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NVAX > SEC Filings for NVAX > Form 10-K on 12-Mar-2013All Recent SEC Filings

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Form 10-K for NOVAVAX INC


Annual Report


Certain statements contained or incorporated by reference herein constitute forward-looking statements. In some cases, these statements can be identified by the use of forward-looking terminology such as "expect(s)," "intends," "plans," "seeks," "estimates," "could," "should," "feel(s)," "believe(s)," "will," "would," "may," "can," "anticipate(s)," "potential" and similar expressions or the negative of these terms. Such forward-looking statements are subject to risks and uncertainties that 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.

Forward-looking statements in this Annual Report include, without limitation, statements regarding:

potential benefits, regulatory approval and commercialization of our vaccine candidates;

our expectation that we will have adequate capital resources available to operate at planned levels for approximately the next 24 months;

our expected 2013 capital expenditures;

our expectations for future revenue under the contract with HHS BARDA, funding requirements and capital raising activity, including possible proceeds from our At Market Issuance Sales Agreement entered into in October 2012, and funding under the Improvement Allowance and Loan Agreement;

our expectations on financial or business performance, conditions or strategies and other financial and business matters, including expectations regarding operating expenses, use of cash, and the fluctuations in expenses and capital requirements associated with pre-clinical studies, clinical trials and other research and development activities;

our expectations on clinical development and anticipated milestones, including contracts with HHS BARDA, LGLS and PATH, our planned clinical trials and regulatory filings, including receipt of accelerated approval status from the FDA, as necessary for our vaccine candidates;

our expectations that our vaccine candidates will prove to be safe and effective;

our expectations that our multivalent seasonal influenza VLP vaccine could potentially address an unmet medical need in two vulnerable populations - the pediatric and elderly;

our expectation that our pandemic (H5N1) influenza vaccine could potentially be developed without an adjuvant for population segments that are sensitive to adjuvant use;

our expectations that our RSV vaccine could potentially address unmet medical needs;

our expectations regarding the development by the JV, in India, of a rabies vaccine, including a planned Phase I clinical trial in 2013;

our expectation that we will utilize the amount of services that is required to be provided by Cadila under the master services agreement;

our expectations regarding payments to Wyeth;

our expectations concerning payments under existing license agreements; and

other factors referenced herein.

Any or all of our forward-looking statements in this Annual Report may turn out to be inaccurate. These forward-looking statements may be affected by inaccurate assumptions or by known or unknown risks and uncertainties, including the risks, uncertainties and assumptions identified under the heading "Risk Factors" in this Annual Report. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Annual Report may not occur as contemplated, and actual results could differ materially from those anticipated or implied by the forward-looking statements.

The Company assumes no obligation to update any such forward-looking statements, except as specifically required by law. We caution readers not to place considerable reliance on the forward-looking statements contained in this Annual Report.

Overview - Introduction

Novavax, Inc., a Delaware corporation (Novavax, the Company, we, or us), is a clinical-stage biopharmaceutical company focused on developing recombinant protein nanoparticle vaccines to address a broad range of infectious diseases. Our technology platform is based on proprietary recombinant vaccine technology that includes VLPs and recombinant protein micelle vaccines combined with a single-use bioprocessing production system. Our vaccine candidates are genetically engineered three-dimensional nanostructures that incorporate immunologically important recombinant proteins. Our product pipeline targets a variety of infectious diseases and our vaccine candidates are currently in or have completed clinical trials that target seasonal influenza, pandemic (H5N1) influenza and RSV.

CPL Biologicals Private Limited (the JV), which is owned 20% by us and 80% by Cadila, was established to develop and manufacture certain vaccine candidates, biogeneric products and diagnostic products for the territory of India. The JV operates a state-of-the-art manufacturing facility for the production of influenza vaccine and other vaccine candidates. The JV is actively developing a number of vaccine candidates that were genetically engineered by Novavax. The JV's seasonal influenza and pandemic influenza candidates began Phase I clinical trials in 2012. Also in 2012, the JV formed a new collaboration to develop a novel malaria vaccine in India with the International Centre for Genetic Engineering and Biotechnology. The JV's rabies vaccine candidate is expected to begin a Phase I clinical trial in India in 2013. We continue to account for our investment in the JV using the equity method. Since the carrying value of our initial investment was nominal and there is no guarantee or commitment to provide future funding, we have not recorded nor do we expect to record losses related to this investment in the future.

