UNITED STATES
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
For the Fiscal Year Ended December 31, 1997
2000
Commission File No. 0-26770
NOVAVAX, INC.
(Exact
Delaware (State or other jurisdiction of incorporation or organization) | 22-2816046 (I.R.S. Employer Identification No.) | |
8320 Guilford Road, Columbia, Maryland | 21046 | |
| (Address of principal executive offices) | (Zip code) |
Registrant’s telephone number, including area code:(301) 854-3900
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class: | Name of each exchange on which registered | |
Common Stock ($.01 par value) | American Stock Exchange |
Securities registered pursuant to Section 12(g) of Each Class: Name of each exchange on which registered:
COMMON STOCK ($.01 PAR VALUE) AMERICAN STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Nonethe Act:NONE
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 X
No -------- --------
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 registrant'sregistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ------
The aggregate market value of 9,501,99618,675,548 shares of the registrant'sregistrant’s Common Stock, par value $.01 per share, held by non-affiliates of the registrant at March 20,
1998,16, 2001, as computed by reference to the closing price of such stock, was approximately $42,758,982.$157,808,381.
The number of shares of the registrant'sregistrant’s Common Stock, par value $.01 per share, outstanding at March 20, 199816, 2001 was 12,060,44322,247,533 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
Documents Incorporated By Reference
Portions of the 1998 Novavax, Inc.Registrant’s Proxy Statement to be filed not later than 120 days after December 31, 2000, in connection with the Registrant’s 2001 Annual Meeting of Stockholders, referred to herein as the “Proxy Statement,” are incorporated by reference into Part III of this Form 10-K. Certain exhibits filed with the Registrant’s prior registration statements and period reports under the Securities Exchange Act of 1934 are incorporated herein by reference into Part IV of this Report.
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PART I
ITEM
Item 1. BUSINESSBusiness
The discussion of our business contained in this annual report on form 10-K may contain certain projections, estimates and other forward-looking statements that involve a number of risks and uncertainties, including those discussed below at “Risks and Uncertainties.” While this outlook represents management’s current judgment on the future direction of the business, such risks and uncertainties could cause actual results to differ materially from any future performance suggested below. We undertake no obligation to release publicly the results of any revisions to these forward-looking statements to reflect events or circumstances arising after the date of this annual report.
Overview
Novavax, Inc. ("Novavax"(“Novavax”, “we”, “our”, or the "Company"“Company”) is a specialty biopharmaceutical drug delivery
company engaged in the research, development and commercialization of proprietary products focused on women’s health and infectious diseases. We were incorporated in Delaware in 1987. Our principal executive offices are located at 8320 Guilford Road, Columbia, Maryland 21046.
Through a series of strategic initiatives, Novavax has evolved from a technology-based biotechnology company into a fully integrated pharmaceutical company. These strategic initiatives have included the:
| • | Acquisition of a profitable women’s healthcare pharmaceutical company; | |
| • | Acquisition of a fully staffed vaccine manufacturing and development operation; | |
| • | Expansion of our women’s healthcare product lines through product purchases and co-promotion agreements; | |
| • | Completion of a pivotal Phase III clinical trial for our estrogen replacement product, ESTRASORB™. |
These initiatives were funded through two private placements of our common stock in 1999 and 2000 and the issuance of a convertible note in 2000.
Recent Developments
Fielding Pharmaceutical Company Acquisition
In December 2000, we acquired the privately owned Fielding Pharmaceutical Company (“Fielding”), based in St. Louis, Missouri, which sells, markets and distributes a proprietary line of pharmaceutical products focused on women’s health. Under the terms of the acquisition agreement, we acquired 100% of the outstanding shares of Fielding for $31.5 million, consisting of $13 million in cash and 2,312,501 shares of Novavax common stock, valued at $18.5 million. An additional $5 million in either Novavax common stock or cash will be paid to former Fielding shareholders in March 2002.
Fielding was established in 1959 and markets women’s healthcare products nationally to obstetricians and gynecologists through its sales force of over 60 personnel. Fielding’s products included Nestabs®, a complete line of pre-natal vitamins; Gynodiol®, an oral form of estrogen replacement therapy, as well as several other over-the-counter (“OTC”) women’s healthcare products. We intend to use Fielding to sell, market and distribute additional future products. Fielding fills, packages and warehouses all of its own products, which are purchased from contract manufacturers.
Biomedical Services Laboratory Acquisition
In August 1999, we acquired substantially all of the assets of the Biomedical Services Laboratory (“BSD”) division of DynCorp of Reston, Virginia. The total consideration and direct costs for the acquisition were $860,000. The research and development activities of BSD are conducted in an approximately 12,000 square foot facility located in Rockville, Maryland. BSD is engaged in contract research, development and pilot manufacturing of human vaccines for government laboratories, principally National Institutes of Health (“NIH”), and other vaccine companies.
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King Pharmaceuticals, Inc. Transactions
In December 2000, King Pharmaceuticals, Inc., (“King”) agreed to make a $25 million convertible note investment in Novavax. The note is convertible into Novavax Common Stock at $10.00 per share. The note carries a 4% coupon payable semi-annually in cash and stock. As part of the transaction, we received $20 million in December 2000 and will receive an additional $5 million when we file a New Drug Application (“NDA”) for our topical transdermal estrogen replacement therapy, ESTRASORB™, expected to be filed in the first half of 2001. We used a portion of the funds to complete our acquisition of Fielding and will use the balance for general operating purposes. In January 2001, we also signed a co-promotion agreement with King for ESTRASORB™, in the United States. In addition, we will combine U.S. sales efforts with King to begin co-promoting one of King’s products already on the market, Nordette®, a birth control pill. In another agreement, we also acquired AVC™ Cream and Suppositories from King in January 2001, for $3.3 million, which has been marketed by King for the treatment of vaginal bacterial infections.
Our Products and Product Candidates
The tables below provides a summary of our products and product development candidates which are discussed in further detail herein:
Women’s Health Products
| Product | Indications | Status | ||
| Nestabs® | Prescription Pre-Natal Vitamins | Marketed | ||
| Gynodiol® | Oral Estrogen Replacement Therapy | Marketed | ||
| Vitelle® | OTC Women’s Health Products | Marketed | ||
AVC™ | Vaginal Bacterial Infection | Marketed | ||
| Nordette® (co-promote) | Birth Control Pill | Marketed | ||
ESTRASORB™ | Transdermal Lotion for Estrogen replacement | Phase III | ||
ANDROSORB™ | Transdermal Lotion for Testosterone replacement | Phase I/II | ||
ANDRO-JECTTM | Injectable Testosterone Therapy | Preclinical |
Infectious Disease Vaccines
| Product | Collaboraton/Partner | Status | ||
| Human Papillomavirus (“HPV16”) VLP (mono) | NIH/King | Phase II | ||
| Hepatitis E Vaccine | NIH | Phase I | ||
| Dengue Type 4 | NIH | IND | ||
| Malaria MSP-1 | NIH/SAIC | Preclinical | ||
| Influenza Vaccine | King | Preclinical | ||
| HPV16 (chimeric) | NIH/King | Preclinical |
Product Development Programs
Our product development efforts are focused on the research and development of proprietary topicaldrug delivery and oral
drug deliveryvaccine technologies and the applications of those technologies. The
Company'sOur technology platforms involve the use of proprietary, microscopic, organized, lipidnon-phospholipid structures as vehicles for the delivery of a wide variety of drugs and other therapeutic products, including certain hormones, anti-bacterial and anti-viral products and vaccine adjuvants. The Company recently formed two operating divisions, NOVAVAX PHARMACEUTICAL
DIVISION (the "PHARMACEUTICAL DIVISION")These technology platforms support three product development programs: hormone replacement therapies, third party drug delivery and NOVAVAX BIOLOGICS DIVISION (the
"BIOLOGICS DIVISION"). This reorganizationvaccine adjuvant applications. In addition, BSD is intended to streamline operationsengaged in contract research and give each business division dedicated resources, stronger focus,development and tighter
management. The PHARMACEUTICAL DIVISION utilizes a rangePhase I and Phase II vaccine manufacturing of microencapsulation
technologies to develop novel biopharmaceuticals, often reformulating existing,
approved drugs for topical delivery in cosmetic-like cream formulations. Its
strong technology provides a basis for development of novel products while
utilizing resources with little short term opportunity for immediate revenue.
The BIOLOGICS DIVISION is a revenue center focused onhuman vaccines adjuvants and
anti-infectives. It has business objectives focused on generating contract
revenues and providing research for the PHARMACEUTICALS DIVISION.Company’s own use, for government laboratories and for other vaccine companies.
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Hormone Replacement Therapies. The BIOLOGICS
DIVISION has historically entered into contractual arrangements which usually
provide upfront and milestone payments as compensation during development
contracts. These contracts may also provide for potential license and royalty
fees. Currently the BIOLOGICS DIVISION is working under contract on several
governmental and private sector programs in the fields of vaccines and
biological defense systems. These contracts include development of an adjuvant
for an immunotherapeutic against the human papilloma virus for a British vaccine
company and a subcontractor agreement with University of Michigan who is
supplying anti-infective defense systems against biological warfare agents for
the U.S. military. They are anticipated to generate approximately $.5 million
in revenue in 1998 with potential revenue opportunities beyond 1998.
The Company has threeCompany’s hormone replacement therapy program includes its two lead pharmaceutical product candidates: ESTRASORB, a
topical estrogen cream, and ANDROSORB, a topical testosterone creamcream. ESTRASORB, a topical lotion for estrogen replacement therapy is the company’s lead product candidate, and Helicore, an
oral, non-antibiotic, anti-bacterial preparation foremploys Novavax’s proprietary micellar nanoparticle (“MNP”) technology. ESTRASORB’s MNP formulation is designed to deliver 17ß estradiol, a naturally occurring hormone, through the treatment of
Helicobacter pylori infection. These products areskin, when applied topically in various phases of clinical
development.lotion form. The Company has completed animalvarious preclinical and human safety studies for both ESTRASORB and ANDROSORBANDROSORB. The Company completed a multi-center Phase III study of ESTRASORB, during the first quarter of 2001. The study was designed to measure ESTRASORB’s ability to deliver estradiol through the skin, when applied as a topical lotion. The randomized, double-blind, placebo controlled trial enrolled a total of 200 women either on placebo or ESTRASORB who underwent a 13 week course of treatment. The study results indicate that there is a statistically significant difference between ESTRASORB and placebo treatment with respect to the trial’s primary clinical endpoint, a reduction in the number of hot flushes. We intend to file an NDA for ESTRASORB in the first half of 2001. The Company has other clinical studies underway. Currently,
several formulationsalso completed Phase I safety study in men of Helicore areANDROSORB; Phase II trials in animal and human safety studies.
Althoughtestosterone deficient women were completed in the fourth quarter of 2000. In addition, the Company beganis undergoing preclinical development of its pharmaceutical product
candidates later than,ANDRO-JECT, a depot delivery of testosterone for testosterone deficient men. The Investigational New Drug application (“IND”) for ANDRO-JECT is expected to be filed in the first half of 2001.
Third Party Drug Delivery and Vaccine Adjuvant Applications.Formulations of the Company’s lipid technologies are expected to have broad application as byproductsvehicles for the encapsulation and delivery of drugs developed by other companies. Moreover, the Company believes that certain of its organized lipid structures may provide effective and safe adjuvant carrier systems for a variety of vaccines. The Company plans to leverage these technologies by licensing its drug delivery, encapsulation and adjuvant technologies to third parties for specific therapeutic indications.
Vaccine Development. BSD is involved in three areas of vaccine development: virology, tissue culture and molecular virology. BSD’s experimental virology research and development may lead to live virus vaccine production in the embryonated hens’ eggs and in designated tissue culture systems. Tissue culture involves the growth, maintenance and characterization of cell systems as potential substrates for virus growth and vaccine production as well as cell systems for safety testing, plaque-purification and virus titers. BSD’s work in molecular virology involves recombinant DNA cloning of viral and human genes, protein expression of these genes in prokaryotic and eukaryotic systems including baculoviruses, protein purification of the recombinant protein products, and biophysical characterization of recombinant proteins leading to vaccine and related product development.
Anti-Microbial Agents. The Company is also applying its primary emphasis is nowlipid technologies to develop anti-microbial agents that are capable of acting on these pharmaceuticalviruses, bacteria, spores and sperm. Potential product candidates include Helicore®, an oral anti-bacterial preparation for the following reasons:
- Much larger potential markets
- Measurementstreatment of clinical efficacy are more easily defined
- The Company's belief that resources should be focused on few initiatives
that may offer the best potential return on investment.
Consistent with prudent use of the Company's limited cash resources, the
clinical development programs for oral active vaccine immunization programs,
ECOVAX 0157JHelicobacter pylori(“H. Pylori”) infection, and Shigella flexneri 2a, were suspended late in 1996 in favor of
the development of its three lead pharmaceuticaltwo anti-microbial agents targeting biological threat agents such as Bacillus anthracis and influenza A, respectively, as well as a spermicide product candidates. The Company
submitted dose ranging clinical study plans for both ESTRASORB and Helicore to
the FDA in 1997. The Company has the potential, dependent on future capital, to
develop other human pharmaceutical products utilizing its proprietary drug
delivery platform technologies. It has several such products in various stages
of pre-clinical development.
Novavax, Inc. was incorporated in Delaware in 1987. On December 12, 1995,
the Company's former parent, IGI, Inc. ("IGI") distributed its majority
interest in Novavax to the IGI stockholders (the "Distribution"). Until then,
Novavax had been the human pharmaceuticals subsidiary of IGI. The Company's
principal executive offices are located at 8320 Guilford Road, Columbia,
Maryland, 21046.
THE NOVAVAX TECHNOLOGY PLATFORMScandidate.
Product Technology Platforms
Novavax has developed proprietary topical, oral and oralinjectable drug delivery technologies using microscopic, organized, non-phospholipid structures, including Novasome® non-phospholipid vesicles (“Novasomes”), MNP’s and non-antibiotic, anti-microbial lipid structures (collectively, the "Novavax Technologies"). To
date, theemulsions. The Company has utilized its technologies in the development of
Novasome(R) lipid vesicles and micellar nanoparticles, which are sub-micron size
lipid structures that also possess encapsulation capabilities. Thesebelieves these structures may help withbe useful for targeted delivery and controlled release. Therelease of certain drugs, along with inactivation of bacteria, enveloped viruses, spores and sperm. Moreover, the Company believes that certain of its technologiesorganized lipid structures may allowprovide effective and safe adjuvant carrier systems for a more cost-effective delivery of a wide variety of drugs andvaccines.
Although other therapeutics than phospholipid liposomes and other delivery
vehicles. Itscompanies have developed liposome technologies, may be preferred over other transdermal delivery
systems because of the reduction in side effects, primarily skin irritation.
Additionally, future applications may show advantages over injectable delivery
technologies which are invasive, inconvenient and sometimes painful.
Mostmost commercial liposomes are composed of delicate phospholipids. Due to their inherent lack of stability and carrying capacity, limitations,only a limited number of drugs may be used with these phospholipid liposomes. While capable of encapsulating certain (principally water soluble)water-soluble) drugs, phospholipid liposomes have a number of other significant disadvantages including their expense and the
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The Company believes its non-phospholipid technologies may allow for a more cost-effective delivery of liposomes.
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a wider variety of drugs and other therapeutics than commercially available phospholipid liposomes and other delivery vehicles. Its technologies may also be preferred over other available transdermal delivery systems because its technologies may reduce side effects such as skin irritation. Future applications may show advantages over injectable delivery technologies, which are invasive, inconvenient and sometimes painful. In addition, the Company’s anti-microbial lipid emulsions may avoid the problem of pathogen mutation and resistance because of their non-antibiotic method of action.
