2018, Private Vaxart completed a reverse merger, or the Merger, with Aviragen, pursuant to which Private Vaxart survived as a wholly ownedsubsidiary of Aviragen. Under the terms of the Merger, Aviragen changed its name to Vaxart, Inc. and Private Vaxart changed its name to Vaxart Biosciences,Inc. Immediately prior to the Merger, all of Private Vaxart’s convertible promissory notes and convertible preferred stock were converted into common stock,following which each share of common stock was converted into approximately 0.22148 shares of common stock.Immediately following the completion of the Merger, we effected a reverse stock split at a ratio of one new share for every eleven shares of our common stockoutstanding, or the Reverse Stock Split.All share, equity security and per share amounts are presented to give retroactive effect to the Reverse Stock Split.Immediately after the Merger and the Reverse Stock Split there were approximately 7.1 million shares of common stock outstanding. In addition,immediately after the Merger, Private Vaxart’s stockholders, warrantholders and optionholders owned approximately 51% of the common stock of thecombined company and the stockholders and optionholders of Aviragen immediately prior to the Merger owned approximately 49% of the common stock ofthe combined company (on a fully diluted basis).Financial Operations OverviewRevenueRevenue from Government ContractThe government contract with HHS BARDA, as modified, was a cost-plus-fixed-fee contract, under which we were reimbursed for allowable direct contractcosts plus allowable indirect costs and a fixed-fee totaling $15.7 million from September 2015 through September 30, 2018. Activities were completed in2018 and no future revenue is expected from this contract. 76Table of ContentsRoyalty RevenueWe earn royalty revenue on sales of Relenza and Inavir both treatments for influenza, by our licensees GlaxoSmithKline, plc and Daiichi Sankyo Company,Limited, respectively, based on fixed percentages of net sales of these drugs.Non-Cash Royalty Revenue Related to the Sale of Future RoyaltiesIn April 2016, Aviragen sold certain royalty rights related to Inavir in the Japanese market for $20.0 million to HealthCare Royalty Partners III, L.P., or HCRP.At the time of the Merger, the estimated future benefit to HCRP was remeasured at fair value and was estimated to be $15.9 million, which we account for as aliability and amortize using the effective interest method over the remaining estimated life of the arrangement. Even though we did not retain the relatedroyalties under the transaction, as the amounts are remitted to HCRP, we will continue to record revenue related to these royalties until the amount of theassociated liability and related interest is fully amortized.Research and Development ExpensesResearch and development expenses represent costs incurred to conduct research, including the development of our tablet vaccine platform, and themanufacturing, preclinical and clinical development activities of our tablet vaccine candidates. We recognize all research and development costs as they areincurred. Research and development expenses consist primarily of the following:· employee-related expenses, which include salaries, benefits and stock-based compensation;· expenses incurred under agreements with contract research organizations, or CROs, that conduct clinical trials on our behalf;· manufacturing materials, analytical and release testing services required for our production of vaccine candidates used primarily in clinical trials;· process development expenses incurred internally and externally to improve the efficiency and yield of the bulk vaccine and tablet manufacturingactivities;· laboratory supplies and vendor expenses related to its preclinical research activities;· consultant expenses for services supporting our clinical, regulatory and manufacturing activities; and· facilities, depreciation and allocated overhead expenses.We do not allocate our internal expenses to specific programs. Our employees and other internal resources are not directly tied to any one research programand are typically deployed across multiple projects. Internal research and development expenses are presented as one total.We incur significant external costs on manufacturing our tablet vaccine candidates, and on CROs that conduct clinical trials on our behalf. We capture theseexpenses for each vaccine program. We do not allocate external costs incurred on preclinical research or process development to specific programs.The following table shows our research and development expenses for 2018 and 2017, identifying external costs that were incurred in each of our vaccineprograms and, separately, on preclinical research and process development: Year Ended December 31, 2018 2017 (in thousands)External program costs: Influenza program, funded by BARDA$749 $4,451Influenza program, non-BARDA — 44Norovirus program 2,578 1,431RSV program 53 325Teslexivir and vapendavir programs 1,902 —Preclinical research and process development 285 242Total external costs 5,567 6,493Internal costs 11,708 5,862 $17,275 $12,35577Table of ContentsWe expect that our research and development expenses will increase significantly over the next several years as we advance our tablet vaccine candidatesinto and through clinical trials, pursue regulatory approval of our tablet vaccine candidates and prepare for a possible commercial launch, all of which willalso require a significant investment in manufacturing and inventory related costs.The process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming. We may never succeed in achievingmarketing approval for our tablet vaccine candidates. The probability of successful commercialization of our tablet vaccine candidates may be affected bynumerous factors, including clinical data obtained in future trials, competition, manufacturing capability and commercial viability. As a result, we are unableto determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from thecommercialization and sale of any of our tablet vaccine candidates. General and Administrative ExpenseGeneral and administrative expenses consist of personnel costs, allocated expenses and expenses for outside professional services, including legal, audit,accounting, public relations, market research and other consulting services. Personnel costs consist of salaries, benefits and stock-based compensation.Allocated expenses consist of rent, depreciation and other facilities related expenses. We expect to continue to incur additional expenses as a publiccompany, including expenses related to compliance with the rules and regulations of the Securities and Exchange Commission, or SEC, the Nasdaq CapitalMarket as well as additional insurance, investor relations and other professional expenses.Results of OperationsThe following table presents selected items in the consolidated statements of operations and comprehensive loss for the years ended December 31, 2018 and2017, which include the operations of Aviragen for the period from February 13, 2018 to December 31, 2018: Year Ended December 31, 2018 2017 (in thousands)Revenue: Revenue from government contract$1,344 $5,839Royalty revenue 1,340 —Non-cash royalty revenue related to the sale of future royalties 1,475 — Total revenue 4,159 5,839 Operating expenses: Research and development 17,275 12,355General and administrative 6,681 3,499Impairment of intangible assets 1,600 —Costs of exit from leased premises 359 — Total operating expenses 25,915 15,854 Operating loss (21,756) (10,015) Other income and (expenses): Bargain purchase gain 6,760 —Interest income 58 53Interest expense (821) (3,036)Non-cash interest expense related to sale of future royalties (1,859) —(Loss) gain on sale of equipment (11) 69(Loss) gain on revaluation of financial instruments, net (3) 3,347Foreign exchange loss (266) — Total other income and (expenses) 3,858 433 Net loss before provision for income taxes (17,898) (9,582) Provision for income taxes 109 — Net loss$(18,007) $(9,582) 78Table of ContentsRevenue from Government ContractThe following table presents revenue from our government contract for 2018 and 2017:Year Ended December 31,2018 2017 % Change (dollars in thousands) $1,344 $5,839 (77)%For 2018, revenue from our government contract decreased by $4.5 million, or 77%, compared to 2017. The active phase of the contract occurred in 2016 and2017. In 2018 activities were wound down and completed and no future revenue is expected from this contract.Royalty RevenueThe following table presents our royalty revenue for 2018 and 2017:Year Ended December 31,2018 2017 % Change (dollars in thousands) $1,340 $— N/AFor 2018, royalty revenue was $1.3 million in the post-Merger period. We recorded no such revenue prior to the Merger.Non-cash Royalty Revenue Related to the Sale of Future RoyaltiesThe following table presents our non-cash royalty revenue related to the sale of future royalties for 2018 and 2017:Year Ended December 31,2018 2017 % Change (dollars in thousands) $1,475 $— N/AFor 2018, non-cash royalty revenue related to the sale of future royalties was $1.5 million in the post-Merger period. We recorded no such revenue prior tothe Merger.Research and DevelopmentThe following table presents our research and development expenses for 2018 and 2017:Year Ended December 31,2018 2017 % Change (dollars in thousands) $17,275 $12,355 40%For 2018, research and development expenses increased by $4.9 million, or 40%, compared to 2017. The increase in 2018 is principally due to amortizationof intangible assets acquired in the Merger, clinical trials of teslexivir and vapendavir, higher personnel costs due to an increase in headcount and increasedcosts for facilities, manufacturing costs and laboratory supplies for tablet vaccine research. These increases were partially offset by lower expendituresincurred under the HHS BARDA contract. We expect that research and development expenses will increase in the near term as we plan to conduct twonorovirus clinical trials in 2019, which will only be partially offset by the elimination of expenses that we were formerly incurring under the HHS BARDAcontract.General and AdministrativeThe following table presents our general and administrative expenses for 2018 and 2017:Year Ended December 31,2018 2017 % Change (dollars in thousands) $6,681 $3,499 91% 79Table of ContentsGeneral and administrative expenses consist of personnel costs, allocated overhead expenses and expenses for outside professional services, including legal,audit, accounting, investor relations, market research and other consulting services. Personnel costs consist of salaries, benefits and stock-basedcompensation. Allocated overhead expenses consist of rent, depreciation and other facilities related expenses.For 2018, general and administrative expenses increased by $3.2 million, or 91%, compared to 2017. The increase in 2018 is due principally due to anincrease in legal and other professional costs and additional expenses incurred as a public company, including expenses related to compliance with the rulesand regulations of the SEC and the Nasdaq Capital Market, as well as additional insurance, investor relations and directors’ fees. Personnel and relatedfacilities costs also increased due to an increased headcount and the overlap of personnel due to transitioning following the Merger. Approximately $0.5million and $0.9 million in 2018 and 2017, respectively, were incurred for legal, accounting and other third-party costs related directly to the Merger and arenot expected to recur.Impairment of Intangible AssetsThe following table presents the impairment of our intangible assets for 2018 and 2017:Year Ended December 31,2018 2017 % Change (dollars in thousands) $1,600 $— N/AImpairment of intangible assets represents the write-off of the in-process research and development related to teslexivir that we acquired in the Merger. Sincethe Phase 2 trial completed in May 2018 did not achieve the primary efficacy endpoint and we have suspended development activities, we now consider thisasset to be fully impaired.Costs of Exit from Leased PremisesThe following table presents the costs of exit from leased premises for 2018 and 2017:Year Ended December 31,2018 2017 % Change (dollars in thousands) $359 $— N/ACosts of exit from leasehold premises comprise both our lease loss accrual and our write-down of leasehold improvements and furniture at our leased premisesin Alpharetta, Georgia. Since this facility had surplus capacity, we subleased these premises, commencing in November 2018, for the remainder of the leaseterm for less than we are presently paying. Accordingly, we recorded an exit charge consisting of loss on lease obligations for the net discounted future cashflows for rental and associated costs at the cease-use date of $253,000 and a property and equipment impairment charge of $106,000.Other Income and (Expenses)The following table presents our net non-operating income and (expenses) for 2018 and 2017:Year Ended December 31,2018 2017 % Change (dollars in thousands) $3,858 $433 791%For 2018 and 2017, we recorded net non-operating income of $3.9 million and $433,000, respectively.The principal source of non-operating income in 2018 was a bargain purchase gain of $6.8 million, representing the excess of our valuation of the fair valueof net assets acquired over the fair value of the common stock issued to acquire them in the Merger.Interest expense was $821,000 in 2018, decreasing from $3.0 million in 2017 due to Private Vaxart’s convertible promissory notes being outstanding foronly 43 days prior to the Merger, whereas they earned interest for 365 days in 2017. Non-cash interest expense on liability related to sale of future royalties of$1.9 million in 2018 relates to accounting for sums that will become payable to HCRP for royalty revenue earned from Inavir in the post-Merger period asdebt.80Table of ContentsThe gain on revaluation of financial instruments in 2017 was principally caused by an embedded derivative liability related to the conversion feature onPrivate Vaxart’s convertible promissory notes, which had a fair value of$3.3 million as of December 31, 2016, and zero as of December 31, 2017. SincePrivate Vaxart’s convertible promissory notes and warrants converted to equity on the Merger, there are no longer any comparable financial instrumentsoutstanding on which a change in fair value will be recorded.The foreign exchange loss of $266,000 in 2018 relates to the revaluation of cash and receivables denominated in Australian dollars and British pounds attheir December 31, 2018, exchange rates and resulted from the strengthening U.S. dollar.Provision for Income TaxesThe following table presents our provision for income taxes for 2018 and 2017:Year Ended December 31,2018 2017 % Change (dollars in thousands) $109 $— N/AThe provision for income taxes for 2018 comprises $102,000 of withholding tax on royalty revenue earned on sales of Inavir in Japan, which is potentiallyrecoverable as a foreign tax credit but expensed because we record a 100% valuation allowance against our deferred tax assets, $4,000 relating to interest onan intercompany loan from a foreign subsidiary, plus $3,000 for state income taxes.Liquidity and Capital ResourcesSince inception, Private Vaxart’s operations have been financed primarily by net proceeds of $38.9 million and $29.4 million from the sale of convertiblepreferred stock and the issuance of convertible promissory notes, respectively, all of which were converted into Aviragen common stock in the Merger, and$4.9 million from the issuance of secured promissory notes to Oxford Finance, repayable by January 2021. Vaxart gained $25.5 million in cash fromAviragen in the Merger, of which $4.9 million was used to pay for severance, financial advisory fees, director and officer insurance, legal and otherprofessional costs incurred by Aviragen prior to, or upon the closing of, the Merger.As of December 31, 2018, we had $11.5 million of cash and cash equivalents. We believe these funds, along with our projected revenue, are sufficient to fundus into, but possibly not beyond, the second quarter of 2019. Our independent auditors have included an explanatory paragraph in their report on ourfinancial statements as of and for the year ended December 31, 2018, indicating that, because we have experienced losses and negative cash flows fromoperations and have an accumulated deficit and debt obligations, there is substantial doubt about our ability to continue as a going concern.To continue operations thereafter, we will need to raise further capital, through the sale of additional securities or otherwise. Our operating needs include theplanned costs to operate our business, including amounts required to fund working capital and capital expenditures. As of December 31, 2018, we hadcommitments for capital expenditures totaling $0.5 million. Our future capital requirements and the adequacy of our available funds will depend on manyfactors, most notably our ability to successfully commercialize our products and services.We plan to continue to fund our operations and capital funding needs through equity and/or debt financing. We may also enter into government fundingprograms and consider selectively partnering for clinical development and commercialization. The sale of additional equity would result in additionaldilution to our stockholders. Incurring debt financing would result in debt service obligations, and the instruments governing such debt could provide foroperating and financing covenants that would restrict our operations. If we are unable to raise additional capital in sufficient amounts or on acceptable terms,we may be required to delay, limit, reduce, or terminate our product development or future commercialization efforts or grant rights to develop and marketvaccine candidates that we would otherwise prefer to develop and market ourselves. Any of these actions could harm our business, results of operations andprospects.Our future funding requirements will depend on many factors, including the following:· the timing and costs of our planned clinical trials for our product candidates;· the timing and costs of our planned preclinical studies of our product candidates;· our success in establishing and scaling commercial manufacturing capabilities;· the amount and timing of royalties received on sales of Relenza and Inavir;81Table of Contents· the number and characteristics of product candidates that we pursue;· the outcome, timing and costs of seeking regulatory approvals;· revenue received from commercial sales of our future products, which will be subject to receipt of regulatory approval;· the terms and timing of any future collaborations, licensing, consulting or other arrangements that we may enter into;· the amount and timing of any payments that may be required in connection with the licensing, filing, prosecution, maintenance, defense andenforcement of any patents or patent applications or other intellectual property rights; and· the extent to which we in-license or acquire other products and technologies.Cash FlowsThe following table summarizes our cash flows for the periods indicated: Year Ended December 31, 2018 2017 (in thousands)Cash used in operating activities$(14,548) $ (10,040)Cash provided by investing activities 26,212 3,182Cash (used in) provided by financing activities (1,729) 24Net increase (decrease) in cash and cash equivalents$9,935 $(6,834)Net Cash Used in Operating ActivitiesWe experienced negative cash flow from operating activities in 2018 and 2017 in the amounts of $14.5 million and $10.0 million, respectively. The cashused in operating activities in 2018 was due to a net loss of $18.0 million, partially offset by $1.0 million of adjustments for net non-cash income related tothe bargain purchase gain, depreciation and amortization, loss on sale of equipment, impairment charges, stock-based compensation, loss on revaluation offinancial instruments, non-cash interest,amortization of note discount and non-cash interest expense and revenue related to sale of future royalties and $2.5million provided by a change in working capital, principally due to the receipt of accounts receivable of $14.7 million acquired in the Merger. The cash usedin operating activities in 2017 was due to cash used to fund a net loss of $9.6 million and a decrease in working capital of $624,000, partially offset by netnon-cash expenses related to depreciation and amortization, gain on sale of equipment, stock-based compensation, amortization of discount on short-terminvestments, gain on revaluation of financial instruments, non-cash interest and amortization of note discount totaling $166,000.Net Cash Provided by Investing ActivitiesIn 2018 we received cash of $25.5 million in the Merger and $1.4 million from maturities of short-term investments, net of purchases. This was partially offsetby $707,000 to purchase property and equipment and $21,000 to pay for fractional shares of common stock in the Merger. In 2017 Vaxart received $3.2million from maturities of short-term investments, net of purchases, and $70,000 from the sale of equipment, partially offset by $117,000 used to purchaseproperty and equipment.Net Cash (Used in) Provided by Financing ActivitiesWe used $1.5 million in 2018 to repay principal on the secured promissory note payable to Oxford Finance and $214,000 to repay principal on a short-termnote, partially offset by $13,000 received upon the exercise of stock options. In 2017 we received $24,000 upon the exercise of stock options.Critical Accounting Policies and EstimatesOur management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which havebeen prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us tomake estimates and judgments that affect the reported amounts of assets, liabilities and expenses. On an ongoing basis, we evaluate these estimates andjudgments. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. Theseestimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are notreadily apparent from other sources. Actual results may differ materially from these estimates. We believe that the accounting policies discussed below arecritical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments andestimates. 82Table of ContentsAccrued Research and Development ExpensesWe record accrued expenses for estimated costs of research and development activities conducted by third-party service providers, which include the conductof preclinical studies and clinical trials, and contract manufacturing activities. We record the estimated costs of research and development activities basedupon the estimated amount of services provided and include the costs incurred but not yet invoiced within other accrued liabilities in the balance sheets andwithin research and development expense in the consolidated statements of operations and comprehensive loss. These costs can be a significant componentof our research and development expenses.We estimate the amount of work completed through discussions with internal personnel and external service providers as to the progress or stage ofcompletion of the services and the agreed-upon fee to be paid for such services. We make significant judgments and estimates in determining the accruedbalance in each reporting period. As actual costs become known, we adjust our accrued estimates.Intangible AssetsIntangible assets acquired in the Merger were recorded at their estimated fair values of $20.3 million and $1.8 million for developed technologies Inavir andRelenza, respectively, which are being amortized on a straight-line basis over the estimated periods of future royalties of 11.75 and 1.3 years, respectively,and $1.6 million for in-process research and development related to teslexivir which was considered indefinite-lived until it was assessed as impaired in thethree months ended June 30, 2018. These valuations were prepared by an independent third party based on estimated discounted cash flows based onprobability-weighted future development expenditures and revenue streams, which are highly subjective.Off-Balance Sheet ArrangementsDuring 2017 and 2018, we did not have any off-balance sheet arrangements.Recently Issued Accounting PronouncementsSee the “Recent Accounting Pronouncements” in Note 2 to the Consolidated Financial Statements in Part II, Item 8 for information related to the adoption ofnew accounting standards in 2018, none of which had a material impact on our financial statements, and the future adoption of recently issued accountingpronouncements, which we do not expect will have a material impact on our financial statements. 