e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2007
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to .
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Commission File
No. 0-26770
NOVAVAX, INC.
(Exact name of Registrant as
specified in its charter)
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Delaware
(State or other jurisdiction
of
incorporation or organization)
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22-2816046
(I.R.S. Employer
Identification No.)
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9920 Belward Campus Drive, Rockville, Maryland
(Address of principal
executive offices)
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20850
(Zip Code)
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Registrants telephone number, including area code:
(240) 268-2000
Securities registered pursuant to Section 12(b) of the
Act:
NONE
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, Par Value $0.01 per share
Indicate by check mark if the Registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the Registrant is not required to file
reports pursuant to Section 13 or 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the Registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 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 þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of the Registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller reporting
company o
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Indicate by check mark whether the Registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
As of June 30, 2007, the aggregate market value of the
voting and non-voting common equity held by non-affiliates of
the Registrant based on the closing sale price of such stock as
reported by the NASDAQ National Market on such date was
$179,823,824. For purposes of this calculation, shares of common
stock held by directors, officers and stockholders whose
ownership exceeds ten percent of the common stock outstanding at
June 30, 2007 were excluded. Exclusion of such shares held
by any person should not be construed to indicate that the
person possesses the power, direct or indirect, to direct or
cause the direction of the management or policies of the
Registrant, or that the person is controlled by or under common
control with the Registrant.
As of March 10, 2008, there were 61,962,120 shares of
the Registrants Common Stock, par value $.01 per share,
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Registrants Definitive Proxy Statement to
be filed no later than 120 days after the fiscal year ended
December 31, 2007 in connection with the Registrants
2008 Annual Meeting of Stockholders are incorporated by
reference into Part III of this
Form 10-K.
Table of
Contents
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Page No.
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PART I
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Item 1.
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Business
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1
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Item 1A.
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Risk Factors
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10
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Item 1B.
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Unresolved Staff Comments
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24
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Item 2.
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Properties
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Item 3.
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Legal Proceedings
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24
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Item 4.
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Submission of Matters to a Vote of Security Holders
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24
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PART II
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Item 5.
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Market for Registrants Common Equity and Related
Stockholder Matters
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25
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Item 6.
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Selected Financial Data
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27
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Item 7.
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Managements Discussion and Analysis of Financial Condition
and Results of Operations
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27
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Item 7A.
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Quantitative and Qualitative Disclosures about Market Risk
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41
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Item 8.
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Financial Statements and Supplementary Data
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42
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Item 9.
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Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
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42
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Item 9A.
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Controls and Procedures
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Item 9B.
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Other Information
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PART III
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Item 10.
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Directors, Executive Officers and Corporate Governance
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Item 11.
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Executive Compensation
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Item 12.
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Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
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Item 13.
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Certain Relationships and Related Transactions and Director
Independence
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Item 14.
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Principal Accountant Fees and Services
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PART IV
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Item 15.
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Exhibits and Financial Statement Schedules
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45
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Signatures
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48
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When used in this Annual Report on
Form 10-K,
except where the context otherwise requires, the terms
we, us, our,
Novavax and the Company refer to
Novavax, Inc.
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Table of
Contents
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Page No.
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Index To The Consolidated Financial Statements
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Reports of Independent Registered Public Accounting Firms
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F-2
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Consolidated Financial Statements:
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Consolidated Balance Sheets as of December 31, 2007 and 2006
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F-5
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Consolidated Statements of Operations for each of the three
years in the period ended December 31, 2007
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F-6
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Consolidated Statements of Stockholders Equity for each of
the three years in the period ended December 31, 2007
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F-7
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Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 2007
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F-8
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Notes to the Consolidated Financial Statements
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F-9
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ii
PART I
This Annual Report on
Form 10-K
contains forward-looking statements, within the meaning of the
Private Securities Litigation Reform Act that involve risks and
uncertainties. In some cases, forward-looking statements are
identified by words such as believe,
anticipate, intend, plan,
will, may and similar expressions. You
should not place undue reliance on these forward-looking
statements, which speak only as of the date of this report. All
of these forward-looking statements are based on information
available to us at this time, and we assume no obligation to
update any of these statements. Actual results could differ from
those projected in these forward-looking statements as a result
of many factors, including those identified in the section
titled Risk Factors, Managements
Discussion and Analysis of Financial Condition and Results of
Operations and elsewhere. We urge you to review and
consider the various disclosures made by us in this report, and
those detailed from time to time in our filings with the
Securities and Exchange Commission, that attempt to advise you
of the risks and factors that may affect our future results.
Overview
Novavax, Inc., a Delaware corporation (Novavax or
the Company) was incorporated in 1987, and is a
clinical-stage biopharmaceutical company focused on creating
differentiated, value-added vaccines that improve upon current
preventive options for a range of infectious diseases. These
vaccines leverage the Companys virus-like particle
(VLP) platform technology coupled with a unique,
disposable production technology. In 2005, Novavax transitioned
from a specialty pharmaceutical company that sold and marketed
womens health products to an innovative, biopharmaceutical
company focused on vaccines. The Company is now firmly focused
on its VLP vaccine technology platform.
VLPs imitate the three-dimensional structures of viruses but are
composed of recombinant proteins believed to be incapable of
causing infection and disease. The Company is initially focused
on the pandemic (avian) influenza virus and seasonal flu
development programs. During 2007, the Company announced two
additional discovery programs for the treatment of Varicella
Zoster and an undisclosed disease target.
Novavax made significant progress in 2007 in the development of
its vaccine that targets the H5N1 avian influenza with pandemic
potential. In June 2007, the Company released results from an
important preclinical study in which ferrets that received
Novavaxs pandemic vaccine were protected from a lethal
challenge of the H5N1 virus. After filing an Investigational New
Drug application (IND), Novavax initiated its Phase I/IIa human
clinical trial in July 2007. Novavax released interim human data
from the first portion of this clinical trial in December 2007.
These interim results demonstrated that Novavaxs pandemic
influenza vaccine can generate a protective immune response. The
Company plans to begin patient enrollment in the second portion
of the Phase I/IIa trial prior to March 31, 2008 to gather
additional patient immunogenicity and safety data and determine
a final dose through the completion of this clinical trial. It
is anticipated that initial immunogenicity and safety data will
be available early in the third quarter of 2008 with study
completion by the end of 2008 to include ongoing safety data
collection.
The Company progressed development of its VLP trivalent vaccine
that targets seasonal influenza virus in 2007. In December 2007,
Novavax announced results from a preclinical study in mice. The
Company plans to conduct additional preclinical studies during
the first quarter of 2008 with the goal of advancing its
seasonal influenza program into human clinical trials late in
the second quarter or early third quarter of 2008.
Importantly, Novavax has developed a unique production process
for making its recombinant VLP-based vaccines using portable,
disposable manufacturing technology that has advantages over
traditional egg-based vaccine manufacturing and other vaccines
in development. Because the equipment is both portable and
disposable, a facility to produce VLP-based vaccines can be
constructed and validated for production use in
12-18 months
(depending on the capacity) as compared to current egg-based
facilities which can take four or more years to deploy. Our
manufacturing technology requires substantially less capital
costs than traditional egg-based manufacturing (currently
estimated at up to 75% less capital cost). Due to the use of the
Companys proprietary VLP approach in developing
recombinant vaccines, the current production yields are
encouraging compared to currently used egg-based vaccines as
well as developing mammalian cell growth approaches.
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The following table shows the current stage of each product
candidate in Novavaxs vaccine pipeline:
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Discovery
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Preclinical
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Phase I/IIa
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Phase IIb/III
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Pandemic Influenza
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ü
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ü
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ü
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Seasonal Influenza
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ü
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ü
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Varicella Zoster (Shingles)
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ü
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Undisclosed Disease Target
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ü
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The Company also has a drug delivery platform based on micellar
nanoparticles (MNPs), proprietary oil and water
nanoemulsions used for the topical delivery of drugs. The MNP
technology was the basis for Novavaxs first FDA -
approved estrogen replacement product,
Estrasorb®.
In October 2005, the Company entered into license and supply
agreements for Estrasorb with Allergan, Inc.,
successor-in-interest
to Esprit Pharma, Inc. (Allergan), under which the
Company manufactured Estrasorb, and Allergan had an exclusive
license to sell Estrasorb in North America. In 2007, the Company
and Allergan terminated the supply agreement. In April 2006, the
Company entered into a License and Development Agreement and a
Supply Agreement with Allergan to co-develop, supply and
commercialize the Companys MNP-based testosterone product
candidate for the treatment of female hypoactive sexual desire
disorder. In October 2007, these agreements were mutually
terminated. In February 2008, the Company entered into asset
purchase and supply agreements with Graceway Pharmaceuticals,
LLC related to Estrasorb and supply of additional units of
Estrasorb and terminated the Estrasorb license agreement with
Allergan. The Company is seeking to capitalize on the value of
its additional MNP technology assets through a potential sale or
license of the technology in fields of use outside vaccines and
has engaged an investment bank to aid in the search for
potential buyers or licensees.
Our
Strategy
The key elements of our business strategy are as follows:
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Leverage our proven technologies in influenza and other
vaccine candidates without the use of an adjuvant.
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Our recombinant VLP technology is well suited to create
differentiated vaccines against pandemic and seasonal influenza
and other infectious diseases. VLPs are a proven technology as
they have been used in marketed vaccine products such as
Gardasil sold by Merck & Co. Interim data from the
Phase I/IIa study of our H5N1 vaccine candidate provided the
human
proof-of-concept
of our proprietary VLP platform. The data showed that, among the
subjects in the study, the vaccine, without the use of an
adjuvant, was well tolerated and demonstrated a dose dependent
response.
This technology and our manufacturing process also address
several of the technical and logistical issues associated with a
potential pandemic. It allows rapid creation of new vaccines
within 12 weeks of the identification of emerging strains
of influenza, and the manufacturing process can be rapidly
commissioned and scaled up (as compared to existing vaccines
that take up to 6 months to produce a vaccine from the
identification of a viral strain).
Adjuvants are chemical substances that can boost the human
immune system, but are subject to more scrutiny by the
regulatory agencies.
In addition, the technology provides a platform for an
immunogenic seasonal flu vaccine as well as other vaccines
against other infectious diseases.
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Build a robust pipeline of products based on our VLP
technology.
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Novavaxs VLP technology is a platform technology which
provides an efficient system to select lead candidates, refine
manufacturing processes and optimize development across product
candidates. Based on this platform nature of the technology,
Novavax currently has one vaccine in human clinical trials, one
vaccine that is in late stage preclinical and toxicology
studies, and two new proprietary vaccine programs for
2
vaccines for which leading candidates are entering preclinical
evaluation. Based on current plans, we expect to have two
influenza vaccines in Phase II trials by the second half of
2008.
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Maximize the potential of our unique and efficient
manufacturing process.
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The baculovirus expression system manufacturing process of VLP
vaccines has been developed using a portable, disposable
approach which requires less labor and infrastructure than
egg-based vaccine manufacturing processes. In addition, using
process development techniques, the vaccines under development
are providing yields which will lower cost of production, but
also allow the possibility of higher dose products that are
commercially viable. Novavax can maximize these advantages in
the near term by producing vaccines for the preclinical and
clinical needs of its vaccine pipeline of products, and in the
long term through potential commercialization advantages.
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Seek strategic collaborations and partnerships to advance
products and technologies.
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We are engaged in seeking strategic collaborations and
partnerships to further develop, co-market and potentially
commercialize our vaccine products. In December 2007, the
Company announced a marketing collaboration with GE Healthcare
to provide a novel pandemic flu solution to select international
countries. The agreement combines Novavaxs novel VLP and
manufacturing approach with GE Healthcares disposable
manufacturing technologies. The goal of this partnership is to
seek international countries that desire in-border control over
production and distribution of pandemic vaccines to their
citizens. The relationship with GE Healthcare is driven by the
novel vaccines that Novavax is developing coupled with GE
Healthcare disposable equipment technologies.
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Capitalize on the value of our MNP and other technologies
through sales or licenses.
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The Company is seeking to capitalize, through asset sales or
licensing transactions, on the value of the micellar
nanoparticle process (MNP) drug delivery system, and
its other technologies and products that remain from its
specialty pharmaceutical focus.
Research
and Development Technology and Activities
Vaccines
VLPs. We develop and produce biopharmaceutical
proteins for use as vaccines against pandemic and seasonal
influenza and other infectious diseases, and as tolerogens to
prevent inflammatory responses in the initiation and progression
of stroke and other illnesses. Our lead vaccine technology
platform is based on virus-like particles (VLPs),
which are self-assembling protein structures that resemble
viruses. These are noninfectious particles that, for many viral
diseases, have been shown in animal and human studies to make
effective vaccines. VLPs closely mimic natural virus particles
with repeating protein structures that can elicit broad and
strong antibody and cellular immune responses, but lack the
genetic material required for replication. We have several
ongoing development programs involving VLP vaccines that address
urgent medical needs, including pandemic and seasonal influenza,
Varicella Zoster and other infectious diseases.
Pandemic Influenza VLP Vaccine. In the recent
past, unexpected subtypes of avian origin have resulted in
severe morbidity and mortality in a limited number of people.
Highly pathogenic H5N1 influenza viruses which are now
widespread in poultry in Asia and have spread to some European
countries, have been linked to human infection. Genetic
reassortment between avian and human influenza subtypes, or
genetic mutations, may lead to the emergence of a virus capable
of causing worldwide illness, a pandemic.
Proof-of-concept
of the VLP approach in H5N1 pandemic influenza has been
demonstrated by the Phase I/IIa human clinical trial interim
results released by Novavax in December 2007. The Company
reported that its VLP vaccine for H5N1 influenza is immunogenic,
that elicited immune responses at both 15 and 45 mcg doses.
Before March 31, 2008, the second portion of the Phase
I/IIa study is expected to begin enrollment of additional
subjects using a range of doses of H5N1 to select a final dose
for further study in humans. Ongoing safety data will also be
evaluated in this continuing study.
Seasonal Influenza VLP Vaccine. According to
the Center for Disease Control, every year between 5% and 20% of
the United States population is infected by the influenza virus.
While the severity of illness varies, influenza causes an
estimated 36,000 deaths in the United States and 500,000
worldwide annually. These seasonal outbreaks
3
have in recent years been caused by subtypes of influenza virus
designated as H3N2 and H1N1. The interim human results from the
Phase I/IIa clinical trial for the H5N1 (pandemic) vaccine could
be an early indicator of potential success of our seasonal
influenza vaccine, which is scheduled to commence human clinical
trials late in the second quarter or early in the third quarter
of 2008.
Varicella Zoster VLP Vaccine. In September
2007, the Company announced a new discovery-phase product
indication target for the prevention of a disease associated
with Varicella Zoster virus in older patients, commonly referred
to as Shingles. Shingles, a skin rash often with painful
blisters, is caused by the same virus that causes chickenpox.
Shingles most frequently occurs in patients 60 years or
older and manifests itself with acute pain (post-herpetic
neuralgia-PHN) which occurs in 65% of affected patients. With
only one approved vaccine currently approved for use, the
potential market for Varicella Zoster is significant.
Undisclosed Target VLP Vaccine. Novavax has
another discovery-phase product indication target for a disease
indication that it has, for competitive reasons, not yet been
disclosed.
VLP Vaccine Manufacturing. All currently
approved influenza vaccines are produced by growing virus in
chicken eggs, from which the virus is extracted and further
processed. This
50-year-old
egg-based production method requires a minimum of a six-month
lead time for production of a new strain of virus and
significant investment in fixed production facilities, with
relatively low production yields. The vaccine shortage during
the 2004 flu season (caused by a contamination issue at a
facility in the United Kingdom) highlighted the limitations of
current production methods and the need for increased vaccine
manufacturing capacity. It also heightened concerns regarding
manufacturers capacity to respond to a pandemic, when the
number of vaccine doses required will be higher than the number
required for seasonal flu vaccines and manufacturing lead times
will be even shorter. We produce VLPs using a baculovirus
expression system in insect cells with disposable, low-cost
equipment that can be readily dispersed both nationally and
internationally. By not requiring significant production batch
sizes, production capacity can be employed quickly; estimated to
be built and validated within twelve to eighteen months compared
to the current approved manufacturing technology that can take
four years or more to deploy. Lead times for production against
new virus strains are measured in weeks, not months.
In 2007, we streamlined operations by consolidating our offices
and laboratories into our new corporate headquarters in
Rockville, Maryland where we leased a 51,000 square foot,
stand-alone facility. This facility has ample office space,
state of the art laboratory space, as well as utilities that
allow for operating a Good Manufacturing Practice
(GMP) pilot plant. In late 2007, we embarked on
making leasehold improvements to create a GMP pilot plant in
this facility that we expect to commission in the second quarter
of 2008. This facility will showcase the capability of our
disposable production technology to create vaccine production
capacity rapidly, in a low infrastructure environment, at a
fraction of the cost required to bring traditional vaccine
facilities on line. In addition to lower capital costs, we have
made substantial improvement in our production yields during
2007 which allows us to remain highly competitive from a cost
perspective even at higher vaccine doses. We will continue to
operate our manufacturing operations for producing Phase I/II
vaccine materials at our Taft Court facility, also located in
Rockville, Maryland, until the new GMP build out at our
corporate headquarters is completed and validated which is
anticipated to be in the second quarter of 2008.
VLP Intellectual Property Rights. In March
2007, the Company secured additional intellectual property
through the licensing of additional VLP technology through a
license agreement with the University of Massachusetts using
their proprietary paramyxoviruses as a core for building VLP
vaccines. In July 2007, the Company entered into a non-exclusive
license agreement with Wyeth Holdings Corporation to obtain
rights to a family of patent applications covering VLP
technology for use in human vaccines in certain fields of use.
Other VLP Projects. Novavax is working on
certain other vaccine projects with sponsoring organizations.
These projects, described below, are currently funded and
controlled by other parties. As is typical with these research
contracts, the Company does not currently have commercial rights
to these products.
HIV-1/AIDS VLP Vaccine. The human toll
of AIDS is staggering and now kills more people worldwide than
any other infectious disease. Nearly 34 million people are
infected with HIV-1, including 2.5 million people who were
newly infected in 2007, according to the World Health
Organization (WHO). Under a five-year National
Institutes of Health (NIH) grant, which was awarded
in 2003, we are working in collaboration with leading
4
scientists from the University of Alabama
Birmingham, Emory University and Harvard Medical School in the
development of a second-generation AIDS vaccine. In January
2007, the Company announced that it has significantly enhanced
both the quality and purity of its VLP vaccine for HIV/AIDS.
This second generation AIDS vaccine is based on the HIV-1 viral
envelope with a natural three-dimensional structure to trigger a
protective immune response. Preclinical studies are under way
using the improved HIV-1 vaccine, and planning has begun to
advance this new vaccine to human clinical trials in
collaboration with the United States government potentially as
early as 2009. Early versions of Novavaxs VLP vaccine were
successful in triggering immune responses in preclinical
studies, however, attempts to develop a vaccine against this
disease has proven to be elusive to date. Novavax scientists and
its collaborators discovered a way to optimize the expression of
the HIV-1 envelope, which is a principal target for immunity in
humans. The Company does not have commercial rights to this
potential vaccine; however, the project does demonstrate the
breadth of potential application of VLPs to various infectious
diseases.
SARS VLP Vaccine. In 2005, the NIH
awarded us a $1.1 million, three-year grant to develop a
vaccine to prevent Severe Acute Respiratory Syndrome
(SARS). SARS is a severe form of pneumonia,
accompanied by a fever and caused by a coronavirus. Our SARS VLP
vaccine is also based on the production of coronavirus-like VLPs
in insect cells. The vaccine candidate is anticipated to be
entering preclinical studies in 2008. Novavax does not have the
commercial rights to this product and continues to work with NIH
funding to support its development.
E-Selectin
Tolerogen. In collaboration with the National
Institute of Neurological Disorders and Stroke
(NINDS), we have been developing
E-selectin-based
molecularly-derived products for the prevention of strokes. In
September 2002, a published report in the professional journal
Stroke provided experimental evidence on prevention
of stroke in stroke-prone rats. These results provided
supportive evidence that
E-selectin
tolerization may help in the prevention of strokes and other
illness where inflammatory and immune responses are involved in
the initiation and progression of disease. We were awarded a
government contract for the formulation development and
manufacture of
E-selectin
for Phase I clinical trials to be run by the NINDS and the NIH.
Formulation and product has been produced by the Company for
future preclinical and human clinical trials. Novavax does not
have commercial rights to this product.
Research
and Development Funding
Total externally contracted research and development costs were
$1.0 million in 2007, $0.9 million in 2006 and
$1.8 million in 2005. Total internally sponsored research
and development costs were $16.7 million in 2007,
$10.6 million in 2006 and $3.3 million in 2005.
Development costs totaling $0.2 million for Estrasorb were
included in 2005 internally sponsored research and development
costs.
Competition
The biopharmaceutical industry and the vaccine market are
intensely competitive and are characterized by rapid
technological progress. There are a number of companies
developing and selling vaccines for pandemic and seasonal
influenza employing current technology with some modifications,
as well as new technologies. Our technology is based upon
utilizing the baculovirus expression system in insect cells to
make VLPs. We believe this system offers many advantages when
compared to other technologies and is uniquely suited for
developing pandemic and seasonal influenza vaccines as well as
other infectious diseases. The fact that we do not rely on the
use of adjuvants, chemical substances that can boost the human
immune system, leads us to believe we have a clearer regulatory
path toward approval of our vaccines with regulatory agencies.
The table below provides a list of major vaccine competitors and
corresponding influenza vaccine technologies.
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Company
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Competing Technology Description
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sanofi pasteur, Inc.
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Inactivated sub-unit (egg-based)
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MedImmune Vaccines, Inc. (a subsidiary of Astra-Zeneca, Inc.)
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Nasal, live attenuated (cell-based)
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GlaxoSmithKline Biologicals
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Inactivated (egg-based)
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Novartis, Inc.
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Inactivated sub-unit (egg-based)
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Merck & Co.
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Novel vaccines
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5
In general, competition among pharmaceutical products is based
in part on product efficacy, safety, reliability, availability,
price and patent position. An important factor is the relative
timing of the market introduction of our products and our
competitors products. Accordingly, the speed with which we
can develop products, complete the clinical trials and approval
processes and supply commercial quantities of the products to
the market is an important competitive factor. Our competitive
position also depends upon our ability to attract and retain
qualified personnel, obtain patent protection or otherwise
develop proprietary products or processes, and secure sufficient
capital resources for the often substantial period between
technological conception and commercial sale.
Patents
and Proprietary Rights
We generally seek patent protection for our technology and
product candidates in the United States and abroad. The patent
position of biotechnology firms generally is highly uncertain
and involves complex legal and factual questions. Our success
will depend, in part, on whether we can:
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Obtain patents to protect our own technologies and products;
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Obtain licenses to use the technologies of third parties, which
may be protected by patents;
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Protect our trade secrets and know-how; and
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Operate without infringing the intellectual property and
proprietary rights of others.
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Patent rights; licenses. Novavax has
intellectual property (patents, licenses, know-how) related to
its vaccine, drug delivery, adjuvant and other technologies.
Novavax currently has or has rights to over 50 United States
patents and corresponding foreign patents and patent
applications relating to vaccines, biologics, and drug delivery
systems, and applications for various biological and chemical
uses. Novavaxs core vaccine related intellectual property
extends beyond 2020.
In March 2007, the Company secured additional intellectual
property through the licensing of additional VLP technology
through a license agreement with the University of Massachusetts
using their proprietary paramyxoviruses as a core for building
VLP vaccines. In July 2007, the Company entered into a
non-exclusive license agreement with Wyeth Holdings Corporation
to obtain rights to a family of patent applications covering VLP
technology for use in human vaccines in certain fields of use.
Consistent with statutory guidelines issued under the Federal
Technology Transfer Act of 1986 designed to encourage the
dissemination of science and technology innovation and provide
sharing of technology that has commercial potential, our
collaborative research efforts with the United States government
and with other private entities receiving federal funding
provide that developments and results must be freely published,
that information or materials supplied by us will not be treated
as confidential and that we will be required to negotiate a
license to any such developments and results in order to
commercialize products. There can be no assurance that we will
be able to successfully obtain any such license at a reasonable
cost, or that such developments and results will not be made
available to our competitors on an exclusive or non-exclusive
basis.
Trade Secrets. To a more limited extent, we
rely on trade secret protection and confidentiality agreements
to protect our interests. It is our policy to require employees,
consultants, contractors, manufacturers, collaborators, and
other advisors to execute confidentiality agreements upon the
commencement of employment, consulting or collaborative
relationships with us. We also require signed confidentiality
agreements from any entity that is to receive confidential
information. With respect to employees, consultants and
contractors, the agreements generally provide that all
inventions made by the individual while rendering services to us
shall be assigned to us as our property.
Government
Regulations
The development, production and marketing of pharmaceutical and
biological products developed by Novavax or our collaborators is
subject to regulation for safety, efficacy and quality by
numerous governmental authorities in the United States and other
countries. In the United States, the development, manufacturing
and marketing of human pharmaceuticals and vaccines are subject
to extensive regulation under the federal Food, Drug, and
Cosmetic Act, and biological products are subject to regulation
both under provisions of that Act and under the
6
Public Health Service Act. The Food and Drug Administration
(FDA) assesses the safety and efficacy of products
and regulates, among other things, the testing, manufacture,
labeling, storage, record keeping, advertising and promotion.
The process of obtaining FDA approval for a new product is
costly and time-consuming.
Vaccine clinical development follows the same general pathway as
for drugs and other biologics. A sponsor who wishes to begin
clinical trials with a vaccine must submit an Investigational
New Drug application (an IND) describing the
vaccine, its method of manufacture and quality control tests for
release. Before applying for FDA approval to market any new drug
product candidates, we must first submit an IND that explains to
the FDA the results of pre-clinical testing conducted in
laboratory animals and what we propose to do for human testing.
At this stage, the FDA decides whether it is reasonably safe to
move forward with testing the drug on humans. We must then
conduct Phase I human clinical trials and larger-scale
Phase II and III human clinical trials that
demonstrate the safety and efficacy of our products to the
satisfaction of the FDA. Once these trials are complete, a
Biologics License Application (BLA) (the biologic
equivalent to a New Drug Application) can be filed with the FDA
requesting approval of the vaccine for marketing based on the
vaccines effectiveness and safety.
If successful, the completion of all three phases of clinical
development can be followed by the submission of a BLA. Also
during this stage, the proposed manufacturing facility undergoes
a pre-approval inspection during which production of the vaccine
as it is in progress is examined in detail. Vaccine approval
also requires the provision of adequate product labeling to
allow health care providers to understand the vaccines
proper use, including its potential benefits and risks, to
communicate with patients and parents, and to safely deliver the
vaccine to the public. Until a vaccine is given to the general
population, all potential adverse events cannot be anticipated.
Thus, many vaccines undergo Phase IV studies after a BLA
has been approved and the vaccine is licensed and on the market.
In addition to obtaining FDA approval for each product, each
domestic manufacturing establishment must be registered with the
FDA, is subject to FDA inspection and must comply with current
GMP regulations. To supply products for use either in the United
States or outside the United States, including clinical trials,
United States and foreign manufacturing establishments,
including third-party facilities, must comply with GMP
regulations and are subject to periodic inspection by the
corresponding regulatory agencies in their home country under
reciprocal agreements with the FDA
and/or by
the FDA.
Preclinical studies may take several years to complete and there
is no guarantee that the FDA will permit an IND based on those
studies to become effective and the product to advance to
clinical testing. Clinical trials may take several years to
complete. After the completion of the required phases of
clinical trials, if the data indicate that the drug or biologic
product is safe and effective, a BLA or NDA (depending on
whether the product is a biologic or pharmaceutical product) is
filed with the FDA to approve the marketing and commercial
shipment of the drug. This process takes substantial time and
effort and the FDA may not accept the BLA or NDA for filing,
and, even if filed, the FDA might not grant approval. FDA
approval of a BLA or NDA may take up to two years and may take
longer if substantial questions about the filing arise. The FDA
may require post-marketing testing and surveillance to monitor
the safety of the applicable products.
In addition to regulatory approvals that must be obtained in the
United States, an investigational product is also subject to
regulatory approval in other countries in which it is intended
to be marketed. No such product can be marketed in a country
until the regulatory authorities of that country have approved
an appropriate license application. FDA approval does not assure
approval by other regulatory authorities. In addition, in many
countries, the government is involved in the pricing of the
product. In such cases, the pricing review period often begins
after market approval is granted.
We are also subject to regulation under the Occupational Safety
and Health Act, the Environmental Protection Act, the Toxic
Substances Control Act, the Resource Conservation and Recovery
Act and other present and potential federal, state or local
regulations. These and other laws govern our use, handling and
disposal of various biological and chemical substances used in,
and waste generated by, our operations. Our research and
development involves the controlled use of hazardous materials,
chemicals and viruses. Although we believe that our safety
procedures for handling and disposing of such materials comply
with the standards prescribed by state and federal regulations,
the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such
an accident, we could be held liable for any damages that
result, and any such liability could
7
exceed our resources. Additionally, for formulations containing
controlled substances, we are subject to Drug Enforcement Act
(DEA) regulations.
There have been a number of federal and state proposals during
the last few years to subject the pricing of pharmaceutical and
biological products to government control and to make other
changes to the medical care system of the United States. It is
uncertain what legislative proposals will be adopted or what
actions federal, state or private payers for medical goods and
services may take in response to any medical reform proposals or
legislation. We cannot predict the effect medical or healthcare
reforms may have on our business, and no assurance can be given
that any such reforms will not have a material adverse effect.
Manufacturing
We have a GMP facility in our other facility in Maryland which
incorporates disposable cell culture equipment that supports the
manufacturing requirements for early stage clinical trial
materials for our VLP vaccine candidates, including pandemic and
seasonal influenza vaccine candidates, and other biologic
products.
During the fourth quarter of 2007, the Company commenced the
build out of a manufacturing suite in its Rockville, Maryland
corporate headquarters facility for a 5,000 square foot GMP
facility to produce clinical trial material as well as modest
commercialization quantities of its VLP vaccines. Due to its
unique manufacturing platform, the Company is able to produce
vaccines at up to 10 times the yields of traditional
manufacturing methods (i.e. egg-based), depending on the vaccine
dose, and at significantly lower capital costs than currently
available vaccine technologies. Construction for this GMP suite
is expected to be completed and validated, with clinical trial
production commencing, in the second quarter of 2008. Any plans
to further expand our manufacturing capabilities at our
Rockville, Maryland facilities, including the facilities
necessary to expand manufacturing quantities, test and package
an adequate supply of finished products in order to meet any
long term commercial needs, will require additional resources
and will be subject to ongoing government approval and oversight.