Novasome lipid vesicles
Novasome lipid vesiclesNon-Phospholipid Vesicles. Novasomes are proprietary organized, lipid structures in which drugs or other materials maycan be encapsulated for delivery into the body topically or orally. Novasome lipid vesiclesNovasomes are made using the Company'sCompany’s patented manufacturing processprocesses from a variety of readily available chemicals called amphiphiles, which include fatty alcohols and acids, ethoxylated fatty alcohols and acids, glycol esters of fatty acids, glycerol fatty acid mono and diesters, ethoxylated glycerol fatty acid esters, glyceryl ethers, fatty acid diethanolamides and dimethyl amides, fatty acyl sarcosinates, alkyds and alkyds as well
as phospholipids.
The Company entered intoplans to commercialize its Novasome technology in part through products it develops itself and in part through third party drug delivery application licenses. The Company believes that certain of its organized lipid structures may provide effective and safe adjuvant carrier systems for a licensing agreement with IGI, the
Company's former parent, in December 1995 entitling IGI to the exclusive use of
the Novavax Technologies in certain fields. Currently, IGI uses Novasome lipid
vesicles in a wide variety of cosmetic applications, including products sold by
Estee Laudervaccines. In addition, the Company has developed structures for delivery of biologically active molecules like antisense, genes and Revlon. The Company retains rights to Novasome lipid vesicle
technologies for use in human pharmaceuticals except for topical dermatological
products for localized usage at the delivery zone.
proteins.
Micellar Nanoparticles
Micellar nanoparticles ("MNPs")Nanoparticle Emulsion. MNPs are proprietary, submicron-sized, water miscible, lipidnon-phospholipid structures that have different structural characteristics and are generally smaller than Novasome lipidnon-phospholipid vesicles. MNPs,MNP’s, like Novasome lipidnon-phospholipid vesicles, are derived from amphiphileamphiphilic molecules.
Novavax scientists have demonstrated the abilitythat MNP’s are able to incorporate alcohol soluble drugs, and pesticides, vaccine adjuvants, proteins, whole viruses, flavors, fragrances and colors into MNPs. MNPscolors. MNP’s also have the ability to entrap ethanol or methanol soluble drugs, and to deliver certain of these drugs transdermally through intact skin. The MNP formulations used by Novavax for the transdermal delivery of drugs have cosmetic properties likesimilar to creams and lotions. There may be inherent
advantagesThese transdermal formulations have the advantage over injectable delivery systems which areof being less invasive andand/or inconvenient and overthe may also cause less skin irritation than patch transdermal delivery systems. MNP’s are the fundamental technology platform for Novavax’s hormone replacement therapies.
Vaccine Research and Development
BSD is engaged in contract research, development and pilot manufacturing of human vaccines for the Company’s own use and for government laboratories and other vaccine companies. The Director of our vaccine programs is Louis Potash, Ph.D., one of the original scientists to work on both the Salk-type inactivated polio vaccines and inactivated whole influenza virus vaccines during the 1950s. This acquisition significantly expanded Novavax’s internal vaccine developmental capabilities and allows the Company to combine its adjuvant technology with BSD’s 35 years of experience in developing and manufacturing vaccines.
BSD’s facility is a vaccine research and development laboratory producing Phase I and II clinical materials in accordance with the FDA’s current Good Manufacturing Practice (“cGMP”) regulations. The facility develops and produces live virus suspensions and vaccines and recombinant proteins from baculovirus infected insect cells and E. coli for government, industrial pharmaceutical, biotech and academic clients at lab bench and pilot production scales. Services include experimental vaccine development,in vivoandin vitrovaccine safety testing, large-scale virus seed pool production in tissue culture and embryonated hens’ eggs, the production and testing of tissue culture systems, and final container filling in ampules, in cryules and in aluminum-crimped cap vials. Additionally,
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BSD is one of the few locations in the world that produces experimental live viral vaccines for Phase I and II clinical trials. Our professional expertise lies in live virus suspensions (both attenuated and wild type), recombinant live virus suspensions, inactivated virus suspensions, recombinant baculovirus expression, recombinant virus-like particles (“VLP”s), recombinant protein purification, and cancer immunotherapeutics. VLP’s are non-infectious, self-assembled macro-molecules comprised of viral capsid proteins that elicit neutralizing antibodies and cellular immune response. Novavax has developed several VLP’s using its proprietary design and manufacturing processes.
Some of our recent achievements in the vaccine field include:
| • | More than 200 final virus vaccines for clinical studies with no untoward effects, including those for influenza, parainfluenza, rotaviruses and vaccinia recombinants | |
| • | The development of several Phase I therapeutic cancer vaccines | |
| • | The development of VLP’s subunit vaccines for human caliciviruses, rotaviruses, human papillomavirus, hepatitis and others |
Virology Laboratory
The virology laboratory, has produced and safety tested experimental live virus vaccines and suspensions propagated in tissue cultures and in embryonated hens’ eggs for the NIH, commercial, and academic clients since 1964. The laboratory, currently staffed by a senior staff scientist/co-Principal investigator and five research technicians, has produced and safety tested over 200 live virus vaccines and suspensions. These vaccines have consisted of wild type parent strains as well as attenuated and/or mutant strains of viruses such as rotaviruses (human, human X bovine, human X rhesus, and human x human reassortants), influenza viruses (human H3N2, H1N1, H2N2 and B; avian and avian X human reassortants), respiratory syncytial viruses (subgroups A and B), parainfluenza viruses (human types 1, 2 and 3; bovine type 3), dengue, cytomegalovirus, and vaccinia virus recombinants. Release/ Manufacturing Protocols, written in a format suitable for submission to the FDA as part of IND applications, are submitted to the Regulatory Affairs Branch of the sponsoring organization. The majority of the virus suspensions and vaccines produced have received FDA approval for use in Phase I and II clinical studies. The rotaviruses have been administered orally, whereas the respiratory viruses (influenza, parainfluenza and respiratory syncytial viruses) have been administered intranasally in newborns as well as in geriatric populations and in-between age groups. Other viruses studied include herpes, hepatitis A, hepatitis B, Coxsackie, polioviruses and bovin virus diarrhea virus (“BVD”).
The virology laboratory possesses its proprietary characterized and patented African Green monkey kidney cell line used for the production of experimental live virus fluids and vaccines as well as for virus isolation from human specimens such as nasal swabs, throat washes and feces. This serially passaged monkey kidney cell line has a Master Drug File with the FDA, as does the proprietary characterized Merieux line of Vero cells. In addition, BSD has stocks of other similarly characterized cell lines suitable for virus vaccine production such as FRhL-2 and CV-1 cells as well as many other cell lines suitable for research and development efforts and for diagnostic purposes. BSD has the capability for final container filling in ampules, in cryules, in screw cap vials, and in aluminum crimped-cap vials in its newly renovated and validated filling room.
Molecular Virology Laboratory
The molecular virology laboratory, under the direction of Dr. Robin Robinson, is staffed by three senior scientists, and four research technicians. The scope of the laboratory expertise ranges from molecular DNA cloning to protein production and purification from prokaryotic and eukaryotic expression systems to biophysical characterization of protein molecules. These expression systems include numerous plasmids in E. coli, baculovirus in insect cells, and semliki forest virus, adenovirus, and other virus expression in mammalian cells including primate and human cells. Proprietary insect lines for production of clinical materials have been developed and validated.
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Cloning genes of interest is performed in BSD’s plasmid and viral vectors, which often cause skin irritation.
NOVAVAX PRODUCT CANDIDATES
Topical Drug Deliveryare designed for maximal protein expression and to facilitate protein purification and formulation. Cell fermentation in BSD’s proprietary cell lines ranges from 50 milliliter shaker flasks to 30 liter bioreactors. Protein purification utilizes conventional, expanded bed adsorption, and affinity–TAG chromatographic techniques using FPLC and HPLC systems. Development and production VLPs from multiple virus systems are available for single and chimeric-particles. Available analytical methods for protein characterization include gel electrophoresis, immunodetection by Western blotting and quantitative ELISA, glycosylation analyses by DIG-labeling glycan binding assays, immunoelectro-focusing, quantitative HPLC methods, peptide mapping, automated amino acid sequencing and composition determination, and mass spectroscopy. Other capabilities include virus removal from hybridoma and ascites fluids. These services represent a comprehensive program to deliver genes from the lab bench to vectors compatible for commercial production to express high levels of recombinant proteins as secreted and/or intracellular molecules, and to purify these proteins to homogeneity by technology easily transferred to large-scale commercial production.
Novavax Product Candidates
Hormone Replacement Therapy
The Company is using its micellar nanoparticleMNP technology in the development of ESTRASORB, a cream designed for the delivery of 17b estradiol (estrogen)(estrogen hormone) through the skin. Estrogen replacement therapy is currently used worldwide by menopausal and post-menopausal women to prevent osteoporosis, cardiovascular disease and other menopausal symptoms (e.g. "hot flashes"(such as “hot flushes”). The hormone replacement market in the US is approximately $1.7 billion. This market is believed to represent only 15-20% of the estimated 60.3 million women over 40 years of age in the US who could potentially benefit from hormone replacement therapy.
Current estrogen replacement products include oral tablets or,and, more recently, transdermal patches. Oral estrogen tablets, however, have been associated with side effects primarily resulting from fluctuating blood hormone levels.level fluctuations. Because of these side effects, transdermal patches for estrogen replacement were developed. While these patches help reduce blood hormone fluctuations, they may cause skin irritation and patient inconvenience associated with wearing and changing an external patch.
The Company believes that ESTRASORB may offer several advantages over existing therapies used for estrogen replacement. ESTRASORB is a cream that may be applied to the skin much like a topical cosmetic-like cream.typical cosmetic lotion. The Company believes ESTRASORB will be able to deliver a continuous amount of estrogen to the patient without the fluctuations in blood hormone levels associated with oral tablets. In addition, ESTRASORB does not contain materials that may cause the skin irritation associated with transdermal patches.
In 1995, the Company completed preclinical testing of ESTRASORB in a primate
model. Results of this study demonstrated that ESTRASORB can be utilized to
deliver estradiol through intact skin with maintenance of therapeutic serum
estradiol levels for six days after a single topical application. Based on these
results, the Company initiated a Phase I human clinical trial of ESTRASORB
involving 10 symptomatic menopausal women. In this study, each woman received a
single topical application of ESTRASORB. This study was completed in the fourth
quarter of 1996 with no significant adverse experiences noted.
The Company has completed two additional humanfive clinical studies with ESTRASORB. The first is a
multiple-dose, dose ranging, pharmacokinetic study begun inthree studies demonstrated transdermal delivery of the second quarter
of 1997. The second is a multiple-dose, pharmacokinetic, placebo controlled
study was started in third quarter of 1997. These studies demonstrateddrug and no skin irritation and delivery of therapeutic levels of the drug.
In September, 1996, the Company completed the animal testing of ANDROSORB
(testosterone) in its MNP transdermal drug delivery platform. In these tests,
peak blood levels of testosterone were approximately three times higher than
testosterone dissolved in ethanol. After a single topical cream application,
peak serum levels of testosterone were as high as 35 nanograms per milliliter
and persisted in the therapeutic range for 48 hours. The Company completed the
human safety studies and submitted the results to the FDA in the third quarter
of 1997.was noted. A multiple-dose, pharmacokinetic humanPhase II, randomized, double blind, placebo-controlled, dose-ranging study began in the third quarter
of 1997 and was completed in the first quarter of 1998.1999. This study demonstrated
noinvolved a 35 day dosing protocol and included 120 patients at six clinical sites located in the United States. This study indicated that ESTRASORB, administered daily to menopausal women, significantly reduced the number of hot flushes per day and significantly increased their trough serum estradiol levels.
During the first quarter of 2001, Novavax completed a multi-center Phase III study of ESTRASORB in symptomatic menopausal women. The study involved 200 subjects in 20 centers nationwide. The study was designed to measure ESTRASORB’s ability to deliver 17b estradiol through the skin, irritationwhen applied as a topical lotion. The study results indicate that there is a statistically significant difference between ESTRASORB and deliveryplacebo treatment with respect to the trial’s primary clinical endpoint, a reduction in the number of therapeutic levelshot flushes.
The positive reactions of the drug.women in the Phase II study coupled with the Company’s positive Phase III clinical results indicate that estrogen replacement therapy is an excellent initial target for the Company’s topical drug delivery system. As the Company begins the final stages of clinical development with ESTRASORB and files for an NDA, the Company will continue to investigate its topical delivery system to other products.
Testosterone replacement therapy is currently used by males who are testosterone deficient as a result of either primary or secondary hypogonadism. TestosteroneIt is believed that testosterone in males is required to maintain sexual function and libido, maintain lean body mass, increase hemoglobin synthesis and maintain bone density. There are estimated
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Current testosterone replacement therapy products include deep intramuscular injections or transdermal patches. The injections require frequent visits to a physician and may be associated with pain at the injection site and abscess. The transdermal patches may cause skin irritation and patient inconvenience associated with wearing and changing two to three external patches
per day.patches.
The Company believes that ANDROSORB (its testosterone hormone replacement therapy product) may offer several advantages over current testosterone replacement therapies. ANDROSORB is a lotion that may be applied to the skin. This would eliminateskin, thus eliminating the need for intramuscular injections. In addition, ANDROSORB does not contain materials that may cause the skin irritation associated with transdermal patches. 9
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All clinical trials to date, for both ESTRASORB and ANDROSORB, have been
conducted with product formulations that have been refrigerated. The Company is
currently developingcompleted human safety studies of ANDROSORB involving 10 subjects and evaluating several other formulations, alongsubmitted the results to the FDA in the third quarter of 1997. A multiple-dose, pharmacokinetic study involving 9 subjects was completed in the fourth quarter of 1997, and a dose-ranging pharmacokinetic study involving 8 subjects was completed in the second quarter of 1998. The Company completed Phase I testing of ANDROSORB in 1999, with packaging alternatives,results that willindicated ANDROSORB did not be refrigerated and willcause skin irritation in the patients tested. These studies have a two year
shelf life. Clinical trials to determine that therapeutic blood levelsalso all demonstrated delivery of the drug are delivered with these formulations are expected to be completed by the
end of the third quartersuccessfully results in 1998. These formulations are believed to have
commercial and patient compliance advantages over refrigerated product
formulations.elevated blood hormone levels. The Company anticipates most future clinical trials to be with
formulations that require no refrigeration.
The Company has developed several other applicationscompleted a Phase II dose ranging study in testosterone deficient women in the fourth quarter of its MNP transdermal2000.
ANDRO-JECT is a new oil-free, cholesterol-free depot drug delivery technology platform. These product applications aresystem for testosterone, which is in various
stagespreclinical development. ANDRO-JECT is delivered subcutaneously with a small 25 gauge needle. In animal studies therapeutic levels of pre-clinical testing. The Company believes its MNP and other
technologies are suitabletestosterone were maintained for two weeks after one subcutaneous injection. We expect to file an IND for ANDRO-JECT in the deliveryfirst half of ethanol soluble drugs.
Helicore Microbicidal Preparations2001.