83Table of ContentsItem 8. Financial Statements and Supplementary DataIndex to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm 85 Consolidated Balance Sheets 86 Consolidated Statements of Operations and Comprehensive Loss 87 Consolidated Statements of Stockholders’ Equity (Deficit) 88 Consolidated Statements of Cash Flows 89 Notes to the Consolidated Financial Statements 91 84Table of ContentsReport of Independent Registered Public Accounting Firm The Stockholders and Board of DirectorsVaxart, Inc. Opinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of Vaxart, Inc. and subsidiaries (the Company) as of December 31, 2018 and 2017, and therelated consolidated statements of operations and comprehensive loss, stockholders’ equity (deficit) and cash flows for each of the years in the two-yearperiod ended December 31, 2018, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financialstatements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operationsand its cash flows for each of the years in the two-year period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles. Going ConcernThe accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed inNote 1 to the consolidated financial statements, the Company has experienced losses and negative cash flows from operations since its inception, has anaccumulated deficit, and has debt obligations that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard tothese matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of thisuncertainty. Basis for OpinionThese consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on theseconsolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board(United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required tohave, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain anunderstanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internalcontrol over financial reporting. Accordingly, we express no such opinion.Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud,and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosuresin the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ KPMG LLP We have served as the Company’s auditor since 2014. San Francisco, CaliforniaFebruary 6, 201985Table of ContentsVAXART, INC. AND SUBSIDIARIESConsolidated Balance Sheets(In thousands, except share and per share amounts)December 31,2018December 31,2017AssetsCurrent assets: Cash and cash equivalents$11,506$1,571Short-term investments — 1,415Accounts receivable1,796630Prepaid expenses and other current assets 1,343 137Total current assets 14,645 3,753Property and equipment, net 1,066 730Intangible assets, net19,41340Other long-term assets 103 —Total assets$35,227 $4,523Liabilities and Stockholders’ Equity (Deficit) Current liabilities:Accounts payable$962 $1,390Current portion of secured promissory note payable to Oxford Finance1,6671,528Liability related to sale of future royalties, current portion 3,328 —Other accrued current liabilities 1,518 1,605 Total current liabilities7,4754,523 Convertible promissory notes, long-term, related parties—35,282Liability related to sale of future royalties, net of current portion 14,413 —Secured promissory note payable to Oxford Finance, net of current portion1,9443,440Other long-term liabilities 157 —Total liabilities 23,989 43,245Commitments and contingencies (Note 10) Stockholders’ equity (deficit): Preferred Stock: $0.10 par value; 5,000,000 shares authorized; none issued and outstanding as of December 31, 2018; 1,221,064 issued and outstanding as of December 31, 2017, with aggregate liquidation value of $39,956—1Common Stock: $0.10 par value; 200,000,000 shares authorized; 7,141,189 and 138,492 shares issued and outstanding as of December 31, 2018 and 2017, respectively 714 —Additional paid-in capital108,51341,259Accumulated deficit (97,989) (79,982)Total stockholders’ equity (deficit) 11,238 (38,722)Total liabilities and stockholders’ equity (deficit)$35,227 $4,523The accompanying notes are an integral part of these consolidated financial statements. 86Table of ContentsVAXART, INC. AND SUBSIDIARIESConsolidated Statements of Operations and Comprehensive Loss(In thousands, except share and per share amounts)Year Ended December 31,20182017Revenue: Revenue from government contract$1,344 $5,839Royalty revenue 1,340 —Non-cash royalty revenue related to the sale of future royalties 1,475 — Total revenue 4,159 5,839 Operating expenses:Research and development 17,275 12,355General and administrative6,6813,499Impairment of intangible assets 1,600 —Costs of exit from leased premises 359 — Total operating expenses 25,915 15,854 Operating loss (21,756) (10,015) Other income and (expenses):Bargain purchase gain 6,760 —Interest income5853Interest expense (821) (3,036)Non-cash interest expense related to sale of future royalties(1,859)—(Loss) gain on sale of equipment (11) 69(Loss) gain on revaluation of financial instruments, net(3)3,347Foreign exchange loss, net (266) —Total other income and (expenses) 3,858 433Net loss before provision for income taxes (17,898) (9,582)Provision for income taxes 109 — Net loss (18,007) (9,582)Series B and C preferred dividend (339) (2,878)Net comprehensive loss attributable to common stockholders$(18,346) $(12,460)Net loss per share – basic and diluted$(2.90) $(91.65)Shares used to compute net loss per share – basic and diluted 6,316,065 135,953The accompanying notes are an integral part of these consolidated financial statements. 87Table of ContentsVAXART, INC. AND SUBSIDIARIESConsolidated Statements of Stockholders’ Equity (Deficit)(In thousands, except share amounts)AdditionalPaid-inCapitalTotalStockholders’Equity (Deficit)Preferred StockCommon StockAccumulatedDeficitSharesAmountSharesAmountBalances as of January 1, 20171,221,064$1135,658$—$40,758$(70,400)$(29,641)Issuance of common stock upon exercise of stock options——2,834—24—24Stock-based compensation————477—477Net loss— —— — — (9,582) (9,582)Balances as of December 31, 20171,221,064$1138,492$—$41,259$(79,982)$(38,722)Issuance of common stock upon conversion of convertible promissory notes, related parties——1,571,70215735,420—35,577Issuance of common stock upon conversion of convertible preferred stock(1,221,064)(1)1,918,543192(191)——Reclassification of warrant to equity————70—70Issuance of common stock upon reverse merger——3,510,43936531,403—31,768Issuance of common stock upon exercise of stock options——2,013—13—13Stock-based compensation————539—539Net loss— —— — — (18,007) (18,007)Balances as of December 31, 2018—$—7,141,189$714$108,513$(97,989)$11,238The accompanying notes are an integral part of these consolidated financial statements. 88Table of ContentsVAXART, INC. AND SUBSIDIARIESConsolidated Statements of Cash Flows(In thousands)Year Ended December 31,20182017Cash flows from operating activities: Net loss$(18,007)$(9,582)Adjustments to reconcile net loss to net cash used in operating activities: Bargain purchase gain(6,760)—Depreciation and amortization 3,203 380Loss (gain) on sale of equipment11(69)Impairment of intangible assets 1,600 —Impairment of property and equipment106—Stock-based compensation 539 477Amortization of discount on short-term investments—24Loss (gain) on revaluation of financial instruments, net 3 (3,347)Non-cash interest expense4482,557Amortization of note discount 18 144Non-cash interest expense related to sale of future royalties1,859—Non-cash revenue related to sale of future royalties (18) —Change in operating assets and liabilities:Accounts receivable 13,500 960Prepaid expenses and other assets(873)52Accounts payable (3,784) (1,559)Accrued liabilities (6,393) (77) Net cash used in operating activities (14,548) (10,040) Cash flows from investing activities: Purchase of property and equipment (707) (117) Proceeds from sale of equipment—70 Cash acquired in reverse merger 25,525 — Cash paid for fractional shares in merger(21)— Purchases of short-term investments (573) (7,351) Proceeds from maturities of short-term investments 1,988 10,580 Net cash provided by investing activities 26,212 3,182 Cash flows from financing activities: Repayment of principal on secured promissory note payable to Oxford Finance (1,528) — Repayment of short-term note(214)— Proceeds from issuance of common stock upon exercise of stock options 13 24Net cash (used in) provided by financing activities (1,729) 24Net increase (decrease) in cash and cash equivalents 9,935 (6,834)Cash and cash equivalents at beginning of the period 1,571 8,405Cash and cash equivalents at end of the period$11,506 $1,571The accompanying notes are an integral part of these consolidated financial statements. 89Table of ContentsVAXART, INC. AND SUBSIDIARIESConsolidated Statements of Cash Flows (continued)(In thousands)Year Ended December 31,20182017Supplemental disclosure of cash flow information:Interest paid$356 $335Supplemental disclosure of non-cash investing and financing activity: Issuance of common stock upon reverse merger, net of cash paid for partial shares$31,768 $—Conversion of convertible promissory notes, related parties into common stock upon reverse merger$35,577$—Reclassification of convertible preferred stock warrant liability to equity$70 $—Acquisition of property and equipment included in accounts payable$52$—The accompanying notes are an integral part of these consolidated financial statements. 90Table of ContentsVAXART, INC. AND SUBSIDIARIESNotes to the Consolidated Financial Statements NOTE 1. Organization and Basis of PresentationGeneral Vaxart Biosciences, Inc. was originally incorporated in California in March 2004, under the name West Coast Biologicals, Inc. The Company changed itsname to Vaxart, Inc. (“Private Vaxart”) in July 2007, and reincorporated in the state of Delaware.On February 13, 2018, Private Vaxart completed a business combination with Aviragen Therapeutics, Inc. (“Aviragen”), pursuant to which Aviragen mergedwith Private Vaxart, with Private Vaxart surviving as a wholly-owned subsidiary of Aviragen (the “Merger”). Pursuant to the terms of the Merger, Aviragenchanged its name to Vaxart, Inc. (together with its subsidiaries, the “Company” or “Vaxart”) and Private Vaxart changed its name to Vaxart Biosciences, Inc.All of Private Vaxart’s convertible promissory notes and convertible preferred stock was converted into common stock, following which each share ofcommon stock was converted into approximately 0.22148 shares of the Company’s common stock (the “Conversion”). Except as otherwise noted in theseFinancial Statements, all shares, equity securities and per share amounts of Private Vaxart are presented to give retroactive effect to the Conversion.Immediately following the completion of the Merger, the Company effected a reverse stock split at a ratio of one new share for every eleven shares of theCompany’s common stock outstanding (the “Reverse Stock Split”).Except as otherwise noted in these Financial Statements, all share, equity security and pershare amounts are presented to give retroactive effect to the Reverse Stock Split.Immediately after the Reverse Stock Split there were approximately 7.1 million shares of the Company’s common stock outstanding. Private Vaxart’sstockholders, warrantholders and optionholders owned approximately 51% of the fully-diluted common stock of the Company, with Aviragen’s stockholdersand optionholders immediately prior to the Merger owning approximately 49% of the fully-diluted common stock of the Company. The Company alsoassumed all of Private Vaxart’s outstanding stock options and warrants with proportionate adjustments to the number of underlying shares and exercise pricesbased on an exchange ratio, based on the combined impact of the Conversion and the Reverse Stock Split, of approximately 0.0201346 shares of theCompany for each share of Private Vaxart.The Company’s principal operations are based in South San Francisco, California, and it operates in one reportable segment, which is the discovery anddevelopment of oral recombinant protein vaccines, based on its proprietary oral vaccine platform.Liquidity and Going ConcernSince incorporation, the Company has been involved primarily in performing research and development activities, hiring personnel, and raising capital tosupport these activities. The Company has experienced losses and negative cash flows from operations since its inception. As of December 31, 2018, theCompany had an accumulated deficit of $98.0 million and a loan with an outstanding balance of $3.6 million from Oxford Finance, LLC (“Oxford Finance”),repayable in monthly installments by January 2021 (see Note 9).The Company expects to incur increasing costs as research and clinical trials are advanced and, therefore, expects to continue to incur losses and negativeoperating cash flows for the next several years. Absent additional funding or adjustments to currently planned operating activities, and in view of theuncertainties regarding future royalty revenue on sales of Relenza and Inavir, management believes that the Company’s cash and cash equivalents of $11.5million held as of December 31, 2018, are sufficient to fund the Company into, but possibly not beyond, the second quarter of 2019.The Company reviews its operations and clinical plans on a continuing basis, including its commitments for upcoming clinical trials. The Company plans tofinance its operations with royalty revenue on sales of Relenza and Inavir, additional equity or debt financing arrangements, and potentially with additionalfunding from government contracts or strategic alliances with partner companies. The availability and amount of such funding is not certain.The uncertainties inherent in the Company’s future operations and in its ability to obtain additional funding raise substantial doubt about its ability tocontinue as a going concern beyond one year from the date these financial statements are issued. The financial statements do not include any adjustmentsthat might result from the outcome of this uncertainty. 91Table of ContentsVAXART, INC. AND SUBSIDIARIESNotes to the Consolidated Financial Statements While management believes its plan to raise additional funds will alleviate the conditions that raise substantial doubt, these plans are not entirely within itscontrol and cannot be assessed as being probable of occurring. If adequate funds are not available, the Company may be required to reduce operatingexpenses, delay or reduce the scope of its product development programs, obtain funds through arrangements with others that may require the Company torelinquish rights to certain of its technologies or products that the Company would otherwise seek to develop or commercialize itself, or cease operations.NOTE 2. Summary of Significant Accounting PoliciesBasis of Presentation – The accompanying consolidated financial statements have been prepared in accordance with accounting principles generallyaccepted in the United States of America (“U.S. GAAP”).Basis of Consolidation – The consolidated financial statements include the financial statements of Vaxart, Inc. and its subsidiaries. All significanttransactions and balances between Vaxart, Inc. and its subsidiaries have been eliminated in consolidation.Use of Estimates – The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affectthe reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities in the financial statements andaccompanying notes. Actual results and outcomes could differ from these estimates and assumptions.Foreign Currencies – Foreign exchange gains and losses for assets and liabilities of the Company’s non-U.S. subsidiaries for which the functional currencyis the U.S. dollar are recorded in foreign exchange gain or loss, net within other income and (expenses) in the Company’s statements of operations andcomprehensive loss. The Company has no subsidiaries for which the local currency is the functional currency.Cash and Cash Equivalents – The Company considers all highly liquid debt investments with an original maturity of three months or less when purchased tobe cash equivalents. Cash equivalents, which may consist of amounts invested in money market funds, corporate bonds and commercial paper, are stated atfair value. Cash and cash equivalents as of December 31, 2018 and 2017, includes $50,000 of restricted cash.Short-Term Investments – The Company’s short-term investments have only comprised commercial paper and corporate bonds. The short-term investmentsare classified as held-to-maturity based on the Company’s positive intent and ability to hold the securities to maturity. This classification is reevaluated ateach balance sheet date. Short-term investments are stated at amortized cost, adjusted for amortization of premiums and accretion of discounts to maturity.Such amortization is presented as interest income in the statement of operations and comprehensive loss. The specific identification method is used todetermine the realized gain or loss on securities sold or otherwise disposed. When the fair value of a debt security classified as held-to-maturity is less than itsamortized cost, the Company assesses whether or not: (i) it has the intent to sell the security or (ii) it is more likely than not that the Company will be requiredto sell the security before its anticipated recovery. If either of these conditions is met, the Company must recognize an other-than-temporary impairmentthrough earnings for the difference between the debt security’s amortized cost basis and its fair value. Gains and losses are recognized in earnings when theinvestments are sold or impaired.Concentration of Credit Risk – Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally ofcash, cash equivalents, short-term investments and accounts receivable. The Company places its cash, cash equivalents and short‑term investments atfinancial institutions that management believes are of high credit quality. The Company is exposed to credit risk in the event of default by the financialinstitutions holding the cash and cash equivalents to the extent such amounts are in excess of the federally insured limits. The Company has not experiencedany losses on its deposits since inception.The primary focus of the Company’s investment strategy is to preserve capital and meet liquidity requirements. The Company’s investment policy addressesthe level of credit exposure by limiting the concentration in any one corporate issuer or sector and establishing a minimum allowable credit rating. TheCompany generally requires no collateral from its customers. 92Table of ContentsVAXART, INC. AND SUBSIDIARIESNotes to the Consolidated Financial StatementsAccounts Receivable – Accounts receivable arise from the Company’s royalty revenue receivable for sales,net of estimated returns, of Inavir and Relenza,and from its contract with the Department of Health and Human Services, Office of Biomedical Advanced Research and Development Authority (“HHSBARDA”) (see Note 6), and are reported at amounts expected to be collected in future periods. An allowance for uncollectible accounts will be recordedbased on a combination of historical experience, aging analysis, and information on specific accounts, with related amounts recorded as a reserve againstrevenue recognized. Account balances will be written off against the allowance after all means of collection have been exhausted and the potential forrecovery is considered remote. The Company has provided no allowance for uncollectible accounts as of December 31, 2018 and 2017.Property and Equipment – Property and equipment is carried at cost less accumulated depreciation. Depreciation is computed using the straight-line methodover the estimated useful lives of the respective assets. Depreciation begins at the time the asset is placed in service. Maintenance and repairs are charged tooperations as incurred. Upon sale or retirement of assets, the cost and related accumulated depreciation are removed from the balance sheet and the resultinggain or loss is reflected in other income and (expenses) in the period realized.The useful lives of the property and equipment are as follows:Laboratory equipment5 yearsOffice and computer equipment3 yearsLeasehold improvementsShorter of remaining lease term or estimated useful lifeIntangible Assets – Intangible assets comprise developed technology, intellectual property and, until it was considered fully impaired (see Note 5), in-process research and development. Intangible assets are carried at cost less accumulated amortization. Amortization is computed using the straight-linemethod over useful lives ranging from 1.3 to 11.75 years for developed technology and 20 years for intellectual property. In-process research anddevelopment is considered to be indefinite-lived and is not amortized, but is subject to impairment testing. The Company assessed its in-process research anddevelopment as fully impaired in the year ended December 31, 2018 (see Note 5).Impairment of Long-Lived Assets – The Company reviews its long-lived assets, including property and equipment and intangible assets with finite lives, forimpairment whenever events or changes in circumstances indicate the carrying amount of these assets may not be recoverable. Recoverability of these assetsis measured by comparison of the carrying amount of each asset to the future undiscounted cash flows the asset is expected to generate over its remaining life.When indications of impairment are present and the estimated undiscounted future cash flows from the use of these assets is less than the assets’ carryingvalue, the related assets will be written down to fair value. The Company assessed leasehold improvements and furniture at its leased offices in Alpharetta,Georgia as impaired in the year ended December 31, 2018 (see Notes 5 and 10). There have been no other impairments of the Company’s long-lived assets forthe periods presented.Accrued Clinical and Manufacturing Expenses – The Company accrues for estimated costs of research and development activities conducted by third-partyservice providers, which include the conduct of preclinical studies and clinical trials, and contract manufacturing activities. The Company records theestimated costs of research and development activities based upon the estimated amount of services provided and includes the costs incurred but not yetinvoiced within other accrued liabilities in the balance sheets and within research and development expense in the consolidated statements of operations andcomprehensive loss. These costs can be a significant component of the Company’s research and development expenses.The Company estimates the amount of services provided through discussions with internal personnel and external service providers as to the progress orstage of completion of the services and the agreed-upon fee to be paid for such services. The Company makes significant judgments and estimates indetermining the accrued balance in each reporting period. As actual costs become known, it adjusts its accrued estimates. Although the Company does notexpect its estimates to be materially different from amounts actually incurred, its understanding of the status and timing of services performed, the number ofsubjects enrolled, and the rate of enrollment may vary from its estimates and could result in the Company reporting amounts that are too high or too low inany particular period. The Company’s accrued expenses are dependent, in part, upon the receipt of timely and accurate reporting from contract researchorganizations and other third-party service providers. To date, the Company has not experienced any material differences between accrued costs and actualcosts incurred.93Table of ContentsVAXART, INC. AND SUBSIDIARIESNotes to the Consolidated Financial StatementsConvertible Preferred Stock Warrant Liability – The Company has issued certain convertible preferred stock warrants. These warrants were recordedwithin other accrued liabilities in the balance sheets at fair value due to down-round protection features contained in the convertible preferred stock intowhich the warrants were exercisable. At the end of each reporting period, changes in fair value of the warrants since the prior period were recorded as acomponent of (loss) gain on revaluation of financial instruments, net within other income and (expenses) in the consolidated statements of operations andcomprehensive loss. In the event that the terms of the warrant change such that liability accounting is no longer required, the fair value on the date of suchchange is released to equity.Convertible Promissory Notes Embedded Derivative Liability – The Company recorded derivative instruments related to redemption features embeddedwithin the outstanding convertible promissory notes. The embedded derivatives were accounted for as liabilities at their estimated fair value when theconvertible promissory notes were issued and were re-measured to fair value as of each balance sheet date, with the related re-measurement adjustment beingrecognized as a component of (loss) gain on revaluation of financial instruments in the consolidated statements of operations and comprehensive loss.Revenue Recognition – The Company recognizes revenue when it transfers control of promised goods or services to its customers, in an amount that reflectsthe consideration which the Company expects to receive in exchange for those goods or services. To determine revenue recognition, the Company performsthe following five steps:(i) identification of the promised goods or services in the contract;(ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of thecontract;(iii) measurement of the transaction price, including the constraint on variable consideration;(iv) allocation of the transaction price to the performance obligations based on estimated selling prices; and(v) recognition of revenue when (or as) the Company satisfies each performance obligation. A performance obligation is a promise in a contract totransfer a distinct good or service to the customer and is the unit of account.Revenue from royalties earned as a percentage of sales, including milestone payments based on achieving a specified level of sales, where a license is deemedto be the predominant item to which the royalties relate, is recognized as revenue at the later of (i) when the related sales occur, or (ii) when the performanceobligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied), as required under the sales- and usage-basedroyalty exception.The Company performed research and development work under its cost‑plus‑fixed‑fee contract with HHS BARDA. The Company recognizes revenue underresearch contracts only when a contract has been executed and the contract price is fixed or determinable. Revenue from the HHS BARDA contract isrecognized in the period during which the related costs are incurred and the related services are rendered, provided that the applicable conditions under thecontract have been met. Costs of contract revenue are recorded as a component of operating expenses in the consolidated statements of operations andcomprehensive loss.Under the cost reimbursable contract with HHS BARDA, the Company is reimbursed for allowable costs, and recognizes revenue as allowable costs areincurred and the fixed-fee is earned. Reimbursable costs under the contract primarily include direct labor, subcontract costs, materials, equipment, travel, andapproved overhead and indirect costs. Fixed fees under cost reimbursable contracts are earned in proportion to the allowable costs incurred in performance ofthe work relative to total estimated contract costs, with such costs incurred representing a reasonable measurement of the proportional performance of thework completed. Under the HHS BARDA contract, certain activities must be pre-approved in order for their costs to be deemed allowable direct costs. TheHHS BARDA contract provides the U.S. government the ability to terminate the contract for convenience or to terminate for default if the Company fails tomeet its obligations as set forth in the statement of work.Payments to the Company under cost reimbursable contracts, such as this contract, are provisional payments subject to adjustment upon annual audit by thegovernment. Management believes that revenue for periods not yet audited has been recorded in amounts that are expected to be realized upon final auditand settlement. When the final determination of the allowable costs for any year has been made, revenue and billings may be adjusted accordingly in theperiod that the adjustment is known.Research and Development Costs – Research and development costs are expensed as incurred. Research and development costs consist primarily of salariesand benefits, stock-based compensation, consultant fees, third-party costs for conducting clinical trials and the manufacture of clinical trial materials, certainfacility costs and other costs associated with clinical trials. Payments made to other entities are under agreements that are generally cancelable by theCompany. Advance payments for research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the relatedservices are performed. 