We also have a 24,000 square foot manufacturing facility
situated within a Catalent, Inc. facility in Philadelphia,
Pennsylvania. It is staffed by our employees and operates under
our quality system. Estrasorb, our first FDA-approved commercial
product, is being manufactured at this facility. There have been
no adverse 483 observations from FDA inspections associated with
the production of Estrasorb. Based on the termination of the
Supply Agreement with Allergan, we had planned to close this
facility at the end of 2007 and transfer production to a third
party. However, in February 2008, the Company entered into an
agreement with Graceway Pharmaceuticals, LLC
(Graceway) to sell its manufacturing equipment and
other assets related to Estrasorb. In addition to the sale of
assets, the Company agreed to produce additional lots of
Estrasorb on behalf of Graceway, which is anticipated to be
completed by July 2008, at which time the Company will close
down this operation.
Sources
of Supply
Most of the raw materials and other supplies required in our
business are generally available from various suppliers in
quantities adequate to meet our needs. In some cases, we have
only qualified one supplier for certain of our manufacturing
components. We have plans in place to qualify multiple suppliers
for all critical supplies before the time we would put any of
our product candidates into commercial production. One of our
major suppliers is GE Healthcare which supplies disposable
components used in our manufacturing process. GE Healthcare
utilizes a sophisticated, in depth process to qualify multiple
vendors for the products that are supplied to us. All the
materials and vendors that supply manufacturing materials to the
Company are audited for compliance with GMP standards.
Business
Development
We continue to explore opportunities for corporate alliances and
partners to help develop and ultimately commercialize and market
our technologies and product candidates. Our strategy is to
enter into collaborative arrangements with pharmaceutical and
other companies for some or all aspects of product development,
manufacturing, marketing and sales of our products that will
require broad marketing capabilities and overseas marketing.
These collaborators are generally expected to be responsible for
funding or reimbursing all or a portion of the development
costs, including the costs of later stage clinical testing
necessary to obtain regulatory clearances
8
and for commercial scale manufacturing, in exchange for rights
to market specific products in particular geographic territories.
Employees
As of March 10, 2008, we had 84 full-time employees
and 2 part-time employees for a total of 86 employees, 25
of whom hold M.D. or Ph.D. degrees and 16 of whom hold other
advanced degrees. Of our total workforce, 67 are engaged
primarily in research, development and manufacturing activities
and 19 are engaged primarily in business development, finance
and accounting and administrative functions. None of our
employees are represented by a labor union or covered by a
collective bargaining agreement, and we consider our employee
relations to be good.
Executive
Officers
Our executive officers hold office until the first meeting of
the Board of Directors following the Annual Meeting of
Stockholders and until their successors are duly chosen and
qualified, or until they resign or are removed from office in
accordance with our By-laws.
The following table provides certain information with respect to
our executive officers.
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Principal Occupation and Other Business
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Name
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Age
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Experience During the Past Five Years
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Rahul Singhvi
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43
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President and Chief Executive Officer and Director of Novavax
since August 2005. Senior Vice President and Chief Operating
Officer of Novavax from April 2005 to August 2005 and Vice
President, Pharmaceutical Development and Manufacturing
Operations from April 2004 to April 2005. For 10 years
prior to joining the Company, served in several positions with
Merck & Co., culminating as Director of the Merck
Manufacturing Division from 1999 to 2004.
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Len Stigliano
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60
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Vice President, Chief Financial Officer and Treasurer of Novavax
since September 2007. Served as a partner of the Philadelphia
office of Tatum, LLC from December 2006 until he joined Novavax
as Interim Chief Financial Officer in March 2007.
President and Chief Operating Officer of Omnicare Clinical
Research, Inc. a global clinical research organization from 2000
until December 2006.
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Raymond J. Hage, Jr.
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40
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Senior Vice President, Commercial Operations since
October 2006. Senior Vice President and Chief Operating
Officer from August 2005 to October 2006 and Vice President of
Marketing and Corporate Development of Novavax from January 2004
to August 2005. Prior to joining the Company, served in several
positions including an independent marketing consultant with
CHS, Inc. in 2003, Director of Marketing with Cephalon, Inc.
from 2002 to 2003 and for 10 years held various marketing
and sales roles at Eli Lilly culminating as Director of US
Womens Health from 2001 to 2002.
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Penny Heaton
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43
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Vice President, Research & Development and Chief Medical
Officer of Novavax since October 2006. Prior to joining the
Company, served as Sr. Director and Director of Vaccine Clinical
Research at Merck & Co., Inc. from 1999 to September 2006.
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Jim Robinson
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47
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Vice President, Technical Operations and Quality Operations at
Novavax since March 2007. Served at sanofi pasteur, Inc. in its
US Vaccine Division in various positions, most recently, as Vice
President, Industrial Operations from June 1986 to
December 2006.
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9
Availability
of Information
Novavax was incorporated in 1987 under the laws of the State of
Delaware. Our principal executive offices are located at 9920
Belward Campus Drive, Rockville, Maryland, 20850. Our telephone
number is
(240) 268-2000
and our website address is www.novavax.com. The contents
of our website are not part of this Annual Report on
Form 10-K.
We make available, free of charge and through our website, our
Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K,
and any amendments to any such reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended, as soon as reasonably
practicable after filed with or furnished to the Securities and
Exchange Commission.
You should carefully consider the following risk factors in
evaluating our business. There are a number of risk factors that
could cause our actual results to differ materially from those
that are indicated by forward-looking statements. Some of the
risks described relate principally to our business and the
industry in which we operate. Others relate principally to the
securities market and ownership of our common stock. The risks
and uncertainties described below are not the only ones facing
us. Additional risks and uncertainties that we are unaware of,
or that we currently deem immaterial, also may become important
factors that affect us. If any of the following risks occur, our
business, financial condition or results of operations could be
materially and adversely affected. You should also consider the
other information included in this Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007.
RISKS
RELATED TO OUR BUSINESS
We
have a history of losses and our future profitability is
uncertain.
Our expenses have exceeded our revenues since our formation in
1987, and our accumulated deficit at December 31, 2007 was
$199.7 million. Our net revenues for the last three fiscal
years were $1.5 million in 2007, $1.7 million in 2006
and $5.3 million in 2005. We have received a limited amount
of related revenue from research contracts, licenses and
agreements to provide vaccine candidates, services and
technologies. We cannot be certain that we will be successful in
entering into strategic alliances or collaborative arrangements
with other companies that will result in significant revenues to
offset our expenses. Our net losses for the last three fiscal
years were $34.8 million in 2007, $23.1 million in
2006 and $11.2 million in 2005.
Our historical losses have resulted from research and
development expenses for our vaccine and drug delivery product
candidates, sales and marketing expenses, and manufacturing
expenses for Estrasorb, protection of our intellectual property
and other general operating expenses. Our losses increased due
to the launch of Estrasorb since 2004 as we expanded our
manufacturing capacity, and sales and marketing capabilities.
More recently, our losses have increased, and will continue to
increase, as a result of higher research and development efforts
to support the development of our vaccines, particularly our
pandemic and seasonal influenza vaccines.
We expect to continue to incur significant operating expenses
and anticipate that our expenses and losses will increase in the
foreseeable future as we seek to:
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complete our human Phase I/IIa clinical trial for our pandemic
flu vaccines;
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initiate Phase I/II clinical trials for our seasonal flu vaccine;
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initiate additional preclinical studies for Varicella Zoster and
our undisclosed product candidate using our VLP vaccine
technology platform;
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expand our VLP manufacturing capacity through our current
expansion project in Rockville, Maryland, which requires that we
build-out a portion of our research and development space as a
Food and Drug Administration, or FDA, compliant and validated
product manufacturing facility;
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complete the manufacture of Estrasorb for Graceway and
transition the assets to Graceway;
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maintain, expand and protect our intellectual property portfolio;
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hire additional clinical, quality control, scientific and
management personnel; and
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add operations, financial, accounting, facilities engineering
and information systems personnel, consistent with expanding our
operations.
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As a result, we expect our cumulative operating loss to increase
until such time, if ever, that product sales, licensing fees,
royalties, milestones, contract research and other sources
generate sufficient revenue to fund our continuing operations.
We cannot predict when, if ever, we might achieve profitability
and cannot be certain that we will be able to sustain
profitability, if achieved.
We
have repositioned ourselves from a specialty pharmaceutical
company and face all the risks inherent in the implementation of
a new business strategy.
We have changed the focus of the Company from the development
and commercialization of specialty pharmaceutical products to
the research and development of new products using our
proprietary virus-like particle vaccine technology platform. We
cannot predict whether we will be successful in implementing our
new business strategy.
We intend to focus our research and development activities on
vaccines, an area in which we have particular strengths and a
technology that appears promising. The outcome of any research
and development program is highly uncertain. Only a small
fraction of biotechnology development programs ultimately result
in commercial products or even product candidates and a number
of events could delay our development efforts and negatively
impact our ability to obtain regulatory approval for, and to
market and sell, a product candidate. Product candidates that
initially appear promising often fail to yield successful
products. In many cases, preclinical or clinical studies will
show that a product candidate is not efficacious or that it
raises safety concerns or has other side effects that outweigh
its intended benefit. Success in preclinical or early clinical
trials may not translate into success in large-scale clinical
trials. Further, success in clinical trials will likely lead to
increased investment, accelerating cumulative losses, to bring
such products to market. Even after a product is approved and
launched, general usage or post-marketing studies may identify
safety or other previously unknown problems with the product,
which may result in regulatory approvals being suspended,
limited to narrow indications or revoked, which may otherwise
prevent successful commercialization.
We
have limited financial resources and we are not certain that we
will be able to maintain our operations or to fund the
development of future products.
We do not expect to generate revenues from product sales,
licensing fees, royalties, milestones, contract research or
other sources in an amount sufficient to fund our operations,
and we will therefore use our cash resources and expect to
require additional funds to maintain our operations, continue
our research and development programs, commence future
preclinical studies and clinical trials, seek regulatory
approvals and manufacture and market our products. We will seek
such additional funds through public or private equity or debt
financings, collaborative arrangements and other sources. We
cannot be certain that adequate additional funding will be
available to us on acceptable terms, if at all. If we cannot
raise the additional funds required for our anticipated
operations, we may be required to delay significantly, reduce
the scope of or eliminate one or more of our research or
development programs, downsize our general and administrative
infrastructure, or seek alternative measures to avoid
insolvency, including arrangements with collaborative partners
or others that may require us to relinquish rights to certain of
our technologies, product candidates or products. If we raise
additional funds through future offerings of shares of our
common stock or other securities, such offerings would cause
dilution of existing stockholders percentage ownership in
the Company. These future offerings also could have a material
and adverse effect on the price of our common stock.
11
Many
of our competitors have significantly greater resources and
experience, which may negatively impact our commercial
opportunities and those of our current and future
licensees.
The biotechnology and pharmaceutical industries are subject to
intense competition and rapid and significant technological
change. We have many potential competitors, including major drug
and chemical companies, specialized biotechnology firms,
academic institutions, government agencies and private and
public research institutions. Many of our competitors have
significantly greater financial and technical resources,
experience and expertise in:
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research and development;
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preclinical testing;
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designing and implementing clinical trials;
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regulatory processes and approvals;
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production and manufacturing; and
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sales and marketing of approved products.
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Principal competitive factors in our industry include:
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the quality and breadth of an organizations technology;
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management of the organization and the execution of the
organizations strategy;
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the skill and experience of an organizations employees and
its ability to recruit and retain skilled and experienced
employees;
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an organizations intellectual property portfolio;
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the range of capabilities, from target identification and
validation to drug discovery and development to manufacturing
and marketing; and
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the availability of substantial capital resources to fund
discovery, development and commercialization activities.
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Large and established companies such as Merck & Co.,
Inc., GlaxoSmithKline PLC, Novartis, Inc., sanofi pasteur, Inc.
and MedImmune Inc. (a subsidiary of Astra-Zeneca, Inc.), among
others, compete in the vaccine market. In particular, these
companies have greater experience and expertise in securing
government contracts and grants to support their research and
development efforts, conducting testing and clinical trials,
obtaining regulatory approvals to market products, and
manufacturing such products on a broad scale and marketing
approved products.
Smaller or early-stage companies and research institutions may
also prove to be significant competitors, particularly through
collaborative arrangements with large and established
pharmaceutical or other companies. As these companies develop
their technologies, they may develop proprietary positions,
which may prevent or limit our product development and
commercialization efforts. We will also face competition from
these parties in recruiting and retaining qualified scientific
and management personnel, establishing clinical trial sites and
patient registration for clinical trials, and in acquiring and
in-licensing technologies and products complementary to our
programs or potentially advantageous to our business. If any of
our competitors succeed in obtaining approval from the FDA or
other regulatory authorities for their products sooner than we
do or for products that are more effective or less costly than
ours, our commercial opportunity could be significantly reduced.
In order to effectively compete, we will have to make
substantial investments in development, testing, manufacturing
and sales and marketing or partner with one or more established
companies. There is no assurance that we will be successful in
gaining significant market share for any product or product
candidate. Our technologies and products also may be rendered
obsolete or noncompetitive as a result of products introduced by
our competitors to the marketplace more rapidly and at a lower
cost.
12
We may
have product liability exposure.
The administration of drugs to humans, whether in clinical
trials or after marketing clearances are obtained, can result in
product liability claims. We maintain product liability
insurance coverage in the total amount of $10 million for
claims arising from the use of our currently marketed products
and products in clinical trials prior to FDA approval. Coverage
is relatively expensive, and the market pricing can
significantly fluctuate, therefore, we may not be able to
maintain insurance at a reasonable cost. There can be no
assurance that we will be able to maintain our existing
insurance coverage or obtain coverage for the use of our other
products in the future. This insurance coverage and our
resources may not be sufficient to satisfy liabilities resulting
from product liability claims. A successful claim may prevent us
from obtaining adequate product liability insurance in the
future on commercially desirable items, if at all. Even if a
claim is not successful, defending such a claim would be
time-consuming and expensive, may damage our reputation in the
marketplace, and would likely divert managements attention.
If we
lose or are unable to attract key management or other personnel,
we may experience delays in product development.
We depend on our senior executive officers as well as key
scientific and other personnel. The loss of these individuals
could harm our business and significantly delay or prevent the
achievement of research, development or business objectives. We
have not purchased key-man life insurance on any of our
executive officers or key personnel, and therefore may not have
adequate funds to find acceptable replacements for them.
Competition for qualified employees is intense among
pharmaceutical and biotechnology companies, and the loss of
qualified employees, or an inability to attract, retain and
motivate additional highly skilled employees required for the
expansion of our activities, could hinder our ability to
complete human studies successfully and develop marketable
products.
We also rely from
time-to-time
on outside advisors who assist us in formulating our research
and development and clinical strategy. We may not be able to
attract and retain these individuals on acceptable terms, which
could have a material adverse effect on our business, financial
condition and results of operations.
We
have experienced significant management turnover.
Our current President and Chief Executive Officer, Rahul
Singhvi, assumed this responsibility in August 2005. Most of our
executive officers have joined us since that time. This lack of
management continuity, and the resulting lack of long-term
history with our Company, could result in operational and
administrative inefficiencies and added costs. If we were to
experience additional turnover at the executive level, these
risks would be exacerbated.
Our
substantial indebtedness could adversely affect our cash
flow.
As of December 31, 2007, we had $23.4 million
principal amount of outstanding indebtedness. Our substantial
amount of outstanding indebtedness could have significant
consequences. For example, it:
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limits our ability to obtain additional debt, even when
necessary to maintain adequate liquidity;
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could increase our vulnerability to general adverse economic and
industry conditions;
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matures if we default under the terms of any other material
indebtedness; and
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limits our flexibility in planning for, or reacting to, changes
in our business and the industry, which may place us at a
competitive disadvantage compared with competitors that have
less indebtedness.
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We may incur additional indebtedness for various reasons, which
would increase the risks associated with our substantial
leverage.
13
The
conversion of our outstanding convertible debt and future
financing activities may cause dilution of existing security
holders interests in the Company and may cause the price
of our common stock to go down.
As of December 31, 2007, we had outstanding convertible
notes in the aggregate principal amount of $22 million,
although for financial reporting purposes the value was held at
$21.3 million, net of debt discount, that will be accrued
to the principal amount over the term of the debt. The note
holders may convert the outstanding principal, accrued and
unpaid interest and accrued and unpaid late fees, if any, into
shares of our common stock at any time at a price of $4.00 per
share. At maturity, we have the option to pay up to 50% of the
outstanding principal, accrued and unpaid interest and accrued
and unpaid late fees, if any, into shares of our common stock at
a price based on the average trading price of our common stock
at the time of maturity. In addition, we have the option to
require the note holders to convert the outstanding principal,
accrued and unpaid interest and accrued and unpaid late fees, if
any, into shares of our common stock if the weighted average
price of our common stock, as reported on NASDAQ Global Markets,
exceeds $7.00 per share for 15 out of 30 consecutive trading
days. These potential conversions would dilute existing
shareholders.
We are
limited in our ability to raise additional
capital.
We anticipate that we will need to engage in capital raising
activities in the future. Our convertible notes significantly
restrict our ability to incur additional indebtedness. Due to
current market conditions, we may not be able to sell shares of
our common stock at a price favorable to us or we may need to
sell a large block of stock to raise sufficient capital. A sale
of shares of equity would cause an immediate and potentially
substantial equity dilution for existing stockholders. This may
depress the market price of our common stock and further impair
our ability to raise additional capital by selling our common
stock.
We
have made loans to certain of our directors, which if not
repaid, would result in a loss to the Company.
We have two outstanding notes to former directors which are
secured by shares of our common stock. The notes were initially
due upon the earlier of (a) the date the individual ceased
to be a director of Novavax, (b) in whole or in part, to
the extent of net proceeds on the date on which the director
sold all or a portion of the pledged shares, or
(c) March 21, 2007. Both individuals have resigned and
neither of the notes has been repaid. The Company has extended
the maturity of the note once for each director. The Company is
currently negotiating a second extension for one of the former
directors. In addition, the Company has the right to sell the
pledged shares if the trading price of Novavaxs common
stock, as reported on the NASDAQ Global Market, reaches certain
targets. We do not know if the price of our common stock will
reach the target prices and, if we issue additional shares in an
equity fundraising transaction, the dilution could further lower
the trading price of our stock reducing the likelihood of
selling the collateral to satisfy the debts. Even if we are able
to sell some or all of the pledged shares, we may not recover
the full amount outstanding under either note. There are no
assurances that the former directors will be able to repay the
notes when due under the terms of the current agreements.
PRODUCT
DEVELOPMENT RISKS
Because
our vaccine product development efforts depend on new and
rapidly evolving technologies, we cannot be certain that our
efforts will be successful.
Our vaccine work depends on new, rapidly evolving technologies
and on the marketability and profitability of our products.
Commercialization of our vaccine products could fail for a
variety of reasons, and include the possibility that:
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our VLP technology, any or all of the products based on VLP
technology or our proprietary manufacturing process will be
ineffective or unsafe, or otherwise fail to receive necessary
regulatory clearances;
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the products, if safe and effective, will be difficult to
manufacture on a large scale or uneconomical to market;
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we will fail to have our GMP pilot plant validated or that the
plant will fail to continue to pass regulatory inspections;
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proprietary rights of third parties will prevent us or our
collaborators from exploiting technologies or marketing
products; and
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third party competitors will gain greater market share due to
superior products or marketing capabilities.
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We
have not completed the development of vaccine products other
than Estrasorb and we may not succeed in obtaining the FDA
approval necessary to sell additional products.
The development, manufacture and marketing of our pharmaceutical
and biological products are subject to government regulation in
the United States and other countries. In the United States and
most foreign countries, we must complete rigorous preclinical
testing and extensive human clinical trials that demonstrate the
safety and efficacy of a product in order to apply for
regulatory approval to market the product. Estrasorb is the only
product developed by the Company to have been approved for sale
in the United States. We also have product candidates in human
clinical trials and preclinical laboratory or animal studies.
The steps required by the FDA before our proposed
investigational products may be marketed in the United States
include:
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performance of preclinical (animal and laboratory) tests;
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submissions to the FDA of an IND which must become effective
before human clinical trials may commence;
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performance of adequate and well-controlled human clinical
trials to establish the safety and efficacy of the
investigational product in the intended target population;
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performance of a consistent and reproducible manufacturing
process intended for commercial use;
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submission to the FDA of a BLA or a New Drug Application
(NDA); and
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FDA approval of the BLA or NDA before any commercial sale or
shipment of the product.
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The processes are expensive and can take many years to complete,
and we may not be able to demonstrate the safety and efficacy of
our products to the satisfaction of such regulatory authorities.
Regulatory authorities may also require additional testing, and
we may be required to demonstrate that our proposed products
represent an improved form of treatment over existing therapies,
which we may be unable to do without conducting further clinical
studies. Moreover, if the FDA grants regulatory approval of a
product, the approval may be limited to specific indications or
limited with respect to its distribution. Expanded or additional
indications for approved drugs may not be approved, which could
limit our revenues. Foreign regulatory authorities may apply
similar limitations or may refuse to grant any approval.
Consequently, even if we believe that preclinical and clinical
data are sufficient to support regulatory approval for our
product candidates, the FDA and foreign regulatory authorities
may not ultimately grant approval for commercial sale in any
jurisdiction. If our drug candidates are not approved, our
ability to generate revenues will be limited and our business
will be adversely affected.
We
must identify products and product candidates for development
with our VLP technology and establish successful third-party
relationships.
The near and long-term viability of our vaccine product
candidates will depend in part on our ability to successfully
establish new strategic collaborations with pharmaceutical and
biotechnology companies and government agencies. Establishing
strategic collaborations and obtaining government funding is
difficult and time-consuming. Potential collaborators may reject
collaborations based upon their assessment of our financial,
regulatory or intellectual property position; government
agencies may reject contract or grant applications based on
their assessment of public need, the public interest and our
products ability to address these areas. If we fail to
establish a sufficient number of collaborations or government
relationships on acceptable terms, we may not be able to
commercialize our vaccine product candidate or generate
sufficient revenue to fund further research and development
efforts.
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Even if we establish new collaborations or obtain government
funding, these relationships may never result in the successful
development or commercialization of any vaccine product
candidates for several reasons, including the fact that:
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we may not have the ability to control the activities of our
partner and cannot provide assurance that they will fulfill
their obligations to us, including with respect to the license,
development and commercialization of products and product
candidates, in a timely manner or at all;
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such partners may not devote sufficient resources to our
products and product candidates or properly maintain or defend
our intellectual property rights;
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any failure on the part of our partners to perform or satisfy
their obligations to us could lead to delays in the development
or commercialization of our products and product candidates, and
affect our ability to realize product revenues; and
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disagreements, including disputes over the ownership of
technology developed with such collaborators, could result in
litigation, which would be time-consuming and expensive, and may
delay or terminate research and development efforts, regulatory
approvals, and commercialization activities.
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Our collaborators will be subject to the same regulatory
approval of the manufacturing facility and process as Novavax.
Before we could begin commercial manufacturing of any of our
product candidates, we and our collaborators must pass a
pre-approval inspection before FDA approval and comply with the
FDAs current Good Manufacturing Practices. If our
collaborators fail to comply with these requirements, our
product candidates would not be approved. If our collaborators
fail to comply with these requirements after approval, we would
be subject to possible regulatory action and may be limited in
the jurisdictions in which we are permitted to sell our
products.
If we or our partners fail to maintain our existing agreements
or in the event we fail to establish agreements as necessary, we
could be required to undertake research, development,
manufacturing and commercialization activities solely at our own
expense. These activities would significantly increase our
capital requirements and, given our lack of sales, marketing and
distribution capabilities, significantly delay the
commercialization of products and product candidates.
Because
we depend on third parties to conduct some of our laboratory
testing and human studies, we may encounter delays in or lose
some control over our efforts to develop products.
We are dependent on third-party research organizations to
conduct some of our laboratory testing and human studies. If we
are unable to obtain any necessary testing services on
acceptable terms, we may not complete our product development
efforts in a timely manner. If we rely on third parties for
laboratory testing and human studies, we may lose some control
over these activities and become too dependent upon these
parties. These third parties may not complete testing activities
on schedule or when we request. We may not be able to secure and
maintain suitable research organizations to conduct our
laboratory testing and human studies.
Our
collaboration agreements may prohibit us from conducting
research in areas that may compete with our collaboration
products, while our collaborators may not be limited to the same
extent. This could negatively affect our ability to develop
products and, ultimately, prevent us from achieving a continuing
source of revenues.
We anticipate that some of our corporate or academic
collaborators will be conducting multiple product development
efforts within each disease area that is the subject of its
collaboration with us. We generally have agreed not to conduct
independently, or with any third party, certain research that is
competitive with the research conducted under our
collaborations. Therefore, our collaborations may have the
effect of limiting the areas of research that we may pursue,
either alone or with others. Some of our collaborators, however,
may develop, either alone or with others, products in related
fields that are competitive with the products or potential
products that are the subject of their collaborations with us.
In addition, competing products, either developed by the
collaborators or to which the collaborators have rights, may
result in their withdrawing support for our product candidates.
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Generally, under our academic collaborations, we retain the
right to exclusively license any technologies developed using
funding we provided. If we elect to not license a particular
technology, the academic collaborator is typically free to use
the technology for any purpose, including the development and
commercialization of products that might compete with our
products.
Our
relationship with GE Healthcare may not be
profitable.
We have entered into a co-marketing agreement with GE Healthcare
to co-market a pandemic influenza vaccine solution to select
international countries. The collaboration incorporates GE
Healthcares bioprocess solutions and design expertise with
Novavaxs VLP manufacturing platform. We cannot predict
when, if at all, we will be able to successfully negotiate a
definitive agreement with a target country. Even if we do enter
into a definitive agreement, it may not result in significant
revenues.
Even
though we have received governmental support in the past, we may
not continue to receive support at the same level or at
all.
The United States government, through its various agencies, has
provided grants to fund certain research and development
efforts. There can be no assurances that the Company will
continue to receive the same level of funding from the United
States government, if at all.
If we
are unable to manufacture our vaccines in sufficient quantities
or are unable to obtain regulatory approvals for a manufacturing
facility for our vaccines, we may experience delays in product
development and clinical trials.
Completion of our clinical trials and commercialization of our
vaccine product candidates require access to, or development of,
facilities to manufacture a sufficient supply of our product
candidates. We have limited experience manufacturing any of our
product candidates in the volumes that will be necessary to
support large-scale clinical trials or commercial sales. Efforts
to establish capabilities may not meet initial expectations as
to scheduling, reproducibility, yield, purity, cost, potency or
quality.
If we are unable to manufacture our product candidates in
clinical quantities or, when necessary, in commercial
quantities, then we will need to rely on third parties to
manufacture compounds for clinical and commercial purposes.
These third-party manufacturers must also receive FDA approval
before they can produce clinical material or commercial
products. Our vaccines may be in competition with other products
for access to these facilities and may be subject to delays in
manufacture if third parties give other products greater
priority. In addition, we may not be able to enter into any
necessary third-party manufacturing arrangements on acceptable
terms, or on a timely basis. In addition, we would have to enter
into a technical transfer agreement and share our know-how with
the third party manufacturer.
We
rely on a limited number of suppliers for some of our
manufacturing materials. Any problems experienced by any of
these suppliers could negatively affect our
operations.
We rely on third-party suppliers and vendors for some of the
materials used in the manufacture of our product candidates. For
supply of early clinical trial materials, we rely on a limited
number of suppliers. Any significant problem experienced by one
of our suppliers could result in a delay or interruption in the
supply of materials to us until such supplier resolves the
problem or an alternative source of supply is located. We have
limited experience with alternative sources of raw materials.
Any delay or interruption could negatively affect our operations.
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We
have limited marketing capabilities, and if we are unable to
enter into collaborations with marketing partners or develop our
own sales and marketing capability, we may not be successful in
commercializing any approved products.
We currently have no sales, marketing or distribution
capabilities. As a result, we will depend on collaborations with
third parties that have established distribution systems and
sales forces. To the extent that we enter into co-promotion or
other licensing arrangements, our revenues will depend upon the
efforts of third parties, over which we may have little or no
control. If we are unable to reach and maintain agreements with
one or more pharmaceutical companies or collaborators, we may be
required to market our products directly. Developing a marketing
and sale force is expensive and time consuming and could delay a
product launch. We cannot be certain that we will be able to
attract and retain qualified sales personnel or otherwise
develop this capability.
If
reforms in the health care industry make reimbursement for our
potential products less likely, the market for our potential
products will be reduced, and we could lose potential sources of
revenue.
Our successes may depend, in part, on the extent to which
reimbursement for the costs of therapeutic products and related
treatments will be available from third-party payers such as
government health administration authorities, private health
insurers, managed care programs, and other organizations. Over
the past decade, the cost of health care has risen
significantly, and there have been numerous proposals by
legislators, regulators, and third-party health care payers to
curb these costs. Some of these proposals have involved
limitations on the amount of reimbursement for certain products.
Similar federal or state health care legislation may be adopted
in the future and any products that we or our collaborators seek
to commercialize may not be considered cost-effective. Adequate
third-party insurance coverage may not be available for us to
establish and maintain price levels that are sufficient for
realization of an appropriate return on our investment in
product development. Moreover, the existence or threat of cost
control measures could cause our corporate collaborators to be
less willing or able to pursue research and development programs
related to our product candidates.
RISKS
REGARDING ESTRASORB AND OUR MNP TECHNOLOGY
Our
costs related to manufacturing Estrasorb may exceed our
estimates and reduce expected cash flow from the sale of the
Estrasorb related assets.
In February 2008, Novavax entered into asset sale and supply
agreements for Estrasorb related assets with Graceway
Pharmaceuticals, LLC. It is anticipated that the manufacturing
of Estrasorb under this agreement will be completed by July
2008, at which time the Company will exit the Philadelphia
manufacturing location. This transaction is expected to generate
a small profit for the transaction and, due to non-cash charges
of fixed assets, is anticipated to create a positive cash flow
in excess of $2 million over the first half of 2008. If the
cost of manufacturing the additional lots of Estrasorb,
transitioning the assets to Graceway or closing the
manufacturing facility exceed expectations for any reason, the
anticipated cash flow would be lower.
