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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-35285
Vaxart, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware
(State or other jurisdiction of incorporation or organization)
59-1212264
(IRS Employer Identification No.)
385 Oyster Point Boulevard, Suite 9A, South San Francisco,
CA 94080
(Address of principal executive offices, including 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
Trading symbol
Common stock, $0.10 par value
VXRT
Name of each exchange on which
registered
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 ☐ No ☑
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 ☐ No ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Non-accelerated filer ☑
Accelerated filer ☐
Smaller reporting company ☑
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 financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
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 second fiscal quarter, June 30, 2019, based on the last reported sales price of the Registrant’s common stock of $0.67 per share was
$8,321,933. As of March 17, 2020, the registrant had a total of 70,734,077 shares of common stock issued and outstanding.
The registrant intends to file a definitive proxy statement pursuant to Regulation 14A within 120 days after the end of the fiscal year ended December 31,
2019. Portions of such proxy statement are incorporated by reference into Part III of this Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
Table of Contents
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS
PART I
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
ITEM 15.
Exhibits and Financial Statement Schedules
PART IV
EXHIBIT INDEX
ITEM 16.
Form 10-K Summary
SIGNATURES
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K for the year ended December 31, 2019, contains forward-looking statements within the meaning of Section 27A of the
Securities 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, which
are subject to the “safe harbor” created by those sections, concerning our business, operations, and financial performance and condition as well as our
plans, objectives, and expectations for business operations and financial performance and condition. Any statements contained herein that are not of
historical 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
future events and future trends. These forward-looking statements are based on current expectations, estimates, forecasts, and projections about our
business and the industry in which we operate and management’s beliefs and assumptions and are not guarantees of future performance or development
and involve known and unknown risks, uncertainties, and other factors that are in some cases beyond our control. As a result, any or all of our forward-
looking statements in this Annual Report on Form 10-K may turn out to be inaccurate. Factors that could materially affect our business operations and
financial performance and condition include, but are not limited to, those risks and uncertainties described herein under “Item 1A - Risk Factors.” You are
urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on the forward-
looking statements. The forward-looking statements are based on information available to us as of the filing date of this Annual Report on Form 10-K.
Unless required by law, we do not intend to publicly update or revise any forward-looking statements to reflect new information or future events or
otherwise. You should, 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 the SEC, 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 upon
information available to us as of the date of this prospectus, and while we believe such information forms a reasonable basis for such statements, such
information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review
of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these
statements.
This Annual Report on Form 10-K also contains market data related to our business and industry. These market data include projections that are based on a
number of assumptions. If these assumptions turn out to be incorrect, actual results may differ from the projections based on these assumptions. As a result,
our markets may 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 of operations, financial condition and the market price of our common stock.
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Item 1. Business
Overview
PART I
Vaxart Biosciences, Inc. was originally incorporated in California in March 2004, under the name West Coast Biologicals, Inc. and changed its name to
Vaxart, 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 Private
Vaxart survived as a wholly owned subsidiary 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. Unless otherwise indicated, all references to “Vaxart,” “we,” “us,” “our” or the “Company” in this Annual
Report on Form 10-K mean Vaxart, Inc., the combined company.
We are a clinical-stage biotechnology company primarily 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 for the treatment of chronic viral infections and cancer. Our vaccines are administered using a convenient room temperature-stable tablet, rather
than by injection.
We are developing prophylactic vaccine candidates that target a range of infectious diseases. These include coronavirus disease 2019, or COVID-19, a
coronavirus currently causing an epidemic throughout the world; norovirus, a widespread cause of acute gastro-intestinal enteritis, for which three Phase 1
human studies have been completed, including a study with a bivalent norovirus vaccine which, as we announced in September, met its primary and
secondary endpoints; seasonal influenza, for which our monovalent H1 influenza vaccine protected patients against H1 influenza infection in a recent Phase
2 challenge study; and respiratory syncytial virus, or RSV, a common cause of respiratory tract infections. In addition, we are developing our first
therapeutic immune-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, HPV and several others. According to a MarketsandMarkets research report titled “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 annual growth 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 protection
against certain infectious diseases, such as COVID-19, influenza, norovirus and RSV, and may have potential clinical benefit for certain cancers and
chronic viral infections, 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 and
reduce distribution bottlenecks, which we believe will improve the effectiveness of vaccination campaigns. For example, according to the U.S. Centers for
Disease Control and Prevention, or CDC, in the 2018/2019 seasonal influenza season, only approximately 49% of the U.S. population was vaccinated
against influenza, with particularly low vaccination rates among adults between ages 18 and 49.
Business Strategy
We are primarily focused on the development of oral recombinant vaccines based on our proprietary oral vaccine platform. However, we believe that
focusing on discovery and early-stage drug development while benefiting from our partners’ development and commercialization expertise, and leveraging
other strategic acquisitions that compliment, augment or differ from our primary product candidates, could reduce our internal expenses, allow us to have a
more diverse set of revenue-generating products and progress a larger number of drug candidates to later stages of drug development.
Consistent with this strategy, we may become engaged in a review of partnership opportunities, potential acquisitions of income generating assets, whether
royalty-based or otherwise, or acquisitions of companies that hold royalty or other income generating assets or technology that we believe will create value
for our shareholders. We may engage consultants and advisors to analyze such opportunities, technical, financial and other confidential information, and
support us in submissions of indications of interest and bids in competitive auctions or other processes for partnership opportunities, or the acquisition of
assets or companies.
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Our Product Pipeline
Fig. 1. The following table outlines the status of our oral vaccine development programs:
Bivalent GI.1 - GII.4 Norovirus vaccine generated IgA ASC response rates of 78 – 86% for GI.1 and 90 – 93% for GII.4.
1.
2. Monovalent H1 flu vaccine completed phase 2 Proof of Concept efficacy study. Quadrivalent flu Phase 1 on hold pending partnering process.
3.
4.
5.
Janssen collaboration. Janssen has an option to negotiate an exclusive license.
RSV program to be partnered with new antigen partner.
HPV therapeutic pre-IND feedback received.
We are developing the following tablet vaccine candidates, which are all based on our proprietary platform:
● Coronavirus Vaccine. We are developing an oral tablet vaccine for coronavirus. Vaxart plans to generate multiple vaccine candidates based on the
published genome of the COVID-19 and evaluate them in preclinical models for their ability to generate both mucosal and systemic immune
responses. Of particular interest will be the mucosal immune responses, as coronavirus is primarily an infection of the respiratory tract. We believe
the logistical advantages of an oral vaccine that is administered using a convenient room temperature-stable tablet could be of critical benefit when
rolling out a major public health vaccination campaign.
According to the CDC in December 2019, an outbreak of COVID-19, caused by the virus SARS-CoV-2, began in Wuhan, China. The disease
spread widely in China, and, as of February 26, 2020, COVID-19 cases had been identified in 36 other countries and territories, including the
United States. Person-to-person transmission has been widely documented, and a limited number of countries have reported sustained person-to-
person spread. On January 20, 2020, state and local health departments in the United States, in collaboration with teams deployed from CDC,
began identifying and monitoring all persons considered to have had close contact with patients with confirmed COVID-19. On March 6, 2020,
President Trump signed an $8.3 billion emergency spending bill to confront the COVID-19 outbreak. The aims of these efforts were to ensure
rapid evaluation and care of patients, limit further transmission, and better understand risk factors for transmission.
● 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 generate mucosal antibodies locally in the
intestine in addition to systemic antibodies in the blood, will better protect against norovirus infection than an injectable vaccine. Clinical evidence
that vaccines based on our platform technology can protect against infection is described under “Clinical Trial Update” in the “Seasonal Influenza
Vaccine” 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, 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 among young children and older adults. Typical symptoms include dehydration, vomiting, diarrhea with abdominal cramps, and
nausea. In a study by the CDC and Johns Hopkins University, published in 2016, the global economic impact of norovirus disease was estimated
at $60 billion, $34 billion of which occurred in high income countries including the United States, Europe and Japan. An update by the lead
authors estimated the burden in the U.S. alone to be $10.5 billion in 2018. Virtually all norovirus disease is caused by norovirus GI and GII
genotypes, and we are developing a bivalent vaccine designed to protect against both. We anticipate the vaccine will be an annual, one-time
administration ahead of the winter season when norovirus incidence is at its peak, similar to the influenza season.
Clinical Trial Update. In 2019, we completed the active phase of a Phase 1 clinical trial with our bivalent oral tablet vaccine for the GI.1 and GII.4
norovirus strains. Both the oral norovirus GI.1 and GII.4 vaccines were well tolerated, with no serious treatment-related adverse events reported.
Most solicited and unsolicited adverse events were mild in severity, and there were no significant differences observed between the vaccine and
placebo treatment groups.
Vaxart’s bivalent vaccine demonstrated robust immunogenicity, with an IgA ASC response rate of 78% for the GI.1 strain and 93% for the GII.4
strain for the bivalent cohort of the study, and 86% and 90%, respectively, for the two monovalent cohorts of the study. There was no interference
observed in the bivalent arm of the study.
Following a review of the development strategy for norovirus, Vaxart has put all clinical development on hold pending a search for a partner to
fund the program. If a partner is found, the next step in the clinical development program would most likely be a Phase 2 safety and dose
confirmation study with Vaxart’s bivalent norovirus vaccine in subjects age 18 to 64. The study may be expanded to include subjects age 65 and
over. A Phase 2 challenge study may also be considered, and could be conducted in parallel with, before or after the Phase 2 dose confirmation
study. The Phase 2 dose confirmation study would be followed by a Phase 3 efficacy study in subjects age 18 and over, assuming FDA
concurrence.
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● Seasonal Influenza Vaccine. Influenza is a major cause of morbidity and mortality in the U.S. and worldwide and, according to the CDC, only
49% of eligible U.S. citizens were vaccinated in 2018/2019, with particularly low vaccination rates among adults between ages 18 and 49. We
believe our oral tablet vaccine has the potential to improve the protective efficacy of currently available influenza vaccines and increase flu
vaccination rates.
Influenza is one of the most common global infectious diseases, causing mild to life-threatening illness and even death. An estimated 350 million
cases of seasonal influenza occur annually worldwide, of which three to five million cases are considered severe, causing 290,000 to 650,000
deaths per year globally. During the most recent flu season (2018/2019) there were 34,200 flu related deaths in the U.S. alone, according to the
CDC. Very young children and the elderly are at the greatest risk. In the United States, between 5% and 20% of the population contracts influenza,
226,000 people are hospitalized with complications of influenza, and between 3,000 and 49,000 people die from influenza and its complications
each year, with up to 90% of the influenza-related deaths occurring in adults older than 65. The total economic burden of seasonal influenza has
been estimated to be $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 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
and protect against additional strain variants; our vaccine is delivered as a room temperature-stable tablet, which we believe would provide a more
convenient method 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 the risk 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 Department of Health
and Human Services, Office of Biomedical Advanced Research and Development Authority, or HHS BARDA, under which a Phase 2 challenge
study of our H1N1 flu vaccine candidate was conducted. Previously, we had announced that, in healthy volunteers immunized and then
experimentally infected with H1 influenza, our H1 influenza oral tablet vaccine reduced clinical disease by 39% relative to placebo, a result that
was superior to that of Fluzone, the market-leading injectable 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 significant expansion of mucosal homing receptor
plasmablasts to approximately 60% of all activated B cells, while Fluzone only maintained baseline levels of 20%. We believe these mucosal
plasmablasts are a key indicator of a protective mucosal immune response and a unique feature of our vaccines. This data also provided 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.
At this time, we aim to finance development and commercialization of our seasonal quadrivalent influenza oral tablet vaccine through third-party
collaboration and licensing arrangements and/or non-dilutive funding. In the future, we may also consider equity offerings and/or debt financings
to fund the program. Currently, the seasonal flu program is on hold.
In addition to our conventional seasonal flu vaccine, we entered into a research collaboration agreement with Janssen Vaccines & Prevention B.V.,
or Janssen, to evaluate our proprietary oral vaccine platform for the Janssen universal influenza vaccine program. Under the agreement, we will
produce non-GMP oral vaccine containing certain proprietary antigens from Janssen and test the product in a preclinical challenge model, with
results expected in the first half of 2020. Upon completion of the study, Janssen will have an option to negotiate an exclusive worldwide license to
our technology encompassing the Janssen antigens.
● 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 for
RSV, offering significant advantages over injectable vaccines. We will seek to develop a tablet RSV vaccine by licensing one or more RSV
protein antigens that have demonstrated protection against RSV infection in clinical studies, or by partnering with a third party with RSV
antigens that can be delivered with our platform. Currently, the RSV program is on hold.
● HPV Therapeutic Vaccine. Our first therapeutic oral vaccine candidate targets HPV-16 and HPV-18, the two strains responsible for 70% of
cervical cancers 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
in the 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 and
promoted migration of the activated T cells into the tumors, leading to tumor cell killing. Mice that received our HPV-16 vaccine showed a
significant reduction in volume of their established tumors.
In October 2018, we filed a pre-IND meeting request for our first therapeutic vaccine targeting HPV16 and HPV18 with the FDA, and we
subsequently submitted a pre-IND briefing package. We received feedback from the FDA in January 2019. The program is currently on hold while
the Company is focusing its efforts on the COVID-19 vaccine.
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Additional Objectives
● Develop Other Tablet Vaccine Candidates Based on Our Proprietary Platform. Our technology platform employs a modular approach using the
Ad5 vector-adjuvant construct with disease-specific antigens and can be used to create new tablet vaccine candidates for a wide range of infectious
diseases. We may consider exploring additional infectious diseases including 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 current
and future patent applications in the United States and international jurisdictions. In addition, we have established proprietary formulation and
tableting capabilities.
● 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 for seasonal influenza and norovirus. We aim to develop
additional vaccine candidates based on our oral vaccine platform. We may seek partners to maximize the commercial opportunity of some or all of
our tablet vaccine candidates.
Anti-Virals
● Through the Merger, we acquired two royalty earning products, Relenza and Inavir. We also acquired three Phase 2 clinical stage antiviral
compounds, which we have discontinued.
● Relenza and Inavir are antivirals for the treatment of influenza that are marketed by GlaxoSmithKline, plc, or GSK, and Daiichi Sankyo Company,
Limited, or Daiichi Sankyo, respectively. We have earned royalties on the net sales of Relenza and Inavir in Japan. The last patent for Relenza
expired in July 2019 and the last patent for Inavir expires in December 2029. Sales of these antivirals vary significantly from quarter to quarter
due to the seasonality of flu, and from one year to the next, depending on the intensity of the flu season and competition from other antivirals such
as Tamiflu. Importantly, on February 23, 2018, Xofluza, a new drug to treat influenza developed by Shionogi & Co., Ltd., or Shionogi, was
approved in Japan. Since its launch in 2018 and during 2019, Xofluza has gained significant market share, substantially reducing sales of Inavir.
Our Tablet Vaccine Platform
Vaccines based on our oral adjuvant-vector platform are designed to generate broad local and systemic immune responses, which may offer important
advantages in addressing a wide range of infectious diseases.
Platform Components
Our 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
the gut. Specifically, we use non-replicating adenovirus type 5, or Ad5, which delivers the DNA for both the antigen and adjuvant to the cells of
the small 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 targeted pathogen. We use a different antigen for
each 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.
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Fig. 2. Our VAAST Platform.
Caption. Vector-Adjuvant-Antigen Standardized Technology Platform
Our Platform. Combination of the vector-based delivery system, with antigen and adjuvant expressed by the vector.
Adenovirus 5 Vector
Ad5 is an extensively studied and well-characterized vector. Over 200 clinical trials conducted by others have used Ad5 for a wide range of applications,
and we believe that using the same adenovirus in our tablet vaccine candidates will reduce regulatory risk, given that it is known to regulatory authorities.
Recombinant Antigen
Our vector contains cloning space where DNA encoding for any recombinant antigen can be inserted. In the vaccine programs pursued to date, we have
chosen recombinant antigens that are known to be key targets of the immune system with the ability to generate protection against the corresponding
pathogen. The Ad5 vector-adjuvant gene cassette allows for a modular approach.
Adjuvant
We 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
Toll Like Receptor 3 (TLR3) agonist and is recognized by the innate immune system as a signal that an undesired viral replication is ongoing, triggering it
to mount 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 adenovirus
when administered orally, and because very few pathways of immune system recognition signals occur in the small intestine. Importantly, our adjuvant is
expressed within a cell, not provided as a separate component, resulting in a more localized response when compared with adjuvants contained in injectable
vaccines.
Enteric-Coated Tablet
While tablets are typically used to deliver small molecules to the intestine, we have designed our tablets to deliver the much larger adenovirus particles. We
hold intellectual property related to the composition and formulation of our tablet vaccine candidates. Our tablet manufacturing does not require sterile fill
and finish processing, such as for injectables, but rather uses standard tableting equipment.
How Our Tablet Vaccine Candidates Work
Our tablets are designed to deliver vaccines to the small intestine. The tablets are covered with a protective coating that remains intact in the low pH
environment of the stomach and protects the active ingredient contained in the tablet core from the acidic environment in the stomach. The coating is
designed to dissolve in the neutral pH environment of the small intestine which we are targeting to generate an optimal immune response. Once the coating
has 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
always produced within the exact same intestinal cells that also produce the antigen. Importantly, unlike current recombinant vaccines that are
manufactured in insect cells or yeast which may introduce subtle structural changes to the protein antigen, the production of antigens delivered using our
approach is identical 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.
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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 tablet
reaches the small intestine, it releases the active ingredient, the viral vector, that can then transfect the epithelial cells in the mucosal epithelium and
deliver the genes for the two payloads (antigen and adjuvant). 3. Expression of the antigen and adjuvant in the epithelial cells then leads to the TLR3
signaling 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 eventually
leads to an immune response, producing either memory cells or large quantities of antibodies that bind to a key antigen. The expressed antigen and adjuvant
of 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 the
antigen 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
that recognize the antigen and T cells find cells that have antigen presented on their surface and either kill the presenting cell or stimulate a local
inflammatory response. A successful vaccination occurs if the B cells and T cells can form either memory cells (cells specialized to respond quickly to the
protective antigen 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 Responses
The immune system has developed defenses against pathogens by creating a special class of immune effectors, such as mucosal antibodies that are directed
to wet 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 may need greater immune responses outside of serum antibodies. Organisms that cause these infections largely evade the antibody immune
response generated by serum antibodies in the blood because the pathogenic organism can pass through cells that line the open, mucosal membranes
without coming into direct contact 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 cell
immune responses, which are required to produce an effective level of immunization against several difficult pathogens. Administering vaccines through
non-mucosal routes often leads to poor protection against mucosal pathogens primarily because such vaccines do not generate memory lymphocytes that
migrate to mucosal surfaces. Although mucosal vaccination induces mucosa homing memory lymphocytes, we believe no complete mucosal recombinant
oral vaccines are commercially available. Live attenuated vaccines can pose safety risks, whereas killed pathogens or molecular antigens are usually weak
immunogens when applied to intact mucosa. Moreover, the immune mechanisms of protection against many mucosal infections are poorly understood.
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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 intestine
and activate the immune system of the gut. Mucosal vaccine delivery is believed to enhance protection against mucosal pathogens by generating immunity
at the very surface where such pathogens invade. Our tablet vaccine candidates target the mucosal immune cells with a vector-based approach and are
designed 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 Issues
Injected 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 multiple
vaccines 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 H1
influenza oral tablet vaccine study in 12 subjects, there were no significant rises in the neutralizing antibody titers to Ad5 following immunization. A
challenge 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 in
neutralizing 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 were
monitored in the two Phase 1 norovirus vaccine studies, study #101 and study #102. There were no significant increases in the neutralizing anti-Ad5
antibody 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 days
after 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 immune
status. 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
to induce a neutralizing antibody response (by hemagglutinin inhibition or microneutralization assay) to influenza. In the two recently completed Phase 1
studies 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 specifically
blocking titers to norovirus virus-like particles, or VLP (BT50 assay), was not reduced in subjects with pre-existing anti-Ad5 antibody titers. These results
are shown below. In conclusion, performance of our Ad5 vectored vaccine delivered orally does not appear to be adversely affected by the pre-existing
serum antibody status of the recipient.
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Fig. 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 Ad5
positive, those <100 were considered Ad5 negative. The fold increase in BT50 titers for each subject were plotted. Average increase in the BT50 titers for
the Ad5 positive group were not lower than the BT50 Ad5 negative group.
Our Norovirus Program
Market Overview
Norovirus 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 among
young children and older adults. Typical symptoms include dehydration, which is the most common complication, vomiting, diarrhea with abdominal
cramps, and nausea. A study conducted by the CDC and Pittsburg School of Medicine in 2012 estimated that the total economic burden of norovirus in the
United States was $5.5 billion. In the U.S., we believe a norovirus vaccine would be beneficial for high risk groups such as infants and children up to five
years old, older adults and the elderly, as well as for workers in the food and travel industries, for healthcare, childcare and elder care workers, first
responders, the military, and leisure and business travelers. In a study published by Johns Hopkins University and the CDC in 2016, the total global
economic burden of norovirus was estimated at $60 billion, $34 billion of which occurred in high income countries including the United States, Europe and
Japan. In a more recent health economic study presented at the vaccines for enteric diseases meeting in 2019 the economic impact to the U.S. was estimated
to be $10.5 billion annually. There are currently no approved vaccines or therapies to prevent or treat norovirus infection.
Our Norovirus Vaccine Candidate
We plan to develop a VP1-based bivalent oral tablet vaccine that protects against norovirus GI and norovirus GII, the two major norovirus genogroups
affecting humans, by targeting the norovirus GI.1 Norwalk strain and the norovirus GII.4 Sydney strain. We believe that our tablet vaccine would have
important advantages over the injectable vaccine in development by Takeda. Because norovirus is an enteric pathogen that infects epithelial cells of the
small intestine, we believe that a vaccine that produces antibodies in the intestine against norovirus locally in the intestine, such as our tablet vaccine
candidate which is delivered directly to the gut, may be optimal at protecting against infection.
Preclinical Results
We have conducted multiple preclinical studies of our norovirus vaccine candidate in mice and ferrets. Overall, as compared with injectable VP1 protein
vaccine, our norovirus vaccine candidate generated comparable levels of serum antibody and superior levels of mucosal antibody to the VP1 injectable
protein vaccine.
Clinical Trials
We have completed two Phase 1 studies with our monovalent tableted norovirus GI.1 oral tablet vaccine, and one Phase 1b study with our bivalent tableted
vaccine (co-administration of GI.1 and GII.4 vaccines). In all three studies, the primary endpoint was safety and the secondary endpoint was
immunogenicity. In the bivalent study we also evaluated potential interference with co-administration.
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Study 101. Placebo Controlled Study
In the Phase 1 study designed to evaluate the norovirus vaccine (VXA-GI.1-NN), 66 healthy adults were randomized in three groups, with 23 subjects
receiving 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 receiving the
matching placebo control.
Safety Results. 101 Study
Solicited Events. In the first seven 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 adverse
events reported (n=46) were grade 1 or 2 in severity with the majority being mild events (44 grade 1 and two grade 2 events). The percentage of subjects
with any solicited symptoms was similar among treatments (See table below). Diarrhea and headache were the most common solicited symptoms following
VXA-GI.1-NN administration, 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 high dose group. Nine of the 11 subjects reported mild severity diarrhea, while two 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 one day. At no point did any of the loose stools impact normal activity such as work or school, and none required treatment with
anti-diarrheal medications or rehydration therapy. 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, or TEAEs.
Solicited Adverse Events*(1)
Number of Subjects with Any Symptoms
Gastrointestinal disorders
Abdominal pain
Diarrhea
Nausea
General disorders and administration site
conditions
Malaise
Nervous system disorders
Headache
Placebo
N=20
10 (50%)
2 (10%)
3 (15%)
4 (20%)
2 (10%)
8 (40%)
Low Dose
N=23
11 (48%)
5 (22%)
4 (17%)
4 (17%)
1 (4%)
8 (35%)
High Dose
N=23
14 (61%)
0 (0%)
11 (48%)
3 (13%)
3 (13%)
7 (30%)
(1) Solicited symptoms were collected from subjects for seven days following immunization.
Unsolicited Events. A total of 83 unsolicited TEAEs, were reported by 33 of the 66 subjects within the first 28 days post dosing, with slightly more placebo
subjects 12/20 (60%) reporting adverse events than low dose 11/23 (48%) or high dose vaccinated subjects 10/23 (44%). Headache was the most common
adverse event reported in all treatment arms. Most TEAEs were mild or moderate in severity. The site investigator considered 28 TEAEs possibly related,
42 unlikely related, and 13 not related.
Study 102. Dose and Schedule Optimization
The open-label, dose optimization study was designed to evaluate the norovirus GI.1 monovalent vaccine (VXA-GI.1-NN) in 60 subjects given multiple
doses with some differences in schedule for the lower 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-NN on 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 sequentially from group 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 compare immunogenicity between groups by BT50 titers and antibody secreting cells (ASC) counts.
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Safety Results. 102 Study
In the first seven days following study drug administration, there were 27 subjects reporting adverse events, distributed across the groups with the highest
number of 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 21 subjects 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 Symptoms – Number and Percent of Subjects Reporting TEAEs.
Group A
N=15
5 (33.3%)
Group B
N=15
8 (53.3%)
Solicited Adverse Events
Total Number Reporting an Adverse Event
GASTROINTESTINAL DISORDERS
Diarrhea
Abdominal Pain
Nausea
Abdominal Pain, Upper
GENERAL DISORDERS
Malaise
Feeling Hot
NERVOUS SYSTEM DISORDERS
Headache
Group A: Low Dose - Day 0, 7 Group B: Low Dose - Day 0, 2, 4
Group C: Low Dose - Day 0, 28 Group D: High Dose - Day 0, 28
0
1 (7%)
1 (7%)
0
2 (13%)
0
4 (27%)
1 (7%)
0
2 (13%)
1 (7%)
0
1 (7%)
7 (47%)
Group C
N=15
11 (73.3%)
Group D
N=15
3 (20%)
5 (33%)
3 (20%)
2 (13.3%)
0
2 (13%)
0
1 (7%)
1 (7%)
0
0
1(7%)
0
9 (60%)
1 (7%)
Solicited symptoms were collected from subjects for seven days following immunization.
Study 103. Placebo Controlled Study
In this Phase 1 study (VXA-NVV-103) designed to evaluate the bivalent norovirus vaccine administration (VXA-GI.1-NN and VXA-GII.4-NS), 80 healthy
adults were randomized into one of four treatment groups. Treatment Group 1 had an open-label sentinel group of five subjects who were enrolled prior to
initiation of the subsequent treatment groups. The five sentinel subjects received the monovalent GII.4 vaccine and were monitored for safety and
immunogenicity. Randomization was 1:1:2:1 for Treatment Groups 1 through 4, respectively. Patients received the complete investigational dose of 5 ×
1010 IU within the monovalent vaccine treatment arms and 1x 1011 IU in the bivalent treatment arm or placebo tablets.
Safety Results. 103 Study
Solicited Symptoms. In the first seven days following study drug administration, 37 study subjects had at least one solicited adverse event reported with
33/65 (51%) subjects in the VXA-NNV-103 vaccine groups and 4/15 (27%) of subjects in the placebo group (See Table 3). Most subjects reported solicited
symptoms that were mild in intensity. Five subjects reported solicited symptoms of Grade 3 severity. The percentage of subjects with any solicited
symptoms was similar among treatments (See table below). Diarrhea and malaise were the most common solicited symptoms following vaccine
administration, reported by subjects in all three active treated groups (20%-27% subjects). The incidence of diarrhea was higher across the vaccine treated
subjects compared to placebo. The incidence of nausea and headache was highest in Bivalent GII.4/GI.1 group compared to other groups. The incidence of
malaise/fatigue was higher across the vaccine treated subjects compared to placebo. Myalgia and fever was reported only in the vaccine treated subjects. In
summary, both vaccines were safe when given as a monovalent vaccine or in combination as a bivalent vaccine. The most common symptoms were mild
diarrhea and mild malaise both reported in about 20% of vaccine recipients. There were no deaths, serious adverse events, adverse events of special
interest, new onsets of chronic illness, or subject discontinuations due to TEAEs in this study.
11
Table 3. Norovirus Study 103 Solicited Systems – Number and Percent of Subjects Reporting TEAEs.
Adverse Events*
Number of Subjects with Any Symptoms
Gastrointestinal disorders
Abdominal pain
Diarrhea
Nausea
Vomiting
General disorders and Nervous system
disorders
Malaise
Myalgia (Muscle Pain)
Anorexia
Headache
Fever
Monovalent
GII.4
(N=20)
n (%)
9 (45%)
Monovalent
GI.1
(N=15)
n (%)
8 (53%)
Bivalent
GII.4/GI.1
(N=30)
n (%)
16 (53%)
3 (15.0)
4 (20.0)
3 (15.0)
1 (5.0)
4 (20.0)
2 (10.0)
0 (0.0)
2 (10.0)
1 (5.0)
1 (6.7)
3 (20.0)
1 (6.7)
0 (0.0)
4 (26.7)
2 (13.3)
0 (0.0)
2 (13.3)
2 (13.3)
4 (13.3)
6 (20.0)
6 (20.0)
2 (6.7)
6 (20.0)
2 (6.7)
1 (3.3)
7 (23.3)
1 (3.3)
Placebo
(N=15)
n (%)
4 (27%)
2 (13.3)
1 (6.7)
2 (13.3)
0 (0.0)
1 (6.7)
0 (0.0)
0 (0.0)
2 (13.3)
0 (0.0)
Solicited symptoms were collected from subjects for 7 days following immunization
Unsolicited Events. A total of 14 subjects reported a TEAE. The incidence of TEAEs was highest in the placebo group (33.3%) compared with the
monovalent GI.1 group (26.7%), monovalent GII.4 group (15.0%), and the bivalent GII.4/GI.1 group (6.7%). The incidence of study vaccine related
TEAEs was highest in the monovalent GI.1 group (20%) compared with the placebo group (13.3%), monovalent GII.4 group (5.0%), and the bivalent
GII.4/GI.1 group (3.3%). One subject in the monovalent GII.4 group reported an SAE of Hyperemesis Gravidarum which was deemed by the site
investigator to be unrelated to study drug.
Safety Summary from the Three Studies.
186 subjects were treated with Vaxart norovirus vaccines in the three Phase 1 studies. The vaccine was well tolerated, with no severe adverse events that
were attributable to the vaccine reported in any study. The most common solicited adverse event was headache (27.5%), but this was relatively similar to
the 28.6% of subjects in the placebo group. In two of the studies there was a higher incidence of diarrhea (20.5%) reported in the vaccine treatment groups
versus the placebo group (11.4%). However, in the high dose group in the 102 study, there was only one subject (6.7%) reporting diarrhea even after
receiving two administrations of vaccine at the highest dose. These results in total suggest that there were no dose dependent effects that impacted safety.
Immunogenicity Results-Study 101
BT50 Titers. The primary immunological endpoint was to measure antibody titers by an assay that assessed the ability of antibodies to block interaction of
a norovirus VLP to histogroup blood antigen (HGBA). This assay is known as the BT50 (for 50% inhibition of blocking titer) assay. BT50 titers were
assessed using 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 greater than 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 the initial 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 dose group was significantly increased over placebo on day 28 (P=0.0003). Complete results are given in the table below.
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GMT for Leb BT50 assays
Table 4. Study 101, Least Squared Geometric Mean Titer (LSGMT) for Leb BT50 assay.
HBGA
Group
Low
High
Placebo
D0 LSGMT
(95 CI)
26.2
(16.6-41.2)
25.8
(18.3-36.2)
24.6
(15.3-39.3)
Leb
D28 LSGMT
(95 CI)
59.0
(33.0-105.4)
98.5
(64.4-150.7)
27.4
(17.0-44.2)
Overall significance
LSGMR
p value*
2.3
3.8
1.1
0.0459
0.0003
Reference
0.0017
*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. This
assay essentially counts the number of B cells that emerge after immunization and recognize norovirus in the peripheral blood. The number that circulate in
the 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%) of
subjects 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 were
generally 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 blood
mononuclear 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 on
day 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
treated groups 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).
There was 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 at EC50 between days 0 and 28 were calculated for each subject. Most subjects had an increase in antibody titers post immunization. The average
change in EC50 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 and 5.4-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 to
safely induce immunological memory to protect people from actual infection. Antigen specific memory B cells were investigated after culturing PMBCs
with polyclonal stimulators. VP1 specific IgG memory B cells were higher than IgA memory B cells in the day 0 samples (Figure 9). Post immunization,
the response 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 day 7 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 of the mucosal homing receptor, α4β7. 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 the low 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 is
highly variable within these samples, total IgA was also measured and the ratio between VP1- specific IgA/total IgA for each sample was examined.
Samples with IgA levels below the detection limit were excluded from analysis. The increase in the ratio of specific IgA to total IgA was measured
between baseline and 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 IgA response 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 are significantly higher than the placebo group where 2/18 (11%) and 0/16 (0%) were found to have fourfold or better increases on days 28
and 180 (P=0.029 and P=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%) and 5/16 (31%) with fourfold or greater increases on days 28, and 180 respectively. The number of responders trended higher than
placebo on day 28, but the difference 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 day 180 (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). The average 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 low dose groups had each had four subjects with a fourfold rise in the specific response, versus none for the placebo
group. These results demonstrate that the vaccine can induce antibody responses that are measured in the mucosa, particularly in the intestinal mucosa,
which is the site of norovirus infection.
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Fig. 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 that
occur 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 represents
an individual subject. The long horizontal line represents the mean, with the smaller lines the 95% confidence interval.
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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 horizontal
line 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.
Average increase 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
days 0 and 28.
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Immunological Results - 102 Study
BT50 Titers. The objective of the study was to compare schedules and dosing for the ability to elicit immune responses, particularly by evaluating BT50
titers. 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 or
greater 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
rose from 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
groups given 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 not
statistically significant. An ANCOVA model was used to determine the statistical significance of the increases in GMFR. Least-squares, or LS, geometric
mean titers, or LSGMTs, and LS geometric mean fold rises (LSGMFRs) were calculated by exponentiating the LSMs from the ANCOVA model, which
included log-transformed post baseline titer or log-transformed change from baseline titer as a dependent variable, cohort as a factor, and baseline log-titer
as a 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
for groups 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 had a more modest increase in the titers.
102 Study. BT50 Titers, Leb
Table 5. Study 102, Geometric Mean Titer (GMT) for Leb BT50 assay roger.