94Table of ContentsVAXART, INC. AND SUBSIDIARIESNotes to the Consolidated Financial StatementsStock-Based Compensation – The Company measures the fair value of all stock-based awards, including stock options, to employees and, since April 1,2018, to nonemployees, on the grant date and records the fair value of these awards, net of estimated forfeitures, to compensation expense over the serviceperiod. Prior to April 1, 2018, the fair value of awards to nonemployees was measured on the date of performance at the fair value of the considerationreceived or the fair value of the equity instruments issued, whichever was more reliably measured. The fair value of options is estimated using the Black-Scholes valuation model. The expected term of each option is estimated by taking the arithmetic average of its original contractual term and its averagevesting term.Net Income (Loss) Per Share Attributable to Common Stockholders – Basic net income (loss) per share is computed by dividing net income (loss), asadjusted for dividends on the Series B and Series C convertible preferred stock in the period, by the weighted average number of common shares outstandingduring the period, without consideration of potential common shares.Diluted net income (loss) per common share is computed giving effect to all potential dilutive common shares, comprising common stock issuable uponexercise of stock options and warrants. The Company uses the treasury-stock method to compute diluted income (loss) per share with respect to its stockoptions and warrants. For purposes of this calculation, options and warrants to purchase common stock are considered to be potential common shares and areonly included in the calculation of diluted net income per share when their effect is dilutive. In the event of a net loss, the effects of all potentially dilutiveshares are excluded from the diluted net loss per share calculation as their inclusion would be antidilutive.Recently Adopted Accounting PronouncementsIn June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based PaymentAccounting. This update simplifies the accounting for share-based payment transactions by changing the guidance for accounting for nonemployee share-based awards so that, instead of revaluing each award at each balance sheet date during the period over which it vests, the value will be fixed on the grantdate and expensed over the vesting period in the same way that employee awards are already accounted for. This guidance is effective for annual periodsbeginning after December 15, 2018, including interim periods within that year, with early adoption permitted for entities that had already adopted Topic 606(see ASU 2014-09 below). The Company adopted ASU 2018-07 effective April 1, 2018, and since it had no unvested awards granted to nonemployees, itsadoption had no effect on the Company’s financial condition or results of operations.In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting. This update providesguidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718.This guidance is effective for annual periods beginning after December 15, 2017, including interim periods within that year, and must be appliedprospectively to an award modified on or after the adoption date. The Company adopted this standard effective January 1, 2018, and its adoption had noeffect on the Company’s financial condition or results of operations.In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350) Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which will simplify the goodwill impairment calculation by eliminating Step 2 from the current goodwill impairment test. The new standard does notchange how a goodwill impairment is identified. The standard will be effective January 1, 2020, with early adoption permitted, and is to be appliedprospectively from the date of adoption. The Company adopted this standard effective January 1, 2018, and its adoption had no effect on the Company’sfinancial condition or results of operations.In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business (“ASU 2017-01”). The newstandard clarifies the definition of a business to help companies evaluate whether acquisition or disposal transactions should be accounted for as asset groupsor as businesses. The Company adopted this standard when it became effective on January 1, 2018, and it was applied in connection with the Company’saccounting for the Merger as a business combination.In August 2016, the FASB issued Accounting Standards Update (ASU) 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain CashReceipts and Cash Payments, which provides additional guidance on the presentation and classification of certain items in the statement of cash flows. Thestandard is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. The Company adopted this standard effective January1, 2018, and its adoption had no effect on the Company’s financial condition or results of operations. 95Table of Contents VAXART, INC. AND SUBSIDIARIESNotes to the Consolidated Financial StatementsIn May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes nearly all existing revenue recognitionguidance under Topic 605, Revenue Recognition. The new standard requires a company to recognize revenue when it transfers goods and services tocustomers in an amount that reflects the consideration that the company expects to receive for those goods or services. ASU 2014-09 defines a five-stepprocess that includes identifying the contract with the customer, identifying the performance obligations in the contract, determining the transaction price,allocating the transaction price to the performance obligations in the contract and recognizing revenue when (or as) the entity satisfies the performanceobligations.The Company has determined that its HHS BARDA government contract is not within the scope of ASU 2014-09 as the government entity is not a customerunder the agreement. The Company adopted ASU 2014-09 with respect to its royalty revenue using the modified retrospective method on January 1, 2018.Under the modified retrospective transition method, the cumulative effect of applying the standard is recognized at the date of initial application for allcontracts not completed as of the date of adoption. The adoption of ASU 2014-09 did not have any effect on the Company’s financial condition or results ofoperations and therefore no cumulative effect adjustment was recorded, although the Company has modified its accounting policies to reflect therequirements of this standard and make additional disclosures.Recent Accounting PronouncementsIn February 2016, the FASB issued ASU 2016-02 Leases (Topic 842), which replaces most current lease guidance when it becomes effective. This standardupdate intends to increase transparency and improve comparability by requiring entities to recognize assets and liabilities on the balance sheet for all leases,with certain exceptions. The new standard states that a lessee will recognize a lease liability for the obligation to make lease payments and a right-of-use assetfor the right to use the underlying asset for the lease term. Leases will be classified as either finance or operating, with classification affecting the pattern ofexpense recognition in the statements of operations. The new guidance will be effective for the Company starting in the first quarter of fiscal 2019, with earlyadoption permitted. The Company plans to adopt the new guidance effective January 1, 2019, using the modified retrospective method, and to use theeffective date method of adoption, as permitted by ASU 2018-11, Targeted Improvements, which the FASB issued in July 2018, which reduces the disclosurerequirements on transition. The Company has elected the short-term lease recognition exemption for all classes of assets, which means that it will notrecognize right-of-use assets or lease liabilities for leases with a duration of one year or less. Further, the Company has elected to use all of the practicalexpedients available on transition, whereby it has not reassessed under the new standard its prior conclusions about lease identification, lease classificationand initial direct costs.We expect that this standard will have a material effect on our consolidated financial statements. The most significant effects relate to the recognition of newright-of-use assets and lease liabilities on our consolidated balance sheet. The Company currently expects to recognize lease liabilities of $1,207,000,$766,000 of which is current, and right-of-use assets of $941,000 based on the present value of the remaining minimum rental payments under current leasingstandards for existing operating leases, to derecognize liabilities of $239,000, $100,000 of which is current, and recognize an increase of $27,000 toaccumulated deficit on adoption of the new accounting policy.The increase in accumulated deficit arises because the right-of-use asset impairment charge that would have been recorded in the three months endedDecember 31, 2018, under Topic 842 exceeds the lease loss accrual, net of accretion, that was recorded (see Note 10). This impact aside, the adoption willhave no effect on the Company’s statements of operations or cash flows, other than on related disclosures.The Company has reviewed all other significant newly-issued accounting pronouncements and concluded that they either are not applicable to theCompany’s operations or no material effect is expected on its consolidated financial statements as a result of future adoption. 96Table of ContentsVAXART, INC. AND SUBSIDIARIES Notes to the Consolidated Financial StatementsNOTE 3. Business CombinationOn February 13, 2018, the Company acquired Aviragen in a reverse merger (see Note 1). On the date of the Merger, Aviragen had in-process research anddevelopment as it was conducting a Phase 2 trial, it had previously developed drugs that were licensed to others who brought them to market and it had aworkforce that was considered to have the necessary skills, knowledge, and experience to perform a process that, when applied to the in-process research anddevelopment, was critical to the ability to convert it into outputs. Based on this evaluation, the Company determined that the Merger should be accountedfor as a business combination.Since the date of the Merger, the results of Aviragen’s operations have been included in the consolidated financial statements. As a result of the acquisition,the Company eliminated the majority of its debt and acquired a significant cash balance in exchange for equity securities.The total purchase price for Aviragen is summarized as follows (in thousands):Common stock$31,789 Total$31,789 In connection with the Aviragen acquisition, the Company allocated the total purchase consideration to the net assets and liabilities acquired, includingidentifiable intangible assets, based on their respective fair values at the acquisition date.The following table summarizes the preliminary allocation of the purchase price to the fair value of the respective assets and liabilities acquired, adjustmentsmade since the acquisition date and the final allocation as of December 31, 2018: As of February 13,2018 Adjustments As of December 31,2018 (in thousands) Cash and cash equivalents$25,525 $— $25,525Accounts receivable 14,666 — 14,666Prepaid expenses 446 (10) 436Property and equipment 170 — 170Intangible assets: Developed technology (1) 22,400 (300) 22,100In-process research and development (2) 1,600 — 1,600Total assets 64,807 (310) 64,497 Accounts payable (3,379) 75 (3,304) Other current liabilities (6,351) (393) (6,744) Liability related to sale of future royalties (16,300) 400 (15,900) Net assets acquired 38,777 (228) 38,549 Purchase price (31,789) — (31,789) Bargain purchase gain (3)$6,988 $(228) $6,760__________ (1) Developed technology comprises Inavir and Relenza, both influenza vaccines on which the Company is presently receiving royalty revenue, which,based on valuations prepared by an independent third party based on estimated discounted cash flows based on probability-weighted futuredevelopment expenditures and revenue streams provided by the Company’s management, are being amortized on a straight-line basis over the estimatedperiods of future royalties of 11.75 and 1.3 years, respectively.(2) In-process research and development (see Note 5) related to teslexivir, or BTA074, a direct-acting antiviral that, at the time of the Merger, was beingactively developed as a treatment for genital warts. The valuation was prepared by an independent third party based on estimated discounted cash flowsbased on probability-weighted future development expenditures and revenue streams provided by the Company’s management.(3) The bargain purchase gain represents the excess of the fair value of tangible and identified intangible assets, less liabilities, acquired over the purchaseprice. 97Table of ContentsVAXART, INC. AND SUBSIDIARIESNotes to the Consolidated Financial StatementsIn addition, the Company incurred and expensed costs directly related to the Merger totaling approximately $0.5 million and $0.9 million in the years endedDecember 31, 2018 and 2017, respectively, which are included in general and administrative expenses in the consolidated statement of operations andcomprehensive loss.Selected amounts related to Aviragen’s business included in the Company’s consolidated statement of operations for the year ended December 31, 2018, areas follows (in thousands):Revenue$2,815 Net loss$(3,847)The unaudited pro forma information in the table below summarizes the combined results of operations of Vaxart Biosciences, Inc. with those of Aviragen asthough these entities were combined as of January 1, 2017. The results of Aviragen’s business for the year ended December 31, 2017, are based oninformation used to prepare its audited consolidated financial statements prepared for the year ended June 30, 2017, as adjusted by information used toprepare its unaudited condensed consolidated financial statements prepared for the six months ended December 31, 2017 and 2016. The results of Aviragen’sbusiness for the year ended December 31, 2018, are based on the Company’s results of operations, with the results increased by Aviragen’s activities in theforty-three days prior to the closing of the Merger. The pro forma financial information for both years presented also includes the removal of directacquisition-related costs, the reduction in interest expense on borrowing converted into equity in the reverse merger, and the actual depreciation andamortization that would have been charged assuming the fair value adjustments to property and equipment and intangible assets had been applied as ofJanuary 1, 2017.This unaudited pro forma information is summarized as follows: Year Ended December 31, 2018 2017 (in thousands)Total revenue$15,695 $13,527 Net loss$(13,162) $(29,270)The pro forma financial information as presented above is for informational purposes only and is not indicative of the consolidatedresults of operations of future periods or the results of operations that would have been achieved had the acquisition had takenplace on January 1, 2017.NOTE 4. Fair Value of Financial InstrumentsFair value accounting is applied for all financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value inthe financial statements on a recurring basis (at least annually). Financial instruments include cash and cash equivalents, short‑term investments, accountsreceivable, accounts payable and accrued liabilities that approximate fair value due to their relatively short maturities. As short‑term investments areclassified as held‑to‑maturity, they are recorded at their amortized cost.Assets and liabilities recorded at fair value on a recurring basis in the balance sheets are categorized based upon the level of judgment associated with inputsused to measure their fair values. The accounting guidance for fair value provides a framework for measuring fair value and requires certain disclosures abouthow fair value is determined. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderlytransaction between market participants at the reporting date. The accounting guidance also establishes a three‑level valuation hierarchy that prioritizes theinputs to valuation techniques used to measure fair value based upon whether such inputs are observable or unobservable. Observable inputs reflect marketdata obtained from independent sources, while unobservable inputs reflect market assumptions made by the reporting entity.The three-level hierarchy for the inputs to valuation techniques is briefly summarized as follows: 98Table of ContentsVAXART, INC. AND SUBSIDIARIESNotes to the Consolidated Financial StatementsLevel 1 – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;Level 2 – Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical orsimilar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data forsubstantially the full term of the related assets or liabilities; andLevel 3 – Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or nomarket data.The Company’s money market funds are classified within Level 1 of the fair value hierarchy and are valued based on quoted prices in active markets foridentical securities. The Company’s corporate bonds and commercial paper are classified within Level 2 of the fair value hierarchy and are valued based onquoted prices for similar assets or prices derived from observable market data. Level 3 liabilities consist of convertible promissory notes embedded derivativeliabilities and a convertible preferred stock warrant liability as they are valued by using inputs that are unobservable in the market. The determination of thefair values of the convertible promissory notes embedded derivative is discussed in Note 8. The following tables present the Company’s financial assets and liabilities that are measured at fair value at December 31, 2018 and 2017: Level 1 Level 2 Level 3 TotalDecember 31, 2018 (in thousands) Recurring Financial Assets: Money Market Funds$15 $— $— $15Corporate Bonds — — — — Total assets$15 $— $— $15 Recurring Financial Liabilities: Convertible promissory notes embedded derivative liability$— $— $— $—Convertible preferred stock warrant liability — — — — Total liabilities$— $— $— $— Level 1 Level 2 Level 3 TotalDecember 31, 2017 (in thousands) Recurring Financial Assets: Money Market Funds$1,192 $— $— $1,192Corporate Bonds — 1,415 — 1,415 Total assets$1,192 $1,415 $— $2,607 Recurring Financial Liabilities: Convertible promissory notes embedded derivative liability$— $— $— $—Convertible preferred stock warrant liability — — 67 67 Total liabilities$— $— $67 $67 99Table of ContentsVAXART, INC. AND SUBSIDIARIES Notes to the Consolidated Financial StatementsThe following tables present a reconciliation of all liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) forthe years ended December 31, 2018 and 2017: ConvertiblePreferred StockWarrant Liability Convertible PromissoryNotes EmbeddedDerivative Liability Total (in thousands) Balance at January 1, 2018$67 $— $67Issuances — — —Revaluation loss included in (loss) gain on revaluation of financial instruments, net 3 — 3Settlements (70) — (70)Balance at December 31, 2018$— $— $— Total losses included in other income and (expenses) attributable to liabilities still held as of December 31, 2018$— $— $— ConvertiblePreferred StockWarrant Liability Convertible PromissoryNotes EmbeddedDerivative Liability Total (in thousands) Balance at January 1, 2017$134 $3,280 $3,414Issuances — — —Revaluation gains included in (loss) gain on revaluationof financial instruments, net (67) (3,280) (3,347)Settlements — — —Balance at December 31, 2017$67 $— $67 Total gains included in other income and (expenses) attributable to liabilities still held as of December 31, 2017$67 $3,280 $3,347NOTE 5. Balance Sheet Components(a) Cash Equivalents and Short-Term InvestmentsCash equivalents and short‑term investments, all of which are classified as held‑to‑maturity securities and mature within one year, consisted of the following: December 31, 2018 GrossUnrecognizedGains GrossUnrecognizedLosses EstimatedFairValue CarryingValue AmortizedCost (in thousands) Money market funds$15 $— $— $15 $15Corporate bonds — — — — —Total$15 $— $— $15 $15Reported as: Cash equivalents$15 $— $— $15 $15Short-term investments — — — — —Total$15 $— $— $15 $15 100Table of ContentsVAXART, INC. AND SUBSIDIARIESNotes to the Consolidated Financial Statements December 31, 2017 Gross Gross Estimated Amortized Unrecognized Unrecognized Fair Carrying Cost Gains Losses Value Value (in thousands) Money market funds$1,192 $— $— $1,192 $1,192Corporate bonds 1,415 — — 1,415 1,415Total$2,607 $— $— $2,607 $2,607Reported as: Cash equivalents$1,192 $— $— $1,192 $1,192Short-term investments 1,415 — — 1,415 1,415Total$2,607 $— $— $2,607 $2,607 (b) Accounts ReceivableAccounts receivable comprises the following: December 31,2018 December 31,2017 (in thousands)Royalties receivable$1,776 $—Government contract – billed 20 477Government contract – unbilled — 153Accounts receivable$1,796 $630(c) Property and Equipment, NetProperty and equipment, net consists of the following: December 31,2018 December 31,2017 (in thousands)Laboratory equipment$2,076 $1,565Office and computer equipment 227 175Leasehold improvements 333 226 Total property and equipment 2,636 1,966Less: accumulated depreciation (1,570) (1,236)Property and equipment, net$1,066 $730Depreciation expense was $476,000 and $376,000 for the years ended December 31, 2018 and 2017, respectively. Leasehold improvements and furniture atthe Company’s leased premises in Georgia, which has been subleased, commencing in November 2018, for less than the rental that the Company is obligatedto pay (see Note 10), were assessed as impaired as of September 30, 2018, and accordingly an impairment charge of $106,000 was recorded as a component ofcosts of exit from leased premises within operating expenses.101Table of ContentsVAXART, INC. AND SUBSIDIARIESNotes to the Consolidated Financial Statements(d) Intangible AssetsIntangible assets consist of the following: December 31,2018 February 13,2018 December 31,2017 (in thousands) Purchased technology$22,100 $22,400 $—In-process research and development — 1,600 —Intellectual property 80 80 80Total cost 22,180 24,080 80Less accumulated amortization 2,767 40 40Intangible assets, net$19,413 $24,040 $40Intangible asset amortization expense was $2,727,000 and $4,000 for the years ended December 31, 2018 and 2017, respectively. Following the results ofPhase 2 trials in June 2018, the in-process research and development was assessed as fully impaired in the three months ended June 30, 2018, with the $1.6million acquired in the Merger (see Note 3) being charged to operating expenses. As of December 31, 2018, the estimated future amortization expense by year is as follows (in thousands):Year Ending December 31, 2019$2,3202020 1,7322021 1,7322022 1,7322023 1,731Thereafter 10,166Total$19,413(e) Other Accrued LiabilitiesAccrued liabilities consist of the following: December 31, 2018 December 31, 2017 (in thousands)Accrued compensation$632 $1,320Accrued clinical and manufacturing expenses 75 69Accrued professional and consulting services 166 113Reserve for return of royalties 339 —Deferred rent and lease loss accrual, current portion 111 21Convertible preferred stock warrant liability — 67Other 195 15 Total$1,518 $1,605NOTE 6. RevenueU.S. Government HHS BARDA ContractIn September 2015, HHS BARDA awarded the Company a contract to support the advanced development of a more effective and universal influenza vaccineto improve seasonal and pandemic influenza preparedness. On each of May 25 and July 18, 2017, and June 28, 2018, the Company entered into aModification of Contract with HHS BARDA, the combined effect being to increase the value of the existing $14 million contract by $1.7 million and toextend it through September 30, 2018. The modified contract is a cost-plus-fixed-fee contract, which reimburses the Company for allowable direct contractcosts plus allowable indirect costs and a fixed-fee, totaling $15.7 million. The Company recognized revenue of $1,344,000 and $5,839,000 during the yearsended December 31, 2018 and 2017, respectively. As of December 31, 2018, the cumulative revenue recorded from inception under the HHS BARDAcontract represents the maximum amount billable under the contract as presently modified, with no further change orders envisaged. 