Efforts
to sell other MNP technology
The Company has begun efforts to divest its non-vaccine MNP
technology through sales or licenses. The Companys efforts
to sell this technology may not be successful because the
Company may not be able to identify a potential buyer or
licensee and, even if the Company does identify a buyer or
licensee, the price and terms may not be acceptable to the
Company.
REGULATORY
RISKS
We may
fail to obtain regulatory approval for our products on a timely
basis or comply with our continuing regulatory obligations after
approval is obtained.
Delays in obtaining regulatory approval can be extremely costly
in terms of lost sales opportunities, losing any potential
marketing advantage of being early to market and increased trial
costs. The speed with which we complete
18
our preclinical trials necessary to begin human studies, human
clinical trials and our applications for marketing approval will
depend on several factors, including the following:
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our ability to manufacture or obtain sufficient quantities of
materials for use in necessary preclinical studies and clinical
trials;
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prior regulatory agency review and approval;
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Institutional Review Board approval of the protocol and the
informed consent form;
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the rate of patient enrollment and retention, which is a
function of many factors, including the size of the patient
population, the proximity of patients to clinical sites, the
eligibility criteria for the study and the nature of the
protocol;
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negative test results or side effects experienced by trial
participants;
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analysis of data obtained from preclinical and clinical
activities, which are susceptible to varying interpretations and
which interpretations could delay, limit or prevent further
studies or regulatory approval;
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the availability of skilled and experienced staff to conduct and
monitor clinical studies and to prepare the appropriate
regulatory applications; and
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changes in the policies of regulatory authorities for drug or
vaccine approval during the period of product development.
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We have limited experience in conducting and managing the
preclinical studies and clinical trials necessary to obtain
regulatory marketing approvals. We may not be permitted to
continue or commence additional clinical trials. We also face
the risk that the results of our clinical trials may be
inconsistent with the results obtained in preclinical studies or
clinical trials of similar products, or that the results
obtained in later phases of clinical trials may be inconsistent
with those obtained in earlier phases. A number of companies in
the biopharmaceutical and product development industry have
suffered significant setbacks in advanced clinical trials, even
after experiencing promising results in early animal and human
testing.
Furthermore, even if a product gains regulatory approval, such
approval is likely to limit the indicated uses for which it may
be marketed, and the product and the manufacturer of the product
will be subject to continuing regulatory review, including
adverse event reporting requirements and the FDAs general
prohibition against promoting products for unapproved uses.
Failure to comply with any post-approval requirements can, among
other things, result in warning letters, product seizures,
recalls, substantial fines, injunctions, suspensions or
revocations of marketing licenses, operating restrictions and
criminal prosecutions. Any of these enforcement actions, any
unanticipated changes in existing regulatory requirements or the
adoption of new requirements, or any safety issues that arise
with any approved products, could adversely affect our ability
to market products and generate revenues and thus adversely
affect our ability to continue our business.
We also may be restricted or prohibited from marketing or
manufacturing a product, even after obtaining product approval,
if previously unknown problems with the product or its
manufacture are subsequently discovered and we cannot provide
assurance that newly discovered or developed safety issues will
not arise following any regulatory approval. With the use of any
drug by a wide patient population, serious adverse events may
occur from time to time that initially do not appear to relate
to the drug itself, and only if the specific event occurs with
some regularity over a period of time does the drug become
suspect as having a causal relationship to the adverse event.
Any safety issues could cause us to suspend or cease marketing
of our approved products, possibly subject us to substantial
liabilities, and adversely affect our ability to generate
revenues and our financial condition.
Because
we are subject to environmental, health and safety laws, we may
be unable to conduct our business in the most advantageous
manner.
We are subject to various laws and regulations relating to safe
working conditions, laboratory and manufacturing practices, the
experimental use of animals, emissions and wastewater
discharges, and the use and disposal of hazardous or potentially
hazardous substances used in connection with our research,
including infectious disease agents. We also cannot accurately
predict the extent of regulations that might result from any
future legislative or
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administrative action. Any of these laws or regulations could
cause us to incur additional expense or restrict our operations.
We have facilities in Maryland and Pennsylvania that are subject
to various local, state and federal laws and regulations
relating to safe working conditions, laboratory and
manufacturing practices, the experimental use of animals and the
use and disposal of hazardous or potentially hazardous
substances, including chemicals, microorganisms and various
hazardous compounds used in connection with our research and
development activities. In the United States, these laws include
the Occupational Safety and Health Act, the Toxic Test
Substances Control Act and the Resource Conservation and
Recovery Act. We cannot eliminate the risk of accidental
contamination or discharge or injury from these materials.
Federal, state, and local laws and regulations govern the use,
manufacture, storage, handling and disposal of these materials.
We could be subject to civil damages in the event of an improper
or unauthorized release of, or exposure of individuals to, these
hazardous materials. In addition, claimants may sue us for
injury or contamination that results from our use or the use by
third parties of these materials, and our liability may exceed
our total assets. Compliance with environmental laws and
regulations may be expensive, and current or future
environmental regulations may impair our research, development
or production efforts.
Although we have general liability insurance, these policies
contain exclusions from insurance against claims arising from
pollution from chemical or pollution from conditions arising
from our operations. Our collaborators are working with these
types of hazardous materials in connection with our
collaborations. In the event of a lawsuit or investigation, we
could be held responsible for any injury we or our collaborators
cause to persons or property by exposure to, or release of, any
hazardous materials. However, we believe that we are currently
in compliance with all applicable environmental and occupational
health and safety regulations.
INTELLECTUAL
PROPERTY RISKS
Our
success depends on our ability to maintain the proprietary
nature of our technology.
Our success in large part depends on our ability to maintain the
proprietary nature of our technology and other trade secrets,
including our proprietary drug delivery and biological
technologies. To do so, we must prosecute and maintain existing
patents, obtain new patents and pursue trade secret and other
intellectual property protection. We also must operate without
infringing the proprietary rights of third parties or allowing
third parties infringe our rights. We currently have or have
rights to over 50 United States patents and corresponding
foreign patents and patent applications covering our
technologies. However, patent issues relating to pharmaceuticals
and biologics involve complex legal, scientific and factual
questions. To date, no consistent policy has emerged regarding
the breadth of biotechnology patent claims that are granted by
the United States Patent and Trademark Office or enforced by the
federal courts. Therefore, we do not know whether our patent
applications will result in the issuance of patents, or that any
patents issued to us will provide us with any competitive
advantage. We also cannot be sure that we will develop
additional proprietary products that are patentable.
Furthermore, there is a risk that others will independently
develop or duplicate similar technology or products or
circumvent the patents issued to us.
There is a risk that third parties may challenge our existing
patents or claim that we are infringing their patents or
proprietary rights. We could incur substantial costs in
defending patent infringement suits or in filing suits against
others to have their patents declared invalid or claim
infringement. It is also possible that we may be required to
obtain licenses from third parties to avoid infringing
third-party patents or other proprietary rights. We cannot be
sure that such third-party licenses would be available to us on
acceptable terms, if at all. If we are unable to obtain required
third-party licenses, we may be delayed in or prohibited from
developing, manufacturing or selling products requiring such
licenses.
Although our patents include claims covering various features of
our products and product candidates, including composition,
methods of manufacture and use, our patents do not provide us
with complete protection against the development of competing
products. Some of our know-how and technology is not patentable.
To protect our proprietary rights in unpatentable intellectual
property and trade secrets, we require employees, consultants,
advisors and collaborators to enter into confidentiality
agreements. These agreements may not provide meaningful
protection for our trade secrets, know-how or other proprietary
information
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If we
infringe or are alleged to infringe intellectual property rights
of third parties, it will adversely affect our business,
financial condition and results of operations.
Our research, development and commercialization activities,
including any product candidates or products resulting from
these activities, may infringe or be claimed to infringe patents
owned by third parties and to which we do not hold licenses or
other rights. There may be rights we are not aware of, including
applications that have been filed but not published that, when
issued, could be asserted against us. These third parties could
bring claims against us, and that would cause us to incur
substantial expenses and, if successful against us, could cause
us to pay substantial damages. Further, if a patent infringement
suit were brought against us, we could be forced to stop or
delay research, development, manufacturing or sales of the
product or biologic drug candidate that is the subject of the
suit.
As a result of patent infringement claims, or in order to avoid
potential claims, we may choose or be required to seek a license
from the third party. These licenses may not be available on
acceptable terms, or at all. Even if we are able to obtain a
license, the license would likely obligate us to pay license
fees or royalties or both, and the rights granted to us might be
nonexclusive, which could result in our competitors gaining
access to the same intellectual property. Ultimately, we could
be prevented from commercializing a product, or be forced to
cease some aspect of our business operations, if, as a result of
actual or threatened patent infringement claims, we are unable
to enter into licenses on acceptable terms. All of the issues
described above could also impact our collaborators, which would
also impact the success of the collaboration and therefore us.
There has been substantial litigation and other proceedings
regarding patent and other intellectual property rights in the
pharmaceutical and biotechnology industries. In addition to
infringement claims against us, we may become a party to other
patent litigation and other proceedings, including interference
proceedings declared by the United States Patent and Trademark
Office and opposition proceedings in the European Patent Office,
regarding intellectual property rights with respect to our
products and technology.
We may
become involved in lawsuits to protect or enforce our patents or
the patents of our collaborators or licensors, which could be
expensive and time consuming.
Competitors may infringe our patents or the patents of our
collaborators or licensors. As a result, we may be required to
file infringement claims to counter infringement for
unauthorized use. This can be expensive, particularly for a
company of our size, and time-consuming. In addition, in an
infringement proceeding, a court may decide that a patent of
ours is not valid or is unenforceable, or may refuse to stop the
other party from using the technology at issue on the grounds
that our patents do not cover its technology. An adverse
determination of 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
the risk of not issuing.
Interference proceedings brought by the United States Patent and
Trademark Office may be necessary to determine the priority of
inventions with respect to our patent applications or those of
our collaborators or licensors. Litigation or interference
proceedings may fail and, even if successful, may result in
substantial costs and distraction to our management. We may not
be able, alone or with our collaborators and licensors, to
prevent misappropriation of our proprietary rights, particularly
in countries where the laws may not protect such rights as fully
as in the United States.
Furthermore, because of the substantial amount of discovery
required in connection with intellectual property litigation,
there is a risk that some of our confidential information could
be compromised by disclosure during this type of litigation. In
addition, during the course of this kind of litigation, there
could be public announcements of the results of hearings,
motions or other interim proceedings or developments. If
investors perceive these results to be negative, the market
price for our common stock could be significantly harmed.
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We may
need to license intellectual property from third parties and if
our right to use the intellectual property we license is
affected, our ability to develop and commercialize our product
candidates may be harmed.
We expect that we will need to license intellectual property
from third parties in the future and that these licenses will be
material to our business. We will not own the patents or patent
applications that underlie these licenses, and we will not
control the enforcement of the patents. We will rely upon our
licensors to properly prosecute and file those patent
applications and prevent infringement of those patents.
Our license agreement with Wyeth Holdings Corporation, which
gives us rights to a family of patent applications covering VLP
technology for use in human vaccines in certain fields of use,
is non-exclusive. These applications are very significant to our
business and payments under this agreement could aggregate up to
$6.5 million during 2008 depending upon the clinical
milestones achieved. Our license with the University of
Massachusetts gives us exclusive rights to a key patent
application covering virus-like particles technology for use in
human vaccines in all fields for human use.
While many of the licenses under which we have rights provide us
with rights in specified fields, the scope of our rights under
these and other licenses may be subject to dispute by our
licensors or third parties. In addition, our rights to use these
technologies and practice the inventions claimed in the licensed
patents and patent applications are subject to our licensors
abiding by the terms of those licenses and not terminating them.
Any of our licenses may be terminated by the licensor if we are
in breach of a term or condition of the license agreement, or in
certain other circumstances.
Our product candidates and potential product candidates will
require several components that may each be the subject of a
license agreement. The cumulative license fees and royalties for
these components may make the commercialization of these product
candidates uneconomical.
If
patent laws or the interpretation of patent laws change, our
competitors may be able to develop and commercialize our
discoveries.
Important legal issues remain to be resolved as to the extent
and scope of available patent protection for biotechnology
products and processes in the United States and other important
markets outside the United States, such as Europe and Japan.
Foreign markets may not provide the same level of patent
protection as provided under the United States patent system. We
expect that litigation or administrative proceedings will likely
be necessary to determine the validity and scope of certain of
our and others proprietary rights. Any such litigation or
proceeding may result in a significant commitment of resources
in the future and could force us to do one or more of the
following: cease selling or using any of our products that
incorporate the challenged intellectual property, which would
adversely affect our revenue; obtain a license from the holder
of the intellectual property right alleged to have been
infringed, which license may not be available on reasonable
terms, if at all; and redesign our products to avoid infringing
the intellectual property rights of third parties, which may be
time-consuming or impossible to do. In addition, changes in, or
different interpretations of, patent laws in the United States
and other countries may result in patent laws that allow others
to use our discoveries or develop and commercialize our
products. We cannot provide assurance that the patents we obtain
or the unpatented technology we hold will afford us significant
commercial protection.
RISKS
RELATED TO OUR COMMON STOCK AND ORGANIZATIONAL
STRUCTURE
Because
our stock price has been and will likely continue to be
volatile, the market price of our common stock may be lower or
more volatile than expected.
Our stock price has been highly volatile. The stock market in
general and the market for biotechnology companies in particular
have experienced extreme volatility that has often been
unrelated to the operating performance of particular companies.
From January 1, 2007 through March 1, 2008, the
closing price of our
22
common stock has been as low as $2.59 per share and as high as
$4.50 per share. The market price of our common stock may be
influenced by many factors, including:
|
|
|
|
|
future announcements about our Company or our collaborators or
competitors, including the results of testing, technological
innovations or new commercial products;
|
|
|
|
clinical trial results;
|
|
|
|
depletion of our cash reserves
and/or the
approach of our convertible debt maturity date if additional
revenues are not generated or additional capital is not raised;
|
|
|
|
changes in government regulations;
|
|
|
|
developments in our relationships with our collaboration
partners;
|
|
|
|
announcements relating to health care reform and reimbursement
levels for new drugs;
|
|
|
|
announcement by us of significant acquisitions, strategic
partnerships, joint ventures or capital commitments;
|
|
|
|
sales of substantial amounts of our stock by existing
stockholders (including stock by insiders or 5% stockholders);
|
|
|
|
litigation;
|
|
|
|
public concern as to the safety of our products;
|
|
|
|
significant set-backs or concerns with the industry or the
market as a whole; and
|
|
|
|
the other factors described in this Risk Factor
section.
|
The stock market has experienced extreme price and volume
fluctuation that have particularly affected the market price for
many emerging and biotechnology companies. These fluctuations
have often been unrelated to the operating performance of these
companies. These broad market fluctuations may cause the market
price of our common stock to be lower or more volatile than
expected.
We
have never paid dividends on our capital stock, and we do not
anticipate paying any such dividends in the foreseeable
future.
We have never paid cash dividends on our common stock. We
currently anticipate that we will retain all of our earnings for
use in the development of our business and do not anticipate
paying any cash dividends in the foreseeable future. As a
result, capital appreciation, if any, of our common stock would
be the only source of gain for stockholders until dividends are
paid, if at all.
Provisions
of our Certificate of Incorporation and By-laws, Delaware law,
and our Shareholder Rights Plan could delay or prevent the
acquisition of the Company, even if such acquisition would be
beneficial to stockholders, and could impede changes in our
Board.
Our organizational documents could hamper a third partys
attempt to acquire, or discourage a third party from attempting
to acquire control of, the Company. We have also adopted a
shareholder rights plan, or poison pill, that
empowers our Board to delay or negotiate, and thereby possibly
thwart, any tender offer or takeover attempt the Board opposes.
Stockholders who wish to participate in these transactions may
not have the opportunity to do so. These provisions also could
limit the price investors are willing to pay in the future for
our securities and make it more difficult to change the
composition of our Board in any one year. These provisions
include the right of the Board to issue preferred stock with
rights senior to those of common stock without any further vote
or action by stockholders, the existence of a staggered Board
with three classes of directors serving staggered three-year
terms and advance notice requirements for stockholders to
nominate directors and make proposals.
The Company also is afforded the protections of Section 203
of the Delaware General Corporation Law, which will prevent us
from engaging in a business combination with a person who
acquires at least 15% of our common
23
stock for a period of three years from the date such person
acquired such common stock, unless advance board or stock holder
approval was obtained.
Any delay or prevention of a change of control transaction or
changes in our Board of Director or management could deter
potential acquirers or prevent the completion of a transaction
in which our stockholders could receive a substantial premium
over the then current market price for their shares.
|
|
Item 1B.
|
UNRESOLVED
STAFF COMMENTS
|
None.
We have current operations in four leased facilities. In January
2007, we commenced a lease for approximately 51,200 square
feet in Rockville, Maryland, which is our corporate headquarters
and includes administrative offices, vaccine research and
development along with future expansion activities. We lease
approximately 13,900 square feet at our other facility in
Rockville, Maryland for contract vaccine research, development
and manufacturing of early stage clinical supplies. We lease
approximately 32,900 square feet for administrative office
space and research and development activities at our former
corporate headquarters in Malvern, Pennsylvania of which
approximately 28,000 square feet is being subleased. Our
manufacturing facility for Estrasorb and other contract
manufacturing is located in Philadelphia, Pennsylvania, where we
lease approximately 24,000 square feet of manufacturing
space which we expect to vacate in mid 2008. We believe that
these facilities are sufficient for our current needs. We have
additional space in our current facilities to accommodate our
anticipated growth over the next several years.
A summary of our current facilities is set forth below.
|
|
|
|
|
|
|
|
|
Approximate
|
|
|
|
Property Location
|
|
Square Footage
|
|
|
|
|
Rockville, MD
|
|
|
51,200
|
|
|
Corporate headquarters and vaccine research and development
|
Rockville, MD
|
|
|
13,900
|
|
|
Vaccine research and development and early clinical phase
manufacturing
|
Malvern, PA
|
|
|
32,900
|
|
|
Former corporate headquarters and research and development
|
Philadelphia, PA
|
|
|
24,000
|
|
|
Manufacturing and packaging facility for Estrasorb
|
|
|
|
|
|
|
|
Total square footage
|
|
|
122,000
|
|
|
|
Malvern, PA sublease
|
|
|
(28,000
|
)
|
|
|
|
|
|
|
|
|
|
Net square footage
|
|
|
94,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 3.
|
LEGAL
PROCEEDINGS
|
The Company is a defendant in a lawsuit filed in December 2003
by a former director alleging that the Company wrongfully
terminated the former directors stock options. In April
2006, a directed verdict in favor of the Company was issued and
the case was dismissed. The plaintiff has filed an appeal with
the court. Management believes the lawsuit is without merit and
the likelihood of an unfavorable outcome of such appeal is
minimal. Accordingly, no liability related to this contingency
is accrued in the consolidated financial statements as of
December 31, 2007.
|
|
Item 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
No matters were submitted to a vote of our security holders
during the fourth quarter of the fiscal year ended
December 31, 2007.
24
PART II
|
|
Item 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
|
Our common stock trades on the NASDAQ Global Market under the
symbol NVAX. The following table sets forth the
range of high and low closing sale prices for our common stock
as reported on The NASDAQ Global Market for each quarter in the
two most recent years:
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
High
|
|
|
Low
|
|
|
March 31, 2007
|
|
$
|
4.50
|
|
|
$
|
2.59
|
|
June 30, 2007
|
|
$
|
3.46
|
|
|
$
|
2.71
|
|
September 30, 2007
|
|
$
|
3.72
|
|
|
$
|
2.74
|
|
December 31, 2007
|
|
$
|
4.20
|
|
|
$
|
3.00
|
|
March 31, 2006
|
|
$
|
8.31
|
|
|
$
|
3.88
|
|
June 30, 2006
|
|
$
|
7.62
|
|
|
$
|
4.19
|
|
September 30, 2006
|
|
$
|
4.99
|
|
|
$
|
2.84
|
|
December 31, 2006
|
|
$
|
5.30
|
|
|
$
|
3.67
|
|
On February 29, 2008, the last sale price reported on the
NASDAQ National Market for our common stock was $2.80. Our
common stock was held by approximately 566 stockholders of
record as of February 29, 2008, one of which is
Cede & Co., a nominee for Depository
Trust Company (or DTC). All of the shares of
common stock held by brokerage firms, banks and other financial
institutions as nominees for beneficial owners are deposited
into participant accounts at DTC, and are therefore considered
to be held of record by Cede & Co. as one stockholder.
We have not paid any cash dividends on our common stock since
our inception. We do not anticipate declaring or paying any cash
dividends in the foreseeable future.
Securities
Authorized for Issuance under our Equity Compensation
Plans
Information regarding our equity compensation plans, including
both stockholder approved plans and non-stockholder approved
plans, is included in Item 12. of this Annual Report on
Form 10-K.
Unregistered
Sales of Equity Securities; Use of Proceeds from Registered
Securities
During the year ended December 31, 2005, the Company issued
unregistered shares of its common stock to two individuals. In
August 2005, the Company issued 50,000 shares of restricted
common stock to its former Chairman of the Board, Denis M.
ODonnell, M.D., in connection with his separation
from the Company as an employee.
Also in August 2005, the Company issued 250,000 shares of
restricted common stock to Nelson M. Sims, the Companys
former President, Chief Executive Officer and Director, in
connection with his separation from the Company. The Company
issued the shares pursuant to Section 4(2) of the
Securities Act of 1933 and received no cash consideration. In
accordance with his separation agreement, Mr. Sims agreed
to the cancellation of all then-outstanding options and other
rights to purchase shares of the Company. In exchange,
Mr. Sims received his salary through the date of
resignation and reimbursement of certain expenses. The Company
also agreed to pay him severance benefits, part of which
included the 250,000 shares of restricted common stock.
25
The graph below compares the cumulative total stockholders
return on the Common Stock of the Company for the last fiscal
years with the cumulative total return on the NASDAQ Stock
Market (United States and Foreign) Index and the NASDAQ
Pharmaceutical Index (which includes Novavax) over the same
period, assuming the investment of $100 in the Companys
Common Stock, the NASDAQ Stock Market (United States and
Foreign) Index and the NASDAQs Pharmaceutical Index on
December 31, 2002, and investments of all dividends.
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL VALUE*
Among Novavax, Inc., The NASDAQ Composite Index
And The NASDAQ Pharmaceutical Index
|
|
* |
Value of $100 invested on
12/31/02 in
stock or index-including reinvestment of dividends. Fiscal year
ending December 31.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/02
|
|
|
12/31/03
|
|
|
12/31/04
|
|
|
12/31/05
|
|
|
12/31/06
|
|
|
12/31/07
|
Novavax, Inc.
|
|
|
$
|
100
|
|
|
|
$
|
230.77
|
|
|
|
$
|
125.38
|
|
|
|
$
|
148.08
|
|
|
|
$
|
157.69
|
|
|
|
$
|
128.08
|
|
NASDAQ Stock Market (United States and Foreign)
|
|
|
$
|
100
|
|
|
|
$
|
150.01
|
|
|
|
$
|
162.89
|
|
|
|
$
|
165.13
|
|
|
|
$
|
180.85
|
|
|
|
$
|
198.60
|
|
NASDAQ Pharmaceutical Index
|
|
|
$
|
100
|
|
|
|
$
|
145.75
|
|
|
|
$
|
154.68
|
|
|
|
$
|
159.06
|
|
|
|
$
|
160.69
|
|
|
|
$
|
168.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
This section is not soliciting material, is not
deemed filed with the Securities and Exchange
Commission and is not to be incorporated by reference in any
filing of the Company under the Securities Act of 1933, as
amended, or the Exchange Act, whether made before or after the
date hereof and irrespective of any general incorporation
language in any such filing.
26
|
|
Item 6.
|
SELECTED
FINANCIAL DATA
|
The following table sets forth selected financial data for each
of the years in the five-year period ended December 31,
2007. The information below should be read in conjunction with
our financial statements and notes thereto and
Managements Discussion and Analysis of Financial
Condition and Results of Operations included elsewhere in
the Annual Report on
Form 10-K.
These historical results are not necessarily indicative of
results that may be expected for future periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Years Ended December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands, except per share data)
|
|
Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
11,785
|
|
|
$
|
6,498
|
|
|
$
|
5,343
|
|
|
$
|
1,738
|
|
|
$
|
1,455
|
|
Loss from operations
|
|
|
(11,447
|
)
|
|
|
(21,933
|
)
|
|
|
(4,316
|
)
|
|
|
(21,116
|
)
|
|
|
(30,271
|
)
|
Loss from continuing operations
|
|
|
(12,666
|
)
|
|
|
(23,389
|
)
|
|
|
(6,319
|
)
|
|
|
(19,577
|
)
|
|
|
(28,590
|
)
|
Loss from discontinued operations
|
|
|
(4,607
|
)
|
|
|
(2,531
|
)
|
|
|
(4,855
|
)
|
|
|
(3,491
|
)
|
|
|
(6,175
|
)
|
Net loss
|
|
|
(17,273
|
)
|
|
|
(25,920
|
)
|
|
|
(11,174
|
)
|
|
|
(23,068
|
)
|
|
|
(34,765
|
)
|
Basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share from continuing operations
|
|
$
|
(0.42
|
)
|
|
$
|
(0.63
|
)
|
|
$
|
(0.15
|
)
|
|
$
|
(0.33
|
)
|
|
$
|
(0.47
|
)
|
Loss per share from discontinued operations
|
|
|
(0.16
|
)
|
|
|
(0.07
|
)
|
|
|
(0.11
|
)
|
|
|
(0.06
|
)
|
|
|
(0.10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(0.58
|
)
|
|
$
|
(0.70
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
(0.39
|
)
|
|
$
|
(0.57
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic and diluted net loss per share
|
|
|
29,852,797
|
|
|
|
36,926,034
|
|
|
|
42,758,302
|
|
|
|
58,664,365
|
|
|
|
61,101,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and investments
|
|
$
|
27,633
|
|
|
$
|
17,876
|
|
|
$
|
31,893
|
|
|
$
|
73,595
|
|
|
$
|
46,489
|
|
Total current assets
|
|
|
32,062
|
|
|
|
23,937
|
|
|
|
37,611
|
|
|
|
77,342
|
|
|
|
49,016
|
|
Working capital
|
|
|
27,226
|
|
|
|
15,361
|
|
|
|
32,735
|
|
|
|
72,003
|
|
|
|
42,810
|
|
Total assets
|
|
|
84,159
|
|
|
|
77,993
|
|
|
|
84,382
|
|
|
|
121,877
|
|
|
|
91,291
|
|
Long term debt, less current portion
|
|
|
41,100
|
|
|
|
35,970
|
|
|
|
29,678
|
|
|
|
22,458
|
|
|
|
21,629
|
|
Accumulated deficit
|
|
|
(104,800
|
)
|
|
|
(130,720
|
)
|
|
|
(141,894
|
)
|
|
|
(164,962
|
)
|
|
|
(199,727
|
)
|
Total stockholders equity
|
|
|
35,944
|
|
|
|
33,281
|
|
|
|
49,652
|
|
|
|
94,001
|
|
|
|
63,065
|
|
|
|
Item 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Certain statements contained herein or as may otherwise be
incorporated by reference herein constitute
forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995.
Forward-looking statements include, but are not limited to,
statements regarding future product development and related
clinical trials and future research and development, including
Food and Drug Administration approval and product sales. Such
forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual
results, performance or achievements of the Company, or industry
results, to be materially different from those expressed or
implied by such forward-looking statements.
Such factors include, among other things, the following: our
ability to progress any product candidates into pre-clinical or
clinical trials; the scope, rate and progress of our preclinical
studies and clinical trials and other research and development
activities; clinical trial results; the cost of filing,
prosecuting, defending and enforcing any patent claims and other
intellectual property rights; our ability to obtain rights to
technology; our ability to enter into future collaborations with
industry partners and the terms, timing and success of any such
collaboration; the
27
cost, timing and success of regulatory filings and approvals;
our ability to obtain adequate financing in the future through
product licensing, co-promotional arrangements, public or
private equity or debt financing or otherwise; general economic
and business conditions; competition; business abilities and
judgment of personnel; availability of qualified personnel; and
other factors referenced herein.
All forward-looking statements contained in this annual report
are based on information available to the Company on the date
hereof, and the Company assumes no obligation to update any such
forward-looking statements, except as specifically required by
law. Accordingly, past results and trends should not be used to
anticipate future results or trends.
Overview
Novavax, Inc., a Delaware corporation (Novavax or
the Company), was incorporated in 1987, and is a
clinical-stage pharmaceutical company focused on creating
differentiated, value-added vaccines that leverage the
Companys proprietary virus-like particle (VLP)
technology. VLPs imitate the three-dimensional structures of
viruses but are composed of recombinant proteins and therefore,
are believed incapable of causing infection and disease. Our
proprietary production technology uses insect cells rather than
chicken or mammalian eggs. The Companys current product
targets include vaccines against the H5N1, H9N2 and other
subtypes of avian influenza with pandemic potential, human
seasonal influenza, Varicella Zoster, which causes shingles and
a fourth undisclosed disease target.
On July 31, 2007, the Company began Phase I/IIa clinical
trials for its H5N1 pandemic influenza vaccine. In December
2007, the Company announced favorable interim results for its
pandemic influenza vaccine that demonstrated immunogenicity and
safety. The Company plans to begin patient enrollment in the
second portion of the Phase I/IIa trial before March 31,
2008 to gather additional patient immunogenicity and safety
data, as well as determining a final dose through completion of
this clinical trial. It is anticipated that initial
immunogenicity and safety data will be available early in the
third quarter of 2008 with study completion by the end of 2008
to include on-going safety data collection.
The Company also has a drug delivery platform based on its
micellar nanoparticle (MNP) technology, proprietary
oil and water nano emulsions used for the topical delivery of
drugs. The MNP technology was the basis for the development of
the Companys first Food and Drug Administration
(FDA) approved estrogen replacement product known as
Estrasorb®.