Group
A
B
C
D
Description
Low, 2X, 7 days apart
Low, 3X, 2 days apart
Low, 2X, 28 days apart
High, 2X, 28 days apart
DO GMT
32.2
31.5
29.4
21.3
D28 (or D36)
64.5
51.2
66.0
85.1
GMFR
2.0
1.6
2.2
3.8
GMT D56 GMFR D56
66.0
42.5
64.5
75.8
2.0
1.4
2.2
3.6
ASCs. Additional immunological analysis was performed by comparing the ASC responders between groups. The high dose group had 14 out of 15
subjects respond 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 a significant 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 high number of ASC counts after the first immunization had a low response after the 2nd dose. The low dose groups were compared by examining the
overall response rate, since the dosing and the analysis were performed at different intermediate timepoints. Group A had the highest overall response rate
where 12/14 subjects (86%) were able to induce meaningful ASC responses after one or two doses. Slightly lower responders were observed in group B,
where only a few subjects 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 (three subjects 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 for
each 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.
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Fig. 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 for
each 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.
Immunogenicity Results - Study 103
BT50 Titers. There was a significant increase in the titers of serum GI.1 HBGA blocking antibodies by BT50 at Day 29 in the Monovalent GI.1 and
Bivalent GII.4/GI.1 from Day 1 values. There was a significant increase in the GMT of serum GII.4 HBGA blocking antibodies by BT50 at Day 29 in the
Monovalent GII.4 and Bivalent GII.4/GI.1 from Day 1 values. Serum assays such as the BT50 showed a two- to three-fold increase in titer and a 50%
seroconversion rate. No significant differences in the GMT of serum GI.1 HBGA blocking antibodies by BT50 were seen between the Monovalent GI.1
and Bivalent GII.4/GI.1 groups. No significant differences in the GMT of Serum GII.4 BT50 GMT were seen between the Monovalent GII.4 and Bivalent
GII.4/GI.1 groups.
Antibody Secreting Cell (ASC). The ability of the vaccine to induce norovirus specific B cells in the peripheral blood was measured by ASC assay. This
assay essentially counts the number of B cells that emerge after immunization and recognize norovirus in the peripheral blood. The number that circulate
in the blood pre-immunization is very low, so the assay is a meaningful way to evaluate the vaccine specific effects.
The average counts of ASC GI.1 IgG were similar across treatment groups on Day 1. However, on Day 8, statistically significant increases in the average
counts of ASC GI.1 IgG were seen in the Monovalent GII.4 group (p=0.0002), Monovalent GI.1 group (p=0.0019), and the Bivalent GII.4/GI.1 group
(p<0.0001) compared with placebo. No significant differences in the average counts of ASC GI.1 IgG were seen between the Monovalent GI.1 and
Bivalent GII.4/GI.1 groups (p=0.4172). The number of subjects with the ASC responses was highest in the Bivalent GII.4/GI.1 group (81.5%) compared
with the Monovalent GI.1 group (57.1%), Monovalent GII.4 group (47.4%), and placebo group (6.7%).
The average counts of ASC GII.4 IgG were similar across treatment groups on Day 1. However, on Day 8, statistically significant increases in the average
counts of ASC GII.4 IgG were seen in the Bivalent GII.4/GI.1 group (p<0.0001) and Monovalent GII.4 group (p<0.0001) compared with placebo. No
significant differences in the average counts of ASC GII.4 IgG were seen between the Monovalent GII.4 and Bivalent GII.4/GI.1 groups (p=0.2694).
Number of subjects with response was highest in the Bivalent GII.4/GI.1 group (92.6%) compared with Monovalent GII.4 group (84.2%) and Monovalent
GII.4 group (14.3%).
17
Fig. 14. Plot of ASC GI.1 and GII.4 IgA and IgG response on Day 8 by Dose Group (PP Population).
Caption. The different groups were assessed for IgA and IgG ASC counts in the peripheral blood on Study Day 8 (seven days post immunization).
Individual subjects were assessed for both GII.4 (purple) and GI.1 (orange) and plotted as a dot, with the average response for the group shown with a
solid black line. These results show that the bivalent group could induce IgA and IgG responses to both GI.1 and GII.4, compared to the placebo group
where no significant ASC responses were observed. Further, the monovalent and bivalent groups had similar average responses, demonstrating a lack of
interference when the two vaccine strains were given together.
Norovirus Oral Tablet Vaccine Clinical Development Pathway
Phase 1 Bivalent Norovirus Trial. The bivalent Phase 1 trial was designed to assess the safety and immunogenicity of the two individual GI.1 and GII.4
norovirus vaccines, and to evaluate potential interference between the two vaccines. The active portion of trial was completed in the course of 2019, and
topline results were reported in the third quarter of 2019.
Phase 2 Norovirus GI.1 or GII.4 Strain Challenge Study. We may conduct a challenge study with our monovalent GI.1 or GII.4 norovirus vaccine
candidate dependent on the availability of resources, vaccine and challenge strains.
Phase 2 Efficacy and Safety Trial. This trial will be designed to assess 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 and step up to adults age 50 to 64, and 65 and older.
Path to Approval. After completing the Phase 2 trial, we anticipate requesting an End-of-Phase 2 meeting with the FDA to discuss the design of a pivotal
Phase 3 trial that would support licensure.
Additional Age Groups
● Older Adults, Elderly Population. Following successful completion of the bivalent Phase 1 trial in healthy adults age 18 to 49, we are ready to
conduct sequential Phase 1 and Phase 2 clinical trials in healthy adults age 50 to 64 years and age 65 and older, designed to support the safety and
immunogenecity of our tablet vaccine candidate for these age groups. Following these studies, we expect to engage in discussions with the FDA to
determine the requirements for a Phase 3 pivotal study or studies, and licensure.
● Pediatric Population. Our current tablet vaccine candidates are designed for delivery to the gut in solid dosage form using an enteric-coated tablet
which we believe is the optimal vaccine delivery system for the adult population and children eight years and older. For children six months to
seven years in age, we plan to develop proprietary liquid formulations that can deliver the vectored vaccine intact to the gut. Development of our
norovirus vaccine in the pediatric population will proceed with a stepdown approach through progressively younger age segments (i.e. 9-17 years,
5-8 years, 2-4 years, 6 weeks-2 years).
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Our Seasonal Influenza Program
Market Overview
Influenza 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
are considered 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
United States, between 5% and 20% of the population contracts influenza, 226,000 people are hospitalized with complications of influenza, and between
3,000 and 49,000 people die from influenza and its complications each year, with up to 90% of influenza-related deaths occurring in adults older than 65.
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 to
be $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 billion
annually.
The CDC generally recommends that individuals 6 months and older be vaccinated annually against influenza. In the U.S., this means an influenza
vaccination is recommended for more than 300 million people. During the 2017/2018 influenza season, approximately 137 million doses of the influenza
vaccine were delivered in the United States. Differentiated flu vaccines in the U.S. market continue to demonstrate the ability to ask for premium prices
based on the additional value they provide to public health. According to a 2017 Datamonitor Healthcare report the seasonal influenza vaccines market
within the United States and five major European 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 vaccination
coverage in emerging countries, rising government support for immunization against seasonal influenza, pricing increases due to product differentiation
and increased focus on the production and advancement of vaccination treatments.
Limitations of Current Seasonal Influenza Vaccines
Despite the number of cases of influenza diagnosed in the United States, according to the CDC, in the 2018/2019 seasonal influenza season, only
approximately 49% of the total U.S. population was vaccinated against influenza, with particularly low vaccination rates among adults between ages 18 and
49. According to the CDC, less than 35% of adults between ages 18 and 49 were vaccinated during the 2018/2019 influenza season. We believe the low
vaccination 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.
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Our Seasonal Influenza Vaccine Candidate
We are developing a tablet vaccine candidate for the immunization of healthy adults against seasonal influenza. Our seasonal influenza vaccine candidate is
being designed to cover the four-strain, or quadrivalent, seasonal influenza vaccine consisting of two circulating influenza A lineage viruses as well as two
circulating influenza B lineage viruses, matching the seasonally updated recommendations by the FDA. We envision formulating our tablet vaccine
candidate as one tablet per strain, or four tablets in total for the quadrivalent vaccine. We believe this modularity will allow for enhanced flexibility. For
instance, in the event of a late season strain change, the tablet containing the obsolete strain could be easily replaced without having to discard the three
correctly matched vaccine tablets. 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 some of the flexibility advantages that separate tablets would afford. We will assess the final formulation of our tablet
vaccine candidates after conducting market studies to evaluate market acceptance closer to commercialization.
We 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 protect
against additional strain variants. Second, by providing a more convenient method of administration to enhance patient acceptance and simplify distribution
and administration. Finally, by using recombinant methods, we believe our tablet vaccine candidates may be manufactured more rapidly than vaccines
manufactured using egg-based methods, eliminate the risk of allergic reactions to egg protein, and alleviate issues caused by egg-adaptation of a
mammalian virus.
Seasonal Influenza Clinical Trials
To 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 Doses
The 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 candidate
generated a favorable safety and tolerability profile. The trial also demonstrated robust T cell responses and modest hemagglutination inhibition assay, or
HAI, responses, each dependent on the dosage level.
Phase 1 Trial VXA02-003, H1N1 Influenza Vaccine Candidate, 1011 IU Dose
The 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
tolerability profile 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 had a four-fold increase in Micro Neutralization, or MN, titer after the single administration of tablets. Both the HAI seroconversion rate and the
MN responses were 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 first seven days following administration were mild with no serious adverse effects. In the first seven days following administration, there
were eight total solicited adverse events reported in the vaccine and placebo groups (four in each group). All of these adverse events were grade 1 in
severity. The most frequent adverse event 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 the adjuvant 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 6. Overview: H1 Influenza Phase 1 Placebo-Controlled Studies.
TRIAL NO./
# SUBJECTS
Phase 1
Trial VXA02-001
N = 36
TRIAL DESIGN
Dose-escalation,
placebo-controlled,
double-blind with
enteric-coated capsules
STUDY GROUPS
DOSE/SCHEDULE
109, 1010 IU of VXA-A1.1
(H1) vaccine or placebo on
Day 0 and Day 28,
administered in tablet form
Phase 1
Trial VXA02-003
N = 24
Placebo-controlled,
double-blind, with
enteric-coated tablets
1011 IU VXA-A1.1 (H1)
vaccine or placebo on Day 0,
single administration in table
form
20
KEY IMMUNOGENICITY FINDINGS
109 dose level:
• No HAI seroconversion
1010 dose level:
• 27% HAI seroconversion
• 64% MN (4X rise)
• 75% HAI seroconversion
• 92% MN (4X rise)
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Phase 1 Trial. Influenza B
In 2015 and 2016, we conducted a randomized, double-blind, placebo-controlled Phase 1 trial to test the safety and immunogenicity of an influenza B tablet
vaccine. A total of 54 healthy adults age 18 to 49 were enrolled, with 38 receiving the vaccine and 16 receiving placebo. To participate in this trial, subjects
were 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 for
monitoring 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.
Safety. The side effects of the vaccine or placebo in the first seven days following administration were generally mild with no serious adverse events. There
were 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 at
day 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 was
observed 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 in
peripheral 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 the
vaccine-treated groups. Background ASCs were generally negligible on day 0. By IgG ASC, 68% of 1×1010 IU dose subjects responded, and 84% of
subjects in 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,
an average 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
negligible average number of spots (1 or less) on Day 7 (95% CI: -0.6 – -2).
H1N1 Influenza Phase 2 Challenge Study Funded by BARDA
In 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 was
awarded under a Broad Agency Announcement issued to support the advanced development of more effective influenza vaccines to improve seasonal and
pandemic influenza preparedness. The contract primarily funded a Phase 2 challenge study in human volunteers, designed to evaluate whether our H1N1
tablet vaccine candidate offers broader and more durable protection than currently marketed injectable vaccines. The contract with BARDA was
subsequently 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 group
received a commercially licensed inactivated influenza vaccine by intramuscular injection, and a third group received placebo. Three months following
immunization, volunteers were challenged (deliberate experimental administration) with live H1N1 (A/H1N1 pdm09) influenza virus by intranasal
administration. The placebo group served as the control group to determine how many unvaccinated volunteers became infected and how severe their
influenza symptoms became. Data from our vaccine candidate group and the commercially licensed inactivated vaccine group were compared to placebo to
determine each vaccine’s efficacy in this challenge study. Importantly, the two vaccines were also compared head-to-head. The goal of the study is to
compare the efficacy of our vaccine to protect volunteers from illness caused by H1N1 influenza challenge, compared to both the injectable vaccine and
placebo three months after immunization.
Clinical Trial Results VXA-CHAL-201
The Phase 2 challenge study was enrolled during 2016 and 2017. During this time, 179 subjects that cleared the screening requirements were randomized to
receive a single dose of our tablet vaccine, the commercial injectable vaccine, or placebo. Of these 179 subjects, 143 subjects were subsequently challenged
with live H1N1 influenza virus 90 to 120 days months after dosing.
● Safety. The side effects of the vaccines and placebo in the first seven days following administration were generally mild. In the first seven days
following administration, the solicited adverse events reported in the vaccine and placebo groups were mostly grade 1 in severity, and none were
above grade 2. The most frequent solicited adverse event was headache in our tablet vaccine group (7%), injection site tenderness in the
commercially licensed inactivated vaccine group (26%) and headache in the placebo group (19%). There were no serious adverse events and no
new onsets of chronic illnesses related to our vaccine adjuvant recorded during the follow up period of the study. The graphs below show the
distribution and severity over time of local and systemic (Figures 14 and 15) solicited adverse events.
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Fig. 15. 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 treatment
group over time. All events were mild.
Fig. 16. 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 each
treatment 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
influenza vaccine, 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 rate in 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 not statistically significant. These results suggest that our vaccine is no worse, and trended better than the commercial vaccine for protection. The
ability to show clinical efficacy in humans is a major step forward for our oral influenza product. These results are summarized in the table below.
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Table 7. H1 Influenza Phase 2 Challenge Study: Illness Rates*.
n
58
VAXART
% (95% CI)
29.3 (18.1, 42.7)
Commercial
n
54
% (95% CI)
35.2 (22.7, 49.4)
VAXART-Commercial
Rate Difference (95% CI)
-5.9 (-24.3, 12.5)
n
31
Placebo
% (95% CI)
48.4 (30.2, 66.9)
*Illness was defined as a combination of symptoms reported on a patient reported outcome tool (Flu-PROTM) and quantitative reverse transcriptase
polymerase chain reaction (qRT-PCR) detectable shed influenza virus.
Efficacy – Flu-PRO symptom Scores
There were no statistically significant differences between the commercial inactivated influenza vaccine and our tablet vaccine for the Flu-PRO
questionnaire, a validated patient recorded outcome tool used in influenza clinical trials in the community. However, our vaccine trended lower for overall
symptom 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
placebo group (5.0 [0, 52]).
Efficacy – Shedding
Shedding 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 and
where 71.0% of placebo subjects were positive for shedding. There were no statistically significant differences observed between our tablet vaccine and the
commercial inactivated influenza vaccine for viral shedding area under the curve, or AUC. However, AUC was calculated using a standard logarithmic
trapezoidal method and included only detectable shedding during the first five days of the duration of shedding, with subjects removed from the analysis
that didn’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
viral shedding for the two vaccines relative to placebo. Therefore, in order to better determine the effect of the vaccines on shedding, an alternative method
was used in which volunteers were defined as infected if they had detectable viral shedding at any time 36 hours after challenge. This approach eliminated
possible issues related to calculations (log calculations of zero values) and of large doses of challenge virus (first 36 hours might be pass through rather
than replicating influenza). In a Bayesian analysis, both vaccines significantly reduced the probability of shedding relative to placebo (Bayesian posterior
p=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
with a posterior probability of approximately 80% (Table 8).
Table 8. H1 Influenza Phase 2 Challenge Study: Infection Rates*.
Treatment Arm
Placebo
Commercial
Vaxart Vaccine
N
31
54
58
Number Infected
22
24
21
Percent (95% CI)
71% (55-85%)
44% (32-58%)
36% (24-49%)
Posterior P
-
0.009
0.001
*Infection was defined as any positive quantitative reverse transcriptase polymerase chain reaction (qRT-PCR) detectable shed influenza virus on any day
after 36 hours from viral challenge. In a Bayesian analysis, both vaccines provide a statistically significant protection against infection. There is also trend
toward greater efficacy for our vaccine with a posterior probability of approximately 80%.
Immunogenicity
HAI responses. HAI measures the ability of serum antibodies that can disrupt binding of influenza virus to red blood cells. Historically, HAI correlates to
protection for injected influenza vaccines. HAI responses were measured 30 days following immunization to determine the number and percentage of
volunteers that seroconverted. In our tablet vaccine group, 32% of volunteers achieved seroconversion. In the commercial inactivated influenza vaccine
group 84% of volunteers achieved HAI seroconversion at 30 days post vaccination. This difference was statistically significant (P < 0.001, Fisher’s Exact
test). There were no subjects in the placebo group who achieved seroconversion at 30 days post vaccination. Since 32% of subjects seroconverted in the
Vaxart tablet vaccine group achieved HAI seroconversion, but 71% of subjects were protected from illness following influenza challenge, HAI
seroconversion 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 fourfold rise in their HAI and the percentage of subjects who seroconverted are reported.
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Table of Contents
Table 9. 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.
Treatment Group
Strain: A/California/7/2009
Vaxart Tablet Vaccine
Commercial Inactivated
Influenza Vaccine
Placebo
Full Analysis Set - Vaccination Phase
Baseline (Pre-
Dosing)
N
70
72
35
GMT
(95% CI)
11.13
(9.55, 12.96)
9.84
(8.33, 11.63)
10.49
(8.37, 13.15)
N
69
70
35
GMT
(95% CI)
30 Days Post Dosing
GMFR
(95% CI)
% 4-Fold Rise
(95% CI)
% Seroconversion
(95% CI)
29.99
(23.72, 37.93)
273.13
(182.15, 409.54)
10.40
(8.15, 13.29)
2.72
(2.18, 3.39)
27.50
(19.44, 38.90)
0.99
(0.88, 1.11)
36.2
(25.0, 48.7)
90.0
(80.5, 95.9)
0.0
(0.0, 10.0)
31.9
(21.2, 44.2)
84.3
(73.6, 91.9)
0.0
(0.0, 10.0)
IgA Antibody Secreting Cells. B cells specific for influenza HA (IgA antibody secreting cells or IgA ASCs) were measured at baseline and eight days
following immunization in order to determine the B cell responses to the vaccines. At eight days following vaccination, subjects in the commercial
inactivated influenza vaccine group had significantly higher mean numbers of spots per 106 cells (p<0.001, Wilcoxon test) and significantly higher
percentages of subjects with greater 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 cells compared 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 10. ASC Response for IgA and IgG Assays by Study Day and Treatment Group – Vaccination Phase.
Baseline (Pre-Dosing)
Day 8 (Post-Dosing)
Vaccination Phase
Mean
2.0
Median
[Range]
0.0 [0, 18]
At Least 8
Spots
n (%)
6 (8.6)
1.5
0.0 [0, 13]
8 (11.3)
N
70
71
36
2.8
0.0 [0, 26]
6 (16.7)
Mean
116.0
286.4
Median
[Range]
32.0
[0, 3251]
153.0
[3, 1753]
At Least 8
Spots
n (%)
50 (71.4)
68 (95.8)
16.3
1.0 [0, 256]
8 (22.2)
N
70
71
36
Assay
Treatment Group
IgA ASC Vaxart Tablet
Vaccine
Commercial
Inactivated
Influenza Vaccine
Placebo
Correlation of IgA ASCs with Illness for the Vaxart Tablet Vaccine. As stated above, the absolute mean number of ASCs was higher for the commercial
inactivated influenza vaccine group (286 spots per 106 cells) than for the Vaxart tablet vaccine (116 spots per 106 cells). However, when a comparison was
made 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 Vaxart
tablet vaccine group had a ratio of 4.7, compared to a ratio of 1.4 for the commercial injected vaccine. In a logistics fit model with illness compared to non-
illness as the outcome, and IgA ASC as the independent variable, the model showed that the Vaxart tablet vaccine IgA ASC could predict ill versus non-ill,
but the logistics fit model for the commercial inactivated influenza vaccine could not (p=0.0005 for our vaccine, p=0.3066 for the commercial injected
vaccine for whole logistic model). These data suggest that IgA ASC is important for protection against influenza for our oral vaccine, but not for injected
commercial vaccines. These data also suggest that there are qualitative differences between B cells induced post immunization by different methods. We
are actively exploring these qualitative differences.
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Fig. 17. IgA ASCs Correlate with Illness for Vaxart Tablet Vaccine.
Vaxart Tablet Vaccine Commercial Inactivated Vaccine
Caption. Logistic fit regression analysis demonstrates a statistically significant fit for the Vaxart Tablet Vaccine for IgA ASCs and illness. The correlation
between 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 for
Preparedness and Response; Biomedical Advanced Research and Development Authority.
Preclinical Results
We have completed several animal challenge studies for influenza. In an H1N1 influenza challenge study, mice immunized orally with our tablet vaccine
candidate were protected against sickness and death compared to unimmunized, control animals. Similarly, our oral H5N1 vaccine candidate protected
ferrets and mice against a lethal avian influenza challenge compared to unimmunized animals when the vaccine construct expressed an avian influenza HA
construct.
Cross Protection of Vaxart Quadrivalent Seasonal Flu Vaccine against Avian Flu in Ferret Challenge Model
A more recent ferret challenge experiment was completed in 2017 to compare an oral quadrivalent vaccine that we designed with the commercial vaccine
Fluzone for protection against a virulent avian influenza strain. There are no components of seasonal influenza vaccines that are matched to the HA made
by avian influenza virus, so the virus represents a severe case of vaccine mismatched to virus. Our quadrivalent vaccine was made by mixing four
recombinant adenoviruses, each expressing a different HA that matches the HAs in the commercial vaccine, not the HA of the challenge. Two different
doses were evaluated; 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 the negative control (PBS) animals were given vaccine delivered by endoscope. The QIV animals were intramuscularly injected. Animals were
vaccinated on days 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 the Vaxart quadrivalent vaccines were able to protect against mismatched A/VN, trending better than Fluzone. The high dose group was
able to protect all ferrets against death whereas the low dose Vaxart group protected 75% of ferrets.
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Fig. 18. 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 mismatched
avian 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 for
Preparedness and Response; Biomedical Advanced Research and Development Authority.
Seasonal Influenza Clinical Development Strategy and Pathway
We aim to partner with and/or to obtain funding from the U.S. federal government to finance the development and commercialization of our seasonal
quadrivalent influenza 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 Candidate
In previous clinical studies with our H5 influenza vaccine candidate, we observed robust T-cell responses that appeared to compare favorably with
published results of other flu vaccines, including an adjuvanted vaccine as well as an attenuated live viral vaccine. Specifically, our vaccine generated high
levels of polyfunctional cytotoxic CD4 and CD8 cells, T-cells that are likely required to obtain a therapeutic benefit in chronic viral infection and cancer. It
was based on these observations that we embarked on the development of our first therapeutic vaccine, targeting HPV -associated dysplasia and cervical
cancer.
Medical Need, Commercial Opportunity
HPV is a family of more than 120 viruses which are extremely common globally. At least 13 HPV types are cancer-causing. HPV is primarily transmitted
through sexual contact and infection is very prevalent following the onset of sexual activity. Nearly all cases of cervical cancer are attributable to HPV
infection, with two HPV types – HPV16 and HPV18 – responsible for 70% of cervical cancers and precancerous cervical lesions. Cervical cancer is the
fourth most common cancer in women worldwide, and about 13,000 new cases are diagnosed annually in the United States according to the National
Cervical Cancer Coalition. Studies have indicated a high lifetime probability of any HPV infection by both men and women in the United States, with some
estimates indicating 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,
representing 25% of the population, with about 14 million new infections per year. A report by BCC Research expects the global cervical cancer drug and
diagnostic market to exceed $15 billion by 2018.
In women, many HPV infections of the cervix will spontaneously resolve and clear within two to three years, but women who have a persistent infection
are at high risk of developing cellular abnormalities known as cervical intraepithelial neoplasia, or CIN, which can progress to invasive cancer over time.
More than 400,000 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 1,000 women, respectively.
There are currently no approved therapeutic vaccines to treat HPV infection or cancer. Current treatment options for women infected with HPV (see below)
include monitoring CIN status, surgical procedures to remove affected tissue, and chemotherapeutic or radiation therapies to treat localized or metastatic
cervical cancer. Therefore, a medical need remains for a therapeutic vaccine to treat women with HPV-associated CIN and/or cervical cancer.
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Our HPV Therapeutic Vaccine Candidate
Our 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
to target the E6 and E7 gene products of each strain, which are the primary oncogenic proteins responsible for progression through the stages of CIN to
invasive cervical cancer. In pre-clinical studies, we have demonstrated immunogenicity for both our HPV16 and our HPV18 vaccine candidates.
Specifically, mice given our HPV16 or HPV18 vaccines induced T cell responses to HPV as measured by IFN gamma ELISPOT. In addition, our HPV16
vaccine has demonstrated tumor growth suppression as well as increased survival in a robust HPV tumor model in mice. We believe that our HPV vaccine
has several advantages over current treatment options for both CIN and cervical cancer. Current treatment options for CIN are invasive and can lead to
serious contraindications 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 a favorable safety and tolerability profile in clinical subjects dosed to date. Current treatment options for cervical cancer, such as
chemotherapy and radiation treatment, 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 HPV
The 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 transformed
cell-line) were injected subcutaneously into the hind flank of B6 mice, and allowed to grow for several days before mice were immunized with vaccine or
controls. 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). A
checkpoint 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 in
group 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
checkpoint inhibitor was used or not. The checkpoint inhibitor alone was not able to stop tumor progression, and eventually all these animals perished.
Other control animals without Ad-HPV didn’t survive as well. The use of the checkpoint inhibitor with the Ad-HPV vaccine trended slightly better for
survival (10/10 versus 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,
and 27. 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
mice started 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 of the checkpoint inhibitor were also able to substantially control the tumor through 60 days (33 days after the last immunization), before several
additional animals 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. 19. Small Tumor Vaccine Study.
Caption. In the small tumor vaccine study (Study 1), tumors were allowed to grow for seven days before beginning the immunization schedule. Animals
given the Vaxart HPV vaccine (Ad-HPV) were protected against tumor growth and survived better. This was the case whether or not a checkpoint inhibitor
was used.
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Fig. 20. 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 was
tested in an additional tumor model experiment. Tumors were transplanted as before, and immunizations were performed on days 13 and 21. Tumors were
harvested from the experiment on day 24, and flow cytometry was used to enumerate the T cells infiltrating the tumors. The HPV16 vaccine groups (with
either 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
the Ad-HPV groups were significantly better than control treated animals in terms of infiltrating lymphocytes. The CD4 T cells were significantly better in
the Ad-HPV + checkpoint group, and trended higher in the Ad-HPV + isotype control group.
Fig. 21. 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.
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Near Term HPV Vaccine Development Strategy
Preclinical
The next steps in the vaccine development are to complete the nonclinical studies, which may include a toxicology study using Good Laboratory Practices,
or GLPs, 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.
Clinical
We 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 HPV
infection, 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
cytometry as 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.
General
Currently, all HPV development is on hold while the Company is focusing its efforts on the COVID-19 vaccine.
Other Indications
We currently have preliminary data in animal models for indications such as RSV, Chikungunya, Hepatitis B and HSV-2.
Manufacturing
Manufacturing our oral tablet vaccines consists of two main stages, the production of bulk vaccine (drug substance), and the formulation and tableting
thereof (drug product). Drug substance manufacturing consists primarily of the production and purification of the active ingredient. Bulk drug substance is
then lyophilized, formulated and subsequently tableted and coated using a proprietary formulation and tableting process that we developed.
Bulk Vaccine Manufacturing (Drug Substance)
From inception through December of 2017, we relied on third-party contract manufacturers to manufacture clinical cGMP bulk drug substance for our
influenza and norovirus tablet vaccine candidates. Starting in 2017, we invested in developing our own bulk vaccine manufacturing process with the aim to
establish a small cGMP bulk manufacturing facility at our corporate headquarters in California for manufacturing cGMP product for our Phase 1 and small
Phase 2 trials. During the fourth quarter of 2019, a decision was made to discontinue all activities related to in-house bulk manufacturing and revert to
relying on third-party contract manufacturers. Since then, the Company has terminated its manufacturing staff and focused on establishing process
development and bulk manufacturing capabilities with third parties.
In July 2019, we entered into a relationship with Lonza Houston, Inc., or Lonza to manufacture bulk norovirus GI.1 and GII.4 vaccine under cGMP. Since
then, Company has suspended the Lonza manufacturing agreement, pending the outcome of the norovirus partnering discussions. Lonza and Vaxart are
currently engaged in discussions regarding Vaxart’s remaining rights and any payments that may be due under the terms of the its agreement with Lonza.
Vaccine Tablet Manufacturing (Drug Product)
From inception through December of 2017, we contracted with third-party contract manufacturers for the manufacture, labeling, packaging, storage and
distribution of our drug product. During 2016, we established drug product manufacturing capabilities at our corporate headquarters. 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 drug
product according to current Good Manufacturing Practices, or cGMP, and regulatory filings. The cGMP regulations include requirements relating to the
organization of personnel, buildings and facilities, equipment, control of components and drug product containers and closures, production and process
controls, 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 and
operations used in the testing and manufacture of our vaccine candidates to assess our compliance with applicable regulations. If we or our third-part
manufacturers fail to comply with statutory and regulatory requirements we and they could be subject to possible legal or regulatory action, including
warning letters, the seizure or recall of products, injunctions, consent decrees placing significant restrictions on or suspending manufacturing operations
and civil and criminal penalties. These actions could have a material adverse impact on the availability of our tablet vaccine candidates. Similar to contract
manufactures, we have in the past encountered difficulties involving production yields, quality control and quality assurance, and if we are not able to
produce drug product or drug substance in sufficient quantities are ability to conduct our clinical trials and commercialize our tablet vaccine candidates, if
approved, will be impaired.
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Research and Development
In the ordinary course of business, we enter into agreements with third parties, such as clinical research organizations, medical institutions, clinical
investigators and contract laboratories, to conduct our clinical trials and aspects of our research and preclinical testing. These third parties provide project
management and monitoring services and regulatory consulting and investigative services.
Competition
The biotechnology and pharmaceutical industries are characterized by intense competition to develop new technologies and proprietary products. While we
believe that our proprietary tablet vaccine candidates provide competitive advantages, we face competition from many different sources, including
biotechnology and pharmaceutical companies, academic institutions, government agencies, as well as public and private research institutions. Any products
that we may commercialize will have to compete with existing products and therapies as well as new products and therapies that may become available in
the future.
There are other organizations working to improve existing therapies, vaccines or delivery methods, or to develop new vaccines, therapies or delivery
methods for their selected indications. Depending on how successful these efforts are, it is possible they may increase the barriers to adoption and success
of our vaccine 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
expect any 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
from government 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
fewer or 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 other regulatory approval for their products more rapidly than we can obtain approval for our vaccine candidates, which could result in our competitors
establishing 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
or other third-party payors seeking to encourage the use of generic products.
We may also face significant competition in pursuing partnership opportunities and strategic acquisitions from other companies, financial investors and
enterprises whose cost of capital may be lower than ours. Competition for future partnerships or asset acquisition opportunities in our markets is intense
and we may be forced to increase the price we pay for such assets.
Seasonal Influenza Vaccine Candidate
We believe our seasonal influenza vaccine candidate would compete directly with approved vaccines in the market, which include non-recombinant and
recombinant products that are administered via injection or intranasally. The major global non-recombinant injectable vaccine competitors include Astellas
Pharma Inc., Abbott Laboratories, AstraZeneca UK Limited, Baxter International Inc., Research Foundation for Microbial Diseases of Osaka University,
Seqirus-bioCSL Inc., GSK, 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 Sanofi, Medicago and
Novavax, Inc., or Novavax. Many other groups are developing new or improved flu vaccine or delivery methods.
Norovirus Vaccine Candidate
There is currently no approved norovirus vaccine for sale globally. We believe that Takeda is developing a norovirus vaccine that would be delivered by
injection. There may be other development programs that we are not aware of.
HPV Therapeutic Vaccine Candidate
There is currently no approved HPV therapeutic vaccine for sale globally; however, a number of vaccine manufacturers, academic institutions and other
organizations currently have, or have had, programs to develop such a vaccine. We believe that several companies are in various stages of developing an
HPV therapeutic vaccine including Inovio Pharmaceuticals, Inc., or Inovio, Advaxis, Genexine, and several others.
Coronavirus Vaccine Candidate
There is currently no approved coronavirus vaccine for sale globally; however, many vaccine manufacturers, academic institutions and other organizations
currently have programs to develop such a vaccine. We believe that several companies are in various stages of developing a coronavirus vaccine including
Moderna, Inc., Sanofi, Janssen, Inovio, Novavax, AIM ImmunoTech Inc. and several others.
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Inavir
Other anti influenza antivirals are marketed in Japan, including Tamiflu and Relenza. On February 23, 2018, Osaka-based drug maker Shionogi gained
marketing 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 requires
only a single dose regardless of age. Since its launch, Xofluza has gained significant market share from Inavir in Japan, substantially reducing the sales of
Inavir in Japan by Daiichi Sankyo. This has had a significant negative impact on the royalty payments we have received from Daiichi Sankyo and may
continue to have a significant negative impact on our future royalty revenues.
Intellectual Property
We strive to protect and enhance the proprietary technology, inventions and improvements that are commercially important to our business, including
seeking, maintaining, and defending patent rights. We also rely on trade secrets relating to our platform and on know-how, continuing technological
innovation to develop, strengthen and maintain our proprietary position in the vaccine field. In addition, we rely on regulatory protection afforded through
data exclusivity, market exclusivity and patent term extensions where available. We also utilize trademark protection for our company name and expect to
do so 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 important
technology, inventions and know-how related to our business; defend and enforce our patents; preserve the confidentiality of our trade secrets; and operate
without infringing the valid enforceable patents and proprietary rights of third parties. Our ability to stop third parties from making, using, selling, offering
to sell or importing our tablet vaccine candidates may depend on the extent to which we have rights under valid and enforceable patents or trade secrets that
cover these activities. With respect to company-owned intellectual property, we cannot be sure that patents will be granted with respect to any of our
pending patent 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 that may 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 vaccine
candidates.