102Table of ContentsVAXART, INC. AND SUBSIDIARIESNotes to the Consolidated Financial StatementsBillings under the contract are based on approved provisional indirect billing rates, which permit recovery of fringe benefits, overhead and general andadministrative expenses. Indirect rates as well as allowable costs are subject to audit by HHS BARDA on an annual basis. Management believes that revenuesrecognized to date have been recorded in amounts that are expected to be realized upon final audit and settlement. When the final determination of theallowable costs for any year has been made, revenue and billings may be adjusted accordingly in the period that the adjustments are known and collection isprobable. Costs relating to contract acquisition are expensed as incurred. The Company does not consider any of the revenue recorded as of December 31,2018 or 2017, to be at risk of reversal.Royalty agreementsAviragen entered into a royalty-bearing research and license agreement with GlaxoSmithKline, plc (“GSK”) in 1990 for the development andcommercialization of zanamivir, a neuraminidase inhibitor marketed by GSK as Relenza to treat influenza. Most of the Company’s Relenza patents haveexpired and the only substantial remaining intellectual property related to the Relenza patent portfolio, which is solely owned by the Company andexclusively licensed to GSK, is scheduled to expire in July 2019 in Japan, at which time royalty revenue will cease. The post-Merger royalty revenue relatedto Relenza recognized in the year ended December 31, 2018, was $788,000, representing 7% of net sales in Japan.The Company also generates royalty revenue from the sale of Inavir in Japan, pursuant to a collaboration and license agreement that Aviragen entered intowith Daiichi Sankyo Company, Limited, or Daiichi Sankyo, in 2009. In September 2010, laninamivir octanoate was approved for sale by the JapaneseMinistry of Health and Welfare for the treatment of influenza in adults and children, which Daiichi Sankyo markets as Inavir. Under the agreement, theCompany currently receives a 4% royalty on net sales of Inavir in Japan and was eligible to earn sales milestone payments, including a one-off payment of$5.0 million if net sales exceeded 20 billion Yen in one year. This target was achieved in the three months ended March 31, 2018, prior to the Merger, andAviragen recognized the related $5.0 million as royalty revenue prior to the Merger. The last patent related to Inavir is set to expire in December 2029 inJapan, at which time royalty revenue will cease. The post-Merger royalty revenue related to Inavir recognized in the year ended December 31, 2018, was$552,000. In addition, the Company recognized non-cash royalty revenue related to the sale of future royalties (see Note 7) of $1,475,000.Both the royaltyrevenue and the non-cash royalty revenue related to the sale of future royaltieshave been subjected to a 5% withholding tax in Japan, for which $102,000 wasincluded in income tax expense in the year ended December 31, 2018.NOTE 7. Liabilities Related to Sale of Future RoyaltiesIn April 2016, Aviragen entered into a Royalty Interest Acquisition Agreement (the “HCRP Agreement”) with HCRP. Under the Agreement, HCRP made a$20.0 million cash payment to Aviragen in consideration for acquiring certain royalty rights (“Royalty Rights”) related to the approved product Inavir in theJapanese market. The Royalty Rights were obtained pursuant to the collaboration and license agreements (the “License Agreement”) and acommercialization agreement that the Company entered into with Daiichi Sankyo. Per the terms of the HCRP Agreement, HCRP is entitled to the first $3.0million plus 15% of the next $1.0 million in royalties earned in each year commencing on April 1, with any excess revenue being retained by the Company.Under the relevant accounting guidance, due to a limit on the amount of royalties that HCRP can earn under the arrangement, this transaction was accountedfor as a liability that will be amortized using the interest method over the life of the arrangement. The Company has no obligation to pay any amounts toHCRP other than to pass through to HCRP its share of royalties as they are received from Daiichi Sankyo. In order to record the amortization of the liability,the Company is required to estimate the total amount of future royalty payments to be received under the License Agreement and the payments that will bepassed through to HCRP over the life of this agreement. The sum of the pass-through amounts less the net proceeds received will be recorded as non-cashinterest expense over the life of the liability. Consequently, the Company imputes interest on the unamortized portion of the liability and records non-cashinterest expense using an estimated effective interest rate. The Company will periodically assess the expected royalty payments, and to the extent suchpayments are greater or less than the initial estimate, the Company will adjust the amortization of the liability and interest rate. As a result of this accounting,even though the Company does not retain HCRP’s share of the royalties, it will continue to record non-cash revenue related to those royalties until theamount of the associated liability and related interest is fully amortized. 103Table of ContentsVAXART, INC. AND SUBSIDIARIESNotes to the Consolidated Financial StatementsThe following table shows the activity within the liability account since the Merger (in thousands):Total Liability related to sale of future royalties, February 13, 2018$15,900Non-cash royalty revenue paid to HCRP (18)Non-cash interest expense recognized 1,859Total Liability related to sale of future royalties, December 31, 2018$17,741NOTE 8. Convertible Promissory Notes, Related PartiesOn December 10, 2014, the Company entered into a note purchase agreement with certain existing preferred stockholders under which the Company issuedconvertible promissory notes during December 2014 for total proceeds of $18.4 million.On November 20, 2015, the Company entered into a second note purchase agreement with certain existing preferred stockholders under which the Companyissued convertible promissory notes during November and December 2015 for total proceeds of $11.0 million. These notes were issued with the same terms asthe notes issued in 2014.As the holders of the convertible promissory notes each have an equity ownership in the Company, the convertible promissory notes were considered to be arelated‑party transaction.The convertible promissory notes bore interest at a rate of 8.0% per annum. The principal and accrued interest on the notes were automatically convertible,upon a future issuance of convertible preferred stock having total proceeds of at least $25.0 million, into that same stock at a conversion price equal to 90%of the price paid by other investors in the financing event. Upon a liquidation event, such as an acquisition or initial public offering, at the election of themajority of the noteholders in each issuance, the principal and accrued interest on the notes could either (i) be paid in full at the initial closing of theliquidation event, or (ii) automatically convert into the Company’s Series C convertible preferred stock at a conversion price based on a specified valuation.After two years, if the notes had not been converted, the holders of a majority of the principal amount had the option to require the entire principal balanceand accrued interest to become due and payable. However, in December 2016, in conjunction with the loan agreement with Oxford Finance (see note 9), all ofthe holders of convertible promissory notes signed subordination agreements, under which they agreed not to demand or receive any payment until allamounts owed to Oxford Finance under the loan agreement were fully paid in cash, thus extending the due dates of the promissory notes potentially toJanuary 2021. This change reflected a debt modification that was not considered substantially significant. Accordingly, the Company did not applyextinguishment accounting, but accounted for the modification on a prospective basis.The convertible promissory notes had redemption features that were determined to be a compound embedded derivative requiring bifurcation and separateaccounting at estimated fair value. The estimated fair value of the embedded derivative upon issuance was a liability of $1.9 million for the notes issued in2014 and $1.3 million for the notes issued in 2015. The estimated fair value of these derivative instruments was recognized as a debt discount and as anembedded derivative liability on the balance sheet upon issuance of the convertible promissory notes. The embedded derivative required periodicre‑measurements to fair value while the instruments were still outstanding (see Note 4). There was no beneficial conversion feature as the conversion featurevalue was accounted for in the embedded derivative.The Company estimated the fair value of the compound embedded derivative utilizing a Monte Carlo Simulation model. The inputs used to determine theestimated fair value of the embedded derivative instrument included the probability of an underlying event triggering the redemption event and its timingprior to the maturity date of the convertible promissory notes. The fair value measurement was based upon significant inputs not observable in the market,including a valuation of the Company performed by an independent third-party at each balance sheet date. By December 31, 2017, the embedded derivativehad zero value because the Merger (see Note 1), which was considered 90% probable of occurring, would not have triggered redemption and, had the Mergernot occurred, it was unlikely that the Company would have found an alternative source of financing on favorable terms, so there would have been zeroredemption value. The embedded derivative was extinguished when the Merger occurred on February 13, 2018. 104Table of ContentsVAXART, INC. AND SUBSIDIARIESNotes to the Consolidated Financial StatementsThe Company incurred total debt issuance costs of $20,000 in connection with the 2014 issuance and $7,000 in connection with the 2015 issuance. The debtissuance costs, which were recorded as an additional debt discount, were being amortized over the term of the notes.As of December 31, 2017, the balance of the convertible promissory notes was $35.3 million, comprising principal of $29.4 million plus accrued interestassociated with the convertible promissory notes of $6.3 million, offset by unamortized debt discount of $0.4 million. Interest expense related to theconvertible promissory notes, including amortization of debt discount, totaled $0.3 million and $2.5 million in the years ended December 31, 2018 and2017, respectively. The charge in 2018 related to the 43 days prior to the Merger, whereas the charge in 2017 related the full year.On February 13, 2018, the balance of the convertible promissory notes was $35.6 million, comprising accrued interest associated with the convertiblepromissory notes amounted to $6.6 million plus principal of $29.4 million, offset by the unamortized debt discount to $0.4 million. On that date, inconjunction with the Merger, the convertible promissory notes were exchanged for 1,571,702 shares of the Company’s common stock which, based on theclosing stock price of $9.05, had a value of $14.2 million. The difference of $21.4 million was recorded as a capital contribution. NOTE 9. Secured Promissory Note Payable to Oxford FinanceOn December 22, 2016, the Company entered into a loan and security agreement (the “Loan Agreement”) with Oxford Finance, under which the Companyborrowed $5.0 million. The $5.0 million loan, which bears interest at 30-day U.S. LIBOR plus 6.17%, is evidenced by a secured promissory note and isrepayable over four years, with interest only payable over the first 12 months and the balance fully amortized over the subsequent 36 months. The loan issecured by substantially all the Company’s assets, except for intellectual property.In conjunction with the execution of the Loan Agreement, all the holders of convertible promissory notes signed subordination agreements, under which theyagreed to subordinate in favor of Oxford Finance all amounts due under their promissory notes and any security interest in the Company’s property. Inaddition, the holders of the notes agreed that they would not demand or receive any payment until all amounts owed to Oxford Finance under the LoanAgreement have been fully paid in cash. Upon repayment, an additional final payment equal to $325,000 is due, which is being accreted as interest expenseover the term of the loan using the effective‑interest method.In connection with the Loan Agreement, the Company issued a warrant to Oxford Finance to purchase 7,563 shares of its Series C convertible preferred stockat an exercise price of $33.11 per share (the “Warrant”). The fair value of the Warrant at the date of issuance was approximately $134,000, which was recordedas debt discount and is being amortized as interest expense over the term of the loan using the effective‑interest method. The annual effective interest rate ofthe note, including the accretion of the final payment and the amortization of the debt discount, is approximately 10.5%. The Company recorded interestexpense related to the Loan Agreement of $469,000 and $518,000 during the years ended December 31, 2018 and 2017, respectively, of which $356,000 and$335,000 was paid, respectively.The Warrant provided that if the share price at the next equity financing was less than the Warrant exercise price, then the Warrant would be for the new classof shares, the exercise price would be the new class share price, and the number of shares would be calculated by dividing $250,000 by the new class shareprice. Due to this anti-dilution protection, the Company determined that the Warrant needed to be recorded as a liability, and therefore estimated the fairvalue of the Warrant upon issuance and at each balance sheet date, with any changes in the fair value being recorded within (loss) gain on revaluation offinancial instruments, net in other income and (expenses) in the statements of operations and comprehensive loss.Due to the antidilution protection, following the Merger, the Warrant was amended to allow the holder to purchase 10,914 shares of common stock at anexercise price of $22.99 per share. Since the amended Warrant contains no non-standard antidilution protections or similar features, the fair value ofapproximately $70,000 on February 13, 2018, was reclassified to equity. 105Table of ContentsVAXART, INC. AND SUBSIDIARIESNotes to the Consolidated Financial StatementsNOTE 10. Commitments and Contingencies(a) LeasesThe Company has four office and research and development facilities in South San Francisco, California, under noncancelable operating leases. The principallease, for office and research and development premises, expires on April 30, 2020, subject to the Company’s option to extend the lease at the then marketrate for an additional five‑year period. The remaining three leases all expire on August 31, 2019. In addition, as a result of the Merger, the Company alsoleases office space in Alpharetta, Georgia, under a lease expiring on February 28, 2021, which, commencing in November 2018, the Company has subleasedfor the remainder of the lease term for less than it is required to pay under the head lease and accordingly it recorded a lease loss charge of $253,000 on thecease-use date in the three months ending December 31, 2018, which, along with the related impairment of property and equipment (see Note 5), wasrecorded as a component of costs of exit from leased premises within operating expenses.Liabilities related to costs of exit from leased premises are summarized as follows (in thousands): Balance as of January 1, 2018$—Costs of exit from leased premises 359Deferred rent on cease-use date 19Impairment of property and equipment (106)Cash paid, net of receipts (41)Accretion charges, included in rent expense 2Balance as of December 31, 2018$233Rent expense is recognized on a straight‑line basis over the noncancelable term of each operating lease and, accordingly, the Company records the differencebetween cash rent payments and the recognition of rent expense as a deferred rent liability, which is included within accrued expenses. Rent expense was$875,000 and $564,000 for the years ended December 31, 2018 and 2017, respectively. Under the terms of the lease agreements, the Company is alsoresponsible for certain insurance, property tax and maintenance expenses. The Company also leases equipment under three operating leases that expirebetween May and September 2019.Future minimum payments and sublease income under operating leases as of December 31, 2018, are as follows:Years Ending December 31,Lease Payments Sublease Income (in thousands) 2019$859 $213 2020 411 219 2021 56 38 Thereafter — — Total$1,326 $470(b) IndemnificationsIn the ordinary course of business, the Company enters into agreements that may include indemnification provisions. Pursuant to such agreements, theCompany may indemnify, hold harmless and defend indemnified parties for losses suffered or incurred by the indemnified party. Some of the provisions willlimit losses to those arising from third‑party actions. In some cases, the indemnification will continue after the termination of the agreement. The maximumpotential amount of future payments the Company could be required to make under these provisions is not determinable. The Company has never incurredmaterial costs to defend lawsuits or settle claims related to these indemnification provisions. The Company has also entered into indemnification agreementswith its directors and officers that may require the Company to indemnify its directors and officers against liabilities that may arise by reason of their status orservice as directors or officers to the fullest extent permitted by Delaware corporate law. The Company currently has directors’ and officers’ insurance.VAXART, INC. AND SUBSIDIARIESNotes to the Consolidated Financial Statements(c) LitigationFrom time to time the Company may be involved in claims arising in connection with its business. Based on information currently available, the Companybelieves that the amount, or range, of reasonably possible losses in connection with any pending actions against it in excess of established reserves, in theaggregate, not to be material to its consolidated financial condition or cash flows. However, losses may be material to the Company’s operating results forany particular future period, depending on the level of income or loss for such period. 106Table of ContentsNOTE 11. Stockholders’ Equity(a) Convertible Preferred StockThe Company is authorized to issue 5,000,000 shares of preferred stock, $0.10 par value per share. The Company’s board of directors may, without furtheraction by the stockholders, fix the rights, preferences, privileges and restrictions of up to an aggregate of 5,000,000 shares of preferred stock in one or moreseries and authorize their issuance. These rights, preferences and privileges could include dividend rights, conversion rights, voting rights, terms ofredemption, liquidation preferences, sinking fund terms and the number of shares constituting any series or the designation of such series, any or all of whichmay be greater than the rights of our common stock. The issuance of preferred stock could adversely affect the voting power of holders of common stock andthe likelihood that such holders will receive dividend payments and payments upon liquidation. In addition, the issuance of preferred stock could have theeffect of delaying, deterring or preventing a change of control or other corporate action. No shares of preferred stock are currently outstanding, and theCompany has no present plan to issue any shares of preferred stock.All of Private Vaxart’s convertible preferred stock was converted into common stock on February 13, 2018, in conjunction with the Merger.As of December 31, 2017, convertible preferred stock consisted of the following:SharesauthorizedSharesoutstandingNetcarryingvalueLiquidationpreference (in thousands) (in thousands)Series A94,98894,988 $2,949 $2,737Series B747,095520,973 16,115 17,219Series C820,088605,103 19,877 20,000Total1,662,1711,221,064 $38,941 $39,956Significant provisions of the convertible preferred stock were as follows:Dividends – The holders of Series C convertible preferred stock were entitled to receive non-compounding cumulative dividends, in preference to anydividends payable to holders of Series B and Series A convertible preferred stock or common stock, at an annual dividend rate of $2.64416 per share, asadjusted for any stock splits, stock dividends, recapitalizations, or the like. Such cumulative dividends were payable within ten days of demand of theholders of at least a majority of the then outstanding Series C convertible preferred stock, or automatically upon a liquidation event. Dividends accumulatedfrom the date of issuance and were payable, whether or not declared, before any dividend on Series B and Series A convertible preferred stock or commonstock could be paid or declared. Series C convertible preferred stock shares issued as stock dividends were not entitled to cumulative dividends. The holdersof Series C convertible preferred stock could elect whether the cumulative dividends would be paid in cash or in shares of Series C convertible preferred stockbased on the original issue price of Series C convertible preferred stock of $33.05196 per share. In the event the board of directors declared a cash dividend inaddition to the above cumulative dividends (a Special Dividend), the holders of Series C convertible preferred stock would have been entitled to receive, inpreference to any dividends payable to the holders of Series B and Series A convertible preferred stock or common stock, a per share amount equal to the sumof: (a) the original issue price of Series C convertible preferred stock, and (b) all accrued and/or declared but unpaid dividends on such Series C convertiblepreferred stock, including the cumulative dividends. No dividends were declared during any of the periods presented. As of February 13, 2018, when theconvertible preferred stock was converted into common stock, and December 31, 2017, accumulated and undeclared dividends for Series C convertiblepreferred stock were $7.3 million and $7.1 million, respectively ($12.06 per share and $11.74 per share, respectively, of the outstanding Series C convertiblepreferred stock). On February 13, 2018, in conjunction with the Merger, the Series C convertible preferred stock and the related accumulated dividends wereconverted into 696,028 and 253,851 shares of common stock, respectively. 