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| NVAX > SEC Filings for NVAX > Form 10-Q on 9-Nov-2009 | All Recent SEC Filings |
9-Nov-2009
Quarterly Report
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 Company's virus-like-particle ("VLP") platform technology coupled with a
unique, disposable production technology. The Company produces these VLP based,
potent, recombinant vaccines utilizing new and efficient manufacturing
approaches.
VLPs are genetically engineered three-dimensional nanostructures, which
incorporate immunologically important lipids and recombinant proteins. Our VLPs
resemble the virus but lack the genetic material to replicate the virus. Our
proprietary production technology uses insect cells rather than chicken eggs or
mammalian cells. Our current product targets include vaccines against the H5N1
and other subtypes of avian influenza with pandemic potential, H1N1, human
seasonal influenza, Varicella Zoster ("VZV"), which causes shingles, and
Respiratory Syncytial Virus ("RSV").
We began production of the H1N1 VLPs in our manufacturing facility on June 5,
2009 and completed production of the first batch of vaccine within 12 weeks from
the receipt of the viral H1N1 RNA. On August 18, 2009, we announced positive
preclinical results with our novel H1N1 influenza VLP vaccine. The study,
conducted by scientists from Novavax and the Centers for Disease Control and
Prevention ("CDC") based in Atlanta, Georgia represents the first efficacy
report of a 2009 novel H1N1 vaccine in ferrets.
On October 20, 2009, we announced the initiation of a two-stage clinical
study of our VLP H1N1 influenza vaccine in Mexico in collaboration with Avimex
and GE Healthcare. Avimex is providing financial support for the trial and is
expected to distribute the H1N1 vaccine in Mexico if it is approved for
commercial sale. The randomized blinded, placebo-controlled clinical trial in
Mexico City will evaluate the safety, immunogenicity and efficacy of our 2009
H1N1 VLP vaccine in healthy adults. The first stage will evaluate the vaccine's
safety, immunogenicity and efficacy among 1,000 subjects. Pending favorable
results from the first stage, the second stage of the study will be initiated to
evaluate the safety of the vaccine in a larger cohort of 3,000 subjects. The
primary safety and immunogenicity results are expected in January 2010, which is
within three months of the start of this study. If the results are clinically
acceptable, they will be used to seek registration of our 2009 H1N1 pandemic flu
vaccine in Mexico. These data are also expected to support development of our
pandemic and seasonal flu VLP vaccines in other countries, including the United
States.
In May, 2009, we enrolled subjects in the second Phase II study of our
trivalent seasonal influenza VLP vaccine candidate. This clinical trial was
designed to evaluate the safety and immunogenicity of a broader range of vaccine
doses and to provide data to help select doses for future studies in older
adults and a Phase III efficacy study. In September, 2009, we announced positive
results in our human clinical trial. Our influenza VLP vaccine candidate was
well tolerated and the HAI responses met the seroconversion criteria for
licensure as outlined in the FDA guidance document for influenza vaccine
development. We expect to begin a seasonal influenza close ranging study in the
elderly (>65 years of age) in the fourth quarter of 2009.
We have also developed vaccine candidates for both RSV and VZV, both of which
are currently being evaluated in preclinical studies. On July 22, 2009, we
announced final selection of an RSV vaccine candidate that will be advanced into
additional preclinical studies to support an Investigational New Drug ("IND")
application. The first preclinical study of this vaccine candidate in mice, the
results of which we announced in February 2009, showed that it induced
production of antibodies that neutralized live RSV. In addition, the vaccine
protected mice against replication of RSV in the lungs. On October 13, 2009, we
announced the receipt of a Small Business and Innovation Research ("SBIR") grant
from the National Institute of Allergy and Infectious Diseases ("NIAID") of the
National Institutes of Health ("NIH"). The grant from the NIAID is to support a
segment of our preclinical research program for RSV particle-based vaccine. The
SBIR grant, valued at approximately $246,000, will support continued preclinical
development of the RSV-F vaccine candidate utilizing the bovine calf model.
A VZV vaccine candidate has also induced antibody and T-cell responses. We
plan on moving forward with further preclinical development of both vaccines in
2009 and 2010.