A current summary of our significant research and development programs and status of development follows:

Program                           Development Phase   Collaborator
Seasonal Quadrivalent Influenza   Phase II            HHS BARDA/LGLS
Pandemic (H5N1) Influenza         Phase I             HHS BARDA/LGLS
RSV                               Phase II            PATH1
Seasonal Trivalent Influenza      Phase I             JV
Pandemic (H1N1) Influenza         Phase I             JV
Rabies                            Pre-clinical        JV

1PATH is collaborating with us on a Phase II clinical trial to develop our RSV vaccine to protect newborn infants in low-resource countries from RSV through maternal immunization.


The FDA has published criteria for granting accelerated approval of a BLA for a new seasonal influenza vaccine. Under this guidance, developers that can demonstrate results that meet or exceed certain specified endpoint criteria in their clinical trials may, at the FDA's decision, be granted a license to market prior to conducting a traditional efficacy clinical trial. In adult populations under 65 years of age, these criteria are based on demonstration of seroconversion rates (the proportion of subjects with a four-fold rise in HAI titers or attaining titers of ?1:40 from a negative baseline) and seroprotection rates (the proportion of subjects with HAI titers ?1:40 post-vaccination) that are ?40% and ?70%, respectively, at the lower bound of the 95% confidence interval. Accelerated approval may be available as long as there is a shortage of seasonal influenza vaccine relative to the total population recommended to receive the vaccine, a situation that persists. The FDA expects that developers seeking accelerated approval of a BLA will diligently conduct postmarketing efficacy studies. Novavax continues to use and reference these accelerated approval seroconversion and seroprotection endpoints in developing its influenza vaccine candidates. The FDA has articulated the same immunogenicity criteria for accelerated approval of vaccines that address potential pandemic influenza strains. Because a controlled efficacy clinical trial of a pandemic vaccine candidate is not logistically or ethically possible, vaccine developers seeking accelerated approval will be required to provide evidence that a seasonal vaccine made by the same manufacturing process is efficacious. Thus, the demonstration of efficacy with a seasonal vaccine product provides a key link between the seasonal and pandemic programs.

Seasonal Influenza Vaccine

The CDC recommends that all persons aged six months and older should be vaccinated annually against seasonal influenza. In conjunction with these universal recommendations, attention from the 2009 influenza H1N1 pandemic has increased public health awareness of the importance of seasonal influenza vaccination, the market for which is expected to continue to grow worldwide in both developed and developing global markets.

In the coming years, many seasonal influenza vaccines are expected to be produced in a quadrivalent formulation (four influenza strains, two influenza A strains and two influenza B strains), as opposed to the current trivalent formulation (two influenza A strains and one influenza B strain). With two distinct lineages of influenza B viruses circulating, governmental health authorities have advocated for the addition of a second influenza B strain to provide added coverage. Current estimates for seasonal influenza vaccines growth in the top seven markets (U.S., Japan, France, Germany, Italy, Spain and UK), show potential growth from the current market of approximately $3.6 billion to $4.7 billion over the next ten years. Recombinant seasonal influenza vaccines, like the candidate we are developing, have an important advantage; once licensed for commercial sale, large quantities of vaccine can be quickly and cost-effectively manufactured without the use of either the live influenza virus or eggs.

Top-line data from our most recent Phase II clinical trial for our quadrivalent influenza vaccine candidate were announced in July 2012. In that clinical trial, our quadrivalent VLP vaccine candidate demonstrated immunogenicity against all four viral strains based on HAI responses at day 21, and was also well-tolerated with no vaccine-related serious adverse events observed and had acceptable reactogenicity. Our vaccine candidate met the FDA accelerated approval seroprotection rates criterion for all four viral strains. The potential to fulfill the seroconversion rates criterion was demonstrated for three of the four viral strains. The fourth strain, B/Brisbane/60/08, despite fulfilling the seroprotection criterion, failed to demonstrate a satisfactory seroconversion rate. Our activities with respect to our seasonal influenza vaccine candidate have been, and are, focused on identifying the manufacturing process to ensure consistent and enhanced immune responses in all strains. Over the last six months we've made significant progress and expect to finalize our manufacturing process by mid-year 2013. During the second half of 2013, we expect to begin manufacturing product for our next Phase II clinical trial.