Microbicides
The Company has developed proprietary lipid structure formulationsstructures that it is using in the development of a non-antibiotic, anti-bacterial preparation, Helicore, for the treatment of HelicobacterH. pylori ("H. pylori") infection in humans.H. pyloriwas recognized in 1994 by the National Institutes of Health as a causative agent of peptic ulcer disease, antral gastritis and certain types of gastric cancer. It is estimated that 30-80 million adults in the U.S. are infected with H.
pylori. Each year the treatment of complications of H. pylori infections (i.e.,
peptic ulcer disease) in the U. S. alone costs in excess of five billion
dollars. Current therapies for the treatment ofH. pyloriinclude the use of antibiotics alone or antibiotics in combination with drugs that inhibit acid production in the stomach. Problems associated with such therapies include, but are not limited to, cost, toxicity, failure to sufficiently eradicate all the bacteria, and acquired resistance to the antibiotic. TheIn 1995, the Company began in 1995 to test formulations of Helicore in both animal studies and Phase I human safety studies. Results from clinical studies completed in 1996 were submitted to the FDA. A multiple-dose, dose ranging study began in the second
quarter of 1997Novavax is not currently being completed. Additional pre-clinicalconducting preclinical or clinical studies on Helicore.
The Company has also developed BCTP, a lipid emulsion that acts on various formulationsmicrobials, including enveloped viruses, as well as spores and bacteria. The product has also demonstrated spermicidal action. The Company believes that the emulsion acts on the target by first fusing or merging with the lipid envelope or outer membrane of the target. The Company believes that BCTP has many potential applications. Preclinical studies indicate that viruses and spores vulnerable to BCTP include influenza A and bacillus anthracis, but it may also be appropriate for herpes, measles, mumps, rubella and many other microbes and pathogens. While influenza vaccines are still in process.
relatively effective at preventing the flu, BCTP unlike vaccines, does not appear to promote mutation and resistance. Other advantages of BCTP appear to include a low toxicity profile, inexpensive scale-up and manufacturing costs, and a rapid and broad spectrum of killing.
Vaccine Adjuvants
Adjuvants are substances that make vaccines more effective. The Company believes that certain of its organized lipid structures (e.g. Novasome lipid vesicles)vesicles may provide effective and safe adjuvant carrier systems for a variety of vaccines. The Company believes that Novasome lipid vesicles may be used as
vaccine adjuvants and protective carriersvaccines in a variety of circumstances, including: (i) encapsulation and protection of delicate antigenic materials from destruction by the body'sbody’s normal enzymatic processes;processes of delicate antigenic materials; (ii) encapsulation of toxic materials, such as endotoxins and other potent toxins, for gradual releases,release, thereby providing protection of the body from the toxin while generating an immune
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Vaccine Projects
The Company’s BSD operation currently has two products in clinical trials with collaborators at NIH. The first, an HPV-16 VLP vaccine is in Phase II clinical trials and is intended to prevent HPV-16 infection. The second product, a Hepatitis E vaccine, will be tested in a Phase II trial in Nepal.
In October 2000, BSD became a part of a team assembled by Science Applications International Corporation (“SAIC”) for a contract awarded to SAIC for “Malaria Vaccine Production and Support Services”, funded by the CompanyNational Institute of Allergy and Infectious Diseases (“NIAID”) of the NIH. Under the terms of the agreement, we will work closely with SAIC to evaluate the process of developing malaria protein vaccine candidates using multiple expression systems, as well as bacterial and viral vectors. We will also be responsible for process development and GMP manufacturing and testing of the vaccine candidates. The seven-year subcontract commenced on or about January 1, 2001 and is estimated to be valued at $10.5 million.
In October 2000, we extended our initial 1999 contract with the NCI, to manufacture recombinant monomeric and chimeric VLP’s against HPV. The novel recombinant VLP’s are non-infectious vaccine candidates designed to either treat or prevent HPV infections that cause genital warts and cervical cancer. The current contract value is approximately $2.0 million. The HPV vaccines were developed by research and development teams lead by Robin Robinson, Ph.D., Associate Director of BSD and Douglas Lowy, M.D. of the Laboratory of Cellular Oncology at NCI. Dr. Robinson will serve as Principal Investigator on this new HPV vaccine project. In January 2001, we also granted King an exclusive license to use our proprietary cell line to develop and potentially commercialize recombinant HPV vaccines. Novavax and King are currently working together on manufacturing HPV-16 VLP vaccines for an NCI Phase II study, expected to commence during the second half of 2001 in Costa Rica.
The BSD operations also has developed structuresa contract with NIH for delivery of biologically active
molecules like anti-sense, genes and proteins.
The Company has several research contracts in place to provide vaccine
products, services and adjuvant technologies. These contracts include
developmentthe “Operation of an adjuvant for an immunotherapeutic against human PapillomaExperimental Virus for a British vaccine companyVaccine Production Facility” through November 2002. Current efforts are stressing dengue and a subcontract agreement with University
of Michigan who is supplying anti-infective defense systems against biological
warfare agents for the U.S. military. They are anticipated to generate
approximately $.5 million in revenue in 1998 with potential revenue
opportunities beyond 1998.
MANUFACTURINGparainfluenza virus reassortant vaccines.
Manufacturing
The development and manufacture of the Company'sCompany’s products are subject to good laboratory practices ("GLP"(“GLP”) and good manufacturing practices ("GMP")cGMP requirements prescribed by the FDA and to other standards prescribed by the appropriate regulatory agency in the country of use. The Company has the ability to produce quantities of Novasome lipid vesicles sufficient to support its
current needs. The Company also has the ability to produce quantities of
Novasome lipid vesicles and MNPs sufficient to support its needs for early-stage clinical trials. It does not presently have FDA certifiedFDA-certified facilities capable of producing the larger quantities of pharmaceutical products required for larger scale clinical trials or commercial production. The Company will need to rely on collaborators, licensees or contract manufacturers or acquire such manufacturing facilities for later stage clinical trials and commercial production of its own pharmaceuticals. Novavax has entered into a supply agreement with PCI, Inc., a division of Cardinal Health, Inc., to produce ESTRASORB. This GMP facility, located in Philadelphia, Pennsylvania, has the capacity to meet Novavax’s current and future production requirements for ESTRASORB. Additionally, Novavax has entered into an agreement with Parkedale, Inc. a subsidiary of King Pharmaceuticals, Inc., whereby Novavax can use manufacturing facilities at Parkedale to manufacture vaccines for Phase III clinical trials. There can be no assurance that the Company will be able to obtain such facilities or manufacture such products in a timely fashion at acceptable quality and prices, that it or its suppliers will be able to comply with GLP or GMP, as applicable, or that it or its suppliers will be able to manufacture an adequate supply of product.
MARKETING
Marketing
The Company plans to market its pharmaceuticalscurrent healthcare products and pharmaceutical products for which it obtains regulatory approvals in the future either through its recently acquired marketing and distribution operations in St. Louis, Missouri, joint ventures or corporate partnering arrangements. The Company expects that such arrangements could include technology licenses, research funding, milestone payments, collaborative product development, royalties and equity investments in Novavax. ImplementationWe expect the level of thisadvertising and promotional spending to support
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Competition
All of the markets in which Novavax competes are intensely competitive. The pre-natal vitamin market is very fragmented with many competitors. A number of large companies such as Novartis, Procter & Gamble, American Home
Products, Parke-Davis,that are larger than us, and have greater resources than we do, compete in the market, including, Warner-Chillcot, Solvay Pharmaceuticals, SmithKline Beecham, Abbott
Laboratories, Ortho Pharmaceuticals and Mead Johnson, Laboratories, produce and sell estrogen preparations for clinical indications identical to those the
Company proposes to target. SmithKline Beecham currently markets a transdermal
testosterone patchmany generic and Novartis markets an estrogen transdermal patch.controlled brand manufacturers. The competition to develop FDA approved hormone replacement therapiesprenatal vitamins is intense and no assurance can be given that the Company'sour product candidates will continue to be
developed into commercially successful products.
Many large companies, such as Merck, Merck-Astra, Glaxo-Wellcome, Procter & Gamble,
SmithKline Beecham, OraVaxAmerican Home Products (“AHP”), Apothecon, Watson Pharmaceutical, Solvay Pharmaceuticals, and others, area number of generic manufacturers currently evaluating various
treatment programsproduce and sell estrogen products for peptic ulcer diseaseclinical indications identical to those the Company seeks for its lead product. In addition, the Wyeth-Ayerst division of AHP commits significant resources in the sales and marketing of its products to maintain its market leadership position. In the treatment of H. pylori. Mosttransdermal segment of the therapies under investigation today involvemarket, Novartis markets a combination oftransdermal estrogen patch and Watson currently markets a currently
used ulcer treatment medication (e.g., Prilosec(R), Zantac(R) or Tagamet(R),) in
association with an antibiotic (e.g., amoxicillin, Flagyl(R) or Biaxin(R)). The
market for the development of treatment programs for peptic ulcer disease and H.
pylori infection is competitive and no assurance can be given that the Company's
H. pylori product candidates will be developed into commercially successful
products.transdermal testosterone patch.
A number of other companies including Merck, Glaxo-SmithKline, Novartis, Pharmacia, and AHP have been working on vaccines and vaccine adjuvants for use inas human vaccines. These include, but are not limited to, Chiron, Ribi Immunochem
Research, Cambridge Biotech, Iscotec, Proteus International and Biomira.drug products. The competition to develop FDA-approved human vaccines and vaccine adjuvants is intense and no assurance can be given that the Company'sour vaccine and vaccine adjuvant product candidates will be developed into commercially successful products.
Primary competitors in the development of lipid structure and vesicle encapsulation technologies are The Liposome Company, Sequus Pharmaceuticals,
Nexstar PharmaceuticalsElan, Alza, Gilead and L'Oreal,L’Oreal, as well as other pharmaceutical, vaccine and chemical companies. The Company believesWe believe that, except for L'Oreal,L’Oreal, these companies have focused their development efforts on pharmaceutical carrier systems for the treatment of infections and certain cancers. To the Company'sour knowledge, The Liposome Company, SequusElan, Alza and NexstarGilead all base their lipid vesicle technologies on phospholipids.
Most of the Company'sour competitors are larger than the Companywe are and have substantially greater financial, marketing and technical resources. In addition, many of these competitors have substantially greater experience than the Companywe have in developing, testing and obtaining FDA and other approvals of pharmaceuticals. Furthermore, if the Company commenceswhen we commence commercial sales of pharmaceuticals, itwe will also be competing with respect to manufacturing efficiency and marketing capabilities, areas in which it haswe have limited or no experience. If any of the competitors develop new encapsulation technologies that are superior to the
Company'sour Novasome and MNP technologies, theour ability of the Company to expand into the pharmaceutical and vaccine adjuvant markets will be materially and adversely affected.
Competition among products will be based, among other things, on product efficacy, safety, reliability, availability, price and patent position. An important factor will be the timing of market introduction of the Company's or
competitors'our competitors’ products. Accordingly, the relative speed with which the Companywe can develop products, complete the clinical trials, and approval processes and supply commercial quantities of the products to the market, is expected to be an important competitive factor. The Company'sOur competitive position will also depend upon itsour ability to attract and retain qualified personnel, to obtain patent protection or otherwise develop proprietary products or processes and to secure sufficient capital resources for the often substantial period between technological conception and commercial sales.
RESEARCH AND DEVELOPMENT
The Company's
Research and Development
Our research is focused principally on the development and commercialization of formulations for topical drug delivery and therapeutic products, including antibacterialanti-bacterial and anti-viral products and adjuvants for vaccines. The Company intendsWe intend to use third-partythird party funding when available, through collaborations, joint ventures or strategic alliances with other companies,
particularly potential distributors of the Company's products.companies. Because of the substantial funds required for clinical trials, the Company willwe may have to obtain additional financing for itsour future human clinical trials. No assurance can be given that such financing will be available on terms attractive to the Company,us, if at all.
The Company bases its
We base our development decisions on development costs and potential return on investment, regulatory considerations, and the interest, sponsorship and availability of funding from third parties. As of December 31, 1997, the Company's2000, our research and
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Patents and Proprietary Information
Through a wholly-owned subsidiary, holds 46we hold 50 U.S. patents and 53have approximately 125 foreign patents and patent applications covering itsour technologies (which include a wide variety of component materials, its continuous flow vesicle production process and its Novamix(R)Novamix® production equipment). The Company believesWe believe that these patents are important for the protection of itsour technology as well as certain of the development processes that underlie that technology. In addition, 8three U.S. patent
applications and 53 foreign patent applications are pending covering the composition, manufacture and use of its organized lipid structures and related technologies.
The Company expects
We expect to engage in collaborations, sponsored research agreements and preclinical testing agreements in connection with itsour future pharmaceutical products and vaccine adjuvants, as well
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6 as clinical testing agreements with academic and research institutions and U.S. government agencies, such as the NIH, to take advantage of the technical expertise and staff of these institutions and to gain access to clinical evaluation models, patients and related technologies. Consistent with pharmaceutical industry and academic standards, and the rules and regulations promulgated under the federal Technology Transfer Act of 1986, these agreements may provide that developments and results will be freely published, that information or materials supplied by the Companyus will not be treated as confidential and that the Companywe will be required to negotiate a license to any such developments and results in order to commercialize products incorporating
them.products. There can be no assurance that the Companywe 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 of the Company on an exclusive or nonexclusive basis.
GOVERNMENT REGULATION
The Company's
Government Regulation
Our research and development activities are subject to regulation for safety, efficacy and quality by numerous governmental authorities in the United States and other countries. The development, manufacturing and marketing of human pharmaceuticals are subject to regulation in the United States for safety and efficacy by the FDA in accordance with the Food, Drug and Cosmetic Act.
In the United States, human pharmaceuticals are subject to rigorous FDA regulation including preclinical and clinical testing. The process of completing clinical trials and obtaining FDA approvals for a new drug is likely to take a number of years, requires the expenditure of substantial resources and is often subject to unanticipated delays. There can be no assurance that any product will receive such approval on a timely basis, if at all.
The steps required before new products for use in humans may be marketed in the United States include (i) preclinical tests, (ii) submission to the FDA of an application for an Investigational New Drug application (IND),IND, which must be approved before human clinical trials commence, (iii) adequate and well-controlled human clinical trials to establish the safety and efficacy of the product, (iv) submission of a New Drug Application ("NDA")an NDA for a new drug or a Product License Application ("PLA"(“PLA”) for a new biologic to the FDA and (v) FDA approval of the NDA or PLA prior to any commercial sale or shipment of the product.
Preclinical tests include laboratory evaluation of product formulation, as well as animal studies (if an appropriate animal model is available) to assess the potential safety and efficacy of the product. Formulations must be manufactured according to GMP and preclinical safety tests must be conducted by laboratories that comply with FDA regulations regarding GLP. The results of the preclinical tests, are submitted to the FDA as part of an IND and are reviewed by the FDA prior to the commencement of human clinical trials. There can be no assurance that submission of an IND will result in FDA authorization to commence clinical trials. Clinical trials involve the administration of the investigational new drug to healthy volunteers and to patients under the supervision of a qualified principal investigator and are typically conducted in three sequential phases, although the phases may overlap. The CompanyWe or the FDA may suspend clinical trials at any time if the participants are being exposed to an unacceptable health risk. The FDA may deny an NDA or PLA if applicable regulatory criteria are not satisfied, require additional testing or information, or require post marketing testing and surveillance to monitor the safety of the Company'sour products.
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In addition to obtaining FDA approval for each PLA, an Establishment License Application ("ELA"(“ELA”) must be filed and approved by the FDA for the manufacturing facilities of a biologic product before commercial marketing of the biologic product is permitted. The regulatory process may take many years and requires the expenditure of substantial resources.