In February 2008, the Company sold assets related to
Estrasorb®
in the United States, Canada and Mexico to Graceway
Pharmaceuticals, LLC (Graceway). The Company is
seeking to divest its non-vaccine MNP technology through sales
and licenses.
The Companys vaccine products currently under development
or in clinical trials will require significant additional
research and development efforts, including extensive
pre-clinical and clinical testing and regulatory approval, prior
to commercial use. There can be no assurance that the
Companys research and development efforts will be
successful or that any potential products will prove to be safe
and effective in clinical trials. Even if developed, these
vaccine products may not receive regulatory approval or be
successfully introduced and marketed at prices that would permit
the Company to operate profitably. The commercial launch of any
vaccine product is subject to certain risks including, but not
limited to, manufacturing
scale-up and
market acceptance. No assurance can be given that the Company
can generate sufficient product revenue to become profitable or
generate positive cash flow from operations at all or on a
sustained basis. The Companys efforts to divest the MNP
technology may not be successful because the Company may not be
able to identify a potential licensee or buyer and, even if the
Company does identify a licensee or buyer, the price and terms
may not be acceptable to the Company.
Summary
of Significant Transactions
Graceway
Agreements
In February 2008, the Company entered into an asset purchase
agreement with Graceway Pharmaceuticals, LLC
(Graceway), pursuant to which Novavax sold Graceway
its assets related to
Estrasorb®
in the United States, Canada and Mexico. The assets sold include
certain patents related to the micellar nanoparticle technology
(the MNP Technology), trademarks, know-how,
manufacturing equipment, customer and supplier relations,
goodwill
28
and other assets. Novavax retained the rights to commercialize
Estrasorb®
outside of the United States, Canada and Mexico.
In February 2008, Novavax and Graceway also entered into a
supply agreement, pursuant to which Novavax has agreed to
manufacture additional units of Estrasorb with final delivery
expected in July 2008. Graceway will pay a preset transfer price
per unit of Estrasorb for the supply of this product. Once
Novavax has delivered the required quantity of Estrasorb,
Novavax must clean the manufacturing equipment and prepare the
equipment for transport. Graceway will remove the equipment from
the manufacturing facility and Novavax will then exit the
facility.
In February 2008, Novavax and Graceway also entered into a
license agreement, pursuant to which Graceway granted Novavax an
exclusive, non-transferable (except for certain allowed
assignments and sublicenses), royalty-free, limited license to
the patents and know-how that Novavax sold to Graceway pursuant
to the asset purchase agreement. The licensed grant allows
Novavax to make, use and sell licensed products and services in
certain, limited fields.
The net cash proceeds from these transactions are expected to be
in excess of $2.0 million over the first half of 2008. The
license and supply agreements with Allergan, Inc.,
successor-in-interest
to Esprit Pharma, Inc., were terminated in February 2008 and
October 2007, respectively.
License
Agreement with Wyeth Holdings Corporation
On July 5, 2007, we entered into a License Agreement with
Wyeth Holdings Corporation, a subsidiary of Wyeth
(Wyeth). The license is a non-exclusive, worldwide
license to a family of patent applications covering VLP
technology for use in human vaccines in certain fields of use.
The agreement provides for an upfront payment, annual license
fees, milestone payments and royalties on any product sales.
Payments under the agreement to Wyeth could aggregate up to
$6.5 million in 2008, depending on the achievement of
clinical development milestones. The agreement will remain
effective as long as at least one claim of the licensed patent
rights cover the manufacture, sale or use of any product unless
terminated sooner at Novavaxs option or by Wyeth for an
uncured breach by Novavax.
License
Agreement with University of Massachusetts Medical
School
Effective February 26, 2007, we entered into a worldwide
agreement to exclusively license a VLP technology from the
University of Massachusetts Medical School (UMMS).
Under the agreement, we have the right to use this technology to
develop VLP vaccines for the prevention of any viral diseases in
humans. We made an upfront cash payment to UMMS. In addition, we
will make certain payments based on development milestones as
well as future royalties on any sales of products that may be
developed using the technology.
Sublease
Agreement with PuriCore, Inc.
In April 2006, we entered into a sublease agreement with
Sterilox Technologies, Inc. (now known as PuriCore, Inc.) to
sublease 20,469 square feet of the Companys Malvern,
Pennsylvania corporate headquarters at a premium price per
square foot. The sublease, with a commencement date of
July 1, 2006, expires on September 30, 2009. This
sublease is consistent with our strategic focus to increase our
presence in Rockville, Maryland, where our vaccine operations
are currently located. In line with that strategy, in October
2006, we entered into a lease for an additional
51,000 square feet in Rockville, Maryland. Accordingly, in
October 2006, the Company entered into an amendment to the
Sublease Agreement with PuriCore, Inc. to sublease an additional
7,500 square feet of the Malvern corporate headquarters at
a premium price per square foot. This amendment has a
commencement date of October 25, 2006 and expires
concurrent with the initial lease on September 30, 2009.
Convertible
Notes
On June 15, 2007, we entered into amendment agreements (the
Amendments) with each of the holders of the
outstanding 4.75% senior convertible notes (the
Notes) to amend the terms of the Notes. As of
December 31, 2007, $22.0 million aggregate principal
amount remained outstanding under the Notes. The Amendments
(i) lowered the conversion price from $5.46 to $4.00 per
share, (ii) eliminated the holders right to require
the
29
Company to redeem the Notes if the weighted average price of the
Companys common stock is less than the conversion price on
30 of the 40 consecutive trading days preceding July 19,
2007 or July 19, 2008 and (iii) mandated that the
Notes be converted into Company common stock if the weighted
average price of the Companys common stock is greater than
$7.00 (a decrease from $9.56) in any 15 out of 30 consecutive
trading days after July 19, 2007.
Notes
with Former Directors
In March 2002, pursuant to the Novavax, Inc. 1995 Stock Option
Plan, we approved the payment of the exercise price of. options
by two of directors through the delivery of full-recourse,
interest-bearing promissory notes in the aggregate amount of
$1,480,000. The notes were secured by an aggregate of
261,667 shares of our common stock.
In May 2006, one of these directors resigned from the
Companys board of directors. Following his resignation,
the Company approved an extension of the former directors
$448,000 note to be payable on December 31, 2007, or
earlier to the extent of the net proceeds from any sale of the
pledged shares. This note has not yet been paid and the Company
and the former director are currently negotiating the terms of
an extension.
In March 2007, the other director resigned. Following his
resignation, the Company approved an extension of the former
directors $1,031,668 note. The note continues to accrue
interest at 5.07% per annum and is secured by shares of common
stock owned by the former director and is payable on
June 30, 2009, or earlier to the extent of the net proceeds
from any sale of the pledged shares. In addition, the Company
has the option to sell the pledged shares on behalf of the
former director at any time that the market price of our common
stock, as reported on NASDAQ Global Market, exceeds $7.00 per
share.
As of December 31, 2007, the Company has reserved an amount
of $1,041,005 for the outstanding note receivables. This amount
has been netted against the pledged common stock. Due to
heightened sensitivity in the current environment surrounding
related-party transactions and the extensions of the maturity
dates, these transactions could be viewed negatively in the
market and our stock price could be negatively affected.
Critical
Accounting Policies and Use of Estimates
We prepare our consolidated financial statements in conformity
with accounting principles generally accepted in the United
States. Such accounting principles require that our management
make estimates and assumptions that affect the reported amount
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. We base our estimates on historical and anticipated
results and trends and on various other assumptions that we
believe are reasonable under the circumstances, including
assumptions as to future events. These estimates form the basis
for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. By
their nature, estimates are subject to an inherent degree of
uncertainty. Actual results could differ materially from these
estimates. The items in our consolidated financial statements
that have required us to make significant estimates and
judgments are as follows:
Revenue
Recognition and Allowances
The Company recognizes revenue in accordance with the provisions
of Staff Accounting Bulletin No. 104, Revenue
Recognition (SAB No. 104). For product
sales, revenue is recognized when all of the following criteria
are met: persuasive evidence of an arrangement exists, delivery
has occurred, the price is fixed and determinable and
collectability is reasonably assured. The Company establishes
allowances for estimated uncollectible amounts, product returns,
rebates and charge backs based on historical trends and
specifically identified problem accounts. A large part of the
Companys product sales are to Allergan or to distributors
who resell the products to their customers. The Company provides
rebates to members of certain buying groups who purchase from
the Companys distributors, to distributors that sell to
their customers at prices determined under a contract between
the Company and the customer, and to state agencies that
administer various programs such as the federal Medicaid and
Medicare programs. Rebate amounts are usually based upon the
volume of purchases or by reference to a specific price for a
product. The Company estimates the amount of the rebate that
will be paid, and records the liability as a reduction of
30
revenue when the Company records the sale of the products.
Settlement of the rebate generally occurs from three to twelve
months after the sale. The Company regularly analyzes the
historical rebate trends and adjusts recorded reserves for
changes in trends, distributor inventory levels, product
prescription data and generic competition.
The shipping and handling costs the Company incurs are included
in cost of products sold in its statements of operations.
For upfront payments and licensing fees related to contract
research or technology, the Company follows the provisions of
SAB No. 104 in determining if these payments and fees
represent the culmination of a separate earnings process or if
they should be deferred and recognized as revenue as earned over
the life of the related agreement. Milestone payments are
recognized as revenue upon achievement of contract-specified
events and when there are no remaining performance obligations.
Revenue earned under research contracts is recognized in
accordance with the terms and conditions of such contracts for
reimbursement of costs incurred and defined milestones.
SFAS No. 123R
As of January 1, 2006 (effective date), we
adopted SFAS No. 123R in accounting for stock options
issued to our employees, directors and consultants using the
modified prospective method. The modified prospective method
requires that compensation costs be recognized for all
share-based payments granted after the effective date and for
all awards granted prior to the effective date that are unvested
using the requirements of SFAS No. 123R. Prior to the
adoption of SFAS No. 123R, we accounted for our
stock-based compensation using the principles of Accounting
Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (APB No. 25) as
permitted by Statement of Financial Accounting Standards
No. 123, Accounting for Stock Based Compensation
(SFAS No. 123). APB No. 25
generally did not require that options granted to employees be
expensed. Since we elected to use the modified prospective
method, there are no one-time effects from the adoption of
SFAS No. 123R, such as a cumulative effect adjustment.
There were no modifications to outstanding stock options as of
December 31, 2006 and 2007. There have been no changes in
the quantity or type of instruments used in share-based payment
programs. There has been no material modifications to the
valuation methodologies or assumptions from those used in
estimating the fair value of options under
SFAS No. 123 other than the adjustments for expected
volatility. Prior to the adoption of SFAS. No. 123R, we
utilized the preceding 12 month period historical stock
prices in determining the expected volatility. With the adoption
of SFAS No. 123R, we use the historical volatilities
based on stock prices since the inception of the stock plans in
determining the expected volatility. Forfeiture rates are
estimated based on historical activities since the inception of
the stock plans. There have been no changes in the normal terms
of share-based payment agreements. For grants awarded prior to
January 1, 2006, we accounted for compensation cost using a
graded method. For grants awarded on or after January 1,
2006, we accounted for compensation cost using a straight-line
method. As of December 31, 2007, the aggregate fair value
of the remaining compensation cost of unvested options, as
determined using a Black-Scholes option valuation model, was
approximately $2,438,000 (net of estimated forfeitures). This
remaining compensation cost is expected to be recognized over a
weighted average period of 1.6 years. The Company recorded
compensation costs in the Consolidated Statements of Operations
associated with SFAS No. 123 as follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Cost of products sold (which includes idle capacity)
|
|
$
|
35
|
|
|
$
|
48
|
|
Research and development
|
|
|
573
|
|
|
|
561
|
|
General and administrative
|
|
|
737
|
|
|
|
1,167
|
|
|
|
|
|
|
|
|
|
|
Total effect of adopting SFAS No. 123R
|
|
$
|
1,345
|
|
|
$
|
1,776
|
|
|
|
|
|
|
|
|
|
|
31
Research
and Development
Research and development costs are expensed as incurred. Such
costs include internal research and development expenditures
(such as salaries and benefits, raw materials and supplies) and
contracted services (such as sponsored research, consulting and
testing services) of proprietary research and development
activities and similar expenses associated with collaborative
research agreements.
Income
Taxes
The Companys income taxes are accounted for using the
liability method. Under the liability method, deferred income
taxes are recognized for the future tax consequences
attributable to differences between the consolidated financial
statement carrying amounts of existing assets and liabilities
and their respective tax basis and operating loss carry forward.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the year in
which those temporary differences are expected to be recovered
or settled.
The effect of changes in tax rates on deferred tax assets and
liabilities is recognized in operations in the period that
includes the enactment date. A valuation allowance is
established when necessary to reduce net deferred tax assets to
the amount expected to be realized. The Company has provided a
full valuation allowance against its net deferred tax assets as
of December 31, 2007 and 2006.
Goodwill
and Intangible Assets
Goodwill originally results from business acquisitions. Assets
acquired and liabilities assumed are recorded at their fair
values; the excess of the purchase price over the identifiable
net assets acquired is recorded as goodwill. Other intangible
assets are a result of product acquisitions, non-compete
arrangements and internally discovered patents. In accordance
with SFAS No. 142, Goodwill and Other Intangible
Assets (SFAS No. 142) goodwill and
intangible assets deemed to have indefinite lives are not
amortized but are subject to impairment tests annually, or more
frequently should indicators of impairment arise. The Company
utilizes a discounted cash flow analysis that includes
profitability information, estimated future operating results,
trends and other information in assessing whether the value of
the indefinite-lived intangible assets can be recovered. Under
SFAS No. 142, goodwill impairment is deemed to exist
if the carrying value of a reporting unit exceeds its estimated
fair value. In accordance with the requirements of
SFAS No. 142, the Company initially tested its
goodwill for impairment as of January 1, 2002 and
determined that no impairment was present. The Company
thereafter performed the required annual impairment test as of
December 31 of each year on the carrying amount of its goodwill.
Disposal
of Long-Lived Assets/Discontinued Operations
We account for the impairment of long-lived assets and
long-lived assets to be disposed of in accordance with Statement
of Financial Accounting Standard No. 144, Accounting for
the Impairment or Disposal
(SFAS No. 144). SFAS No. 144
requires a periodic evaluation of the recoverability of the
carrying value of long-lived assets and identifiable intangibles
and whenever events or changes in circumstances indicate that
the carrying value of the asset may not be recoverable. Examples
of events or changes in circumstances that indicate that the
recoverability of the carrying value of an asset should be
assessed include, but are not limited to, the following: a
significant decrease in the market value of an asset, a
significant change in the extent or manner in which an asset is
used, a significant physical change in an asset, a significant
adverse change in legal factors or in the business climate that
could affect the value of an asset, an adverse action or
assessment by a regulator, an accumulation of costs
significantly in excess of the amount originally expected to
acquire or construct an asset, a current period operating or
cash flow loss combined with a history of operating or cash flow
losses,
and/or a
projection or forecast that demonstrates continuing losses
associated with an asset used for the purpose of producing
revenue. We consider historical performance and anticipated
future results in its evaluation of potential impairment.
Accordingly, when indicators of impairment are present, we
evaluate the carrying value of these assets in relation to the
operating performance of the business and future undiscounted
cash flows expected to result from the use of these assets.
Impairment losses are recognized when the sum of expected future
cash flows is less than the assets carrying value.
SFAS No. 144 also provides accounting and reporting
provisions for components of an entity that are classified as
discontinued operations. We recorded an impairment loss in
connection with the discontinued operations of its Philadelphia,
32
Pennsylvania manufacturing facility for the year ended
December 31, 2007 (See Note 11
Discontinued Operations).
Recent
Accounting Pronouncements
Other than the adoption of FASB interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48) there have been no material changes in
our critical accounting policies or critical accounting
estimates since December 31, 2006, nor have we adopted any
accounting policy that has or will have a material impact on our
consolidated financial statements. For further discussion of our
accounting policies see Note 2 Summary of
Significant Accounting Policies in the Notes to the
Consolidated Financial Statements included herewith.
FIN 48
In July 2006, the FASB issued Interpretation No. 48,
(FIN 48), Accounting for Uncertainty in
Income Taxes, to address the noncomparability in reporting
tax assets and liabilities resulting from a lack of specific
guidance in SFAS No. 109, Accounting for Income
Taxes, on the uncertainty in income taxes recognized in an
enterprises financial statements. Specifically,
FIN 48 prescribes (a) a consistent recognition
threshold and (b) a measurement attribute for the financial
statement recognition and measurement of a tax position taken or
expected to be taken in a tax return, and provides related
guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure, and
transition. FIN 48 applies to fiscal years beginning after
December 15, 2006.
We adopted the provisions of FIN 48 on January 1,
2007. As a result of the adoption of FIN 48, we recorded
$3.8 million in uncertain tax positions. The
$3.8 million of unrecognized tax benefits was accounted for
as a $3.8 million reduction to the January 1, 2007
balance of deferred tax assets and a corresponding
$3.8 million dollar reduction of the valuation allowances.
Therefore, we did not record any adjustment to the beginning
balance of retained earnings in our consolidated balance sheet.
To the extent these unrecognized tax benefits are ultimately
recognized it would affect our annual effective income tax rate.
We and our subsidiary file income tax returns in the United
States federal jurisdiction and in various states. We had tax
net operating loss and credit carryforwards that are subject to
examination for a number of years beyond the year in which they
are utilized for tax purposes. Since a portion of these
carryforwards may be utilized in the future, many of these
attribute carryforwards may remain subject to examination.
Our policy is to recognize interest and penalties related to
income tax matters in income tax expense. As of January 1,
and December 31, 2007, we had no accruals for interest or
penalties related to income tax matters.
SFAS No. 157
In September 2006, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 157,
Fair Value Measurements
(SFAS No. 157). SFAS No. 157
defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles and expands
disclosures about fair value measurements.
SFAS No. 157 applies under other accounting
pronouncements that require or permit fair value measurements,
but does not require any new fair value measurements.
SFAS No. 157 became effective for financial statements
issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. We are currently
evaluating what impact, if any, SFAS No. 157 will have
on our financial condition, results of operations or liquidity.
SFAS No. 159
In February 2007, the FASB issued Statement of Financial
Accounting Standards No. 159 The Fair Value
Option for Financial Assets and Financial Liabilities
(SFAS No. 159). SFAS No. 159
provides companies an option to report certain financial assets
and liabilities at fair value. The intent of
SFAS No. 159 is to reduce the complexity in accounting
for financial instruments and the volatility in earnings caused
by measuring related assets and liabilities differently.
SFAS No. 159 is effective for financial statements
issued for fiscal years after November 15, 2007. We are
evaluating the impact this new standard will have on our
financial condition, results of operations, and liquidity.
33
EITF
Issue
No. 07-1
In December 2007, the FASB issued EITF Issue
No. 07-1,
Accounting for Collaborative Arrangements, which is
effective for calendar year companies on January 1, 2009.
The Task Force clarified the manner in which costs, revenues and
sharing payments made to, or received by a partner in a
collaborative arrangements should be presented in the income
statement and set for the certain disclosures that should be
required in the partners financial statements. We are
currently assessing the potential impact of implementing this
standard on our financial position and results of operations.
SAB 110
In December 2007, the Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin 110
(SAB 110), which permits, under certain
circumstances, the continued use of the simplified
method of estimating the expected term of plan options as
discussed in SAB No. 107 and in accordance with
SFAS 123R. The guidance in this release is effective
January 1, 2008. The impact of this standard on the
consolidated financial statements is not expected to be material
on our financial condition, results of operations, or liquidity.
SFAS No. 141R
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations.
(SFAS No. 141R) For calendar year
companies, the standard is applicable to new business
combinations occurring on or after January 1, 2009.
SFAS No. 141R requires an acquiring entity to
recognize all the assets acquired and liabilities assumed in a
transaction at the acquisition-date fair value with limited
exceptions. Most significantly, SFAS No. 141R will
require that acquisition costs generally be expensed as
incurred, certain acquired contingent liabilities will be
recorded at fair value, and acquired in-process research and
development will be recorded at fair value as an
indefinite-lived intangible asset at the acquisition date. We do
not expect the adoption of SFAS No. 141R to have a
material impact on our financial condition, results of
operations or liquidity.
SFAS No. 160
In December 2007, the FASB also issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements An Amendment of ARB No. 51,
which is effective for fiscal years, and interim periods within
those fiscal years, beginning on or after December 15,
2008. The standard establishes new accounting and reporting
standards for the noncontrolling interest in a subsidiary and
for the deconsolidation of subsidiary. We do not expect the
adoption of SFAS No. 160 to have a material impact on
our financial condition, results of operations or liquidity.
Results
of Operations for Fiscal Years 2007, 2006 and 2005 (In
thousands, except percentage changes and share and per share
information)
The following is a discussion of the historical consolidated
financial condition and results of operations of Novavax, Inc.
and its wholly owned subsidiary and should be read in
conjunction with the consolidated financial statements and notes
thereto set forth in this Annual Report on
Form 10-K.
Additional information concerning factors that could cause
actual results to differ materially from those in the
Companys forward-looking statements is contained from time
to time in the Companys SEC filings.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
Change from
|
|
|
|
|
|
Change from
|
|
|
|
|
Revenues:
|
|
|
|
|
2006
|
|
|
|
|
|
2005
|
|
|
2005
|
|
|
Total net product sales
|
|
$
|
(58
|
)
|
|
$
|
(699
|
)
|
|
|
(109
|
)%
|
|
$
|
641
|
|
|
$
|
(1,863
|
)
|
|
|
74
|
%
|
|
$
|
2,504
|
|
Contract research and development
|
|
|
1,388
|
|
|
|
320
|
|
|
|
30
|
%
|
|
|
1,068
|
|
|
|
(730
|
)
|
|
|
(41
|
)%
|
|
|
1,798
|
|
Royalties, milestone and licensing fees
|
|
|
125
|
|
|
|
96
|
|
|
|
331
|
%
|
|
|
29
|
|
|
|
(1,012
|
)
|
|
|
(97
|
)%
|
|
|
1,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,455
|
|
|
$
|
(283
|
)
|
|
|
(16
|
)%
|
|
$
|
1,738
|
|
|
$
|
(3,605
|
)
|
|
|
(67
|
)%
|
|
$
|
5,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues for 2007 consisted of product sales of negative
$58,000, compared to $641,000 in 2006, contract research
revenues of $1.4 million compared to $1.1 million in
2006 and royalties and milestone fees from licensed products of
$125,000 compared to $29,000 in 2006. For the year ended
December 31, 2007, total revenues were $1.4 million as
compared to $1.7 million for the year ended
December 31, 2006, a decrease of $0.3 million or 16%.
34
The decrease in revenues during 2007 as compared to 2006 was
principally due to the discontinued sale of Gynodiol in 2007
which after reserves for sale returns netted total revenue of
negative $58,000. Net product sales in 2006 were
$0.6 million consisting primarily of Gynodiol. The increase
in contract research revenues in 2007 as compared to 2006 was
primarily due to higher government reimbursement for projects
and milestones achieved in 2007. The increase in royalties and
milestone payments in 2007 of $96,000 as compared to 2006 was
primarily due to additional fees in 2007 of $50,000 for a
development project and additional royalties from a prior sales
agreement.
Revenues for 2006 consisted of product sales of
$0.6 million compared to $2.5 million in 2005;
contract research and development revenues of $1.1 million
in 2006 compared to $1.8 million in 2005; and royalties,
milestone and licensing fees of $29,000 in 2006 compared to
$1.0 million in 2005. Total revenues for 2006 were
$1.7 million as compared to $5.3 million for 2005, a
decrease of $3.6 million or 67%. The primary reason for
this decrease in revenues was the divestiture of assets related
to AVC Cream and Suppositories, NovaNatal and NovaStart products
to Pharmelle, LLC in September 2005.
Contract research and development revenues for 2006 totaled
$1.1 million as compared to 2005 contract research and
development revenues of $1.8 million. Revenues in 2006 were
recognized under a National Institutes of Health
(NIH) grant to develop a second generation HIV/AIDS
vaccine, three manufacturing contracts and one additional
government contract.
Royalties, milestone and licensing fees for 2006 of $29,000 was
principally due to fees from a development project. This
represents a $1.0 million decrease from $1.0 million
in royalties, milestones and license fees for 2005 which
consisted of a $1.0 million renewal fee received from IGI,
Inc. (IGI) in December 2005 in accordance with an
option in a licensing agreement signed between the Company and
IGI in December 1995. This payment gave IGI a ten-year renewal
on licensed technologies in specific fields.
Operating
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
Change from
|
|
|
|
|
|
Change from
|
|
|
|
|
Operating Costs and Expenses:
|
|
|
|
|
2006
|
|
|
|
|
|
2005
|
|
|
2005
|
|
|
Cost of products sold
|
|
$
|
163
|
|
|
$
|
(74
|
)
|
|
|
(31
|
)%
|
|
$
|
237
|
|
|
$
|
(173
|
)
|
|
|
(42
|
)%
|
|
$
|
410
|
|
Research and development
|
|
|
17,600
|
|
|
|
6,271
|
|
|
|
55
|
%
|
|
|
11,329
|
|
|
|
6,254
|
|
|
|
123
|
%
|
|
|
5,075
|
|
Selling, general and administrative
|
|
|
13,963
|
|
|
|
2,675
|
|
|
|
24
|
%
|
|
|
11,288
|
|
|
|
(3,746
|
)
|
|
|
(25
|
)%
|
|
|
15,034
|
|
Facility exit costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(105
|
)
|
|
|
(100
|
)%
|
|
|
105
|
|
Gain on sales of product assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,965
|
|
|
|
100
|
%
|
|
|
(10,965
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
31,726
|
|
|
$
|
8,872
|
|
|
|
39
|
%
|
|
$
|
22,854
|
|
|
$
|
13,195
|
|
|
|
37
|
%
|
|
$
|
9,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
Products Sold
Cost of products sold decreased to $163,000 in 2007, compared to
$237,000 in 2006. The decrease was entirely due to lower gross
sales of Gynodiol due to the discontinued sale of the product
during the third quarter of 2007.
Cost of products sold decreased to $237,000 in 2006 compared to
$410,000 in 2005. The decrease was due to the divestiture of
assets related to AVC Cream and Suppositories, NovaNatal and
NovaStart products to Pharmelle, LLC in September 2005, and
lower Gynodiol sales in 2006 when compared to the prior year.
Research
and Development Expenses
Research and development costs increased from $11.3 million
in 2006 to $17.6 million in 2007, an increase of
$6.3 million, or 55%. Research and development expenses
were significantly higher in 2007 due to increases in personnel,
facility and outside-testing costs (including sponsored research
and consulting agreements) associated with expanded preclinical
testing and process development, manufacturing and
quality-related programs, license fees paid to Wyeth Holdings
Corporation and the initiation of human clinical trials
necessary to advance our influenza vaccine candidates in
clinical development.
35
Research and development costs increased from $5.1 million
in 2005 to $11.3 million in 2006, an increase of
$6.3 million or 123%. This increase was due primarily to
higher research and development spending to support our
strategic focus on creating differentiated, value-added vaccines
that leverage the Companys proprietary VLP technology.
Research and development expenses were significantly higher in
2006 due to increases in personnel, facility and outside testing
costs (including sponsored research and consulting agreements)
associated with expanded preclinical testing and process
development, manufacturing and quality-related programs
necessary to move the Companys influenza vaccine
candidates into pre-clinical testing. Also contributing to this
increase was the recognition of $0.5 million of non-cash
compensation costs resulting from the implementation of
SFAS No. 123R in 2006, using the modified prospective
method, while no costs were recorded in 2005 utilizing the
accounting recognition methods under APB No. 25.
Estimated
Cost and Time to Complete Major Projects
The expenditures that will be necessary to execute our business
plan are subject to numerous uncertainties, which may adversely
affect our liquidity and capital resources. As of
December 31, 2007, our proprietary product and vaccine
candidates were in early stages of development. Due to the
inherent nature of product development, future market demand for
products and factors outside of our control, such as clinical
results and regulatory approvals, we are unable to estimate the
completion dates and the estimated total costs for those product
candidates. The duration and the cost of clinical trials may
vary significantly over the life of a project as a result of
differences arising during clinical trial protocol, including,
but not limited to, the following:
|
|
|
|
|
number of patients that ultimately participate in the trial;
|
|
|
|
duration of the patient
follow-up
that seems appropriate in view of the results;
|
|
|
|
number of clinical sites included in the trials; and
|
|
|
|
length of time required to enroll suitable patient subjects.
|
In addition, we test our potential products and vaccines in
numerous preclinical studies to evaluate potential immune
response, safety and toxicology in animals. We may conduct
multiple human clinical trials to cover multiple indications for
each product candidate. As we obtain results for our trials we
may elect to discontinue clinical trials for certain product
candidates or indications. We further believe that it is not
possible to predict the length of regulatory approval time.
Factors that are outside our control could significantly delay
the approval and marketability of our product candidates.
As a result of the uncertainties discussed above and other risks
and uncertainties, the duration and completion costs of our
research and development projects are difficult to estimate and
are subject to numerous variations. Our inability to complete
our research and development projects in a timely manner could
significantly increase our capital requirements and could
adversely impact our liquidity. These uncertainties could force
us to seek external sources of financing from time to time in
order to continue pursuing our business strategy. For more
discussion of the risks and uncertainties and our liquidity, see
Item 1A Risk Factors and see Liquidity
and Capital Resources.
Selling,
General and Administrative
Selling, general and administrative costs were
$14.0 million in 2007 compared to $11.3 million in
2006. The increase of $2.7 million was primarily due to
increased facility costs of approximately $1.2 million for
the Companys new facility in Rockville, Maryland which was
leased in the fourth quarter of 2006; $0.9 million increase
for reserves for loans to former Board of Directors based on the
value of the common stock of Novavax held for collateral and
increased employee and related costs of $0.6 million.
Selling, general and administrative costs were
$11.3 million in 2006 compared to $15.0 million in
2005. The decrease in these expenses of $3.7 million was
due to the discontinuation of the sales force in 2005, resulting
from the sale of Estrasorb to Esprit Pharma in late 2005, and a
corresponding reduction of $6.8 million in selling
expenses. The savings in selling expenses was partially offset
by an increase of $1.2 million of non-cash compensation
costs resulting from the implementation of
SFAS No. 123R in 2006, using the modified prospective
method, while no costs were recorded in 2005 utilizing the
accounting recognition methods under APB No. 25. In
36
addition, other factors contributing to partial offset were
higher personnel, legal and consulting costs related to the
Companys VLP-based vaccine development programs. The
Company took steps to strengthen its intellectual property
portfolio and initiate business development and commercial
assessment activities related to its new vaccine development
strategy.