Pandemic (H5N1) Influenza Vaccine

In the aftermath of the 2009 H1N1 influenza pandemic, recognition of the potential devastation of a human influenza pandemic remains a key priority with both governmental health authorities and influenza vaccine manufacturers. In the U.S. alone, the 2009 H1N1 pandemic led to the production of approximately 126 million doses of monovalent (single strain) vaccine. Public health awareness and government preparedness for the "next" potential influenza pandemic is driving development of vaccines that can be quickly manufactured against a potentially threatening influenza strain. Industry and health experts have focused attention on developing a monovalent H5N1 influenza vaccine as a potential key defense of the next pandemic threat.

During 2012, we made significant progress in the development of our pandemic (H5N1) influenza vaccine candidate. In May 2012, we launched two Phase I clinical trials of our pandemic (H5N1) vaccine candidate in combination with two different adjuvants, both of which are designed to improve the immunogenicity of vaccines at lower doses and thus provide antigen dose-sparing. These clinical trials evaluated the safety and tolerability of the vaccines and the ability of VLP vaccine antigens with and without adjuvants to generate antibody levels that we believe fulfill the FDA's criteria for accelerated approval, and the ability of these vaccines to provide an expanded number of doses, with possible cross-protection against other virus strains to the U.S. population. In October 2012, we reported positive results from these clinical trials with top-line data demonstrating safety and immunogenicity of varying dose-levels of the vaccine, with and without adjuvant, and further demonstrating statistically significant robust adjuvant effects on immune response. Notably, our unadjuvanted vaccine candidate elicited HAI titers ? 40 in >82% of subjects at a dose of 45g. This response would fulfill the FDA's influenza criteria for accelerated approval of a BLA as further described under the heading "Influenza" above.

HHS BARDA Contract for Recombinant Influenza Vaccines

HHS BARDA awarded us a contract in February 2011, which funds the development of both our seasonal and pandemic (H5N1) influenza vaccine candidates. The contract, valued at $97 million for the first three-year base-period and $82 million for an HHS BARDA optional two-year period, is a cost-plus-fixed-fee contract in which HHS BARDA reimburses us for allowable direct contract costs incurred plus allowable indirect costs and a fixed-fee earned in the ongoing clinical development and product scale-up of our multivalent seasonal and monovalent pandemic (H5N1) influenza vaccines. We recognized revenue of approximately $20.1 million in 2012, and have recognized approximately $34.8 million in revenue since the inception of the contract in 2011.

In December 2012, HHS BARDA completed a contractually-defined IPR of our contract. This IPR was conducted by an inter-governmental-agency panel of experts from government agencies including HHS BARDA, FDA, CDC and the National Institutes of Health, who provided input on our progress during the contract base-period and plans for further development, including both near-term process development and manufacturing activities and longer-term clinical efforts. HHS BARDA subsequently notified us in January 2013 that the milestone decision has been made to continue to support our vaccine advanced development contract.

Under certain circumstances, HHS BARDA reimbursements may be delayed or even potentially withheld. In March 2012, we decided to conduct a Phase II clinical trial of our quadrivalent influenza vaccine candidate (the 205 Trial) under our existing U.S. investigational new drug application (IND) for our trivalent seasonal influenza vaccine candidate as opposed to waiting to conduct this clinical trial under a new IND for our quadrivalent vaccine candidate (Quadrivalent IND). Based on our discussions with HHS BARDA in 2012, the outside clinical trial costs for the 205 Trial may only be submitted for reimbursement to HHS BARDA and recorded as revenue by us after we submit the clinical trial data in a future Quadrivalent IND. The filing of the Quadrivalent IND is expected shortly before we initiate the next Phase II dose-confirmatory clinical trial, which has been delayed due to the development activity associated with improving the seroconversion response of one of the four strains. The outside clinical trial costs of the 205 Trial are approximately $3.1 million in total, of which $3.0 million was incurred through December 31, 2012. These costs have been recorded as an expense and are included in cost of government contracts revenue.

LGLS License Agreement

In February 2011, we entered into a license agreement with LGLS that allows LGLS to use our technology to develop and commercially sell our influenza vaccines in South Korea and certain other emerging-market countries. LGLS received an exclusive license to our influenza VLP technology in South Korea and a non-exclusive license in the other specified countries. At its own cost, LGLS is responsible for funding its clinical development of the influenza VLP vaccines and completing a manufacturing facility in South Korea. We received an upfront payment and may receive reimbursements of certain development and product costs, payments related to the achievement of certain milestones and royalty payments at a rate of 10% from LGLS's future commercial sales of influenza VLP vaccines, which royalty rate is subject to reduction if certain timelines for regulatory licensure are not met.