In addition to regulations enforced by the FDA, the Companywe are also is 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 future federal, state or local regulations. The Company'sOur research and development involves the controlled use of hazardous materials, chemicals and viruses. Although the Company believeswe believe that itsour 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, the Companywe could be held liable for any damages that result, and any such liability could exceed the resources
of the Company.our resources.
In both domestic and foreign markets, theour ability of the Company to commercialize itsour product candidates will depend, in part, on the availability of reimbursement from third-party payers, such as government health administration authorities, private health insurers and other organizations. If adequate coverage and reimbursement levels are not provided by government, and third-party payers for uses of the Company'sour therapeutic products, the market acceptance of these products would be adversely affected.
There have been a number of federal and state proposals during the last few years to subject the pricing of pharmaceuticals 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. The CompanyWe cannot predict the effect medical reforms may have on itsour business, and no assurance can be given that any such reforms will not have a material adverse effect on the Company.
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EMPLOYEESeffect.
Employees
The Company had 15127 full-time employees as of December 31, 1997,2000, of whom 831 are in research and development. Of those 31, 6 are PhD’s and 1 is an M.D. The Company has no collective bargaining agreement with its employees and believes that its employee relations are good.
ITEM
Risks and Uncertainties
The following is a summary description of some of the many risks we face in our business. You should carefully review these risks in evaluating our business, including the business of our subsidiaries. You should also consider the other information described in this report.
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, 2000 was $55.1 million. Our revenues for the last three years were $681,000 in 1998, $1.2 million in 1999 and $2.5 million in 2000. The Fielding acquisition will generate revenue from commercial sales of products but we cannot be certain that these revenues will be sufficient to offset our expenses in the future. We have received a very limited amount of product-related revenue from research contracts, licenses and agreements to provide vaccine products, services and adjuvant 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 other significant revenues to offset our expenses. Our net losses for the last three years were $4.8 million in 1998, $4.5 million in 1999 and $12.2 million in 2000. Our losses have resulted from research and development expenses, clinical trials, protection of our patents and other intellectual property and other general operating expenses. We expect that our annual losses will continue in the near term as we conduct additional clinical trials and seek regulatory approval for advanced stage product candidates. Therefore, we expect our cumulative operating loss to increase until such time, if ever, as product sales, licensing fees and royalty payments 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.
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We have not completed the development of any product and our ability to do so is uncertain
All of our potential products are still in various stages of pre-clinical research or clinical trials. Significant further research and development, pre-clinical and clinical testing, regulatory approval and additional financing are all necessary before the commercial sales of any of our products.
We are not certain whether we will be able to complete the development of and sell any of our products. The development of pharmaceutical products based on new technologies is subject to a variety of inherent risks of failure. These risks include the following:
| • | Our potential products may be found to be unsafe, to have harmful side effects on humans, to be ineffective or may otherwise fail to meet regulatory standards or receive necessary regulatory approvals. | |
| • | Our potential products may be too difficult or costly to manufacture on a large scale, to develop into commercially viable products or to market. | |
| • | Our potential products may not be accepted by the medical community. | |
| • | Other companies may market superior or equivalent products. | |
| • | Other parties may claim proprietary rights to our product technology that prevent us from marketing our products. | |
| • | We may be unable to raise enough money to finance our continued product development. |
We have recently completed a Phase III clinical trial for our estrogen replacement therapy product, ESTRASORB and expect to file an NDA in the first half of 2001. Our products are in various phases of testing and we cannot guarantee that these products will successfully pass such testing phases, and if so, will result in commercially successful products. Clinical trial results are frequently susceptible to varying interpretations by scientists, medical personnel, regulatory personnel, statisticians and others which may delay, limit or prevent further clinical development or regulatory approvals of a product candidate. Also, the length of time that it takes for us to complete clinical trials and obtain regulatory approval for product marketing can vary by product and by the indicated use of a product. We are unable to predict the length of time before we complete the necessary clinical trials and obtain regulatory approval.
We may not succeed in obtaining the FDA approval necessary to sell our products
The development, manufacture and marketing of our pharmaceutical 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 approval to market the product. One of our product candidates, ANDROSORB, is now in Phase I human clinical studies. ESTRASORB recently completed Phase III clinical trials for estrogen replacement therapy. Our other product candidates are in pre-clinical laboratory or animal studies. Before applying for FDA approval to market any particular product candidate, we must conduct larger-scale Phase II and III human clinical trials that demonstrate the safety and efficacy of our products to the satisfaction of the FDA or other regulatory authorities. These processes are expensive and can take many years to complete. We may not be able to demonstrate the safety and efficacy of our products to the satisfaction of the FDA or other regulatory authorities. Novavax may also be required to demonstrate that its proposed product represents an improved form of treatment over existing therapies and we may be unable to do so without conducting further clinical studies, if at all.
We may fail to obtain regulatory approval for our products on a timely basis, if at all. Delays in obtaining regulatory approval can be extremely costly in terms of lost sales opportunities and increased clinical trial costs. The speed with which we complete our clinical trials and our applications for marketing approval will depend on several factors, including the following:
| • | The rate of patient enrollment, 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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| • | Institutional review board approval of the protocol and the informed consent form; | |
| • | Prior regulatory agency review and approval; | |
| • | Analysis of data obtained from pre-clinical and clinical activities which are susceptible to varying interpretations, which interpretations could delay, limit or prevent regulatory approval; | |
| • | Changes in the policies of regulatory authorities for drug approval during the period of product development; and | |
| • | The availability of skilled and experienced staff to conduct and monitor clinical studies and to prepare the appropriate regulatory applications. |
We have limited experience in conducting and managing the pre-clinical and clinical trials necessary to obtain regulatory marketing approvals. We may not be able to obtain the approvals necessary to conduct clinical studies. Also, the results of our clinical trials may not be consistent with the results obtained in pre-clinical studies or the results obtained in later phases of clinical trials may not be consistent with those obtained in earlier phases. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials, even after experiencing promising results in early animal and human testing. If regulatory approval of a drug is granted, such approval is likely to limit the indicated uses for which it may be marketed. Furthermore, even if a product of ours gains regulatory approval, the product and the manufacturer of the product will be subject to continuing regulatory review. We 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.
We may need substantial additional capital to grow and operate our business and we are uncertain about obtaining future financing
We estimate that our existing cash resources will be sufficient to finance our operations at current and projected levels of development and general corporate activity for the next 12 to 18 months. Thereafter, we will require substantial additional funds to continue our research and development, commence future pre-clinical and clinical trials, seek regulatory approvals, establish commercial-scale manufacturing capabilities and market our products. We will seek to obtain additional funds through public or private equity or debt financings, collaborative arrangements with pharmaceutical companies and other sources. We cannot be certain that adequate additional funding or bank financing will be available to us on acceptable terms, if at all. If we cannot raise the additional funds and we need to continue our current and anticipated operations, we may be required to delay significantly, reduce the scope of or eliminate one or more of our research or development programs. If that is the case we will seek other alternatives to avoid insolvency, including arrangements with collaborative partners or others that may require Novavax to relinquish rights to certain of its technologies, product candidates or products.
Our success depends on our ability to maintain the proprietary nature of our technology
Our success will, in large part, depend on our ability to maintain the proprietary nature of our technology and other trade secrets. To do so, we must prosecute and maintain existing patents, obtain new patents and pursue trade secret protection. We also must operate without infringing the proprietary rights of third parties or letting third parties infringe our rights. Novavax has 50 United States patents and approximately 125 foreign patents covering its technologies, including its Novamix™ production equipment. However, patent issues relating to pharmaceuticals 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 court. Therefore, we do not know whether our applications will result in the issuance of patents, or that any patents issued to Novavax will provide us with any competitive advantage. We also cannot be sure that Novavax 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 Novavax.
There is a risk that third parties may challenge our existing patents or may claim that we are infringing their patents or proprietary rights. We could incur substantial costs in defending patent infringement suites or in filing
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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 Novavax’s trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure.
Other organizations have greater resources to develop, manufacture and market competitive products
We compete with numerous other companies worldwide that have developed or are developing novel drug delivery and encapsulation technologies. These competitors include both large and small pharmaceutical companies, biotechnology firms, universities and other research institutions. Novavax may not succeed in developing technologies and products that are more effective than those being developed by our competitors. Novavax’s technologies and products may be rendered obsolete or noncompetitive as a result of products introduced by competitors. Most of our competitors have substantially greater financial and technical resources, production capabilities and experience of our competitors may enable them to develop, manufacture and market their products more successfully and at a lower cost than Novavax. In addition, many of Novavax’s competitors have significantly greater experience than Novavax in conducting preclinical testing and clinical trials of human pharmaceuticals and obtaining regulatory approvals to market such products. Accordingly, Novavax’s competitors may succeed in obtaining FDA approval for products more rapidly than Novavax which may give them an advantage over Novavax in achieving market acceptance of their products.
We need marketing and manufacturing partners to commercialize our products
We do not have any significant manufacturing capability and our drug development capability is limited in large part by our finances. Although we have the ability to produce the limited quantities of products needed to support our current research and development program and clinical trials, we will need more production capacity for larger, later-stage clinical studies and commercial sales. Therefore, our ability to successfully develop and commercialize our products depends, in large part, on our success in entering into strategic alliances or licensing arrangements with collaborative partners, primarily pharmaceutical companies. We expect that these partners will assume various responsibilities for product commercialization including conducting clinical trials, submitting applications for regulatory approval and manufacturing product supplies. However, we may not be able to negotiate collaborative arrangements on acceptable terms, if at all. Even if such collaborations are established, they may not be scientifically or commercially successful. There is a risk that our collaborative partners may fail to perform their obligations to develop and manufacture our products in which case our business may be adversely affected. We also face the risk that our collaborative partners may develop competing technologies for treating the diseases and conditions targeted by our products, either on their own or in collaboration with others.
In certain circumstances, it may be advantageous for us to retain manufacturing rights for some of the products that we license to collaborative partners. However, we cannot be sure that we will be able to retain such rights on acceptable terms, if at all, or that we will have the ability to produce the quantities of product required under the terms of such arrangements. Our reliance on collaborative arrangements for product development and commercialization may result in lower revenues from royalties and other payments than we could have generated had we commercialized and marketed products ourselves.
If we manufacture our own products, we will need to acquire additional manufacturing facilities and to improve our manufacturing technology. Establishing additional manufacturing facilities will require us to spend substantial funds, hire and retain a significant number of additional personnel and comply with extensive regulations applicable to such facilities here and abroad, including the current good laboratory practices and good manufacturing practices required by the FDA. If we elect to or need to manufacture our own products, we risk the possibility that we may not be able to do so in a timely fashion at acceptable quality and prices or in compliance with good laboratory
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We are in the process of validating our manufacturing methods for ESTRASORB, which is required under FDA guidelines. We have entered into a supply agreement using one third-party contract manufacturer for our clinical and manufacturing needs. We intend to qualify at least one additional FDA approved manufacturing facility after receiving FDA approval. However, if we are unable to produce ESTRASORB in our current facility, Novavax would not have immediate access to this product. Under such circumstances Novavax would be required to reestablish its validation process at a different third-party contract manufacturer. This would delay the commercialization of ESTRASORB.
The Fielding acquisition may not result in a smooth integration of our future products into Fielding’s current sales and distribution channels
We cannot be certain whether the acquisition of Fielding will result in a successful integration of our future products into Fielding’s sales and distribution channels. Among the reasons we have acquired Fielding are its experienced sales representatives and seasoned management team, its existing product revenues and operating income, which will provide Fielding with the financial resources to fund the development of additional proprietary products, and the synergies which should be created by the merger. In the event that we are unable to integrate successfully, our results of operations and financial condition would be materially adversely affected and we would continue to have limited revenues and large operating losses. In addition, our inability to integrate successfully would increase our dependence on other third party collaborations.
Our bylaws contain anti-takeover provisions that may deter an acquisition of Novavax, a change of management or other events that might benefit stockholders
Our Amended and Restated Certificate of Incorporation requires that any action required or permitted to be taken by stockholders of Novavax must be effected at a duly called annual or special meeting of stockholders and may not be effected by any consent in writing, and will require reasonable advance notice by a stockholder of a proposal or director nomination which such stockholder desires to present at any annual or special meeting of stockholders. Special meetings of stockholders may be called only the Chief Executive Officer or, if none, the President of Novavax or the Board of Directors. The Restated Certificate of Incorporation also provided for a classified Board of Directors and members of the Board of Directors may be removed only for cause upon the affirmative vote of holders of a least two-thirds of the shares of capital stock of Novavax entitled to vote. The Board of Directors also has the authority, without further action by the stockholders, to fix the rights and preferences of, and issue shares of, preferred stock.
These provisions and other provisions of our Restated Certificate of Incorporation and By-Laws may deter hostile takeovers or delay or prevent changes in control or management of Novavax, including transactions in which stockholders might otherwise receive a premium for their shares over then current market prices. In addition, these provisions may limit the ability of stockholders to approve transactions that they believe to be beneficial.
Item 2. PROPERTIESProperties
The Company leases approximately 12,000 square feet of administrative offices and laboratory space for its corporate headquarters, and PHARMACEUTICAL DIVISION,
locatedpharmaceutical product storage at 8320 Guilford Road, Columbia, Maryland. The Company leases a second facility of approximately 6,000 square feet of space located in Rockville, Maryland. This facility contains the Company’s certified animal facility and laboratories for its drug research and biologics development, which includes the vaccine adjuvant product and services group. A third facility leases approximately 12,000 square feet of space which is also located in Rockville, Maryland. This facility is for contract vaccine research, development and manufacturing of Phase I and II products. The Company’s Fielding subsidiary leases a facility in Maryland Heights, Missouri. This facility is approximately 12,000 square feet and is used for administrative offices, manufacturing and warehousing.
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The Company believes its facilities are adequate to produce quantities of Novasome lipid vesicles, micellar nanoparticles, vaccines and MNPs sufficientadjuvants to support its needs for early-stagePhase I and Phase II clinical trials. It does not presently have FDA certified facilities capable of producing the larger quantities of pharmaceutical products required for larger scale clinical trials
or commercial production. The Company will need to relypresently relies on collaborators, licensees or contract manufacturers or acquire such manufacturing facilities for later stagePhase III clinical trialstrial materials and commercial production of its own pharmaceuticals.
Item 3. Legal Proceedings
The Company's BIOLOGICS DIVISION also leases 2,363 square feetCompany is not a party to any legal proceedings.
Item 4. Submission of space
located in Rockville, Maryland. This space contains the Company's certified
animal facility and laboratories for its biologics development which includes
the vaccine and vaccine adjuvant product and services group.
ITEM 3. LEGAL PROCEEDINGS
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO
A VOTE OF SECURITY HOLDERSMatters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 1997.
EXECUTIVE OFFICERS OF THE REGISTRANT2000.
Executive Officers Of The Company'sRegistrant
The Company’s 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 the Company'sCompany’s By-laws.
PRINCIPAL OCCUPATION AND OTHER BUSINESS
NAME AGE EXPERIENCE DURING PAST FIVE YEARS
- -------------------------------------------------------------------------------
RICHARD F. MARADIE 50 Chief Executive Officer of Novavax
since March, 1997. Co-Founder,
Director, President and Chief
Executive Officer of Protyde
Pharmaceuticals, Inc. from 1994
The following table provides certain information with respect to 1997. Director, Executive Vice
President and Chief Operating
Officer of Platelet Research
Products, Inc. from 1991 to 1994.