Also included in 2006 is a $167,000 reserve against a note
receivable and its corresponding accrued interest due from a
former director of the Company. This reserve represents the
difference between the book value of the receivables less the
market value of the pledged shares of common stock of the
Company as of December 31, 2006.
Additionally, in 2005 general and administrative expenses
included a $400,000 offset for Opportunity Grant funds received
from the Commonwealth of Pennsylvania for the reimbursement of
certain costs incurred with the move of our corporate
headquarters and product development activities from Maryland to
Pennsylvania. As a result of the Companys decision to
relocate its corporate headquarters and vaccine development
activities back to Maryland, the Commonwealth of Pennsylvania
requested repayment of the $400,000 Opportunity Grant received
in 2005. The Company recorded a liability in 2006 reflecting its
obligation to repay this amount.
Other
Operating Costs and Expenses
In 2005, we recorded gains on sales of product assets totaling
$11.0 million, which consisted of a $10.1 million gain
from the licensing of exclusive rights to market Estrasorb in
North America to Allergan in October 2005 and a
$0.9 million gain from the divestiture of assets related to
AVC Cream and Suppositories, NovaNatal and NovaStart products to
Pharmelle, LLC in September 2005.
We made an adjustment in 2005 of $0.1 million for
additional contract termination costs incurred in connection
with the relocation of our corporate headquarters.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
Change from
|
|
|
|
|
|
Change from
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
2005
|
|
|
2005
|
|
|
Interest income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
3,287
|
|
|
$
|
20
|
|
|
|
1
|
%
|
|
$
|
3,267
|
|
|
$
|
2,937
|
|
|
|
890
|
%
|
|
$
|
330
|
|
Interest expense
|
|
|
(1,606
|
)
|
|
|
121
|
|
|
|
(7
|
)%
|
|
|
(1,727
|
)
|
|
|
(606
|
)
|
|
|
(26
|
)%
|
|
|
(2,333
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,681
|
|
|
$
|
141
|
|
|
|
9
|
%
|
|
$
|
1,540
|
|
|
$
|
2,331
|
|
|
|
117
|
%
|
|
$
|
(2,003
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income was $3.3 million in 2007, an increase of
$20,000 from interest income recorded in 2006. Interest income
was relatively unchanged, despite lower cash and cash equivalent
balances in 2007, due to offsetting higher interest rates earned
on investments in 2007 as compared to 2006. Interest expense
decreased in 2007 as compared to 2006 by $121,000 to
$1.6 million in 2007. The decrease in interest expense in
2007 from 2006 was principally due to conversion of
$7.0 million face amount of the convertible notes into
equity in March 2006 partially offset by the amortization of
debt discount of $221,000 related to the amendments to
convertible notes made in 2007. In connection with amendments to
the convertible notes in 2007, we recorded a debt discount of
$852,000 and increased additional paid-in capital accordingly.
The debt discount is being amortized over the remaining term of
the convertible notes.
Interest income increased to $3.3 million in 2006 from
$0.3 million in 2005. The increase of $3.0 million was
due primarily to significantly higher investment balances
resulting from the net proceeds from two equity-financing
transactions during the first quarter of 2006 which totaled
$73.0 million as well as higher interest rates. Interest
expense was $1.7 million in 2006 and $2.3 million in
2005 a decrease of $0.6 million. Interest expense related
primarily to the 4.75% senior convertible notes totaling
$35.0 million. In October 2005, certain holders of
$6.0 million face amount of the convertible notes exercised
their optional right to convert their notes plus accrued
interest into 1,070,635 shares of Novavax common stock.
This reduced the aggregate principal amount of the convertible
notes outstanding to $29.0 million as of December 31,
2005. In March 2006, certain holders of $7.0 million face
amount of the convertible notes exercised their optional right
to convert their notes plus accrued interest into
1,294,564 shares of Novavax common stock. This further
reduced the aggregate principal amount of the convertible notes
outstanding to a face amount of $22.0 million as of
December 31, 2006. Included in interest expense for 2005
and 2006 is a $0.3 million and a $0.3 million
write-off of deferred financing costs that corresponds
37
to the conversion of $6.0 million in convertible debt in
2005 and $7.0 million in convertible debt in 2006. Also
included in interest expense for 2006 and 2005 is
$0.3 million and $0.4 million, respectively, of
amortization of deferred financing costs that corresponds to the
issuance of the 4.75% senior convertible notes in 2004.
Discontinued
Operations
In October 2007, we entered into agreements to terminate our
supply agreements with Allergan, successor-in-interest to
Esprit. In connection with the termination, we decided to wind
down operations at our manufacturing facility in Philadelphia,
Pennsylvania. The results of operations for the manufacturing
facility are being reported as discontinued operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
Change from
|
|
|
|
|
|
Change from
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
2005
|
|
|
|
|
|
Revenues
|
|
$
|
1,913
|
|
|
$
|
(1,032
|
)
|
|
|
(35
|
)%
|
|
$
|
2,945
|
|
|
$
|
900
|
|
|
|
44.0
|
%
|
|
$
|
2,045
|
|
Costs of products sold
|
|
|
6,758
|
|
|
|
2,071
|
|
|
|
44.2
|
%
|
|
|
4,687
|
|
|
|
(694
|
)
|
|
|
(12.9
|
)%
|
|
|
5,381
|
|
Excess inventory costs over market
|
|
|
1,267
|
|
|
|
(282
|
)
|
|
|
(18.2
|
)%
|
|
|
1,549
|
|
|
|
30
|
|
|
|
2.0
|
%
|
|
|
1,519
|
|
Research and development
|
|
|
63
|
|
|
|
(137
|
)
|
|
|
(68.5
|
)%
|
|
|
200
|
|
|
|
200
|
|
|
|
N/A
|
|
|
|
|
|
General and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
8,088
|
|
|
|
1,652
|
|
|
|
25.7
|
%
|
|
|
6,436
|
|
|
|
(464
|
)
|
|
|
(6.7
|
)%
|
|
|
6,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,175
|
)
|
|
$
|
(2,684
|
)
|
|
|
76.9
|
%
|
|
$
|
(3,491
|
)
|
|
$
|
1,364
|
|
|
|
(28.1
|
)%
|
|
$
|
(4,855
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We recorded a loss from discontinued operations of
$3.5 million for the year ended December 31, 2006
compared to $6.2 million for the year ended
December 31, 2007, an increase of $2.7 million or 77%.
The increase resulted from a decrease in revenue and an increase
in operating expenses. Revenue from discontinued operations
decreased to $1.9 million for 2007 from $2.9 million
for 2006, a decrease of $1.0 million. The decrease resulted
from lower Estrasorb shipments due to adjustments in inventory
levels made by Allergan to reflect sales volume activity.
Revenue also decreased as a result of decreased contract
research revenue associated with the Allergan agreement.
Costs of products sold, which includes fixed idle capacity costs
increased from $4.7 million to $6.8 million, an
increase of $2.1 million, or 44%. Of the $6.8 million
cost of products sold in 2007, $3.1 million represented
idle plant capacity costs at our manufacturing facility. The
remaining $3.7 million represented $1.5 million
related to the cost of Estrasorb sales to Allergan and a
$2.2 million impairment charge related to the fixed assets
at our manufacturing facility. Of the $4.7 million cost of
products sold in 2006, $2.5 million represents idle plant
capacity costs and the balance of $2.2 million represent
the costs of Estrasorb sales to Allergan. We were required to
complete the manufacture of the remaining orders of Estrasorb in
accordance with our agreement with Allergan in October 2007 to
terminate the Allergan Supply Agreement.
In accordance with the Supply Agreement with Allergan, during
2006 and 2007, we were required to sell Estrasorb at a price
that is lower than our manufacturing costs. These excess costs
over the product cost totaled $1.3 million for 2007 and
$1.5 million for 2006.
Research and development costs from discontinued operations
decreased to $63,000 in 2007 from $200,000 in 2006, primarily as
a result of the termination of our agreements with Allergan.
We recorded a loss from discontinued operations of
$3.5 million for the year ended December 31, 2006
compared to $4.9 million for the year ended
December 31, 2005, a decrease of $1.4 million or 28%.
The decrease in the loss resulted from an increase in revenue
and a decrease in operating expenses. Revenues from discontinued
operations increased to $2.9 million for 2006 from
$2.0 million for 2005, an increase of $0.9 million.
The increase primarily resulted from $0.8 million of
contract research revenue during 2006, royalties recorded on the
sales of Estrasorb to Allergan, partially offset by a decrease
in Estrasorb product sales to Allergan due to reduced inventory
requirements. In October 2005, we licensed the exclusive rights
to market Estrasorb in North America to Allergan. Pursuant to
the License Agreement with Allergan, we recorded
$0.3 million of royalty revenue in 2006. Under the terms of
the License and Supply Agreements with Allergan, we agreed to
manufacture and supply
38
Estrasorb to Allergan for a lower price than what we previously
sold Estrasorb to our distributors. Estrasorb product revenue in
2005 includes sales to our distributors through the date of the
License and Supply Agreements with Allergan. Product revenue for
all periods after the date of the Agreements represents sales to
Allergan.
Costs of products sold, which includes fixed idle capacity costs
decreased to $4.7 million in 2006 from $5.4 million in
2005, a decrease of $0.7 million, or 13%. Of the
$4.7 million cost of products sold in 2006,
$2.5 million represents idle plant capacity costs at our
manufacturing facility. The remaining $2.2 million
represents the cost of Estrasorb sales to Allergan. Of the
$5.4 million cost of products sold in 2005,
$3.2 million represents idle plant capacity costs and the
balance of $2.2 million represents the costs of Estrasorb
sales.
As discussed above, in accordance with the Supply Agreement with
Allergan, during 2005 and 2006, we were required to sell
Estrasorb at a price that is lower than our manufacturing costs.
These excess costs over the product cost totaled
$1.5 million for both 2006 and 2005.
We recorded research and development costs from discontinued
operations in 2006 of $200,000 related to costs incurred for
contract research performed in our manufacturing facility. We
did not have any research and development costs in 2005.
Net
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
Change from
|
|
|
|
|
|
Change from
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
2005
|
|
|
2005
|
|
|
Net Loss
|
|
$
|
(34,765
|
)
|
|
$
|
(11,697
|
)
|
|
|
(51
|
)%
|
|
$
|
(23,068
|
)
|
|
$
|
(11,894
|
)
|
|
|
(97
|
)%
|
|
$
|
(11,714
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share
|
|
$
|
(0.57
|
)
|
|
$
|
(0.17
|
)
|
|
|
(44
|
)%
|
|
$
|
(0.39
|
)
|
|
$
|
(0.13
|
)
|
|
|
(50
|
)%
|
|
$
|
(0.26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted shares outstanding
|
|
|
61,101,747
|
|
|
|
|
|
|
|
|
|
|
|
58,664,365
|
|
|
|
|
|
|
|
|
|
|
|
42,758,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our net loss for 2007 totaled $34.8 million or $(0.57) loss
per share, which was an increase $11.7 million, or $0.18
per share than the net loss for 2006 of $23.1 million, or
$(0.39) per share. The increase in the net loss in 2007 was
principally due to increases in research and development
expenses of $6.0 million, increases in net losses from
discontinued operations of $2.7 million, the cost of our
new facility in Rockville, Maryland of $1.2 million, and an
increase in reserves for two former Board members note
receivables of $0.9 million.
Our net loss for 2006 was $23.1 million or $(0.39) per
share, as compared to $11.2 million or $(0.26) per share
for 2005, an increase of $11.9 million. The increase in the
net loss in 2006 from 2005 was principally due to the gain on
sales and product assets of $11.0 recorded in 2005. In addition,
decreases in net revenues of $3.6 million were partially
offset by decreased operating expenses of $2.1 million and
a decreased net loss for discontinued operations of
$1.2 million.
Weighted shares outstanding increased in 2007 to
61.1 million shares from 58.7 million in 2006. The
increase in weighted shares in 2007 was principally due to
vesting of restricted stock and exercising of stock options.
Weighted shares outstanding increased from 42.8 million
shares in 2005 to 58.7 million shares in 2006 due primarily
to the equity financing transactions in the first quarter of
2006 coupled with the conversion of $7.0 million of senior
convertible notes into shares of Novavax common stock during
this same period. In addition, exercises of stock options and
issuance of restricted stock as compensation also contributed to
this increase in weighted shares outstanding.
Liquidity
Matters and Capital Resources
Our future capital requirements depend on numerous factors
including but not limited to, the commitments and progress of
our research and development programs, the progress of
preclinical and clinical testing, the time and costs involved in
obtaining regulatory approvals, the costs of filing,
prosecuting, defending and enforcing any patent claims and other
intellectual property rights, competing technological and market
developments, and manufacturing costs related to Estrasorb. We
plan to continue to have multiple vaccines and products in
various stages of
39
development and we believe our research and development as well
as general and administrative expenses and capital requirements
will continue to exceed our revenues. Future activities,
particularly vaccine and product development, are subject to our
ability to raise funds through debt or equity financing, or
collaborative arrangements with industry partners and government
agencies.
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
Summary of Cash Flows:
|
|
2007
|
|
|
|
(In thousands)
|
|
Net cash (used in) provided by:
|
|
|
|
|
Operating activities
|
|
$
|
(26,742
|
)
|
Investing activities
|
|
|
24,651
|
|
Financing activities
|
|
|
(720
|
)
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(2,811
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
7,161
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
4,350
|
|
|
|
|
|
|
In addition to revenues of $8.5 million from continuing
operations, during the three-year period ended December 31,
2007, we have funded our operations primarily from the following
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds (In millions)
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
Total
|
|
|
Sales of common stock in public offerings, net
|
|
$
|
20.7
|
|
|
$
|
56.0
|
|
|
$
|
|
|
|
$
|
76.7
|
|
Sales of product assets
|
|
|
12.7
|
|
|
|
|
|
|
|
|
|
|
|
12.7
|
|
License payments received
|
|
|
1.0
|
|
|
|
2.5
|
|
|
|
|
|
|
|
3.5
|
|
Exercise of stock options and warrants
|
|
|
0.4
|
|
|
|
1.7
|
|
|
|
0.1
|
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
34.8
|
|
|
$
|
60.2
|
|
|
$
|
0.1
|
|
|
$
|
95.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007, we held $46.5 million in cash
and investments as compared to $73.6 million at
December 31, 2006. The $27.1 million decrease in cash
and investments during 2007, was due to the operating loss from
continued operations of $28.6 million, cash used from
discontinued operations of $1.0 million, and principal
payments on debt of $0.8 million, partially offset by
non-cash expenses of $4.6 million and net balance sheet
changes (favorable) of $0.6 million. In addition, capital
expenses totaled $2.0 million in 2007, primarily for
equipment for vaccine development and the initial investment in
the build out of a new GMP facility in our corporate
headquarters.
As of December 31, 2007, our working capital was
$42.8 million compared to $72.0 million as of
December 31, 2006. This $29.2 million decrease
includes $28.0 million in operating and capital expense
activities plus $0.8 million in principal payments on our
outstanding debt obligations.
We intend to use the proceeds from our equity financing
transactions for general corporate purposes, including but not
limited to our internal research and development programs, such
as preclinical and clinical testing and studies for our vaccine
and other product candidates, the development of new
technologies, capital improvements and general working capital.
In the first quarter of 2007, we entered into sponsored research
and licensing arrangements with two academic institutions to
conduct early stage research in the vaccine area. These and
similar arrangements that we may enter into may aggregate to a
material amount of research and development spending that will
accelerate the use of such proceeds. We will continue to fund
our operations through product licensing, co-development
arrangements on new products, or the public or private sale of
securities of the Company. There can be no assurance that we
will be able to obtain additional capital or, if such capital is
available, that the terms of any financing will be satisfactory
to the Company.
As of December 31, 2007, we had $22 million of senior
convertible notes outstanding (the Notes). The Notes
carry a 4.75% coupon; are currently convertible into shares of
Novavax common stock at $4.00 per share; and mature on
July 19, 2009. We may require that the Notes be converted
into Company common stock if the weighted average price of the
our common stock is greater than $7.00 in any 15 out of 30
consecutive trading days after July 19, 2007.
40
In February 2008, we sold our assets related to
Estrasorb®
in the United States, Canada and Mexico to Graceway
Pharmaceuticals, LLC (Graceway). The assets sold
include certain patents related to the micellar nanoparticle
technology (the MNP Technology), trademarks,
manufacturing equipment, customer and supplier relations and
goodwill. Novavax and Graceway also entered into a supply
agreement, pursuant to which Novavax has agreed to manufacture
additional units of Estrasorb with final delivery expected in
mid 2008. Graceway will pay a preset transfer price per unit of
Estrasorb for the supply of this product. The net cash proceeds
from this transaction are estimated to exceed $2 million.
The license and supply agreements with Allergan, Inc.,
successor-in-interest
to Esprit Pharma, Inc., were terminated in February 2008 and
October 2007, respectively.
Based on our assessment of the availability of capital and our
business operations as currently contemplated, including our
clinical development plans, in the absence of new financings,
any potential redemption of Notes, licensing arrangements or
partnership agreements, we believe we will have adequate capital
resources through the first quarter of 2009. If we are unable to
obtain additional capital, we will continue to assess our
capital resources and we may be required to delay, reduce the
scope of, or eliminate one or more of our product research and
development programs, downsize our organization, or reduce
general and administrative infrastructure.
Contractual
Obligations and Commitments
We utilize different financing instruments, such as debt and
operating leases, to finance various equipment and facility
needs. The following table summarizes our current financing
obligations and commitments (in thousands) as of
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than
|
|
|
1 - 3
|
|
|
4 5
|
|
|
More than
|
|
Commitments & Obligations
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
Convertible notes
|
|
$
|
22,000
|
|
|
$
|
|
|
|
$
|
22,000
|
|
|
$
|
|
|
|
|
|
|
Operating leases
|
|
|
8,241
|
|
|
|
2,412
|
|
|
|
3,187
|
|
|
|
2,584
|
|
|
$
|
58
|
|
Notes payable
|
|
|
1,354
|
|
|
|
855
|
|
|
|
392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total principal payments
|
|
|
31,595
|
|
|
|
3,267
|
|
|
|
25,579
|
|
|
|
2,691
|
|
|
|
58
|
|
Less: Subleases
|
|
|
(869
|
)
|
|
|
(506
|
)
|
|
|
(363
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net principal payments
|
|
|
30,726
|
|
|
|
2,761
|
|
|
|
25,216
|
|
|
|
2,691
|
|
|
|
58
|
|
Interest
|
|
|
2,120
|
|
|
|
1,072
|
|
|
|
1,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commitments & obligations
|
|
$
|
32,846
|
|
|
$
|
3,833
|
|
|
$
|
26,264
|
|
|
$
|
2,691
|
|
|
$
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance
Sheet Arrangements
We are not involved in any off-balance sheet agreements that
have or are reasonably likely to have a material future effect
on its financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital
expenditures, or capital resources.
|
|
Item 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
The primary objective of our investment activities is to
preserve our capital until it is required to fund operations
while at the same time maximizing the income we receive from our
investments without significantly increasing risk. As of
December 31, 2007, we had cash and cash equivalents and
short-term investments of $46.5 million as follows:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4.4 million
|
|
Short-term investments classified as held to maturity
|
|
$
|
32.9 million
|
|
Short-term investments classified as available for sale
|
|
$
|
9.2 million
|
|
Our exposure to market risk is confined to our investment
portfolio. Our short-term investments are classified as either
held to maturity or available for sale. Short term investment
held to maturity are comprised of certificates of deposit,
corporate bonds, and government agency bonds. These investments
are held at amortized cost. We do not believe that a change in
the market rates of interest would have any significant impact
on the realizable value of our
41
investment portfolio. Changes in interest rates may affect the
investment income we earn on our investments and, therefore,
could impact our cash flows and results of operations. Our
investment in auction rate securities is classified as
short-term investments available for sale on our consolidated
balance sheet and is comprised of taxable municipal bonds.
Auction rate securities are variable rate bonds tied to
short-term interest rates with maturities on the face of the
securities between 2022 and 2042. These auction rate securities
have interest rate resets through a modified Dutch auction, at
predetermined short-term intervals. Interest paid during a given
period is based upon the interest rate determined during the
prior auction. As a result of current negative conditions in the
credit markets, auctions for these securities may fail to settle
on their respective settlement dates. The current market for the
auction rate securities is uncertain and we will continue to
monitor and evaluate the market for these securities to
determine if impairment of the carrying value of the securities
has occurred. To our knowledge, there have been no auction rate
failures related to auction rate securities held by the Company.
We are headquartered in the United States where we conduct the
vast majority of our business activities. Accordingly, we have
not had any material exposure to foreign currency rate
fluctuations.
On June 15, 2007, we entered into amendment agreements (the
Amendments) with each of the holders of the
outstanding Notes to amend the terms of the Notes. As of
December 31, 2007, $22.0 million aggregate principal
amount remained outstanding under the Notes. The Amendments
(i) lowered the conversion price from $5.46 to $4.00 per
share, (ii) eliminated the holders right to require
the Company to redeem the Notes if the weighted average price of
the Companys common stock is less than the conversion
price on 30 of the 40 consecutive trading days preceding
July 19, 2007 or July 19, 2008 and (iii) mandated
that the Notes be converted into Company common stock if the
weighted average price of the Companys common stock is
greater than $7.00 (a decrease from $9.56) in any 15 out of 30
consecutive trading days after July 19, 2007. In connection
with the Amendments, the Company recorded a debt discount of
$852,000 and increased additional paid-in capital accordingly.
The debt discount will be amortized over the remaining term of
the Notes. Interest expense included $221,000 for the year ended
December 31, 2007 related to the amortization of the debt
discount.
At December 31, 2007, we had a total debt of
$22.7 million, most of which bears interest at fixed
interest rates. We do not believe that it is exposed to any
material interest rate risk as a result of our borrowing
activities.
Information required under this section is also contained in
Part I, Item IA of this report and in Item 8 of
this report, and is incorporated herein by reference.
|
|
Item 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
The information required by this item is set forth on pages F-1
to F-38.
|
|
Item 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
On April 17, 2006, Novavax, Inc. dismissed
Ernst & Young LLP as its independent registered public
accounting firm. The report of Ernst & Young LLP on
the consolidated financial statements for the fiscal year ended
December 31, 2005 contained no adverse opinion or
disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope or accounting principles. The report of
Ernst & Young LLP on the consolidated financial
statements for the fiscal year ended December 31, 2004
contained no adverse opinion or disclaimer of opinion and was
not qualified or modified as to uncertainty, audit scope or
accounting principles, except that the opinion contained a
going concern explanatory paragraph. The
Companys Audit Committee participated in and approved the
decision to change independent registered public accounting
firms.
In connection with its audits for the two most recent fiscal
years and through April 17, 2006, there have been no
disagreements with Ernst & Young LLP on any matter of
accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements
if not resolved to the satisfaction of Ernst & Young
LLP would have caused them to make reference thereto in their
report on the consolidated financial statements for such years.
During the two fiscal years ended December 31, 2005 and
2004 and through April 17, 2006, there were no reportable
events (as defined in
Regulation S-K
Item 304 (a)(1)(v)). The Registrant requested that
Ernst & Young
42
LLP furnish it with a letter addressed to the SEC stating
whether or not it agrees with the above statements. A copy of
such letter, dated April 20, 2006 is filed as
Exhibit 16 to the
Form 8-K
filed on April 21, 2006.
On April 20, 2006, the Company engaged Grant Thornton LLP
to act as the Companys independent registered public
accounting firm. Grant Thornton LLP replaced Ernst &
Young LLP. Prior to the engagement of Grant Thornton, neither
the Company nor anyone on behalf of the Company consulted with
Grant Thornton during the Companys two most recent fiscal
years and through April 20, 2006, in any manner regarding:
(A) either the application of accounting principles to a
specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on the Companys
financial statements, and neither was a written report provided
to the Company nor was oral advice provided that Grant Thornton
concluded was an important factor considered by the Company in
reaching a decision as to the accounting, auditing, or financial
reporting issue, or (B) the subject of either a
disagreement or a reportable event, as defined in Item 304
(a)(1)(iv), respectively, of
Regulation S-K.
Evaluation
of Disclosure Controls and Procedures
The Companys chief executive officer and chief financial
officer have reviewed and evaluated the effectiveness of the
Companys disclosure controls and procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended) as of the
end of the period covered by this annual report. Based on that
review and evaluation, which included the participation of
management and certain other employees of the Company, the chief
executive officer and chief financial officer have concluded
that the Companys current disclosure controls and
procedures, as designed and implemented, are effective.
Changes
in Internal Control over Financial Reporting
The Companys management, including our principal executive
officer and principal financial officer, has evaluated any
changes in the Companys internal control over financial
reporting that occurred during the year ended December 31,
2007, and has concluded that there was no change that occurred
during the year ended December 31, 2007 that has materially
affected, or is reasonably likely to materially affect, the
Companys internal control over financial reporting.
Managements
Annual Report on Internal Control over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act. Because of its inherent limitations,
internal control over financial reporting may not prevent or
detect misstatements. Projections of any evaluation of
effectiveness to future periods are subject to the risks that
controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures
may deteriorate.
Management assessed the effectiveness of our internal control
over financial reporting as of December 31, 2007. In making
this assessment, management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control-Integrated Framework. Based on
this assessment, management believes that, as of
December 31, 2007, our internal control over financial
reporting is effective.
The effectiveness of our internal control over financial
reporting as of December 31, 2007, has been audited by
Grant Thornton LLP, an independent registered public accounting
firm, as stated in their report which is included in
Item 8 Financial Statements.
|
|
Item 9B.
|
OTHER
INFORMATION
|
None.
43
PART III
|
|
Item 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
We incorporate herein by reference the information concerning
our directors, officers and corporate governance to be included
in our definitive Proxy Statement for our 2008 Annual Meeting of
Stockholders to be held on June 18, 2008 (the 2008
Proxy Statement). We expect to file the 2008 Proxy
Statement within 120 days after the close of the fiscal
year ended December 31, 2007.
|
|
Item 11.
|
EXECUTIVE
COMPENSATION
|
We incorporate herein by reference the information concerning
executive compensation to be contained in the 2008 Proxy
Statement.
|
|
Item 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
We incorporate herein by reference the information concerning
security ownership of certain beneficial owners and management
and related stockholder matters to be contained in the 2008
Proxy Statement.
The following table provides the Companys equity
compensation plan information as of December 31, 2007.
Under these plans, the Companys common stock may be issued
upon the exercise of options. See also the information regarding
stock options of the Company in Note 9, Stock
Options to the Consolidated Financial Statements included
herewith.
Equity
Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
Remaining Available
|
|
|
|
Number of Securities
|
|
|
Weighted-Average
|
|
|
for Future Issuance
|
|
|
|
to be Issued
|
|
|
Exercise Price of
|
|
|
Under Equity
|
|
|
|
Upon Exercise of
|
|
|
Outstanding Options,
|
|
|
Compensation Plans
|
|
|
|
Outstanding Options,
|
|
|
Warrants and Rights
|
|
|
(Excluding Securities
|
|
Plan Category
|
|
Warrants and Rights (a)
|
|
|
(b)
|
|
|
Reflected in Column(a)(c)
|
|
|
Equity compensation plans approved by security holders(1)
|
|
|
6,290,520
|
|
|
$
|
4.50
|
|
|
|
4,122,704
|
|
Equity compensation plans not approved by security holders
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
(1) |
|
Includes the Companys 2005 Stock Incentive Plan, 1995
Stock Option Plan and 1995 Director Stock Option Plan. |
|
|
Item 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
We incorporate herein by reference the information concerning
certain related party transactions set forth in Note 14 to
our Consolidated Financial Statements included herewith. We
incorporate herein by reference the information concerning
certain other relationships and related transactions and
director independence to be contained in the 2008 Proxy
Statement.
|
|
Item 14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
We incorporate herein by reference the information concerning
principal accountant fees and services to be contained in the
2008 Proxy Statement.
44
PART IV
|
|
Item 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
(a) The following documents are filed as part of the Annual
Report:
(1) Index to Consolidated Financial
Statements
|
|
|
|
|
Reports of Independent Registered Public Accounting Firms
|
|
|
F- 2
|
|
Consolidated Balance Sheets as of December 31, 2007 and 2006
|
|
|
F- 5
|
|
Consolidated Statements of Operations for the years ended
December 31, 2007, 2006 and 2005
|
|
|
F- 6
|
|
Consolidated Statements of Stockholders Equity for years
ended December 31, 2007, 2006 and 2005
|
|
|
F- 7
|
|
Consolidated Statements of Cash Flows for the years ended
December 31, 2007, 2006 and 2005
|
|
|
F- 8
|
|
Notes to Consolidated Financial Statements
|
|
|
F- 9
|
|
(2) Financial Statement Schedules
All financial statement schedules are omitted because they are
not applicable, not required under the instructions or all the
information required is set forth in the financial statements or
notes thereto.
(3) Exhibits
Exhibits marked with a single asterisk (*) are filed herewith.
Exhibits marked with a double plus sign () refer to
management contracts, compensatory plans or arrangements.
Confidential treatment has been requested for portions of
exhibits marked with a double asterisk (**) and granted for
portions of exhibits marked with a triple asterisk (***).