Our 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 our 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 us 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 we
can generate sufficient product revenue to become profitable or generate
positive cash flow from operations at all or on a sustained basis.
Significant Transactions
On September 15, 2009, we entered into a second At Market Issuance Sales
Agreement (the "September Sales Agreement"), with Wm Smith & Co. ("Wm Smith"),
under which we may sell an aggregate of up to $10.0 million in gross proceeds of
our common stock from time to time through Wm Smith. We have not sold any common
stock under the September Sales Agreement. During the three and the nine months
ended September 30, 2009, the Company received net proceeds of $8.0 million and
$22.0 million respectively from the sale of stock of 2,039,630 shares and
7,489,207 shares at a range of $1.75 to $5.03 per share pursuant to the January
sales agreement with Wm Smith.
On July 15, 2009, we paid the $5.0 million balance of the senior convertible
notes (the "Notes"). Under the terms of the Notes, we paid approximately
$2.6 million of principal and accrued interest in cash and issued 1,016,939
shares of common stock to pay the remaining $2.6 million of principal and
accrued and unpaid interest, based on a price of $2.5163 per share. The Notes
are now fully paid and extinguished.
Subsequent Events
On October 21, 2009, we entered into a binding term sheet (the "Xcellerex
Agreement") with Xcellerex, Inc. Pursuant to the Xcellerex Agreement, Xcellerex
will manufacture a fixed quantity of bulk drug substance of our 2009 H1N1
vaccine for potential use and sale in Mexico. As consideration, we paid
Xcellerex a fixed non-refundable payment and will pay a "per dose" fee for each
dose equivalent of bulk materials delivered to us. A portion of the fixed
payment, and the actual cost of materials supplied by us, will be credited
against the payment due for each batch of bulk material. Xcellerex is the
exclusive contract manufacturer for the bulk material for sale in Mexico until
February 15, 2010. For markets where Xcellerex could be a low cost manufacturer
of bulk material, we will appoint Xcellerex as the co-exclusive producer through
June 2010.
On October 20, 2009, we entered into a Materials Transfer Agreement with
Laboratorio Avi-Mex S.A. de C.V. ("Avimex"), pursuant to which we will supply
Avimex with certain amounts of its 2009 H1N1 vaccine candidate. Avimex will use
the H1N1 vaccine to conduct clinical trials in Mexico. Avimex will make certain
milestone payments to us and will pay us a transfer fee for the H1N1 vaccine
based on our production cost. We also granted Avimex an irrevocable right and
option to enter into a non-exclusive distribution agreement to distribute the
2009 H1N1 vaccine in Mexico.
Critical Accounting Policies and Changes to Accounting Policies
Our discussion and analysis for our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States.
The preparation of our consolidated financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities
and equity 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. These estimates, particularly estimates relating to
accounting for stock based compensation, goodwill, valuation of net deferred tax
assets, and valuation of marketable securities, have a material impact on our
financial statements and are discussed in detail throughout our analysis of the
results of operations discussed below.
We base our estimates on historical experience and various other assumptions
that we believe are reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying value of assets,
liabilities and equity that are not readily apparent from other sources. Actual
results and outcomes could differ from these estimates and assumptions.
For a more detailed explanation of the judgments made in these areas and a
discussion of our accounting estimates and policies, refer to Critical
Accounting Policies and Use of Estimatesincluded in Item 7 and Summary of
Significant Accounting Policies (Note 2) included in Item 15 of our Annual
Report on Form 10-K for the year ended December 31, 2008. Since December 31,
2008, there have been no significant changes to our critical accounting
estimates and policies.
Results of Operations
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 Quarterly Report on Form 10-Q.
Additional information concerning factors that could cause actual results to
differ materially from those in the Company's forward-looking statements is
contained from time to time in the Company's SEC filings, including but not
limited to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2008.