107Table of ContentsVAXART, INC. AND SUBSIDIARIESNotes to the Consolidated Financial StatementsThe holders of Series B convertible preferred stock were entitled to receive non-compounding cumulative dividends, in preference to any dividends payableto holders of Series A convertible preferred stock or common stock, at the annual dividend rate of $2.64416 per share, as adjusted for any stock splits, stockdividends, recapitalizations, or the like. Such cumulative dividends were payable within ten days of demand of the holders of at least a majority of the thenoutstanding Series B convertible preferred stock or automatically upon a liquidation event. Dividends accumulated from the date of issuance and werepayable, whether or not declared, before any dividend on Series A convertible preferred stock or common stock could be paid or declared. Series Bconvertible preferred shares issued as stock dividends were not entitled to cumulative dividends. The holders of Series B convertible preferred stock couldelect whether the cumulative dividends would be paid in cash or in shares of Series B convertible preferred stock based on the original issue price of Series Bconvertible preferred stock of $33.05196 per share. In the event the board of directors declared a cash dividend in addition to the above cumulativedividends (a Special Dividend), the holders of Series B convertible preferred stock would have been entitled to receive, in preference to any dividendspayable to the holders of Series A convertible preferred stock or common stock, a per share amount equal to the sum of: (a) the original issue price of Series Bconvertible preferred stock, and (b) all accrued and/or declared but unpaid dividends on such Series B convertible preferred stock, including the cumulativedividends. No dividends were declared during any of the periods presented. As of February 13, 2018, when the convertible preferred stock was converted intocommon stock, and December 31, 2017, accumulated and undeclared dividends for Series B convertible preferred stock were $7.6 million and $7.5 million,respectively ($15.78 per share and $15.46 per share, respectively, of the 483,387 shares of outstanding Series B convertible preferred stock on whichdividends accrued). On February 13, 2018, in conjunction with the Merger, the Series B convertible preferred stock and the related accumulated dividendswere converted into 599,259 and 265,340 shares of common stock, respectively.The holders of Series A convertible preferred stock were entitled to receive noncumulative dividends, in preference to any dividends payable to holders ofcommon stock, at the annual dividend rate of $2.30449 per share, as adjusted for any stock splits, stock dividends, recapitalizations, or the like, if declared bythe board of directors. On February 13, 2018, in conjunction with the Merger, the Series A convertible preferred stock was converted into 104,065 shares ofcommon stock.Conversion – At the option of the holder, each share of convertible preferred stock was convertible, one‑for‑one, subject to adjustment for anti‑dilutionprotection, into shares of common stock. Each share automatically converted into the number of shares of common stock into which the shares wereconvertible at the then applicable conversion ratio upon: (1) the closing of the sale of the Company’s common stock in a public offering provided theoffering price per share was not less than three times the Series C convertible preferred stock original issue price of $33.05196 and the aggregate grossproceeds were not less than $30.0 million, or (2) upon receipt of a written consent of the holders of a majority of the then outstanding shares of convertiblepreferred stock voting as a single class on an as‑converted basis.Liquidation – In the event of any liquidation, dissolution or winding up of the Company, including a merger or acquisition where the beneficial owners ofthe Company’s common and convertible preferred stock owned less than 50% of the surviving entity, or a sale of all or substantially all assets, the holders ofSeries C convertible preferred stock would have been entitled to receive a per share amount equal to $33.05196 (subject to adjustment for stock splits, stockdividends, recapitalizations, or the like), plus all dividends accrued, payable and/or in arrears (whether or not declared) minus the amount of any SpecialDividends previously paid. After payment of the full liquidation preference of Series C convertible preferred stock, the holders of Series B convertiblepreferred stock would have been entitled to receive a per share amount equal to $33.05196 (subject to adjustment for stock splits, stock dividends,recapitalizations, or the like), plus all dividends accrued, payable and/or in arrears (whether or not declared) minus the amount of any Special Dividendspreviously paid. After payment of the full liquidation preference of Series B convertible preferred stock, the holders of Series A convertible preferred stockwould have been entitled to receive an amount equal to $28.80613 per share, as adjusted, plus all declared but unpaid dividends prior and in preference toany distribution to the holders of common stock. In each case, if the proceeds of such an event were insufficient to permit the liquidation payment to aparticular class, any proceeds legally available for distribution to that class would have been distributed ratably among the holders of that class in proportionto the preferential amounts that each holder was entitled to receive. Following payment of all convertible preferred stock preferences, any remaining legallyavailable assets of the Company would have been distributed to the holders of common stock and convertible preferred stock pro rata, based on the greatestnumber of shares of common stock held on an as‑converted basis.108Table of ContentsVAXART, INC. AND SUBSIDIARIESNotes to the Consolidated Financial StatementsVoting – The holders of convertible preferred stock were entitled to the number of votes equal to the number of shares of common stock into which each shareof Series A, Series B, and Series C convertible preferred stock could have been converted on the record date for the vote or consent of the stockholders, exceptas otherwise required by law, and had voting rights and powers equal to the voting rights and powers of the common stockholders. The holders of Series Aconvertible preferred stock, voting as a separate class, were entitled to elect one member of the board of directors. As long as a specified investor held at leastone share of Series C convertible preferred stock, the specified investor was able to designate one member of the board of directors, who would have beenelected by the holders of Series C convertible preferred stock voting as a separate class. As long as a specified investor held least one share of Series Bconvertible preferred stock, the specified investor was able to designate one member of the board of directors, who would have been elected by the holders ofSeries B convertible preferred stock voting as a separate class. The holders of common stock, voting as a separate class, were entitled to elect two members ofthe board of directors, one of whom was the duly appointed chief executive officer of the Company.Protective Provisions – So long as at least 20,134 shares of Series C convertible preferred stock remained outstanding and for so long as at least 20,134 sharesof Series B convertible preferred stock remained outstanding, Series C holders and Series B holders, voting as a single class on an as‑converted basis, neededto approve certain specified corporate actions such as amending the certificate of incorporation, authorizing additional shares of stock or additional directors,redeeming stock and entering into certain strategic relationships.Redemption – The convertible preferred stock was not redeemable. There were no liquidation events under the control of preferred stockholders that couldhave resulted in liquidation in which only the preferred stockholders would have participated. Accordingly, the convertible preferred stock was classifiedwithin stockholders’ equity (deficit) on the Company’s consolidated balance sheets.(b) Common StockExcept as otherwise required by law or as otherwise provided in any certificate of designation for any series of preferred stock, the holders of common stockpossess all voting power for the election of the Company’s directors and all other matters requiring stockholder action. Holders of common stock are entitledto one vote per share on matters to be voted on by stockholders. Holders of common stock are entitled to receive such dividends, if any, as may be declaredfrom time to time by the Company’s board of directors in its discretion out of funds legally available therefore. In no event will any stock dividends or stocksplits or combinations of stock be declared or made on common stock unless the shares of common stock at the time outstanding are treated equally andidentically. As of December 31, 2018, no dividends had been declared by the board of directors.In the event of the Company’s voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up, the holders of the common stock willbe entitled to receive an equal amount per share of all of the Company’s assets of whatever kind available for distribution to stockholders, after the rights ofthe holders of the preferred stock have been satisfied. There are no sinking fund provisions applicable to the common stock.The Company had shares of common stock reserved for issuance as follows:December 31,2018December 31,2017 Convertible preferred stock outstanding—1,221,064Options issued and outstanding865,163304,850Available for future grants of equity awards223,377—Cumulative convertible preferred stock dividends—441,096Common stock warrants10,91410,914Total1,099,4541,977,924 109Table of ContentsVAXART, INC. AND SUBSIDIARIESNotes to the Consolidated Financial StatementsNOTE 12. Equity Incentive PlansPrior to the Merger, the Company issued equity awards for compensation purposes to employees, directors and consultants under the Company’s 2007 EquityIncentive Plan (the “2007 Plan”). The 2007 Plan expired in July 2017, since when the Company has had no shares of common stock available for issuanceunder the 2007 Plan since awards under the 2007 Plan no longer become available for future issuance if such awards are forfeited or otherwise terminate. Eachoutstanding stock option to acquire shares of Private Vaxart stock, whether vested or unvested, was assumed in the Merger after adjustment for the impact ofthe Conversion and the Reverse Stock Split.In November 2016, Aviragen’s stockholders approved the 2016 Equity Incentive Plan (“2016 Equity Plan”), under which all outstanding awards under theirprevious plans became available for issuance under the 2016 Equity Plan if such awards are forfeited or otherwise terminate. The purpose of the 2016 EquityPlan is to assist the Company in attracting and retaining valued employees, consultants and non-employee directors by offering them a greater stake in theCompany’s success and a closer identity with it, and to encourage ownership of the Company’s shares by such persons.Under the 2016 Equity Plan, the Company is authorized to issue incentive stock options (“ISOs”), non-qualified stock options (“NQSOs”), restricted stock(“RSAs”) and restricted stock units (“RSUs”). Awards that expire or are canceled generally become available for issuance again under the 2016 Equity Plan.All awards outstanding, along with the number of shares of the Company’s common stock available under the 2016 Equity Plan, were adjusted for the impactof the Reverse Stock Split and remain subject to adjustment in the event of a stock split, stock dividend or other extraordinary dividend, or other similarchange in the Company’s common stock or capital structure. Awards may vest over varying periods, as specified by the Company’s Board of Directors foreach grant, and have a maximum term of ten years from the grant date.A summary of stock option transactions in each of the two years ended December 31, 2018, is as follows: WeightedAverageExercisePrice SharesAvailableFor Grant Number ofOptionsOutstanding Balance at January 1, 201799,644 275,539 $11.32Granted(78,406) 78,406 $4.07Exercised— (2,834) $8.58Forfeited33,012 (33,012) $11.49Canceled13,249 (13,249) $12.00Termination of Plan(67,499) — $— Balance at December 31, 2017— 304,850 $9.50 Assumed on consummation of Merger291,102 627,106 $26.33Granted(431,100) 431,100 $5.17Exercised— (2,013) $6.49Forfeited71,500 (89,903) $5.90Canceled269,148 (405,977) $34.64 $ Balance at December 31, 2018200,650 865,163 $8.13In addition, the 2016 Equity Plan has a reserve of 22,727 shares available for future issuance as RSAs and RSUs. As of December 31, 2018, no such awardshave been granted under the 2016 Equity Plan.As of December 31, 2018, there were 865,163 options outstanding with a weighted average exercise price of $8.13, a weighted average remaining term of6.14 years and zero aggregate intrinsic value. Of these options, 452,905 were vested, with a weighted average exercise price of $10.58, a weighted averageremaining term of 3.35 years and zero aggregate intrinsic value. The aggregate intrinsic value represents the total pre-tax value (i.e., the difference between the Company’s stock price and the exercise price) of stock optionsoutstanding as of December 31, 2018, based on our common stock closing price of $1.88, which would have been received by the option holders had all theirin-the-money options been exercised as of that date. 110Table of ContentsVAXART, INC. AND SUBSIDIARIESNotes to the Consolidated Financial Statements The grant date fair value of options vested in the years ended December 31, 2018 and 2017, was $332,000 and $533,000, respectively. The intrinsic value ofoptions exercised in the years ended December 31, 2018 and 2017, was zero and $1,000, respectively.The weighted average grant date fair value of options awarded in the years ended December 31, 2018 and 2017, was $3.59 and $2.99, respectively. Fairvalues were estimated using the following assumptions: Year Ended December 31, 2018 2017 Risk-free interest rate2.80% 1.87%Expected term5.96 Years 6.09 YearsExpected volatility79% 91%Dividend yield0% 0%Total stock‑based compensation recognized for options was as follows: Year Ended December 31, 2018 2017 (in thousands)Research and development$254 $262General and administrative 285 215Total stock-based compensation$539 $477As of December 31, 2018, the unrecognized stock-based compensation cost related to outstanding stock options that are expected to vest was $1.1 million,which the Company expects to recognize over an estimated weighted average period of 2.75 years.NOTE 13. Income TaxesThe provision for income taxes consists of the following for the years ended December 31, 2018 and 2017: Year Ended December 31, 2018 2017 (In thousands)Current: Federal$— $—State 3 —Foreign 106 — Total Current$109 $— Deferred: Federal$— $—State — —Foreign — — Total Deferred$— $— Provision for income taxes$109 $— 111Table of ContentsVAXART, INC. AND SUBSIDIARIESNotes to the Consolidated Financial StatementsThe components of the deferred tax assets as of December 31, 2018 and 2017, are as follows: December 31, 2018 December 31, 2017Deferred tax assets:(In thousands)Net operating loss carry-forwards$43,822 $19,441Research and development tax credits 3,357 2,979Capitalized research and development 2,326 —Sale of future royalties 8,383 —Accruals, reserves and other 714 544Total deferred tax assets 58,602 22,964Valuation allowance (48,626) (22,964)Deferred tax assets net of valuation allowance 9,976 —Deferred tax liabilities: Intangible assets (9,976) —Total deferred tax liabilities (9,976) — Net deferred tax assets$— $—A reconciliation of the provision for income taxes with the expected provision for income taxes computed by applying the federal statutory income tax rateof 21% and 34% to the net loss before provision for income taxes for the years ended December 31, 2018 and 2017, respectively: Year Ended December 31, 2018 2017 U.S. federal taxes at statutory rate 21.0 % 34.0 %State taxes (net of federal benefit) 0.6 14.2Foreign rate differential 3.1 —Global intangible low-taxed income (8.8) —Permanent items: Convertible note interest (0.4) (10.8)Revaluation of derivative liabilities — 11.9Others (2.1) (1.4)Tax credits 2.1 8.0Change in valuation allowance (20.4) 43.4Impact of tax reform rate change — (97.0)NOL and credit adjustments (3.8) (2.4)Bargain purchase gain 8.1 —Other — 0.1 Provision for income taxes (0.6)% — %The Company’s actual tax expense differed from the statutory federal income tax expense using a tax rate of 21% for the year ended December 31, 2018,primarily due to, state and foreign income taxes, nondeductible expenses, research and development tax credits, and the change in valuation allowance. TheCompany’s actual tax expense differed from the statutory federal income tax expense using a tax rate of 21% for the year ended December 31, 2017, primarilydue to remeasurement of deferred taxes due to change in federal tax rate under the Tax Cuts and Jobs Act (the “TCJA”), state income taxes, nondeductibleexpenses, research and development tax credits, and the change in valuation allowance.On December 22, 2017, the TCJA was signed into law. The TCJA decreased the U.S. corporate federal income tax rate from 35% to 21% effective January 1,2018. The TCJA also includes a number of other provisions including the elimination of loss carrybacks and limitations on the use of future losses, repeal ofthe Alternative Minimum Tax regime, and the introduction of a base erosion, anti-abuse tax and 100% expense allowance for certain properties. Theseprovisions are not expected to have immediate effect on the Company. 112Table of ContentsVAXART, INC. AND SUBSIDIARIESNotes to the Consolidated Financial StatementsThe key impact of the TCJA on the Company’s financial statements was the re-measurement of the deferred tax balances to the new corporate tax rate in theyear ended December 31, 2017. U.S. GAAP requires the re-measurement of the Company’s deferred tax balances as of the enactment date of the TCJA, basedon the rates at which the balances are expected to reverse in the future. The TCJA reduced the corporate tax rate to 21%, effective January 1, 2018. TheCompany recorded a decrease in its deferred tax assets of $4.2 million with a corresponding reduction to its valuation allowance of $4.2 million for the yearending December 31, 2017, primarily related to the impact of the TCJA.As of December 31, 2018 and 2017, the Company had a net operating loss (“NOL”) carryforwards of $92.3 million and $69.5 million for federal purposes,and $76.9 million and $75.0 million for state purposes, respectively. If not utilized, these carryforwards will begin to expire in 2024 for federal, and 2028 forstate purposes.As of December 31, 2018, the Company also has accumulated tax losses of $14.4 million for Australia, $24.7 million for the United Kingdom and $37.7million for France available for carry forward against future earnings, which under relevant tax laws do not expire but may not be available under certaincircumstances. As of December 31, 2018, the Company’s foreign subsidiaries have no positive accumulated earnings. As such, no federal or state incometaxes have been provided on the losses of its foreign subsidiaries. If in the future there are positive earnings generated from the Company’s foreignsubsidiaries, the Company will evaluate whether to record any applicable federal and state income taxes on such earnings.As of December 31, 2018 and 2017, the Company had federal research and development tax credit carryforwards of $3.0 million and $2.7 million,respectively and state research and development tax credit carryforwards of $2.3 million and $2.0 million, respectively, before offset for unrecognized taxbenefits, to offset future income tax liabilities. The federal research and development tax credits will start to expire in 2027, if not utilized, while the stateresearch and development tax credit can be carried forward indefinitely.Sections 382 and 383 of the Internal Revenue Code provides for a limitation on the annual use of NOL and research and development tax creditcarryforwards following certain ownership changes that could limit the Company’s ability to utilize these carryforwards. The Company’s losses and creditcarryforwards may be subject to these limitations. The Company has not performed an analysis to determine if such ownership changes have occurred. Ananalysis will be performed prior to recognizing the benefits of any losses or credits in the financial statements.The Company is required to reduce its deferred tax assets by a valuation allowance if it is more likely than not that some or all of its deferred tax assets willnot be realized. Management must use judgment in assessing the potential need for a valuation allowance, which requires an evaluation of both negative andpositive evidence. The weight given to the potential effect of negative and positive evidence should be commensurate with the extent to which it can beobjectively verified. In determining the need for and amount of the valuation allowance, if any, the Company assesses the likelihood that it will be able torecover its deferred tax assets using historical levels of income, estimates of future income and tax planning strategies. As a result of historical cumulativelosses, the Company determined that, based on all available evidence, there was substantial uncertainty as to whether it will recover recorded net deferredtaxes in future periods. Accordingly, the Company recorded a valuation allowance against all of its net deferred tax assets as of December 31, 2018 and 2017.The net change in total valuation allowance was an increase of approximately $25.7 million for the year ended December 31, 2018A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: Year Ended December 31, 2018 2017 (in thousands)Beginning Balance$1,404 $1,231Additions based on tax positions related to the current year 181 173Decreases related to prior years’ tax positions (3) — Ending Balance$1,582 $1,404The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. During theyear ended December 31, 2017 and 2018, the Company recognized no interest and penalties associated with unrecognized tax benefits. There are no taxpositions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within twelve monthsof the reporting date. 113Table of ContentsVAXART, INC. AND SUBSIDIARIESNotes to the Consolidated Financial StatementsThe Company files income tax returns in the U.S, Australia, France and the United Kingdom, as well as with various U.S. states. The Company is subject totax audits in all jurisdictions in which it files income tax returns. Tax audits by their very nature are often complex and can require several years to complete.There are currently no tax audits that have commenced with respect to income tax returns in any jurisdiction.Under the tax statute of limitations applicable to the Internal Revenue Code, the Company and its U.S. subsidiary, either standalone or as part of theconsolidated group, is no longer subject to U.S. federal income tax examinations by the Internal Revenue Service for tax years before tax year 2016. Underthe statute of limitations applicable to most state income tax laws, the Company is no longer subject to state income tax examinations by tax authorities fortax years before 2015 in states in which it has filed income tax returns. However, because the Company is carrying forward income tax attributes, such as netoperating losses and tax credits from 2004 and earlier tax years, these attributes can still be audited when utilized on returns filed in the future. The Companyis subject to foreign tax examinations by tax authorities for fiscal year 2014 and forward.NOTE 14. Net Loss Per Share Attributable to Common StockholdersThe following table presents the calculation of basic and diluted net loss per share (in thousands, except share and per share amounts): Year Ended December 31, 2018 2017 Net