● Vaccine Platform Technology. As of December 31, 2019, we hold three U.S. patents with granted claims relating to our platform technology. Two
of these U.S. patents include claims related to our seasonal influenza vaccine candidate. These patents will expire in 2027, or later if patent term
extension applies. As of December 31, 2019, we hold more than 50 issued foreign patents and one pending foreign patent application related to
our platform 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
and around the world related to our tablet vaccine formulation technology. This patent and any patents issuing from these applications will expire
in 2035, or later if patent term extension applies.
● Influenza, Norovirus and RSV Vaccine Candidates. As of December 31, 2019, we have filed 12 applications in the United States and around the
world relating to our norovirus and RSV vaccine candidates. Any patents issuing from these applications will expire in 2036, or later if patent term
extension applies. We have been issued 13 foreign patents related to our current H1N1 influenza vaccine candidate. These patents will expire in
2030, or later if patent term extension applies.
● Relenza. As of December 31, 2019, we no longer own any Relenza patents, the last Japanese patent related to Relenza, which was exclusively
licensed to GSK, having expired in July 2019.
● Inavir. As of December 31, 2019, we own Japanese patents related to Inavir, which is exclusively licensed to Daiichi Sankyo. The last patent
related to Inavir in Japan is set to expire in December 2029, at which time royalty revenue will cease. However, the patent covering the
laninamivir octanoate compound expires in 2024, at which time generic competition may enter the market, potentially decreasing or eliminating
the royalties received.
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. We
believe that our focus and expertise will help us develop products based on our proprietary intellectual property.
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The 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,
the patent 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 term
adjustment, which compensates a patentee for administrative delays by the U.S. Patent and Trademark Office in granting a patent, or may be shortened if a
patent 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.
patent as compensation for the patent term lost during the FDA regulatory review process. The Hatch-Waxman Act permits a patent term extension of up to
five years 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
patent term 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 to an 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 only be extended based on one product. Similar provisions are available in Europe and other foreign jurisdictions to extend the term of a
patent that covers an approved drug. When possible, depending upon the length of clinical trials and other factors involved in the filing of a new drug
application, or NDA, we expect to apply for patent term extensions for patents covering our vaccine candidates and their methods of use.
Trade Secrets
We rely, in some circumstances, on trade secrets to protect our technology. However, trade secrets can be difficult to protect. We seek to protect our
proprietary technology and processes, in part, by entering into confidentiality agreements with our employees, consultants, scientific advisors and
contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and
physical and electronic security of our information technology systems. While we have confidence in these procedures, agreements or security measures
may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently
discovered 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 Approval
Federal, 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. Our
vaccine candidates must be approved by the FDA before they may be legally marketed in the United States and by the appropriate foreign regulatory
agency before they may be legally marketed in foreign countries. Generally, our activities in other countries will be subject to regulation that is similar in
nature and scope as that imposed in the United States. The process for obtaining regulatory marketing approvals and the subsequent compliance with
appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources.
U.S. Product Development Process
In the United States, the FDA regulates pharmaceutical and biological products under the Federal Food, Drug and Cosmetic Act, Public Health Service
Act, or PHSA, and implementing regulations. Products are also subject to other federal, state and local statutes and regulations. The process of obtaining
regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of
substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process,
approval process or after approval, may subject an applicant to administrative or judicial sanctions. FDA sanctions could include, among other actions,
refusal to approve pending applications, withdrawal of an approval, a clinical hold, warning letters, product recalls or withdrawals from the market, product
seizures, total or partial 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 product may be marketed in the United States generally involves the following:
● completion of nonclinical laboratory tests and animal studies according to GLPs, and applicable requirements for the humane 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 clinical
practice, or GCP, and any additional requirements for the protection of human research subjects and their health information, to establish the safety
and 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 the
continued 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 assess
compliance 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.
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Before testing any biological vaccine candidate, including our tablet vaccine candidates, in humans, the vaccine candidate enters the preclinical testing
stage. Preclinical tests, also referred to as nonclinical studies, include laboratory evaluations of product chemistry, toxicity and formulation, as well as
animal studies to assess the potential safety and activity of the vaccine candidate. The conduct of the preclinical tests must comply with federal regulations
and requirements including GLPs. The clinical trial sponsor must submit the results of the preclinical tests, together with manufacturing information,
analytical data, 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 after the IND is submitted. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA raises concerns or
questions regarding the proposed 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 any outstanding concerns before the clinical trial can begin. The FDA may also impose clinical holds on a biological product candidate
at any time before or during clinical trials due to safety concerns or non-compliance. If the FDA imposes a clinical hold, trials may not recommence
without FDA authorization and 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 to begin, 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 qualified
investigators, generally physicians not employed by or under the trial sponsor’s control. Clinical trials are conducted under protocols detailing, among other
things, 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
protocol must 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 the GCP requirements, including the requirement that all research subjects provide informed consent. Further, each clinical trial must be
reviewed and approved by an independent institutional review board, or IRB, at or servicing each institution at which the clinical trial will be conducted.
An IRB is charged with protecting the welfare and rights of trial participants and considers such items as whether the risks to individuals participating in
the clinical trials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the form and content of the informed consent
that must be signed by each clinical trial subject or his or her legal representative and must monitor the clinical trial until completed. Human clinical trials
are typically conducted in 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 or
life-threatening diseases, especially when the product may be too inherently toxic to ethically administer to healthy volunteers, the initial human
testing 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 preliminarily
evaluate 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 at
geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk to benefit ratio of the product and provide
an 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
used to gain additional experience from the treatment of patients in the intended therapeutic indication, particularly for long-term safety follow-up.
During all phases of clinical development, regulatory agencies require extensive monitoring and auditing of all clinical activities, clinical data, and clinical
trial investigators. Annual progress reports detailing the results of the clinical trials must be submitted to the FDA. Written IND safety reports must be
promptly submitted to the FDA and the investigators for serious and unexpected adverse events, any findings from other studies, tests in laboratory animals
or in vitro testing that suggest a significant risk for human subjects, or any clinically important increase in the rate of a serious suspected adverse reaction
over that listed in the protocol or investigator brochure. The sponsor must submit an IND safety report within 15 calendar days after the sponsor determines
that the information qualifies for reporting. The sponsor also must notify the FDA of any unexpected fatal or life-threatening suspected adverse reaction
within seven calendar days after the sponsor’s initial receipt of the information. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed
successfully 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
any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. Similarly, an IRB can suspend
or terminate 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
biological product has been associated with unexpected serious harm to subjects.
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Concurrently with clinical trials, companies usually complete additional studies and must also develop additional information about the physical
characteristics of the biological product as well as finalize a process for manufacturing the product in commercial quantities in accordance with cGMP
requirements. To help reduce the risk of the introduction of adventitious agents with use of biological products, the PHSA emphasizes the importance of
manufacturing control for products whose attributes cannot be precisely defined. The manufacturing process must be capable of consistently producing
quality batches of the product candidate and, among other criteria, the sponsor must develop methods for testing the identity, strength, quality, potency and
purity of the final biological product. Additionally, appropriate packaging must be selected and tested, and stability studies must be conducted to
demonstrate that the biological product candidate does not undergo unacceptable deterioration over its shelf life.
U.S. Review and Approval Processes
After the completion of clinical trials of a biological product, FDA approval of a BLA must be obtained before commercial marketing of the biological
product. The BLA must include results of product development, laboratory and animal studies, human trials, information on the manufacture and
composition 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 if filed, 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
user fees 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 agency
accepts 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 request
additional information. In this event, the BLA must be resubmitted with the additional information. The resubmitted application also is subject to review
before 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
reviews the BLA to determine, among other things, whether the proposed product is safe, potent, and/or effective for its intended use, and has an acceptable
purity profile, 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
efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether
the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers
such recommendations carefully when making decisions. During the biological product approval process, the FDA also will determine whether a Risk
Evaluation and 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 the BLA 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
determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the
product within required specifications. Additionally, before approving a BLA, the FDA will typically inspect one or more clinical sites to assure that the
clinical trials were conducted in compliance with IND trial requirements and GCP requirements. To assure cGMP and GCP compliance, an applicant must
incur significant expenditure of time, money and effort in the areas of training, record keeping, production, and quality control.
Notwithstanding the submission of relevant data and information, the FDA may ultimately decide that the BLA does not satisfy its regulatory criteria for
approval and deny approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than we interpret the
same 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 specific
deficiencies 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 the
application in a condition for approval. If a complete response letter is issued, the applicant may either resubmit the BLA, addressing all of the deficiencies
identified 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
otherwise be limited, which could restrict the commercial value of the product.
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Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling. The FDA may impose restrictions
and conditions on product distribution, prescribing, or dispensing in the form of a risk management plan, or otherwise limit the scope of any approval. In
addition, the FDA may require post marketing clinical trials, sometimes referred to as Phase 4 clinical trials, designed to further assess a biological
product’s safety 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 product
for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the
product is safe and effective. The FDA may grant deferrals for submission of data or full or partial waivers.
Post-Approval Requirements
Any products for which we receive FDA approvals are subject to continuing regulation by the FDA, including, among other things, record-keeping
requirements, reporting of adverse experiences with the product, providing the FDA with updated safety and efficacy information, product sampling and
distribution requirements, and complying with FDA promotion and advertising requirements, which include, among others, standards for direct-to-
consumer advertising, 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.
Although physicians 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 the
long-term stability of the product. cGMP regulations require among other things, quality control and quality assurance as well as the corresponding
maintenance of records and documentation and the obligation to investigate and correct any deviations from cGMP. Manufacturers and other entities
involved in the manufacture and distribution of approved products are required to register their establishments with the FDA and certain state agencies, and
are 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 of
problems 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 the
significance of the change, may require prior FDA approval before being implemented. Other types of changes to the approved product, such as adding
new indications 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 with
doctors, and civil or criminal penalties, among others. Newly discovered or developed safety or effectiveness data may require changes to a product’s
approved labeling, including the addition of new warnings and contraindications, and also may require the implementation of other risk management
measures. Also, new government requirements, including those resulting from new legislation, may be established, or the FDA’s policies may change,
which could delay or prevent regulatory approval of our tablet vaccine candidates under development.
Other U.S. Healthcare Laws and Compliance Requirements
In the United States, our activities are potentially subject to regulation by various federal, state and local authorities in addition to the FDA, including but
not limited to, the Centers for Medicare and Medicaid Services, or CMS, other divisions of the U.S. Department of Health and Human Services, for
instance the 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, the false claims laws, the physician payment transparency laws, the privacy and security provisions of the Health Insurance Portability and
Accountability Act, or HIPAA, 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
receiving any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or in return for purchasing, leasing, ordering or arranging
for the purchase, lease or order of any item or service reimbursable under Medicare, Medicaid or other federal healthcare programs. The term remuneration
has been interpreted broadly to include anything of value. The Anti-Kickback Statute has been interpreted to apply to arrangements between
pharmaceutical manufacturers on one hand and prescribers, purchasers, and formulary managers on the other. There are a number of statutory exceptions
and regulatory safe harbors protecting some common activities from prosecution. The exceptions and safe harbors are drawn narrowly and practices that
involve remuneration that 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 or safe 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 of the 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 and circumstances.
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Additionally, 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
no longer 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
Care Act codified case law that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or
fraudulent claim for purposes of the federal False Claims Act, or FCA, 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 be
presented 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 or
fraudulent.
The federal FCA prohibits, among other things, any person or entity from knowingly presenting, or causing to be presented, a false claim for payment 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 false or 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 “any request or
demand” for money or property presented to the U.S. government. Recently, several pharmaceutical and other healthcare companies have been prosecuted
under these laws for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product.
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, by
means of false or fraudulent pretenses, representations or promises, any money or property owned by, or under the control or custody of, any healthcare
benefit program, including private third-party payors and knowingly and willfully falsifying, concealing or covering up by trick, scheme or device, a
material fact 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 to have 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, as
amended by the HITECH Act, imposes requirements relating to the privacy, security and transmission of individually identifiable health information.
Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to business associates independent contractors or agents
of covered entities that receive or obtain protected health information in connection with providing a service on behalf of a covered entity. HITECH also
created four new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave
state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’
fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in specified
circumstances, many of 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 certain
manufacturers of drugs, devices, biological and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health
Insurance Program, with certain exceptions, to report information related to certain payments or other transfers of value made or distributed to physicians
and teaching hospitals, or to entities or individuals at the request of, or designated on behalf of, the physicians and teaching hospitals and to report annually
certain ownership and investment interests held by physicians and their immediate family members. Failure to submit timely, accurately, and completely
the required 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 marketing
practices and/or require the tracking and reporting of gifts, compensation and other remuneration to healthcare providers and entities.
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In order to distribute products commercially, we must also comply with state laws that require the registration of manufacturers and wholesale distributors
of drug and biological products in a state, including, in certain states, manufacturers and distributors who ship products into the state even if such
manufacturers or distributors have no place of business within the state. Some states also impose requirements on manufacturers and distributors to
establish the pedigree of product in the chain of distribution, including some states that require manufacturers and others to adopt new technology capable
of tracking and tracing product as it moves through the distribution chain. Several states have enacted legislation requiring pharmaceutical and
biotechnology companies to establish marketing compliance programs, file periodic reports with the state, make periodic public disclosures on sales,
marketing, pricing, clinical trials and other activities, and/or register their sales representatives, as well as to prohibit pharmacies and other healthcare
entities from providing certain physician prescribing 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
apply to us, we may be subject to penalties, including without limitation, civil, criminal and/or administrative penalties, damages, fines, disgorgement,
exclusion from participation in government programs, such as Medicare and Medicaid, injunctions, private “qui tam” actions brought by individual
whistleblowers in the 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 our business and our results of operations.
Coverage, Pricing and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of any tablet vaccine candidates for which we obtain regulatory approval. In the
United States and markets in other countries, sales of any products for which we receive regulatory approval for commercial sale will depend, in part, on
the extent to which third-party payors provide coverage, and establish adequate reimbursement levels for such products. In the United States, third-party
payors include federal and state healthcare programs, private managed care providers, health insurers and other organizations. The process for determining
whether a third-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
reimbursement rate 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, examining the 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 vaccine candidates, 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’s determination to provide coverage for a product does not assure that other payors will also provide coverage for the product. Adequate
third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product
development.
Different pricing and reimbursement schemes exist in other countries. Some jurisdictions operate positive and negative list systems under which products
may only be marketed once a reimbursement price has been agreed. To obtain reimbursement or pricing approval, some of these countries may require the
completion of clinical trials that compare the cost-effectiveness of a particular product candidate to currently available therapies. Other countries allow
companies to fix their own prices for medicines, but monitor and control company profits. The downward pressure on health care costs has become very
intense. 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-
party payors fail to provide adequate coverage and reimbursement. In addition, emphasis on managed care in the United States has increased and we expect
the pressure on healthcare pricing will continue to increase. Coverage policies and third-party reimbursement rates may change at any time. Even if
favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage
policies and reimbursement rates may be implemented in the future.
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US Healthcare Reform
We anticipate that current and future U.S. legislative healthcare reforms may result in additional downward pressure on the price that we receive for any
approved product, if covered, and could seriously harm our business. Any reduction in reimbursement from Medicare and other government programs may
result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us
from being able to generate revenue, attain profitability or commercialize our tablet vaccine candidates. In addition, it is possible that there will be further
legislation or regulation that could harm our business, financial condition and results of operations.
Foreign Regulation
In order to market any product outside of the United States, we would need to comply with numerous and varying regulatory requirements of other
countries and jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical trials, marketing authorization, commercial
sales and distribution of our products. Whether or not we obtain FDA approval for a product, we would need to obtain the necessary approvals by the
comparable foreign regulatory authorities before we can commence clinical trials or marketing of the product in foreign countries and jurisdictions.
Although many of the issues discussed above with respect to the United States apply similarly in the context of the European Union, the approval process
varies between countries and jurisdictions and can involve additional product testing and additional administrative review periods. The time required to
obtain approval in other countries and jurisdictions might differ from and be longer than that required to obtain FDA approval. Regulatory approval in one
country or jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction
may negatively impact the regulatory process in others.
Employees
Our management and scientific teams possess considerable experience in vaccine and anti-infective research, clinical development and regulatory matters.
Our research team includes Ph.D.-level scientists with expertise in mucosal immunology, T cells, viral vectors and virology. As of December 31, 2019, we
had 14 full-time employees of whom seven were engaged in research and development, or R&D, and seven were engaged in finance, human resources,
administration, business and general management or, collectively, G&A. We do not have collective bargaining agreements with our employees and we have
not experienced any work stoppages. We consider our relations with our employees to be good.
Item 1A. Risk Factors
You should carefully consider the following risk factors, as well as the other information in this Annual Report on Form 10-K, including our financial
statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, as well as our other
public filings. The occurrence of any of the following risks could harm our business, financial condition, results of operations and/or growth prospects or
cause our actual results to differ materially from those contained in forward-looking statements we have made in this Annual Report on Form 10-K and
those 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
the risks that may affect future operating results. These are the risks and uncertainties we believe are most important to consider. We cannot be certain that
we will 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 to stay in business. Additional risks and uncertainties not presently known to us, which we currently deem immaterial or which are similar to those
faced by other companies in our industry or business in general, may also impair our business operations.
Risks Related to Our Business, Financial Position and Capital Requirements
Our business may be adversely affected by the recent coronavirus outbreak.
In December 2019, a novel strain of coronavirus, COVID-19, was reported to have surfaced in Wuhan, China. This virus continues to spread globally and,
as of March 16, 2020, has spread to over 140 countries, including the United States, and efforts to contain the spread of COVID-19 have intensified. The
outbreak and any preventative or protective actions that governments or we may take in respect of COVID-19 may result in a period of business
disruption and reduced operations. Any resulting financial impact cannot be reasonably estimated at this time but may materially affect our business,
financial condition and results of operations. The extent to which COVID-19 impacts our results will depend on future developments, which are highly
uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain
COVID-19 or treat its impact, among others. There may be interruptions to our supply chain due to the inability of manufacturers to continue normal
business operations and to ship products. In addition, a significant outbreak of COVID-19 or other infectious diseases could result in a widespread health
crisis that could adversely affect the economies and financial markets worldwide, resulting in an economic downturn that could impact our business,
financial condition and results of operations. We are currently working to enhance our business continuity plans to include measures to protect our
employees in the event of infection in our corporate offices, or in response to potential mandatory quarantines.
We have a limited operating history and have generated only limited product revenue.
Even though we generate royalty revenue from Inavir, our commercialized influenza product, we are at an early stage in our clinical development process
and have not yet successfully completed a large-scale, pivotal clinical trial, obtained marketing approval, manufactured our tablet vaccine candidates at
commercial scale, or conducted sales and marketing activities that will be necessary to successfully commercialize our product candidates. 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 a history of successfully
developing and commercializing product candidates.
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Our ability to generate significant revenue and achieve and maintain profitability will depend upon our ability to successfully complete the development of
our tablet vaccine candidates for the treatment of coronavirus, norovirus, seasonal influenza, respiratory syncytial virus, or RSV, cervical cancer and
dysplasia caused by human 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
at all. 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 Inavir;
● establish sales, marketing, manufacturing and distribution systems;
● add operational, financial and management information systems and personnel, including personnel to support our clinical, manufacturing and
planned future clinical development and commercialization efforts;
● develop, in collaboration with others, 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;
● develop, in-license or acquire product candidates or commercial-stage products that we believe can be successfully developed and
commercialized; 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 of
increased development expenses, or when we will be able to achieve or maintain profitability, if at all. Our expenses could increase beyond expectations if
we 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
in addition to those we currently anticipate. Even if our product candidates are approved for commercial sale, we anticipate incurring significant costs
associated with the commercial launch of and the related commercial-scale manufacturing requirements for our product candidates. If we cannot
successfully execute 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
achieve or maintain profitability.
We have generated only limited product revenues and we expect to continue to incur substantial and increasing losses as we continue to pursue our business
strategy. Our product candidates have not been approved for marketing in the United States and may never receive such approval. As a result, we are
uncertain 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 achieve
profitability is dependent on our ability to complete development, obtain necessary regulatory approvals, and have our product candidates manufactured
and successfully marketed. We cannot be sure that we will be profitable even if we successfully commercialize one of our product candidates. If we do
successfully obtain regulatory approval to market our tablet vaccine candidates, our revenues will be dependent, in part, upon the size of the markets in the
territories for which regulatory approval is received, the number of competitors in such markets, the price at which we can offer our product candidates and
whether we own the commercial rights for that territory. If the indication approved by regulatory authorities is narrower than we expect, or the treatment
population is narrowed by competition, physician choice or treatment guidelines, we may not generate significant revenue from sales of our product
candidates, 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 we
fail 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 overall research and development expenses to increase significantly for any of our tablet vaccines, including those for the prevention of
coronavirus, norovirus, influenza and RSV infection, as well as those for the treatment of HPV related dysplasia and cancer, although we intend to fund a
significant portion of these costs through partnering and collaboration agreements. In addition, even if we obtain regulatory approval, significant sales and
marketing expenses will be required to commercialize the tablet vaccine candidates. As a result, we expect to continue to incur significant and increasing
operating losses and negative cash flows for the foreseeable future. These losses have had and will continue to have an adverse effect on our financial
position and working capital. As of December 31, 2019, we had an accumulated deficit of $116.7 million.
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We are largely dependent on the success of our tablet vaccines for the prevention of coronavirus infection, which is in early-stage preclinical
development, and norovirus infection, which is still in early-stage clinical development, and if these tablet vaccines do not receive regulatory approval
or are 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 marketable
tablet vaccine candidates. We expect that a substantial portion of our efforts and expenditures over the next few years will be devoted to our tablet vaccine
candidates for coronavirus and norovirus. Accordingly, our business currently depends heavily on the successful development, regulatory approval and
commercialization of our coronavirus and norovirus tablet vaccine. These tablet vaccines may not receive regulatory approval or be successfully
commercialized even if regulatory approval is received. The research, testing, manufacturing, labeling, approval, sale, marketing and distribution of tablet
vaccine candidates are and will remain subject to extensive regulation by the FDA and other regulatory authorities in the United States and other countries
that each have differing regulations. We are not permitted to market our tablet vaccines in the United States until we receive approval of a biologics license
application, or BLA, from the FDA, or in any foreign countries until we receive the requisite approval from such countries. To date, we have only
completed Phase 1 clinical trials for our bivalent norovirus tablet vaccine candidate. As a result, we have not submitted a BLA to the FDA or comparable
applications to other 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 tablet vaccines for many reasons,
including:
● We may not be able to demonstrate that our 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 to
conduct 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 and
adversely 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 our
tablet 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 timely
manner or the advisory committee may recommend against approval of our application or may recommend that the FDA require, as a condition of
approval, 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 as a condition of approval;
● the FDA may identify deficiencies in our manufacturing processes or facilities; and
● the FDA may change its approval policies or adopt new regulations.
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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 development
and 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.
We will require substantial additional capital to complete the development and potential commercialization of our tablet vaccine candidates for coronavirus,
norovirus, seasonal influenza, RSV and HPV and the development of other product candidates. If we are unable to raise capital or find appropriate
partnering or licensing collaborations, when needed or on acceptable terms, we could be forced to delay, reduce or eliminate one or more of our
development programs or any future commercialization efforts. In addition, attempting to secure additional financing may divert the time and attention of
our management from day-to-day activities and harm our development efforts.
As of December 31, 2019, we had $13.5 million of cash and cash equivalents. Since then, we have received net proceeds of $9.1 million from the sale of
common stock and common stock warrants from an equity financing in March 2020 and $9.8 million from the exercise of common stock warrants.
We believe these funds are sufficient to fund our operations under our current operating plan well into 2021 and possibly beyond. Our estimate as to what
we will be able to accomplish 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 the actual funds we will require for development and any approved marketing and commercialization activities. Our future funding
requirements, both near and long-term, will depend on many factors, including, but not limited to:
● our ability to enter into partnering and collaboration agreements;
● 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 other
comparable 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 or
in 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 our
own; and
● the initiation, progress, timing and results of the commercialization of our product candidates, if approved, for commercial sale.
Additional funding may not be available on acceptable terms, or at all. If we are unable to raise additional capital in sufficient amounts or on terms
acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of our product candidates or
potentially discontinue operations.
Raising additional funds by issuing securities may cause dilution to existing stockholders, and raising funds through lending and licensing
arrangements may 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 generate
substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, royalties, debt financings, strategic alliances
and license and development agreements in connection with any collaborations. We do not currently have any committed external source of funds. To the
extent that we raise additional capital by issuing equity securities, our existing stockholders’ ownership may experience substantial dilution, and the terms
of these securities may include liquidation or other preferences that adversely affect our common stockholders’ rights. Debt financing and preferred equity
financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional
debt, 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
to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be
favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, or through collaborations, strategic alliances or
marketing, distribution or licensing arrangements with third parties 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 market product candidates that we would otherwise develop and market
ourselves.
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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-stage
pharmaceutical, biotechnology and other life sciences companies have historically been particularly volatile. Some of the factors that cause the market price
of 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 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 property
protection 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 business
and 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.
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Moreover, the stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of individual
companies. 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 litigation
against those companies. Such litigation, if instituted, could result in substantial costs and diversion of management attention and resources, which could
significantly 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 our
common stock could decline. Sales of a 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 our common 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 may have on the prevailing market price of our common stock.
Armistice owns a significant percentage of our outstanding shares of common stock and will be able to exert significant control over matters subject to
shareholder approval.
As of December 31, 2019, Armistice Capital Master Fund, Ltd., or Armistice, a hedge fund, beneficially owned approximately 52% of the voting power of
our outstanding shares of common stock, having surpassed the 50% ownership threshold on September 30. As of that date, we were a “controlled
company” within the meaning of the applicable Nasdaq listing rules. Due to the issuance of common stock to other investors in the first quarter of 2020,
Armistice no longer owns more than 50% of our stock but, as of March 17, 2020, still beneficially owned more than 35% of the voting power of our
outstanding shares.
As a result, Armistice has the ability to substantially influence us and exert significant control through this ownership position. Armistice may significantly
influence the elections of directors, issuance of equity, including to our employees under equity incentive plans, amendments of our organizational
documents, or approval of any merger, sale of assets or other major corporate transaction. Armistice’s interests may not always align with our corporate
interests or the interests of other stockholders, and it may exercise its voting and other rights in a manner with which our other stockholders may not agree
or that may not be in the best interests of our other stockholders. Further, Armistice is a privately held company whose ownership and governance structure
is not transparent to our other stockholders. There may be changes to the management or ownership of Armistice that could impact Armistice’s interests in
a way that may not coincide with our corporate interests or the interests of other stockholders.
Changes in tax laws and regulations or in our operations may impact our effective tax rate and may adversely affect our business, financial condition
and operating 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 operating
results.
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Because the Merger in February 2018 resulted in an ownership change under Section 382 of the Code for Vaxart, Inc. and all of its subsidiaries, our
pre-Merger U.S. net operating loss carryforwards and certain other tax attributes are subject to limitations. Further ownership changes under
Section 382 of the Code occurred in both April and September in 2019, subjecting us to further 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
and certain other tax attributes arising from before the ownership change are subject to limitations on use after the ownership change. In general, an
ownership change 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 both Vaxart, Inc. (formerly Aviragen
Therapeutics, Inc., or Aviragen) and Vaxart Biosciences; accordingly, our U.S. net operating loss carryforwards and certain other tax attributes are subject
to limitations on their use. Annual usage was restricted to 1.97% of the combined organization’s value on February 13, 2018. Furthermore, in both April
and September 2019, further ownership changes occurred, causing further limitations on the use of our net operating loss carryforwards, with annual usage
now restricted to 1.89% of the combined organization’s value on September 30, 2019. Additional ownership changes in the future could result in further
limitations on the combined organization’s net operating loss carryforwards. Consequently, even if we achieve profitability, we may not be able to utilize a
material portion of our net operating loss carryforwards and other tax attributes, which could have a material adverse effect on our cash flow and results of
operations.
Anti-takeover provisions under Delaware law could make an acquisition more difficult and may prevent attempts by our stockholders to replace or
remove our 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
of 15% of the outstanding company voting stock from merging or combining with the company. Although we believe these provisions collectively provide
for an opportunity to receive higher bids by requiring potential acquirers to negotiate with our board of directors, they would apply even if the offer was
considered beneficial by some stockholders. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove
management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of
management.
If we fail to obtain or maintain adequate reimbursement and insurance coverage for our product candidates, our ability to generate significant revenue
could 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 extent
to which the costs of our product candidates will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management
organizations, or reimbursed by government health administration authorities, private health coverage insurers and other third-party payors. If
reimbursement is not available, or is available only on a limited basis, we may not be able to successfully commercialize our product candidates. Even if
coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain adequate pricing that will allow us
to realize a sufficient return on our investment.
Outside the United States, international operations are generally subject to extensive governmental price controls and other market regulations, and we
believe the increasing emphasis on cost-containment initiatives in Europe, Canada and other countries may cause us to price our product candidates on less
favorable terms that we currently anticipate. In many countries, particularly the countries of the European Union, the prices of medical products are subject
to varying price control mechanisms as part of national health systems. In these countries, pricing negotiations with governmental authorities can take
considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required
to conduct a clinical trial that compares the cost-effectiveness of our product candidates to other available therapies. In general, the prices of products under
such systems are substantially lower than in the United States. Other countries allow companies to fix their own prices for products, but monitor and
control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our
product candidates. Accordingly, in markets outside the United States, the level of reimbursement for our products is likely to be reduced compared with
the United States 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 cause
such organizations to limit both coverage and level of reimbursement for newly approved products and, as a result, they may not cover or provide adequate
payment for our product candidates. We expect to experience pricing pressures in connection with the sale of any of our product candidates due to the trend
toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on
healthcare costs in general, particularly prescription drugs and surgical procedures and other treatments, has become very intense. As a result, increasingly
high 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 rely on our executive officers and the other principal members of the executive and scientific teams, particularly our President and Chief Executive
Officer, Wouter W. Latour, M.D. and our Chief Scientific Officer, Sean N. Tucker, Ph.D. The employment of our executive officers is at-will and our
executive officers may terminate their employment at any time. The loss of the services of any of our senior executive officers could impede the
achievement of our research, development and commercialization objectives. We do not maintain “key person” insurance for any executive officer or
employee.
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Recruiting and retaining qualified scientific, clinical and sales and marketing personnel is also critical to our success. We may not be able to attract and
retain these personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We
also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. Our industry has experienced an
increasing rate of turnover of management and scientific personnel in recent years. In addition, we rely on consultants and advisors, including scientific and
clinical advisors, to assist us in devising our research and development and commercialization strategy. Our consultants and advisors may be employed by
third parties and have commitments under consulting or advisory contracts with other entities that may limit their availability to advance our strategic
objectives. If any of these advisors or consultants can no longer dedicate a sufficient amount of time to us, our business may be harmed.
We 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,
in part, on our ability to effectively manage any future growth. As of December 31, 2019, we had 14 full-time employees, which by March 17, 2020, had
declined to ten, which we believe would be insufficient to commercialize our vaccine product candidates. We may have operational difficulties in
connection with identifying, hiring and integrating new personnel. Future growth would impose significant additional responsibilities on our management,
including the need to identify, recruit, maintain, motivate and integrate additional employees, consultants and contractors. Also, our management may need
to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these growth
activities. We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, give rise to
operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Our expected growth could
require significant capital expenditures and may divert financial resources from other projects, such as the development of our product candidates. If we are
unable to effectively manage our growth, our expenses may increase more than expected, our ability to generate and/or grow revenues 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 career
advancement. Some of these characteristics may be more appealing to high-quality candidates and consultants than what we are able to offer. If we are
unable to continue to attract and retain high-quality personnel and consultants, the rate and success at which we can select and develop our product
candidates and our business will be limited.
Our employees, independent contractors, principal investigators, consultants, commercial collaborators, service providers and other vendors may
engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could have an adverse
effect on our results of operations.
We are exposed to the risk that our employees and contractors, including principal investigators, consultants, commercial collaborators, service providers
and other vendors may engage in fraudulent or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent
conduct or other unauthorized activities that violate the laws and regulations of the FDA and other similar regulatory bodies, including those laws that
require the reporting of true, complete and accurate information to such regulatory bodies, manufacturing standards, federal and state healthcare fraud and
abuse and health regulatory laws and other similar foreign fraudulent misconduct laws, or laws that require the true, complete and accurate reporting of
financial information or data. Misconduct by these parties may also involve the improper use or misrepresentation of information obtained in the course of
clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter third-party
misconduct, and the 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 from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If
any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant
impact on our business and financial results, including the imposition of significant civil, criminal and administrative penalties, damages, monetary fines,
possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, reputational harm, diminished profits and future
earnings, and curtailment of our operations, 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,
natural disasters (including earthquakes), terrorism, war and telecommunication and electrical failures. If such an event were to occur and cause
interruptions in our or their operations, it could result in a material disruption of our development programs. For example, the loss of preclinical or clinical
trial data from completed, ongoing or planned trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover
or reproduce the data. 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.
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If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or detect fraud.
Consequently, investors could lose confidence in our financial reporting and this may negatively impact the trading price of our common stock.
We must maintain effective disclosure and internal controls to provide reliable financial reports. We have been assessing our controls to identify areas that
need improvement. Based on our evaluation as of December 31, 2019, we concluded that our internal controls and procedures were effective as of
December 31, 2019, however we have identified material weaknesses in the past and may do so again in the future. A “material weakness” is a deficiency,
or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our
annual or interim financial statements will not be prevented or detected on a timely basis. Failure to maintain the improvements in our controls as necessary
to maintain an effective system of such controls could harm our ability to accurately report our operating results and cause investors to lose confidence in
our reported financial information. Any such loss of confidence would have a negative effect on the trading price of our common stock.
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
of our internal control over financial reporting. This assessment needs to include disclosure of any material weaknesses identified by our management in
our internal control over financial reporting. Our independent registered public accounting firm will be required to attest annually to the effectiveness of
our internal control over financial reporting in the future should our public float exceed $250 million. We are required to disclose changes made in our
internal control over financial reporting on a quarterly basis.
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 market
price 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 litigation
against 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 reports about our business, our stock price and trading
volume 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 our
business from time to time. At present, there are two analysts covering our stock. We have no control over these analysts. If one or more of the analysts
who cover us should downgrade our shares or change their opinion of our business prospects, our share price would likely decline. If one or more of these
analysts ceases coverage of our company or fails to publish reports on us regularly, we could lose visibility in the financial markets, which could cause our
trading volume and share price to decline.
Our outstanding warrants to purchase common stock are speculative in nature and there is no public market for such warrants.