All other exhibits listed have previously been filed with the
Commission and are incorporated herein by reference.
|
|
|
|
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation of the Company
(Incorporated by reference to Exhibit 3.1 to the
Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 1996, filed
March 21, 1997 (the 1996
Form 10-K)),
as amended by the Certificate of Amendment dated
December 18, 2000 (Incorporated by reference to
Exhibit 3.4 to the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2000, filed
March 29, 2001 (the 2000
Form 10-K)),
as further amended by the Certificate of Amendment dated
July 8, 2004 (Incorporated by reference to Exhibit 3.1
to the Companys Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2004, filed August 9,
2004 (the 2004 2Q
Form 10-Q))
|
|
3
|
.2
|
|
Amended and Restated By-Laws of the Company (Incorporated by
reference to Exhibit 3.2 to the Companys Current
Report on
Form 8-K,
filed August 8, 2007), as amended on August 2, 2007
|
|
4
|
.1
|
|
Specimen stock certificate for shares of common stock, par value
$.01 per share (Incorporated by reference to Exhibit 4.1 to
the Companys Registration Statement on Form 10, File
No. 0-26770,
filed September 14, 1995 (the Form 10))
|
|
4
|
.2
|
|
Rights Agreement, dated as of August 8, 2002, by and
between the Company and Equiserve Trust Company, which
includes the Form of Summary of Rights to Purchase Series D
Junior Participating Preferred Stock as Exhibit A, the Form
of Right Certificate as Exhibit B and the Form of
Certificate of Designation of Series D Junior Participating
Preferred Stock as Exhibit C. (Incorporated by reference to
Exhibit 4.1 to the Companys Current Report on
Form 8-K,
filed August 9, 2002)
|
|
4
|
.3
|
|
Registration Rights Agreement, dated as of July 16, 2004,
by and between the Company and the Buyers identified therein.
(Incorporated by reference to Exhibit 4.7 to the
Registration Statement on
Form S-3,
File
No. 333-118210,
filed August 13, 2004)
|
|
10
|
.1
|
|
Novavax, Inc. 1995 Stock Option Plan, as amended (Incorporated
by reference to Appendix A of the Companys Definitive
Proxy Statement filed March 31, 2003 in connection with the
Annual Meeting held on May 7, 2003)
|
|
10
|
.2
|
|
Novavax, Inc. 1995 Director Stock Option Plan (Incorporated
by reference to Exhibit 10.5 to the Form 10)
|
45
|
|
|
|
|
|
10
|
.3
|
|
Novavax, Inc. 2005 Stock Incentive Plan, as amended
(Incorporated by reference to Exhibit A of the
Companys Definitive Proxy Statement filed April 30,
2007 in connection with the Annual Meeting held on June 20,
2007)
|
|
10
|
.4
|
|
Amended and Restated Employment Agreement, dated as of
August 2, 2007, originally effective November 9, 2005,
by and between the Company and Rahul Singhvi (Incorporated by
reference to Exhibit 10.2 to the Companys Quarterly
Report on
Form 10-Q
for the quarter ended June 30, 2007, filed August 9,
2007)
|
|
10
|
.5
|
|
Amended and Restated Employment Agreement, dated as of
August 2, 2007, originally effective November 9, 2005,
by and between the Company and Raymond J. Hage, Jr.
(Incorporated by reference to Exhibit 10.4 to the
Companys Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2007, filed August 9,
2007)
|
|
10
|
.6
|
|
Amended and Restated Employment Agreement, dated as of
August 2, 2007, originally effective July 2, 2007, by
and between the Company and Len Stigliano (Incorporated by
reference to Exhibit 10.3 to the Companys Quarterly
Report on
Form 10-Q
for the quarter ended June 30, 2007, filed August 9,
2007)
|
|
10
|
.7
|
|
Consulting Agreement, dated as of April 27, 2007, effective
as of March 7, 2007, between the Company and John Lambert
(Incorporated by reference to Exhibit 10.1 to the
Companys Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2007, filed May 10,
2007)
|
|
10
|
.8
|
|
Amended and Restated Change in Control Severance Benefit Plan,
as adopted July 26, 2006 (Incorporated by reference to
Exhibit 10.2 to the Companys Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2006, filed
November 14, 2006)
|
|
10
|
.9
|
|
Form of Indemnity Agreement, as authorized August 10, 2005
(Incorporated by reference to Exhibit 99.2 to the
Companys Current Report on
Form 8-K,
filed August 16, 2005)
|
|
10
|
.10
|
|
Facilities Reservation Agreement, dated as of February 11,
2002, by and between the Company and Packaging Coordinators,
Inc. (Incorporated by reference to Exhibit 10.13 to the
2001
Form 10-K)
|
|
10
|
.11
|
|
Letter Agreement by and between Novavax, Inc. and Catalent
Pharma Solutions, Inc., dated February 12, 2008 and
effective February 19, 2008 amending the Facilities
Reservation Agreement dated February 11, 2002 (Incorporated
by reference to Exhibit 10.4 to the Companys Current
Report on
Form 8-K,
filed February 25, 2007)
|
|
10
|
.12
|
|
Lease Agreement, dated as of July 15, 2004, between Liberty
Property Limited Partnership and the Company (Incorporated by
reference to Exhibit 10.1 to the 2004 2Q
Form 10-Q)
|
|
10
|
.13
|
|
Sublease Agreement, dated April 28, 2006, by and between
the Company and Sterilox Technologies, Inc. (Incorporated by
reference to Exhibit 10.3 to the Companys Quarterly
Report on
Form 10-Q
for the quarter ended June 30, 2006, filed August 14,
2006)
|
|
10
|
.14
|
|
Amendment dated as of October 25, 2006 to the Sublease
Agreement, dated April 28, 2006, by and between the Company
and Sterilox Technologies, Inc. (Incorporated by reference to
Exhibit 10.3 to the Companys Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2006, filed
November 14, 2006)
|
|
10
|
.15
|
|
Lease, commencing April 1, 2005, by and between United
Health Care Services, Inc. and the Company (Incorporated by
reference to Exhibit 10.1 to the Companys Quarterly
Report on
Form 10-Q
for the quarter ended June 30, 2005, filed August 9,
2005)
|
|
10
|
.16
|
|
Sublease Agreement by and between Human Genome Sciences, Inc.,
and the Company dated October 6, 2006 (Incorporated by
reference to Exhibit 10.1 to the Companys Current
Report on
Form 8-K,
filed December 13, 2006)
|
|
10
|
.17
|
|
License Agreement between IGEN, Inc. and the Company
(Incorporated by reference to Exhibit 10.3 to the
Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 1995, filed
April 1, 1996)
|
|
10
|
.18
|
|
HIV Vaccine Design and Development Agreement, effective
September 26, 2003, by and between the Company and the
National Institute of Allergy and Infectious Diseases, a
component of the National Institutes of Health, an agency of the
Department of Health and Human Services (Incorporated by
reference to Exhibit 10.33 to the Companys Annual
Report on
Form 10-K
(as amended) for the fiscal year ended December 31, 2004,
filed March 15, 2005)
|
|
10
|
.19
|
|
Form of Senior Convertible Note (Incorporated by reference to
Exhibits 99.4 to the Companys Current Report on
Form 8-K,
filed July 19, 2004)
|
46
|
|
|
|
|
|
10
|
.20
|
|
Amendment Agreement by and between Novavax, Inc. and Smithfield
Fiduciary LLC, dated June 15, 2007 (Incorporated by
reference to Exhibit 10.1 of the Companys Current
Report on
Form 8-K,
filed June 18, 2007)
|
|
10
|
.21
|
|
Amendment Agreement by and between Novavax, Inc. and SF Capital
Partner Ltd., dated June 15, 2007 (Incorporated by
reference to Exhibit 10.2 of the Companys Current
Report on
Form 8-K,
filed June 18, 2007)
|
|
10
|
.22
|
|
Amendment Agreement by and between Novavax, Inc. and Portside
Growth and Opportunity Fund, dated June 15, 2007
(Incorporated by reference to Exhibit 10.3 of the
Companys Current Report on
Form 8-K,
filed June 18, 2007)
|
|
10
|
.23
|
|
Exchange Agreement, dated July 16, 2004, between the
Company, King Pharmaceuticals, Inc. and Parkedale
Pharmaceuticals, Inc. (Incorporated by reference to
Exhibit 99.5 to the Companys Current Report on
Form 8-K,
filed July 19, 2004)
|
|
10
|
.24
|
|
Termination Agreement, dated as of July 16, 2004 among King
Pharmaceuticals, Inc., Parkedale Pharmaceuticals, Inc. and the
Company (Incorporated by reference to Exhibit 99.6 to the
Companys Current Report on
Form 8-K,
filed July 19, 2004)
|
|
10
|
.25
|
|
Asset Purchase Agreement, dated and entered into as of
September 22, 2005, by and among the Company, Fielding
Pharmaceutical Company and Pharmelle, LLC (Incorporated by
reference to Exhibit 10.1 to the Companys Current
Report on
Form 8-K,
filed September 28, 2005)
|
|
10
|
.26
|
|
Amendment dated and entered into as of July 5, 2006, to
Asset Purchase Agreement, dated and entered into as of
September 22, 2005, by and among the Company, Fielding
Pharmaceutical Company and Pharmelle, LLC (Incorporated by
reference to Exhibit 10.1 to the Companys Quarterly
Report on
Form 10-Q
for the quarter-ended September 30, 2006, filed
November 14, 2006)
|
|
10
|
.27***
|
|
Exclusive License Agreement, dated February 26, 2007,
between the Company and the University of Massachusetts
(Incorporated by reference to Exhibit 10.34 to the
Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006, filed
March 14, 2007)
|
|
10
|
.28***
|
|
License Agreement, dated July 5, 2007, between the Company
and Wyeth Holdings Corporation (Incorporated by reference to
Exhibit 10.1 to the Companys Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2007, filed August 9,
2007)
|
|
10
|
.29**
|
|
Asset Purchase Agreement by and between Novavax, Inc. and
Graceway Pharmaceuticals, LLC, dated February 19, 2008
(Incorporated by reference to Exhibit 10.1 to the
Companys Current Report on
Form 8-K,
filed February 25, 2007)
|
|
10
|
.30**
|
|
Supply Agreement by and between Novavax, Inc. and Graceway
Pharmaceuticals, LLC, dated February 19, 2008 (Incorporated
by reference to Exhibit 10.2 to the Companys Current
Report on
Form 8-K,
filed February 25, 2007)
|
|
10
|
.31**
|
|
License Agreement by and between Novavax, Inc. and Graceway
Pharmaceuticals, LLC, dated February 19, 2008 (Incorporated
by reference to Exhibit 10.3 to the Companys Current
Report on
Form 8-K,
filed February 25, 2007)
|
|
14
|
|
|
Code of Business Conduct and Ethics (Incorporated by reference
to Exhibit 14 to the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2003, filed
March 15, 2004)
|
|
23
|
.1
|
|
Consent of Grant Thornton LLP, Independent Registered Public
Accounting Firm*
|
|
23
|
.2
|
|
Consent of Ernst & Young LLP, Independent Registered
Public Accounting Firm*
|
|
31
|
.1
|
|
Certification of principal executive officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002*
|
|
31
|
.2
|
|
Certification of principal financial officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002*
|
|
32
|
.1
|
|
Certification Pursuant to 18 UNITED STATESC. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, by Rahul Singhvi, President and Chief Executive
Officer of the Company*
|
|
32
|
.2
|
|
Certification Pursuant to 18 UNITED STATESC. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, by Len Stigliano, Vice President, Chief Financial
Officer and Treasurer of the Company*
|
47
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.
NOVAVAX, INC.
President and Chief Executive Officer
and Director
Date: March 17, 2007
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:
|
|
|
|
|
|
|
Name
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ RAHUL
SINGHVI
Rahul
Singhvi
|
|
President and Chief Executive Officer and Director (Principal
Executive Officer)
|
|
March 17, 2008
|
|
|
|
|
|
/s/ LEN
STIGLIANO
Len
Stigliano
|
|
Vice President, Chief Financial Officer, Treasurer and Corporate
Secretary (Principal Financial and Accounting Officer)
|
|
March 17, 2008
|
|
|
|
|
|
/s/ JOHN
LAMBERT
John
Lambert
|
|
Chairman of the Board of Directors
|
|
March 17, 2008
|
|
|
|
|
|
/s/ GARY
C. EVANS
Gary
C. Evans
|
|
Lead Director
|
|
March 17, 2008
|
|
|
|
|
|
/s/ JOHN
O. MARSH, JR.
John
O. Marsh, Jr.
|
|
Director
|
|
March 17, 2008
|
|
|
|
|
|
/s/ MICHAEL
A. MCMANUS
Michael
A. McManus
|
|
Director
|
|
March 17, 2008
|
|
|
|
|
|
/s/ THOMAS
P. MONATH
Thomas
P. Monath
|
|
Director
|
|
March 17, 2008
|
|
|
|
|
|
/s/ JAMES
B. TANANBAUM
James
B. Tananbaum
|
|
Director
|
|
March 17, 2008
|
48
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2007, 2006 and 2005
Contents
|
|
|
|
|
Reports of Independent Registered Public Accounting Firms
|
|
|
F-2
|
|
Consolidated Balance Sheets as of December 31, 2007 and 2006
|
|
|
F-5
|
|
Consolidated Statements of Operations for each of the three
years in the period ended December 31, 2007
|
|
|
F-6
|
|
Consolidated Statements of Stockholders Equity for each of
the three years in the period ended December 31, 2007
|
|
|
F-7
|
|
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 2007
|
|
|
F-8
|
|
Notes to Consolidated Financial Statements
|
|
|
F-9
|
|
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Novavax, Inc.
We have audited the accompanying consolidated balance sheets of
Novavax, Inc. (a Delaware corporation) and subsidiary as of
December 31, 2007 and 2006, and the related consolidated
statements of operations, stockholders equity, and cash
flows for each of the two years in the period ended
December 31, 2007. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Novavax, Inc. and subsidiary as of December 31,
2007 and 2006, and the results of their operations and their
cash flows for each of the two years in the period ended
December 31, 2007 in conformity with accounting principles
generally accepted in the United States of America.
As described in footnote 2 to the financial statements,
Novavax, Inc. and subsidiary adopted Financial Accounting
Standards Board Interpretation No. 48 Accounting for
Uncertainty in Income Taxes as of January 1, 2007 and
Statement of Financial Accounting Standard No. 123(R)
Share Based Payments as of January 1, 2006.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Novavax, Inc.s and subsidiarys internal control over
financial reporting as of December 31, 2007, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) and our report
dated March 17, 2008 expressed an unqualified opinion
thereon.
Philadelphia, Pennsylvania
March 17, 2008
F-2
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Novavax, Inc.
We have audited Novavax, Inc. (a Delaware Corporation) and
subsidiarys internal control over financial reporting as
of December 31, 2007, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Novavaxs management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying
Managements Annual Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion
on Novavaxs internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed 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. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Novavax Inc. and subsidiary maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2007, based on criteria
established in Internal Control Integrated
Framework issued by COSO.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheet of Novavax, Inc. and subsidiary as of
December 31, 2007 and 2006 and the related consolidated
statements of operations, stockholders equity, and cash
flows for the two years in the period ended December 31,
2007 and, our report dated March 17, 2008 expressed an
unqualified opinion.
Philadelphia, Pennsylvania
March 17, 2008
F-3
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Novavax, Inc.
We have audited the accompanying consolidated balance sheet of
Novavax, Inc. as of December 31, 2005, and the related
consolidated statements of operations, stockholders equity
and cash flows for the year ended December 31, 2005. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above,
present fairly, in all material respects, the consolidated
financial position of Novavax, Inc. at December 31, 2005,
and the consolidated results of its operations and its cash
flows for the year ended December 31, 2005, in conformity
with United States generally accepted accounting principles.
Philadelphia, Pennsylvania
March 3, 2006
F-4
NOVAVAX,
INC.
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except share and per share information)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,350
|
|
|
$
|
7,161
|
|
Short-term investments classified as available for sale
|
|
|
9,200
|
|
|
|
|
|
Short-term investments classified as held to maturity
|
|
|
32,939
|
|
|
|
66,434
|
|
Accounts and other receivables, net of allowance for doubtful
accounts of $168 and $117 as of December 31, 2007 and 2006,
respectively
|
|
|
667
|
|
|
|
545
|
|
Inventory
|
|
|
25
|
|
|
|
115
|
|
Prepaid expenses and other current assets
|
|
|
1,304
|
|
|
|
1,693
|
|
Current assets of discontinued operations
|
|
|
531
|
|
|
|
1,394
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
49,016
|
|
|
|
77,342
|
|
Property and equipment, net
|
|
|
5,721
|
|
|
|
9,861
|
|
Goodwill
|
|
|
33,141
|
|
|
|
33,141
|
|
Assets held for sale
|
|
|
899
|
|
|
|
|
|
Other intangible assets, net
|
|
|
|
|
|
|
978
|
|
Non-current assets of discontinued operations
|
|
|
1,634
|
|
|
|
|
|
Other non-current assets
|
|
|
880
|
|
|
|
555
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
91,291
|
|
|
$
|
121,877
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,490
|
|
|
$
|
1,329
|
|
Accrued expenses and other current liabilities
|
|
|
2,980
|
|
|
|
2,750
|
|
Current liabilities of discontinued operations
|
|
|
616
|
|
|
|
529
|
|
Current portion of notes payable
|
|
|
1,120
|
|
|
|
731
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
6,206
|
|
|
|
5,339
|
|
|
|
|
|
|
|
|
|
|
Convertible notes, net of discount
|
|
|
21,369
|
|
|
|
22,000
|
|
Deferred rent
|
|
|
391
|
|
|
|
79
|
|
Non-current portion of notes payable
|
|
|
260
|
|
|
|
458
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
28,226
|
|
|
|
27,876
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingences (see Note 13)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value, 2,000,000 shares
authorized; no shares issued and outstanding
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value, 100,000,000 shares
authorized; 62,356,977 shares issued and 61,949,881
outstanding at December 31, 2007, and 62,139,851 issued and
61,791,089 outstanding at December 31, 2006
|
|
|
624
|
|
|
|
622
|
|
Additional paid-in capital
|
|
|
264,618
|
|
|
|
261,822
|
|
Note receivable from director
|
|
|
|
|
|
|
(1,031
|
)
|
Accumulated deficit
|
|
|
(199,727
|
)
|
|
|
(164,962
|
)
|
Treasury stock, 407,096 shares at December 31, 2007
and 348,762 shares at December, 31, 2006, cost basis
|
|
|
(2,450
|
)
|
|
|
(2,450
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
63,065
|
|
|
|
94,001
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
91,291
|
|
|
$
|
121,877
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
NOVAVAX,
INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands, except share and
|
|
|
|
per share information)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net product sales
|
|
$
|
(58
|
)
|
|
$
|
641
|
|
|
$
|
2,504
|
|
Contract research and development
|
|
|
1,388
|
|
|
|
1,068
|
|
|
|
1,798
|
|
Royalties and milestone fees
|
|
|
125
|
|
|
|
29
|
|
|
|
1,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,455
|
|
|
|
1,738
|
|
|
|
5,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
|
163
|
|
|
|
237
|
|
|
|
410
|
|
Research and development
|
|
|
17,600
|
|
|
|
11,329
|
|
|
|
5,075
|
|
Selling, general and administrative
|
|
|
13,963
|
|
|
|
11,288
|
|
|
|
15,034
|
|
Facility exit costs
|
|
|
|
|
|
|
|
|
|
|
105
|
|
Gains on sales of product assets
|
|
|
|
|
|
|
|
|
|
|
(10,965
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
31,726
|
|
|
|
22,854
|
|
|
|
9,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before interest
|
|
|
(30,271
|
)
|
|
|
(21,116
|
)
|
|
|
(4,316
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
3,287
|
|
|
|
3,267
|
|
|
|
330
|
|
Interest expense
|
|
|
(1,606
|
)
|
|
|
(1,728
|
)
|
|
|
(2,333
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(28,590
|
)
|
|
|
(19,577
|
)
|
|
|
(6,319
|
)
|
Loss from discontinued operations
|
|
|
(6,175
|
)
|
|
|
(3,491
|
)
|
|
|
(4,855
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(34,765
|
)
|
|
$
|
(23,068
|
)
|
|
$
|
(11,174
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average number of common shares
outstanding
|
|
|
61,101,474
|
|
|
|
58,664,365
|
|
|
|
42,758,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share from continuing operations
|
|
$
|
(0.47
|
)
|
|
$
|
(0.33
|
)
|
|
$
|
(0.15
|
)
|
Loss per share from discontinued operations
|
|
|
(0.10
|
)
|
|
|
(0.06
|
)
|
|
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share
|
|
$
|
(0.57
|
)
|
|
$
|
(0.39
|
)
|
|
$
|
(0.26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
NOVAVAX,
INC.
For the Years Ended December 31, 2007, 2006 and
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Receivable
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Unearned
|
|
|
From
|
|
|
Accumulated
|
|
|
Treasury
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
Director
|
|
|
Deficit
|
|
|
Stock
|
|
|
Total
|
|
|
|
(In thousands, except share information)
|
|
|
Balance, January 1, 2005
|
|
|
39,807,724
|
|
|
$
|
398
|
|
|
$
|
167,496
|
|
|
$
|
|
|
|
$
|
(1,480
|
)
|
|
$
|
(130,720
|
)
|
|
$
|
(2,413
|
)
|
|
$
|
33,281
|
|
Exercise of stock options
|
|
|
342,654
|
|
|
|
3
|
|
|
|
392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
395
|
|
Issuance of common stock for prior services
|
|
|
300,000
|
|
|
|
3
|
|
|
|
252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
255
|
|
Restricted stock issued as compensation
|
|
|
552,434
|
|
|
|
6
|
|
|
|
570
|
|
|
|
(425
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
151
|
|
Conversion of convertible debt
|
|
|
1,070,635
|
|
|
|
11
|
|
|
|
6,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,081
|
|
Sales of common stock
|
|
|
8,186,047
|
|
|
|
82
|
|
|
|
21,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,000
|
|
Financing costs allocated to raising additional capital
|
|
|
|
|
|
|
|
|
|
|
(1,337
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,337
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,174
|
)
|
|
|
|
|
|
|
(11,174
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2005
|
|
|
50,259,494
|
|
|
|
503
|
|
|
|
195,361
|
|
|
|
(425
|
)
|
|
|
(1,480
|
)
|
|
|
(141,894
|
)
|
|
|
(2,413
|
)
|
|
|
49,652
|
|
Unearned compensation against costs for stock options in
accordance with SFAS No. 123
|
|
|
|
|
|
|
|
|
|
|
(425
|
)
|
|
|
425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash compensation costs for stock options
|
|
|
|
|
|
|
|
|
|
|
1,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,776
|
|
Exercise of stock options
|
|
|
497,613
|
|
|
|
5
|
|
|
|
1,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,718
|
|
Conversion of convertible debt
|
|
|
1,294,564
|
|
|
|
13
|
|
|
|
7,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,068
|
|
Restricted stock issued as compensation
|
|
|
285,000
|
|
|
|
3
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of restricted stock for compensation
|
|
|
|
|
|
|
|
|
|
|
491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
491
|
|
Treasury stock issued in lieu of payment of services rendered
|
|
|
|
|
|
|
|
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57
|
|
|
|
25
|
|
Sales of common stock
|
|
|
9,803,180
|
|
|
|
98
|
|
|
|
57,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,000
|
|
Financing costs allocated to raising additional capital
|
|
|
|
|
|
|
|
|
|
|
(2,016
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,016
|
)
|
Reclassification due to change in status of a director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
449
|
|
|
|
|
|
|
|
|
|
|
|
449
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(94
|
)
|
|
|
(94
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,068
|
)
|
|
|
|
|
|
|
(23,068
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006
|
|
|
62,139,851
|
|
|
|
622
|
|
|
|
261,822
|
|
|
|
|
|
|
|
(1,031
|
)
|
|
|
(164,962
|
)
|
|
|
(2,450
|
)
|
|
|
94,001
|
|
Non-cash compensation costs for-stock options
|
|
|
|
|
|
|
|
|
|
|
1,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,345
|
|
Exercise of stock options
|
|
|
57,126
|
|
|
|
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89
|
|
Restricted stock issued as compensation
|
|
|
160,000
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of restricted stock for compensation
|
|
|
|
|
|
|
|
|
|
|
512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
512
|
|
Reclassification due to change in status of a director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,031
|
|
|
|
|
|
|
|
|
|
|
|
1,031
|
|
Debt discount from modification of convertible debt
|
|
|
|
|
|
|
|
|
|
|
852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
852
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,765
|
)
|
|
|
|
|
|
|
(34,765
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
62,356,977
|
|
|
$
|
624
|
|
|
$
|
264,618
|
|
|
|
|
|
|
$
|
|
|
|
$
|
(199,727
|
)
|
|
$
|
(2,450
|
)
|
|
$
|
63,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
NOVAVAX,
INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations:
|
|
$
|
(28,590
|
)
|
|
$
|
(19,577
|
)
|
|
$
|
(6,319
|
)
|
Reconciliation of net loss from continuing operations to net
cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
|
132
|
|
|
|
132
|
|
|
|
681
|
|
Depreciation and amortization
|
|
|
702
|
|
|
|
577
|
|
|
|
446
|
|
Amortization of deferred financing costs
|
|
|
259
|
|
|
|
797
|
|
|
|
662
|
|
Amortization of debt discount
|
|
|
221
|
|
|
|
|
|
|
|
|
|
Provision for bad debts
|
|
|
176
|
|
|
|
111
|
|
|
|
4
|
|
Retirement of capital assets
|
|
|
100
|
|
|
|
321
|
|
|
|
39
|
|
Amortization of net discounts on short-term investments
|
|
|
(2,320
|
)
|
|
|
(1,135
|
)
|
|
|
|
|
Reserve for notes receivable and accrued interest
|
|
|
875
|
|
|
|
167
|
|
|
|
|
|
Deferred rent
|
|
|
312
|
|
|
|
12
|
|
|
|
60
|
|
Non-cash expense for services
|
|
|
57
|
|
|
|
25
|
|
|
|
|
|
Non-cash stock compensation
|
|
|
1,800
|
|
|
|
2,267
|
|
|
|
406
|
|
Non-cash facility exit costs
|
|
|
|
|
|
|
|
|
|
|
105
|
|
Gain on sales of product assets
|
|
|
|
|
|
|
|
|
|
|
(10,965
|
)
|
Net proceeds from sales of product assets
|
|
|
|
|
|
|
|
|
|
|
12,733
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts and other receivables
|
|
|
(298
|
)
|
|
|
2,684
|
|
|
|
(17
|
)
|
Inventory
|
|
|
90
|
|
|
|
(96
|
)
|
|
|
(23
|
)
|
Prepaid expenses and other current assets
|
|
|
129
|
|
|
|
281
|
|
|
|
1,032
|
|
Accounts payable and accrued expenses
|
|
|
206
|
|
|
|
444
|
|
|
|
(3,618
|
)
|
Facility exit costs
|
|
|
|
|
|
|
|
|
|
|
(168
|
)
|
Other non-current assets
|
|
|
432
|
|
|
|
(435
|
)
|
|
|
198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities from continuing operations
|
|
|
(25,717
|
)
|
|
|
(13,425
|
)
|
|
|
(4,744
|
)
|
Net cash used in operating activities from discontinued
operations
|
|
|
(1,025
|
)
|
|
|
(1,385
|
)
|
|
|
(1,065
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(26,742
|
)
|
|
|
(14,810
|
)
|
|
|
(5,809
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(1,961
|
)
|
|
|
(1,406
|
)
|
|
|
(110
|
)
|
Proceeds from disposal of property and equipment
|
|
|
|
|
|
|
|
|
|
|
68
|
|
Purchases of short-term investments
|
|
|
(94,993
|
)
|
|
|
(121,546
|
)
|
|
|
|
|
Proceeds from maturities of short-term investments
|
|
|
121,608
|
|
|
|
56,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities from
continuing operations
|
|
|
24,654
|
|
|
|
(66,705
|
)
|
|
|
(42
|
)
|
Net cash used in investing activities from discontinued
operations
|
|
|
(3
|
)
|
|
|
(110
|
)
|
|
|
(120
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
24,651
|
|
|
|
(66,815
|
)
|
|
|
(162
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments of notes payable
|
|
|
(809
|
)
|
|
|
(715
|
)
|
|
|
(1,070
|
)
|
Net proceeds from sales of common stock
|
|
|
|
|
|
|
55,984
|
|
|
|
20,663
|
|
Proceeds from the exercise of stock options
|
|
|
89
|
|
|
|
1,718
|
|
|
|
395
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
(94
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(720
|
)
|
|
|
56,893
|
|
|
|
19,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(2,811
|
)
|
|
|
(24,732
|
)
|
|
|
14,017
|
|
Cash and cash equivalents at beginning of year
|
|
|
7,161
|
|
|
|
31,893
|
|
|
|
17,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
4,350
|
|
|
$
|
7,161
|
|
|
|
31,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of convertible debt and accrued interest to common
stock
|
|
$
|
|
|
|
$
|
7,068
|
|
|
$
|
6,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt discount from modification of convertible debt
|
|
$
|
852
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment purchases included in accounts payable
|
|
$
|
624
|
|
|
$
|
59
|
|
|
$
|
139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financed insurance premiums
|
|
$
|
600
|
|
|
$
|
511
|
|
|
$
|
501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash interest payments
|
|
$
|
1,073
|
|
|
$
|
1,233
|
|
|
$
|
1,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-8
NOVAVAX,
INC.
December 31,
2007, 2006 and 2005
Novavax, Inc., a Delaware corporation (Novavax or
the Company), was incorporated in 1987, and is a
clinical-stage pharmaceutical company focused on creating
differentiated, value-added vaccines that leverage the
Companys proprietary virus-like particle (VLP)
technology. VLPs imitate the three-dimensional structures of
viruses but are composed of recombinant proteins and therefore,
are believed incapable of causing infection and disease. Our
proprietary production technology uses insect cells rather than
chicken eggs or mammalian cells. The Companys current
product targets include vaccines against the H5N1, H9N2 and
other subtypes of avian influenza with pandemic potential, human
seasonal influenza, Varicella Zoster, which causes shingles, and
a fourth undisclosed disease target.
On July 31, 2007, the Company began Phase I/IIa clinical
trials for its H5N1 pandemic influenza vaccine. In December
2007, the Company announced favorable interim results for its
pandemic influenza vaccine that demonstrated immunogenicity and
safety. The Company plans to begin patient enrollment in the
second portion of the Phase I/IIa trial before March 31,
2008 to gather additional patient immunogenicity and safety
data, as well as determining a final dose through completion of
this clinical trial. It is anticipated that initial
immunogenicity and safety data will be available early in the
third quarter of 2008 with study completion by the end of 2008
to include ongoing safety collection.
The Company also has a drug delivery platform based on its
micellar nanoparticle (MNP) technology, proprietary
oil and water nano emulsions used for the topical delivery of
drugs. The MNP technology was the basis for the development of
the Companys first Food and Drug Administration
(FDA) approved estrogen replacement product,
Estrasorb®.