loss$(18,007) $(9,582) Series B and C preferred dividend (339) (2,878) Net loss attributable to common stockholders$(18,346) $(12,460) Shares used to compute net loss per share, basic and diluted 6,316,065 135,953 Net loss per share attributable to common stockholders, basic and diluted$(2.90) $(91.65)No adjustment has been made to the net loss attributable to common stockholders as the effect would be anti-dilutive due to the net loss.The following potentially dilutive securities were excluded from the computation of diluted weighted average shares outstanding because they would havebeen antidilutive: Year Ended December 31, 2018 2017 Options to purchase common stock839,396 295,243 Warrant to purchase common stock9,658 — Warrant to purchase convertible preferred stock891 7,563 Series B and C convertible preferred stock outstanding, including cumulative dividends213,760 1,567,172 Series A convertible preferred stock outstanding12,260 94,988 Convertible promissory notes, related party (as converted)185,159 754,289 Total potentially dilutive securities excluded from denominator of the diluted earnings per share computation1,261,124 2,719,255 114Table of ContentsVAXART, INC. AND SUBSIDIARIES Notes to the Consolidated Financial StatementsNOTE 15. Quarterly Financial Data (Unaudited)Selected summarized quarterly financial information for fiscal 2018 and 2017 is as follows: Year Ended December 31, 2018 First Second Third Fourth Revenue$1,503 $608 $281 $1,767Operating expenses$5,418 $8,383 $6,161 $5,953Net income (loss)$2,314 $(8,871) $(6,548) $(4,902)Net income (loss) attributable to common stockholders$1,975 $(8,871) $(6,548) $(4,902)Net income (loss) per share – basic$0.54 $(1.24) $(0.92) $(0.69)Net income (loss) per share – diluted$0.49 $(1.24) $(0.92) $(0.69) Year Ended December 31, 2017 First Second Third Fourth Revenue$2,310 $1,854 $915 $760Operating expenses$4,557 $4,977 $2,871 $3,449Net loss$(2,796) $(3,538) $(2,173) $(1,075)Net loss attributable to common stockholders$(3,506) $(4,256) $(2,898) $(1,800)Net loss per share – basic and diluted$(25.84) $(31.37) $(21.36) $(13.16) 115Table of ContentsItem 9. Changes In and Disagreements with Accountants on Accounting and Financial DisclosureNone.Item 9A. Controls and ProceduresAs of the end of the period covered by this Annual Report, management performed, with the participation of our President and Chief Executive Officer (whoserves as our principal executive officer and principal financial officer), an evaluation of the effectiveness of our disclosure controls and procedures (asdefined in Exchange Act rules 13a-15(e) and 15(d)-15e)). Based on such evaluation, our management concluded that as of December 31, 2018, our disclosurecontrols and procedures were not effective at a reasonable assurance level as a result of the material weakness described below.Material Weakness We identified the following material weakness in our internal control over financial reporting as of December 31, 2018: We lacked consistent processes to appropriately perform effective and timely review of account reconciliations and non-routine transactions.Therefore, there was a risk that a potential material misstatement of the financial statements would occur without being prevented or detectedon a timely basis.We have taken certain steps to remediate this material weakness, including increasing the depth and experience within our accounting and financeorganization and designing and implementing improved processes and internal controls. However, our efforts to remediate this material weakness may not beeffective or prevent any future material weakness or significant deficiency in our internal control over financial reporting. If our efforts are not successful, orother material weaknesses or control deficiencies occur in the future, we may be unable to report our financial results accurately on a timely basis, whichcould cause our reported financial results to be materially misstated and result in the loss of investor confidence and cause the market price of our commonstock to decline.Management’s Report on Internal Control Over Financial ReportingManagement has conducted, with the participation of our President and Chief Executive Officer (who serves as our principal executive officer and principalfinancial officer), an assessment, including testing of the effectiveness, of our internal control over financial reporting as of December 31, 2018.Management’s assessment of internal control over financial reporting was conducted using the criteria of the Committee of Sponsoring Organizations of theTreadway Commission (“COSO”) in Internal Control – Integrated Framework (2013), while utilizing the additional guidance contained in COSO’s InternalControl over Financial Reporting – Guidance for Smaller Public Companies. Based on that assessment, due to the material weakness described above, ourmanagement concluded that our internal control over financial reporting was not effective as of December 31, 2018.Attestation Report of Registered Public Accounting FirmThis Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reportingpursuant to SEC rules that permit us to provide only management’s report in this Annual Report.Changes in Internal Control over Financial ReportingDuring 2018, we hired a full-time Corporate Controller and a full-time Associate Director of SEC Reporting, both Certified Public Accountants with activelicenses. We have implemented procedures in our finance department including- formal approval procedures for all journal entries and accountreconciliations, and increased management oversight of financial reporting. This was done to address a material weakness relating to our lack of sufficientqualified resources and adequate processes to appropriately segregate duties and perform effective and timely review of account reconciliations and non-routine transactions that was originally identified in the audit of our financial statements for the year ended December 31, 2015 and was previously reportedin Item 4 in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2018. While we believe these procedures will be effective in remediatingthe material weakness, they were not yet fully operational as of December 31, 2018.116Table of ContentsInherent Limitations on Effectiveness of ControlsOur management, including our President and Chief Executive Officer, does not expect that our disclosure controls and procedures or our internal controls,will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance thatthe objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits ofcontrols must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absoluteassurance that all control issues and instances of fraud, if any, within Vaxart have been detected.Item 9B. Other InformationNone.117Table of ContentsPART III Item 10. Directors, Executive Officers and Corporate GovernanceSet forth below is certain information regarding our directors and executive officers as of February 1, 2019: Name Age PositionExecutive Officers Wouter W. Latour, M.D. 61 President, Chief Executive Officer and DirectorSean N. Tucker, Ph.D. 51 Chief Scientific OfficerDirectors Geoffrey F. Cox, Ph.D. 75 DirectorMichael J. Finney, Ph.D. 60 DirectorRichard J. Markham 68 Chairman of the BoardJohn P. Richard 61 DirectorAnne M. VanLent 70 Director Our board of directors is composed of six members all of whom were previously elected by our stockholders. All of our directors have one-year terms andstand for election annually. Vacancies on the board of directors may be filled only by persons elected by a majority of the remaining directors. A directorelected by the board of directors to fill a vacancy in a class, including vacancies created by an increase in the number of directors, shall serve for theremainder of the full term and until the director’s successor is duly elected and qualified.Executive Officers Wouter W. Latour, M.D. has served as our President and Chief Executive Officer and as a member of our board of directors since February 2018. Dr. Latourpreviously served as the President and Chief Executive Officer of Private Vaxart since September 2011 and served as a member of Private Vaxart’s board ofdirectors since October 2011. From June 2011 to September 2011, Dr. Latour served as Private Vaxart’s Chief Operating Officer. From June 2009 until joiningVaxart, Dr. Latour was an independent consultant to life sciences companies. From January 2005 to May 2009, Dr. Latour was Chief Executive Officer and amember of the board of directors of Trinity Biosystems, Inc., a biopharmaceutical company. Prior to these roles, Dr. Latour held numerous executive positionsat various pharmaceutical and biotechnology companies. Dr. Latour received an M.D. from the University of Amsterdam and an M.B.A. from StanfordUniversity.We believe Dr. Latour is qualified to serve on the board of directors because of his extensive experience within the life sciences industry and because of theperspective and background that he brings as Vaxart’s President, Chief Executive Officer and Director.Sean N. Tucker, Ph.D. has served as our Chief Scientific Officer since February 2018 and previously served as Private Vaxart’s Chief Scientific Officer sinceFebruary 2010 and as a member of the Private Vaxart board of directors from March 2004 to February 2018. From March 2004 to February 2010, Dr. Tuckerserved as Private Vaxart’s Vice President of Research and Director of Immunology. Prior to these roles, Dr. Tucker held numerous scientific and engineeringroles at various biotechnology companies. Dr. Tucker received a B.S. in chemical engineering from the University of Washington, an M.S. in chemicalengineering from the University of California, Berkeley and a Ph.D. in immunology from the University of Washington.Directors Geoffrey F. Cox, Ph.D. has served as a member of the board of directors since 2000. He was a director (2000-2012) and the Non-Executive Chairman (2007 to2012) of Nabi Biopharmaceuticals, Inc. prior to its merger with Biota Pharmaceuticals, Inc. (subsequently Aviragen) in 2012 and then with Vaxart in 2018.He served as the interim Chief Executive Officer of QLT Inc., an ophthalmology company based in Vancouver, BC, (from October 23, 2014 to November 30,2016) and a director (from 2012 to August 2017). Dr. Cox has extensive pharmaceutical and biotechnology experience holding a broad range of seniormanagement and board positions with private and public companies. Dr. Cox remains the Principal of Beacon Street Advisors LLC (since 2013) whichprovides corporate, operational and organizational strategic advice and interim management support to life sciences companies. Previously, he was a partnerwith Red Sky Partners LLC, a life sciences consulting firm (from 2011 to 2013). He also served as a director of Gallus Biopharmaceuticals LLC (2011 –2014), a biologics contract manufacturing and development company, Immunomedics, Inc., a development stage oncology company (January 2017 – March2017) and currently serves as a director of Lakewood-Amedex LLC (since 2013), a company developing novel antibiotics and RNA silencing technology. Heis also cofounder of Actu8 Immunotherapeutics Ltd., a development stage immuno-oncology technology company. Dr. Cox was Chairman, President andChief Executive Officer of GTC Biotherapeutics Inc. (2001 to 2010), a company focused on the development of recombinant therapeutic proteins, includingproteins for the treatment of rare diseases, using transgenic animal production technology. Prior to 2001, Dr. Cox was Executive Vice President, Operations ofGenzyme Corporation and later Chairman, President and Chief Executive Officer of Aronex Pharmaceuticals Inc. Dr. Cox is a past Chairman of the Board ofthe Massachusetts Biotechnology Council. He previously served on the Board of Biotechnology Industries Association and as a member of its HealthGoverning and Emerging Companies Sections. Dr. Cox received a B.Sc. (Hons) in biochemistry from the University of Birmingham, U.K. and a Ph.D. inbiochemistry from the University of East Anglia, U.K. 118Table of ContentsWe believe Dr. Cox is qualified to serve on the board because of his extensive biotechnology industry expertise, including his many years of experience asan executive officer and board member of publicly-traded biotechnology companies. Michael J. Finney, Ph.D. has served as a member of our board of directors since February 2018 and previously served as a member of Private Vaxart’s boardof directors since 2007. Since October 2004, Dr. Finney has served as the Managing Director of Finney Capital, an investment firm. Since 1986, Dr. Finneyhas served as a founder, director and/or investor in various life sciences companies. Currently, he sits on six private company boards. From 2009 to 2011, Dr.Finney served as Vaxart’s Chief Executive Officer. Dr. Finney received an A.B. in biochemical sciences from Harvard University and a Ph.D. in biology(genetics) from the Massachusetts Institute of Technology.We believe Dr. Finney is qualified to serve on the board of directors because of his extensive experience within the life sciences industry, including as aventure capitalist.Richard J. Markham has served as a member of our board of directors since February 2018 and previously served as a member of Private Vaxart’s board ofdirectors since 2009. From November 2004 to December 2018, Mr. Markham was a partner at Care Capital, LLC, a venture capital firm. From May 2002 toAugust 2004, he was the Vice Chairman of the Management Board and Chief Operating Officer of Aventis SA, a pharmaceutical company. From December1999 to May 2002, he was the Chief Executive Officer of Aventis Pharma AG, a pharmaceutical company. Previously he was the Chief Executive Officer ofHoechst Marion Roussel Inc., a pharmaceutical company, and the President and Chief Operating Officer of Marion Merrell Dow, Inc., a pharmaceuticalcompany, and a member of its board of directors. From 1973 to 1993, Mr. Markham was associated with Merck & Co., a pharmaceutical company,culminating in his position as President and Chief Operating Officer. Since 2007, Mr. Markham has served as a member of the board of directors ofNephroGenex, Inc. and as its board chairman since October 2013. From 2008 until 2016 he also served on the board of directors of CoLuid Pharmaceuticals,Inc. Mr. Markham also served on the board of directors of Acura Pharmaceuticals, Inc. from 2006 to 2013, Anacor Pharmaceuticals, Inc. from 2005 to 2012.Mr. Markham received a B.S. in pharmacy and pharmaceutical sciences from Purdue University.We believe that Mr. Markham is qualified to serve on the board of directors because of his extensive experience within the life sciences industry, hisknowledge of finance and transactions and his historic knowledge of Vaxart’s company and its vaccine candidates.John P. Richard has served as a member of our board of directors since 2013. Mr. Richard is co-founder and Head of Corporate Development for MereoBioPharma Group plc, a London-based biopharmaceutical company started in 2015. From 2005 until 2015 Mr. Richard was also a partner with GeorgiaVenture Partners, a seed venture capital firm focused on the biotechnology industry. He currently serves as a non-executive director of Phase4 Partners andserves as a director of Catalyst Biosciences (Nasdaq: CBIO) and QUE Oncology, Inc. Earlier in his career he headed business development for the publiccompanies SEQUUS Pharmaceuticals, VIVUS and Genome Therapeutics, and was co-founder and CEO of Impath. Mr. Richard received his B.S. from StanfordUniversity and an M.B.A. from the Harvard Business School.We believe Mr. Richard is qualified to serve on the board because of his extensive executive, strategic, financial and business development experiencewithin the biotechnology industry, and having led the business development function at several companies resulting in numerous pharmaceutical alliances. 119Table of ContentsAnne M. VanLent has served as a member of our board of directors since 2013. Ms. VanLent is President of AMV Advisors, providing corporate strategy andfinancial consulting services to emerging growth life sciences companies. Ms. VanLent also serves as a director and audit committee chair of AppliedGenetics Technologies Corporation (Nasdaq: AGTC) and as a director of Trevi Therapeutics, Inc. Ms. VanLent was the Executive Vice President and ChiefFinancial Officer of Barrier Therapeutics, Inc., a publicly-traded pharmaceutical company that develops and markets prescription dermatology products, fromMay 2002 through April 2008. From July 1997 to October 2001, she was the Executive Vice President – Portfolio Management for Sarnoff Corporation, amultidisciplinary research and development firm. From 1985 to 1993, she served as Senior Vice President and Chief Financial Officer of The LiposomeCompany, Inc., a publicly-traded biopharmaceutical company. During the past five years, Ms. VanLent served as a director, audit committee chair andnominating and governance committee chair of Ocera Pharmaceuticals, Inc. from March 2011 to December 2017, a director of Novelion Pharmaceuticals, Inc.(formerly Aegerion Pharmaceuticals, Inc.) from March 2013 to June 2017, and of Onconova Therapeutics, Inc. from July 2013 to May 2016. Ms. VanLentreceived a B.A. in Physics from Mount Holyoke College.We believe Ms. VanLent is qualified to serve on the board of directors because of her extensive leadership and finance experience, and her extensiveexperience serving as a board member, audit committee member and audit committee chair of numerous public companies in the life sciences industry.Family RelationshipsThere are no family relationships among the members of the board of directors and executive officers.Information Regarding Committees of the Board of DirectorsThe board of directors has an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee. The board of directorshas adopted a written charter for each committee that is available to stockholders on the Investors section of our website at www.vaxart.com.The following table provides membership and meeting information for each of the committees of the Aviragen board of directors from January 1, 2018 to theclosing of the Merger on February 13, 2018:NameAuditCompensationNominating andCorporateGovernanceArmando Amido(1) √* Geoffrey F. Cox, Ph.D √√*Michael R. Dougherty(1)√√ Michael W. Dunne, M.D.(1) √Joseph M. Patti, M.D.(1) Russell H. Plumb(1) John P. Richard√ √Anne M. VanLent√* √ * Committee Chairperson(1) Resigned in February 2018 upon the closing of the Merger.120Table of ContentsUpon the closing of the Merger on February 13, 2018, the committees of the board of directors were re-constituted. The following table provides membershipfor the remainder of 2018 for each of the committees of the board of directors:NameAuditCompensationNominating andCorporateGovernanceWouter W. Latour, M.D. Geoffrey F. Cox, Ph.D.(1) √*Michael J. Finney, Ph.D.√ Jan Leschly(2) √*Richard J. Markham(3) √*√John P. Richard√√ Anne M. VanLent√*√ * Committee Chairperson(1) Dr. Cox was appointed chairman of the Nominating and Corporate Governance Committee in December 2018.(2) Mr. Leschly resigned from the board of directors in November 2018.(3) Mr. Markham was appointed to the Nominating and Corporate Governance Committee in December 2018.Audit CommitteeWe have a standing audit committee that is currently composed of three directors (Dr. Finney, Mr. Richard and Ms. VanLent). The board of directors has alsodetermined that Ms. VanLent qualifies as an “audit committee financial expert,” as defined in applicable SEC rules. The board of directors made a qualitativeassessment of Ms. VanLent’s level of knowledge and experience based on a number of factors, including her experience as a chief financial officer for publicreporting companies.Director NominationsNo material changes have been made to the procedures by which stockholders may recommend nominees to our board of directors.Section 16(a) Beneficial Ownership Reporting ComplianceSection 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than ten percent of a registered class of our equitysecurities, to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of Vaxart.Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file.To our knowledge, based solely on a review of the copies of such reports furnished to us and written representations that no other reports were required,during the year ended December 31, 2018, all Section 16(a) filing requirements applicable to our officers, directors and greater than ten percent beneficialowners were complied with, except as follows:· Two late Form 4’s were filed by Dr. Finney covering (i) a pro rata distribution by Life Science Angel Investors II, LLC and LSA Investors Side Fund2006, LLC of an aggregate of 34,958 shares of our common stock to Dr. Finney in September 2018, and (ii) the purchase of 5,000 shares of ourcommon stock in June 2018. In addition, Dr. Finney filed an amended Form 4 to reflect an additional 1,818 shares of our common stock that werenot previously included in his Form 4 filed in connection with the closing of the Merger; and· A late Form 4 was filed by Mr. Harland covering a pro rata distribution by Life Science Angel Investors II, LLC and LSA Investors Side Fund 2006,LLC of an aggregate of 761 shares of our common stock to Mr. Harland in September 2018.Code of EthicsWe have adopted a Code of Conduct that applies to all officers, directors and employees. The Code of Conduct is available on the Investors section of ourwebsite at www.vaxart.com. If we make any substantive amendments to the Code of Conduct or grant any waiver from a provision of the Code of Conduct toany executive officer or director, we will promptly disclose the nature of the amendment or waiver on our website. 121Table of ContentsItem 11. Executive CompensationThe following tables and accompanying narrative disclosure set forth information about the compensation paid or earned by our executive officers during theyear ended December 31, 2018. These executive officers were:· Wouter W. Latour, M.D., our President and Chief Executive Officer;· Sean N. Tucker, Ph.D., our Chief Scientific Officer;· John M. Harland, our former Chief Financial Officer;· Joseph M. Patti, M.S.P.H, Ph.D., former President and Chief Executive Officer of Aviragen; and· Mark P. Colonnese, former Executive President and Chief Financial Officer of Aviragen.We refer to these individuals as the “named executive officers.”Summary Compensation TableThe following table provides information regarding the total compensation for services rendered in all capacities that was earned by our named executiveofficers during the year ended December 31, 2018. Upon the closing of the Merger, each of the Aviragen named executive officers resigned. Name and Principal Position(1) Year Salary Bonus(2) Option Awards(3) All OtherCompensation Total Wouter W. Latour, M.D. 2018 $450,000 $— $392,162 $8,250(4) $850,412 President and Chief Executive Officer Sean N. Tucker, Ph.D. 2018 319,000 — 50,398 8,610(5) 378,008 Chief Scientific Officer John M. Harland (6) 2018 310,000 35,000 64,798 8,250(4) 418,048 Former Chief Financial Officer Joseph M. Patti, M.S.P.H, Ph.D. 2018 64,375 — — 1,093,873(7) 1,158,248 Former President and Chief Executive Officer 2017 515,000 — 426,630 13,973(8) 955,603 Mark P. Colonnese 2018 43,725 — — 595,656(9) 639,381 Former Executive Vice President and ChiefFinancial Officer 2017 349,800 — 262,541 13,656(10) 625,997 (1) Each of Dr. Latour, Dr. Tucker, and Mr. Harland commenced service with Vaxart in February 2018 upon the closing of the Merger. Amounts disclosedfor such officers include amounts paid for service with Private Vaxart in 2018.(2) The Compensation Committee of our Board of Directors did not approve any bonuses for 2018 for our named executive officers except for Mr.Harland, who was awarded a discretionary bonus in June 2018.(3) Represents the grant date valuation of the awards computed in accordance with the Financial Accounting Standards Board, or FASB, AccountingStandards Codification, or ASC, Topic 718. See Note 12 to the Consolidated Financial Statements for a discussion of the relevant assumptions used incalculating value pursuant to FASB ASC Topic 718. In addition, please see Note 10 to the Consolidated Financial Statements included in Aviragen’sAnnual Report on Form 10-K for the fiscal year ended June 30, 2017, filed with the SEC on September 1, 2017, for a discussion of the relevantassumptions used in calculating value pursuant to FASB ASC Topic 718. As required by SEC rules, the amounts shown exclude the impact ofestimated forfeitures related to service-based vesting conditions. Our named executive officers will only realize compensation to the extent the tradingprice of our common stock is greater than the exercise price of such stock options.(4) Amount shown consists solely of a 401(k) match. 122Table of Contents(5) Consists of a 401(k) match of $8,250 and travel reimbursements of $360.(6) Mr. Harland resigned as our Chief Financial Officer effective December 31, 2018.