There is no established public trading market for our outstanding warrants to purchase common stock and we do not expect a market to develop. In
addition, we do not intend to apply to list our warrants on any securities exchange or nationally recognized trading system, including the Nasdaq Capital
Market. Without an active market, the liquidity of our outstanding warrants is limited. Our warrants do not confer any rights of common stock ownership
on their holders, such as voting rights or the right to receive dividends, but rather merely represent the right to acquire shares of common stock at a fixed
price. The market value of our warrants is uncertain and there can be no assurance that that the market price of the common stock will ever equal or exceed
the exercise price such warrants, and consequently, whether it will ever be profitable for holders of the such warrants to exercise such warrants.
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Our failure to meet the continued listing requirements of The Nasdaq Capital Market could result in a delisting of our common stock.
Our common stock is listed on The Nasdaq Capital Market, which imposes, among other requirements a minimum bid requirement. Our common stock
traded for less than $1.00 for 30 consecutive trading days, and we received notice of this from the Listing Qualifications Staff of The Nasdaq Stock Market
LLC on May 22, 2019. Under Nasdaq Listing Rule 5810(c)(3)(A), we were granted a 180-calendar day grace period, or until November 18, 2019, to regain
compliance with the minimum bid price requirement. The minimum bid price requirement would be met if our common stock had a minimum closing bid
price of at least $1.00 per share for a minimum of 10 consecutive business days during the 180-calendar day grace period. We did not regain compliance
with the Rule by November 18, 2019, however, because we provided written notice of our intention to cure the deficiency by effecting a reverse stock split
and we met the Nasdaq Capital Market initial inclusion criteria set forth in Nasdaq Listing Rule 5505, except for the minimum $1.00 per share bid price
requirement, we were granted an additional 180-calendar day compliance period, ending on May 18, 2020. We were able to regain compliance when our
common stock closed above $1.00 in the 10 consecutive business days ended on February 13, 2020, however there can be no assurance that we will
continue to meet the minimum bid price requirement, or any other requirement in the future. If we fail to meet the minimum bid price requirement, or other
applicable Nasdaq listing requirements, including maintaining minimum levels of stockholders’ equity or market values of our common stock, our common
stock could be delisted. If our common stock were to be delisted, the liquidity of our common stock would be adversely affected, and the market price of
our common stock could decrease.
Any delisting of our common stock from Nasdaq would make it more difficult for us to raise capital on favorable terms in the future, or at all. Such a
delisting would likely have a negative effect on the price of our common stock and would impair your ability to sell or purchase our common stock when
you wish to do so. Further, if our common stock were to be delisted from The Nasdaq Capital Market, our common stock could cease to be recognized as a
covered security and we could be subject to additional regulation in each state in which we offer our securities.
In the event that our common stock ceases to be listed on a national securities exchange, it will become subject to the so-called “penny stock” rules that
impose restrictive sales practice requirements.
If we are unable to maintain the listing of our common stock on Nasdaq or another national securities exchange, our common stock could become subject
to the so-called “penny stock” rules if the shares have a market value of less than $5.00 per share. The SEC has adopted regulations that define a penny
stock to include any stock that has a market price of less than $5.00 per share, subject to certain exceptions, including an exception for stock traded on a
national securities exchange. The SEC regulations impose restrictive sales practice requirements on broker-dealers who sell penny stocks to persons other
than established customers and accredited investors. An accredited investor generally is a person whose individual annual income exceeded $200,000, or
whose joint annual income with a spouse exceeded $300,000 during the past two years and who expects their annual income to exceed the applicable level
during the current year, or a person with net worth in excess of $1.0 million, not including the value of the investor’s principal residence and excluding
mortgage debt secured by the investor’s principal residence up to the estimated fair market value of the home, except that any mortgage debt incurred by
the investor within 60 days prior to the date of the transaction shall not be excluded from the determination of the investor’s net worth unless the mortgage
debt was incurred to acquire the residence. For transactions covered by this rule, the broker-dealer must make a special suitability determination for the
purchaser and must have received the purchaser’s written consent to the transaction prior to sale. This means that if we are unable maintain the listing of
our common stock on a national securities exchange, the ability of stockholders to sell their common stock in the secondary market could be adversely
affected.
If a transaction involving a penny stock is not exempt from the SEC’s rule, a broker-dealer must deliver a disclosure schedule relating to the penny stock
market to each investor prior to a transaction. The broker-dealer also must disclose the commissions payable to both the broker-dealer and its registered
representative, current quotations for the penny stock, and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the
broker-dealer’s presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in
the customer’s account and information on the limited market in penny stocks.
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Risks Related to Clinical Development, Regulatory Approval and Commercialization
If we fail to continue to develop and refine the formulations of our tablet vaccine candidates, we may not obtain regulatory approvals, and even if
approved, 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 were
required 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 capture
the commercial success of our seasonal influenza vaccine candidate, we will need to continue to refine our formulation and develop influenza vaccine
tablets that 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
potency of 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 single tablet or combine the four influenza strains into one vaccine tablet. In addition, increasing the potency of the vaccine tablets or combining the
influenza strains necessary to create a quadrivalent vaccine may adversely affect manufacturing yields and render such tablets too costly to manufacture at
commercial scale. Our efforts to develop tablet vaccine candidates for norovirus and RSV face similar formulation challenges. If we are unable to further
develop and refine the formulations of our tablet vaccine candidates, we may be unable to obtain regulatory approval from the FDA or other regulatory
authorities, and even 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 demonstrate
safety 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 additional
clinical testing before we are prepared to submit a BLA for regulatory approval for either indication or for any other treatment regime. We cannot predict
with any 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 they are subject to rigorous regulatory requirements. For instance, the FDA may not agree with our proposed endpoints for any clinical trial
we propose, which may delay the commencement of our clinical trials. The clinical trial process is also time-consuming. We estimate that the clinical trials
we need to conduct to 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 vaccine candidates in the later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through
preclinical studies and initial clinical trials. Also, the results of early clinical trials of the tablet vaccine candidates for seasonal influenza, norovirus and
RSV may not be predictive of the results of subsequent clinical trials. Furthermore, the FDA may impose additional requirements to conduct preclinical
studies to advance the HPV therapeutic vaccine candidates which could delay initiation of Phase 1 studies. A number of companies in the
biopharmaceutical industry have suffered significant 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 vaccine
candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products. Success
in preclinical testing and early clinical trials does not ensure that later clinical trials, which involve many more subjects and, for influenza, all four strains
rather than 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
trials and 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 approval
or commercialize our tablet vaccine candidates, including that:
● regulators or institutional review boards, or IRBs, may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial
at a prospective trial site;
● we may experience delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective
trial sites;
● clinical trials of our tablet vaccine candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to
conduct additional clinical trials or abandon product development programs;
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● the number of subjects required for clinical trials of our tablet vaccine candidates may be larger than we anticipate; enrollment in these clinical
trials may 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 IRBs 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 are
unable 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
only modestly 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 clinical
trials 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 any
periods during which we may have the exclusive right to commercialize our tablet vaccine candidates, could allow our competitors to bring products to
market before we do, and could impair our ability to successfully commercialize our tablet vaccine candidates, any of which may harm our business and
results 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
difficult for us to predict the time and cost of tablet vaccine development as well as the requirements the FDA or other regulatory agencies may impose
to demonstrate 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
are added to vaccine antigens to enhance the activation and improve immune response and efficacy of vaccines. Development of vaccines with novel
adjuvants requires evaluation in larger numbers of patients prior to approval than would be typical for therapeutic drugs. Guidelines for evaluation of
vaccines with novel adjuvants have been established by the FDA and other regulatory bodies and expert committees. Our current tablet vaccine candidates,
including for norovirus, include a novel adjuvant, and future vaccine candidates may also include one or more novel vaccine adjuvants. Any vaccine,
because of the presence of an adjuvant, may have side effects considered to pose too great a risk to patients to warrant approval of the vaccine.
Traditionally, regulatory authorities 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 general populations 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 how long it will take or how much it will cost to obtain regulatory approvals for our tablet vaccine candidates in the United States or
elsewhere.
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Enrollment and retention of subjects in clinical trials is an expensive and time-consuming process and could be made more difficult or rendered
impossible 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
may be unable to retain a sufficient number of participants to complete any of our trials. Late-stage clinical trials of our tablet vaccine candidate for
coronavirus and norovirus, in particular, 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, the number and nature of competing treatments and ongoing clinical trials of competing drugs for the same indication, the
proximity of subjects to clinical sites and the eligibility criteria for the study. Further, since there are no reliable animal models to norovirus infection,
human challenge studies have been used to understand 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 retain
participants in other clinical trials of that same tablet vaccine candidate. Delays or failures in planned subject enrollment or retention may result in
increased costs, program delays or both, which could have a harmful effect on our ability to develop our tablet vaccine candidates, or could render further
development impossible. 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 we intend to enter into agreements governing their services, we will be limited in our ability to compel their actual performance in compliance with
applicable regulations. 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 compete
effectively.
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, governmental
agencies and public and private research institutions. In particular, our influenza vaccine candidate would compete with products that are available and
have gained market acceptance as the standard treatment protocol. Further, it is likely that additional drugs or other treatments will become available in the
future for 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
with tablet vaccines.
Many of our existing or potential competitors have substantially greater financial, technical and human resources than we do and significantly greater
experience in the discovery and development of products for the treatment of diseases, as well as in obtaining regulatory approvals of those products in the
United States and in foreign countries. Our current and potential future competitors also have significantly more experience commercializing drugs that
have been approved for marketing. Mergers and acquisitions in the pharmaceutical and biotechnology industries could result in even more resources being
concentrated 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 in
these industries. Our competitors may succeed in developing, acquiring or licensing, on an exclusive basis, drugs that are more effective or less costly than
any 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 are
currently 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;
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● 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. The
inability 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 compounds
that could make any of our tablet vaccine candidates less competitive. In addition, any new vaccine that competes with an approved vaccine must
demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome price competition and to be commercially
successful. Accordingly, our competitors may succeed in obtaining patent protection, discovering, developing, receiving the FDA’s approval for or
commercializing 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 we
believe that our proprietary tablet vaccine candidates provide competitive advantages, we face competition from many different sources, including
biotechnology and pharmaceutical companies, academic institutions, government agencies, as well as public and private research institutions. Any products
that we may commercialize will have to compete with existing products and therapies as well as new products and therapies that may become available in
the future.
There are other organizations working to improve existing therapies, vaccines or delivery methods, or to develop new vaccines, therapies or delivery
methods for their selected indications. Depending on how successful these efforts are, it is possible they may increase the barriers to adoption and success
of our vaccine 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
expect any 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
from government 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
fewer or 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 other regulatory approval for their products more rapidly than we may obtain approval for our vaccine candidates, which could result in our competitors
establishing 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
or other 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 and
recombinant products that are administered via injection or intranasally. The major non-recombinant injectable vaccine competitors include Astellas
Pharma Inc., or Astellas, Abbott Laboratories, AstraZeneca UK Limited, Baxter International Inc., Research Foundation for Microbial Diseases of Osaka
University, Seqirus-bioCSL Inc., GlaxoSmithKline plc, or GSK, Sanofi S.A., or Sanofi, Pfizer Inc., or Pfizer, and Takeda Pharmaceutical Company
Limited, or Takeda. Non-recombinant intranasal competition includes MedImmune, Inc., or MedImmune, and potentially others. Recombinant injectable
competitors include Sanofi and 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 also
developing 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 organizations
currently have, or have had, programs to develop such a vaccine. In addition, many other companies are developing products to prevent disease caused by
RSV using a variety of technology platforms, including monoclonal antibodies, small molecule therapeutics, as well as various viral vector and VLP based
vaccine technologies. While we are not aware of all of our competitors’ efforts, we believe that several companies are in various stages of developing an
RSV vaccine including Pfizer, Merck and Co., Inc., GSK, Johnson & Johnson, Bavarian Nordic, Astellas, MedImmune, Novavax, and Sanofi, as well as
the National Institute of Allergy and Infectious Diseases, an institute under the U.S. National Institutes of Health, and possibly others.
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There is currently no approved HPV therapeutic vaccine for sale globally; however, a number of vaccine manufacturers, academic institutions and other
organizations currently have, or have had, programs to develop such a vaccine. We believe that several companies are in various stages of developing an
HPV therapeutic vaccine including Inovio Pharmaceuticals, Inc., or Inovio, Advaxis, Genexine, and possibly others.
There is currently no approved coronavirus vaccine for sale globally; however, a number of vaccine manufacturers, academic institutions and other
organizations currently have programs to develop such a vaccine. While we are not aware of all of our competitors’ efforts, we believe that Moderna,
Sanofi, Janssen, Inovio, Novavax, AIM ImmunoTech Inc. and several others are in the early stages of developing vaccine candidates.
Our tablet vaccine candidates may cause adverse effects or have other properties that could delay or prevent their regulatory approval or limit the scope
of any 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 halt
clinical trials and could result in the denial of regulatory approval. If an unacceptable frequency or severity of adverse events are reported in clinical trials
for our 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 negative
consequences could result, including:
● regulatory authorities may withdraw their approval of the tablet vaccine candidates or impose restrictions on their distribution or other risk
management 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 substantially
increase 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 in
commercializing, our tablet vaccine candidates, and our ability to generate significant revenue will be impaired.
Our tablet vaccine candidates and the activities associated with their development and commercialization, including their design, testing, manufacture,
safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, are subject to comprehensive regulation by the
FDA and other regulatory agencies in the United States and by comparable authorities in other countries. Failure to obtain marketing approval for a tablet
vaccine candidate will prevent us from commercializing the tablet vaccine candidate. We have not received approval to market any of our tablet vaccine
candidates from regulatory authorities in any jurisdiction. We have only limited experience in filing and supporting the applications necessary to gain
marketing approvals and expect to rely on CROs to assist us in this process. Securing regulatory approval requires the submission of extensive preclinical
and clinical data and supporting information to the various regulatory authorities for each therapeutic indication to establish the tablet vaccine candidate’s
safety and efficacy. Securing regulatory approval also requires the submission of information about the product manufacturing 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 us obtaining 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 based
upon a variety of factors, including the type, complexity and novelty of the tablet vaccine candidates involved. We cannot be sure that we will ever obtain
any marketing approvals in any jurisdiction. Changes in marketing approval policies during the development period, changes in or the enactment of
additional statutes or regulations or changes in regulatory review for each submitted product application may cause delays in the approval or rejection of an
application. The FDA and comparable authorities in other countries have substantial discretion in the approval process and may refuse to accept any
application or may decide that our data is insufficient for approval and require additional preclinical or other studies, and clinical trials. In addition, varying
interpretations 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 approved
product not commercially viable.
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Even if we obtain FDA approval in the United States, we may never obtain approval for or commercialize our tablet vaccine candidates in any other
jurisdiction, 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 regulatory
requirements on a country-by-country basis regarding safety and efficacy. Approval by the FDA in the United States does not ensure approval by regulatory
authorities in other countries or jurisdictions. In addition, clinical trials conducted in one country may not be accepted by regulatory authorities in other
countries, and regulatory approval in one country does not guarantee regulatory approval in any other country. Approval processes vary among countries
and can involve additional tablet vaccine candidate testing and validation and additional administrative review periods. Seeking foreign regulatory approval
could result in difficulties and costs for us and require additional preclinical studies or clinical trials which could be costly and time consuming. Regulatory
requirements can vary widely from country to country and could delay or prevent the introduction of our tablet vaccine candidates in those countries. We
do not have any tablet vaccine candidates approved for sale in any jurisdiction, including in international markets, and we do not have experience in
obtaining regulatory approval in international markets. If we fail to comply with regulatory requirements in international markets or to obtain and maintain
required approvals, or if regulatory approvals in international markets are delayed, our target market will be reduced and our ability to realize the full
market potential of 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 future
development 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 vaccine
candidate, among other things, will be subject to extensive and ongoing requirements of and review by the FDA and other regulatory authorities. These
requirements include submissions of safety, efficacy and other post-marketing information and reports, establishment registration and drug listing
requirements, continued compliance with current Good Manufacturing Practice, or cGMP, requirements relating to manufacturing, quality control, quality
assurance and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping
and current good clinical practice, or GCP, requirements for any clinical trials that we conduct post-approval. Even if marketing approval of a tablet vaccine
candidate is granted, the approval 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 a tablet 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
tablet vaccine candidates. The FDA closely regulates the post-approval marketing and promotion of drugs to ensure drugs are marketed only for the
approved indications and in accordance with the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers’
communications regarding 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 enforcement actions 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 manufacturing
processes, 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;
● recall of such tablet vaccine candidate;
● fines, restitution or disgorgement of profits or revenues;
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● 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 our
tablet 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 are
not 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
or others in the medical community necessary for commercial success.
If our tablet vaccine candidates, including our vaccine for coronavirus and norovirus, receive marketing approval, they may nonetheless fail to gain
sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. If they do not achieve an adequate level of
acceptance, we may not generate significant revenues and become profitable. The degree of market acceptance, if approved for commercial sale, will
depend on a number of factors, 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, injectable
vaccines;
● 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 coronavirus and/or norovirus, if approved, to generate substantially all of our revenues for the
foreseeable future, the failure of these tablet vaccines to achieve market acceptance would harm our business and could require us to seek additional
financing sooner than we would otherwise plan.
If we fail to comply with state and federal healthcare regulatory laws, we could face substantial penalties, damages, fines, disgorgement, exclusion
from participation 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 and
enforcement by federal and state governments, which could significantly impact our business. The laws that may affect our ability to operate include, but
are not 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
the purchase, lease, order or recommendation of, any good, facility, item or service for which payment may be made, in whole or in part, under
federal healthcare programs such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of this statute or specific
intent to violate it;
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● the civil False Claims Act, or FCA, which prohibits, among other things, individuals or entities from knowingly presenting, or causing to be
presented, claims for payment from Medicare, Medicaid or other third-party payors that are false or fraudulent; knowingly making, using, or
causing to 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, or causing 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 government
knowing 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 a
scheme 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 Medicaid
beneficiary that the person knows or should know is likely to influence the beneficiary’s selection of a particular supplier of items or services
reimbursable 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, and
medical supplies to report annually to the U.S. Department of Health and Human Services information related to payments and other transfers of
value to physicians, other healthcare providers, and teaching hospitals, and ownership and investment interests held by physicians and other
healthcare 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
by any third-party payor, including commercial insurers; state laws that require pharmaceutical companies to comply with the device industry’s
voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or otherwise restrict payments that
may be made to healthcare providers and other potential referral sources; and state laws that require device manufacturers to report information
related 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 statutes
governing healthcare fraud. A person or entity can now be found guilty of violating the statute without actual knowledge of the statute or specific intent to
violate it. In addition, the Affordable Care Act provided that the government may assert that a claim including items or services resulting from a violation
of the federal 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 our customers will make the ultimate decision on how to submit claims, we may provide reimbursement guidance to our customers from time to
time. If a government 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 we successfully 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
these arrangements includes the provision of stock options. While we have worked to structure our arrangements to comply with applicable laws, because
of the complex and far-reaching nature of these laws, regulatory agencies may view these transactions as prohibited arrangements that must be restructured,
or discontinued, or for which we could be subject to other significant penalties. We could be adversely affected if regulatory agencies interpret our financial
relationships 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
light of the lack of applicable precedent and regulations. Federal and state enforcement bodies have recently increased their scrutiny of interactions between
healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare
industry.
Responding to investigations can be time- and resource-consuming and can divert management’s attention from the business. Additionally, as a result of
these investigations, healthcare providers and entities may have to agree to additional onerous compliance and reporting requirements as part of a consent
decree or corporate integrity agreement. Any such investigation or settlement could increase our costs or otherwise have an adverse effect on our business.
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Product liability lawsuits against us could cause us to incur substantial liabilities and could limit the commercialization of any tablet vaccine
candidates we 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 even
greater risk if we commercially sell any products that we may develop after approval. For instance, since our norovirus tablet challenge study is being
conducted in healthy human volunteers, any adverse reactions could result in claims from these injuries and we could incur substantial liabilities.
Regardless of 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 $10 million per claim and in the aggregate, it may not be adequate to
cover all liabilities that we may incur. Additionally, seasonal influenza is a covered vaccine of the National Vaccine Injury Compensation Program, and our
participation in that program may require time and resources that impede product uptake, if approved. We anticipate that we will need to increase our
insurance coverage as we continue clinical trials and if we successfully commercialize any products. Insurance coverage is increasingly expensive. We may
not 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 to pay 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 to
significant 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 these
trials to carry product liability insurance against such claims. This insurance coverage may not protect us against any or all of the product liability claims
that may be brought against us in the future. We may not be able to acquire or maintain adequate product liability insurance coverage at a commercially
reasonable cost or in sufficient amounts or scope to protect ourselves against potential losses. In the event a product liability claim is brought against us, we
may be required to pay legal and other expenses to defend the claim, as well as uncovered damage awards resulting from a claim brought successfully
against us. In the event any of our product candidates are approved for sale by the FDA or similar regulatory authorities in other countries and
commercialized, we may need to substantially increase the amount of our product liability coverage. Defending any product liability claim or claims could
require us to expend significant 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 be
successful 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 such
an 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 achieve
commercial 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 infrastructure
to market our other tablet vaccine candidates in the United States, if approved. There are significant expenses and risks involved with establishing our own
sales, marketing and distribution capabilities, including our ability to hire, retain and appropriately incentivize qualified individuals, generate sufficient
sales leads, provide adequate training to sales and marketing personnel, and effectively manage a geographically dispersed sales and marketing team. Any
failure or delay in the development of our internal sales, marketing and distribution capabilities could delay any tablet vaccine candidate launch, which
would adversely impact commercialization.
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Factors 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 international
markets; however, we may not be able to establish or maintain such collaborative arrangements and, if able to do so, our collaborators may not have
effective sales. 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 vaccine
candidates outside the United States we may be forced to delay the potential commercialization or reduce the scope of our sales and marketing activities.
We could 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 our intellectual 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 the
support 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 international
operations 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 certain
jurisdictions outside the United States. We expect that we will be subject to additional risks related to international operations or entering into international
business 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 doing
business 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
in other 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, floods
and 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 European
Union and many of the individual countries in Europe with which we will need to comply.
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Recently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of, and to commercialize, our tablet
vaccine 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 the
healthcare system that could, among other things, prevent or delay marketing approval of our tablet vaccine candidates, restrict or regulate post-approval
activities 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 the
Affordable Care Act, was enacted to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against
fraud and abuse, add new transparency requirements for health care and health insurance industries, impose new taxes and fees on the health industry and
impose additional health policy reforms. Although the full effect of the Affordable Care Act may not yet be fully understood, the law has continued the
downward 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 yet
adopted the significant measures that will be required to comply with this law. We are not sure whether additional legislative changes will be enacted, or
whether 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 and
state 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 coronavirus or influenza.
If a coronavirus or influenza outbreak occurs and is classified as a pandemic or large epidemic by public health authorities, it is possible that one or more
government entities may take actions that directly or indirectly have the effect of abrogating some of our rights or opportunities. We have not manufactured
a pandemic vaccine 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
commercial organizations into preventative and therapeutic agents against coronavirus and influenza, which may have the effect of increasing the number
of competitors and/or providing advantages to known competitors. Accordingly, there can be no assurance that we will be able to successfully establish a
competitive market share for our influenza vaccines.
In addition, current influenza vaccines are generally trivalent (containing three strains) or quadrivalent (containing four strains). If the FDA requires or
recommends, changes in influenza vaccines, for example for a monovalent vaccine or for use of a strain that is not currently circulating in the human
population, 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
from 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
of norovirus and RSV typically occur in the winter season. This seasonal concentration of product sales could cause quarter-to-quarter operating results to
vary widely and can exaggerate the consequences of revenues of any manufacturing or supply delays, any sudden loss of inventory, any inability to satisfy
product demand, the inability to estimate the effect of returns and rebates, normal or unusual fluctuations in customer buying patterns, or of any
unsuccessful sales or marketing strategies during the sales seasons.
We earn royalty revenue from the net sales of Inavir and, until the royalty agreement expired in July 2019, Relenza, which are marketed by our licensees.
Although the royalty rates paid to us by our licensees are fixed at a proportion of the licensees’ net sales of these products, our periodic and annual
revenues from these royalties have historically been variable and subject to fluctuation based on the seasonal incidence and severity of influenza. In
addition, returns of products to our licensees that were sold in 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 returns are generally unpredictable. Our licensees may encounter competition from new products
entering the market, including generic copies of Inavir, 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 royalty revenue will cease. However, the patent covering the laninamivir octanoate compound expires in 2024, at
which time generic competition may enter the market, potentially decreasing or eliminating the royalties received. On February 23, 2018, Osaka-based drug
maker Shionogi & Co., Ltd. gained marketing 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 requires only a single dose regardless of age. Xofluza may gain significant market share from Inavir in Japan, substantially
reducing the sales of Inavir. This would significantly decrease the royalty payments we receive from Daiichi Sankyo Company, Limited.
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In addition, all of our Relenza patents have expired, with the last substantial intellectual property related to the Relenza patent portfolio having expired in
July 2019 in Japan. Further, we sold a portion of our Inavir royalties to HealthCare Royalty Partners III, L.P. in April 2016. 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 Inavir, our future royalty revenue
may be reduced, which would adversely affect our financial condition and business.
We currently earn royalty revenue from Inavir and, until the royalty agreement expired in July 2019, Relenza, which are marketed by our licensees. Data
supporting the marketing approvals and forming the basis for the safety warnings in the product labels for these products were obtained in controlled
clinical trials of limited duration in limited patient populations and, in some cases, from post-approval use. As these marketed products are used over longer
periods of time and by more patients, some with underlying health problems or taking other medicines, new issues such as safety, tolerability, resistance or
drug-drug interaction issues could arise, which may 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 competing products 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 Inavir and Relenza,
sales of these products could be impaired, limited or abandoned 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 to
successfully 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 of
development 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
or more 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 the merger with Aviragen, was costly and diverted resources from our other product candidates and did not achieve the primary efficacy endpoint,
resulting in abandonment of development activities. The long-term success of our business ultimately depends upon our ability to advance the development
of our product candidates through preclinical studies and clinical trials, appropriately formulate and consistently manufacture them in accordance with strict
specifications and regulations, obtain approval of our product candidates 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 will support or justify the continued development of our product candidates, or that we
will ultimately receive approval from the FDA, or similar regulatory authorities 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 their
development and before they can be approved for sale by the FDA or similar regulatory authorities in other countries. To satisfy these standards, we must
engage in expensive and lengthy studies and clinical trials, develop acceptable and cost-effective manufacturing processes, and obtain regulatory approval
of 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 or
other 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
● be successfully commercialized, either by us or by our licensees or collaborators.
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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
will be sufficient to support the continued development of our product candidates. Many, if not most, companies in the pharmaceutical and
biopharmaceutical industries have experienced significant delays, setbacks and failures in all stages of development, including late-stage clinical trials,
even after achieving promising results in preclinical testing or early-stage clinical trials. Accordingly, results from completed preclinical studies and early-
stage clinical trials of our product candidates may not be predictive of the results we may obtain in future late-stage trials. Furthermore, even if the data
collected from preclinical studies and clinical trials involving any of our product candidates demonstrate a satisfactory safety, tolerability and efficacy
profile, such results may not be sufficient to obtain regulatory approval from the FDA in the United States, or other similar regulatory agencies in other
jurisdictions, which is required to market 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 other
competing treatments approved for sale or in clinical development, we may terminate the development of any of our product candidates at any time, and
our 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
patients infected with HPV and RSV that are either approved for sale or further advanced in clinical development than ours, such that their time to approval
and commercialization 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) is
indicated for the treatment of hospitalized infants and young children with severe lower respiratory tract infections due to RSV. We are aware that the
following 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
the clinical stage product candidates in development are Novavax’s RSV F vaccine, GSK’s GSK3003898A vaccine, GSK’s GSK3389245A vaccine,
Bavarian Nordic’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 or
better than our competitors’ products or product candidates, or we believe that our product candidates may not have as favorable a safety or tolerability
profile as potentially competitive compounds, we may delay or terminate the future development of any of our product candidates. We cannot provide any
assurance that the future development of any of our product candidates will demonstrate any meaningful therapeutic benefits over potentially competitive
compounds 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
may delay 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 obtain
regulatory approval to further advance their clinical development, or to eventually market them. Even if our product candidates demonstrate adequate
biologic activity and clear clinical benefit, any unacceptable side effects or adverse events, when administered alone or in the presence of other
pharmaceutical products, may outweigh these potential benefits. We may observe adverse or serious adverse events or drug-drug interactions in preclinical
studies or clinical trials of our product candidates, which could result in the delay or termination of their development, prevent regulatory approval, or limit
their 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 or
collaboration agreements, are unfavorable, we could be delayed or precluded from the further development or commercialization of our product
candidates, 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 extensive
preclinical 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
more advanced stages of development, poor study or trial design, and issues related to the formulation or manufacturing process of the materials used to
conduct the 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. In many cases, product candidates in clinical development may fail to show the desired tolerability, safety and efficacy characteristics, despite having
favorably demonstrated such characteristics in preclinical studies or early-stage clinical trials.
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In addition, we may experience numerous unforeseen events during, or as a result of, preclinical studies and the clinical trial process, which could delay or
impede 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
the development 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 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
or participants 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, including
non-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 and
efficacy 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 United
States, or other similar regulatory authorities in other foreign jurisdictions, which is required for us to market and sell our product candidates.
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In the event that a third-party contract manufacturer cannot timely supply sufficient bulk vaccine to allow us to manufacture our vaccine tablets, our
preclinical studies or our clinical trials and the commercialization of our product candidates could be delayed, adversely affected or terminated, or may
result in the need for us to incur significantly 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 occur
from time-to-time in our industry, various steps in the manufacture of our product candidates are sole-sourced to certain contract manufacturers. In
accordance with cGMP, changing manufacturers may require the re-validation of manufacturing processes and procedures, and may require further
preclinical studies or clinical trials to show comparability between the materials produced by different manufacturers. Changing a contract manufacturer
may be difficult and could be extremely costly and time consuming, which could result in our inability to manufacture our product candidates for an
extended period of time and a delay in the development of our product candidates. Further, in order to maintain our development timelines 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,
these studies 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, and
intend 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 to
perform many facets of the clinical development process on our behalf, including conducting preclinical studies, the recruitment of sites and patients for
participation in our clinical trials, maintenance of good relations with the clinical sites, and ensuring that these sites are conducting our trials in compliance
with the trial protocol and applicable regulations. If these third parties fail to perform satisfactorily, or do not adequately fulfill their obligations under the
terms of our agreements with them, we may not be able to enter into alternative arrangements without undue delay or additional expenditures, and therefore
the 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-
party vendors’ sites to determine if our clinical trials are being conducted according to GCP or similar regulations. If we, or a regulatory authority,
determine that our third-party vendors are not in compliance with, or have not conducted our clinical trials according to, applicable regulations, we may be
forced to exclude 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 product
candidates 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 similar
regulatory authorities in other countries. By contrast, larger pharmaceutical and biopharmaceutical companies often have substantial staff or departments
with extensive experience in conducting clinical trials with multiple product candidates across multiple indications and obtaining regulatory approval in
various countries. In addition, these companies may have greater financial resources to compete for the same clinical investigators, sites and patients that
we are attempting to recruit for our clinical trials. As a result, we may be at a competitive disadvantage that could delay the initiation, recruitment, timing
and completion of our clinical trials and obtaining of marketing approvals, if achieved at all, for our product candidates.
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Our industry is highly competitive and subject to rapid technological changes. As a result, we may be unable to compete successfully or develop
innovative or 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, the
ability 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 and
qualified contract manufacturing and manufacturing capacity to produce our product candidates; relative manufacturing costs; establishing, maintaining
and protecting 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
compete with our product candidates, have substantially more resources than us, as well as much greater capabilities and experience than we have in
research and discovery, designing and conducting preclinical studies and clinical trials, operating in a highly regulated environment, formulating and
manufacturing drug substances, products and devices, and marketing and sales. Our competitors may be more successful than us in obtaining regulatory
approvals for their product 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 any product that we, or our potential future licensees or collaborators, may develop or commercialize. New drugs or classes of
drugs from competitors may render our product candidates obsolete or non-competitive before we are able to successfully develop them or, if approved,
before we can recover the expenses of developing and commercializing them. We anticipate that we, or our potential future licensees or collaborators, will
face intense and increasing competition as new drugs and drug classes enter the market and advanced technologies or new drug targets become available. If
our product candidates do not demonstrate any meaningful competitive advantages over existing products, or new products or product candidates, we may
terminate the development or commercialization 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, less
expensive or easier to administer than ours. Accordingly, our competitors may succeed in obtaining regulatory approval for their product candidates more
rapidly than we can. Companies that can complete clinical trials, obtain required marketing approvals and commercialize their products before their
competitors do so may achieve a significant competitive advantage, including certain patent and marketing exclusivity rights that could delay the ability of
competitors 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 larger
pharmaceutical 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 capable
of conducting our clinical trials, and (iv) recruiting patients to participate in our clinical trials. There can be no assurance that product candidates resulting
from our research and development efforts, or from joint efforts with our potential future licensees or collaborators, will be able to compete successfully
with our 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
licensee or 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
agreed upon or anticipated, may fail to comply with strict regulations, or may elect to delay or terminate their efforts in developing or commercializing our
product candidates even though we have met our obligations under the arrangement.