Three months ended September 30, 2009 ("2009") compared to the three months
ended September 30, 2008 ("2008"): (Amounts in the tables are presented in
thousands, except percentage changes and share and per share information)
Revenues:
Revenues for the three months ended September 30, 2009 and 2008 remained constant at $0.2 million. Revenue is comprised of revenue from government and commercial research and development contracts. During the three months ended September 30, 2009, we completed billing on one of the National Institutes of Health ("NIH") contracts and we were awarded one additional contract. For the three months ended September 30, 2008, we recorded revenue from two contracts. Operating costs and expenses:
2009 2008 $ Change % Change
(unaudited) (unaudited)
Research and development $ 5,256 $ 8,655 $ (3,399 ) (39 )%
General and administrative 3,207 1,265 1,942 154 %
$ 8,463 $ 9,920 $ (1,457 ) (15 )%
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Research and Development Expenses
Research and development costs decreased from $8.7 million for the three
months ended September 30, 2008 to $5.3 million for the three months ended
September 30, 2009, a decrease of $3.4 million, or 39%. Our research and
development costs are incurred in support of the development of our VLP based
vaccines. Research and development costs for the three months ended
September 30, 2008 included $0.5 million related to the accrual of the remaining
lease payments for the Company's Taft Court facility in Rockville, Maryland and
$3.0 million related to milestone fees. The balance of the decrease can be
attributed to a $0.1 million decrease in employee costs from 2008 to 2009.
General and Administrative Expenses
General and administrative costs were $3.2 million for the three months ended
September 30, 2009 compared to $1.3 million for the three months ended
September 30, 2008. The increase of $1.9 million, or 154%, was primarily due to
the correction of an error related to the classification of the notes receivable
due from former directors to show these notes as reductions of equity in the
September 30, 2008 consolidated balance sheet. For the three months ended
September 30, 2008, general and administrative expenses include a $1.3 million
credit to the allowance established for the notes receivable. During the three
months ended September 30, 2008, we concluded that the notes receivable from the
former directors should be classified as a reduction of equity. Therefore, the
reserve charges taken to the statement of operations during 2006 and 2007 and
during the first two quarters of 2008, totaling $1.2 million were also
determined to be errors. The credit to general and administrative expenses is a
result of the adjustment recorded in the quarterly results to correct the
cumulative impact of the prior period errors noted above.
General and administrative expenses for the three months ended September 30,
2009 were also impacted by an increase in professional fees incurred in
connection with the Company's expanded operations and a $0.2 million increase in
facility costs associated with general and administrative functions.
Other Income (Expense), net:
2009 2008 $ Change % Change
(unaudited) (unaudited)
Interest income $ 60 $ (170 ) $ 230 135 %
Interest expense (20 ) (434 ) 414 95 %
Realized gains 692 - 692 N/A
Net other income (expense) $ 732 $ (604 ) $ 1,336 221 %
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Our net other income was $0.7 million for the three months ended September 30, 2009 compared to net other expense of $0.6 million for the three months ended September 30, 2008. The change in net interest other income (expense) resulted from an increase in interest income, a decrease in interest expense and realized gains related to three of the Company's auction rate securities due primarily to their redemption at par value. Interest income for the three months ended September 30, 2008 included the impact of the correction of an error previously discussed related to notes receivable from former directors. Interest expense for the three months ended September 30, 2009 decreased to $20,000 from $0.4 million for the three months ended September 30, 2008, a decrease of $0.4 million, or 95%. The decrease in interest expense is due to early retirement of $17.0 million of the Notes in April 2009 and the payment of the balance of the Notes in July 2009.
Discontinued Operations:
The following table presents summarized financial information for our
discontinued operations at our manufacturing facility in Philadelphia,
Pennsylvania for the three months ended September 30, 2009 and 2008.
2009 2008 $ Change %Change
(unaudited) (unaudited)
Revenue $ - $ 3,546 $ (3,546 ) (100 )%
Costs of products sold - 975 975 100 %
Excess inventory costs over market - 83 83 100 %
Net income $ - $ 2,488 $ (2,488 ) (100 )%
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We recorded income from discontinued operations of $2.5 million for the three months ended September 30, 2008, which included revenue from discontinued operations of $3.5 million which related to the sale of Estrasorb. In the costs of products sold of $1.0 million in 2008, $0.5 million represents idle capacity costs at our manufacturing facility. The remaining $0.5 million represents the cost of Estrasorb sales to Graceway. In accordance with the supply agreement with Graceway, we sold Estrasorb at a price that was lower than our manufacturing costs. The excess cost over the product cost totaled $0.1 million for the nine months ended September 30, 2008. In August 2008, we completed our obligations to Graceway and exited the facility.