Director, President and Chief
Executive Officer of VimRx
Pharmaceuticals, Inc. from 1988 to
1991. Executive Vice President and
Chief Operating Officer of Creative
Biomolecules, Inc. from 1987 to
1988. Senior Director Cetus
Corporation and General Manager and
Chairman of the Board of Managers
for Cetus/BenVenue Oncology
Therapeutics from 1983 to 1987.
Director of Oncology Marketing and
Sales of Adria Laboratories, Inc.
from 1974 to 1983.
D. CRAIG WRIGHT, M.D. 47 Vice President, Research and
Development and Operations of
Novavax since 1993. Founder and
Senior Director of Medical Research
of Univax Biologics, Inc., a
biopharmaceutical company, from 1988
to 1992.
BRENDA L. FUGAGLI 41 Vice President, Chief Financial
Officer and Treasurer of Novavax
since July, 1997. President, Chief
Operating Officer, Carestream a
division of FoxMeyer Corporation,
1995. Senior Vice President of
Marketing FoxMeyer Drug Company 1992
to 1995. Vice President and
Controller FoxMeyer Corporation from
1989 to 1992.
13
8
PRINCIPAL OCCUPATION AND
OTHER BUSINESS EXPERIENCE
NAME AGE DURING PAST FIVE YEARS
- --------------------------------------------------------------------------------
THOMAS G. TACHOVSKY, PH.D. 51 Vice President, Business Development
since February, 1998. General
Partner and Founder, Matco &
Associates, a consulting firm, 1991
to 1998. Executive Vice President
R&D, Director and Founder, Protyde
Pharmaceuticals, Inc., 1995 to 1997.
Vice President Business Development,
Cytogen Corporation, 1989 to 1991.
RICHARD J. HARWOOD, PH.D. 54 Vice President, Pharmaceutical
Product Development since March,
1998. Consultant K. W. Tunnell
Company, Inc., 1995 to 1998. Vice
President, Research and Development,
Private Formulations, Inc., 1993 to
1995. Technical Planning Director,
Worldwide Strategic Product
Planning, Bristol-Myers Squibb, 1986
to 1993. Department Director,
Product Development, Rorer Group,
Inc., 1982 to 1986. Research Fellow,
Merck and Co., Inc., 1970 to 1982.
Company’s executive officers.Principal Occupation and Other Business Name Age Experience During the Past Five Years John A. Spears 51 President, Chief Executive Officer and Director since May 1999. President and Chief Executive Officer of Vion Pharmaceuticals, Inc. from 1995 to May 1999. President and Chief Executive Officer of MelaRx Pharmaceuticals, Inc. from 1993 to 1995. Senior Vice President of Immunex Corp from 1989 to 1993. Denis M. O’Donnell, M.D. 47 Chairman of the Board of Directors of Novavax, Inc. since May, 2000. Vice Chairman of the Board of Directors of Novavax, Inc. from June, 1999 to May 2000. General Partner at Seaside Partners, LP, a private equity limited partnership, since 1997. Senior Advisor to Novavax from 1997 to 1998. President of Novavax from 1995 to 1997. Vice President, Business Development of Novavax from 1992 to 1995. Vice President of IGI, Inc. from 1991 to 1995. Director of the Clinical Research Center of MTRA, Inc., a provider of contract pharmaceutical research, from 1986 to 1991. D. Craig Wright, M.D. 50 Chief Scientific Officer of Novavax since 1993. Founder and Senior Director of Medical Research of Univax Biologics, Inc., a biopharmaceutical company, from 1988 to 1992.
17
| Principal Occupation and Other Business | ||||||
| Name | Age | Experience During the Past Five Years | ||||
| James R. Mirto | 58 | Senior Vice President and Chief Operating Officer since May 2000. Vice President, New Product Development and Licensing of Ligand Pharmaceuticals from August 1993 to February 2000. Vice President of Sales and Marketing at Adria Laboratories, from April 1990 to November 1992. | ||||
| Dennis W. Genge | 48 | Vice President and Treasurer, Chief Financial Officer since October 2000. Vice President Controller of Pyxis Corporation from April 1999 to September 2000. Executive Director of Accounting and Finance and Controller of Ligand Pharmaceuticals, Inc. from July 1991 to March 1999. | ||||
18
PART II
ITEM
Item 5. MARKET FOR THE REGISTRANT'S
COMMON EQUITY AND RELATED
STOCKHOLDER MATTERSMarket For Registrant’s Common Equity and Related Stockholder Matters
The Company'sCompany’s Common Stock was held by 952approximately 813 stockholders of record as of March 20, 1998.9, 2001. The Company has never paid cash dividends on its Common Stock. The Company currently anticipates that it will retain all of its earnings for use in the development of its business and does not anticipate paying any cash dividends in the foreseeable future.
The principal market for the Company'sCompany’s Common Stock ($.01 par value) is traded on the American Stock Exchange under the symbol "NOX"“NOX”. The following table showssets forth, for the range ofperiods presented, the high and low closingsales prices for the Company’s Common Stock.
| Quarter Ended: | High | Low | ||||||
| December 31, 2000 | $ | 9.48 | $ | 6.75 | ||||
| September 30, 2000 | 9.19 | 6.13 | ||||||
| June 30, 2000 | 8.63 | 4.50 | ||||||
| March 31, 2000 | 12.38 | 4.75 | ||||||
| December 31, 1999 | $ | 6.19 | $ | 3.63 | ||||
| September 30, 1999 | 4.50 | 3.13 | ||||||
| June 30, 1999 | 4.19 | 3.06 | ||||||
| March 31, 1999 | 4.00 | 1.88 | ||||||
Recent Sales of Unregistered Securities
In December 2000, Novavax acquired privately owned Fielding Pharmaceutical Company. Under the terms of the Company's common
stock on the American Stock Exchange for the periods indicated.
HIGH LOW
- ----------------------------------------------------
1997
First quarter $4 3/4 $3 1/4
Second quarter 4 7/16 2 5/8
Third quarter 6 4
Fourth quarter 5 3/4 4 1/8
1996
First quarter $6 5/8 $3 3/8
Second quarter 8 1/4 5 1/4
Third quarter 7 1/8 3 1/8
Fourth quarter 4 5/8 2 7/8
RECENT SALES OF UNREGISTERED SECURITIES
On October 30, 1996,acquisition agreement, Novavax received $1,655,877, net of all transaction costs,
from the sale of 505,000 common shares that were privately placed with
accredited institutional investors by Vector Securities International, Inc. On
February 10, 1997, Novavax signed a definitive agreement to privately place
1,200,000 common shares with Anaconda Opportunity Fund, L.P., an accredited
institutional investor, at an aggregate price of $5,100,000. Effective on or
about the closing dates the 1,705,000 common shares were registered and freely
tradable.
On January 23, 1998, the Company entered into Subscription Agreements to
effectuate the private placement of 6,500 shares of Series A Custom Convertible
Preferred Stock, $.01 par value per share (the "Series A Preferred Stock"). The
closing occurred on January 28, 1998 (the "Issuance Date") at an aggregate
purchase price of $6,500,000. The Company received the proceeds therefor and
paid Diaz & Altschul, LLC a fee of $425,233 in consideration for its services as
placement agent.
The Series A Preferred stock is convertible into shares of Common Stock at a
conversion price equal to (i) during a period of 90 days following the Issuance
Date,acquired 100% of the averageoutstanding shares of the two lowest consecutive trade pricesFielding for $31.5 million, consisting of the
Common Stock as reported on the American Stock Exchange$13 million in cash and 2,312,501 shares of Novavax common stock, valued at $18.5 million. An additional $5 million in either Novavax common stock or cash will be paid to former Fielding shareholders in March 2002.
Item 6. Selected Consolidated Financial Data
| For the years ended December 31, | |||||||||||||||||||||
| 1996 | 1997 | 1998 | 1999 | 2000 | |||||||||||||||||
| (amounts in thousands, except share and per share information) | |||||||||||||||||||||
Statement of Operations Data: | |||||||||||||||||||||
| Revenues | $ | 56 | $ | 520 | $ | 681 | $ | 1,181 | $ | 2,475 | |||||||||||
| Loss from operations | (5,534 | ) | (4,791 | ) | (5,152 | ) | (4,566 | ) | (12,742 | ) | |||||||||||
| Net loss | (5,495 | ) | (4,547 | ) | (4,817 | ) | (4,506 | ) | (12,191 | ) | |||||||||||
| Loss applicable to common stockholders | (5,495 | ) | (4,547 | ) | (7,045 | ) | (4,506 | ) | (12,191 | ) | |||||||||||
| Per share information: | |||||||||||||||||||||
| (basic and diluted) | |||||||||||||||||||||
| Loss applicable to common stockholders | $ | (0.54 | ) | $ | (0.39 | ) | $ | (0.57 | ) | $ | (0.31 | ) | $ | (0.64 | ) | ||||||
| Weighted average number of shares outstanding | 10,132,896 | 11,667,428 | 12,428,246 | 14,511,081 | 19,015,719 | ||||||||||||||||
| As of December 31, | ||||||||||||||||||||
| 1996 | 1997 | 1998 | 1999 | 2000 | ||||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||
| Total current assets | $ | 3,221 | $ | 4,303 | $ | 1,207 | $ | 1,143 | $ | 17,036 | ||||||||||
| Working capital | 2,640 | 4,014 | 349 | (480 | ) | 12,331 | ||||||||||||||
| Total assets | 5,722 | 6,823 | 3,819 | 4,463 | 56,529 | |||||||||||||||
| Stockholders’ equity | 5,117 | 6,522 | 2,961 | 2,840 | 31,824 | |||||||||||||||
19
Summarized Quarterly Financial Information for the 25 trading days
immediately preceeding the conversion date (the "Two Day Average Trading Price")
or (ii) during the period on and after the date which is 91 days after the
Issuance date, 94% of the Two Day Average Trading Price (the "Conversion
Price").
From the Issuance Date, there is ceiling price of $6.33 and within the first
180 days after the Issuance Date, the Conversion Price has applicable floor
prices based on conversion dates. The floor prices range from $5.67 to $4.32.
The maximum number of shares as measured by the conversion terms most beneficial
to the holders of the Series A Preferred Stock at the time of closing will
result in a deemed dividend in the amount of $455,048 which has been recorded to
Accumulated Deficit and Additional Paid In Capital during the three months ended
March 31, 1998.
14
9
ITEM 6. SELECTED FINANCIAL DATA
For the years ended December 31,
------------------------------------------------------------------------------------
1993 1994 1995 1996 1997
- ----------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA:
Revenues:
Research revenues (1) $ 380,700 $ 475,000 $ -- $ -- $ --
Sales -- -- -- 55,553 519,714
Royalties from former parent (2) 198,546 209,877 268,002 -- --
Total Revenues 579,246 684,877 268,002 55,553 519,714
Costs and expenses:
Selling and marketing 278,836 323,640 398,776 -- --
General and administrative (3) 1,976,356 2,162,431 2,905,873 1,874,418 2,437,166
Research and development 2,701,038 2,860,048 3,708,005 3,715,545 2,874,129
Interest expense to former parent (4) 413,049 1,028,794 1,749,706 -- --
Interest income -- -- -- (137,539) (244,964)
Income tax expense -- -- -- 98,094 --
Net loss (4,790,033) (5,690,036) (8,494,358) (5,494,985) (4,546,617)
Net loss per share (basic and diluted)(5) n/a n/a $ (0.85) $ (0.54) $ (0.39)
Weighted average number of common
shares outstanding n/a n/a 9,937,936 10,132,896 11,667,428
BALANCE SHEET DATA:
Total current assets $ 268,050 $ 501,845 $ 4,761,199 $ 3,220,772 $ 4,303,044
Working capital 202,914 306,159 4,330,412 2,639,505 4,014,406
Total assets 2,819,631 3,132,688 7,529,544 5,721,952 6,823,271
Capital lease obligations -- -- -- 34,351 23,607
Stockholders' (deficit) equity (1,070,994) (2,202,868) 7,098,757 5,117,078 6,521,770
(1) Includes payments for licensing agreements and technology application
review.
(2) Includes royalties for product sales in IGI's animal health products,
cosmetic and consumer products businesses through the date of the
Distribution.
(3) Includes administrative expenses incurred by IGI allocated to Novavax
through the date of the Distribution.
(4) Interest expense is solely attributable to debt incurred by Novavax to
fund its operations through the date of the Distribution.
(5) On December 12, 1995, IGI distributed to the holders of record of IGI's
common stock , at the close of business on the Record Date, November 28,
1995, one share of the Company's common stock for every one share of IGI
common stock outstanding. Pro forma net loss per common share for the yearYears ended December 31, 1995 is based upon weighted average shares outstanding2000 and 1999:
| Quarter Ended | ||||||||||||||||
| March 31 | June 30 | September 30 | December 31 | |||||||||||||
| (in thousands except per share data) | ||||||||||||||||
| 2000 | ||||||||||||||||
| Revenues | $ | 710 | $ | 588 | $ | 370 | $ | 807 | ||||||||
| Research and development costs | 1,524 | 2,113 | 2,924 | 2,797 | ||||||||||||
| General and administrative expenses | 641 | 1,302 | 822 | 3,094 | ||||||||||||
| Net loss | (1,350 | ) | (2,641 | ) | (3,213 | ) | (4,987 | ) | ||||||||
| Net loss per share | $ | (0.08 | ) | $ | (0.14 | ) | $ | (0.17 | ) | $ | (0.25 | ) | ||||
| 1999 | ||||||||||||||||
| Revenues | $ | 76 | $ | 252 | $ | 143 | $ | 710 | ||||||||
| Research and development costs | 497 | 627 | 1,119 | 1,111 | ||||||||||||
| General and administrative expenses | 468 | 531 | 807 | 587 | ||||||||||||
| Net loss | (881 | ) | (884 | ) | (1,769 | ) | (972 | ) | ||||||||
| Net loss per share | $ | (0.07 | ) | $ | (0.06 | ) | $ | (0.12 | ) | $ | (0.07 | ) | ||||
Item 7. Management’s Discussion and Analysis of 9,937,936. See footnote 5Financial Condition and Results of Operations
This annual report may contain predictions, estimates and other forward-looking statements that involve a number of risks and uncertainties, including those discussed at “Risks and Uncertainties.” This outlook represents our current judgment on the Financial Statements.
15
10
ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Certain statements under Item 1 and Item 7 contained herein or as
may otherwise be incorporated by reference herein constitute "forward-looking
statements" within the meaningfuture direction of the Private Securities Litigation Reform Act
of 1995.our business. Forward-looking statements include, but are not limited to:to, statements regarding future product development and related clinical trials and statements regarding future research and development. 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 any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, the following: general economic and business conditions; competition; technological advances; ability to obtain rights to technology; ability to obtain and enforce patents; ability to commercialize and manufacture products; results of preclinical studies; results of research and development activities; business abilities and judgment of personnel; availability of qualified personnel; changes in, or failure to comply with, governmental regulations; ability to obtain adequate financing in the future; and other factors referenced herein. All forward-looking statements
included in this document 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. Accordingly, pastPast results and trends should not be used by investors to anticipate future results or trends. We undertake no obligation to release publicly the results of any revisions to these forward-looking statements to reflect events or circumstances arising after the date of this annual report
Overview
The Company has incurred net losses since its inception from the development of its technologies for human pharmaceuticals, vaccines and vaccine adjuvants. As of December 31, 2000 our accumulated deficit was $55.1 million. We expect the losses to continue in the near-term, as we conduct additional human clinical trials and seek regulatory approval for our product candidates. We also expect to continue to incur operating losses over the time period required to develop our products, or until such time as revenues, to offset the losses, are sufficient to fund our continuing operations.