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A majority of the potential revenue from existing and any future licenses and collaborations we may enter into will likely consist of contingent milestone
payments, 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 arrangements
with third parties to commercialize products developed under our existing or future collaborations using our technologies, which could reduce the
milestone and 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 our product candidates that are subject to licenses or collaborations and, accordingly, we will depend largely on our licensees or
collaborators to develop or commercialize our product candidates. Our licensees may encounter competition from new products entering the market, which
could adversely affect our royalty 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 capital
resources, or the belief that other product candidates or internal programs may have a higher likelihood of obtaining regulatory approval, or may
potentially generate a greater return on investment;
● do not have sufficient resources necessary to fully support the product candidate through clinical development, regulatory approval and
commercialization;
● 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 in
management, 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 of
operations may be adversely affected. In addition, a licensee or collaborator may decide to pursue the development of a competitive product candidate
developed 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 clinical
development or commercialization of a product candidate, the achievement and payment of a milestone amount, the ownership of intellectual property that
is developed during the course of the arrangement, or other license agreement terms. If a licensee or collaborator fails to develop or effectively
commercialize our product candidates for any of these reasons, we may not be able to replace them with another third party willing to develop and
commercialize our product candidates under similar terms, if at all. Similarly, we may disagree with a licensee or collaborator as to which party owns
newly or jointly-developed intellectual property. Should an agreement be revised or terminated as a result of a dispute and before we have realized the
anticipated benefits of the arrangement, we may not be able to obtain certain development support or revenues that we anticipated receiving. We may also
be unable to obtain, on terms acceptable 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 and commercialize the product candidate. There can be no assurance that any product candidates will emerge from any
existing or future license or collaboration agreements 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
or collaborations, 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 depend
largely upon the reimbursement rates established by third-party payers for such products. Third-party payers include government health administration
authorities, managed-care organizations, private health insurers and other similar organizations. Third-party payers are increasingly examining the cost
effectiveness of medical products, services and pharmaceutical drugs and challenging the price of these products and services. In addition, significant
uncertainty exists as to the reimbursement status, if any, of newly approved pharmaceutical products. Further, the comparative effectiveness of new
products over existing therapies and the assessment of other non-clinical outcomes are increasingly being considered in the decision by payers to establish
reimbursement rates. We, or our licensees or collaborators if applicable, may also be required to conduct post-marketing clinical trials in order to
demonstrate the cost-effectiveness of our products. Such studies may require us to commit a significant amount of management time and financial
resources. There can be no 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-party payers 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 care
policy were approved over the past several years and continue to evolve and will likely result in reduced reimbursement rates for many pharmaceutical
products in the future. We expect that there will continue to be federal and state proposals to implement increased government control over reimbursement
rates of pharmaceutical products. In addition, we expect that increasing emphasis on managed care and government intervention in the U.S. healthcare
system will continue to put downward pressure on the pricing of pharmaceutical products there. Recent events have resulted in increased public and
governmental scrutiny of the cost of drugs, especially in connection with price increases following companies’ acquisitions of the rights to certain drug
products. In particular, U.S. federal prosecutors recently issued subpoenas to a pharmaceutical company seeking information about its drug pricing
practices, among other issues, 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 to increase the prices of our products that may be approved for sale in the future. Legislation and regulations
affecting the pricing of pharmaceutical products may change before our product candidates are approved for sale, which could further limit or eliminate
their reimbursement rates. Further, social and patient activist groups, whose goal it is to reduce the cost of healthcare, and in particular the price of
pharmaceutical products, may also place downward pressure on the price of these products, which could result in decreases in the price of our products.
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If any product candidates that we develop independently, or through licensees or collaborators if applicable, are approved but do not gain meaningful
acceptance 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 in
the future, they may not gain market acceptance or broad utilization among physicians, patients or third-party payers. The degree of market acceptance that
any 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
products do not achieve meaningful market acceptance, or if the market for our products proves to be smaller than anticipated, we may never generate
significant revenues.
Our headquarters is located near known earthquake fault zones. The occurrence of an earthquake, fire or any other catastrophic event could disrupt
our operations or the operations of third parties who provide vital support functions to us, which could have a material adverse effect on our business
and financial condition.
We are vulnerable to damage from catastrophic events, such as power loss, natural disasters, terrorism and similar unforeseen events beyond our control.
Our corporate 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 and
have 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 critical
infrastructure, 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.
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Changes 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
performing normal functions on which the operation of our business may rely, which could negatively impact our business.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability
to hire and retain key personnel and accept payment of user fees, and statutory, regulatory, and policy changes. Average review times at the agency have
fluctuated in recent years as a result. In addition, government funding of the SEC and other government agencies on which our operations may rely,
including those that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.
Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved by necessary government
agencies, which would adversely affect our business. For example, over the last several years, including most recently on December 22, 2018, the U.S.
government has shut down, at least partially, several times and certain regulatory agencies, such as the FDA and the SEC, have had to furlough critical
FDA, SEC and other government employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the
ability of the FDA to timely review and process our regulatory submissions which could have a material adverse effect on our business. Further, future
government shutdowns could impact our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our
operations.
Risks Related to Dependence on Third Parties
If third-party contract manufacturers, upon whom we may have to rely to formulate and manufacture our product candidates, do not perform, fail to
manufacture according to our specifications, or fail to comply with strict government regulations, our preclinical studies or clinical trials could be
adversely affected and the development of our product candidates could be delayed or terminated, or we could incur significant additional expenses.
To the extent that we rely on third-party contract manufacturers, which in some cases may be sole sourced, we are 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 product
candidates, 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 commercialization
of, our product candidates;
● our potential contract manufacturers failing to manufacture our product candidates according to their own standards, our specifications, cGMP, or
regulatory guidelines, or otherwise manufacturing material that we or regulatory authorities deem to be unsuitable 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 no
assurance that our potential contract manufacturers will be able to manufacture our product candidates at a suitable commercial scale, or that we
will be 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 cGMP, other government regulations and
corresponding foreign 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.
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In the event that we need to change a third-party contract manufacturer, our preclinical studies or our clinical trials, and the commercialization of our
product candidates could be delayed, adversely affected or terminated, or such a change may result in the need for us to incur significantly 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 occur
from time-to-time in our industry, various steps in the manufacture of our product candidates are sole-sourced to certain contract manufacturers. In
accordance with cGMPs, changing manufacturers may require the re-validation of manufacturing processes and procedures, and may require further
preclinical studies or clinical trials to show comparability between the materials produced by different manufacturers. Changing a contract manufacturer
may be difficult and could be extremely costly and time-consuming, which could result in our inability to manufacture our product 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
to increase 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 the FDA must review and approve. If we are unable to successfully increase the manufacturing capacity for our product candidates, the clinical
trials, the regulatory approval and the commercial launch of our product candidates may be delayed, or there may be a shortage in supply. Our product
candidates require 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, financial condition and results of operations.
The manufacture of pharmaceutical products in compliance with cGMP regulations requires significant expertise and capital investment, including the
development 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 these
difficulties or otherwise fail to comply with our obligations under applicable regulations, our ability to provide study materials in our clinical trials would
be jeopardized. Any delay or interruption in the supply of clinical trial materials could delay the completion of our clinical trials, increase the costs
associated with maintaining our clinical trial programs and, depending upon the period of delay, require us to commence new trials at significant additional
expense or to 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 comply
with these cGMP requirements and with other FDA, state and foreign regulatory requirements. The FDA or similar foreign regulatory agencies at any time
may 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 in
fines and civil penalties, suspension of production, suspension or delay in product approval, product seizure or recall, or withdrawal of product approval. If
the 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 a result. Any of these factors could cause a delay of clinical trials, regulatory submissions, approvals or commercialization of any product
candidates we may develop 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 could
impair 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 shortfall
that impairs the supply of the relevant raw materials could have a material adverse effect on our business, financial condition and results of operations. An
inability to continue to source product from these suppliers, which could be due to regulatory actions or requirements affecting the supplier, adverse
financial or other strategic developments experienced by a supplier, labor disputes or shortages, unexpected demands or quality issues, could materially
adversely affect our operating results or our ability to conduct clinical trials, either of which could significantly harm our business.
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We rely on third parties to conduct, supervise and monitor our clinical trials, and if those third parties perform in an unsatisfactory manner, it may
harm our business.
We 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 over their
actual performance.
We also rely on CROs to monitor and manage data for our clinical programs, as well as the execution of future nonclinical studies. We expect to control
only certain aspects of our CROs’ activities. Nevertheless, we will be responsible for ensuring that each of our studies is conducted in accordance with the
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 are required to comply with the Good Laboratory Practice and GCP, which are regulations and guidelines enforced by the FDA and are
also required by the Competent Authorities of the Member States of the European Economic Area and comparable foreign regulatory authorities in the
form of International Conference on Harmonization guidelines for any of our product candidates that are in preclinical and clinical development. The
Regulatory authorities enforce GCP through periodic inspections of trial sponsors, principal investigators and clinical trial sites. If we or our CROs fail to
comply with GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities
may require us to perform additional clinical trials before approving our marketing applications. Accordingly, if our CROs fail to comply with these
regulations or fail to recruit a sufficient number of subjects, we may be required to repeat clinical trials, which would delay the regulatory approval process.
Our CROs are not our employees, and we cannot control whether or not they devote sufficient time and resources to our clinical and nonclinical programs.
These CROs may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials,
or other drug development activities which could harm our competitive position. We face the risk of potential unauthorized disclosure or misappropriation
of our intellectual property by CROs, which may reduce our trade secret protection and allow our potential competitors to access and exploit our
proprietary technology. If our CROs do not successfully carry out their contractual duties or obligations, fail to meet expected deadlines, or if the quality 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 any other
reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for, or successfully
commercialize, any product candidate that we develop. As a result, our financial results and the commercial prospects for any product candidate that we
develop would be harmed, our costs could increase, and our ability to generate significant revenues could be delayed.
If our relationships with these CROs terminate, we may not be able to enter into arrangements with alternative CROs or do so on commercially reasonable
terms. Switching or adding additional CROs involves substantial cost and requires management time and focus. In addition, there is a natural transition
period when a new CRO commences work. As a result, delays occur, which can materially impact our ability to meet our desired clinical development
timelines. While we endeavor to carefully manage our relationships with our CROs, there can be no assurance that we will not encounter challenges or
delays in 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 our
development 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 or
additional 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 other
things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed
collaborator’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 or
similar regulatory authorities outside the United States, the potential market for the subject product candidate, the costs and complexities of manufacturing
and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to our ownership of
technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge and industry and market conditions
generally. The collaborator may also consider alternative product candidates for similar indications that may be available to collaborate on and whether
such a collaboration could be more attractive than the one with us for our product candidate.
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Our relationships with customers and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and
regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future
earnings.
Healthcare providers, physicians and third-party payors play a primary role in the recommendation and prescription of any product candidates for which we
obtain marketing approval. Our future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other
healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute
our medicines for which we obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations include the
following:
● the federal Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing
remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or
recommendation of, any good or service, for which payment may be made under federal and state healthcare programs such as Medicare and
Medicaid;
● the federal FCA imposes criminal and civil penalties, including civil whistleblower or qui tam actions, against individuals or entities for
knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false
statement to avoid, 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
for executing a scheme to defraud any healthcare benefit program and also imposes obligations, including mandatory contractual terms, with
respect to safeguarding 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 materially
false 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 to
report to the Department of Health and Human Services information related to physician payments and other transfers of value and physician
ownership 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 claims
involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, and some state laws require
pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance
promulgated by the federal government in addition to requiring vaccine manufacturers to report information related to payments to physicians and
other health care providers or marketing expenditures.
We may not be successful in establishing and maintaining additional strategic partnerships, which could adversely affect our ability to develop and
commercialize products, negatively impacting our operating results.
We continue to strategically evaluate our partnerships and, as appropriate, we expect to enter into additional strategic partnerships in the future, including
potentially with major biotechnology or biopharmaceutical companies. We face significant competition in seeking appropriate partners for our product
candidates, and the negotiation process is time-consuming and complex. In order for us to successfully partner our product candidates, potential partners
must view these product candidates as economically valuable in markets they determine to be attractive in light of the terms that we are seeking and other
available products for licensing by other companies. Even if we are successful in our efforts to establish strategic partnerships, the terms that we agree upon
may not be favorable to us, and we may not be able to maintain such strategic partnerships if, for example, development or approval of a product candidate
is delayed or sales of an approved product are disappointing. Any delay in entering into strategic partnership agreements related to our product candidates
could delay the development and commercialization of such candidates and reduce their competitiveness even if they reach the market. If we are not able to
generate revenue under our strategic partnerships when and in accordance with our expectations or the expectations of industry analysts, this failure could
harm our business and have an immediate adverse effect on the trading price of our common stock.
If we fail to establish and maintain additional strategic partnerships related to our unpartnered product candidates, we will bear all of the risk and costs
related to the development of any such product candidate, and we may need to seek additional financing, hire additional employees and otherwise develop
expertise, such as regulatory expertise, for which we have not budgeted. If we were not successful in seeking additional financing, hiring additional
employees or developing additional expertise, our cash burn rate would increase or we would need to take steps to reduce our rate of product candidate
development. This could negatively affect the development of any unpartnered product candidate.
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Strategic partnerships or acquisitions we have made or may make could turn out to be unsuccessful.
As part of our strategy, we monitor and analyze strategic partnership or acquisition opportunities that we believe will create value for our shareholders. We
may acquire companies, businesses, products and technologies that complement or augment our existing business, however, such acquisitions could
involve numerous risks that may prevent us from fully realizing the benefits that we anticipated as a result of such transactions.
We may not be able to integrate any acquired business successfully or operate any acquired business profitably. In addition, integrating any newly acquired
business could be expensive and time-consuming, place a significant strain on managerial, operational and financial resources and could prove to be more
difficult or expensive than we predict. The diversion of our management's attention and any delay or difficulties encountered in connection with any future
acquisitions we may consummate could result in the disruption of our ongoing business or inconsistencies in standards and controls that could negatively
affect our ability to maintain third-party relationships.
We may fail to derive any commercial value from the acquired technology, products and intellectual property, including as a result of the failure to obtain
regulatory approval or to monetize products once approved, as well as risks from lengthy product development and high upfront development costs without
guarantee of successful results. Patents and other intellectual property rights covering acquired technology and/or intellectual property may not be obtained,
and if obtained, may not be sufficient to fully protect the technology or intellectual property. We may also be subject to liabilities, including unanticipated
litigation costs, that are not covered by indemnification protection we may obtain. As we pursue strategic transactions, we may value the acquired company
or partner incorrectly, fail to successfully manage our operations as our asset diversity increases, expend unforeseen costs during the acquisition or
integration process, or encounter other unanticipated risks or challenges. We may fail to value a partnership or acquisition accurately, properly account for
it in our consolidated financial statements, or successfully divest it or otherwise realize the value which we originally anticipated or have subsequently
reflected in our consolidated financial statements.
Moreover, we may need to raise additional funds through public or private debt or equity financing, or issue additional shares, to acquire any businesses or
products, which may result in dilution for stockholders or the incurrence of indebtedness.
Any failure by us to effectively limit such risks as we implement our strategic partnership or acquisitions could have a material adverse effect on our
business, financial condition or results of operations and may negatively impact our net income and cause the price of our securities to fall.
Risks Related to Intellectual Property
If we are unable to obtain and maintain patent protection for our oral vaccine platform technology and product candidates or if the scope of the patent
protection 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 our
proprietary position by filing patent applications in the United States and abroad related to our development programs and product candidates. The patent
prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications, or
maintain and 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. The
patent 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 other
countries. There is no assurance that the entire potentially relevant prior art relating to our patents and patent applications has been found, which can
invalidate a patent or prevent a patent from issuing from a pending patent application. Even if patents do successfully issue, third parties may challenge
their validity, enforceability or scope, which may result in such patents being narrowed, invalidated, or held unenforceable. Any successful challenge to
these patents or any other patents owned by or licensed to us could deprive us of rights necessary for the successful commercialization of any product
candidates or companion diagnostic that we may develop. Further, if we encounter delays in regulatory approvals, the period of time during which we
could market a product candidate and companion diagnostic under patent protection could be reduced.
If the patent applications we hold with respect to our platform technology and product candidates fail to issue, if their breadth or strength of protection is
threatened, or if they fail to provide meaningful exclusivity for our product candidates, it could dissuade companies from collaborating with us to develop
product candidates and threaten our ability to commercialize future drugs. Any such outcome could harm our business.
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The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in
recent 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 the
United States. For example, European patent law restricts the patentability of methods of treatment of the human body more than U.S. law does.
Publications of discoveries in scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions
are typically not 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 the inventions 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
patent applications may not result in patents being issued which protect our technology or product candidates, in whole or in part, or which effectively
prevent others from commercializing competitive technologies and vaccines. Even if our patent applications issue as patents, they may not issue in a form
that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage.
Our competitors may be able to circumvent our patents by developing similar or alternative product candidates in a non-infringing manner. Changes in
either the patent 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 our patent protection.
Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or
defense 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-
Smith Act includes a number of significant changes to United States patent law. These include provisions that affect the way patent applications are
prosecuted and may 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 effective on 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 or defense 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
in derivation, reexamination, inter partes review, post-grant review or interference proceedings challenging our patent rights or the patent rights of others.
In other countries, we may be subject to or become involved in opposition proceedings challenging our patent rights or the patent rights of others. An
adverse determination in any such submission or proceeding could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize
our technology or product candidates and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize
product candidates without infringing third-party patent rights. In addition, if the breadth or strength of protection provided by our patents and patent
applications is threatened, 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 in
the courts or patent offices in the United States and abroad. Such challenges may result in patent claims being narrowed, invalidated or held unenforceable,
in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and tablet vaccines, or limit
the duration of the patent protection of our technology and product candidates. Moreover, patents have a limited lifespan. In the United States and other
countries, 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 the
protection it affords, is limited. Without patent protection for our current or future tablet vaccine candidates, we may be open to competition from generic
versions 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 patent
portfolio may not provide us with sufficient rights to exclude others from commercializing product candidates similar or identical to ours.
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We may be involved in lawsuits to protect or enforce our patents, the patents of our licensors or our other intellectual property rights, which could be
expensive, 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 or
unauthorized use, we may be required to file legal claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court
may 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 on
the 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 of
our 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 a
third-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 patent
litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could be
an 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 material
information from the USPTO, or made a materially misleading statement, during prosecution. Third parties may also raise similar validity claims before the
USPTO in post-grant proceedings such as inter partes review, or post-grant review, or oppositions or similar proceedings outside the United States, in
parallel with litigation or even outside the context of litigation. The outcome following legal assertions of invalidity and unenforceability is unpredictable.
We cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. For the patents and
patent applications 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. If a 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
protection on 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
may not 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 on
commercially reasonable terms. Any litigation or other proceedings to enforce our intellectual property rights may fail, and even if successful, may result in
substantial 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 our
confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of
hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have an
adverse 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
or commercializing 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.
This is generally referred to as having the “freedom to operate.” However, our research, development and commercialization activities may be subject to
claims that we infringe or otherwise violate patents or other intellectual property rights owned or controlled by third parties. Numerous U.S. and foreign
issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are pursuing development candidates. As
the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our current or future product candidates may be
subject to claims of infringement of the patent rights of third parties. The biotechnology and pharmaceutical industries are characterized by extensive
litigation regarding patents and other intellectual property rights. The defense and prosecution of intellectual property claims, interference proceedings and
related legal and administrative proceedings, both in the United States and internationally, involve complex legal and factual questions. As a result, such
proceedings are lengthy, costly and time-consuming, and their outcome is highly uncertain. We may become involved in protracted and expensive litigation
in order to determine the enforceability, scope and validity of the proprietary rights of others, or to determine whether we have the freedom to operate with
respect 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. The
publication 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
a third party has also filed a patent application covering our product candidate or other claims, we may have to participate in an adversarial proceeding,
known as an interference proceeding, in the USPTO, or similar proceedings in other countries, to determine the priority of invention. In the event an
infringement claim 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 in defending the claim, we may be prevented from pursuing the development and commercialization of a product candidate and may be
subject to injunctions and/or damage awards.
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In 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
of these 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 the
appropriate 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 to
obtain such licenses or sublicenses, but are unable to do so, we could encounter delays in the development of our product candidates, or be prevented from
developing, manufacturing and commercializing our product candidates at all. If it is determined that we have infringed an issued patent and do not have
the freedom 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
licensees or collaborators become involved in any patent litigation, interference or other legal proceedings, we could incur substantial expense, and the
efforts and attention of our technical and management personnel could be significantly diverted. A negative outcome of such litigation or proceedings may
expose us to the loss of our proprietary position or to significant liabilities or require us to seek licenses that may not be available from third parties on
commercially acceptable terms, if at all. We may be restricted or prevented from developing, manufacturing and selling our product candidates in the event
of an adverse determination 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 other
requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these
requirements.
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
other provisions 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 in
accordance 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 patent
or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to
properly 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
patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in
certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created
uncertainty with 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 regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce patents that we
have licensed or that we 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
our technologies in jurisdictions where we have not obtained patent protection to develop their own vaccines and, further, may export otherwise infringing
vaccines to territories where we may obtain patent protection, but where patent enforcement is not as strong as that in the United States. These vaccines
may compete with our product candidates in jurisdictions where we do not have any issued or licensed patents and any future patent claims or other
intellectual property rights may not be effective or sufficient to prevent them from so competing.
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We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of
third 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
claims that it or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such
employee’s former employer. We are not aware of any threatened or pending claims related to these matters, but in the future litigation may be necessary to
defend against such claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property
rights or personnel. 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 trade
secrets 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 transfer
agreements, consulting agreements or other similar agreements with our advisors, employees, third-party contractors and consultants prior to beginning
research 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
other confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the
technology of others, 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, a competitor’s discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have an
adverse effect on our 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 potentially
relating to our trade secrets, although our agreements may contain certain limited publication rights. Despite our efforts to protect our trade secrets, our
competitors may discover our trade secrets, either through breach of our agreements with third parties, independent development, or publication of
information by any of our third-party collaborators. A competitor’s discovery of our trade secrets would impair our competitive position and have an
adverse impact 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 its
earliest 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
patents covering our product candidates are obtained, once the patent life has expired for a product candidate, we may be open to competition from
competitive vaccines and medications, including generic medications. Given the amount of time required for the development, testing and regulatory
review of new product 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 or identical 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 be
eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman
Amendments, and similar legislation in the European Union. The Hatch-Waxman Amendments permit a patent term extension of up to five years for a
patent covering an approved product as compensation for effective patent term lost during product development and the FDA regulatory review process.
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
applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. Moreover, the length of the
extension could be less than we request. Only one patent per approved product can be extended, the extension cannot extend the total patent term beyond
14 years from approval 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 to obtain patent term extension or the term of any such extension is less than we request, the period during which we can enforce our patent
rights for the applicable product candidate will be shortened and our competitors may obtain approval to market competing products sooner. As a result,
our revenue from applicable products could be reduced. Further, if this occurs, our competitors may take advantage of our investment in development and
trials by referencing our clinical and preclinical data and launch their product earlier than might otherwise be the case, and our competitive position,
business, financial condition, results of operations and prospects could be materially harmed.
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We 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
other intellectual property as an inventor or co-inventor. For example, we or our licensors may have inventorship disputes arise from conflicting obligations
of employees, consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other
claims challenging inventorship or our or our licensors’ ownership of our patents, trade secrets or other intellectual property. If we or our licensors fail in
defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or
right to use, intellectual property that is important to our product candidates. Even if we are successful in defending against such claims, litigation could
result in substantial costs and be a distraction to management and other employees. Any of the foregoing could have a material adverse effect on our
business, financial condition, results of operations and prospects.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We do not own any real property. Our leased facilities as of December 31, 2019, are as follows:
Location
Square Feet
Primary Use
Lease Terms
South San Francisco,
CA
19,738 sq ft
Laboratory and office
Three leases expiring between July 2021 and
April 2025
Alpharetta, GA
11,788 sq ft
Office
Lease expires February 2021; entire office
subleased
We believe that our existing facilities are adequate for our current needs.
Item 3. Legal Proceedings
From time to time we may be involved in claims arising in connection with our business. Based on information currently available, we believe that the
amount, or range, of reasonably possible losses in connection with any pending actions against us, in excess of established reserves, in the aggregate, not to
be material to our consolidated financial condition or cash flows. However, losses may be material to the Company’s operating results for any particular
future period, depending on the level of income for such period.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Trading Information
Our common stock is listed on the Nasdaq Capital Market under the symbol “VXRT”.
As of March 17, 2020, there were approximately 6,571 holders of record of our common stock.
Dividend Policy
We 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 our
business and therefore do not anticipate paying cash dividends for the foreseeable future. Payment of future dividends, if any, will be at the discretion of
our board of directors after taking into account various factors, including current financial condition, operating results and current and anticipated cash
needs.
Item 6. Selected Financial Data
We 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 the
information under this item.
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the other sections of this
Annual Report on Form 10-K, including our consolidated financial statements and notes thereto included elsewhere. This discussion contains a number of
forward-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 Form
10-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 date
hereof.
Company Overview
We are a clinical-stage biotechnology company primarily focused on the development of oral recombinant vaccines based on our proprietary oral vaccine
platform, or VAAST. 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 for the treatment of chronic viral infections and cancer. Our vaccines are administered using a convenient room temperature-
stable tablet, rather than by injection.
We are developing prophylactic vaccine candidates that target a range of infectious diseases. On January 31, 2020, we announced that we have initiated a
program to develop a coronavirus vaccine candidate based on our proprietary oral vaccine platform. Under the program, we plan to generate vaccine
candidates based on the published genome of the coronavirus, or SARS-CoV-2, and evaluate them in preclinical models for their ability to generate both
mucosal and systemic immune responses to the “coronavirus disease 2019”, or COVID-19.
Other targets include norovirus, a widespread cause of acute gastro-intestinal enteritis, for which three Phase 1 human studies have been completed,
including a Phase 1 bivalent study which, as we announced in September, met its primary and secondary endpoints; seasonal influenza, for which our
monovalent H1 influenza vaccine protected patients against H1 influenza infection in a recent Phase 2 challenge study; and respiratory syncytial virus, or
RSV, a common cause of respiratory tract infections. In addition, we are developing our first therapeutic immune-oncology vaccine targeting cervical
cancer and dysplasia caused by human papillomavirus, or HPV.
To date, we have conducted multiple clinical trials with vaccines based on our VAAST platform, demonstrating that our oral tablet vaccines consistently
generate robust mucosal responses in humans. In addition, our vaccines have demonstrated efficacy in humans for H1 influenza, and in pre-clinical models
for chikungunya, aerosolized Venezuelan Equine Encephalitis and RSV.
As we previously disclosed, we are no longer prioritizing manufacturing and plan to rely primarily on third party manufacturers for the cGMP
manufacturing of our candidate vaccines. In addition, we are focusing our efforts on partnering opportunities utilizing the vaccine programs currently in our
pipeline, including the bivalent norovirus vaccine program, our seasonal flu vaccine, and the Universal Influenza vaccine collaboration with Janssen
Vaccines & Prevention B.V. Finally, we are focusing on the development of a coronavirus vaccine candidate utilizing our VAAST platform, and we have
put the development of our norovirus and therapeutic HPV vaccine programs on hold pending the partnering discussions and progress with the coronavirus
vaccine program.
Through our merger with Aviragen Therapeutics, Inc., or Aviragen, we acquired two royalty-earning products, Relenza and Inavir. We also acquired three
Phase 2 clinical stage antiviral compounds, which we have discontinued.
Business Strategy
We are primarily focused on the development of oral recombinant vaccines based on our proprietary oral vaccine platform. However, we believe that
focusing on discovery and early-stage drug development while benefiting from our partners’ development and commercialization expertise, and leveraging
other strategic acquisitions that compliment, augment or differ from our primary product candidates, could reduce our internal expenses, allow us to have a
more diverse set of revenue-generating products and progress a larger number of drug candidates to later stages of drug development.
Consistent with this strategy, we may become engaged in a review of partnership opportunities, potential acquisitions of income generating assets, whether
royalty-based or otherwise, or acquisitions of companies that hold royalty or other income generating assets or technology that we believe will create value
for our shareholders. We may engage consultants and advisors to analyze such opportunities, technical, financial and other confidential information, and
support us in submissions of indications of interest and bids in competitive auctions or other processes for partnership opportunities, or the acquisition of
assets or companies.
77
Merger with Aviragen
Vaxart Biosciences, Inc. was originally incorporated in California in March 2004, under the name West Coast Biologicals, Inc. and changed its name to
Vaxart, 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
owned subsidiary 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
stock outstanding, 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 the
combined company and the stockholders and optionholders of Aviragen immediately prior to the Merger owned approximately 49% of the common stock
of the combined company (on a fully diluted basis).
Financial Operations Overview
Revenue
Revenue from Customer Service Contracts
We are earning revenue from a fixed price service contract, as amended, for a total of $617,000, which we expect to complete in the first half of 2020.
Revenue from Government Contract
The government contract with the Department of Health and Human Services, Office of Biomedical Advanced Research and Development Authority, or
HHS BARDA, as modified, was a cost-plus-fixed-fee contract, under which we were reimbursed for allowable direct contract costs plus allowable indirect
costs and a fixed-fee totaling $15.7 million from September 2015 through September 30, 2018. Activities were completed in 2018 and no future revenue is
expected from this contract.
Royalty Revenue
We earn royalty revenue on sales of Inavir and, until the patent expired, earned royalty revenue on sales of Relenza (both treatments for influenza) through
our licensees Daiichi Sankyo Company, Limited and GlaxoSmithKline, plc, respectively, under royalty agreements with expiry dates in December 2029
and July 2019, respectively, based on fixed percentages of net sales of these drugs.
Non-Cash Royalty Revenue Related to the Sale of Future Royalties
In 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. We pay HCRP the first $3 million plus 15% of the next $1 million of royalties earned in annual periods ending on March 31. 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 a liability and
amortize using the effective interest method over the remaining estimated life of the arrangement. Even though we do not retain the related royalties under
the transaction, as the amounts are remitted to HCRP, we will continue to record revenue related to these royalties until the amount of the associated
liability and related interest is fully amortized.
Research and Development Expenses
Research and development expenses represent costs incurred to conduct research, including the development of our tablet vaccine platform, and the
manufacturing, preclinical and clinical development activities of our tablet vaccine candidates. We recognize all research and development costs as they are
incurred. 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 the production of vaccine candidates used primarily in clinical trials;
78
● process development expenses incurred internally and externally to improve the efficiency and yield of the bulk vaccine and tablet manufacturing
activities;
● laboratory supplies and vendor expenses related to 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 program
and are typically deployed across multiple projects. Internal research and development expenses are presented as one total.
We incur significant external costs for manufacturing our tablet vaccine candidates, and for CROs that conduct clinical trials on our behalf. We capture
these expenses 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 2019 and 2018, identifying external costs that were incurred in each of our vaccine
programs and, separately, on preclinical research and process development:
External program costs:
Influenza program, funded by BARDA
Norovirus program
RSV and HPV programs
Teslexivir and vapendavir programs
Preclinical research and process development
Total external costs
Internal costs
Year Ended December 31,
2019
2018
(in thousands)
$
$
— $
3,765
21
63
807
4,656
9,884
14,540 $
749
2,578
53
1,902
285
5,567
11,708
17,275
We expect that research and development expenses will decrease in 2020 since we ceased internal manufacturing as part of our restructuring in December
2019 and we expect that a substantial proportion of our research and development costs in the future will be funded by partnering or collaboration
agreements. We expect that the total costs of research and development related to our product candidates will increase significantly over the next several
years as we advance our tablet vaccine candidates into and through clinical trials, pursue regulatory approval of our tablet vaccine candidates and prepare
for a possible commercial launch, all of which will also require a significant investment in manufacturing and inventory related costs. Since we believe that
a significant portion of such costs will be borne by partners and collaborators, we do not expect the costs borne by us will increase significantly, if at all.
The process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming. We may never
succeed in achieving marketing approval for our tablet vaccine candidates. The probability of successful commercialization of
our tablet vaccine candidates may be affected by numerous factors, including clinical data obtained in future trials, competition,
manufacturing capability and commercial viability. As a result, we are unable to determine the duration and completion costs of
our research and development projects or when and to what extent we will generate revenue from the commercialization and sale
of any of our tablet vaccine candidates.
General and Administrative Expense
General 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.
79
Results of Operations
The following table presents selected items in the consolidated statements of operations and comprehensive loss for the years ended December 31, 2019
and 2018, which include the operations of Aviragen for periods after February 13, 2018:
Revenue:
Revenue from customer service contracts
Revenue from government contract
Royalty revenue
Non-cash royalty revenue related to the sale of future royalties
$
Total revenue
Operating expenses:
Research and development
General and administrative
Impairment of intangible assets
Costs of exit from leased premises
Restructuring costs
Total operating expenses
Operating loss
Other income and (expenses):
Bargain purchase gain
Interest income
Interest expense
Non-cash interest expense related to the sale of future royalties
Gain (loss) on sale of equipment
Loss on revaluation of financial instruments
Loss on debt extinguishment
Foreign exchange loss, net
Total other income and (expenses)
Year Ended December 31,
2019
2018
(in thousands)
406 $
(20)
4,446
5,030
9,862
14,540
6,187
—
—
4,920
25,647
—
1,344
1,340
1,475
4,159
17,275
6,681
1,600
359
—
25,915
(15,785)
(21,756)
—
149
(315)
(2,073)
1
—
(100)
(32)
(2,370)
6,760
58
(821)
(1,859)
(11)
(3)
—
(266)
3,858
Net loss before provision for income taxes
(18,155)
(17,898)
Provision for income taxes
Net loss
490
$
(18,645) $
109
(18,007)
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Revenue from Customer Service Contracts
The following table presents revenue from customer service contracts for 2019 and 2018:
2019
Year Ended December 31,
2018
% Change
(dollars in thousands)
$ 406
$ —
N/A
In the year ended December 31, 2019, we earned revenue from customer service contracts of $406,000. This revenue was recognized from a fixed price
contract executed in July 2019, as amended, for a total of $617,000, which we expect to be completed in the first half of 2020. There were no comparable
contracts in 2018.
Revenue from Government Contract
The following table presents revenue from our government contract for 2019 and 2018:
2019
Year Ended December 31,
2018
% Change
(dollars in thousands)
$ (20)
$ 1,344
N/A
We recognized revenue of $1.3 million during the year ended December 31, 2018, of which $20,000 was reversed during the year ended December 31,
2019. As of December 31, 2019, the cumulative revenue recorded from inception under the HHS BARDA contract represents $20,000 less than the
maximum amount billable under the contract as presently modified. The active phase of the contract occurred in 2016 and 2017. In 2018 activities were
wound down and completed and no future revenue is expected from this contract.
Royalty Revenue
The following table presents our royalty revenue for 2019 and 2018:
2019
Year Ended December 31,
2018
% Change
(dollars in thousands)
$ 4,446
$ 1,340
232%
For the year ended December 31, 2019, royalty revenue increased by $3.1 million, or 232%, compared to the year ended December 31, 2018. Royalty
revenue was earned on sales of Relenza and Inavir, both treatments for influenza, which were acquired in the Merger and is based on fixed percentages of
net sales of these drugs in the period. Royalty revenue in the year ended December 31, 2018, excludes comparable revenue of $3.5 million earned in the
pre-Merger period.