In February 2008, the Company sold the assets related to
Estrasorb®
in the United States, Canada and Mexico to Graceway
Pharmaceuticals, LLC (Graceway). Additionally, the
Company is seeking to divest its other non-vaccine MNP
technology through sales and licenses.
The Companys vaccine products currently under development
or in clinical trials will require significant additional
research and development efforts, including extensive
pre-clinical and clinical testing and regulatory approval, prior
to commercial use. There can be no assurance that the
Companys research and development efforts will be
successful or that any potential products will prove to be safe
and effective in clinical trials. Even if developed, these
vaccine products may not receive regulatory approval or be
successfully introduced and marketed at prices that would permit
the Company to operate profitably. The commercial launch of any
vaccine product is subject to certain risks including, but not
limited to, manufacturing
scale-up,
market acceptance and competition. No assurance can be given
that the Company can generate sufficient product revenue to
become profitable or generate positive cash flow from operations
at all or on a sustained basis. The Companys efforts to
divest the non-vaccine MNP technology, discussed above may not
be successful because the Company may not be able to identify a
potential licensee or buyer, and, even if the Company does
identify a licensee or buyer, the price and terms may not be
acceptable to the Company.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Basis
of Presentation
The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary
(Fielding Pharmaceutical Company). All significant intercompany
accounts and transactions have been eliminated in consolidation.
Liquidity
Matters
The Company has incurred losses since its inception and as of
December 31, 2007 has an accumulated deficit of
$199,727,000. The Company does not expect to generate revenue in
the near future. Based on the Companys assessment of the
availability of capital and its business operations as currently
contemplated, including the
F-9
NOVAVAX,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Companys clinical development plans, in the absence of new
financings, any potential redemption of Notes, licensing
arrangements or partnership agreements, the Company believes it
will have adequate capital resources through the first quarter
of 2009. If the Company is unable to obtain additional capital,
it will continue to assess its capital resources and the Company
may be required to delay, reduce the scope of, or eliminate one
or more of its product research and development programs,
downsize its organization, or reduce general and administrative
infrastructure.
Use of
Estimates
The preparation of the consolidated financial statements in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual
results could differ materially from those estimates.
Reclassifications
Certain amounts appearing in the consolidated financial
statements for the year ended December 31, 2006 and 2005
have been reclassified to conform to the current years
presentation. As discussed in Note 11, the results of
operations and the assets and liabilities related to the
Philadelphia manufacturing facility have been accounted for as
discontinued operations.
Cash
Equivalents and Short-Term Investments
Cash equivalents consist of highly liquid investments with
original maturities of three months or less from the date of
purchase. Short-term investments are diversified, primarily
consisting of investment grade securities that either mature
within the next twelve months or have other characteristics of
short-term investments, such as auction dates within at least
six months of the prior auction date or being available to be
used for operations. All auction rate securities are classified
as short-term investments.
For short-term investments classified as held to maturity
securities, the Company has the positive intent and ability to
hold them until maturity. These investments are recorded at face
value less any premiums or discounts. Income related to these
securities is reported as a component of interest income. These
premiums or discounts are then amortized over the remaining
maturity periods of the investments using the straight-line
method. Included in net interest income on the consolidated
statement of operations for the year ended December 31,
2007 and 2006 is $2,320,000 and $1,135,000 of amortization of
premiums/discounts related to these short-term investments. As
of December 31, 2007, short-term investments classified as
held to maturity have original maturity dates of less than one
year and were comprised of $1,997,000 of certificates of
deposit, $22,057,000 of corporate bonds, and $8,884,000 of
government agency bonds. As of December 31, 2006,
short-term investments classified as available for sale were
comprised of $55,760,000 of commercial paper, $1,628,000 of
asset-backed securities and $9,046,000 of corporate obligations.
Short-term investments classified as available for sale are
carried at fair value. Fair value is based on quoted market
price. At December 31, 2007, the Company held
$9,200,000 of high-grade, interest-bearing auction rate
securities which were comprised of taxable municipal bonds. The
Company has classified these auction rate securities as
short-term investments available for sale on its consolidated
balance sheets. Auction rate securities are variable rate bonds
tied to short-term interest rates with maturities on the face of
the securities between 2002 and 2042. The Company did not record
any unrealized gains or losses for its available for sale
securities, as cost approximates market for these securities.
These auction rate securities have interest rate resets through
a modified Dutch auction, at predetermined short-term intervals.
Interest paid during a given period is based upon the interest
rate determined during the prior auction. Auctions for these
investments may fail to settle on their respective
F-10
NOVAVAX,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
settlement dates. The Company did not hold any auction rate
securities as of December 31, 2006.
Financial
Instruments and Concentration of Credit Risk
Financial instruments, which possibly expose the Company to
concentration of credit risk, consist primarily of cash and cash
equivalents, short-term investments, accounts receivable and
convertible notes payable. The Company has invested its cash in
asset backed securities, high-grade corporate debt securities
and money market instruments. The Companys investment
policy limits investments to certain types of instruments,
places restrictions on maturities and concentrations in certain
industries and requires the Company to maintain a certain level
of liquidity. The Company has not experienced any losses on such
accounts and management believes the risk of loss to be minimal.
The carrying value of cash and cash equivalents, short-term
investments and accounts receivable approximates their fair
value based on their short-term maturities at December 31,
2007 and 2006. The Company has certain debt instruments at fixed
rates, with lower interest rates than the prevailing market
rates. The Company has obtained favorable rates through January
2010. The fair values of convertible notes approximate their
carrying value as of December 31, 2007 and 2006 based on
rates currently available to the Company for debt with similar
terms and remaining maturities.
Accounts
and Other Receivables
Accounts receivables are reported in the consolidated balance
sheets as outstanding principal less any charge-offs and
allowance for doubtful accounts. The Company charges off
uncollectible receivables when the likelihood of collection is
remote. Generally, the Company considers receivables past due
30 days subsequent to the billing date. The Company
performs ongoing credit evaluations of its customers and
generally extends credit without requiring collateral. The
Company maintains an allowance for doubtful accounts that is
determined based on historical experience and managements
expectations of future losses. Accounts deemed uncollectible are
charged to the allowance based on specific identification.
Provisions for bad debts and recoveries on accounts previously
provisioned for are added to the allowance. As of
December 31, 2007 and 2006, the Company had an allowance
for doubtful accounts of approximately $168,000 and $117,000,
respectively.
Inventories
Inventories consist of raw materials,
work-in-process
and finished goods, and are priced at the lower of cost or
market using the
first-in-first-out
method and consist of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Raw materials
|
|
$
|
226
|
|
|
$
|
263
|
|
Work-in-process
|
|
|
|
|
|
|
86
|
|
Finished goods
|
|
|
140
|
|
|
|
251
|
|
Reserve for inventory
|
|
|
(52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
314
|
|
|
|
600
|
|
Less: inventory reclassified to current assets of discontinued
operations
|
|
|
(289
|
)
|
|
|
(485
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
25
|
|
|
$
|
115
|
|
|
|
|
|
|
|
|
|
|
In accordance with Statement of Financial Accounting Standard
No. 151, Inventory Costs an amendment of ARB
No. 43, Chapter 4
(SFAS No. 151), the Company allocates
fixed production overhead costs to inventories based on the
anticipated normal capacity of its manufacturing facility at the
time. Included in cost of products sold for the year ended
December 31, 2007, 2006 and 2005 is $3.1 million,
$2.5 million and $3.2 million, respectively, of idle
capacity costs which represents the excess of fixed production
overhead over that allocated to inventories.
F-11
NOVAVAX,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During the years ended December 31, 2007, 2006 and 2005,
$1.3 million, $1.5 million and $1.5 million,
respectively of inventory costs in excess of market value were
included in the accompanying consolidated statement of
operations related to the Supply Agreement with Allergan (see
Note 3 Summary of Significant
Transactions). Under the terms of this Supply Agreement, the
Company sold Estrasorb at a price below its manufacturing costs
during the fourth quarter of 2005 and the years ended
December 31, 2006 and 2007.
In June 2007, the Company decided to discontinue the sale of
Gynodiol. In connection with its decision, the Company recorded
an inventory reserve totaling $52,000.
Based on the termination of the Supply Agreement with Allergan,
the Company had planned to close Philadelphia, Pennsylvania
manufacturing facility at the end of 2007 and transfer
production to a third party. However, in February 2008, the
Company entered into an agreement with Graceway Pharmaceuticals,
LLC (Graceway) to sell its manufacturing equipment
and other assets related to Estrasorb in the United States,
Canada and Mexico. In addition to the sale of assets, the
Company agreed to produce additional lots of Estrasorb on behalf
of Graceway which is anticipated to be completed by July 2008,
at which time the Company will close down this operation.
Property
and Equipment
Property and equipment are stated at cost and are depreciated
using the straight-line method over the estimated useful lives
of the assets, generally three to ten years. Amortization of
leasehold improvements is provided over the shorter of the
estimated useful lives of the improvements or the term of the
lease. Repairs and maintenance costs are expensed as incurred.
Property and equipment is comprised of the following at December
31:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Construction in progress
|
|
$
|
1,601
|
|
|
$
|
|
|
Machinery and equipment
|
|
|
4,124
|
|
|
|
12,193
|
|
Leasehold improvements
|
|
|
7,759
|
|
|
|
6,248
|
|
Computer software and hardware
|
|
|
346
|
|
|
|
396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,830
|
|
|
|
18,837
|
|
Less accumulated depreciation and amortization
|
|
|
(8,109
|
)
|
|
|
(8,976
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,721
|
|
|
$
|
9,861
|
|
|
|
|
|
|
|
|
|
|
Construction in progress is related to costs incurred in the
construction of the Companys GMP pilot manufacturing
facility which started during the third quarter of 2007.
Depreciation expense was approximately $2,797,000, $2,921,000
and $2,794,000 for the years ended December 31, 2007, 2006
and 2005, respectively.
Goodwill
and Intangible Assets
Goodwill originally results from business acquisitions. Assets
acquired and liabilities assumed are recorded at their fair
values; the excess of the purchase price over the identifiable
net assets acquired is recorded as goodwill. Other intangible
assets are a result of internally discovered patents. In
accordance with SFAS No. 142, Goodwill and Other
Intangible Assets (SFAS No. 142),
goodwill and intangible assets deemed to have indefinite lives
are not amortized but are subject to impairment tests annually,
or more frequently should indicators of impairment arise. The
Company utilizes a discounted cash flow analysis that includes
profitability information, estimated future operating results,
trends and other information in assessing whether the value of
indefinite-lived intangible assets can be recovered. Under
SFAS No. 142, goodwill impairment is deemed to exist
if the carrying value of a reporting
F-12
NOVAVAX,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
unit exceeds its estimated fair value. In accordance with the
requirements of SFAS No. 142, the Company initially
tested its goodwill for impairment as of January 1, 2002
and determined that no impairment was present. The Company
thereafter performed the required annual impairment test as of
December 31 of each year as to the carrying amount of its
goodwill, which indicated the Companys estimated fair
value exceeded its carrying value of goodwill. Therefore, no
impairment was identified as of December 31, 2007 or 2006.
Goodwill consists of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Gross
|
|
|
Amortization
|
|
|
Net
|
|
|
Gross
|
|
|
Amortization
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill-Company acquisition
|
|
$
|
33,141
|
|
|
$
|
|
|
|
$
|
33,141
|
|
|
$
|
33,141
|
|
|
$
|
|
|
|
$
|
33,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A roll-forward of the Company intangible assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estrasorb
|
|
|
AVC Product
|
|
|
Total
|
|
|
Accumulated
|
|
|
|
|
|
|
Patents
|
|
|
Rights
|
|
|
Acquisition
|
|
|
Intangibles
|
|
|
Amortization
|
|
|
Net
|
|
|
|
(In thousands)
|
|
|
Balance, January 1, 2005
|
|
$
|
2,525
|
|
|
$
|
2,514
|
|
|
$
|
3,332
|
|
|
$
|
8,371
|
|
|
$
|
(3,323
|
)
|
|
$
|
5,048
|
|
Amortization Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(681
|
)
|
|
|
(681
|
)
|
Esprit Licensing Agreement
|
|
|
|
|
|
|
(2,514
|
)
|
|
|
|
|
|
|
(2,514
|
)
|
|
|
339
|
|
|
|
(2,175
|
)
|
Pharmelle transaction
|
|
|
|
|
|
|
|
|
|
|
(3,332
|
)
|
|
|
(3,332
|
)
|
|
|
2,250
|
|
|
|
(1,082
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2005
|
|
|
2,525
|
|
|
|
|
|
|
|
|
|
|
|
2,525
|
|
|
|
(1,415
|
)
|
|
|
1,110
|
|
Amortization Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(132
|
)
|
|
|
(132
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006
|
|
|
2,525
|
|
|
|
|
|
|
|
|
|
|
|
2,525
|
|
|
|
(1,547
|
)
|
|
|
978
|
|
Amortization Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(132
|
)
|
|
|
(132
|
)
|
Transfer to assets held for sale
|
|
|
(2,525
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,525
|
)
|
|
|
1,679
|
|
|
|
(846
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets were amortized on a straight-line basis over
their estimated useful lives, ranging from five to
17 years. Amortization expense was $132,000, $132,000 and
$681,000 for the years ended December 31, 2007, 2006 and
2005, respectively.
During the third quarter of 2007, the Company began efforts to
divest its MNP technology, which included the patent technology
included as intangible assets on the Companys consolidated
balance sheet. In connection with the planned divestiture, the
Company evaluated the recoverability of the carrying value of
the patents and reclassified $846,000 into assets held for sale.
The Company has determined that the estimated fair value of the
patents exceeds their carrying value, and accordingly no
impairment charge is included in the consolidated statement of
operations for the year ended December 31, 2007.
Disposal
of Long-Lived Assets/Discontinued Operations
The Company accounts for the impairment of long-lived assets and
long-lived assets to be disposed of in accordance with Statement
of Financial Accounting Standard No. 144, Accounting for
the Impairment or Disposal
(SFAS No. 144). SFAS No. 144
requires a periodic evaluation of the recoverability of the
carrying value of long-lived assets and identifiable intangibles
whenever events or changes in circumstances indicate that the
carrying value of the asset may not be recoverable. Examples of
events or changes in circumstances that indicate that the
recoverability of the carrying value of an asset should be
assessed include, but are not limited to, the following: a
significant decrease in the market value of an asset, a
significant change in the extent or manner in which an asset is
used, a significant physical change in an asset, a significant
adverse change in legal factors or in the business climate
F-13
NOVAVAX,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
that could affect the value of an asset, an adverse action or
assessment by a regulator, an accumulation of costs
significantly in excess of the amount originally expected to
acquire or construct an asset, a current period operating or
cash flow loss combined with a history of operating or cash flow
losses,
and/or a
projection or forecast that demonstrates continuing losses
associated with an asset used for the purpose of producing
revenue. The Company considers historical performance and
anticipated future results in its evaluation of potential
impairment. Accordingly, when indicators of impairment are
present, the Company evaluates the carrying value of these
assets in relation to the operating performance of the business
and future undiscounted cash flows expected to result from the
use of these assets. Impairment losses are recognized when the
sum of expected future cash flows is less than the assets
carrying value. SFAS No. 144 also provides accounting
and reporting provisions for components of an entity that are
classified as discontinued operations. The Company recorded an
impairment loss in connection with the discontinued operations
of its Philadelphia, Pennsylvania manufacturing facility for the
year ended December 31, 2007 (See Note 11
Discontinued Operations).
Revenue
Recognition and Allowances
During 2005, Novavax began to transition from a specialty
pharmaceutical company, which included the sale and marketing of
products serving the womens health space, to an
innovative, biopharmaceutical company focused on the development
of vaccines. For the years ended December 31, 2007, 2006
and 2005, products revenues primarily from the sale of
Estrasorb, the Companys Food and Drug Administration
approved estrogen replacement product. As discussed in
Note 3 Summary of Significant
Agreements, the Company entered into agreements with
Graceway Pharmaceuticals, Inc. in February 2008, pursuant to
which Novavax will produce units of Estrasorb with final
delivery expected in July 2008.
The Company recognizes revenue in accordance with the provisions
of Staff Accounting Bulletin No. 104, Revenue
Recognition (SAB No. 104). For product
sales, revenue is recognized when all of the following criteria
are met: persuasive evidence of an arrangement exists, delivery
has occurred, the sellers price to the buyer is fixed or
determinable and collectibility is reasonably assured. The
Company recognizes these sales, net of allowances for returns
and rebates. Through December 31, 2007, a large part of the
Companys product sales were to Allergan or to distributors
who resold the products to their customers. The Company provides
rebates to members of certain buying groups who purchased from
the Companys distributors, to distributors that sold to
their customers at prices determined under a contract between
the Company and the customer, and to state agencies that
administer various programs such as the federal Medicaid and
Medicare programs. Rebate amounts were usually based upon the
volume of purchases or by reference to a specific price for a
product. The Company estimated the amount of the rebate that
would be paid, and recorded the liability as a reduction of
revenue when the Company records our sale of the products.
Settlement of the rebate generally occurred from three to
12 months after sale. The Company regularly analyzed the
historical rebate trends and made adjustments to recorded
reserves for changes in trends and terms of rebate programs. In
a similar manner, the Company estimates amounts for returns
based on historical trends, distributor inventory levels,
product prescription data and generic competition and made
adjustments to the recorded reserves based on such information.
Under the terms of the Asset Purchase Agreement with Pharmelle,
LLC (see Note 3 Summary of Significant Transactions)
the Company no longer has responsibility for rebates or returns
related to
AVCtm
Cream and Suppositories, NovaNatal and NovaStart as of the date
of the sale of such assets. Under the License and Supply
Agreements with Allergan (see Note 3 Summary
of Significant Transactions) the Company no longer has
responsibility for rebates related to Estrasorb or for returns
related to Estrasorb sales made subsequent to entering into the
License Agreement on October 19, 2005.
For upfront payments and licensing fees related to contract
research or technology, the Company follows the provisions of
SAB No. 104 in determining if these payments and fees
represent the culmination of a separate earnings process or if
they should be deferred and recognized as revenue as earned over
the life of the related agreement. Milestone payments are
recognized as revenue upon achievement of contract-specified
events and when there are no remaining performance obligations.
F-14
NOVAVAX,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Revenue earned under research contracts is recognized in
accordance with the terms and conditions of such contracts for
reimbursement of costs incurred and defined milestones. In 2005,
revenue earned under a drug development contract was recognized
based on the proportional performance method, whereby revenue
was recognized in proportion to the estimated cost-to-complete
the contract. In 2005, revenue earned under the renewal of the
IGI, Inc. agreement was recognized completely upon receipt of
payment because the Company had no further performance
obligations. Also in 2005, revenue earned under the License
Agreement with Allergan was recognized at the time of the
agreement since the Company had no further performance
obligations related to the license agreement (see
Note 3 Summary of Significant
Transactions).
Stock-Based
Compensation
Effective January 1, 2006, the Company adopted the fair
value recognition provisions of Statement of Financial
Accounting Standard No. 123 (revised), Accounting for
Share-based Payment (SFAS No. 123R)
using the modified prospective method. This standard requires
the Company to measure the cost of employee services received in
exchange for equity share options granted based on the
grant-date fair value of options. The cost is recognized as
compensation expense over the vesting period of the options.
Under the modified prospective method, compensation cost is
included in operating expenses for the years ended
December 31, 2007 and 2006 and includes both the
compensation cost of stock options granted prior to but not yet
vested as of January 1, 2006 and compensation cost for all
options granted subsequent to December 31, 2005.
Prior to adopting SFAS No. 123R on January 1,
2006, the Companys equity-based employee compensation cost
under its various stock incentive and option plans was accounted
for under the recognition and measurement principles of APB
Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations, as permitted by
Standard of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation
(SFAS No. 123). Under the modified
prospective method, results for prior periods have not been
restated to reflect the effects of implementing
SFAS No. 123R. Therefore, for the year ended
December 31, 2005, no option based employee compensation
cost is reflected in the Companys net loss, because all
options granted had an exercise price equal to the underlying
common stock price on the date of grant. The following table
which is presented for comparative purposes only, provides the
pro forma information as required by Statement of Financial
Accounting Standard No 148, Accounting for Stock-Based
Compensation Transition and Disclosure, an amendment
of SFAS No. 123
(SFAS No. 148), and illustrates the
effect on net loss and loss per share for the year ended
December 31, 2005 presented as if the Company had applied
the fair value recognition provisions of SFAS No. 123
to stock based employee compensation prior to January 1,
2006.
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
|
(In thousands, except
|
|
|
|
per share data)
|
|
|
Net loss, as reported
|
|
$
|
(11,174
|
)
|
Deduct: Total stock-based employee compensation expense
determined under fair value-based method for all awards(1)
(Revised)
|
|
|
(1,999
|
)
|
|
|
|
|
|
Pro forma net loss (Revised)
|
|
$
|
(13,173
|
)
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
Basic and diluted as reported
|
|
$
|
(0.26
|
)
|
|
|
|
|
|
Basic and diluted pro forma (Revised)
|
|
$
|
(0.31
|
)
|
|
|
|
|
|
|
|
|
(1) |
|
Does not include restricted stock compensation expense of
$405,000 which is reported in the consolidated statements of
operations. |
F-15
NOVAVAX,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
These pro forma amounts are not necessarily indicative of future
effects of applying the fair value-based method due to, among
other things, the vesting period of the stock options and the
fair value of additional stock options issued in future years.
The weighted average fair value of stock options on the date of
grant and the assumptions used to estimate the fair value of
stock options issued during the year ended December 31,
2005, using the Black-Scholes options valuation model were as
follows:
|
|
|
|
|
|
|
2005
|
|
|
Weighted average fair value of options granted
|
|
$
|
3.17
|
|
Expected life (years)
|
|
|
4.4
|
|
Expected volatility
|
|
|
129
|
%
|
Risk free interest rate
|
|
|
4.0
|
%
|
Expected dividend
|
|
|
0.0
|
%
|
Expected forfeiture
|
|
|
0.0
|
%
|
The expected life of options granted was based on the
Companys historical share option exercise experience using
the historical expected term from the vesting date. The expected
volatility of the options granted for the year ended
December 31, 2005 was determined using historical
volatilities based on stock prices since the inception of the
plans. The expected volatility of the options granted for the
year ended December 31, 2005. The risk-free interest rate
was determined using the yield available for zero-coupon United
States government issues with a remaining term equal to the
expected life of the options. The forfeiture rate for the year
ended December 31, 2005 was determined using historical
rates since the inception of the plans. The Company has never
paid a dividend, and as such the dividend yield is zero.
Compensation cost for grants issued prior to January 1,
2006 was accounted for using a graded method. Compensation cost
for grants on or after January 1, 2006 was accounted for
using a straight-lined method. Non-cash compensation expense
related to all restricted stock issued has been recorded as
compensation cost in accordance with SFAS No. 123R
using the straight-line method of amortization.
For restricted stock issued prior to January 1, 2006,
non-cash compensation cost was recorded using the straight-line
method of amortization and unearned compensation was increased
accordingly. The initial issuance of restricted stock increased
common stock and additional paid-in capital and was offset by
unearned compensation, which was included in the
stockholders equity section of the consolidated balance
sheet. The balance as of December 31, 2005 for the unearned
compensation account was $425,000 and in accordance with
SFAS No. 123R was netted against additional paid-in
capital as of January 1, 2006.
Advertising
and Promotion Costs
All costs associated with advertising and promotions are
expensed as incurred. Advertising and promotion expense was
$1,730,000 in 2005. There were no advertising and promotion
costs in 2007 and 2006 as the Company licensed the rights to
market Estrasorb to Allergan in 2005.
Research
and Development Costs
Research and development costs are expensed as incurred. Such
costs include internal research and development expenditures
(such as salaries and benefits, raw materials and supplies) and
contracted services (such as sponsored research, consulting and
testing services) of proprietary research and development
activities and similar expenses associated with collaborative
research agreements.
The Company is part of a consortium that received a National
Institutes of Health (NIH) project program grant to
develop HIV vaccine candidates. The Company expects to earn
approximately $1.1 million through the
F-16
NOVAVAX,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
current contract period ending February 2008. As of
December 31, 2007, the Company earned $937,000 against this
research contract.
Income
Taxes
The Companys income taxes are accounted for using the
liability method. Under the liability method, deferred income
taxes are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax basis and operating loss carryforward. Deferred
tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the year in which those
temporary differences are expected to be recovered or settled.
The effect of changes in tax rates on deferred tax assets and
liabilities is recognized in income in the period that includes
the enactment date. A valuation allowance is established when
necessary to reduce net deferred tax assets to the amount
expected to be realized. The Company has provided a full
valuation allowance against its net deferred tax assets as of
December 31, 2007 and 2006.
Net
Loss per Share
Basic loss per share is computed by dividing the net loss
available to common shareholders (the numerator) by the weighted
average number of common shares outstanding (the denominator)
during the period. Shares issued during the period and shares
reacquired during the period are weighted for the portion of the
period that they were outstanding. The computation of diluted
loss per share is similar to the computation of basic loss per
share except that the denominator is increased to include the
number of additional common shares that would have been
outstanding if the dilutive potential common shares had been
issued (e.g. upon exercise of stock options). Potentially
dilutive common shares are not included in the computation of
diluted earnings per share if they are anti-dilutive. Net loss
per share as reported was not adjusted for potential common
shares, as they are anti-dilutive.
Comprehensive
Loss
Under SFAS No. 130, Reporting Comprehensive
Income, the Company is required to display comprehensive
loss and its components as part of its consolidated financial
statements. Comprehensive loss is comprised of the net loss and
other comprehensive income (loss), which includes certain
changes in equity that are excluded from the net loss.
Comprehensive loss for the Company was the same as net loss for
the years ended December 31, 2007, 2006 and 2005.
Segment
Information
The Company currently operates in one business segment, which is
the research, development and commercialization of proprietary
products utilizing its proprietary drug delivery and biological
technologies. The Company is managed and operated as one
business. A single management team that reports to the Chief
Executive Officer comprehensively manages the entire business.
The Company does not operate separate lines of business with
respect to its products or product candidates. Accordingly, the
Company does not have separately reportable segments as defined
by Statement of Financial Accounting Standards No. 131,
Disclosure about Segments of an Enterprise and Related
Information.
Recent
Accounting Pronouncements
Other than the adoption of FASB interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48) there have been no material changes in
the Companys critical accounting policies or critical
accounting estimates since December 31, 2006, nor has the
Company adopted any accounting policy that has or will have a
material impact on its consolidated financial statements. For
further discussion of the Companys accounting policies see
Note 2 Summary of Significant Accounting
Policies-FIN 48 below.
F-17
NOVAVAX,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
FIN 48
In July 2006, the FASB issued Interpretation No. 48
(FIN 48), Accounting for Uncertainty in
Income Taxes, to address the noncomparability in reporting
tax assets and liabilities resulting from a lack of specific
guidance in SFAS No. 109, Accounting for Income
Taxes, on the uncertainty in income taxes recognized in an
enterprises financial statements. Specifically,
FIN 48 prescribes (a) a consistent recognition
threshold and (b) a measurement attribute for the financial
statement recognition and measurement of a tax position taken or
expected to be taken in a tax return, and provides related
guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure, and
transition. FIN 48 applies to fiscal years beginning after
December 15, 2006.
The Company adopted the provisions of FIN 48 on
January 1, 2007. As a result of the adoption of
FIN 48, the Company recorded $3.8 million in uncertain
tax positions. The $3.8 million of unrecognized tax
benefits was accounted for as a $3.8 million reduction to
the January 1, 2007 balance of deferred tax assets and a
corresponding $3.8 million dollar reduction of the
valuation allowances. Therefore, the Company did not record any
adjustment to the beginning balance of retained earnings in its
consolidated balance sheet. To the extent these unrecognized tax
benefits are ultimately recognized it would affect the annual
effective income tax rate. The Company and its subsidiary file
income tax returns in the United States federal jurisdiction and
in various states. The Company has tax net operating loss and
credit carryforwards that are subject to examination for a
number of years beyond the year in which they are utilized for
tax purposes. Since a portion of these carryforwards may be
utilized in the future, many of these attribute carryforwards
may remain subject to examination.
The Companys policy is to recognize interest and penalties
related to income tax matters in income tax expense. As of
January 1, 2007 and December 31, 2007, the Company had
no accruals for interest or penalties related to income tax
matters.
SFAS No. 157
In September 2006, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 157,
Fair Value Measurements
(SFAS No. 157). SFAS No. 157
defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles and expands
disclosures about fair value measurements.
SFAS No. 157 applies under other accounting
pronouncements that require or permit fair value measurements,
but does not require any new fair value measurements.
SFAS No. 157 will become effective for financial
statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal
years. The Company is currently evaluating what impact, if any,
SFAS No. 157 will have on its financial condition,
results of operations or liquidity.
SFAS No. 159
In February 2007, the FASB issued a Statement of Financial
Accounting Standards No. 159 The Fair Value
Option for Financial Assets and Financial Liabilities
(SFAS No. 159), which provides
companies an option to report certain financial assets and
liabilities at fair value. The intent of SFAS No. 159
is to reduce the complexity in accounting for financial
instruments and the volatility in earnings caused by measuring
related assets and liabilities differently.
SFAS No. 159 is effective for financial statements
issued for fiscal years after November 15, 2007. The
Company is evaluating the impact this new standard will have on
its financial condition, results of operations, and liquidity.
EITF
Issue
No. 07-1
In December 2007, the FASB issued EITF Issue
No. 07-1,
Accounting for Collaborative Arrangements,
which is effective for calendar year companies on
January 1, 2009. The Task Force clarified the manner in
which costs, revenues and sharing payments made to, or received
by a partner in a collaborative arrangements should be presented
in the income statement and set for the certain disclosures that
should be required in the partners
F-18
NOVAVAX,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
financial statements. Novavax is currently assessing the
potential impact of implementing this standard on its financial
condition results of operations or liquidity.
SAB 110
In December 2007, the Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin 110
(SAB 110), which permits, under certain
circumstances, to continue to use the simplified
method of estimating the expected term of plain options as
discussed in SAB No. 107 and in accordance with
SFAS 123R. The guidance in this release is effective
January 1, 2008. The impact of this standard on the
consolidated financial statements is not expected to be material.