In August 1999, the Company acquired substantially all of the assets (excluding cash and accounts receivable) of the Biomedical Services Laboratory (“BSD”) division of DynCorp of Reston, Virginia. The total consideration and direct costs for the acquisition were $860,000. The research and development activities of BSD are conducted in an approximately 12,000 square foot facility located in Rockville, Maryland. BSD is engaged in contract research, development and pilot manufacturing of human vaccines for government laboratories and other vaccine companies. The acquisition has been accounted for under the purchase method of accounting for business combinations.
In December 2000, Novavax acquired privately owned Fielding Pharmaceutical Company (“Fielding”), based in St. Louis, Missouri, which sells, markets and distributes a proprietary line of pharmaceutical products focused on
20
In December 2000, King Pharmaceuticals, Inc., (“King”) agreed to make a $25 million convertible note investment in Novavax. The note is convertible into Novavax Common Stock at $10.00 per share which was an 18% premium to a 20 day trading average prior to the closing. The note carries a 4% coupon payable semi-annually in cash and stock. As part of the transaction, Novavax received $20 million in December 2000 and will receive an additional $5 million when Novavax files a New Drug Application (“NDA”) for its topical transdermal estrogen replacement therapy, ESTRASORB™, expected to be filed in the first half of 2001. Novavax used a portion of the funds to complete its acquisition of Fielding and will use the balance for general operating purposes. In January 2001, we also signed a co-promotion agreement with King for ESTRASORB™, in the United States. In addition, we will combine U.S. sales efforts with King to begin co-promoting one of King’s products already on the market, Nordette®, a birth control pill. We also acquired AVC™ Cream and Suppositories from King in January 2001, for $3.3 million, which had previously been marketed by King for the treatment of vaginal bacterial infections.
The following is a discussion of the historical consolidated financial condition and results of operations of Novavax and its subsidiaries. The discussion should be read in conjunction with the consolidated financial statements and notes thereto set forth in Item 8 to this Report.
On
Year Ended December 12, 1995, the Company's former parent, IGI, Inc.31, 2000 (“2000”), distributed its
majority interest in Novavax to the IGI stockholders (the "Distribution"). Prior
to the Distribution, IGI owned 93.2% of the outstanding shares of the Company,
all of which were distributed to IGI stockholders. Certain periods covered by
the discussion below occurred when the Company was a subsidiary of IGI and may
not be indicative of current or future performance.
RESULTS OF OPERATIONS
The Company has incurred net losses since its inception from the development of
its technologies for human pharmaceuticals, vaccines and vaccine adjuvants.
Novavax expects the losses to continue and to most likely increase in the
near-term, as it conducts additional human clinical trials and seeks regulatory
approval for its product candidates. The Company also expects to continue to
incur substantial operating losses over the extensive time period required to
develop the Company's products , or until such time as revenues, to offset the
losses, are sufficient to fund its continuing operations.
Until the second quarter of 1996, the Company had recorded revenues from two
sources: (i) research revenues from industry partners in consideration of either
exclusive licenses or technology application reviews and (ii) royalty revenues
that were attributable to product sales by IGI. Revenues from the sale of
scientific prototype vaccines and adjuvants have been recorded in the second,
third and fourth quarters of 1996 and in each quarter of 1997.
1997 COMPARED TO 1996
Thecompared with Year Ended December 31, 1999 (“1999”)
Our net loss of $4,546,617 for the year ended December 31, 19972000 was $948,368$12.2 million or 17%, lower than the net loss of $5,494,985 for the year ended December 31, 1996.
The 1997 net loss includes non-cash compensation expense of $577,643$(0.64) per share, compared to $1,506,790 included in the 1996 net loss. This compensation expense relates to
the amortization$4.5 million or $(0.31) per share for 1999, which is an increase of below-market priced stock options and warrants issued at the
time of the Distribution. Other 1997 non-cash charges include $253,591 of
depreciation and patent amortization expense. Non-cash charges in 1996 included
$334,564 for the disposal of property and equipment and $328,225 of depreciation
and patent amortization expense.$7.7 million or $(0.33) per share. Revenues of $519,714$2.5 million were recognized during 19972000, compared to $55,533 during
1996.$1.2 million in 1999. Revenues in 2000 included $750,000 from a license agreement entered into in October 1999 with Parkedale Pharmaceuticals, Inc., a wholly-owned subsidiary of King. The license agreement included a non-refundable license payment of $1.0 million. We recognized $250,000 under this agreement in 1999. In addition revenues of $1.4 million and $370,000 were recognized in 2000 and 1999, respectively, under contracts with the National Institutes of Health (“NIH”) and other government agencies.
General and administrative expenses were $5.9 million for 2000, compared to $2.4 million incurred in 1999, which is an increase of $3.5 million or 145%. The increase was due primarily to two contracts related to vaccine
products, servicescosts incurred for financing and adjuvant technologies.
Selling, generalacquisition activities and administrative expenses include all costs associated
with the marketing of the Company's technology to potential industry partners
and those activities associated with identifying additional sources of capital.
It also includes costs associated with management and administrative activities.
Selling, general and administrative expenses were approximately $2,437,166 and
$1,874,418 for the years ended December 31, 1997 and 1996, respectively. The
increase of $562,748 was attributable to increased costs associated with
securing strategic alliances and potential sources of financing as well as the
increased staffing and infrastructure growth including the hiring of a new Chief
Financial Officeradditional senior management and Chief Executive Officer.
Research and development expenses include scientific staffing, supplies and
other costs relatedpersonnel to the ongoing development of the Novavax technologies as
well as the development of the Company's three lead product candidates.support our growth. Research and development expenses were approximately $2,874,129$9.4 million and $3,715,545$3.4 million for the
years ended
16
11
December 31, 19972000 and 1996,1999, respectively. Although such expenses have decreased
by $841,416, this change is primarily caused by the net decreaseThis $6.0 million, or 176% increase in the
amortization of below-market priced stock options issued at the time of the
Distribution of $933,742 and the non-recurring charge of $334,564 for the
disposal of assets in 1996.
Researchresearch and development expenses before these items were $2,407,258 and
$1,908,370 for 1997 and 1996. After considering the impact of these
aforementioned non-cash expenses, research and development costs increased by
$498,888. The increase wasis primarily due to the number of product candidates incosts associated with our clinical trials and manufacturing process validation activities related to our ESTRASORB product, which completed Phase III clinical trials. Additional increases in 2000 are due to the growtheffect of the underlying researcha full year of expenses incurred by BSD. Novavax expects costs related to its NDA submission, manufacturing process validation and development
infrastructure including facility expansion.
InterestBSD programs to continue to increase during 2001.
Net interest income was approximately $244,964 and $137,539 for the years ended
December 31, 1997 and 1996, respectively.$551,000 in 2000 compared to $60,000 in 1999. The increase in netthe interest income was a direct result of an increase in therelates to higher average cash balances on hand
throughout the year.
1996 COMPARED TO 1995
Thefrom financing activities during 2000 compared to 1999.
Year Ended December 31, 1999 (“1999”), as compared with Year Ended December 31, 1998 (“1998”)
Our net loss of $5,494,985available to common stockholders for the year ended December 31, 19961999 was $2,999,373,$4.5 million or 35%, lower than the net loss of $8,494,358 for the year ended December 31,
1995. The 1996 net loss includes $1,506,790,$(0.31) per share, compared to $101,183 included$7.0 million or $(0.57) per share for 1998, which was a decrease of $2.5 million, or $(0.26) per share. In 1998, charges for a dividend, a deemed dividend and offering costs, together totaling $2.2 million, relating to mandatory — redeemable convertible preferred stock resulted in the 1995 netincreased loss of non-cash compensation expense. Other non-cashin 1998 when compared to 1999. There were no similar charges include $334,564 for the disposal of property and equipment and $328,225 of
depreciation and patent amortization expense. Non-cash charges of $272,886 for
depreciation and patent amortization have been included in the 1995 expense.1999.
21
Revenues of $55,533$1.2 million were recognized during the year ended December 31, 1996received in 1999, compared to $.7 million in 1998. The $500,000 increase relates to payments under license and research contracts from the sale of scientific prototype vaccines and adjuvants. Novavax earned
royalties from IGI of 10% of licensed product sales, or $268,002,BSD which was acquired in the year
ended December 31, 1995.
Total operating expenses were $5,589,963 in 1996, decreasing $1,422,691, or
20%, from the $7,012,654 incurred in 1995. Reduced cash resources causedAugust 1999. In October 1999, the Company to reduce spending and achieve other efficiencies includingalso entered into a refocuslicensing agreement with Parkedale Pharmaceuticals, Inc. a wholly owned subsidiary of its efforts on the developmentKing. The license agreement included a non-refundable license payment of its three lead product candidates$1.0 million. We recognized $250,000 under this agreement in connection with FDA human clinical trials.
Total selling, general1999.
General and administrative expenses were $1,874,418$2.4 million for both 1999 and $3,304,649 for the years ended December 31, 1996 and 1995, respectively. Costs
associated with the Distribution are included in the 1995 expenses. Nonrecurring
charges of $230,474 were incurred through June 30, 1996 for transitional
services provided by IGI. The agreement providing these services terminated on
June 30, 1996 and no additional charges have been recorded. Certain costs
included in the 1995 expenses were estimates allocated from IGI, based on
Novavax being a separate public company, and may not compare with the actual
costs Novavax incurred in 1996. These estimated costs were $850,000 for the year
ended December 31, 1995.1998. Research and development expenses were $3,715,545$3.4 million for both 1999 and $3,708,0051998. Increases in research costs for the years ended December 31, 1996newly acquired BSD operation and 1995, respectively. The 1996 expenses include
non-cash chargespersonnel in 1999 were offset by reductions in the number of $1,410,648, compared to $101,183products in 1995,clinical development programs. As expected costs related to the
amortization of below-market priced stock options issued at the time of the
Distribution,our clinical trials, manufacturing process validation and non-cash charges of $334,564 for the disposal of property and
equipment related to the closing of one of the Novavax subsidiaries' laboratory.BSD programs increased during 2000.
Net interest income of $137,539 was recorded$60,000 in 1999 compared to $335,000 in 1998. The decrease in the interest income relates to lower average cash balances during the twelve months ended
December 31, 1996,1999 compared with net interest expense of $1,749,706 for the same
period ended December 31, 1995, that was charged to Novavax by IGI for
borrowings1998.
Liquidity and notes due to IGI through the date of the Distribution to fund
operating losses, capital equipment purchases and patent costs.
In connection with the filing of the Company's 1995 tax return during 1996,
it was determined that the Company had an Alternative Minimum Tax liability
resulting from the cash received from IGI in return for the license. Net income
tax expense of $98,094 for 1996 is attributable to the Alternative Minimum Tax
calculation.
LIQUIDITY AND CAPITAL RESOURCES
Novavax'sCapital Resources
Our capital requirements depend on numerous factors, including but not limited to the progress of itsour 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 changes in Novavax'sour development of commercialization activities and arrangements. During 1996, the Company moved
three product candidates intoWe currently have two products in clinical trials in less than one year. This rapid
development prompted the need for expansion in late 1996. On October 31, 1996,
the Company completed the relocation of its administrative offices and
pharmaceutical laboratories to a leased facility in Columbia, Maryland.trials. Future activities to establishincluding clinical development, the establishment of commercial-scale manufacturing capabilities and the development of sales and marketing programs are subject to the Company'sour ability to raise funds through equity financing, or collaborative arrangements with corporateindustry partners. Novavax's future growth will
depend on its ability to commercialize its Novavax technologies for human
pharmaceutical applications.
Net cash used in 1997 for operating activities was $4,244,733. From the date
of the Distribution, Novavax has conducted its operations with approximately
$5,000,000 paid by IGI under the IGI License Agreement along with net proceeds
from several financing transactions completed and described herein. Additionally
the Company has received sources of cash from the sale of scientific prototype
vaccines and adjuvants and from the exercise of stock options.
On October 30, 1996, Novavax received $1,655,877, net of all transaction
costs, from the sale of 505,000 common shares that were privately placed with
accredited institutional investors by Vector Securities International, Inc.
17
12
On February 10, 1997, Novavax signed a definitive agreement to privately
place 1,200,000 common shares with Anaconda Opportunity Fund, L.P., an
accredited institutional investor, at an aggregate price of $5,100,000. As part
of the transaction, Novavax also granted warrants to purchase an additional
600,000 shares at a price of $6.00 per share and 600,000 shares at a price of
$8.00 per share. The warrants have a three-year term. The transaction was closed
March 14, 1997 with net proceeds of $5,002,718.
On
In January 23, 1998, the Company entered into Subscription Agreements with
each of four purchasers to effectuate the private placement of 6,500 shareshares of Series A Custom Convertible Preferred Stock, $.01$1,000 par value per share (the "Series A Preferred Stock"“Preferred Stock”). The closing occurred on January 28, 1998 (the "Issuance Date"“Issuance Date”) at an aggregate purchase price of $6,500,000. The Company
received$6.5 million.
Prior to the proceeds therefor and paid Diaz & Altschul, LLC a feesubsequent repurchase of $425,233
in consideration for its services as placement agent.
The Series Aall the outstanding Preferred Stock, is convertible$1.5 million of the original issue had been converted into 1,043,956 shares of Common Stock, at a
conversion price equalpursuant to (i) during a period of 90 days following the Issuance
Date, 100%terms and conditions of the averagePreferred Stock. In October 1998, we entered into agreements to repurchase the remaining Preferred Stock. We repurchased the remaining outstanding $5.0 million of Preferred Stock plus accrued dividends at the annual rate of five percent. The terms of the two lowest consecutive trade pricesPreferred Stock also required us to pay the holders of the Preferred Stock $225,000 in dividends. This amount was paid in cash of $179,000 and through the issuance of 32,492 shares of the Company’s Common Stock. The Company incurred transaction fees associated with the placement, conversion and repurchase of the Preferred Stock of $502,000 which are included in the accompanying financial statements as accretion of Preferred Stock.
In April 1999, we entered into Stock and Warrant Purchase Agreements for the private placement of 1,651,100 shares of our Common Stock to accredited investors (the “Private Placement”). One of the principals of one of the investors is also a director of the Company. The issuance price of the Common Stock as reported on the American Stock Exchangewas $2.50 per share. Each share was sold together with a non-transferable warrant for the 25 trading days
immediately precedingpurchase of .25 additional shares at an exercise price of $3.75. The warrants have a three-year term. Net proceeds from the conversion datePrivate Placement were approximately $4.0 million. Placement agents fees of $215,000 were paid in cash and shares of common stock. Non-transferable warrants for the purchase of 143,000 shares of our Common Stock, with an exercise price of $3.00 per share and a three-year term, were also issued to the placement agents.
In January 2000, we closed a private placement of 2,813,850 shares of our Common Stock to accredited investors (the "Two Day Average Trading Price"“2000 Private Placement”)
or (ii). The issuance price of the Common Stock was $4.00 per share. Each share was sold together with a non-transferable warrant for the purchase of .25 additional shares at an exercise price of $6.75. The warrants have a three-year term. Placement agent fees were approximately $675,000, which was paid in cash. Additionally, non-transferable warrants for the purchase of 281,385 shares of the Company’s Common Stock, with an exercise price of $6.75 per share and a three-year term, were issued to the placement agent. Net proceeds to the Company from the 2000 Private Placement were approximately $10.5 million.
22
In December 2000, we acquired Fielding and also received $20 million from a convertible note from King. For details on these transactions, refer to our discussion in the Overview section above.