Non-cash Royalty Revenue Related to the Sale of Future Royalties
The following table presents our non-cash royalty revenue related to the sale of future royalties for 2019 and 2018:
2019
Year Ended December 31,
2018
% Change
(dollars in thousands)
$ 5,030
$ 1,475
241%
For the year ended December 31, 2019, non-cash royalty revenue related to the sale of future royalties was $5.0 million, compared to $1.5 million for the
year ended December 31, 2018. Non-cash royalty revenue of up to $3.3 million may be earned in each year ending on March 31. In 2018, we only
recognized $1.5 million related to the year ended March 31, 2019, since all non-cash royalty revenue related to the year ended March 31, 2018, was earned
in the pre-Merger period. In 2019, we recorded $1.7 million related to the year ended March 31, 2019, plus $3.3 million related to the year ending March
31, 2020. With only $33,000 remaining to recognize in fiscal 2020 related to the year ending March 31, 2020 and a ceiling of $3.3 million related to the
year ending March 31, 2021, we expect non-cash royalty revenue related to the sale of future royalties to decline in the year ending December 31, 2020.
81
Research and Development
The following table presents our research and development expenses for 2019 and 2018:
2019
Year Ended December 31,
2018
% Change
(dollars in thousands)
$ 14,540
$ 17,275
(16)%
For 2019, research and development expenses decreased by $2.7 million, or 16%, compared to 2018. The decrease is principally due to the absence of the
teslexivir clinical trials and costs incurred under the HHS BARDA contract, along with decreases in preclinical research, personnel, non-restructuring
severance and intangible asset amortization costs, partially offset by increases in manufacturing and clinical trial costs related to our norovirus vaccine
tablets.
We expect that research and development expenses will decrease in 2020 because we ceased internal manufacturing as part of our restructuring in
December 2019 and because we expect that a substantial proportion of our research and development costs in the future will be funded by partnering or
collaboration agreements.
General and Administrative
The following table presents our general and administrative expenses for 2019 and 2018:
2019
Year Ended December 31,
2018
% Change
(dollars in thousands)
$ 6,187
$ 6,681
(7)%
For 2019, general and administrative expenses decreased by $494,000, or 7%, compared to 2018. The decrease in 2019 is principally due to reductions in
legal fees and other costs associated with becoming a public company.
Impairment of Intangible Assets
The following table presents the impairment of our intangible assets for 2019 and 2018:
2019
Year Ended December 31,
2018
% Change
(dollars in thousands)
$ —
$ 1,600
(100)%
Impairment of intangible assets represents the write-off of the in-process research and development related to teslexivir that we acquired in the Merger.
Since the Phase 2 trial completed in May 2018 did not achieve the primary efficacy endpoint and we have suspended development activities, we now
consider this asset to be fully impaired.
Costs of Exit from Leased Premises
The following table presents the costs of exit from leased premises for 2019 and 2018:
2019
Year Ended December 31,
2018
% Change
(dollars in thousands)
$ —
$ 359
(100)%
Costs of exit from leasehold premises comprise both our lease loss accrual and our write-down of leasehold improvements and furniture at our leased
premises in Alpharetta, Georgia. Since this facility had surplus capacity, we subleased these premises, commencing in November 2018, for the remainder
of the lease term for less than we are presently paying. Accordingly, we recorded an exit charge consisting of loss on lease obligations for the net
discounted future cash flows for rental and associated costs at the cease-use date of $253,000 and a property and equipment impairment charge of
$106,000.
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Restructuring Costs
The following table presents our restructuring costs for 2019 and 2018:
2019
Year Ended December 31,
2018
% Change
(dollars in thousands)
$ 4,920
$ —
N/A
In connection with our December restructuring, we have accrued costs of $3.2 million representing the amount we were invoiced by Lonza Houston, Inc.,
or Lonza, after the suspension of our norovirus manufacturing work order. While we have not agreed to pay this amount, we believe this is the maximum
amount potentially payable to Lonza. We have also accrued $0.4 million for severance and legal expenses and impaired $1.3 million of property and
equipment and right-of-use assets, mainly related to manufacturing assets.
We expect to record further charges in 2020 for legal fees, broker commissions and accretion related to the manufacturing premises and, potentially, further
impairment of a right-of-use asset if we are unable to sublease our manufacturing premises for as much as we are presently paying, or if subleasing takes
longer than expected. We also expect to reverse part of the charge related to the suspended manufacturing work order following negotiations with the
vendor.
Other Income and (Expenses)
The following table presents our net non-operating income and (expenses) for 2019 and 2018:
2019
Year Ended December 31,
2018
% Change
(dollars in thousands)
$ (2,370)
$ 3,858
N/A
For 2019 we recorded net non-operating expenses of $2.4 million, compared to net non-operating income of $3.9 million in 2018.
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 value
of net assets acquired over the fair value of the common stock issued to acquire them in the Merger.
Interest expense was $315,000 in 2019, decreasing from $821,000 in 2018 due to the absence of an expense of $295,000 related to Private Vaxart’s
convertible promissory notes being outstanding for the 43 days prior to the Merger and the lower balance payable on our note due to Oxford Finance LLC,
the remaining balance of which was repaid in November 2019, for which we incurred a one-time charge of $100,000 for debt extinguishment. Non-cash
interest expense related to the sale of future royalties, which relates to accounting for sums that will become payable to HCRP for royalty revenue earned
from Inavir as debt, was $2.1 million in 2019, compared to $1.9 million related to the shorter post-Merger period in 2018.
The foreign exchange loss of $266,000 in 2018 relates to the revaluation of cash and receivables denominated in Australian dollars and British pounds at
their December 31, 2018, exchange rates and resulted from the strengthening U.S. dollar. In 2019 the dollar strengthened less, causing the loss to
decrease commensurately.
Provision for Income Taxes
The following table presents our provision for income taxes for 2019 and 2018:
2019
Year Ended December 31,
2018
% Change
(dollars in thousands)
$ 490
$ 109
350%
The provision for income taxes comprises $490,000 and $109,000 in the years ended December 31, 2019 and 2018, respectively. The majority of the
charge, $435,000 in 2019 and $102,000 in 2018, represents withholding tax on royalty revenue earned on sales of Inavir in Japan, which is potentially
recoverable as a foreign tax credit but expensed because we record a 100% valuation allowance against our deferred tax assets. The increase arose because
of Inavir royalties, including the portion that we pass through to HCRP, in the fourth calendar quarter rose from $1.5 million in 2018 to $3.6 million in
2019 and because the majority of Inavir sales in the first calendar quarter arise in the first six weeks, so most of the revenue in the 2018 period was earned
pre-Merger.
In addition, there were charges of $53,000 and $4,000 in 2019 and 2018, respectively, relating to interest on an intercompany loan from a foreign
subsidiary, plus $2,000 and $3,000 in 2019 and 2018, respectively, for state income taxes.
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Liquidity and Capital Resources
From its inception until the Merger, Private Vaxart’s operations were financed primarily by net proceeds of $38.9 million and $29.4 million from the sale of
convertible preferred 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, of which the remaining balance of $2.5 million as of September
30, 2019, was repaid in full on November 4, 2019. Vaxart gained $25.5 million in cash from Aviragen in the Merger, of which $4.9 million was used to pay
Aviragen’s Merger-related costs. Since the Merger, through December 31, 2019, we have received net proceeds of $19.8 million from the sale of common
stock, pre-funded warrants and common stock warrants and the exercise of pre-funded warrants and common stock warrants from equity financings in
March, April and September 2019 (see Note 1 to the Consolidated Financial Statements in Part II, Item 8 for further information regarding our offerings).
As of December 31, 2019, we had $13.5 million of cash and cash equivalents. Since then, we have received net proceeds of $9.1 million from the sale of
common stock and common stock warrants in an equity financing in March 2020 and $9.8 million from the exercise of common stock warrants.
We believe our existing funds (including funds already received in 2020), along with our projected revenue, are sufficient to fund us well
into 2021 and possibly beyond. To continue operations thereafter, we expect that we will need to raise further capital, through the sale of additional
securities or otherwise. Our operating needs include the planned costs to operate our business, including amounts required to fund working capital and
capital expenditures. As of December 31, 2019, we had no commitments for capital expenditures. Our future capital requirements and the adequacy of our
available funds will depend on many factors, most notably our ability to successfully commercialize our products and services.
We plan to fund a significant portion of our ongoing operations through partnering and collaboration agreements which, while reducing our risks and
extending our cash runway, will also reduce our share of eventual revenues, if any, from our vaccine product candidates. We may be able to fund certain
activities with assistance from government programs including HHS BARDA. We may also need to fund our operations through equity and/or debt
financing. The sale of additional equity would result in additional dilution to our stockholders. Incurring debt financing would result in debt service
obligations, and the instruments governing such debt could provide for operating 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 market vaccine candidates that we would otherwise prefer to develop and
market ourselves. Any of these actions could harm our business, results of operations and prospects.
Our future funding requirements will depend on many factors, including the following:
● the timing and costs of our planned preclinical studies for our product candidates;
● the timing and costs of our planned clinical trials of our product candidates;
● our manufacturing capabilities, including the availability of contract manufacturing organizations to supply our product candidates at reasonable
cost;
● the amount and timing of royalties received on sales of Inavir;
● 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 and
enforcement 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.
84
Cash Flows
The following table summarizes our cash flows for the periods indicated:
Net cash used in operating activities
Net cash (used in) provided by investing activities
Net cash provided by (used in) financing activities
Net increase in cash and cash equivalents
Net Cash Used in Operating Activities
Year Ended December 31,
2019
2018
(in thousands)
(13,090) $
(850)
15,960
2,020 $
(14,548)
26,212
(1,729)
9,935
$
$
We experienced negative cash flow from operating activities in 2019 and 2018 in the amounts of $13.1 million and $14.5 million, respectively. The cash
used in operating activities in 2019 was due to cash used to fund a net loss of $18.6 million, partially offset by a decrease in working capital of $1.3 million
and net non-cash expenses related to depreciation and amortization, gain on sale of equipment, impairment charges, stock-based compensation, non-cash
interest expense, loss on debt extinguishment, non-cash interest expense related to the sale of future royalties and non-cash revenue related to the sale of
future royalties totaling $4.2 million. The cash used 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 to the bargain purchase gain, depreciation and amortization, loss on sale of equipment, impairment charges,
stock-based compensation, loss on revaluation of financial instruments, non-cash interest, amortization of note discount, non-cash interest expense related
to the sale of future royalties and revenue related to the sale of future royalties and $2.5 million provided by a change in working capital, principally due to
the receipt of accounts receivable of $14.7 million acquired in the Merger.
Net Cash (Used in) Provided by Investing Activities
In 2019, we used $850,000 to purchase property and equipment. In 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 offset by $707,000 to purchase property and equipment and $21,000 to pay for fractional
shares of common stock in the Merger.
Net Cash Provided by (Used in) Financing Activities
In 2019, we received $2.5 million from the sale of common stock in a registered direct offering in March, $8.1 million from the sale of common stock, pre-
funded warrants and common stock warrants in an underwritten public offering in April, $7.8 million from the sale of common stock, pre-funded warrants
and common stock warrants in an underwritten public offering in September, $1.2 million from the exercise of pre-funded warrants and $180,000 from the
exercise of common stock warrants, partially offset by repayment of principal of $3.8 million on the secured promissory note payable to Oxford Finance.
We 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-term
note, partially offset by $13,000 received upon the exercise of stock options.
85
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have
been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amounts of assets, liabilities and expenses. On an ongoing basis, we evaluate these estimates and
judgments. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. These
estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not
readily apparent from other sources. Actual results may differ materially from these estimates. We believe that the accounting policies discussed below are
critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and
estimates.
Accrued Research and Development Expenses
We record accrued expenses for estimated costs of research and development activities conducted by third-party service providers, which include the
conduct of preclinical studies and clinical trials, and contract manufacturing activities. We record the estimated costs of research and development activities
based upon the estimated amount of services provided and include the costs incurred but not yet invoiced within other accrued liabilities in the balance
sheets and within research and development expense in the consolidated statements of operations and comprehensive loss. These costs can be a significant
component of 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 of
completion of the services and the agreed-upon fee to be paid for such services. We make significant judgments and estimates in determining the accrued
balance in each reporting period. As actual costs become known, we adjust our accrued estimates.
Intangible Assets
Intangible assets acquired in the Merger were recorded at their estimated fair values of $20.3 million for developed technology related to Inavir which is
being amortized on a straight-line basis over the estimated period of future royalties of 11.75 years, $1.8 million for the developed technology related to
Relenza which was fully amortized over the remaining royalty period of 1.3 years, 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 the three months ended June 30, 2018. These valuations were prepared
by an independent third party based on estimated discounted cash flows based on probability-weighted future development expenditures and revenue
streams, which are highly subjective.
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements in the periods presented.
Recently Issued Accounting Pronouncements
See the “Recent Accounting Pronouncements” in Note 2 to the Consolidated Financial Statements in Part II, Item 8 for information related to the adoption
of new accounting standards in 2019, none of which had a material impact on our financial statements except for the adoption of ASC 842, which
materially increased our assets and liabilities but did not significantly impact our operating results, and the future adoption of recently issued accounting
pronouncements, which we do not expect will have a material impact on our financial statements.
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Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Page
Report of OUM & Co., LLP - Independent Registered Public Accounting Firm
Report of KPMG LLP - Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Loss
Consolidated Statements of Stockholders’ Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
87
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89
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91
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Stockholders and Board of Directors
Vaxart, Inc.
Opinion on the Financial Statements
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated balance sheet of Vaxart, Inc. and subsidiaries (the Company) as of December 31, 2019, and the related
consolidated statements of operations and comprehensive loss, stockholders’ equity (deficit) and cash flows for the year then ended, and the related
notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects,
the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for the year then ended, in
conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s consolidated financial statements based on our audit. 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 the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are
required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit 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
disclosures in the consolidated financial statements. Our audit 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 audit provides a reasonable
basis for our opinion.
/s/ OUM & Co. LLP
San Francisco, California
March 19, 2020
We have served as the Company’s auditor since 2019.
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To the Stockholders and Board of Directors
Vaxart, Inc.:
Opinion on the Financial Statements
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated balance sheet of Vaxart, Inc. and subsidiaries (the Company) as of December 31, 2018, and the related
consolidated statements of operations and comprehensive loss, stockholders’ equity (deficit) and cash flows for the year ended December 31, 2018, and the
related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2018, and the results of its operations and its cash flows for the year ended December
31, 2018, in conformity with U.S. generally accepted accounting principles.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in
Note 1 to the consolidated financial statements, the Company has experienced losses and negative cash flows from operations since its inception, has an
accumulated deficit, and has debt obligations that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to
these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this
uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit. 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 the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit 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 disclosures in the
consolidated financial statements. Our audit 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 audit provides a reasonable basis for our opinion.
/s/ KPMG LLP
We served as the Company’s auditor from 2014 to 2019.
San Francisco, California
February 6, 2019
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VAXART, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
December 31, 2019
December 31,
2018
Current assets:
Cash and cash equivalents
Accounts receivable
Prepaid expenses and other current assets
Assets
Total current assets
Property and equipment, net
Right-of-use assets, net
Intangible assets, net
Other long-term assets
Total assets
Current liabilities:
Liabilities and Stockholders’ Equity
Accounts payable
Current portion of secured promissory note payable to Oxford Finance
Current portion of operating lease liability
Liability related to the sale of future royalties, current portion
Other accrued current liabilities
Total current liabilities
Operating lease liability, net of current portion
Liability related to the sale of future royalties, net of current portion
Secured promissory note payable to Oxford Finance, net of current portion
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 11)
Stockholders’ equity:
Preferred Stock: $0.10 par value; 5,000,000 shares authorized; none issued and outstanding as of
December 31, 2019 or 2018
Common Stock: $0.10 par value; 100,000,000 shares authorized; 48,254,994 and 7,141,189 shares issued
and outstanding as of December 31, 2019 and 2018, respectively
Additional paid-in capital
Accumulated deficit
Total stockholders’ equity
$
$
$
13,526 $
3,619
453
17,598
210
1,990
17,093
141
37,032 $
852 $
—
841
2,916
4,565
9,174
1,472
13,416
—
18
24,080
11,506
1,796
1,343
14,645
1,066
—
19,413
103
35,227
962
1,667
—
3,328
1,518
7,475
—
14,413
1,944
157
23,989
—
—
4,825
124,788
(116,661)
12,952
714
108,513
(97,989)
11,238
35,227
Total liabilities and stockholders’ equity
$
37,032 $
The accompanying notes are an integral part of these consolidated financial statements.
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VAXART, INC. AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except share and per share amounts)
Revenue:
Revenue from customer service contracts
Revenue from government contract
Royalty revenue
Non-cash royalty revenue related to the sale of future royalties
$
Total revenue
Operating expenses:
Research and development
General and administrative
Impairment of intangible assets
Costs of exit from leased premises
Restructuring costs
Total operating expenses
Operating loss
Other income and (expenses):
Bargain purchase gain
Interest income
Interest expense
Non-cash interest expense related to the sale of future royalties
Gain (loss) on sale of equipment
Loss on revaluation of financial instruments
Loss on debt extinguishment
Foreign exchange loss, net
Total other income and (expenses)
Net loss before provision for income taxes
Provision for income taxes
Net loss
Series B and C preferred dividend
Net comprehensive loss attributable to common stockholders
Net loss per share – basic and diluted
Shares used to compute net loss per share – basic and diluted
Year Ended December 31,
2018
2019
406 $
(20)
4,446
5,030
9,862
14,540
6,187
—
—
4,920
25,647
—
1,344
1,340
1,475
4,159
17,275
6,681
1,600
359
—
25,915
(15,785)
(21,756)
—
149
(315)
(2,073)
1
—
(100)
(32)
(2,370)
6,760
58
(821)
(1,859)
(11)
(3)
—
(266)
3,858
(18,155)
(17,898)
490
109
(18,645)
(18,007)
—
(339)
$
$
(18,645) $
(18,346)
(0.86) $
(2.90)
21,569,523
6,316,065
The accompanying notes are an integral part of these consolidated financial statements.
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VAXART, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity (Deficit)
(In thousands, except share amounts)
Preferred Stock
Common Stock
Shares
Amount
Shares
Amount Capital
Deficit
Additional
Paid-in Accumulated
Total
Stockholders’
Equity
(Deficit)
Balances as of January 1, 2018
1,221,064 $
1
138,492 $
— $
41,259 $
(79,982) $
(38,722)
Issuance of common stock upon conversion of
convertible promissory notes, related parties
Issuance of common stock upon conversion of
—
— 1,571,702
157
35,420
—
35,577
convertible preferred stock
(1,221,064)
(1) 1,918,543
192
(191)
Reclassification of warrant to equity
—
—
—
—
70
—
—
—
70
Issuance of common stock upon reverse merger
—
— 3,510,439
365
31,403
—
31,768
Issuance of common stock upon exercise of
stock options
—
—
2,013
—
13
Stock-based compensation
—
—
—
—
539
—
—
13
539
Net loss
—
—
—
—
—
(18,007)
(18,007)
Balances as of December 31, 2018
— $
— 7,141,189 $
714 $ 108,513 $
(97,989) $
11,238
Cumulative effect of adoption of new leases
standard
—
—
—
—
—
(27)
(27)
Balances as of January 1, 2019, as adjusted
— $
— 7,141,189 $
714 $ 108,513 $
(98,016) $
11,211
Issuance of common stock in March 2019, net of
offering costs of $560
—
— 1,200,000
120
2,320
—
2,440
Issuance of common stock warrants to
placement agents’ designees in March 2019
—
—
—
—
100
—
100
Issuance of common stock, pre-funded warrants
and common stock warrants in April 2019, net
of offering costs of $1,579
Issuance of common stock warrants to
underwriters’ designees in April 2019
Issuance of common stock, pre-funded warrants
and common stock warrants in September
2019, net of offering costs of $1,459
Issuance of common stock warrants to
—
—
925,455
93
7,648
—
7,741
—
—
—
—
333
—
333
—
— 26,124,828
2,612
4,630
—
7,242
underwriters’ designees in September 2019
—
—
—
—
497
—
497
—
— 12,265,455
1,226
—
—
1,226
Issuance of common stock upon exercise of pre-
funded warrants
Issuance of common stock upon exercise of
common stock warrants
Stock-based compensation
—
—
—
—
627
—
—
598,067
60
120
—
—
180
627
Net loss
—
—
—
—
—
(18,645)
(18,645)
Balances as of December 31, 2019
— $
— 48,254,994 $
4,825 $ 124,788 $
(116,661) $
12,952
The accompanying notes are an integral part of these consolidated financial statements.
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VAXART, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Bargain purchase gain
Depreciation and amortization
(Gain) loss on sale of equipment
Impairment of intangible assets
Impairment of property and equipment and right-of-use assets
Stock-based compensation
Loss on revaluation of financial instruments
Non-cash interest expense
Amortization of note discount
Loss on debt extinguishment
Non-cash interest expense related to the sale of future royalties
Non-cash revenue related to the sale of future royalties
Change in operating assets and liabilities:
Accounts receivable
Prepaid expenses and other assets
Accounts payable
Accrued liabilities
Net cash used in operating activities
Cash flows from investing activities:
Purchase of property and equipment
Proceeds from sale of equipment
Cash acquired in reverse merger
Cash paid for fractional shares in merger
Purchases of short-term investments
Proceeds from maturities of short-term investments
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Net proceeds from issuance of common stock in registered direct offering
Net proceeds from issuance of common stock, pre-funded warrants and common warrants in April 2019
underwritten offering
Net proceeds from issuance of common stock, pre-funded warrants and common warrants in September
2019 underwritten offering
Exercise of pre-funded warrants
Exercise of common stock warrants
Repayment of principal on secured promissory note payable to Oxford Finance
Repayment of short-term note
Proceeds from issuance of common stock upon exercise of stock options
Net cash provided by (used in) financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of the period
Year Ended December 31,
2018
2019
$
(18,645) $
(18,007)
—
3,596
(1)
—
1,272
627
—
88
—
100
2,073
(3,482)
(1,823)
855
(62)
2,312
(6,760)
3,203
11
1,600
106
539
3
448
18
—
1,859
(18)
13,500
(873)
(3,784)
(6,393)
(13,090)
(14,548)
(850)
—
—
—
—
—
(850)
2,540
8,074
7,739
1,226
180
(3,799)
—
—
15,960
2,020
11,506
(707)
—
25,525
(21)
(573)
1,988
26,212
—
—
—
—
—
(1,528)
(214)
13
(1,729)
9,935
1,571
11,506
Cash and cash equivalents at end of the period
$
13,526 $
The accompanying notes are an integral part of these consolidated financial statements.
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VAXART, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
(In thousands)
Supplemental disclosure of cash flow information:
Interest paid
Supplemental disclosure of non-cash investing and financing activity:
Issuance of warrants to placement agents’ designees
Issuance of warrants to underwriters’ designees
Issuance of common stock upon reverse merger, net of cash paid for partial shares
Conversion of convertible promissory notes, related parties into common stock upon reverse merger
Reclassification of convertible preferred stock warrant liability to equity
Operating lease liabilities arising from obtaining right-of-use assets
Acquisition of property and equipment included in accounts payable
Proceeds due for sale of property and equipment included in prepaid expenses and other current assets
Year Ended December 31,
2018
2019
227 $
100 $
830 $
— $
— $
— $
1,929 $
4 $
3 $
356
—
—
31,768
35,577
70
—
52
—
$
$
$
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
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NOTE 1. Organization and Basis of Presentation
General
VAXART, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Vaxart Biosciences, Inc. was originally incorporated in California in March 2004, under the name West Coast Biologicals, Inc. The Company changed its
name 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
merged with Private Vaxart, with Private Vaxart surviving as a wholly-owned subsidiary of Aviragen (the “Merger”). Pursuant to the terms of the Merger,
Aviragen changed 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 of common stock was converted into approximately 0.22148 shares of the Company’s common stock (the “Conversion”). Except as otherwise
noted in these Consolidated Financial 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 the
Company’s common stock outstanding (the “Reverse Stock Split”). Except as otherwise noted in these Consolidated Financial Statements, all share, equity
security and per share 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’s
stockholders, warrantholders and optionholders owned approximately 51% of the fully-diluted common stock of the Company, with Aviragen’s
stockholders and optionholders immediately prior to the Merger owning approximately 49% of the fully-diluted common stock of the Company. The
Company also assumed all of Private Vaxart’s outstanding stock options and warrants with proportionate adjustments to the number of underlying shares
and exercise prices based on an exchange ratio, based on the combined impact of the Conversion and the Reverse Stock Split, of approximately 0.0201346
shares of the Company for each share of Private Vaxart.
On March 20, 2019, the Company completed a registered direct offering (the “March 2019 Offering”) of 1,200,000 shares of the Company’s common
stock. The total gross proceeds from the offering to the Company were $3.0 million. After deducting placement agent fees and offering expenses payable
by the Company, the aggregate net proceeds received by the Company totaled $2.5 million. Pursuant to the terms of the engagement letter with the
placement agents, the Company paid the placement agents aggregate fees and reimbursable costs of $320,000. In addition, the Company issued the
placement agents’ designees 84,000 common stock warrants at the closing of the March 2019 Offering, each warrant entitling the holder to purchase one
share of common stock for $3.125 at any time within five years of the effective date of the March 2019 Offering. The aggregate fair value of these warrants
at issuance was estimated to be $100,000 (see Note 12), which was recorded in offering costs.
On April 11, 2019, the Company completed a public underwritten offering (the “April 2019 Offering”) of 925,455 shares of common stock, 8,165,455 pre-
funded warrants, and warrants to purchase 10,454,546 shares of common stock (including 1,363,636 common stock warrants issued upon the exercise by
the underwriters of their option to purchase such warrants). Each share of common stock with an accompanying common stock warrant was sold for $1.10,
and each pre-funded warrant with an accompanying common stock warrant was sold for $1.00, with the amount paid for each accompanying common
stock warrant being $0.10. Each pre-funded warrant entitled the holder to purchase one share of common stock for $0.10, was immediately exercisable,
subject to certain ownership limitations, and was exercisable at any time until all of the pre-funded warrants were exercised in full. Each common stock
warrant entitles the holder to purchase one share of common stock for $1.10, is exercisable immediately, subject to certain ownership limitations, and will
expire five years from the date of issuance.
The total gross proceeds from the April 2019 Offering to the Company were $9.3 million. After deducting underwriting discounts, commissions and
offering expenses payable by the Company, the aggregate net proceeds received by the Company were $8.1 million. In addition, as of December 31, 2019,
a further $0.8 million had been received from the exercise of all of 8,165,455 pre-funded warrants issued in the April 2019 Offering.
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VAXART, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Pursuant to the terms of an underwriting agreement, the Company paid the underwriters aggregate commissions and reimbursable costs of $750,000. In
addition, the Company issued the underwriters’ designees 636,364 common stock warrants at the closing of the April 2019 Offering, each warrant entitling
the holder to purchase one share of common stock for $1.375 at any time within five years of their issuance date. The aggregate fair value of these warrants
at issuance was estimated to be $333,000 (see Note 12), which was recorded in offering costs.
On September 30, 2019, the Company completed a public underwritten offering (the “September 2019 Offering”) of 26,124,828 shares of common stock
(including 3,558,161 shares of common stock issued upon the partial exercise by the underwriters of their option to purchase 4,000,000 shares), 4,100,000
pre-funded warrants, and warrants to purchase 30,666,667 shares of common stock (including 4,000,000 common stock warrants issued upon the exercise
by the underwriters of their option to purchase such warrants). Each share of common stock with an accompanying common stock warrant was sold for
$0.30, and each pre-funded warrant with an accompanying common stock warrant was sold for $0.20, with the amount paid for each accompanying
common stock warrant being $0.10. Each pre-funded warrant entitles the holder to purchase one share of common stock for $0.10, is immediately
exercisable, subject to certain ownership imitations, and may be exercised at any time until all of the pre-funded warrants are exercised in full. Each
common stock warrant entitles the holder to purchase one share of common stock for $0.30, is exercisable immediately, subject to certain ownership
limitations, and will expire five years from the date of issuance.
The total gross proceeds from the September 2019 Offering to the Company were $8.7 million. After deducting underwriting discounts, commissions and
offering expenses payable by the Company, the aggregate net proceeds received by the Company were $7.7 million. In addition, as of December 31, 2019,
$0.4 million had been received from the exercise of all of the 4,100,000 pre-funded warrants issued in the September 2019 Offering and a further $0.2
million had been received from the exercise of 598,067 of the common stock warrants issued in the September 2019 Offering.
Pursuant to the terms of an underwriting agreement, the Company paid the underwriters aggregate commissions and reimbursable costs of $713,000. In
addition, the Company issued the underwriters’ designees 2,115,738 common stock warrants at the closing of the September 2019 Offering, each warrant
entitling the holder to purchase one share of common stock for $0.375 at any time within five years of their issuance date. The aggregate fair value of these
warrants at issuance was estimated to be $497,000 (see Note 12), which was recorded in offering costs.
As a result of the funds received in the March 2019 Offering, the April 2019 Offering and the September 2019 Offering, along with cost reductions
afforded by restructuring (see Note 14) and the proceeds received from the registered direct offering completed on March 2, 2020 (the “March 2020
Offering”) and from the exercise of warrants (see Note 19), substantial doubt about the Company’s ability to continue as a going concern no longer exists.
The Company’s principal operations are based in South San Francisco, California, and it operates in one reportable segment, which is the discovery and
development of oral recombinant protein vaccines, based on its proprietary oral vaccine platform.
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VAXART, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
NOTE 2. Summary of Significant Accounting Policies
Basis of Presentation – The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally
accepted 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 significant
transactions 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
affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities in the financial statements and
accompanying 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
currency is the U.S. dollar are recorded in foreign exchange gain or loss, net within other income and (expenses) in the Company’s consolidated statements
of operations and comprehensive 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
to be cash equivalents. Cash equivalents, which may consist of amounts invested in money market funds, corporate bonds and commercial paper, are stated
at fair value.
Concentration of Credit Risk – Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally
of cash, cash equivalents, short-term investments and accounts receivable. The Company places its cash, cash equivalents and short-term investments at
financial institutions that management believes are of high credit quality. The Company is exposed to credit risk in the event of default by the financial
institutions holding the cash and cash equivalents to the extent such amounts are in excess of the federally insured limits. The Company has not
experienced any 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
addresses the level of credit exposure by limiting the concentration in any one corporate issuer or sector and establishing a minimum allowable credit
rating. The Company generally requires no collateral from its customers.
Accounts Receivable – Accounts receivable arise from the Company’s royalty revenue receivable for sales, net of estimated returns, of Inavir and Relenza,
and from its contracts with customers and with the Department of Health and Human Services, Office of Biomedical Advanced Research and Development
Authority (“HHS BARDA”) (see Note 6), and are reported at amounts expected to be collected in future periods. An allowance for uncollectible accounts
will be recorded based on a combination of historical experience, aging analysis, and information on specific accounts, with related amounts recorded as a
reserve against revenue recognized. Account balances will be written off against the allowance after all means of collection have been exhausted and the
potential for recovery is considered remote. The Company has provided no allowance for uncollectible accounts as of December 31, 2019 and 2018.
Property and Equipment – Property and equipment is carried at cost less accumulated depreciation. Depreciation is computed using the straight-line
method over the estimated useful lives of the respective assets. Depreciation begins at the time the asset is placed in service. Maintenance and repairs are
charged to operations as incurred. Upon sale or retirement of assets, the cost and related accumulated depreciation are removed from the balance sheet and
the resulting gain 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 equipment (in years)
Office and computer equipment (in years)
Leasehold improvements
5
3
Shorter of remaining lease term or estimated useful life
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VAXART, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Intangible 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-line
method over useful lives ranging from 1.3 to 11.75 years for developed technology and 20 years for intellectual property. In-process research and
development is considered to be indefinite-lived and is not amortized, but is subject to impairment testing. The Company assessed its in-process research
and development 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,
for impairment whenever events or changes in circumstances indicate the carrying amount of these assets may not be recoverable. Recoverability of these
assets is 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’ carrying value, 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 8). The Company also assessed its manufacturing
equipment and its right-of-use asset and leasehold improvements at its manufacturing premises as impaired in the year ended December 31, 2019 (see
Note 14).
Accrued Clinical and Manufacturing Expenses – The Company accrues for estimated costs of research and development activities conducted by third-
party service providers, which include the conduct of preclinical studies and clinical trials, and contract manufacturing activities. The Company records the
estimated costs of research and development activities based upon the estimated amount of services provided and includes the costs incurred but not yet
invoiced within other accrued liabilities in the balance sheets and within research and development expense in the consolidated statements of operations
and comprehensive 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 or
stage of completion of the services and the agreed-upon fee to be paid for such services. The Company makes significant judgments and estimates in
determining the accrued balance in each reporting period. As actual costs become known, it adjusts its accrued estimates. Although the Company does not
expect its estimates to be materially different from amounts actually incurred, its understanding of the status and timing of services performed, the number
of subjects 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
in any particular period. The Company’s accrued expenses are dependent, in part, upon the receipt of timely and accurate reporting from contract research
organizations and other third-party service providers. To date, the Company has not experienced any material differences between accrued costs and actual
costs incurred.
Leases – Effective January 1, 2019, the Company records operating leases as right-of-use assets and operating lease liabilities in its consolidated balance
sheets for all operating leases with terms exceeding one year. Right-of-use assets represent the right to use an underlying asset for the lease term, including
extension options considered reasonably certain to be exercised, and operating lease liabilities to make lease payments. Right-of-use assets and operating
lease liabilities are recognized based on the present value of lease payments over the lease term. To the extent that lease agreements do not provide an
implicit rate, the Company uses its incremental borrowing rate based on information available at the lease commencement date to determine the present
value of lease payments. The expense for operating lease payments is recognized on a straight-line basis over the lease term and is included in operating
expenses in the Company’s consolidated statement of operations and comprehensive loss. The Company has elected to not separate lease and non-lease
components of facilities leases, whereas non-lease components of equipment leases are accounted for separately from lease components.
Convertible Preferred Stock Warrant Liability – The Company has issued certain convertible preferred stock warrants. These warrants were recorded
within other accrued liabilities in the consolidated balance sheets at fair value due to down-round protection features contained in the convertible preferred
stock into which 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 a component of (loss) gain on revaluation of financial instruments, net within other income and (expenses) in the consolidated statements of
operations and comprehensive 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 such change is released to equity.
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VAXART, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Revenue Recognition – The Company recognizes revenue when it transfers control of promised goods or services to its customers, in an amount that
reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine revenue recognition, the Company
performs the following five steps:
(i)
(ii)
identification of the promised goods or services in the contract;
determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the
contract;
(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
to transfer 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
deemed to 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
performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied), as required under the sales- and
usage-based royalty exception.
Revenue from contracts with customers is recognized ratably, based on costs incurred, as the Company provides promised services to its customers in
amounts that reflect the consideration that the Company expects to receive for those services.