SFAS No. 141
R
In December 2007, the FASB issued SFAS No. 141
(revised 007), Business Combinations.
(SFAS No. 141R) For calendar year companies, the
standard is applicable to new business combinations occurring on
or after January 1, 2009. SFAS No. 141R requires
an acquiring entity to recognize all the assets acquired and
liabilities assumed in a transaction at the acquisition-date
fair value with limited exceptions. Most significantly,
SFAS No. 141R will require that acquisition costs
generally be expensed as incurred, certain acquired contingent
liabilities will be recorded at fair value, and acquired
in-process research and development will be recorded at fair
value as an indefinite-lived intangible asset at the acquisition
date. The Company does not expect the adoption of
SFAS No. 142R to have a material impact on its
financial condition, results of operations or liquidity.
SFAS No. 160
In December 2007, the FASB also issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements An Amendment of ARB
No. 51, which is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after
December 15, 2008. The standard establishes new accounting
and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of subsidiary. The
Company does not expect the adoption of SFAS No. 160
to have a material impact on its financial condition, results of
operations or liquidity.
|
|
3.
|
Summary
of Significant Transactions
|
Graceway
Agreements
In February 2008, the Company entered into an asset purchase
agreement with Graceway Pharmaceuticals, LLC
(Graceway), pursuant to which Novavax sold to
Graceway its assets related to
Estrasorb®
in the United States, Canada and Mexico. The assets sold include
certain patents related to the micellar nanoparticle technology
(the MNP Technology), trademarks, know-how,
manufacturing equipment, customer and supplier relations,
goodwill and other assets. Novavax retained the rights to
commercialize
Estrasorb®
outside of the United States, Canada and Mexico.
In February 2008, Novavax and Graceway also entered into a
supply agreement, pursuant to which Novavax has agreed to
manufacture additional units of Estrasorb with final delivery
expected in mid 2008. Graceway will pay a preset transfer price
per unit of Estrasorb for the supply of this product. Once
Novavax has delivered the required quantity of Estrasorb,
Novavax must clean the manufacturing equipment and prepare the
equipment for transport. Graceway will remove the equipment from
the manufacturing facility and Novavax will then exit the
facility.
In February 2008, Novavax and Graceway also entered into a
license agreement, pursuant to which Graceway granted Novavax an
exclusive, non-transferable (except for certain allowed
assignments and sublicenses), royalty-free, limited license to
the patents and know-how that Novavax sold to Graceway pursuant
to the asset purchase
F-19
NOVAVAX,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
agreement. The licensed grant allows Novavax to make, use and
sell licensed products and services in certain, limited fields.
The net cash proceeds from these transactions is expected to be
in excess of $2.0 million. The license and supply
agreements with Allergan, were terminated October 2007.
License
Agreement with University of Massachusetts Medical
School
Effective February 26, 2007, the Company entered into a
worldwide agreement to exclusively license a VLP technology from
the University of Massachusetts Medical School
(UMMS). Under the agreement, the Company has the
right to use this technology to develop VLP vaccines for the
prevention of any viral diseases in humans . The Company made an
upfront cash payment to UMMS. In addition, the Company will make
certain payments based on development milestones as well as
future royalties on any sales of products that may be developed
using the technology.
License
Agreement with Wyeth Holdings Corporation
On July 5, 2007, the Company entered into a License
Agreement with Wyeth Holdings Corporation, a subsidiary of Wyeth
(Wyeth). The license is a non-exclusive, worldwide
license to a family of patent applications covering virus-like
particle (VLP) technology for use in human vaccines in certain
fields of use. The agreement provides for an upfront payment,
annual license fees, milestone payments and royalties on any
product sales. Payments under the agreement to Wyeth could
aggregate $6.5 million in fiscal 2008, depending on
achievement of certain clinical development milestones. The
agreement will remain effective as long as at least one claim of
the licensed patent rights cover the manufacture, sale or use of
any products; unless terminated sooner at the Companys
option or by Wyeth for an uncured breach by Novavax.
License
and Supply Agreements with Allergan
In October 2005, the Company entered into License and Supply
agreements for Estrasorb with Allergan, Inc.
(Allergan), successor-in-interest to Esprit Pharma,
Inc. (Esprit). Under the License Agreement, Allergan
obtained exclusive rights to market Estrasorb in North America
and under the Supply Agreement the Company will continue to
manufacture Estrasorb.
In consideration for the rights granted, Allergan paid the
Company a minimum cash consideration of $12,500,000: $2,000,000
of which was paid at closing, $8,000,000 of which was paid in
December 2005, and the remaining $2,500,000 which was paid in
October 2006 in accordance with the License Agreement. The
Company receives royalties on all net sales of Estrasorb as well
as milestone payments based on specific pre-determined net sales
levels of Estrasorb. The Company wrote off $2,175,000, the
remaining net balance of its intangible asset for Estrasorb
rights at the date of the transaction. As part of the Supply
Agreement, Allergan paid the Company $273,000 for inventory and
sales and promotional materials for which the Company had a book
value of $437,000. The Company incurred $200,000 of fees related
to this transaction and recorded a gain of $10,125,000, which is
included in gain on sales of product assets on the accompanying
consolidated statement of operations for the year ended
December 31, 2005.
In February 2008, in connection with the sale of the Estrasorb
assets to Graceway, Novavax terminated the Estrasorb license
agreement with Allergan.
In April 2006, the Company entered into a second License and
Supply Agreement with Allergan to co-develop, supply and
commercialize our MNP testosterone medicine for the treatment of
female hypoactive sexual desire disorder. Under the terms of the
License and Development Agreement, Esprit was granted exclusive
rights to market the products in North America. In October 2007,
Allergan purchased Esprit and subsequently entered into an
agreement with Novavax, which among other things, terminated the
license and supply agreement for testosterone and the supply
agreement for Estrasorb.
F-20
NOVAVAX,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Asset
Purchase Agreement with Pharmelle, LLC (the Pharmelle
Transaction)
In September 2005, the Company entered into an Asset Purchase
Agreement with Pharmelle, LLC for the sale of assets related to
the AVC Cream and Suppositories, NovaNatal and NovaStart
products, as well as assets relating to certain formerly
marketed products Vitelle, Nestabs, Gerimed, Irospan and
Nessentials. The assets sold included, but were not limited to,
intellectual property, the New Drug Application for AVC
products, inventory and sales and promotional materials. In
connection with the sale, Pharmelle agreed to assume those
liabilities and obligations arising after the closing date of
the transaction in connection with the performance by Pharmelle
of certain assumed contracts, those liabilities and obligations
arising after the closing date in connection with products sold
by Pharmelle after the closing date or the operation of the
business relating to such products or the assets after such date
(including any product liability claims associated with such
products), and all liability and responsibility for returns of
the products made after the closing date, regardless of when
such products were produced, manufactured or sold.
In consideration for the sale of these assets, Pharmelle paid
the Company $2,500,000 in cash and assumed the liabilities noted
above. In addition, the Company is entitled to royalties on AVC
for a five-year period if net sales exceed certain levels. The
Company wrote off $1,082,000, the net balance of its intangible
assets related to the AVC product acquisition and $289,000 of
inventory, recorded a $289,000 liability for future obligations
and recorded a gain on the transaction of $840,000. This gain is
included in gain on sales of product assets on the accompanying
consolidated statement of operations for the year ended
December 31, 2005.
In July 2006, the Company entered into an amendment to the Asset
Purchase Agreement with Pharmelle to revise the royalty formula.
The Company is now entitled to royalties on AVC products for a
five-year period based on a percentage of gross margin if net
sales exceed certain levels.
Restructuring
of the Sales Force
From March through August 2005, the Company implemented measures
to reduce costs associated with its commercial operations by
downsizing its sales force to correspond with the Companys
strategy of transitioning from a commercial business model to
that of one focused on the Companys core competency of new
product development. The March restructuring reduced the
Companys sales force numbers significantly while the
August restructuring eliminated the remaining sales force.
Included in sales and marketing expenses in the accompanying
consolidated statement of operations for the year ended
December 31, 2005 is $444,000 related to these two
restructurings. Included in this amount are (i) one-time
termination benefits of $305,000, all of which were paid as of
December 31, 2005, (ii) auto lease contract
termination costs of approximately $125,000, of which $2,000 was
included in accrued expenses as of December 31, 2005, and
(iii) $14,000 of other associated costs, all of which were
paid as of December 31, 2005.
Opportunity
Grant Funds
In July 2005, the Company received a $400,000 Opportunity Grant
from the Commonwealth of Pennsylvania for the reimbursement of
certain costs incurred in connection with the move of the
Companys corporate headquarters and product development
activities to Malvern, Pennsylvania. These funds were included
as an offset to general and administrative expenses included in
the Consolidated Statement of Operations for the year ended
December 31, 2005. The Opportunity Grant had the following
conditions: (i) the Company would create 95 full time jobs
at the Malvern facility within three years; (ii) the
Company would invest at least $9.4 million in capital
improvements and fixtures and equipment at the Malvern facility
within three years; and, (iii) the Company would operate at
the Malvern facility for a minimum of five years. If the Company
failed to meet these conditions, it would be liable for a
penalty equal to the full amount of the grant.
In line with its business strategy, the Company announced in
December 2006, that it had signed a long-term lease for its new
corporate headquarters and research and development facility in
Rockville, Maryland, where its vaccine operations were currently
located. As a result of the Companys failure to comply
with the conditions of the
F-21
NOVAVAX,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
grant, the Department of Community & Economic
Development (DCED) of the Commonwealth of
Pennsylvania requested that the Company repay the full amount of
the Opportunity Grant. The Company recorded a current liability
of $400,000 in the accompanying Consolidated Balance Sheet as of
December 31, 2006 and a corresponding expense in general
and administrative expenses in the Consolidated Statement of
Operations for the year ended December 31, 2006.
In April, 2007, the Company entered into a Settlement and
Release Agreement with the Commonwealth of Pennsylvania, acting
by and through DCED, whereby the Company agreed to repay the sum
of the original grant in 60 monthly installments starting
on May 1, 2007. The loan was reclassified to notes payable.
The terms of the agreement stipulate the amount of the monthly
repayment to be $6,667 for 60 months. Interest does not
accrue on the outstanding balance. During the year ended
December 31, 2007, the Company made payments totaling
$60,000. The balance of the loan is included in notes payable at
December 31, 2007.
License
Agreement Renewal with IGI, Inc.
In December 2005, the Company received a $1,000,000 payment from
IGI, Inc. (IGI) in accordance with an option in a
licensing agreement signed between the Company and IGI in
December 1995. This payment gives IGI a ten-year renewal on
licensed technologies in specific fields and was included in
royalties, milestone and licensing fees on the accompanying
consolidated statement of operations for the year ended
December 31, 2005.
|
|
4.
|
Long-term
Leases and Accounting for Facility Exit Costs
|
In July 2004, the Company entered into a lease agreement for a
32,900 square foot facility in Malvern, Pennsylvania for
the consolidation and expansion of its corporate headquarters
and product development activities. The lease, with a
commencement date of September 15, 2004, has an initial
term of ten years with two five-year renewal options and an
early option to terminate after the first five years of the
lease. Standard annual escalation rental rates were in effect
during the initial lease term. In April 2006 the Company entered
into a sublease agreement with Sterilox Technologies, Inc., now
known as PuriCore, Inc., to sublease 20,469 square feet of
the Malvern corporate headquarters at premium price per square
foot. The sublease had a commencement date of July 1, 2006
and expires on September 30, 2009. Consistent with its
strategic focus, the Company increased its presence in
Rockville, Maryland, where its vaccine operations are currently
located.
On October 6, 2006, the Company and Human Genome Sciences,
Inc. executed a sublease agreement (the HGS
sublease) for approximately 51,000 square feet of
office, laboratory and administrative space in Rockville, MD.
The office space is being used as the Companys corporate
headquarters. The term of the HGS sublease commenced on
December 12, 2006 or the date on which a certain portion of
the leased space was delivered to the Company and expires on the
last day of the month which is six years following the date of
delivery. The Company has the option to renew the HGS sublease
for two additional periods of three years each and a third
option to renew the HGS sublease until March 30, 2021.
In October 2006, the Company entered into an Amendment to the
Sublease Agreement with PuriCore, Inc. to sublease an additional
7,500 square feet of the Malvern corporate headquarters at
a premium price per square foot. This amendment has a
commencement date of October 25, 2006 and expires on
September 30, 2009. As a result of the premium price
received on these sublease agreements, there were no facility
exit costs associated with this transaction.
F-22
NOVAVAX,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
For the years ended December 31, 2005 and 2006, the Company
applied the principles of SFAS No. 146, Accounting
for Costs Associated with Exit or Disposal Activities, in
accounting for lease termination and other associated costs that
were incurred under the operating lease which expired on
October 31, 2006 related to the Companys former
corporate offices located in Columbia, Maryland.
A roll-forward of the facility exit cost liability is as follows:
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
Non-Current
|
|
|
|
(In thousands)
|
|
|
Balance as of January 1, 2005
|
|
$
|
151
|
|
|
$
|
101
|
|
Lease payments applied to the liability
|
|
|
(58
|
)
|
|
|
(161
|
)
|
Adjustment to original estimate
|
|
|
45
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2005
|
|
|
138
|
|
|
|
|
|
Lease payments applied to the liability
|
|
|
(142
|
)
|
|
|
|
|
Adjustment to original estimate
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2006 and 2007
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.
|
Supplemental
Financial Data
|
Allowance
for Doubtful Accounts
A roll-forward of the allowance for doubtful accounts is as
follows:
|
|
|
|
|
|
|
(In thousands)
|
|
|
Balance, January 1, 2005
|
|
$
|
752
|
|
Provision for bad debts
|
|
|
4
|
|
Other adjustments
|
|
|
(327
|
)
|
|
|
|
|
|
Balance, December 31, 2005
|
|
|
429
|
|
Provision for bad debts
|
|
|
111
|
|
Write off bad debts
|
|
|
(423
|
)
|
|
|
|
|
|
Balance, December 31, 2006
|
|
$
|
117
|
|
Provision for bad debts
|
|
|
176
|
|
Write off bad debts
|
|
|
(125
|
)
|
|
|
|
|
|
Balance, December 31, 2007
|
|
$
|
168
|
|
|
|
|
|
|
F-23
NOVAVAX,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Prepaid
Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the
following at December 31:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Prepaid insurance
|
|
$
|
568
|
|
|
$
|
720
|
|
Current portion of deferred financing costs
|
|
|
259
|
|
|
|
259
|
|
Notes receivable from former director, net of reserve
|
|
|
202
|
|
|
|
281
|
|
Interest receivable on directors notes
|
|
|
132
|
|
|
|
359
|
|
Other current assets
|
|
|
51
|
|
|
|
53
|
|
Interest receivable
|
|
|
229
|
|
|
|
201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,441
|
|
|
|
1,873
|
|
Less: Prepaid expenses and other current assets reclassified to
current assets of discontinued operations
|
|
|
(137
|
)
|
|
|
(180
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,304
|
|
|
$
|
1,693
|
|
|
|
|
|
|
|
|
|
|
Accrued
Expenses and Other Liabilities
Accrued expenses consist of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Sales return allowance
|
|
$
|
354
|
|
|
$
|
238
|
|
Sales rebate allowance
|
|
|
17
|
|
|
|
14
|
|
Employee benefits and compensation
|
|
|
1,581
|
|
|
|
822
|
|
Operating expenses
|
|
|
994
|
|
|
|
1,529
|
|
Interest expense
|
|
|
75
|
|
|
|
475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,421
|
|
|
|
3,078
|
|
Less: accrued expense and other liabilities reclassified to
current liabilities of discontinued operations
|
|
|
(441
|
)
|
|
|
(328
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,980
|
|
|
$
|
2,750
|
|
|
|
|
|
|
|
|
|
|
F-24
NOVAVAX,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Sales
Return Allowance
A roll-forward of the sales return allowance is as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
|
Balance, January 1, 2005
|
|
$
|
1,274
|
|
Provision for 2005 sales
|
|
|
95
|
|
Additional provision for 2004 sales
|
|
|
98
|
|
Additional provision for 2003 sales
|
|
|
341
|
|
Returns received from 2003 sales
|
|
|
(926
|
)
|
Returns received from 2004 sales
|
|
|
(600
|
)
|
|
|
|
|
|
Balance, December 31, 2005
|
|
|
282
|
|
Provision for 2006 sales
|
|
|
218
|
|
Additional provision for 2005 sales
|
|
|
41
|
|
Returns received from 2004 sales
|
|
|
(129
|
)
|
Returns received from 2005 sales
|
|
|
(174
|
)
|
|
|
|
|
|
Balance, December 31, 2006
|
|
|
238
|
|
Provision for returns for 2007 sales
|
|
|
44
|
|
Additional provision for planned discontinuation of Gynodiol
|
|
|
158
|
|
Returns for 2004 sales
|
|
|
(48
|
)
|
Returns for 2006 sales
|
|
|
(38
|
)
|
|
|
|
|
|
Balance, December 31, 2007
|
|
$
|
354
|
|
|
|
|
|
|
In June 2007, the Company decided to discontinue the sale of
Gynodiol. In connection with its decision, the Company recorded
an additional adjustment to the sales return allowance of
$158,000.
F-25
NOVAVAX,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Notes
Payable
Notes payable consist of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Note payable; bears interest at 3.00% per annum; principal and
interest due in monthly installments of $6,600 through December
2009
|
|
$
|
135
|
|
|
$
|
215
|
|
Note payable; bears interest at 2.850% per annum; principal and
interest due in monthly installments of $6,573 through January
2010
|
|
|
153
|
|
|
|
233
|
|
Note payable; bears interest at 2.38% per annum; principal and
interest due in monthly installments of $6,468 through January
2010
|
|
|
152
|
|
|
|
231
|
|
Note payable; insurance financing; bears interest at 6.00% per
annum; principal and interest due in monthly installments of
$51,385 through November 2008
|
|
|
600
|
|
|
|
|
|
Note payable; insurance financing; bears interest at 5.43% per
annum; principal and interest due in monthly installments of
$58,097 through September 2007
|
|
|
|
|
|
|
510
|
|
|
|
|
|
|
|
|
|
|
Notes payable; non-interest bearing; principle only payments due
in monthly installments of $6,666 through May 2012
|
|
|
340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,380
|
|
|
|
1,189
|
|
Less current portion
|
|
|
(1,120
|
)
|
|
|
(731
|
)
|
|
|
|
|
|
|
|
|
|
Long-term portion
|
|
$
|
260
|
|
|
$
|
458
|
|
|
|
|
|
|
|
|
|
|
The notes payable (except for the notes payable for financing
insurance premiums and the non-interest bearing note payable)
were secured by $2.4 million of the Companys
machinery and equipment located at its manufacturing facility in
Philadelphia, Pennsylvania. In February 2008, in connection with
the execution of the asset purchase agreement with Graceway, the
Company repaid the outstanding balance on the 3.00%, 2.850% and
2.38% notes payable and received a release for the
equipment which served as collateral.
Convertible
Notes
In July 2004, the Company entered into definitive agreements for
the private placement of $35,000,000 aggregate principal amount
of senior convertible notes to a group of institutional
investors. The notes carry a 4.75% coupon, payable
semi-annually, mature in five years and are convertible into
shares of common stock, originally at $5.46 per share. On
June 15, 2007, the Company entered into amendment
agreements (the Amendments) with each of the holders
of the outstanding Notes to amend the terms of the Notes. The
Amendments (i) lowered the conversion price from $5.46 to
$4.00 per share, (ii) eliminated the holders right to
require the Company to redeem the Notes if the weighted average
price of the Companys common stock is less than the
conversion price on 30 of the 40 consecutive trading days
preceding July 19, 2007 or July 19, 2008 and
(iii) mandated that the Notes be converted into Company
common stock if the weighted average price of the Companys
common stock is greater than $7.00 (a decrease from $9.56) in
any 15 out of 30 consecutive trading days after July 19,
2007. The Notes are also redeemable upon the occurrence of
specified events of default as well as a change of
control (as that term is defined in the Notes) of Novavax.
At December 31, 2007 and 2006, the Company had accrued
interest of $475,260 relating to these notes.
In October 2005, certain holders of $6,000,000 face amount of
the Companys senior convertible notes exercised their
optional conversion right to convert their notes plus accrued
interest of $81,000 into 1,070,635 shares
F-26
NOVAVAX,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of Novavax common stock, at the per share conversion price then
in effect of $5.68. This reduced the aggregate principal amount
of such notes outstanding from $35,000,000 to $29,000,000.
In March 2006, certain holders of $7,000,000 face amount of the
Companys senior convertible notes exercised their optional
conversion right to convert their notes plus accrued interest of
$68,000 into 1,294,564 shares of Novavax common stock, at
the per share conversion of $5.46. This reduced the aggregate
principal amount of such notes outstanding from $29,000,000 to
$22,000,000.
As a result of the financing and a product related transaction,
the Company incurred $3,355,000 of transaction expenses, which
increased the intangible asset for Estrasorb rights by
$1,010,000 (included in the total intangible asset for Estrasorb
rights of $2,514,000), decreased additional paid-in capital by
$288,000, and increased deferred financing costs by $2,057,000.
The deferred financing costs are being amortized over the life
of the convertible notes. During the years ended
December 31, 2007, 2006 and 2005, $259,000, $279,000 and
$400,000, respectively, of deferred financing costs amortization
were included in interest expense on the accompanying
consolidated statements of operations. Concurrent with the
conversions of $6,000,000 and $7,000,000 of senior convertible
debt (mentioned above), the Company wrote off in 2006 and 2005,
$267,000 and $262,000, respectively, of deferred financing
costs. These write offs are included in interest expense on the
accompanying consolidated statements of operations for the years
ended December 31, 2006 and 2005.
In connection with the Amendments, the Company recorded a debt
discount of $852,000 and increased additional paid-in capital
accordingly. The debt discount is being amortized over the
remaining term of the Notes. Interest expense includes $221,000,
related to the amortization of the debt discount for the year
ended December 31, 2007.
Convertible notes consist of the following on December 31 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Note payable; 4.75% senior convertible, issued
July 19, 2004, due July 15, 2009, currently
convertible into 4,029,304 shares of Novavax common stock
at $4.00 per share
|
|
$
|
22,000
|
|
|
$
|
22,000
|
|
Less: Discount
|
|
|
(631
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable, net
|
|
$
|
21,369
|
|
|
$
|
22,000
|
|
|
|
|
|
|
|
|
|
|
Aggregate future minimum principal payments on debt at
December 31, 2007 are as follows:
|
|
|
|
|
Year
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
2008
|
|
$
|
881
|
|
2009
|
|
|
22,299
|
|
2010
|
|
|
93
|
|
2011
|
|
|
80
|
|
2012
|
|
|
27
|
|
|
|
|
|
|
|
|
$
|
23,380
|
|
|
|
|
|
|
Total cash interest payments for the three years ended
December 31, 2007, 2006 and 2005 were $1,073,000,
$1,233,000 and $1,719,000, respectively.
In July 2005, the Company completed an agent-led offering of
4,000,000 shares of common stock at $1.00 per share for
gross proceeds of $4,000,000. The stock was issued pursuant to
an existing shelf registration statement.
F-27
NOVAVAX,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Net proceeds after deducting underwriter, legal, accounting and
other miscellaneous fees were approximately $3,631,000.
In August 2005, the Company issued 250,000 shares of common
stock in a private placement to its former Chief Executive
Officer for prior services, which had a fair market value of
$215,000 at the time of issuance.
In August 2005, the Company approved the issuance of
50,000 shares of common stock to a director in a private
placement for prior services and for his agreement to pledge
such shares to a brokerage firm to secure the debt guarantee by
the Company (see Note 13 Related Party
Transactions). The fair value at the time of the approval of
these shares was $37,000 and they were issued in December 2005.
In November 2005, the Company completed an offering of
4,186,047 shares of common stock at $4.30 per share. The
stock was offered and sold pursuant to an existing shelf
registration statement. Net proceeds after deducting underwriter
fees, legal and other miscellaneous fees were approximately
$17,032,000.
In February 2006, the Company completed an offering of
4,597,700 shares of common stock at $4.35 per share for
gross proceeds of $20 million. The stock was offered and
sold pursuant to an existing shelf registration statement. Net
proceeds were approximately $19.9 million.
In March 2006, the Company completed an agent-led offering of
5,205,480 shares of common stock at $7.30 per share, for
gross proceeds of $38.0 million. The stock was offered and
sold pursuant to an existing shelf registration statement. Net
proceeds were approximately $36.1 million.
During 2006, the Company received net proceeds of $1,718,000 for
the exercise of 497,613 common stock options at a range of $0.74
to $5.81 per share.
During 2007, the Company received net proceeds of $89,000 from
the exercise of 57,126 shares of common stock options at a
range of $1.34 to $2.21 per share.
On August 7, 2002, the Company adopted a Shareholder Rights
Plan which provides for the issuance of rights to purchase
shares of Series D Junior Participating Preferred Stock,
par value $0.01 per share (the Preferred Shares), of
the Company. Under the Shareholder Rights Plan, the Company
distributed one preferred share purchase right (a
Right) for each outstanding share of common stock,
par value $.01 (the Common Shares), of the Company.
The Rights were distributed to stockholders of record on
August 16, 2002.
Each Right entitles the holder to purchase from the Company
one-thousandth of a Preferred Share at a price of $40, subject
to adjustment. The Rights become exercisable, with certain
exceptions, 10 business days after any party, without prior
approval of the Board of Directors, acquires or announces an
offer to acquire beneficial ownership of 15% or more of the
Companys Common Shares. In the event that any party
acquires 15% or more of the Companys common stock, the
Company enters into a merger or other business combination, or
if a substantial amount of the Companys assets are sold
after the time that the Rights become exercisable, the Rights
provide that the holder will receive, upon exercise, shares of
the common stock of the surviving or acquiring company, as
applicable, having a market value of twice the exercise price of
the Right.
The Rights expire August 7, 2012, and are redeemable by the
Company at a price of $0.00025 per Right at any time prior to
the time that any party acquires 15% or more of the
Companys Common Shares. Until the earlier of the time that
the Rights become exercisable, are redeemed or expire, the
Company will issue one Right with each new Common Share issued.
F-28
NOVAVAX,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
9.
|
Stock
Options and Restricted Stock Awards
|
The Company recorded compensation costs in the consolidated
statement of operation associated with SFAS No. 123R
as follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Cost of products sold (which includes idle capacity)
|
|
$
|
35
|
|
|
$
|
48
|
|
Research and development
|
|
|
573
|
|
|
|
561
|
|
General and administrative
|
|
|
737
|
|
|
|
1,167
|
|
|
|
|
|
|
|
|
|
|
Total SFAS No. 123R compensation costs
|
|
$
|
1,345
|
|
|
$
|
1,776
|
|
|
|
|
|
|
|
|
|
|
The Company has granted stock option incentive awards under
several plans. Under the 2005 Stock Incentive Plan (the
2005 Plan), approved in May 2005 and amended in June
2007 by the stockholders of the Company, options may be granted
to officers, directors, employees, consultants and advisors to
Novavax and any present or future subsidiary to purchase a
maximum of 5,000,000 shares of Novavax common stock and an
additional 565,724 shares of common stock that had been
held in reserve under the Companys 1995 Stock Option Plan
(the 1995 Plan), were unused and were transferred to
the Company 2005 Plan. In addition, a maximum
5,746,468 shares of common stock subject to existing
options under the 1995 Plan may revert to and become issuable
under the 2005 Plan if such existing options granted under the
1995 Plan should for any reason expire or otherwise terminate.
Under the 2005 Plan, the 1995 Plan and the 1995 Director
Stock Option Plan (the 1995 Director Plan)
incentive stock options, having a maximum term of 10 years,
can be or were granted at no less than 100% of the fair market
value of Novavaxs stock at the time of grant and are
generally exercisable in cumulative increments over several
years from the date of grant. Both incentive and non-statutory
stock options may be granted under these plans. There is no
minimum exercise price for non-statutory stock options.
The exercise price is the fair market value per share of the
Companys common stock on the date of grant. Options
granted to eligible directors are exercisable in full beginning
six months after the date of grant and expire 10 years from
the grant date. All options available under the
1995 Director Plan have been granted. Such options cease to
be exercisable at the earlier of their expiration or three years
after an eligible director ceases to be a director for any
reason. In the event that an eligible director ceases to be a
director on account of his or her death, any outstanding options
(whether exercisable or not on the date of death) may be
exercised within three years after such date (subject to the
condition that no such option may be exercised after the
expiration of 10 years from its date of grant).
F-29
NOVAVAX,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Activity under the 2005 Plan, the 1995 Plan and the Director
Plan for the years ended December 31, 2005, 2006, and 2007
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 Stock Option Plan
|
|
|
1995 Stock Option Plan
|
|
|
1995 Director Stock Option Plan
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
Weighted Average
|
|
|
|
Stock Options
|
|
|
Price
|
|
|
Stock Options
|
|
|
Exercise Price
|
|
|
Stock Options
|
|
|
Exercise Price
|
|
|
Balance, January 1, 2005
|
|
|
|
|
|
|
|
|
|
|
5,061,968
|
|
|
$
|
5.48
|
|
|
|
270,000
|
|
|
$
|
4.03
|
|
Granted
|
|
|
2,192,775
|
|
|
$
|
1.22
|
|
|
|
486,825
|
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
(312,654
|
)
|
|
|
0.96
|
|
|
|
(30,000
|
)
|
|
|
3.15
|
|
Expired or canceled
|
|
|
(88,850
|
)
|
|
|
1.46
|
|
|
|
(2,115,978
|
)
|
|
|
5.64
|
|
|
|
(70,000
|
)
|
|
|
4.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2005
|
|
|
2,103,925
|
|
|
|
1.21
|
|
|
|
3,120,161
|
|
|
|
5.3
|
|
|
|
170,000
|
|
|
|
3.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,409,500
|
|
|
|
4.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(235,571
|
)
|
|
|
3.21
|
|
|
|
(242,042
|
)
|
|
|
3.69
|
|
|
|
(20,000
|
)
|
|
|
3.44
|
|
Expired or canceled
|
|
|
(241,916
|
)
|
|
|
2.41
|
|
|
|
(352,150
|
)
|
|
|
5.46
|
|