Respiratory Syncytial Virus (RSV)

RSV is a widespread disease that causes infections of the lower respiratory tract. While RSV affects persons of all ages, it acutely impacts infants, young children, the elderly, and others with compromised immune systems. Current estimates indicate that RSV is responsible for over 30 million new acute lower respiratory infection episodes and between 150,000 and 200,000 deaths in children under five years old. In the U.S., nearly all children become infected with RSV before they are two years old; it has been associated with 20% of hospitalizations and 15% of office visits for acute respiratory infection in young children. WHO estimates that the global disease burden for RSV is 64 million cases. Because there is no approved prophylactic vaccine, the unmet need of an RSV vaccine has the potential to protect millions of patients from this far-reaching disease.

We are developing a vaccine candidate to prevent RSV and are looking at susceptible target populations that include the elderly, young children and newborns who may receive protection through antibodies transferred from their mothers who may be immunized during the last trimester of pregnancy. In October 2011, we announced the results of our first Phase I clinical trial to assess the safety and tolerability of our RSV vaccine candidate, and to evaluate total and neutralizing anti-RSV antibody responses and the impact of an aluminum phosphate adjuvant. Along with positive safety results, the antibody response to the RSV F protein was significantly increased compared to placebo (p<0.001) in all dose groups and increased by 19-fold in the highest-dose adjuvant group at day 60. A significant dose-response pattern was observed with high rates of seroconversion at all doses including a rate of 100% at the highest-dose adjuvant group. In October 2012, we initiated two separate dose-ranging clinical trials, one in women of child bearing age, which initiates our goal of developing a vaccine for maternal immunization of pregnant women, and the other in elderly adults, which initiates our goal of developing a vaccine for the elderly. The first clinical trial is a randomized, blinded, placebo-controlled Phase II clinical trial that will evaluate the safety and immunogenicity of two dose levels of our RSV vaccine candidate with and without an aluminum phosphate adjuvant, enrolling 330 women of childbearing age. The second clinical trial is a randomized, blinded, placebo-controlled Phase I clinical trial that will evaluate the safety and immunogenicity results of 220 enrolled adults, 60 years of age and older, who received a single intramuscular injection of our RSV vaccine candidate (with and without an aluminum phosphate adjuvant) or placebo plus a single dose of licensed influenza vaccine or placebo at days 0 and 28. Top-line results from both clinical trials are expected to be reported in the first half of 2013. The design and timing of subsequent clinical trials will be determined after these data are analyzed. Our expected path forward in maternal immunization would include a dose-confirmation clinical trial in women of child-bearing age. In parallel, and in consultation with the FDA, we would expect to initiate a reproductive toxicology study to confirm the safety of our proposed formulation in advance of vaccinating pregnant women. For the elderly, the path forward would likely be to design a Phase II clinical trial.

PATH Clinical Development Agreement

In July 2012, we entered into a clinical development agreement with PATH to develop our vaccine candidate to protect against RSV through maternal immunization in low-resource countries (the "RSV Collaboration Program"). We were awarded approximately $2.0 million by PATH for initial funding under the agreement to partially support our Phase II dose-ranging clinical trial in women of childbearing age as described above. The agreement expires July 31, 2013, unless we and PATH decide to continue the RSV Collaboration Program. We retain global rights to commercialize the product and have made a commitment to make the vaccine affordable and available in low-resource countries. To the extent PATH has continued to fund 50% of our external clinical development costs for the RSV Collaboration Program, but we do not continue development, we would then grant PATH a fully-paid license to our RSV vaccine technology for use in pregnant women in such low-resource countries.


Rabies is a disease that causes acute encephalitis, or swelling of the brain, in warm-blooded animals including humans. The disease can be transmitted from one species of animal to another, such as from dogs to humans, most commonly by a bite from an infected animal. For humans, rabies left untreated is almost invariably fatal. WHO has estimated that the highest public health financial expenditure in any country is the cost of rabies post-exposure prophylaxis. In Asia and Africa, estimates show a combined 55,000 annual human deaths from endemic canine rabies, with annual treatment costs approaching $600 million, although human deaths from rabies are likely to be grossly underreported in a number of countries, particularly in the youngest age groups. In India alone, 20,000 deaths are estimated to occur annually. Internal market data of vaccine manufacturers suggest that at the global level, ?15 million people receive rabies prophylaxis annually, the majority of whom live in China and India. It is estimated that in the absence of post-exposure prophylaxis, about 327,000 persons would die from rabies in Africa and Asia each year. Marketed rabies vaccine is mostly used for post-exposure prophylaxis that requires generally between four and five administrations of vaccine. Pre-exposure prophylaxis is recommended for anyone who will be at increased risk to the rabies virus, including travelers with extensive outdoor exposure in rural high-risk areas.