The Company used approximately $9.4 million during the periodyear ended December 31, 2000 to fund the activities of its research and development programs and costs associated with obtaining regulatory approvals, clinical testing and manufacturing process validation. Cash balances available to the Company, including the financings described above, funded these expenditures.
Cash and cash equivalents on December 31, 2000, totaled $14.9 million, compared to $732,000 at December 31, 1999. The $14.1 million increase was attributable to the financing activities and after the date which is 91 days after the
Issuance Date, 94% of the Two Day Average Trading Price (the "Conversion
Price"). From the Issuance Date, there is a ceiling price of $6.33 and within
the first 180 days after the Issuance Date, the Conversion Price has applicable
floor prices, ranging from $5.67 to $4.32,Fielding acquisition previously discussed. We estimate that based on conversion dates. The
maximum numberhistorical levels of shares as measured by the conversion terms most beneficialspending and revenues, giving effect to the holders of the Series A Preferred Stock at the time of closing results in a
deemed dividend in the amount of $455,048 which will be recorded in the first
quarter of 1998.
As of December 31, 1997, Novavax estimates that the money received from the
most recent sale of the privately placed Preferred Stock,Fielding acquisition noted above, and itswithout giving effect to any future financing, existing cash resources will be sufficient to finance itsour operations at current and projected
levels of development activity for approximately 12 to 18 to 24 months. On December
31, 1997, the Company had $3,847,072 in cash, cash equivalents and marketable
securities on hand. Past spending levels are not necessarily indicative of future spending. Future expenditures for product development, especially relatingincluding these related to outside testing and human clinical trials, are discretionary and accordingly, can be adjusted to available cash. As we continue to progress in our clinical development activities and commercial scale-up of product manufacturing, we anticipate future increases in spending associated with these activities. Moreover, the Company willwe may seek to establish one or
moreadditional collaborations with industry partners, to defray the costs of clinical trials and other related activities. NovavaxWe will also seek to obtainconsider sources of additional funds through public or private equity or debt financings,financing, collaborative arrangements with pharmaceutical companies, government agency contracts or from other sources. There can be no assurance that additional funding or bank financing will be available at all or on acceptable terms to permit successful commercialization of Novavax'sall our technologies and products. If adequate funds are not available, Novavaxwe may be required to significantly delay, reduce the scope of or eliminate one or more of its research or development programs, or seek alternative measures including arrangements with collaborative partners or others that may require Novavaxus to relinquish rights to certain of its technologies, product candidates or products.
ITEM
Item 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISKSQuantitative and Qualitative Disclosures about Market Risks
Not applicable.
ITEM
Item 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATAFinancial Statements and Supplementary Data
The financial statements and notes thereto listed in the accompanying index to financial statements (Item 14) are filed as part of this Annual Report and are incorporated herein by this reference.
ITEM
Item 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSUREChanges in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
18
13
23
PART III
ITEM
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTDirectors and Executive Officers of the Registrant
The information required by this item is contained in part under the caption "Executive“Executive Officers of the Registrant"Registrant” in Part I hereof, and the remainder is contained in the Company'sCompany’s Proxy Statement for the Company'sCompany’s Annual Meeting of Stockholders to be held on May 14, 19989, 2001 (the "1998“2001 Proxy Statement"Statement”) under the captions "Proposal“Proposal 1 --— Election of Directors"Directors” and "Beneficial“Beneficial Ownership of Common Stock"Stock” and is incorporated herein by this reference. The Company expects to file the 19982001 Proxy Statement within 120 days after the close of the fiscal year ended December 31, 1997.
Officers are elected on an annual basis and serve at the discretion of the
Board of Directors.
ITEM2000.
Item 11. EXECUTIVE COMPENSATIONExecutive Compensation
The information required by this item is contained in the Company's 1998Company’s 2001 Proxy Statement under the captions "Executive Compensation"“Executive Compensation” and "Director
Compensation"“Director Compensation” and is incorporated herein by this reference.
ITEM
Item 12. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS
AND MANAGEMENTSecurity Ownership of Certain Beneficial Owners and Management
The information required by this item is contained in the Company's 1998Company’s 2001 Proxy Statement under the caption "Beneficial“Beneficial Ownership of Common Stock"Stock” and is incorporated herein by this reference.
ITEM
Item 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONSCertain Relationships and Related Transactions
The information required by this item is contained in the Company's 1998Company’s 2001 Proxy Statement under the caption "Certain“Certain Relationships and Related Transactions"Transactions” and is incorporated herein by this reference.
24
PART IV
ITEM
Item 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES, AND REPORTS ON FORMExhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) Financial Statements: Report of Independent Accountants Consolidated
Balance Sheets as of December 31, 1997 and 1996
| (a)(1) | Financial Statements: | |
| Reports of Independent Accountants; Consolidated Balance Sheets as of December 31, 2000 and 1999; Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998; Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998; Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2000, 1999 and 1998; Notes to Consolidated Financial Statements. | ||
| (a)(2) | Financial Statement Schedules: | |
| Schedules are either not applicable or not required because the information required is contained in the financial statements or notes thereto. Condensed financial information of the Company is omitted since there are no substantial amounts of restricted net assets applicable to the Company’s consolidated subsidiaries. | ||
| (a)(3) | Exhibits Required to be Filed by Item 601 of Regulation S-K: | |
| Exhibits marked with a single asterisk are filed herewith, and exhibits marked with a double plus sign reference management contracts, compensatory plans or arrangements, filed in response to Item 14 (a)(3) of the instructions to Form 10-K. The 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 Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1996, File No. 0-26770, filed March 21, 1997 (the “1996 Form 10-K”).] | |
| 3.2 | Amended and Restated By-laws of The Company [Incorporated by reference to Exhibit 3.2 to the 1996 Form 10-K.] | |
| 3.3 | Certificate of Designations of Series A Custom Convertible Preferred Stock dated January 28, 1998. [Incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-3, File No. 333-46409, filed February 17, 1998.] | |
| *3.4 | Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Company, dated December 18, 2000. | |
| 4. | Specimen stock certificate for shares of Common Stock, par value $.01 per share. [Incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form 10, File No. 0-26770, filed September 14, 1995 (the “Form 10”).] | |
| 10.1 | License Agreement between IGEN, Inc. and Micro-Pak, Inc. [Incorporated by reference to Exhibit 10.3 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1995, File No. 0-26770, filed April 1, 1996, (the “1995 Form 10-K”).] | |
| ††10.2 | 1995 Stock Option Plan. [Incorporated by reference to Exhibit 10.4 to the Form 10.] | |
| ††10.3 | First Amendment to The Company 1995 Stock Option Plan approved by the stockholders of the Company on May 14, 1998, and by the Board of Directors on March 16, 1998. [Incorporated by reference to Exhibit 10.3 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1998, File No. 0-26770, filed April 15, 1999. (the “1998 Form 10-K”).] | |
| *††10.4 | Second Amendment to The Company 1995 Stock Option Plan approved by the stockholders of the Company on May 9, 2000, and by the Board of Directors on March 7, 2000. | |
| ††10.5 | Director Stock Option Plan. [Incorporated by reference to Exhibit 10.5 to the Form 10.] | |
| 10.6 | Agreement of Lease by and between the Company and Rivers Center Associates Limited Partnership, dated September 25, 1996. [Incorporated by reference to Exhibit 10.7 to the 1996 Form 10-K.] | |
| ††10.7 | Employment Agreement dated March 31, 1998, by and between the Company and D. Craig Wright [Incorporated by reference to Exhibit 10.14 to the1998 Form 10-K.] |
25
| ††10.8 | Employment Agreement dated May 13, 1999, by and between the Company and John A. Spears. [Incorporated by reference to Exhibit 10.10 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999, File No. 0-26770, filed March 9, 2000. (the “1999 Form 10-K”).] | |
| 10.9 | Form of Stock and Warrant Purchase Agreement dated April 14, 1999, by and between the Company and the purchasers named therein. [Incorporated by reference to Exhibit 10.16 to the 1998 Form 10-K] | |
| 10.11 | License Agreement by and between the Company and Parkedale Pharmaceuticals, Inc. dated October 21, 1999. [Incorporated by reference to Exhibit 10.13 to the 1999 Form 10-K.] | |
| 10.12 | Form of Stock and Warrant Purchase Agreement dated January 28, 2000, by and between the Company and the purchasers named therein. [Incorporated by reference to Exhibit 10.15 to the 1999 Form 10-K.] | |
| 10.13 | Agreement and Plan of Merger dated October 4, 2000 between the Company and the parties identified therein. [Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed October 19, 2000.] | |
| 10.14 | Note Purchase Agreement dated as of December 19, 2000 between the Company and King Pharmaceuticals, Inc. [Incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K, filed January 2, 2001.] | |
| 10.15 | Investor Rights Agreement dated December 19, 2000 between the Company and King Pharmaceuticals, Inc. [Incorporated by reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K, filed January 2, 2001.] | |
| 10.16 | Agreement for Purchase and Sale of Assets Relating to AVC™Product Line dated as of January 8, 2001, by and between the Company and King Pharmaceuticals, Inc. [Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed January 19, 2001.] | |
| 10.17 | Copromotion Agreement dated as of January 8, 2001, between the Company and King Pharmaceuticals, Inc. [Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed January 19, 2001.] | |
| 10.18 | Exclusive License and Distribution Agreement dated as of January 8, 2001, between the Company and King Pharmaceuticals, Inc. [Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed January 19, 2001.] | |
| 16. | Letter regarding change in certifying accountant. [Incorporated by reference to Exhibit 16 to the Company’s Current Report on Form 8-K, filed July 25, 2000.] | |
| *21 | List of Subsidiaries. | |
| *23.1 | Consent of Ernst & Young LLP, Independent Accountants. | |
| *23.2 | Consent of PricewaterhouseCoopers LLP, Independent Accountants. | |
| 27 | Financial Data Schedule |
26
| (b) | Reports on Form 8-K: | |
| The Company filed a current report on Form 8-K on October 19, 2000 to report under Item 2 its agreement to acquire Fielding Pharmaceutical Company, Inc. In addition, the Company filed an amendment to the Form 8-K on December 18, 2000 to include under Item 7 the following financial information: | ||
| (a) Audited Combined Financial Statements of Fielding Pharmaceutical Company and MB Packaging, Inc.: | ||
| (1) Report of Independent Accountants dated October 20, 2000. | ||
| (2) Combined Balance Sheets as of December 31, 1999 and 1998. | ||
| (3) Combined Income Statements for the years ended December 31, 1999 and 1998. | ||
| (4) Combined Statements of Changes in Stockholders’ Equity for the two years ended December 31, 1999. | ||
| (5) Combined Statements of Cash Flows for the years ended December 31, 1999 and 1998. | ||
| (6) Notes to the Combined Financial Statements | ||
| (b) Unaudited Interim Combined Financial Statements of Fielding Pharmaceutical Company and MB Packaging, Inc.: | ||
| (1) Unaudited Combined Balance Sheets as of September 30, 2000 and December 31, 1999. | ||
| (2) Unaudited Combined Income Statements for the nine-month periods ended September 30, 2000 and 1999. | ||
| (3) Unaudited Combined Statements of Cash Flows for the nine-month periods ended September 30, 2000 and 1999. | ||
| (4) Notes to the Combined Financial Statements | ||
| (c) Unaudited Pro Forma Consolidated Financial Information of The Company and Fielding Pharmaceutical Company: | ||
| (1) Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 1999 | ||
| (2) Unaudited Pro Forma Consolidated Statement of Operations for the nine-month period ended September 30, 1999. | ||
| (3) Unaudited Pro Forma Consolidated Balance Sheet as of September 30, 2000. | ||
| (4) Notes to the Unaudited Pro Forma Financial Statements. | ||
| The Company filed a second amendment to the October 19, 2000 Form 8-K on December 21, 2000 to include under Item 2 a statement that the Fielding Pharmaceutical acquisition was completed on December 19, 2000 and under Item 99 a Press Release relating to the completion of the Fielding Pharmaceutical acquisition. |
27
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.
Date: March 29, 2001
| NOVAVAX, INC. |
| By: | /s/ JOHN A. SPEARS |
| John A. Spears, President and Chief Executive Officer |
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 in the capacity and on the date indicated.
| Name | Title | Date | ||
| /s/ JOHN A. SPEARS John A. Spears | President and Chief Executive Officer and Director | March 29, 2001 | ||
| /s/ DENNIS W. GENGE Dennis W. Genge | Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) | March 29, 2001 | ||
| /s/ GARY C. EVANS Gary C. Evans | Director | March 29, 2001 | ||
| /s/ MITCHELL J. KELLY Mitchell J. Kelly | Director | March 29, 2001 | ||
| /s/ J. MICHAEL LAZARUS, M.D. J. Michael Lazarus, M.D. | Director | March 29, 2001 | ||
| /s/ JOHN O. MARSH, JR. John O. Marsh, Jr. | Director | March 29, 2001 | ||
| /s/ MICHAEL A. MCMANUS Michael A. McManus | Director | March 29, 2001 | ||
| /s/ DENIS M. O’DONNELL, M.D. Denis M. O’Donnell, M.D. | Director | March 29, 2001 | ||
| /s/ RONALD H. WALKER Ronald H. Walker | Director | March 29, 2001 | ||
| /s/ WILLIAM E. GEORGES William E. Georges | Director | March 29, 2001 | ||
28
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1997,1996,2000 and 1995
Consolidated Statements of Cash Flows for the years ended December 31,
1997,1996, and 1995 Consolidated Statements of Stockholders' Equity for
the years ended December 31, 1997,1996, and 1995 Notes to Consolidated
Financial Statements
(2) Financial Statement Schedules: Schedules are either not applicable or
not required because the information required is contained in the
financial statements or notes thereto. Condensed financial information
of the Registrant is omitted since there are no substantial amounts of
restricted net assets applicable to the Company's consolidated
subsidiaries.
(3) Exhibits Required to be Filed by Item 601 of Regulation S-K.
Exhibits marked with a single asterisk are filed herewith, and exhibits
marked with a double asterisk reference management contract,
compensatory plan or arrangement, filed in response to Item 14 (a)(3)
of the instructions to Form 10-K. The 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 Novavax, Inc.
[Incorporated by reference to Exhibit 3.1 to the Company's Annual
Report Form 10-K for the fiscal year end December 31, 1996, File No.
0-26770, filed March 21, 1997 (the "1996 Form 10-K")]
3.2 Amended and Restated By-laws of Novavax, Inc. [Incorporated by
reference to Exhibit 3.2 to the 1996 Form 10-K.]
3.3 Certificate of Designations of Series A Custom Convertible Preferred
Stock dated January 28, 1998 by and between the Company and each of the
four purchasers, Delta Opportunity Fund, Ltd., Olympus Securities,
Ltd., Nelson Partners, OTATO Limited Partnership. [Incorporated by
reference to Exhibits 4.2
19
14
to the Company's Registration Statement on Form S-3, File No.
333-46409, filed February 17, 1998. ]
4 Specimen stock certificate for shares of Common Stock par value $.01
per share. [Incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form 10, File No. 0-26770, filed September
14, 1995 (the "Form 10").]
10.1 Tax Matters Agreement between Novavax and IGI. [Incorporated by
reference to Exhibit 10.1 to the Form 10.]
10.2 Transition Services Agreement between Novavax and IGI. [Incorporated by
reference to Exhibit 10.2 to the Form 10.]
10.3 License Agreement between IGEN, Inc. and Micro-Pak, Inc.[Incorporated
by reference to Exhibit 10.3 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1995, File No. 0-26770,
filed April 1, 1996, (the "1995 Form 10-K").]