(7) Consists of accrued vacation of $5,118, cash severance benefits of $1,086,922, healthcare benefits of $1,375 and supplemental disability payments of$458.(8) Consists of healthcare benefits of $5,500, supplemental life premiums of $5,724 and supplemental disability payments of$2,749.(9) Consists of accrued vacation of 28,589, cash severance benefits of $565,116, healthcare benefits of $1,375 and supplemental disability payments of$576.(10) Consists of healthcare benefits of $5,500, supplemental life premiums of $4,700 and supplemental disability payments of $3,456.Employment, Severance and Change in Control ArrangementsVaxartWouter W. Latour, M.D.In May 2011, we extended an offer letter to Wouter W. Latour, M.D., our President and Chief Executive Officer. The offer letter was subsequently amended inOctober 2011. The offer letter has no specific term and constitutes an at-will employment arrangement. Dr. Latour’s current annual base salary is $450,000and his annual target bonus is 50% of his base salary. The offer letter provided Dr. Latour with a $25,000 signing bonus.Sean N. Tucker, Ph.D.In May 2006, we extended an offer letter to Sean N. Tucker, Ph.D., our Chief Scientific Officer. The offer letter has no specific term and constitutes an at-willemployment arrangement. Dr. Tucker’s current annual base salary is $319,000 and his annual target bonus is 30% of his base salary.John M. HarlandIn March 2014, we extended an offer letter to John M. Harland, our former Chief Financial Officer. The offer letter has no specific term and constitutes an at-will employment arrangement. In December 2018, Mr. Harland resigned as our Chief Financial Officer effective as of December 31, 2018. Following Mr.Harland’s resignation, in January 2019 we extended an offer letter to Mr. Harland and he assumed the position of Vice President, Financial Planning andAdministration. Mr. Harland’s current annual base salary is $260,000 and his annual target bonus is 30% of his base salary.Vaxart Severance Benefit PlanIn May 2018, we adopted a Severance Benefit Plan pursuant to which selected current and future employees, including the named executive officers, will beeligible for severance benefits under certain circumstances. The Severance Benefit Plan supersedes any acceleration upon change of control benefits that aparticipant would have been entitled to under any pre-existing agreement between the individual and Vaxart.The actual amounts that would be paid or distributed to an eligible named executive officer as a result of a termination of employment occurring in the futuremay be different than those presented below as many factors will affect the amount of any payments and benefits upon a termination of employment. Forexample, some of the factors that could affect the amounts payable include the named executive officer’s base salary and the market price of our commonstock. Although we have entered into a participation notice to provide severance payments and benefits in connection with a termination of employmentunder particular circumstances, Vaxart, or an acquirer, may mutually agree with the named executive officer s to provide payments and benefits on terms thatvary from those currently contemplated. In addition to the amounts presented below, each named executive officer would also be able to exercise anypreviously-vested stock options that he held, in accordance with the terms of those grants and the respective plans pursuant to which they were granted.To receive any of the severance benefits under these agreements, the named executive officer is required to execute a release of claims against us within 60days of the qualifying termination and comply with confidentiality provisions. 123Table of ContentsSeverance Absent a Change in ControlUnder the Severance Plan, a participating individual shall be entitled to receive, in the event of a termination other than in connection with a change incontrol, (a) cash severance in accordance with our standard payroll practices and subject to standard payroll deductions and withholdings, equal to his annualbase salary multiplied by a fraction, the numerator of which is the number of months set forth in his Participation Notice, and the denominator of which is 12,and (b) continuation of his current health insurance coverage, or payment of the premiums for such coverage, for up to the number of months specified in hisparticipation notice. Each named executive officer is eligible to receive the following payments and benefits:· in the case of Dr. Latour, 100% of annual base salary;· in the case of Dr. Tucker, 50% of annual base salary;· in the case of Mr. Harland, 25% of annual base salary; and· the portion of health insurance premiums paid by Vaxart, prior to the termination, under our group health insurance plans as provided underCOBRA, until the earlier of (i) six months (12 months in the case of Dr. Latour, three months in the case of Mr. Harland) after termination, (ii) theexpiration of the named executive officer’s eligibility for the continuation coverage under COBRA, or (iii) such time as the named executive officeris eligible for health insurance coverage with a subsequent employer.Severance in Connection with a Change in ControlIn the case of a termination (following a change in control), if a participating individual is terminated without cause or resigns for good reason (as such termsare defined in the Severance Benefit Plan, either during the three months before or in the 12 months after a change in control, then he will be entitled toreceive:· a lump sum cash severance payment on the first payroll date that occurs more than five (5) days following the effective date of the release signed bythe named executive officer, subject to standard payroll deductions and withholdings, equal to a percentage of his annual base salary multiplied bya fraction, the numerator of which is the number of months set forth in his participation notice, and the denominator of which is 12;· in the case of Dr. Tucker and Mr. Harland, a pro rata amount of their target bonus for the calendar year in which the termination occurs calculated at100% of target levels as specified in our annual bonus plan or program in effect immediately prior to the effective date of the change in control and afraction, the numerator of which is the number of months of the participant’s employment during the calendar year in which the change of controloccurs, and the denominator of which is 12;· continuation of his current health insurance coverage, or payment of the premiums for such coverage, for up to the number of months specified in hisparticipation notice under the Severance Benefit Plan; and· accelerated vesting of then outstanding compensatory equity awards as to all unvested shares.Each named executive officer is eligible to receive the following payments and benefits:· in the case of Dr. Latour, 150% of annual base salary;· in the case of Dr. Tucker, 100% of annual base salary;· in the case of Mr. Harland, 50% of annual base salary;· in the case of Dr. Tucker and Mr. Harland, prorated target bonus for the calendar year in which the termination occurs;· full acceleration of vesting of any stock options to purchase common stock granted to the named executive officer; and· health insurance premiums under our group health insurance plans as provided under COBRA, to the extent such COBRA premiums exceed thecosts previously paid by the named executive officer for group health insurance coverage while employed by us, until the earlier of (i) 12 months(18 months in the case of Dr. Latour, six months in the case of Mr. Harland) after a change in control, (ii) the expiration of the named executiveofficer’s eligibility for the continuation coverage under COBRA, or (iii) such time as the named executive officer is eligible for health insurancecoverage with a subsequent employer. 124Table of ContentsAviragenJoseph M. Patti, Ph.D.Joseph M. Patti, Ph.D., ceased to be President and Chief Executive Officer of Aviragen and an employee of Aviragen upon the closing of the Merger. Underthe terms of Dr. Patti’s employment agreement, in the event Dr. Patti’s employment was terminated by Dr. Patti for good reason (as defined in Dr. Patti’semployment agreement) or by Aviragen for any reason other than cause, death or disability, in either case, within three months prior to or one year after theconsummation of a change in control, Aviragen would pay Dr. Patti, subject to Dr. Patti’s execution, delivery and non-revocation of a release, a lump sumequal to the sum of (i) any cash incentive compensation earned and unpaid through such termination; plus (ii) Dr. Patti’s salary for 24 months; plus (iii) theproduct of two times (2x) the cash incentive compensation paid to Dr. Patti in respect of the most recent fiscal year prior to the year in which such terminationoccurs; plus (iv) an amount equal to the present value of the premium payments that would be made by Aviragen if Dr. Patti were to continue to be coveredunder Aviragen’s group health, life and disability insurance for 24 months, which amount will be determined by Aviragen in its sole discretion. Dr. Pattiresigned with good cause upon the closing of the Merger and received an aggregate of $1,086,922 in cash severance benefits.Mark P. ColonneseMark P. Colonnese ceased to be Executive Vice President and Chief Financial Officer and an employee of Aviragen upon the closing of the Merger. Underthe terms of Mr. Colonnese’s employment agreement, in the event Mr. Colonnese’s employment was terminated by Mr. Colonnese for good reason (asdefined in Mr. Colonnese’s employment agreement) or by Aviragen for any reason other than cause, death or disability, in either case, within 60 days prior toor one year after the consummation of a change in control, Aviragen would pay Mr. Colonnese, subject to Mr. Colonnese’s execution, delivery andnonrevocation of a release, a lump sum equal to the sum of (i) any earned but unpaid cash incentive compensation for the fiscal year immediately precedingthe fiscal year in which such termination occurs; plus (ii) Mr. Colonnese’s base salary for 18 months; plus (iii) the product of one and a half times (1.5x) thecash incentive compensation paid to Mr. Colonnese in respect of the most recent fiscal year prior to the year in which such termination occurs, plus (iv) anamount equal to the present value of the premium payments that would be made by Aviragen if Mr. Colonnese were to continue to be covered underAviragen’s group health, life and disability insurance for 18 months, which amount will be determined by Aviragen in its sole discretion. Mr. Colonneseresigned with good cause upon the closing of the Merger and received an aggregate of $565,116 in cash severance benefits.Acceleration of Unvested Aviragen Equity AwardsAll outstanding stock options held by Aviragen’s executive officers and directors were accelerated and fully vested in accordance with their terms upon theclosing of the Merger and/or the termination of optionees’ employment in connection therewith. Please see the section above titled “Outstanding EquityAwards at December 31, 2018” for information regarding stock options held by Dr. Patti and Mr. Colonnese.401(k) PlanAviragen did not provide pension arrangements or post-retirement health coverage for its executive officers or employees. Aviragen’s executive officers andother eligible employees were eligible to participate in its 401(k) defined contribution plan. Aviragen made matching contributions to participants in the401(k) plan in an amount equal to 25% of the employee’s deferral up to a maximum of 4% of an employee’s salary, subject to statutory limits.We maintain a tax-qualified retirement plan that provides eligible employees with an opportunity to save for retirement on a tax advantaged basis. Eligibleemployees are able to defer eligible compensation up to certain Code limits, which are updated annually. We have the ability to make matching anddiscretionary contributions to the 401(k) plan, but have not done so to date. Employee contributions are allocated to each participant’s individual accountand are then invested in selected investment alternatives according to the participant’s directions. Employees are immediately and fully vested in their owncontributions. The 401(k) plan is intended to be qualified under Section 401(a) of the Code, with the related trust intended to be tax exempt under Section501(a) of the Code. As a tax-qualified retirement plan, contributions to the 401(k) plan are deductible by us when made, and contributions and earnings onthose amounts are not taxable to the employees until withdrawn or distributed from the 401(k) plan. Vaxart makes matching contributions to participants inthe 401(k) plan in an amount equal to the employee’s deferral up to a maximum of 3% of the employee’s annual eligible earnings.Pension BenefitsThe named executive officers did not participate in, or otherwise receive any benefits under any pension or retirement plan Vaxart or Aviragen sponsoredduring 2018.Nonqualified Deferred Compensation 125Table of ContentsThe named executive officers did not participate in, or earn any benefits under, a nonqualified deferred compensation plan Vaxart or Aviragen sponsoredduring 2018.Outstanding Equity Awards at December 31, 2018The following table presents, for each of our named executive officers, information regarding outstanding stock options held as of December 31, 2018. Option AwardsName Grant Date ofOption Award Number ofSecuritiesUnderlyingUnexercisedOptions (#)Exercisable Number ofSecuritiesUnderlyingUnexercisedOptions (#)Unexercisable OptionsExercisePrice ($) OptionExpirationDateWouter W. Latour, M.D. 6/29/2011 (1) 6,535 — $ 8.03 6/28/2021 11/3/2011 (1) 9,441 — 8.03 11/2/2021 8/8/2013 (1) 13,255 — 6.49 8/7/2023 5/8/2014 (1) 14,908 — 8.03 5/7/2024 7/23/2015 (2) 10,576 2,265 17.49 7/22/2025 7/23/2015 (2) 5,279 — 17.49 7/22/2025 3/25/2016 (3) 717 3,354 12.98 3/24/2026 3/25/2016 (3) 6,660 — 12.98 3/24/2026 6/24/2017 (4) — 14,782 4.07 6/23/2027 6/24/2017 (4) 8,869 — 4.07 6/23/2027 5/25/2018 (5) — 35,284 5.17 5/24/2028 5/25/2018 (5) — 75,416 5.17 5/24/2028John M. Harland 5/8/2014 (1) 9,563 — 8.03 5/7/2024 7/23/2015 (2) 7,223 1,032 17.49 7/22/2025 3/25/2016 (3) 2,810 1,277 12.98 3/24/2026 6/24/2017 (4) 2,642 4,405 4.07 6/23/2027 5/25/2018 (5) — 18,000 5.17 5/24/2028Sean N. Tucker, Ph.D. 8/27/2010 (1) 4,026 — 6.49 8/26/2020 3/30/2011 (1) 1,006 — 6.49 3/29/2021 4/13/2012 (1) 3,020 — 8.03 4/12/2022 8/8/2013 (1) 10,523 — 6.49 8/7/2023 5/8/2014 (1) 11,604 — 8.03 5/7/2024 7/23/2015 (2) 8,396 1,259 17.49 7/22/2025 7/23/2015 (2) 412 — 17.49 7/22/2025 3/25/2016 (3) 3,694 2,416 12.98 3/24/2026 3/25/2016 (3) 1,621 — 12.98 3/24/2026 6/24/2017 (4) 3,397 5,663 4.07 6/23/20275/25/2018 (5)— 14,0005.175/24/2028Joseph M. Patti, M.S.P.H., Ph.D. 4/3/2017 (6) 59,090 —7.228/13/2019Mark P. Colonnese 4/3/2017 (7) 36,363 — 7.22 8/13/2019 (1) The shares subject to this option are fully vested.(2) The unvested shares vest in equal monthly installments through July 23, 2019, subject to the executive officer’s continued service with us througheach relevant vesting date.(3) The unvested shares vest in equal monthly installments through March 25, 2020, subject to the executive officer’s continued service with usthrough each relevant vesting date.(4) The unvested shares vest in equal monthly installments through June 24, 2021, subject to the executive officer’s continued service with us througheach relevant vesting date.(5) The unvested shares vest in equal monthly installments through May 25, 2022, subject to the executive officer’s continued service with us througheach relevant vesting date.(6) The vesting of all shares under this stock option was accelerated in full upon Dr. Patti’s resignation following the Merger.(7) The vesting of all shares under this stock option was accelerated in full upon Mr. Colonnese’s resignation following the Merger. 126Table of ContentsDirector CompensationDuring 2018, our non-employee directors were compensated in the following manner under our director compensation program.Annual and Meeting Fees.During 2018, our non-employee directors received the following cash compensation for their service on the board of directors andits committees:· $37,000 annual cash retainer;· $20,000 for the non-executive chairman of the board and $15,000 for lead director (if applicable);· $17,500 for the chair of the Audit Committee and $8,750 for each of its other members;· $12,500 for the chair of the Compensation Committee and $6,250 for each of its other members; and· $9,000 for the chair of the Nominating and Corporate Governance Committee and $4,500 for each of its other members.· $13,000 for the chair of the Aviragen Transactions Committee and $10,000 for each of its other members was paid in connection with and at theconclusion of the Merger.Equity Awards. The Aviragen non-employee director equity compensation policy provided that each non-employee director would receive, upon the initialeffective date of such director’s appointment, a stock option award to purchase 3,182 shares of Aviragen’s common stock under its 2016 Equity IncentivePlan, 33% of which would vest on the first, second and third anniversary of the grant date. In addition, each non-employee director would receive an annualaward of options to purchase 1,818 shares of the Aviragen’s common stock under its 2016 Equity Incentive Plan that will vest on the one year anniversary ofthe grant date.The exercise price of all stock options granted to the Aviragen directors was equal to the fair market value of Aviragen’s common stock on the date of thegrant. As of the closing of the Merger, Aviragen’s non-employee directors held 14,888 unvested stock options and 92,745 vested stock options in theaggregate, with a weighted average exercise price of $34.93.Since the closing of the Merger in February 2018, we have not granted any stock options to our directors.Non-employee directors receive no other form of remuneration, perquisites or benefits, but are reimbursed for their expenses in attending meetings, includingtravel, meal and other expenses incurred to attend meetings solely among the non-employee directors.Director Compensation — 2018The following table provides director compensation information for each of the non-employee directors of the Aviragen board of directors serving fromJanuary 1, 2018 until their resignation in connection with the closing of the Merger in February 2018:Name Fees Earnedor Paid inCash TotalMichael Dougherty $ 6,345 $ 6,345Russell Plumb 6,955 6,955Armando Anido 6,040 6,040Michael W. Dunne, M.D. 5,064 5,064 127Table of ContentsThe following table provides director compensation information for each of our non-employee directors, including the non-employee directors ofAviragen who continued to serve on the board of directors following the closing of the Merger: Name Fees Earnedor Paid inCash TotalGeoffrey F. Cox, Ph.D. $42,804 $42,804Michael J. Finney, Ph.D. 40,158 40,158Jan Leschly(1) 34,878 34,878Richard J. Markham 61,006 61,006John P. Richard 51,776 51,776Anne M. VanLent62,35562,355 (1) Resigned as a member of the board of directors in November 2018.Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersEquity Compensation Plans at December 31, 2018The following table provides certain information with respect to all equity compensation plans in effect as of December 31, 2018. Number ofSecuritiesRemainingAvailable forFuture IssuanceUnder EquityCompensationPlans(ExcludingSecuritiesReflected inColumn (a))(c) Number ofSecurities toBe IssuedUponExercise ofOutstandingOptions(a) Weighted-AverageExercise Price ofOutstandingOptions(b) Plan Category Equity compensation plans approved by security holders 615,961(1) $7.57 223,377(2) Equity compensation plans not approved by security holders 249,202(3) $9.50 — Total 865,163 $8.13 223,377 (1) Reflects shares of common stock issuable upon the exercise of outstanding stock options granted under various plans that were formerly approved byAviragen’s stockholders.(2) Reflects shares of common stock that are available for future issuance under the 2016 Equity Incentive Plan.(3) Reflects shares of common stock issuable upon the exercise of outstanding stock options granted under the Vaxart, Inc. Amended and Restated 2007Equity Incentive Plan, which we assumed upon the closing of the Merger in February 2018. This plan expired in July 2017 and no further awards maybe made under this plan.Principal StockholdersThe following table sets forth certain information regarding the ownership of our common stock as of December 31, 2018 by:· each director;· each current executive officer· all of our executive officers and directors as a group; and· all those known by us to be beneficial owners of more than five percent of our outstanding common stock.This table is based upon information supplied by officers, directors and principal stockholders and Schedules 13G filed with the SEC. Unless otherwiseindicated in the footnotes to this table and subject to community property laws where applicable, the Company we believe that each of the stockholdersnamed in this table has sole voting and investment power with respect to the shares indicated as beneficially owned. Applicable percentages are based on7,141,189 shares outstanding on December 31, 2018, adjusted as required by rules promulgated by the SEC.Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o Vaxart, Inc., 290 Utah Ave., Suite 200, South San Francisco,California 94080. 128Table of Contents Beneficial OwnershipName of Beneficial Owner Shares %Greater than 5% Stockholders: Entities affiliated with Care Capital (1) 2,799,424 39.2%Executive Officers and Directors: Geoffrey F. Cox, Ph.D. (2) 8,567 *Michael J. Finney, Ph.D. 270,754 3.8John M. Harland (3) 23,636 *Wouter W. Latour, M.D. (4) 78,051 1.1Richard J. Markham (5) — *John P. Richard (6) 9,543 *Sean N. Tucker, Ph.D. (7) 130,710 1.8Anne M. VanLent (8) 12,724 *All executive officers and directors as a group (8 persons) 533,985 7.3 * Represents beneficial ownership of less than one percent.(1) Includes (a) 2,753,441 shares held by Care Capital Investments III, LP (“Investments III”) and (b) 45,983 shares held by Care Capital OffshoreInvestments III, LP (“Offshore III”). Care Capital III LLC is the general partner of Investments III LP and Offshore III (collectively, “Care Capital”) andas a result, Care Capital III LLC has the ultimate power to vote or direct the vote and to dispose or direct the disposition of such shares. The address foreach of these entities is P.O. Box 276, Avon by the Sea, New Jersey 07717.(2) Includes (a) 388 shares held by Dr. Cox’s spouse, and (b) 8,179 shares issuable pursuant to stock options exercisable within 60 days of December 31,2018.(3) Includes (a) 761 shares held directly by Mr. Harland, and (b) 22,875 shares issuable pursuant to stock options exercisable within 60 days of December31, 2018.(4) Consists of 78,051 shares issuable pursuant to stock options exercisable within 60 days of December 31, 2018.(5) Mr. Markham ceased to serve as a managing member of Care Capital effective December 31, 2018, and does not beneficially own any shares.(6) Consists of 9,543 shares issuable pursuant to stock options exercisable within 60 days of December 31, 2018.(7) Includes (a) 47,653 shares held directly by Dr. Tucker, (b) 25,388 shares held by Frances Chang and Sean Tucker, (c) 9,060 shares held by Dr. Tucker’sspouse, and (d) 48,609 shares issuable pursuant to stock options exercisable within 60 days of December 31, 2018.(8) Includes (a) 3,181 shares held directly by Ms. VanLent, and (b) 9,543 shares issuable pursuant to stock options exercisable within 60 days of December31, 2018.Item 13. Certain Relationships and Related Transactions, and Director IndependenceRelated-Party Transaction Policy and ProceduresWe have adopted a written Related Party Transaction Policy that sets forth our policies and procedures regarding the identification, review, consideration andapproval or ratification of “related party transactions.” For purposes of our policy only, a “related party transaction” is a transaction, arrangement orrelationship (including indebtedness or a guarantee of indebtedness) or any series of similar transactions, arrangements or relationships in which we and any“related party” are, were or will be participants involving an amount that exceeds $120,000 and in which any “related party” has a direct or indirect materialinterest. Transactions involving compensation for services provided to us as an employee, director, consultant or similar capacity by a related party are notcovered by this policy. A related party is any executive officer, director, nominee to become a director or more than 5% stockholder of us, including any oftheir immediate family members, and any entity owned or controlled by such persons. 