The Company performed research and development work under its cost-plus-fixed-fee contract with HHS BARDA. The Company recognizes revenue
under research contracts only when a contract has been executed and the contract price is fixed or determinable. Revenue from the HHS BARDA contract
is recognized in the period during which the related costs are incurred and the related services are rendered, provided that the applicable conditions under
the contract have been met. Costs of contract revenue are recorded as a component of operating expenses in the consolidated statements of operations and
comprehensive loss.
Under the cost reimbursable contract with HHS BARDA, the Company is reimbursed for allowable costs, and recognizes revenue as allowable costs are
incurred and the fixed fee is earned. Reimbursable costs under the contract primarily include direct labor, subcontract costs, materials, equipment, travel,
and approved overhead and indirect costs. Fixed fees under cost reimbursable contracts are earned in proportion to the allowable costs incurred in
performance of the work relative to total estimated contract costs, with such costs incurred representing a reasonable measurement of the proportional
performance of the work completed. Under the HHS BARDA contract, certain activities must be pre-approved in order for their costs to be deemed
allowable direct costs. The HHS BARDA contract provides the U.S. government the ability to terminate the contract for convenience or to terminate for
default if the Company fails to meet 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 the
government. Management believes that revenue for periods not yet audited has been recorded in amounts that are expected to be realized upon final audit
and settlement. When the final determination of the allowable costs for any year has been made, revenue and billings may be adjusted accordingly in the
period that the adjustment is known.
Research and Development Costs – Research and development costs are expensed as incurred. Research and development costs consist primarily of
salaries and benefits, stock-based compensation, consultant fees, third-party costs for conducting clinical trials and the manufacture of clinical trial
materials, certain facility costs and other costs associated with clinical trials. Payments made to other entities are under agreements that are generally
cancelable by the Company. Advance payments for research and development activities are recorded as prepaid expenses. The prepaid amounts are
expensed as the related services are performed.
Stock-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 service
period. 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 consideration
received 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 average
vesting term.
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VAXART, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Net Income (Loss) Per Share Attributable to Common Stockholders – Basic net income (loss) per share is computed by dividing net income (loss), as
adjusted for dividends on the Series B and Series C convertible preferred stock in the period, by the weighted average number of common shares
outstanding during 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 upon
exercise of stock options and warrants. The Company uses the treasury-stock method to compute diluted income (loss) per share with respect to its stock
options and warrants. For purposes of this calculation, options and warrants to purchase common stock are considered to be potential common shares and
are only 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
dilutive shares are excluded from the diluted net loss per share calculation as their inclusion would be antidilutive.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which replaced most current lease guidance when it became effective. This standard
update was designed 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 asset for the right to use the underlying asset for the lease term. Leases are classified as either finance or operating, with classification affecting the
pattern of expense recognition in the statements of operations. The Company adopted the new guidance effective January 1, 2019, using the modified
retrospective method, and used the effective date method of adoption, as permitted by ASU 2018-11, Leases (Topic 842): Targeted Improvements, which
the FASB issued in July 2018, clarified by ASU 2019-01, Leases (Topic 842): Codification Improvements, which the FASB issued in March 2019, which
reduces the disclosure requirements on transition. The Company has elected the short-term lease recognition exemption for all classes of assets, which
means that it will not recognize 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 practical expedients available on transition, whereby it has not reassessed under the new standard its prior conclusions about lease identification,
lease classification and initial direct costs.
The adoption of this standard had a material effect on the Company’s consolidated balance sheets, the most significant effects being the recognition of new
right-of-use assets and lease liabilities. The Company recognized lease liabilities of $1,229,000, $783,000 of which was current, and right-of-use assets of
$953,000 based on the present value of the remaining minimum rental payments for existing operating leases, derecognized liabilities related to deferred
rent and lease loss accrual of $249,000, $111,000 of which was current, and recognized an increase of $27,000 to accumulated deficit on adoption of the
new accounting standard.
The increase in accumulated deficit arose because the right-of-use asset impairment charge that would have been recorded in the three months ended
December 31, 2018, under Topic 842 exceeded the lease loss accrual, net of accretion, that was recorded. This impact aside, the adoption had no effect on
the Company’s consolidated statements of operations or cash flows, other than on related disclosures.
Recent Accounting Pronouncements
The Company has reviewed all newly-issued accounting pronouncements and concluded that they either are not applicable to the Company’s operations or
no material effect is expected on its consolidated financial statements as a result of future adoption.
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NOTE 3. Business Combination
VAXART, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
On 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 and
development 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 a
workforce that was considered to have the necessary skills, knowledge, and experience to perform a process that, when applied to the in-process research
and development, was critical to the ability to convert it into outputs. Based on this evaluation, the Company determined that the Merger should be
accounted for 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
Total
$
$
31,789
31,789
In connection with the Aviragen acquisition, the Company allocated the total purchase consideration to the net assets and liabilities acquired, including
identifiable 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,
adjustments made since the acquisition date and the final allocation as of December 31, 2018:
As of February 13,
2018
2018 Adjustments
(in thousands)
As of December 31,
2018
$
Cash and cash equivalents
Accounts receivable
Prepaid expenses
Property and equipment
Intangible assets:
Developed technology (1)
In-process research and development (2)
Total assets
Accounts payable
Other current liabilities
Liability related to the sale of future royalties
Net assets acquired
Purchase price
25,525 $
14,666
446
170
22,400
1,600
64,807
(3,379)
(6,351)
(16,300)
38,777
(31,789)
Bargain purchase gain (3)
$
6,988 $
— $
—
(10)
—
(300)
—
(310)
75
(393)
400
(228)
—
(228) $
25,525
14,666
436
170
22,100
1,600
64,497
(3,304)
(6,744)
(15,900)
38,549
(31,789)
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 future
development expenditures and revenue streams provided by the Company’s management, are being amortized on a straight-line basis over the
estimated periods 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 being
actively developed as a treatment for genital warts. The valuation was prepared by an independent third party based on estimated discounted cash
flows based 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 acquired, less liabilities assumed, over the
purchase price.
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VAXART, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
NOTE 4. Fair Value of Financial Instruments
Fair value accounting is applied for all financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in
the financial statements on a recurring basis (at least annually). Financial instruments include cash and cash equivalents, accounts receivable, accounts
payable and accrued liabilities that approximate fair value due to their relatively short maturities.
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
inputs used to measure their fair values. The accounting guidance for fair value provides a framework for measuring fair value and requires certain
disclosures about how 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 orderly transaction between market participants at the reporting date. The accounting guidance also establishes a three-level valuation hierarchy
that prioritizes the inputs to valuation techniques used to measure fair value based upon whether such inputs are observable or unobservable. Observable
inputs reflect market data 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:
Level 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 or
similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for
substantially the full term of the related assets or liabilities; and
Level 3 – Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no
market 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 for
identical securities. The Company’s convertible preferred stock warrant liability was classified within Level 3 of the fair value hierarchy as it was valued by
using inputs that are unobservable in the market.
The Company’s only recurring financial assets that are measured at fair value were $15,000 held in money market funds and classified as cash equivalents
as of both December 31, 2019 and 2018, with no recurring financial liabilities held at either date or in the year ended December 31, 2019. The following
table presents a reconciliation of all liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the year ended
December 31, 2018:
Convertible Preferred
Stock Warrant Liability
Total
Balance at January 1, 2018
Issuances
Revaluation loss included in loss on revaluation of financial instruments
Settlements
$
Balance at December 31, 2018
Total losses included in other income and (expenses) attributable to
liabilities still held as of December 31, 2018
$
$
(in thousands)
67 $
—
3
(70)
— $
— $
67
—
3
(70)
—
—
NOTE 5. Balance Sheet Components
(a) Cash and Cash Equivalents
Cash and cash equivalents comprises the following:
Cash at banks
Restricted cash
Money market funds
Cash and cash equivalents
December 31, 2019 December 31, 2018
(in thousands)
$
$
13,511 $
—
15
13,526 $
11,441
50
15
11,506
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VAXART, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(b) Accounts Receivable
Accounts receivable comprises the following:
Royalties receivable
Customer service contracts – billed
Government contract – billed
Accounts receivable
(c) Property and Equipment, Net
Property and equipment, net consists of the following:
Laboratory equipment
Office and computer equipment
Leasehold improvements
Total property and equipment
Less: accumulated depreciation
Property and equipment, net
$
December 31, 2019 December 31, 2018
(in thousands)
3,438 $
181
—
3,619 $
1,776
—
20
1,796
$
$
December 31, 2019 December 31, 2018
(in thousands)
537 $
132
—
669
(459)
210 $
2,076
227
333
2,636
(1,570)
1,066
$
Depreciation expense was $504,000 and $476,000 for the years ended December 31, 2019 and 2018, respectively. Property and equipment and leasehold
improvements at one of the Company’s leased premises in California that were used in the Company’s manufacturing operations (see Note 14) were
assessed as impaired as of December 31, 2019, and accordingly an impairment charge of $1,152,000 was recorded as a component of restructuring costs
within operating expenses. Leasehold improvements and furniture at the Company’s leased premises in Georgia, which has been subleased, commencing in
November 2018, for less than the rental that the Company is obligated to pay (see Note 8), were assessed as impaired as of September 30, 2018, and
accordingly an impairment charge of $106,000 was recorded as a component of costs of exit from leased premises within operating expenses.
(d) Right-of-Use Assets, Net
Right-of-use assets consist of the following:
Facilities
Office equipment
Right-of-use assets, net
December 31, 2019
(in thousands)
$
$
1,985
5
1,990
The right of use of one of the Company’s leased premises in California that were used in the Company’s manufacturing operations (see Note
14) was assessed as impaired as of December 31, 2019, and accordingly an impairment charge of $120,000 was recorded as a component of restructuring
costs within operating expenses.
(e) Intangible Assets, Net
Intangible assets comprise developed technology, intellectual property and, until it was considered fully impaired, in-process research and development.
Intangible assets are carried at cost less accumulated amortization. Amortization is computed using the straight-line method over useful lives ranging from
1.3 to 11.75 years for developed technology and 20 years for intellectual property. As of December 31, 2019, developed technology and intellectual
property had remaining lives of 9.9 and 8.0 years, respectively. Intangible assets consist of the following:
Purchased technology
Intellectual property
Total cost
Less accumulated amortization
Intangible assets, net
December 31, 2019 December 31, 2018
(in thousands)
$
$
22,100 $
80
22,180
(5,087)
17,093 $
22,100
80
22,180
(2,767)
19,413
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VAXART, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Intangible asset amortization expense was $2,320,000 and $2,727,000 for the years ended December 31, 2019 and 2018, respectively. Following the results
of Phase 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
$1.6 million acquired in the Merger (see Note 3) being charged to operating expenses.
As of December 31, 2019, the estimated future amortization expense by year is as follows (in thousands):
Year Ending December 31,
2020
2021
2022
2023
2024
Thereafter
Total
(f) Other Accrued Liabilities
Other accrued liabilities consist of the following:
Accrued compensation
Accrued clinical and manufacturing expenses
Accrued professional and consulting services
Reserve for return of royalties
Deferred rent and lease loss accrual, current portion
Other
Total
NOTE 6. Revenue
Service Contracts with Customers
Amount
1,732
1,732
1,732
1,731
1,732
8,434
17,093
$
$
$
December 31, 2019 December 31, 2018
(in thousands)
903 $
3,228
2
178
—
254
4,565 $
632
75
166
339
111
195
1,518
$
Contract Balances. Accounts receivable related to service contracts with customers was $181,000 as of December 31, 2019. Contract assets, representing
unbilled receivables where revenue has been recognized in advance of customer billings, was $21,000, which is included in prepaid expenses and other
current assets. There were no such receivables or contract assets as of December 31, 2018.
Remaining Performance Obligations. Remaining Performance Obligations (“RPO”) comprise deferred revenue plus unbilled contract revenue. As of
December 31, 2019, there was no deferred revenue and the aggregate amount of RPO was $211,000, all of which was unbilled contract revenue which is
not recorded on the balance sheet. We expect 100% of this amount to be recognized as revenue within the next six months. Unbilled contract revenue
represents non-cancelable contracts under which the Company has an obligation to perform, for which revenue has not yet been recognized in the financial
statements and the fixed amounts billable have not yet been invoiced.
U.S. Government HHS BARDA Contract
In September 2015, HHS BARDA awarded the Company a contract to support the advanced development of a more effective and universal influenza
vaccine to improve seasonal and pandemic influenza preparedness. On each of May 25 and July 18, 2017, and June 28, 2018, the Company entered into a
Modification of Contract with HHS BARDA, the combined effect being to increase the value of the original $14 million contract by $1.7 million and to
extend it through September 30, 2018. The modified contract is a cost-plus-fixed-fee contract, which reimburses the Company for allowable direct contract
costs plus allowable indirect costs and a fixed-fee, totaling $15.7 million. The Company recognized revenue of $1,344,000 during the year ended December
31, 2018, of which $20,000 was reversed during the year ended December 31, 2019. As of December 31, 2019, the cumulative revenue recorded from
inception under the HHS BARDA contract represents $20,000 less than the maximum amount billable under the contract as presently modified, with no
further change orders envisaged.
Billings under the contract are based on approved provisional indirect billing rates, which permit recovery of fringe benefits, overhead and general and
administrative expenses. Indirect rates as well as allowable costs are subject to audit by HHS BARDA on an annual basis. Management believes that
revenues recognized to date have been recorded in amounts that are expected to be realized upon final audit and settlement. When the final determination
of the allowable costs for any year has been made, revenue and billings may be adjusted accordingly in the period that the adjustments are known and
collection is probable. Costs relating to contract acquisition are expensed as incurred. In the three months ended December 31, 2019, the Company wrote
off $20,000 in revenue that was invoiced late in 2018 to correct prior undercharges but which may never be received, and does not consider any of the
revenue recorded as of December 31, 2019, to be at risk of reversal.
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Royalty agreements
VAXART, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Aviragen entered into a royalty-bearing research and license agreement with GlaxoSmithKline, plc (“GSK”) in 1990 for the
development and commercialization of zanamivir, a neuraminidase inhibitor marketed by GSK as Relenza, to treat influenza. All
of the Company’s Relenza patents have expired, the last remaining intellectual property related to the Relenza patent portfolio,
which is solely owned by the Company and exclusively licensed to GSK, having expired in July 2019 in Japan, at
which time royalty revenue ceased, although it remains subject to minor adjustments for sales returns and exchange rate
differences. Royalty revenue related to Relenza in 2019, and in the post-Merger period in 2018, was $778,000 and $788,000,
respectively, 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 into
with Daiichi Sankyo Company, Limited (“Daiichi Sankyo”), in 2009. In September 2010, laninamivir octanoate was approved for sale by the Japanese
Ministry of Health and Welfare for the treatment of influenza in adults and children, which Daiichi Sankyo markets as Inavir. Under the agreement, the
Company currently receives a 4% royalty on net sales of Inavir in Japan. The last patent related to Inavir is set to expire in December 2029 in Japan, at
which time royalty revenue will cease. The royalty revenue related to Inavir recognized in 2019, and in the post-Merger period in 2018, was $3,668,000
and $552,000, respectively. In addition, the Company recognized non-cash royalty revenue related to the sale of future royalties (see Note 7) of $5,030,000
and $1,475,000 in 2019 and 2018, respectively. Both the royalty revenue and the non-cash royalty revenue related to the sale of future royalties have been
subjected to a 5% withholding tax in Japan, for which $435,000 and $102,000 was included in income tax expense in the years ended December 31, 2019
and 2018, respectively.
NOTE 7. Liabilities Related to the Sale of Future Royalties
In April 2016, Aviragen entered into a Royalty Interest Acquisition Agreement (the “RIAA”) with HCRP. Under the RIAA, 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 the Japanese
market. The Royalty Rights were obtained pursuant to the collaboration and license agreements (the “License Agreement”) and a commercialization
agreement that the Company entered into with Daiichi Sankyo. Per the terms of the RIAA, HCRP is entitled to the first $3.0 million 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 RIAA, this transaction was accounted for
as a liability that is being amortized using the interest method over the life of the arrangement. The Company has no obligation to pay any amounts to
HCRP 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 be passed through to HCRP over the life of this agreement. Consequently, the Company imputes interest on the unamortized portion of the liability
and records non-cash interest expense using an estimated effective interest rate. The royalties earned in each period that will be passed through to HCRP
are recorded as non-cash royalty revenue related to the sale of future royalties, with any excess not subject to pass-through being recorded as royalty
revenue. When the pass-through royalties are paid to HCRP in the following quarter, the imputed liability related to the sale of future royalties is
commensurately reduced. The Company periodically assesses the expected royalty payments, and to the extent such payments are greater or less than the
initial estimate, the Company adjusts 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 the amount of the associated liability,
including the related interest, is fully amortized.
The following table shows the activity within the liability account during the year ended December 31, 2019 (in thousands):
Total liability related to the sale of future royalties, start of year
Non-cash royalty revenue paid to HCRP
Non-cash interest expense recognized
Total liability related to the sale of future royalties, end of year
Current portion
Long-term portion
$
$
17,741
(3,482)
2,073
16,332
(2,916)
13,416
NOTE 8. Leases
The Company has obtained the right of use for office and manufacturing facilities under five operating lease agreements, one of which has terminated
and one of which has been subleased, and for equipment under three operating lease agreements with initial terms exceeding one year, one of which has
terminated, and under three operating lease agreements with initial terms of one year or less.
The Company obtained the right of use of real estate located in South San Francisco, California, in June 2015 that was scheduled to terminate on April
30, 2020, with a five-year extension option that the Company exercised in July 2019, extending the lease until April 30, 2025. The right of use of these
premises was assessed as impaired as of December 31, 2019 (see Note 14). The Company also obtained, via the Merger in February 2018, the right of
use of facilities located in Alpharetta, Georgia, that terminates on February 28, 2021, with no extension option. These facilities were subleased for the
remainder of the lease term effective November 30, 2018. In addition, the Company obtained the right of use of three facilities located in South San
Francisco, California, under two leases that terminate on July 31, 2021 and one lease that terminated on November 30, 2019, with no extension options,
and the right of use of equipment under two leases that terminate between January 2020 and September 2021 and one lease that terminated on
November 22, 2019.
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VAXART, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2019, the weighted average discount rate for operating leases with initial terms of more than one year was 10.53% and the
weighted average remaining term of these leases was 3.72 years. Discount rates were determined using the Company’s marginal rate of borrowing at the
time each lease was executed or extended.
The following table summarizes the Company’s undiscounted cash payment obligations for its operating lease liabilities with initial terms of more than
twelve months as of December 31, 2019 (in thousands):
Year Ending December 31,
Amount
2020
2021
2022
2023
2024
Thereafter
Undiscounted total
Less: imputed interest
Present value of future minimum payments
Current portion of operating lease liability
Operating lease liability, net of current portion
$
$
1,024
620
336
348
360
122
2,810
(497)
2,313
(841)
1,472
The Company presently has no finance leases and no future obligations under operating leases for equipment with initial terms of one year or less.
Certain operating lease agreements for facilities include non-lease costs, such as common area maintenance, which are recorded as variable lease
costs. Operating lease expenses for the year ended December 31, 2019, are summarized as follows:
Lease cost
Operating lease cost
Short-term lease cost
Variable lease cost
Sublease income
Total lease cost
Year Ended
December 31, 2019
(in thousands)
$
$
959
15
162
(217)
919
Net cash outflows associated with operating leases totaled $983,000 in the year ended December 31, 2019.
When the Company subleased its facilities located in Alpharetta, Georgia, for less than it is required to pay under the head lease, it recorded a lease loss
charge of $253,000 on the cease-use date in the three months ending December 31, 2018, which, along with the related impairment of property and
equipment (see Note 5), was recorded 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
Deferred rent on cease-use date
Impairment of property and equipment
Cash paid, net of receipts
Accretion charges, included in rent expense
Balance as of December 31, 2018
$
$
—
359
19
(106)
(41)
2
233
Prior to December 31, 2018, rent expense was recognized on a straight-line basis over the noncancelable term of each operating lease and, accordingly,
the Company recorded the difference between cash rent payments and the recognition of rent expense as a deferred rent liability, which was included
within accrued expenses. Rent expense was $875,000 for the year ended December 31, 2018.
Future minimum payments and sublease income under operating leases as of December 31, 2018, were as follows:
Years Ending December 31,
2019
2020
2021
Thereafter
Total
106
$
Lease Payments Sublease Income
(in thousands)
859 $
411
56
—
1,326 $
213
219
38
—
470
$
Table of Contents
VAXART, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
NOTE 9. Convertible Promissory Notes, Related Parties
On December 10, 2014, the Company entered into a note purchase agreement with certain existing preferred stockholders under which the Company issued
convertible 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
Company issued convertible promissory notes during November and December 2015 for total proceeds of $11.0 million. These notes were issued with the
same terms as the notes issued in 2014.
As the holders of the convertible promissory notes each had an equity ownership in the Company, the convertible promissory notes were considered to be a
related-party transaction.
The convertible promissory notes bore interest at a rate of 8.0% per annum.
As of December 31, 2017, the balance of the convertible promissory notes was $35.3 million, comprising principal of $29.4 million plus accrued interest
associated with the convertible promissory notes of $6.3 million, offset by unamortized debt discount of $0.4 million. Interest expense related to the
convertible promissory notes, including amortization of debt discount, totaled $0.3 million in the year ended December 31, 2018, all related to the 43 days
prior to the Merger.
On February 13, 2018, the balance of the convertible promissory notes was $35.6 million, comprising principal of $29.4 million plus accrued interest of
$6.6 million, offset by the unamortized debt discount to $0.4 million. On that date, in conjunction with the Merger, the convertible promissory notes were
exchanged for 1,571,702 shares of the Company’s common stock which, based on the closing 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 10. Secured Promissory Note Payable to Oxford Finance
On December 22, 2016, the Company entered into a loan and security agreement (the “Loan Agreement”) with Oxford Finance, under which the Company
borrowed $5.0 million. The $5.0 million loan, which bore interest at the 30-day U.S. LIBOR rate plus 6.17%, was evidenced by a secured promissory note
and was repayable over four years, with interest only payable over the first 12 months and the balance fully amortized over the subsequent 36 months. The
loan was secured 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
they agreed to subordinate in favor of Oxford Finance all amounts due under their promissory notes and any security interest in the Company’s property. In
addition, the holders of the notes agreed that they would not demand or receive any payment until all amounts owed to Oxford Finance under the Loan
Agreement had been fully paid in cash. Upon repayment, an additional final payment equal to $325,000 would be due, which was accreted as interest
expense over 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
stock at 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,
along with other initial costs, was recorded as debt discount and was amortized as interest expense over the term of the loan using the effective-interest
method.
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
class of 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
share price. Due to this anti-dilution protection, the Company determined that the Warrant needed to be recorded as a liability, and therefore estimated the
fair value of the Warrant upon issuance and at each balance sheet date, with any changes in the fair value being recorded within loss on revaluation of
financial instruments in other income and (expenses) in the consolidated 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 an
exercise price of $22.99 per share. Since the amended Warrant contains no non-standard antidilution protections or similar features, the fair value of
approximately $70,000 on February 13, 2018, was reclassified to equity (see Note 4).
The annual effective interest rate of the note, including the accretion of the final payment and the amortization of the debt discount, was approximately
10.5%. The Company recorded interest expense related to the Loan Agreement of $311,000 and $526,000 during the years ended December 31, 2019 and
2018, respectively, of which $223,000 and $356,000 was paid, respectively. The note was repaid in full on November 4, 2019. At that date, the unamortized
deferred financing costs of $98,000 plus $2,000 reimbursed to Oxford Finance for legal fees were expensed as loss on debt extinguishment within other
income and (expenses).
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VAXART, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
NOTE 11. Commitments and Contingencies
(a) Leases
The Company’s lease commitments are detailed in Note 8.
(b) Indemnifications
In the ordinary course of business, the Company enters into agreements that may include indemnification provisions. Pursuant to such agreements, the
Company may indemnify, hold harmless and defend indemnified parties for losses suffered or incurred by the indemnified party. Some of the provisions
will limit losses to those arising from third-party actions. In some cases, the indemnification will continue after the termination of the agreement. The
maximum potential amount of future payments the Company could be required to make under these provisions is not determinable. The Company has
never incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. The Company has also entered into
indemnification agreements with 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 or service as directors or officers to the fullest extent permitted by Delaware corporate law. The Company currently has
directors’ and officers’ insurance.
(c) Litigation
From time to time the Company may be involved in claims arising in connection with its business. Based on information currently available, the Company
believes that the amount, or range, of reasonably possible losses in connection with any pending actions against it in excess of established reserves, in the
aggregate, not to be material to its consolidated financial condition or cash flows. However, losses may be material to the Company’s operating results for
any particular future period, depending on the level of income or loss for such period.
NOTE 12. Stockholders’ Equity
(a) Convertible Preferred Stock
The 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 further
action 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 more
series and authorize their issuance. These rights, preferences and privileges could include dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of shares constituting any series or the designation of such series, any or all of
which may 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 and the likelihood that such holders will receive dividend payments and payments upon liquidation. In addition, the issuance of preferred stock could
have the effect of delaying, deterring or preventing a change of control or other corporate action.
No shares of preferred stock are currently outstanding, and the Company has no present plan to issue any shares of preferred stock. Prior to February 13,
2018, there were three classes of convertible preferred stock outstanding, all of which were converted into common stock in conjunction with the Merger
(see Note 1). Significant provisions of the convertible preferred stock were as follows:
Series C – Shares of series C convertible preferred stock were issued in 2013 for net proceeds of $20.0 million. The holders of Series C convertible
preferred stock were entitled to receive non-compounding cumulative dividends, in preference to any dividends payable to holders of Series B and Series A
convertible preferred stock or common stock, at an annual dividend rate of 8%. Dividends accumulated from the date of issuance and were payable,
whether or not declared, before any dividend on Series B and Series A convertible preferred stock or common stock could be paid or declared. Since no
dividends were ever declared, holders were entitled to receive additional shares of common stock on conversion. As of February 13, 2018, when the
convertible preferred stock was converted into common stock, accumulated and undeclared dividends for Series C convertible preferred stock were
$7.3 million, of which $188,000 related to the pre-Merger period in 2018. On February 13, 2018, in conjunction with the Merger, the Series C convertible
preferred stock and the related accumulated dividends were converted into 696,028 and 253,851 shares of common stock, respectively.
Series B – Shares of series B convertible preferred stock were issued between 2009 and 2014 for net proceeds of $16.0 million. The holders of Series B
convertible preferred stock were entitled to receive non-compounding cumulative dividends, in preference to any dividends payable to holders of Series A
convertible preferred stock or common stock, at the annual dividend rate of 8%. Dividends accumulated from the date of issuance and were payable,
whether or not declared, before any dividend on Series A convertible preferred stock or common stock could be paid or declared. Since no dividends were
ever declared, holders were entitled to receive additional shares of common stock on conversion. As of February 13, 2018, when the convertible preferred
stock was converted into common stock, accumulated and undeclared dividends for Series B convertible preferred stock were $7.6 million, of which
$151,000 related to the pre-Merger period in 2018. On February 13, 2018, in conjunction with the Merger, the Series B convertible preferred stock and the
related accumulated dividends were converted into 599,259 and 265,340 shares of common stock, respectively.
Series A – Shares of series A convertible preferred stock were issued between 2007 and 2012 for net proceeds of $2.9 million. The holders of Series A
convertible preferred stock were entitled to receive noncumulative dividends, in preference to any dividends payable to holders of common stock, if
declared by the board of directors. No dividends were ever declared. On February 13, 2018, in conjunction with the Merger, the Series A convertible
preferred stock was converted into 104,065 shares of common stock.
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(b) Common Stock
VAXART, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Except as otherwise required by law or as otherwise provided in any certificate of designation for any series of preferred stock, the holders of common
stock possess all voting power for the election of the Company’s directors and all other matters requiring stockholder action. Holders of common stock are
entitled to 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
declared from 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 stock splits or combinations of stock be declared or made on common stock unless the shares of common stock at the time outstanding are
treated equally and identically. As of December 31, 2019, 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 will
be 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 of
the 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:
Options issued and outstanding
Available for future grants of equity awards
Common stock warrants
Total
(c) Warrants
December 31, 2019 December 31, 2018
1,811,652
295,180
43,370,162
45,476,994
865,163
223,377
10,914
1,099,454
The Company has the following warrants outstanding as of December 31, 2019, all of which contain standard anti-dilution protections in the event of
subsequent rights offerings, stock splits, stock dividends or other extraordinary dividends, or other similar changes in the Company’s common stock or
capital structure, and none of which have any participating rights for any losses:
Securities into which warrants are convertible
Warrants outstanding
Exercise
Price
Expiration Date
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Total
30,068,600 $
2,115,738 $
10,454,546 $
636,364 $
84,000 $
10,914 $
43,370,162
0.30 September 2024
0.375 September 2024
1.10 April 2024
1.375 April 2024
3.125 March 2024
22.99 December 2026
The aggregate fair value at issuance of the warrants issued to the placement agents’ designees at the closing of the March 2019 Offering and to
the underwriters’ designees at the closing of the April 2019 Offering and the September 2019 Offering (see Note 1) were estimated to be $100,000,
$333,000, and $497,000, respectively, using the Black-Scholes valuation model and using parameters and assumptions tabulated as follows:
Offering
Aggregate valuation on issuance date
Number of warrants issued
Exercise price
Closing stock price
Risk-free interest rate
Expected term
Expected volatility
Dividend yield
$
$
March 2019
100,000
$
84,000
3.125
2.08
2.34%
5.0 Years
80%
—%
$
$
April 2019
333,000
$
636,364
1.375
0.89
2.31%
5.0 Years
83%
—%
$
$
September 2019
497,000
$
2,115,738
0.375
0.36
1.55%
5.0 Years
83%
—%
In the event of a Fundamental Transaction (a transfer of ownership of the Company as defined in the warrant) within the Company’s control, the holders of
the unexercised common stock warrants exercisable for $0.30, $0.375 and $1.10 shall be entitled to receive cash consideration equal to a Black-
Scholes valuation, as defined in the warrant. If such Fundamental Transaction is not within the Company’s control, the warrantholders would only be
entitled to receive the same form of consideration (and in the same proportion) as the holders of the Company’s common stock, hence these warrants are
classified as a component of permanent equity.
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NOTE 13. Equity Incentive Plans
VAXART, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Prior to the Merger, Private Vaxart issued equity awards for compensation purposes to employees, directors and consultants under the Company’s 2007
Equity Incentive Plan (the “2007 Plan”). The 2007 Plan expired in July 2017 and no further awards may be made under the 2007 Plan. Each outstanding
stock option to acquire shares of Private Vaxart stock, whether vested or unvested, was assumed in the Merger after adjustment for the impact of the
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 their
previous plans became available for issuance under the 2016 Equity Plan if such awards are forfeited or otherwise terminated. Under the 2016 Equity Plan,
the Company was authorized to issue incentive stock options (“ISOs”), non-qualified stock options (“NQSOs”), restricted stock (“RSAs”) and restricted
stock units (“RSUs”). Awards that expired or were canceled generally became available for issuance again under the 2016 Equity Plan. Awards have a
maximum term of ten years from the grant date and vest over varying periods, as specified by the Company’s Board of Directors for each grant. Following
stockholder approval of the 2019 Equity Incentive Plan (the “2019 Plan”), no further awards are available for grant under the 2016 Plan.
On April 23, 2019, the Company’s stockholders approved the adoption of the 2019 Plan, under which the Company is authorized to issue ISOs, NQSOs,
stock appreciation rights, RSAs, RSUs, other stock awards and performance awards that may be settled in cash, stock, or other property. The 2019 Plan is
designed to secure and retain the services of employees, directors and consultants, provide incentives for the Company’s employees, directors and
consultants to exert maximum efforts for the success of the Company and its affiliates, and provide a means by which employees, directors and consultants
may be given an opportunity to benefit from increases in the value of the Company’s common stock.
The aggregate number of shares of common stock that may be issued under the 2019 Plan will not exceed 1,600,000 shares, which can only be increased by
stockholder approval, except that all awards are subject to adjustment in the event of a stock split, stock dividend or other extraordinary dividend, or other
similar change in the Company’s common stock or capital structure. Awards that expire or are canceled generally become available for issuance again
under the 2019 Plan. Awards have a maximum term of ten years from the grant date and may vest over varying periods, as specified by the Company’s
board of directors for each grant.
A summary of stock option transactions in each of the two years ended December 31, 2019, is as follows:
Shares
Available
For Grant
Number of
Options
Outstanding
Weighted
Average
Exercise
Price
Balance at January 1, 2018
Assumed on consummation of Merger
Granted
Exercised
Forfeited
Canceled
—
291,102
(431,100)
—
71,500
269,148
304,850 $
627,106 $
431,100 $
(2,013) $
(89,903) $
(405,977) $
Balance at December 31, 2018
200,650
865,163 $
Authorized under 2019 Plan
Removed from 2016 Plan
Granted
Forfeited
Canceled
1,600,000
(223,389)
(1,791,030)
483,849
25,100
— $
— $
1,791,030 $
(592,528) $
(252,013) $
Balance at December 31, 2019
295,180
1,811,652 $
9.50
26.33
5.17
6.49
5.90
34.64
8.13
—
—
0.67
1.57
9.25
2.74
As of December 31, 2019, there were 1,811,652 options outstanding with a weighted average exercise price of $2.74, a weighted average remaining term of
8.09 years and an aggregate intrinsic value of $14,000. Of these options, 582,085 were vested, with a weighted average exercise price of $6.18, a weighted
average remaining term of 5.38 years and an aggregate intrinsic value of $3,000.
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
options outstanding as of December 31, 2019, based on our common stock closing price of $0.35, which would have been received by the option holders
had all their in-the-money options been exercised as of that date.
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VAXART, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
The grant date fair value of options vested in the years ended December 31, 2019 and 2018, was $774,000 and $332,000, respectively. There were no
options exercised in the year ended December 31, 2019. The intrinsic value of options exercised in the year ended December 31, 2018, was zero.
The weighted average grant date fair value of options awarded in the years ended December 31, 2019 and 2018, was $0.48 and $3.59, respectively. Fair
values were estimated using the following assumptions:
Risk-free interest rate
Expected term (in years)
Expected volatility
Dividend yield
Total stock-based compensation recognized for options was as follows:
Research and development
General and administrative
Total stock-based compensation
Year Ended December 31,
2019
2018
1.68% - 2.31%
5.39 - 10.00 Years
83% - 85%
2.79% - 2.80%
5.84 - 6.05 Years
78% - 80%
—%
—%
Year Ended December 31,
2019
2018
(in thousands)
253 $
374
627 $
254
285
539
$
$
As of December 31, 2019, the unrecognized stock-based compensation cost related to outstanding stock options that are expected to vest was $0.7 million,
which the Company expects to recognize over an estimated weighted average period of 2.43 years.