The JV is currently developing a rabies vaccine candidate that we genetically engineered. The JV expects to initiate Phase I clinical trial in India in 2013. Our objective is to develop a recombinant vaccine that can be administered as a pre-exposure prophylaxis for residents of certain higher-risk geographies, as well as travelers to such locations, and with the potential to provide post-exposure prophylaxis with fewer doses. Preliminary pre-clinical results have demonstrated that this vaccine candidate successfully prevents the rabies virus from entering the central nervous system, thus preventing death.

Sales of Common Stock

In 2012, we completed two separate offerings to sell over 12 million and 10 million shares of common stock. In October 2012, we sold 12,385,321 shares of its common stock to RA Capital Management, LLC (RA Capital), Camber Capital Management LLC and Ayer Capital Management LLC at a price of $2.18 per share, resulting in approximately $27 million in net proceeds. In May 2012, we sold 10,000,000 shares of our common stock to RA Capital at a price of $1.22 per share, resulting in approximately $12.2 million in net proceeds. In both cases, the shares were offered under an effective shelf registration statement previously filed with the SEC.

The Board of Directors of the Company (the "Board") has appointed a standing Finance Committee (the "Committee") to assist the Board with its responsibilities to monitor, provide advice to senior management of the Company and approve all capital raising activities. The Committee has been authorized by the Board to approve all At Market Issuance sales transactions. In doing so, the Committee sets the amount of shares to be sold, the period of time during which such sales may occur and the minimum sales price per share. In October 2012, the Company entered into an At Market Issuance Sales Agreement (2012 Sales Agreement), under which the Company may sell an aggregate of $50 million in gross proceeds of its common stock. This agreement replaces the previous and terminated At Market Issuance Sales Agreement entered in March 2010 (2010 Sales Agreement), which also allowed for the sale of an aggregate of $50 million in gross proceeds of its common stock, but had recently met its limitation of sales of shares. The shares of common stock are being offered pursuant to a shelf registration statement filed with the SEC. During 2012, the Company sold 8.4 million shares at an average sales price of $1.70 per share, resulting in $14.0 million in net proceeds; this amount excludes $0.8 million received in early 2012 for 0.7 million shares traded in late December 2011. The Company sold a total 24,957,715 shares of its common stock and received gross proceeds of $49.9 million under the 2010 Sales Agreement.

Critical Accounting Policies and Use of Estimates

The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.

The preparation of our financial statements requires us to make estimates, assumptions 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 revenue and expenses during the reporting period. These estimates, particularly estimates relating to accounting for revenue, the valuation of our investments, stock-based compensation, long-lived assets, goodwill and estimated recovery of our net deferred tax assets 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.


We primarily derive revenue from a cost-plus-fixed-fee contract in which HHS BARDA will reimburse us for allowable direct contract costs incurred plus allowable indirect costs and a fee earned in the further development of our seasonal and pandemic (H5N1) influenza vaccines. Revenue on this cost-plus-fixed-fee contract is recognized as such costs are incurred plus a portion of the fixed-fee earned. Billings under the contract are based on approved provisional indirect billing rates, which permit recovery of fringe benefits, overhead and general and administrative expenses not exceeding certain limits. Payments to the Company under cost reimbursable contracts with agencies of the U.S. Government, including our contract with HHS BARDA, are provisional payments subject to adjustment upon annual audit by the government. An audit by the government of fiscal year 2011 has been initiated, but has not been completed as of the date of this filing; however, management believes that revenue for periods subject to audit has been recorded in amounts that are expected to be realized upon final audit and settlement. When the final determination of the allowable costs for any year has been made, revenue and billings may be adjusted accordingly.


Our investments are classified as available-for-sale securities and are carried at fair value. Unrealized gains and losses on these securities, if determined to be "other-than-temporary," are included in accumulated other comprehensive income (loss) in stockholders' equity. Investments are evaluated periodically to determine whether a decline in value is other-than-temporary. Management reviews criteria, such as the magnitude and duration of the decline, as well as the . . .

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