129Table of ContentsUnder the policy, where a transaction has been identified as a related party transaction, management must present information regarding the proposed relatedparty transaction to the Audit Committee (or, where Audit Committee approval would be inappropriate, to another independent body of the Board) forconsideration and approval or ratification. The presentation must include a description of, among other things, the material facts, the interests, direct andindirect, of the related parties, the benefits to us of the transaction and whether any alternative transactions were available. To identify related partytransactions in advance, we rely on information supplied by its executive officers, directors and certain significant stockholders. In considering related partytransactions, the Audit Committee takes into account the relevant available facts and circumstances including, but not limited to (a) the risks, costs andbenefits to us, (b) the impact on a director’s independence in the event the related party is a director, immediate family member of a director or an entity withwhich a director is affiliated, (c) the terms of the transaction, (d) the availability of other sources for comparable services or products and (e) the termsavailable to or from, as the case may be, unrelated third parties or to or from employees generally. In the event a director has an interest in the proposedtransaction, the director must recuse himself or herself from the deliberations and approval. The policy requires that, in determining whether to approve, ratifyor reject a related party transaction, the Audit Committee consider, in light of known circumstances, whether the transaction is in, or is not inconsistent with,the best interests of us and our stockholders, as the Audit Committee determines in the good faith exercise of its discretion.Certain Related-Person TransactionsIndemnity AgreementsWe have entered into indemnity agreements with our executive officers and directors which provide, among other things, that we will indemnify such officeror director, under the circumstances and to the extent provided for therein, for expenses, damages, judgments, fines and settlements he or she may be requiredto pay in actions or proceedings which he or she is or may be made a party by reason of his or her position as a director, officer or other agent of ours, andotherwise to the fullest extent permitted under Delaware law and our Bylaws.Offer Letters We have entered into offer letters, employment agreements and change in control arrangements with our executive officers. For more information regardingthese agreements, see “Item 11. Executive Compensation—Employment, Severance and Change in Control Agreements.”Equity GrantsWe have granted stock options to our executive officers and certain members of our board of directors. For a description of our executive officers’ options, see“Item 11. Executive Compensation—Outstanding Equity Awards at December 31, 2018.” There were no awards to non-employee directors in 2018.Independence of The Board of DirectorsAs required under the Nasdaq Stock Market, or Nasdaq, listing standards, a majority of the members of a listed company’s board of directors must qualify as“independent,” as affirmatively determined by the board of directors. The board of directors consults with our counsel to ensure that its determinations areconsistent with relevant securities and other laws and regulations regarding the definition of “independent,” including those set forth in pertinent listingstandards of Nasdaq, as in effect from time to time.Consistent with these considerations, after review of all relevant identified transactions or relationships between each director, or any of his or her familymembers, and Vaxart, our senior management and our independent auditors, the board of directors has affirmatively determined that all of our directors, otherthan Dr. Latour due to his position as our President and Chief Executive Officer, are independent within the meaning of the applicable Nasdaq listingstandards.Item 14. Principal Accounting Fees and ServicesCurrent Principal Accountant Fees and Services 130Table of ContentsKPMG LLPIn February 2018, upon the closing of the Merger, the combined company dismissed Ernst & Young LLP as our independent registered accounting firm andappointed KPMG LLP as our new independent registered accounting firm. KPMG LLP has audited the financial statements of Private Vaxart since February2014. Private Vaxart was determined to be the accounting acquirer based upon the terms of the merger agreement resulting in a change to the combinedcompany’s fiscal year to December 31, effective as of the closing of the Merger.The following table represents aggregate fees billed to Private Vaxart for the year ended December 31, 2017, and to the combined company for the yearended December 31, 2018, by KPMG LLP. Year Ended December 31, 2017 2018 Audit Fees(1)$ 290,760 $ 559,000Audit-Related Fees— —Tax Fees— —All Other Fees(2)— 1,780Total Fees$ 290,760 $ 560,780 (1) Audit Fees consisted of fees for professional services rendered for the audits of our financial statements which were billed during the respective year,including the audits of our annual financial statements and reviews of our interim quarterly reports, and services provided in connection with SECfilings, including consents and comfort letters.(2) All Other Fees consisted of access to KPMG’s Accounting Research Online website.As Vaxart was private during 2017, none of the KPMG LLP fees were pre-approved. Following the Merger, all the KPMG LLP fees incurred were pre-approved by our Audit Committee.During the years ended December 31, 2017 and 2018, and the subsequent interim period through February 13, 2018, neither Vaxart, Aviragen, nor anyone ontheir behalf consulted with KPMG LLP, regarding either (i) the application of accounting principles to a specific transaction, completed or proposed, or thetype of audit opinion that might be rendered on Vaxart’s financial statements, and neither a written report nor oral advice was provided to Vaxart that KPMGLLP concluded was an important factor considered by Vaxart in reaching a decision as to any accounting, auditing or financial reporting issue or (ii) anymatter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) or a reportable event (asdescribed in Item 304(a)(1)(v) of Regulation S-K).Former Principal Accountant Fees and ServicesPricewaterhouseCoopers LLP, an independent registered public accounting firm, audited Aviragen Therapeutics, Inc.’s financial statements for the fiscalyears ended June 30, 2014 and 2015. PricewaterhouseCoopers LLP was dismissed and Ernst & Young LLP was engaged by Aviragen in March 2016. InFebruary 2018, upon the closing of the Merger, the combined company dismissed Ernst & Young LLP as its independent registered public accounting firmand appointed KPMG LLP as the new independent registered public accounting firm. 131Table of ContentsErnst & Young LLPThe following table represents aggregate fees billed to Aviragen for the fiscal year ended June 30, 2017 and for the period July 1, 2017 to the closing of theMerger on February 13, 2018 by Ernst & Young LLP. Fiscal Year Ended June 302017 For the Period July 1, 2017 toFebruary 13, 2018 Audit Fees(1)$ 411,351 $ 134,046Audit-Related Fees— —Tax Fees— —All Other Fees— —Total Fees$ 411,351 $ 134,046 (1) Audit Fees consisted of fees for professional services rendered for the audits of Aviragen financial statements which were billed during the respectivefiscal year, including the audits of Aviragen’s annual financial statements and reviews of Aviragen’s interim quarterly reports, and services providedin connection with SEC filings, including consents and comfort lettersAll the fees incurred were pre-approved by the Aviragen Audit Committee.The reports of Ernst & Young LLP on Aviragen’s consolidated financial statements for the fiscal years ended June 30, 2017 and 2016 did not contain anadverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles. During the fiscal yearsended June 30, 2017 and 2016, and the subsequent interim period through February 13, 2018 there were no: (1) disagreements (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) with Ernst & Young LLP on any matter of accounting principles or practices, financial statementdisclosure, or auditing scope or procedures, which disagreement if not resolved to the satisfaction of Ernst & Young LLP would have caused Ernst & YoungLLP to make reference thereto in its reports on the consolidated financial statements for such years, or (2) reportable events (as described in Item 304(a)(1)(v)of Regulation S-K).During the two most recent fiscal years and through March 23, 2016, the date of the engagement of Ernst & Young LLP, neither Aviragen nor any person onits behalf consulted with Ernst & Young LLP with respect to either (i) the application of accounting principles to a specified transaction, either completed orproposed, or the type of audit opinion that might be rendered on Aviragen’s consolidated financial statements or (ii) any matter that was either the subject ofa “disagreement” or a “reportable event” as such terms are described in Items 304(a)(1)(iv) or 304(a)(1)(v), respectively, of Regulation S-K promulgated underthe Exchange Act.PricewaterhouseCoopers LLPThe following table represents aggregate fees billed to Aviragen for the fiscal year ended June 30, 2017 by PricewaterhouseCoopers LLP. No fees were billedto Aviragen for the period of July 1, 2017 to February 13, 2018. Fiscal Year Ended June 30,2017 Audit Fees$ —Audit-Related Fees(1) 19,000Tax Fees —All Other Fees —Total Fees$ 19,000 (1) Audit-Related Fees consisted of fees for professional services which were billed during the year, including services provided in connection withSEC filings, including consents.All the fees incurred were pre-approved by the Aviragen Audit Committee and no fees were incurred subsequent to June 30, 2017.The reports of PricewaterhouseCoopers LLP on Aviragen Therapeutics, Inc.’s consolidated financial statements as of and for the fiscal years ended June 30,2014 and 2015 did not contain an adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accountingprinciple.During Aviragen Therapeutics, Inc.’s fiscal years ended June 30, 2014 and 2015 and in the subsequent interim period through March 23, 2016, there were nodisagreements with PricewaterhouseCoopers LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope orprocedure, which disagreements if not resolved to the satisfaction of PricewaterhouseCoopers LLP would have caused them to make reference to the subjectmatter of the disagreements in connection with their audit reports on the consolidated financial statements for such years, nor were there any “reportableevents” as such term is defined in Item 304(a)(1)(v) of Regulation S-K promulgated under the Exchange Act.Pre-Approval Policies and Procedures 132Table of ContentsThe Audit Committee has adopted a policy and procedures for the pre-approval of audit and non-audit services rendered by our independent registeredpublic accounting firm, KPMG LLP. The policy generally pre-approves specified services in the defined categories of audit services, audit-related servicesand tax services up to specified amounts. Pre-approval may also be given as part of the Audit Committee’s approval of the scope of the engagement of theindependent auditor or on an individual, explicit, case-by-case basis before the independent auditor is engaged to provide each service. The pre-approval ofservices may be delegated to one or more of the Audit Committee’s members, but the decision must be reported to the full Audit Committee at its nextscheduled meeting.The Audit Committee has determined that the rendering of services other than audit services by KPMG LLP is compatible with maintaining the principalaccountant’s independence. 133Table of ContentsPART IV Item 15. Exhibits and Financial Statement Schedules Financial Statement Schedules All financial statement schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. Exhibits The following documents are being filed with this Annual Report on Form 10-K. (1) Financial Statements (see “Financial Statements and Supplementary Data” at Item 8 and incorporated herein by reference). (2) Financial Statement Schedules (Schedules to the Financial Statements have been omitted because the information required to be set forth therein isnot applicable or is shown in the accompanying Financial Statements or notes thereto). (3) Exhibits. 134Table of Contents EXHIBIT INDEX Incorporated by ReferenceExhibitNumberDescription of DocumentSchedule/FormFileNumberExhibitFiling Date2.1Agreement and Plan of Merger and Reorganization datedOctober 27, 2017, by and among Aviragen Therapeutics,Inc., Vaxart, Inc. and Agora Merger Sub, Inc.8-K001-352852.1October 30, 20172.2Amendment No. 1, dated as of February 7, 2018, to theAgreement and Plan of Merger and Reorganization datedOctober 27, 2017, by and among Aviragen Therapeutics,Inc., Vaxart, Inc. and Agora Merger Sub, Inc.8-K001-352852.1February 7, 20183.1Restated Certificate of Incorporation of AviragenTherapeutics, Inc.10-K001-352853.1September 13, 20163.2Certificate of Amendment to Restated Certificate ofIncorporation of AviragenTherapeutics, Inc.8-K001-352853.1February 20, 20183.3Certificate of Amendment to Restated Certificate ofIncorporation of Vaxart, Inc.8-K001-352853.2February 20, 20183.4Restated By-laws of Aviragen Therapeutics,Inc.10-K001-352853.2September 13, 20164.1Reference is made to Exhibits 3.1 to 3.3 4.2Specimen Common Stock CertificateS-3333-2289104.2December 20, 201810.1+Collaboration and License Agreement dated September 29,2003, between Biota Holdings Limited and Sankyo Co.,Ltd.10-Q001-3528510.5May 10, 201310.2+Amendment #1 to Collaboration and License Agreementdated June 30, 2005, between Biota Holdings Limited,Biota Scientific Management Pty. Ltd. and SankyoCompany, Ltd.10-Q001-3528510.6May 10, 201310.3Amendment #2 to Collaboration and License Agreement,dated March 27, 2009, between Biota Holdings Limited,Biota Scientific Management Pty. Ltd. and Daiichi SankyoCompany, Limited10-Q001-3528510.7May 10, 201310.4+Commercialization Agreement dated March 27, 2009,between Biota Holdings Limited, Biota ScientificManagement Pty. Ltd and Daiichi Sankyo Company, Ltd.10-Q001-3528510.8May 10, 201310.5+Contract dated March 31, 2011, between Biota ScientificManagement Pty. Ltd. and Office of Biomedical AdvancedResearch and Development Authority within the Office ofthe Assistant Secretary for preparedness and Response atthe U.S. Department of Health and Human Services10-Q001-3528510.9May 10, 201310.6+Research and License Agreement dated February 21,1990, by and among Biota Scientific Management Pty.Ltd., Biota Holdings Limited, Glaxo Australia Pty. Ltd.and Glaxo Group Limited10-K001-3528510.6September 27, 201310.7#2007 Omnibus Equity and Incentive Plan (included asAppendix A to the proxy statement)DEF 14A000-04829-April 12, 200710.8#Form of Employee Stock Option Agreement under the2007 Omnibus Equity and Incentive Plan8-K001-3528510.1December 10, 2013 135Table of Contents Incorporated by ReferenceExhibitNumberDescription of DocumentSchedule/FormFileNumberExhibitFiling Date 10.9+Royalty Interest Acquisition Agreement by and betweenAviragen Therapeutics, Inc., Biota Holdings Pty Ltd, BiotaScientific Management Pty. Ltd. and HealthCare RoyaltyPartners III, L.P. dated April 22, 20168-K001-3528510.1April 26, 201610.10Protective Rights Agreement between AviragenTherapeutics, Inc. and HealthCare Royalty Partners III,L.P. dated April 22, 20168-K001-3528510.2April 26, 201610.11#Form of Employee Stock Option Agreement under the2016 Equity Incentive Plan10-Q001-3528510.1May 8, 201710.12#2016 Equity Incentive Plan (included as Appendix A tothe proxy statement)DEF 14A001-35285-September 27, 201610.13#Director Stock Option AgreementS-4333-22200910.22December 12, 201710.14Form of Indemnification Agreement by and betweenVaxart, Inc. and its Directors and Executive Officers8-K001-3528510.3February 20, 201810.15#Vaxart, Inc. Amended and Restated 2007 Equity IncentivePlan, Stock Option Agreement, form of Notice of StockOption Grant, form of Additional Terms and Conditions toOption and Stock Option Exercise AgreementS-4/A333-22200910.24December 29, 201710.16#Offer Letter, dated May 25, 2011, and Amendment toOffer Letter and Option Grant Agreement, dated October1, 2011, by and between Vaxart, Inc. and Wouter W.Latour, M.D.S-4/A333-22200910.25December 29, 201710.17Industrial Lease dated October 28, 2013, by and betweenVaxart, Inc. and Oyster Point LLCS-4/A333-22200910.26December 29, 201710.18Lease Agreement dated April 17, 2015, by and betweenVaxart, Inc. and CRP Edgewater, LLCS-4/A333-22200910.27December 29, 201710.19Loan and Security Agreement dated December 22, 2016,by and between Vaxart, Inc. and Oxford Finance LLCS-4/A333-22200910.28December 29, 201710.20Second Amendment to the Loan Agreement, datedFebruary 13, 2018, between Vaxart, Inc. and OxfordFinance LLC.8-K001-3528510.1February 20, 201810.21#Severance Benefit Plan and Form of Severance BenefitPlan Participation Notice.8-K001-3528510.1June 6, 201810.22Settlement Agreement by and among Vaxart, Inc., DigiradCorporation, East Hill Management Company, LLC, andAviragen Therapeutics, Inc.8-K001-3528510.1February 9, 201810.23Form of Sales Agreement dated December 19, 2018 byand between Vaxart, Inc. and B. Riley FBR, Inc.S-3333-2289101.2December 02, 201810.24 Amended and Restated Warrant issued to Oxford FinanceLLC, dated February 13, 20188-K001-3528510.2February 20, 201821.1*Subsidiaries of the Registrant 23.1*Consent of Independent Registered Public AccountingFirm 24.1*Power of Attorney. Reference is made to the signaturepage hereto 31.1*Certifications of Principal Executive and Financial Officerpursuant to Exchange Act Rule, 13a-14(a) and 15d-14(a),as adopted pursuant to Section 302 of the Sarbanes-OxleyAct of 2002 136Table of Contents Incorporated by ReferenceExhibitNumberDescription of DocumentSchedule/FormFileNumberExhibitFiling Date 32.1*§Certification of Principal Executive and Financial Officerpursuant to Rule 13a-14(b) of the Securities Exchange Actof 1934, as amended, and 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of the Sarbanes-OxleyAct of 2002 101 *The following financial information from the Company’sAnnual Report on Form 10-K for the year endedDecember 31, 2018, formatted in Extensible BusinessReporting Language (XBRL): (i) the Consolidated BalanceSheets as of December 31, 2018 and 2017, (ii) theConsolidated Statements of Operations andComprehensive Loss for the years ended December 31,2018 and 2017, (iii) the Consolidated Statements ofStockholders’ Equity (Deficit) for the two years endedDecember 31, 2018, (iv) the Consolidated Statements ofCash Flows for the years ended December 31, 2018 and2017, and (v) Notes to the Consolidated FinancialStatements _________ * Filed herewith # Management contract or compensation plan or arrangement + Confidential portions of this exhibit have been omitted and filed separately with the Commission pursuant to confidential treatment granted under Rule 24b-2 promulgatedunder the Exchange Act § In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release Nos. 33-8238 and 34-47986, Final Rule: Management’s Reports on Internal Control OverFinancial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certification furnished in Exhibit 32.1 hereto is deemed to accompany thisAnnual Report on Form 10-K and will not be deemed “filed” for purposes of Section 18 of the Exchange Act. Such certification will not be deemed to be incorporated byreference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference Item 16. Form 10-K Summary None. 137Table of ContentsSIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized. VAXART, INC. By:/s/ WOUTER W. LATOUR, M.D. Date: February 6, 2019 Wouter W. Latour, M.D. President and Chief Executive Officer POWER OF ATTORNEYKNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Wouter W. Latour, M.D. andMargaret A. Echerd, and each of them, as his or her attorneys-in-fact, with the power of substitution, for him or her in any and all capacities, to sign anyamendments to this report, and to file the same, with exhibits thereto and other documents in connection therewith with the Securities and ExchangeCommission, hereby ratifying and confirming all that said attorneys-in-fact, and each of them, or his or her substitute or substitutes may lawfully do or causeto be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrantand in the capacities and on the dates indicated. SIGNATURE TITLE DATE /s/ WOUTER W. LATOUR, M.D. Wouter W. Latour, M.D. President, Chief Executive Officer and Director(Principal Executive Officer and Principal Financial Officer) February 6, 2019/s/ MARGARET A. ECHERD Margaret A. Echerd Vice President, Corporate Controller(Principal Accounting Officer) February 6, 2019/s/ RICHARD J. MARKHAM Richard J. Markham Chairman of the Board February 6, 2019/s/ GEOFFREY F. COX Geoffrey F. Cox, Ph.D. Director February 6, 2019/s/ MICHAEL J. FINNEY Michael J. Finney, Ph.D. Director February 6, 2019/s/ JOHN P. RICHARD John P. Richard Director February 6, 2019/s/ ANNE M. VANLENT Anne M. VanLent Director February 6, 2019 138 Exhibit 21.1 SUBSIDIARIES OF THE REGISTRANT Name Jurisdiction Vaxart Biosciences, Inc. DelawareBiota Holdings Pty, Ltd. AustraliaBiota Scientific Management Pty, Ltd. AustraliaBiota Europe Limited United KingdomAnaconda Pharma, S.A.S. France  Exhibit 23.1Consent of Independent Registered Public Accounting FirmThe Board of DirectorsVaxart, Inc.:We consent to the incorporation by reference in the registration statements (No. 333-228910) on Form S-3 and (No. 333-225475, 333-215141, 333-143238) on Form S-8 of Vaxart, Inc. of our report dated February 6, 2019, with respect to theconsolidated balance sheets of Vaxart, Inc. as of December 31, 2018 and 2017, the related consolidated statements ofoperations and comprehensive loss, stockholders’ equity (deficit), and cash flows for each of the years in the two-yearperiod ended December 31, 2018, and the related notes (collectively, the consolidated financial statements), whichreport appears in the December 31, 2018 annual report on Form 10-K of Vaxart, Inc.Our report dated February 6, 2019 contains an explanatory paragraph that states that the Company has experiencedlosses and negative cash flows from operations since its inception, has an accumulated deficit, and has debt obligations,which raise substantial doubt about its ability to continue as a going concern. The consolidated financial statements donot include any adjustments that might result from the outcome of this uncertainty./s/ KPMG LLPSan Francisco, CaliforniaFebruary 6, 2019Exhibit 31.1CERTIFICATION I, Wouter W. Latour, M.D., certify that:1. I have reviewed this Annual Report on Form 10-K of Vaxart, 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 thisreport;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. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) andinternal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure 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 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 evaluation; and(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant’s internal control over financial reporting; and5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committeeof the 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 are reasonablylikely 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 internal controlover financial reporting. Date: February 6, 2019 By: /s/ WOUTER W. LATOUR, M.D. Wouter W. Latour, M.D.President and Chief Executive Officer(Principal Executive Officer andPrincipal Financial Officer) Exhibit 32.1CERTIFICATIONPursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), andSection 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. § 1350), Wouter W. Latour, M.D., President and Chief Executive Officer ofVaxart, Inc. (the “Company”), hereby certifies that, to his knowledge:(1) The Company’s Annual Report on Form 10-K for the period ended December 31, 2018, to which this Certification is attached as Exhibit 32.1 (the“Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act; and(2) The information contained in the Report fairly presents, in all material respects, the financial condition of the Company at the end of the periodcovered by the Report and results of operations of the Company for the period covered by the Report. Date: February 6, 2019 By: /s/ WOUTER W. LATOUR, M.D. Wouter W. Latour, M.D.President and Chief Executive Officer(Principal Executive Officer andPrincipal Financial Officer) A signed original of this written statement required by Section 906 of 18 U.S.C. § 1350 has been provided to Vaxart, Inc. and will be retained byVaxart, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not tobe incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act (whether made beforeor after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing. 

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