Net loss:
2009 2008 $ Change %Change
(unaudited) (unaudited)
Net loss $ (7,530 ) $ (7,842 ) $ 312 4 %
Net loss per share $ (0.08 ) $ (0.12 ) $ 0.04 57 %
Weighted shares outstanding 92,297,263 66,521,776 25,775,487 39 %
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Net loss for the three months ended September 30, 2009 was $7.5 million or $0.08 per share, as compared to $7.8 million or $0.12 per share for the three months ended September 30, 2008, a decrease of $0.3 million or $0.04 per share. The decreased net loss was primarily due to an overall decrease in operating expenses and the change in net other income (expenses), partially offset by the conclusion of our discontinued operations. The weighted shares outstanding increased from 66,521,776 for the three months ended September 30, 2008 to 92,297,263 for the three months ended September 30, 2009 primarily as a result of the 12.5 million shares issued to Cadila, approximately 1.1 million shares issued to ROVI, approximately 5.4 million shares sold under the January Sales Agreement through Wm Smith, approximately 2.0 million shares issued in connection with the early retirement of $17.0 million of the Notes and approximately 1.0 million shares for the payment of the balance of the Notes.
Nine months ended September 30, 2009 ("2009") compared to the nine months ended September 30, 2008 ("2008"): (Amounts in the tables are presented in thousands, except percentage changes and share and per share information.) Revenues:
2009 2008 $ Change % Change
(unaudited) (unaudited)
Revenues $ 251 $ 994 $ (743 ) (75 )%
Total revenues for the nine months ended September 30, 2009 were
$0.3 million, a decrease of $0.7 million from $1.0 million for the nine months
ended September 30, 2008. The decrease in revenues is attributable to a decrease
in contract related research and development revenues principally due to the
completion of a NIH grant in January 2009.
Operating costs and expenses:
2009 2008 $ Change % Change
(unaudited) (unaudited)
Research and development $ 14,819 $ 18,469 $ (3,650 ) (20 )%
General and administrative 8,661 7,675 986 13 %
$ 23,480 $ 26,144 $ (2,664 ) (10 )%
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Research and Development Expenses
Research and development costs decreased from $18.5 million in 2008 to
$14.8 million in 2009, a decrease of $3.7 million, or 20%. Research and
development costs for the nine months ended September 30, 2008 included
$0.5 million related to the accrual of the remaining lease payments for the
Company's Taft Court facility in Rockville, Maryland and $3.0 million related to
milestone fees. The remaining decrease was primarily due to a $0.1 million
decrease in employee related costs.
General and Administrative Expenses
General and administrative costs were $8.7 million in 2009 compared to
$7.7 million in 2008. The increase of $1.0 million, or 13%, was primarily due to
the $1.0 million credit recorded in 2008 related to the correction of an error
for notes receivable from two former directors.
Other (Expense) Income, net:
2009 2008 $ Change % Change
(unaudited) (unaudited)
Interest income $ 240 $ 695 $ (455 ) (65 )%
Interest expense (784 ) (1,292 ) 508 39 %
Impairment loss on short-term investments (1,338 ) - (1,338 ) N/A
Realized gains 692 - 692 N/A
Net other (expense) income $ (1,190 ) $ (597 ) $ (593 ) 99 %
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Net other expense increased from $0.6 million for 2008 to $1.2 million for 2009, an increase of $0.6 million, or 99%. Interest income decreased to $0.2 million for 2009 from $0.7 million for 2008, a decrease of $0.5 million. The decrease is primarily due to the correction of an error previously discussed related to notes receivable from former directors and a decrease in our average cash, cash equivalents and short-term investment balances, resulting from our continuing investment in research and development activities surrounding our vaccine candidates. Interest expense decreased from $1.3 million in 2008 to $0.8 million in 2009, a decrease of $0.5 million or 39%. The decrease in interest expense is due to the early retirement of $17.0 million of the Notes in April 2009 and the payment of the balance of the Notes in July 2009. Additionally, we recorded $1.3 million as other expense related to other than temporary impairment losses on our auction rate securities, which was partially offset by $0.7 million in realized gains. Discontinued Operations: . . .
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