NOTE 14. Restructuring Costs
Restructuring liabilities primarily consist of the estimated future obligations for contract suspension costs and severance and benefits obligations. These
restructuring liabilities, all of which are expected to be paid in the year ending December 31, 2020, are recorded in either accounts payable or other accrued
liabilities in the consolidated balance sheets.
The Company approved a reduction-in-force during the year ended December 31, 2019, for which it has accrued severance and benefits charges. As of
December 31, 2019, no cash payments had been made. The Company has also accrued the maximum amount potentially payable under a manufacturing
work order which it suspended, recorded impairment charges against property and equipment and right-of-use assets formerly used for manufacturing from
which no future benefits will be derived, and incurred legal fees in connection with the restructuring. The Company expects to record further charges in
2020 for legal fees, broker commissions and accretion related to the manufacturing premises and, potentially, further impairment of a right-of-use asset if it
is unable to sublease the manufacturing premises for as much as it is presently paying, or if subleasing takes longer than expected. The Company has not
agreed to pay the full amount accrued with respect to the suspended manufacturing work order and expects to reverse part of the related charge following
negotiations with the vendor.
Restructuring liabilities are summarized as follows:
Suspension
of Contract
Severance
Benefits
Balance at January 1, 2019
Period charges
Settlements
$
Balance at December 31, 2019 $
— $
3,223
—
3,223 $
Impairment
Charges
(in thousands)
— $
368
—
368 $
— $
1,272
(1,272)
— $
Other
Total
— $
57
—
57 $
—
4,920
(1,272)
3,648
111
Table of Contents
NOTE 15. Benefit Plan
VAXART, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
The Company provides a tax-qualified employee savings and retirement plan commonly known as a 401(k) plan (the “Plan”), which covers the Company’s
eligible employees. Pursuant to the Plan, employees may elect to defer their current compensation up to the IRS annual contribution limit of $19,000 for
calendar year 2019, up from $18,500 for 2018. Employees age 50 or over may elect to contribute an additional $6,000 annually.
Employees direct their contributions, which vest immediately, across a series of mutual funds. In the years ended December 31, 2019 and 2018, the
Company matched employee contributions up to 3% of each employee’s eligible earnings, vesting immediately. The Company’s matching contributions
totaled $140,000 and $124,000 in the years ended December 31, 2019 and 2018, respectively. The costs of administering the Plan totaled $14,000 and
$9,000 in the years ended December 31, 2019 and 2018, respectively.
NOTE 16. Income Taxes
The provision for income taxes consists of the following for the years ended December 31, 2019 and 2018:
Current:
Federal
State
Foreign
Total Current
Deferred:
Federal
State
Foreign
Total Deferred
Year Ended December 31,
2019
2018
(In thousands)
$
— $
2
488
490
—
—
—
—
Provision for income taxes
$
490 $
The components of the deferred tax assets as of December 31, 2019 and 2018, are as follows:
—
3
106
109
—
—
—
—
109
Deferred tax assets:
Net operating loss carry-forwards
Research and development tax credits
Capitalized research and development
Sale of future royalties
Accruals, reserves and other
Total deferred tax assets
Valuation allowance
Deferred tax assets net of valuation allowance
Deferred tax liabilities:
Intangible assets
Total deferred tax liabilities
Net deferred tax assets
$
December 31, 2019 December 31, 2018
(In thousands)
6,924 $
1,591
4,773
7,486
1,321
22,095
(13,365)
8,730
43,822
3,357
2,326
8,383
714
58,602
(48,626)
9,976
(8,730)
(8,730)
— $
(9,976)
(9,976)
—
$
112
Table of Contents
VAXART, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
A reconciliation of the provision for income taxes with the expected provision for income taxes computed by applying the federal statutory income tax rate
of 21% to the net loss before provision for income taxes for the years ended December 31, 2019 and 2018:
U.S. federal taxes at statutory rate
State taxes (net of federal benefit)
Foreign rate differential
Global intangible low-taxed income
Permanently non-deductible items
Tax credits
Change in valuation allowance
Tax attributes write-off due to change in control
Prior year true-up
NOL and credit adjustments
Bargain purchase gain
Other
Year Ended December 31,
2018
2019
21.0%
0.4
(2.6)
—
(3.7)
1.7
194.2
(208.3)
(0.9)
—
—
(4.5)
21.0%
0.6
3.1
(8.8)
(2.5)
2.1
(20.4)
—
—
(3.8)
8.1
—
Provision for income taxes
(2.7)%
(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, 2019,
primarily due to the write-off of tax attributes due to a change in control, foreign income taxes being taxed at different rates, nondeductible expenses,
research and development tax credits, and the change in valuation allowance. 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.
As of December 31, 2019 and 2018, the Company had a net operating loss (“NOL”) carryforwards of $18.0 million and $92.3 million for federal purposes,
and $1.6 million and $76.9 million for state purposes, respectively. If not utilized, these carryforwards will begin to expire in 2024 for federal, and 2028 for
state purposes. The reductions in carryforwards in 2019 were primarily due to a change in ownership.
As of December 31, 2019, the Company also has accumulated tax losses of $10.1 million for Australia available for carry forward against future earnings,
which under relevant tax laws do not expire but may not be available under certain circumstances. As of December 31, 2019, the Company’s foreign
subsidiaries have no positive accumulated earnings. As such, no federal or state income taxes have been provided on the losses of its foreign subsidiaries. If
in the future there are positive earnings generated from the Company’s foreign subsidiaries, the Company will evaluate whether to record any applicable
federal and state income taxes on such earnings.
As of December 31, 2019 and 2018, the Company had federal research and development tax credit carryforwards of $0.1 million and $3.0 million,
respectively and state research and development tax credit carryforwards of $2.7 million and $2.3 million, respectively, before offset for unrecognized tax
benefits, to offset future income tax liabilities. The federal research and development tax credits will expire in 2039, if not utilized, while the state research
and development tax credit can be carried forward indefinitely.
Sections 382 and 383 of the Internal Revenue Code provide for a limitation on the annual use of NOL and tax credit carryforwards following certain
ownership changes that could limit the Company’s ability to utilize these carryforwards. The Company’s losses and credit carryforwards may be subject to
these limitations. The Company has completed an analysis covering the period from February 13, 2018, through September 30, 2019, to determine if such
ownership changes have occurred and concluded it was more likely than not that there were changes in ownership, including a change on September 30,
2019, which resulted in an annual limitation of $62,000. Due to the existence of the valuation allowance, limitations under Section 382 and 383 will not
impact the Company’s effective tax rate. Further analyses will be performed prior to recognizing the benefits of any losses or credits in the financial
statements.
113
VAXART, INC. AND SUBSIDIARIES
Notes to the Consolidated 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 will
not be realized. Management must use judgment in assessing the potential need for a valuation allowance, which requires an evaluation of both negative
and positive evidence. The weight given to the potential effect of negative and positive evidence should be commensurate with the extent to which it can be
objectively verified. In determining the need for and amount of the valuation allowance, if any, the Company assesses the likelihood that it will be able to
recover its deferred tax assets using historical levels of income, estimates of future income and tax planning strategies. As a result of historical cumulative
losses, the Company determined that, based on all available evidence, there was substantial uncertainty as to whether it will recover recorded net deferred
taxes in future periods. Accordingly, the Company recorded a valuation allowance against all of its net deferred tax assets as of December 31, 2019 and
2018. The net change in total valuation allowance was a decrease of approximately $35.3 million for the year ended December 31, 2019 and an increase of
approximately $25.7 million for the year ended December 31, 2018. The decrease in 2019 is primarily due to the reduction in NOL and tax credit
carryforwards that were triggered by the change in ownership on September 30, 2019.
The Company records unrecognized tax benefits, where appropriate, for all uncertain income tax positions. The Company recorded unrecognized tax
benefits for uncertain tax positions of approximately $851,000 as of December 31, 2019, none of which would impact the effective tax rate, if recognized,
because the benefit would be offset by an increase in the valuation allowance.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Beginning Balance
Additions based on tax positions related to the current year
Decreases related to prior years’ tax positions
Ending Balance
Year Ended December 31,
2019
2018
(in thousands)
1,582 $
159
(890)
851 $
1,404
181
(3)
1,582
$
$
The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. During the
years ended December 31, 2019 and 2018, the Company recognized no interest and penalties associated with unrecognized tax benefits. There are no tax
positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within twelve months
of the reporting date.
The 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
to tax 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 the
consolidated group, is no longer subject to U.S. federal income tax examinations by the Internal Revenue Service for tax years before tax year 2016. Under
the statute of limitations applicable to most state income tax laws, the Company is no longer subject to state income tax examinations by tax authorities for
tax 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
net operating losses and tax credits, from earlier tax years, these attributes can still be audited when utilized on returns filed in the future. The Company is
subject to foreign tax examinations by tax authorities for fiscal year 2014 and forward.
114
VAXART, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
NOTE 17. Net Loss Per Share Attributable to Common Stockholders
The following table presents the calculation of basic and diluted net loss per share (in thousands, except share and per share amounts):
Net loss
Series B and C preferred dividend
Net loss attributable to common stockholders
Shares used to compute net loss per share, basic and diluted
Net loss per share attributable to common stockholders, basic and diluted
Year Ended December 31,
2019
2018
(18,645) $
(18,007)
—
(18,645) $
(339)
(18,346)
21,569,523
6,316,065
(0.86) $
(2.90)
$
$
$
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 have
been antidilutive:
Options to purchase common stock
Warrant to purchase common stock
Warrant to purchase convertible preferred stock
Series B and C convertible preferred stock outstanding, including cumulative
dividends
Series A convertible preferred stock outstanding
Convertible promissory notes, related party (as converted)
Year Ended December 31,
2019
2018
1,583,575
839,396
17,579,945
—
—
—
—
9,658
891
213,760
12,260
185,159
Total potentially dilutive securities excluded from denominator of the diluted
earnings per share computation
19,163,520
1,261,124
115
VAXART, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
NOTE 18. Quarterly Financial Data (Unaudited)
Selected summarized quarterly financial information for fiscal 2019 and 2018 is as follows:
Revenue
Operating expenses
Net loss
Net loss per share – basic and diluted
Revenue
Operating expenses
Net income (loss)
Net income (loss) attributable to common stockholders
Net income (loss) per share – basic
Net income (loss) per share – diluted
NOTE 19. Subsequent Events
Year Ended December 31, 2019
First
Second
Third
Fourth
5,407 $
5,855 $
(1,339) $
(0.18) $
85 $
5,082 $
(5,637) $
(0.39) $
454 $
5,168 $
(5,260) $
(0.32) $
3,916
9,542
(6,409)
(0.13)
Year Ended December 31, 2018
First
Second
Third
Fourth
1,503 $
5,418 $
2,314 $
1,975 $
0.54 $
0.49 $
608 $
8,383 $
(8,871) $
(8,871) $
(1.24) $
(1.24) $
281 $
6,161 $
(6,548) $
(6,548) $
(0.92) $
(0.92) $
1,767
5,953
(4,902)
(4,902)
(0.69)
(0.69)
$
$
$
$
$
$
$
$
$
$
On March 2, 2020, the Company completed a registered direct offering (the “March 2020 Offering”) of 4,000,000 shares of common stock and warrants to
purchase 2,000,000 shares of common stock. Each share of common stock with half of an accompanying common stock warrant to purchase one share of
common stock were sold for $2.50. Each common stock warrant entitles the holder to purchase one share of common stock for $2.50, is exercisable
immediately, subject to certain ownership limitations, and will expire five years from the date of issuance. Each common stock warrants entitles the holder
to receive cash consideration equal to a Black-Scholes valuation in the event of a Fundamental Transaction within the Company’s control (see Note 12).
The total gross proceeds from the March 2020 Offering to the Company were $10.0 million. After deducting placement agent fees and offering expenses
payable by the Company, the aggregate net proceeds received by the Company totaled $9.1 million. Pursuant to the terms of the engagement letter with the
placement agents, the Company paid the placement agents aggregate fees and reimbursable costs of $775,000. In addition, the Company issued the
placement agents’ designees 280,000 common stock warrants at the closing of the March 2020 Offering, each warrant entitling the holder to purchase one
share of common stock for $3.125 at any time within five years of the effective date of the March 2020 Offering and to receive cash consideration equal to
a Black-Scholes valuation in the event of a Fundamental Transaction within the Company’s control. The aggregate fair value of these warrants at issuance
was estimated to be $453,000, using the Black-Scholes valuation model, using a closing stock price of $2.34 and assumptions including estimated volatility
of 98%, a risk-free interest rate of 0.88%, a zero dividend rate and an estimated remaining term of 4.99 years. This estimated fair value is recorded in
offering costs.
Since December 31, 2019, in addition to the 4,000,000 shares of common stock issued in the March 2020 Offering, the Company has issued
18,472,183 shares of common stock upon the exercise of warrants for cash proceeds totaling $9.8 million.
On March 17, 2019, the Company entered into an agreement with Emergent BioSolutions Inc. (“Emergent”), whereby Emergent will deploy its molecule-
to-market contract development and manufacturing services to help develop and manufacture Vaxart’s experimental oral vaccine candidate for the
coronavirus disease COVID-19.
116
Table of Contents
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
As of the end of the period covered by this Annual Report, management performed, with the participation of our President and Chief Executive Officer
(who serves as our principal executive officer and principal financial officer), an evaluation of the effectiveness of our disclosure controls and procedures
(as defined in Exchange Act rules 13a-15(e) and 15(d)-15e)). Based on such evaluation, our management concluded that our disclosure controls and
procedures were effective at a reasonable assurance level as of December 31, 2019.
Management’s Report on Internal Control Over Financial Reporting
Management has conducted, with the participation of our President and Chief Executive Officer (who serves as our principal executive officer and principal
financial officer), an assessment, including testing of the effectiveness, of our internal control over financial reporting as of December 31, 2019.
Management’s assessment of internal control over financial reporting was conducted using the criteria of the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”) in Internal Control – Integrated Framework (2013), while utilizing the additional guidance contained in COSO’s
Internal Control over Financial Reporting – Guidance for Smaller Public Companies. Based on that assessment, our management concluded that our
internal control over financial reporting was effective as of December 31, 2019.
Attestation Report of Registered Public Accounting Firm
This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting
pursuant to SEC rules that permit us to provide only management’s report in this Annual Report.
Changes in Internal Control over Financial Reporting
During 2019, we implemented procedures in our finance department designed to remediate the risks related to inadequate segregation of duties and review
of account reconciliations and nonroutine transactions to address a material weakness relating to our lack of sufficient qualified resources and adequate
processes to appropriately segregate duties and perform effective and timely review of account reconciliations and nonroutine transactions that was
originally identified in the audit of our financial statements for the year ended December 31, 2015. These procedures included the retention of adequately
qualified staff, the full implementation of formal approval procedures for all journal entries and account reconciliations, and increased management
oversight of financial reporting.
Inherent Limitations on Effectiveness of Controls
Our 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 that
the 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
of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any, within Vaxart have been detected.
Item 9B. Other Information
None.
117
Table of Contents
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The information required by this Item will be set forth in the Company’s proxy statement to be filed with the Securities and Exchange Commission within
120 days after the Company’s fiscal year end and is incorporated herein by reference.
Item 11. Executive Compensation
The information required by this Item will be set forth in the Company’s proxy statement to be filed with the Securities and Exchange Commission within
120 days after the Company’s fiscal year end and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item will be set forth in the Company’s proxy statement to be filed with the Securities and Exchange Commission within
120 days after the Company’s fiscal year end and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item will be set forth in the Company’s proxy statement to be filed with the Securities and Exchange Commission within
120 days after the Company’s fiscal year end and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
The information required by this Item will be set forth in the Company’s proxy statement to be filed with the Securities and Exchange Commission within
120 days after the Company’s fiscal year end and is incorporated herein by reference.
118
Table of Contents
PART 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 is
not applicable or is shown in the accompanying Financial Statements or notes thereto).
(3)
Exhibits.
119
Table of Contents
EXHIBIT INDEX
Exhibit
Number Description of Document
2.1
2.2
3.1
3.2
3.3
3.4
Agreement and Plan of Merger and Reorganization dated
October 27, 2017, by and among Aviragen Therapeutics, Inc.,
Vaxart, Inc. and Agora Merger Sub, Inc.
Amendment No. 1, dated as of February 7, 2018, to the
Agreement and Plan of Merger and Reorganization dated
October 27, 2017, by and among Aviragen Therapeutics, Inc.,
Vaxart, Inc. and Agora Merger Sub, Inc.
Restated Certificate of Incorporation of Aviragen Therapeutics,
Inc.
Certificate of Amendment to Restated Certificate of
Incorporation of AviragenTherapeutics, Inc.
Certificate of Amendment to Restated Certificate of
Incorporation of Vaxart, Inc.
Certificate of Amendment to RestatedCertificate of Incorporation
of Vaxart, Inc.
Restated By-laws of Aviragen Therapeutics,Inc.
Reference is made to Exhibits 3.1 to 3.5
Specimen Common Stock Certificate
Form of Pre-Funded Warrant (April 2019)
Form of Common Stock Warrant (April 2019)
Form of Representative Warrant (April 2019)
Form of Pre-Funded Warrant (September 2019)
Form of Common Stock Warrant (September 2019)
Form of Representative Warrant (September 2019)
Description of Securities of the Registrant
3.5
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9 *
10.1 + Collaboration and License Agreement dated September 29, 2003,
between Biota Holdings Limited and Sankyo Co., Ltd.
10.2 + Amendment #1 to Collaboration and License Agreement dated
10.3
June 30, 2005, between Biota Holdings Limited, Biota Scientific
Management Pty. Ltd. and Sankyo Company, Ltd.
Amendment #2 to Collaboration and License Agreement, dated
March 27, 2009, between Biota Holdings Limited, Biota
Scientific Management Pty. Ltd. and Daiichi Sankyo Company,
Limited
10.4 + Commercialization Agreement dated March 27, 2009, between
Biota Holdings Limited, Biota Scientific Management Pty. Ltd
and Daiichi Sankyo Company, Ltd.
Incorporated by Reference
Schedule/Form
8-K
File
Number
001-35285
Exhibit
2.1
Filing Date
October 30, 2017
8-K
001-35285
2.1
February 7, 2018
10-K
001-35285
8-K
8-K
8-K
10-K
S-3
S-1
S-1/A
S-1/A
S-1
S-1
S-1/A
10-Q
10-Q
001-35285
001-35285
001-35285
001-35285
333-228910
333-229536
333-229536
333-229536
333-233717
333-233717
333-233717
001-35285
001-35285
3.1
3.1
3.2
3.1
3.2
4.2
10.25
4.4
4.5
4.3
4.4
4.5
10.5
10.6
September 13, 2016
February 20, 2018
February 20, 2018
April 24, 2019
September 13, 2016
December 20, 2018
February 6, 2019
April 8, 2019
April 8, 2019
September 11, 2019
September 11, 2019
September 24, 2019
May 10, 2013
May 10, 2013
10-Q
001-35285
10.7
May 10, 2013
10-Q
001-35285
10.8
May 10, 2013
10.5 + Contract dated March 31, 2011, between Biota Scientific
10-Q
001-35285
10.9
May 10, 2013
Management Pty. Ltd. and Office of Biomedical Advanced
Research and Development Authority within the Office of the
Assistant Secretary for preparedness and Response at the U.S.
Department of Health and Human Services
10.6 + Research and License Agreement dated February 21, 1990, by
10-K
001-35285
10.6
September 27, 2013
and among Biota Scientific Management Pty. Ltd., Biota
Holdings Limited, Glaxo Australia Pty. Ltd. and Glaxo Group
Limited
2007 Omnibus Equity and Incentive Plan (included as Appendix
A to the proxy statement)
Form of Employee Stock Option Agreement under the 2007
Omnibus Equity and Incentive Plan
10.7 #
10.8 #
120
DEF 14A
000-04829
-
April 12, 2007
8-K
001-35285
10.1
December 10, 2013
Table of Contents
Exhibit
Number Description of Document
10.9 + Royalty Interest Acquisition Agreement by and between
Aviragen Therapeutics, Inc., Biota Holdings Pty Ltd, Biota
Scientific Management Pty. Ltd. and HealthCare Royalty
Partners III, L.P. dated April 22, 2016
Protective Rights Agreement between Aviragen Therapeutics,
Inc. and HealthCare Royalty Partners III, L.P. dated April 22,
2016
10.10
Incorporated by Reference
Schedule/Form
8-K
File
Number
001-35285
Exhibit
10.1
Filing Date
April 26, 2016
8-K
001-35285
10.2
April 26, 2016
10.11 # Form of Employee Stock Option Agreement under the 2016
10-Q
001-35285
10.1
May 8, 2017
10.12 #
Equity Incentive Plan
2016 Equity Incentive Plan (included as Appendix A to the
proxy statement)
10.13 # Director Stock Option Agreement
10.14
Form of Indemnification Agreement by and between Vaxart, Inc.
and its Directors and Executive Officers
10.15 # Vaxart, Inc. Amended and Restated 2007 Equity Incentive Plan,
Stock Option Agreement, form of Notice of Stock Option Grant,
form of Additional Terms and Conditions to Option and Stock
Option Exercise Agreement
10.17
10.16 # Offer Letter, dated May 25, 2011, and Amendment to Offer
Letter and Option Grant Agreement, dated October 1, 2011, by
and between Vaxart, Inc. and Wouter W. Latour, M.D.
Industrial Lease dated October 28, 2013, by and between Vaxart,
Inc. and Oyster Point LLC
Lease Agreement dated April 17, 2015, by and between Vaxart,
Inc. and CRP Edgewater, LLC
Loan and Security Agreement dated December 22, 2016, by and
between Vaxart, Inc. and Oxford Finance LLC
Second Amendment to the Loan Agreement, dated February 13,
2018, between Vaxart, Inc. and Oxford Finance LLC
10.19
10.20
10.18
10.21 # Severance Benefit Plan and Form of Severance Benefit Plan
10.22
10.23
10.24
10.25
10.26
Participation Notice
Settlement Agreement by and among Vaxart, Inc., Digirad
Corporation, East Hill Management Company, LLC, and
Aviragen Therapeutics, Inc.
Form of Sales Agreement dated December 19, 2018 by and
between Vaxart, Inc. and B. Riley FBR, Inc.
Amended and Restated Warrant issued to Oxford Finance LLC,
dated February 13, 2018
Form of Securities Purchase Agreement, dated as of March 19,
2019, by and among Vaxart, Inc. and the Purchasers named
therein
Engagement Letter, dated as of January 25, 2019, by and
between Vaxart, Inc. and H.C. Wainwright & Co., LLC, as
amended
Form of Placement Agent Warrant
2019 Equity Incentive Plan
10.27
10.28 #
10.29 # Form of Stock Option Grant Notice, Stock Option Agreement
and Notice of Exercise under the 2019 Equity Incentive Plan
10.30 # Form of Restricted Stock Unit Grant Notice and Restricted Stock
Unit Award Agreement under the 2019 Equity Incentive Plan
DEF 14A
001-35285
-
September 27, 2016
S-4
8-K
333-222009
001-35285
10.22
10.3
December 12, 2017
February 20, 2018
S-4/A
333-222009
10.24
December 29, 2017
S-4/A
333-222009
10.25
December 29, 2017
S-4/A
S-4/A
S-4/A
8-K
8-K
8-K
S-3
8-K
8-K
8-K
8-K
8-K
8-K
8-K
333-222009
10.26
December 29, 2017
333-222009
10.27
December 29, 2017
333-222009
10.28
December 29, 2017
001-35285
001-35285
001-35285
10.1
10.1
10.1
February 20, 2018
June 6, 2018
February 9, 2018
333-228910
1.2
December 02, 2018
001-35285
001-35285
10.2
10.1
February 20, 2018
March 20, 2019
001-35285
10.2
March 20, 2019
001-35285
001-35285
001-35285
001-35285
10.3
10.1
10.2
10.3
March 20, 2019
April 24, 2019
April 24, 2019
April 24, 2019
10.31 + Manufacturing Services Agreement dated July 17, 2019, by and
S-1/A
333-233717
10.30
September 24, 2019
8-K
001-35285
10.1
September 19, 2019
10.32
between Vaxart, Inc. and Lonza Houston, Inc.
First Amendment to Lease Agreement dated September 17,
2019, by and between Vaxart, Inc. and HCP Inc.
Subsidiaries of the Registrant
21.1 *
23.1 * Consent of OUM & Co., LLP, Independent Registered Public
Accounting Firm
23.2 * Consent of KPMG LLP, Independent Registered Public
24.1 *
Accounting Firm
Power of Attorney. Reference is made to the signature page
hereto
31.1 * Certification of Principal Executive and Financial Officer
pursuant to Exchange Act Rule, 13a-14(a) and 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
121
Table of Contents
Incorporated by Reference
Schedule/Form
File
Number
Exhibit
Filing Date
101 *
Exhibit
Number Description of Document
32.1 *§ Certification of Principal Executive and Financial Officer
pursuant to Rule 13a-14(b) of the Securities Exchange Act of
1934, as amended, and 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
The following financial information from the Company’s Annual
Report on Form 10-K for the year ended December 31, 2019,
formatted in Extensible Business Reporting Language (XBRL):
(i) the Consolidated Balance Sheets as of December 31, 2019 and
2018, (ii) the Consolidated Statements of Operations and
Comprehensive Loss for the years ended December 31, 2019 and
2018, (iii) the Consolidated Statements of Stockholders’ Equity
(Deficit) for the two years ended December 31, 2019, (iv) the
Consolidated Statements of Cash Flows for the years ended
December 31, 2019 and 2018, and (v) Notes to the Consolidated
Financial Statements
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 promulgated under 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 Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certification furnished in Exhibit
32.1 hereto is deemed to accompany this Annual 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 by reference 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.
122
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
VAXART, INC.
Date: March 19, 2020
By:
/s/ WOUTER W. LATOUR, M.D.
Wouter W. Latour, M.D.
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Wouter W. Latour, M.D. and
Margaret 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 any
amendments to this report, and to file the same, with exhibits thereto and other documents in connection therewith with the Securities and Exchange
Commission, 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
cause to 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 registrant
and in the capacities and on the dates indicated.
SIGNATURE
TITLE
DATE
/s/ WOUTER W. LATOUR, M.D.
Wouter W. Latour, M.D.
/s/ MARGARET A. ECHERD
Margaret A. Echerd
/s/ STEVEN BOYD
Steven Boyd
/s/ TODD C. DAVIS
Todd C. Davis
/s/ MICHAEL J. FINNEY
Michael J. Finney, Ph.D.
/s/ KEITH MAHER
Keith Maher
/s/ ANNE M. VANLENT
Anne M. VanLent
/s/ ROBERT A. YEDID
Robert A. Yedid
Chairman, President and Chief Executive Officer
(Principal Executive Officer and
Principal Financial Officer)
Vice President, Corporate Controller
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
123
March 19, 2020
March 19, 2020
March 19, 2020
March 19, 2020
March 19, 2020
March 19, 2020
March 19, 2020
March 19, 2020
Exhibit 4.9
DESCRIPTION OF COMMON STOCK
The following summary description of our common stock is based on the provisions of our amended and restated certificate of incorporation, as
amended from time to time, and amended and restated bylaws and the applicable provisions of the Delaware General Corporation Law. This information is
qualified entirely by reference to the applicable provisions of our amended and restated certificate of incorporation, bylaws and the Delaware General
Corporation Law.
General
Our authorized capital stock consists of (i) 100,000,000 shares of common stock, par value $0.10 per share and (ii) 5,000,000 shares of preferred stock,
par value $0.10 per share.
The following is a summary of the material provisions of the common stock provided for in our amended and restated certificate of incorporation, as
amended from time to time, and amended and restated bylaws.
Common Stock
Voting
Our common stock is entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders, except that directors will
be elected by a plurality of votes cast. Accordingly, the holders of a majority of the shares of common stock entitled to vote in any election of directors are
able to elect all of the directors standing for election, if they so choose.
Dividends
Subject to preferences that may be applicable to any then outstanding preferred stock, the holders of common stock are entitled to receive dividends, if
any, as may be declared from time to time by our board of directors out of legally available funds. We have never paid cash dividends and have no present
intention to pay cash dividends.
Liquidation
In the event of a liquidation, dissolution or winding up, holders of our common stock will be entitled to share ratably in the net assets legally available
for distribution to stockholders after the payment of all of our debts and other liabilities, subject to the satisfaction of any liquidation preference granted to
the holders of any outstanding shares of preferred stock.
Rights and Preferences
Holders of our common stock have no preemptive, conversion or subscription rights, and there are no redemption or sinking fund provisions applicable
to our common stock. The rights, preferences and privileges of the holders of our common stock are subject to, and may be adversely affected by, the rights
of the holders of shares of any series of our preferred stock that we may designate and issue in the future.
Fully Paid and Nonassessable
All of our outstanding shares of common stock are fully paid and nonassessable.
Anti-Takeover Effects of Provisions of Our Charter Documents and Delaware Law
Delaware Anti-Takeover Law
We are subject to Section 203 of the DGCL, or Section 203. Section 203 generally prohibits a public Delaware corporation from engaging in a
“business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an
interested stockholder, unless:
● prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder;
● the interested stockholder owned at least 85% of the voting stock of the corporation outstanding upon consummation of the transaction, excluding
for purposes of determining the number of shares outstanding (1) shares owned by persons who are directors and also officers and (2) shares
owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to
the plan will be tendered in a tender or exchange offer; or
● on or subsequent to the consummation of the transaction, the business combination is approved by the board and authorized at an annual or special
meeting of stockholders, and not by written consent, by the affirmative vote of at least 662 ⁄ 3% of the outstanding voting stock which is not owned
by the interested stockholder.
Section 203 defines a business combination to include:
● any merger or consolidation involving the corporation and the interested stockholder;
● any sale, transfer, pledge or other disposition involving the interested stockholder of 10% or more of the assets of the corporation;
● subject to exceptions, any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested stockholder;
● subject to exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested
stockholder; and
● the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of
the corporation and any entity or person affiliated with or controlling or controlled by the entity or person.
Certificate of Incorporation and Bylaws
Provisions of our certificate of incorporation and bylaws may delay or discourage transactions involving an actual or potential change-in-control or
change in our management, including transactions in which stockholders might otherwise receive a premium for their shares or transactions that our
stockholders might otherwise deem to be in their best interests. Therefore, these provisions could adversely affect the price of our common stock. Among
other things, our certificate of incorporation and bylaws:
● permit our board of directors to issue up to 5,000,000 shares of preferred stock, with any rights, preferences and privileges as they may designate
(including the right to approve an acquisition or other change in control);
● provide that the authorized number of directors may be changed only by resolution adopted by a majority of the board of directors;
● provide that all vacancies, including newly created directorships, may, except as otherwise required by law or subject to the rights of holders of
preferred stock as designated from time to time, be filled by the affirmative vote of a majority of directors then in office, even if less than a
quorum;
● require that any action to be taken by our stockholders must be effected at a duly called annual or special meeting of stockholders or by action
taken by written consent;
● provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a
meeting of stockholders must provide notice in writing in a timely manner and also specify requirements as to the form and content of a
stockholder’s notice; and
● provide that special meetings of our stockholders may be called only by the chairman of the board, the president or by our board of directors
pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies).
Nasdaq Capital Market Listing
Our common stock is listed on the Nasdaq Capital Market under the symbol “VXRT.”
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company, LLC. The transfer agent and registrar’s address
is 6201 15th Avenue, Brooklyn, New York 11219.
SUBSIDIARIES OF THE REGISTRANT
Exhibit 21.1
Name
Vaxart Biosciences, Inc.
Biota Holdings Pty, Ltd.
Biota Scientific Management Pty, Ltd.
Biota Europe Limited (in liquidation)
Jurisdiction
Delaware
Australia
Australia
United Kingdom
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
We consent to the incorporation by reference in the registration statements on Form S-3 (No. 333-228910) and Form S-8 (No. 333-231013, 333-225475,
333-215141, 333-143238) of Vaxart, Inc. of our report dated March 19, 2020 relating to the consolidated financial statements of Vaxart, Inc., which report
appears in this Annual Report on Form 10-K.
/s/ OUM & Co. LLP
San Francisco, California
March 19, 2020
Consent of Independent Registered Public Accounting Firm
Exhibit 23.2
The Board of Directors
Vaxart, Inc.:
We consent to the incorporation by reference in the registration statements (No. 333-228910) on Form S-3 and (No. 333-231013, 333-225475, 333-215141,
333-143238) on Form S-8 of Vaxart, Inc. of our report dated February 6, 2019, with respect to the consolidated balance sheet of Vaxart, Inc. as of
December 31, 2018, the related consolidated statements of operations and comprehensive loss, stockholders’ equity (deficit), and cash flows for the years
ended December 31, 2018, and the related notes (collectively, the consolidated financial statements), which report appears in the December 31, 2019 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 experienced losses 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 do not include any adjustments that might result from the outcome of this uncertainty.
/s/ KPMG LLP
San Francisco, California
March 19, 2020
CERTIFICATION
Exhibit 31.1
I, Wouter W. Latour, M.D., certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Vaxart, Inc.;
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 the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5.
I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee
of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
(b)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: March 19, 2020
By: /s/ WOUTER W. LATOUR, M.D.
Wouter W. Latour, M.D.
Chairman, President and Chief Executive Officer
(Principal Executive Officer and
Principal Financial Officer)
CERTIFICATION
Exhibit 32.1
Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350
of Chapter 63 of Title 18 of the United States Code (18 U.S.C. § 1350), Wouter W. Latour, M.D., Chairman, President and Chief Executive Officer of
Vaxart, Inc. (the “Company”), hereby certifies that, to his knowledge:
(1)
(2)
The Company’s Annual Report on Form 10-K for the period ended December 31, 2019, 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
The information contained in the Report fairly presents, in all material respects, the financial condition of the Company at the end of the period
covered by the Report and results of operations of the Company for the period covered by the Report.
Date: March 19, 2020
By: /s/ WOUTER W. LATOUR, M.D.
Wouter W. Latour, M.D.
President and Chief Executive Officer
(Principal Executive Officer and
Principal 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 by
Vaxart, 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 to be
incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act (whether made before or after
the date of the Form 10-K), irrespective of any general incorporation language contained in such filing.