**10.4 1995 Stock Option Plan. [Incorporated by reference to Exhibit 10.4 to
the Form 10.]
**10.5 1995 Director Stock Option Plan. [Incorporated by reference to Exhibit
10.5 to the Form 10.]
10.6 Stock Purchase Agreement dated October 9, 1996 by and between the
Company and the purchasers named therein. [Incorporated by reference to
Exhibit 4.4 to the Company's Registration Statement on Form S-3, File
No. 333-14305, filed October 17, 1996.]
10.7 Agreement of Lease by and between the Company and Rivers Center
Associates Limited Partnership, dated September 25, 1996. [Incorporated
by reference to Exhibit 10.7 to the 1996 Form 10-K.]
10.8 Stock and Warrant Purchase Agreement dated February 10, 1997 by and
between the Company and Anaconda Opportunity Fund, L.P. [Incorporated
by reference to Exhibit 4.4 to the Company's Registration Statement on
Form S-3, File No. 333-22685, filed March 4, 1997(the "Anaconda S-3").]
10.9 Form of Warrant issued by the Company to Anaconda Opportunity Fund,
L.P. [Incorporated by reference to Exhibit 4.5 to the Anaconda S-3.]
**10.10 Employment Agreement dated May 15, 1997, by and between the Company
* and Richard F. Maradie.
**10.11 Employment Agreement dated July 24, 1997, by and between the Company
* and Brenda L. Fugagli.
**10.12 Letter Agreement dated February 19, 1998, by and between the Company
* and Richard J. Harwood.
**10.13 Letter Agreement dated February 19, 1998, by and between the Company
* and Thomas G. Tachovsky.
10.14 Form of Subscription Agreement dated January 23, 1998 by and between
the Company and each of the four purchasers, Delta Opportunity Fund,
Ltd., Olympus Securities, Ltd., Nelson Partners, OTATO Limited
Partnership. [Incorporated by reference to Exhibits 4.5 to the
Company's Registration Statement on Form S-3, File No. 333-46409, filed
February 17, 1998.]
21 List of Subsidiaries [Incorporated by reference to Exhibit 21 to the
1995 Form 10-K.]
*23 Consent of Coopers & Lybrand L.L.P.
*27 Financial Data Schedule
(B) Reports on Form 8-K:
None.
20
15
INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS
DESCRIPTION
Report of Independent Accountants 20
Consolidated Statements of Operations
for each of the three years in the
period ended December 31, 1997 21
Consolidated Balance Sheets as of
December 31, 1997 and 1996 22
Consolidated Statements of Changes in
Stockholders' Equity for each of the three
years in the period ended December 31, 1997 23
Consolidated Statements of Cash Flows
for each of the three years in the period
ended December 31, 1997 24
Notes to Consolidated Financial Statements 25
21
16
1999
Contents
| Reports of Independent Accountants | F-2 | |
| Consolidated Financial Statements: | ||
| Consolidated Balance Sheets as of December 31, 2000 and 1999 | F-4 | |
| Consolidated Statements of Operations for each of the three years in the period ended December 31, 2000 | F-5 | |
| Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended December 31, 2000 | F-6 | |
| Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2000 | F-7 | |
| Notes to the Consolidated Financial Statements | F-8 |
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the
Board of Directors and Stockholders of
We have audited the accompanying consolidated balance sheetssheet of Novavax, Inc.
and Subsidiaries as of December 31, 1997 and 1996,2000 and the related consolidated statements of operations, stockholders'stockholders’ equity and cash flows for each
of the three years in the period ended December 31, 1997.year then ended. These consolidated financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on these financial statements based on our audits.audit.
We conducted our auditsaudit in accordance with auditing standards generally accepted auditing
standards.in the 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 provideaudit provides a reasonable basis for our opinion.
In our opinion, the 2000 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Novavax, Inc. and
Subsidiaries as ofat December 31, 19972000 and 1996,the consolidated results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States.
/s/ Ernst and Young LLP
McLean, Virginia
F-2
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Novavax, Inc.
In our opinion, the accompanying consolidated balance sheet and related consolidated statements of operations, of cash flows and of stockholders’ equity, present fairly, in all material respects, the consolidated financial position of Novavax, Inc. and subsidiaries at December 31, 1999, and the consolidated results of their operations and their cash flows for each of the threetwo years in the period ended December 31, 19971999, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles.
COOPERS & LYBRAND L.L.P.
principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. We have not audited the consolidated financial statements of Novavax, Inc. for any period subsequent to December 31, 1999.
/s/ PRICEWATERHOUSECOOPERS LLP
McLean, Virginia
March 13, 1998
22
17
F-3
NOVAVAX, INC. AND SUBSIDIARIES
| December 31, | ||||||||||
| 2000 | 1999 | |||||||||
ASSETS | ||||||||||
| Current assets: | ||||||||||
| Cash and cash equivalents | $ | 14,864 | $ | 732 | ||||||
| Accounts receivable net of allowance for doubtful accts of $50,000 and $0 at December 31, 2000 and 1999 | 954 | 341 | ||||||||
| Inventory | 461 | — | ||||||||
| Prepaid expenses and other current assets | 757 | 70 | ||||||||
| Total current assets | 17,036 | 1,143 | ||||||||
| Property and equipment, net | 1,927 | 1,053 | ||||||||
| Goodwill and other intangible assets, net | 37,566 | 2,267 | ||||||||
| Total assets | $ | 56,529 | $ | 4,463 | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||
| Current liabilities: | ||||||||||
| Accounts payable | $ | 1,401 | $ | 481 | ||||||
| Accrued expenses | 3,200 | 281 | ||||||||
| Deferred revenue | 104 | 750 | ||||||||
| Debt obligations | — | 111 | ||||||||
| Total current liabilities | 4,705 | 1,623 | ||||||||
| Convertible note | 20,000 | — | ||||||||
| Commitments and contingencies | ||||||||||
| Stockholders’ equity: | ||||||||||
| Preferred stock, $.01 par value, 2,000,000 shares authorized; no shares issued and outstanding | — | — | ||||||||
| Common stock, $.01 par value, 50,000,000 shares authorized; 22,586,304 issued and 22,104,087 outstanding at December 31, 2000, and 15,173,688 issued and 15,167,166 outstanding at December 31, 1999 | 226 | 152 | ||||||||
| Additional paid-in capital | 91,611 | 45,622 | ||||||||
| Accumulated deficit | (55,085 | ) | (42,894 | ) | ||||||
| Deferred compensation on stock options granted | — | (5 | ) | |||||||
| Treasury stock, 482,217 shares and 6,522 shares, cost basis, at December 31, 2000 and 1999, respectively | (4,928 | ) | (35 | ) | ||||||
| Total stockholders’ equity | 31,824 | 2,840 | ||||||||
| Total liabilities and stockholders’ equity | $ | 56,529 | $ | 4,463 | ||||||
See accompanying notes.
F-4
NOVAVAX, INC.
| For the years ended December 31, | ||||||||||||||
| 2000 | 1999 | 1998 | ||||||||||||
| Revenues | $ | 2,475 | $ | 1,181 | $ | 681 | ||||||||
| Operating expenses: | ||||||||||||||
| General and administrative | 5,859 | 2,393 | 2,472 | |||||||||||
| Research and development | 9,358 | 3,354 | 3,361 | |||||||||||
| Total operating expenses | 15,217 | 5,747 | 5,833 | |||||||||||
| Loss from operations | (12,742 | ) | (4,566 | ) | (5,152 | ) | ||||||||
| Interest income, net | 551 | 60 | 335 | |||||||||||
| Net loss | (12,191 | ) | (4,506 | ) | (4,817 | ) | ||||||||
| Dividends on preferred stock | — | — | (1,808 | ) | ||||||||||
| Accretion of offering cost | — | — | (420 | ) | ||||||||||
| Loss applicable to common stockholders | $ | (12,191 | ) | $ | (4,506 | ) | $ | (7,045 | ) | |||||
| (Basic and diluted) Loss per share applicable to common stockholders | $ | (0.64 | ) | $ | (0.31 | ) | $ | (0.57 | ) | |||||
| Weighted average number of common shares outstanding (basic and diluted) | 19,015,719 | 14,511,081 | 12,428,246 | |||||||||||
See accompanying notes are an integral part of the consolidated financial
statements.
23
18
notes.
F-5
NOVAVAX, INC. AND SUBSIDIARIES
| Deferred | ||||||||||||||||||||||||||||
| Compensation | ||||||||||||||||||||||||||||
| Common Stock | Additional | On Stock | Total | |||||||||||||||||||||||||
| Paid-in | Accumulated | Options | Treasury | Stockholders’ | ||||||||||||||||||||||||
| Shares | Dollars | Capital | Deficit | Granted | Stock | Equity | ||||||||||||||||||||||
Balance, December 31, 1997 | 12,031,757 | $ | 120 | $ | 37,853 | $ | (31,343 | ) | $ | 25 | $ | (83 | ) | $ | 6,522 | |||||||||||||
| Company contribution to employee 401(k) | 42 | 1 | (12 | ) | — | — | 33 | 22 | ||||||||||||||||||||
| Amortization of deferred compensation | — | — | — | — | 10 | — | 10 | |||||||||||||||||||||
| Private sale of preferred stock, net | — | — | 1,583 | — | — | — | 1,583 | |||||||||||||||||||||
| Conversion of preferred stock | 1,043,956 | 11 | 1,475 | — | — | — | 1,486 | |||||||||||||||||||||
| Dividend on preferred stock | 32,944 | — | — | (225 | ) | — | — | (225 | ) | |||||||||||||||||||
| Deemed dividend on preferred stock | — | — | — | (1,583 | ) | — | — | (1,583 | ) | |||||||||||||||||||
| Accretion of offering costs | — | — | — | (420 | ) | — | — | (420 | ) | |||||||||||||||||||
| Private sale of common stock, net | — | — | — | — | — | 50 | 50 | |||||||||||||||||||||
| Exercise of stock options | 144,419 | 1 | 332 | — | — | — | 333 | |||||||||||||||||||||
| Net loss | — | — | — | (4,817 | ) | — | — | (4,817 | ) | |||||||||||||||||||
Balance, December 31, 1998 | 13,253,118 | 133 | 41,231 | (38,388 | ) | (15 | ) | — | 2,961 | |||||||||||||||||||
| Amortization of deferred compensation | — | — | — | — | 10 | — | 10 | |||||||||||||||||||||
| Private sale of common stock | 1,651,100 | 17 | 4,111 | — | — | — | 4,128 | |||||||||||||||||||||
| Offering costs | 42,933 | — | (173 | ) | — | — | — | (173 | ) | |||||||||||||||||||
| Stock issued as compensation | — | — | (43 | ) | — | — | 158 | 115 | ||||||||||||||||||||
| Exercise of stock options | 226,537 | 2 | 496 | — | — | (193 | ) | 305 | ||||||||||||||||||||
| Net loss | — | — | — | (4,506 | ) | — | — | 4,506 | ||||||||||||||||||||
Balance, December 31, 1999 | 15,173,688 | 152 | 45,622 | (42,894 | ) | (5 | ) | (35 | ) | 2,840 | ||||||||||||||||||
| Amortization of deferred compensation | — | — | — | — | 5 | — | 5 | |||||||||||||||||||||
| Private sale of common stock, net | 2,813,850 | 28 | 10,470 | — | — | — | 10,498 | |||||||||||||||||||||
| Stock issued for acquisition | 2,312,501 | 23 | 18,477 | — | — | — | 18,500 | |||||||||||||||||||||
| Acquisition obligation | — | — | 5,000 | — | — | — | 5,000 | |||||||||||||||||||||
| Exercise of stock options and warrants | 2,286,265 | 23 | 12,042 | — | — | (4,893 | ) | 7,172 | ||||||||||||||||||||
| Net loss | — | — | — | (12,191 | ) | — | — | (12,191 | ) | |||||||||||||||||||
Balance, December 31, 2000 | 22,586,304 | $ | 226 | $ | 91,611 | $ | (55,085 | ) | $ | — | $ | (4,928 | ) | $ | 31,824 | |||||||||||||
See accompanying notes are an integral part of the consolidated financial
statements.
24
19
notes.
F-6
NOVAVAX, INC. AND SUBSIDIARIES
| For the years ended December 31, | ||||||||||||
| 2000 | 1999 | 1998 | ||||||||||
Operating Activities | ||||||||||||
| Net loss | $ | (12,191 | ) | $ | (4,506 | ) | $ | (4,817 | ) | |||
| Reconciliation of net loss to net cash used by operating activities: | ||||||||||||
| Gain on sale of asset | — | (23 | ) | — | ||||||||
| Non-cash compensation expense | 5 | 10 | 10 | |||||||||
| Amortization | 362 | 199 | 129 | |||||||||
| Depreciation | 232 | 183 | 152 | |||||||||
| Issuance of stock to 401(k) plan and as compensation | — | 115 | 22 | |||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Accounts receivable | 220 | (203 | ) | 112 | ||||||||
| Inventory | (211 | ) | — | — | ||||||||
| Prepaid expenses and other assets | (555 | ) | (45 | ) | 224 | |||||||
| Accounts payable and accrued expenses | 2,740 | (180 | ) | 544 | ||||||||
| Deferred revenue | (646 | ) | 750 | — | ||||||||
| Net cash used by operating activities | (10,044 | ) | (3,700 | ) | (3,624 | ) | ||||||
Investing activities | ||||||||||||
| Acquisition of a business, net of cash acquired | (12,466 | ) | (592 | ) | — | |||||||
| Capital expenditures | (831 | ) | (48 | ) | (231 | ) | ||||||
| Deferred patent costs | (86 | ) | (171 | ) | (146 | ) | ||||||
| Proceeds from sale of asset | — | 25 | — | |||||||||
| Net cash used in investing activities | (13,383 | ) | (786 | ) | (377 | ) | ||||||
Financing activities | ||||||||||||
| Proceeds from issuance of convertible note | 20,000 | — | — | |||||||||
| Payment of capital lease obligations | (111 | ) | (73 | ) | (38 | ) | ||||||
| Issuance of preferred stock | — | — | 5,998 | |||||||||
| Dividend on preferred stock | — | — | (179 | ) | ||||||||
| Repurchase of preferred stock | — | — | (4,979 | ) | ||||||||
| Proceeds from private placements of common stock | 10,498 | 3,955 | 50 | |||||||||
| Proceeds from the exercise of stock options and warrants | 7,172 | 305 | 333 | |||||||||
| Net cash provided by financing activities | 37,559 | 4,187 | 1,185 | |||||||||
| Net change in cash and cash equivalents | 14,132 | (299 | ) | (2,816 | ) | |||||||
| Cash and cash equivalents at beginning of year | 732 | 1,031 | 3,847 | |||||||||
| Cash and cash equivalents at end of year | $ | 14,864 | $ | 732 | $ | 1,031 | ||||||
See accompanying notes are an integral part of the consolidated financial
statements.
25
20
notes.
F-7
NOVAVAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 1997, 1996 and 1995
Additional Note Payable Combined
Common Stock Paid-in to Former Equity
Shares Dollars Capital Parent Capital Deficit
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1995 14,973 $12,851,599 $ 4,974,000 $(20,028,467)
Proceeds from payable to
former parent 7,221,646
Proceeds from note payable to
former parent 4,172,401
Restructuring and recapitalization 9,872,963 $ 98,879 $23,162,374 (17,024,000) (4,974,000)
License agreement with
former parent 5,000,000
Options granted as compensation 1,988,748
Amortization of deferred
compensation
Exercise of stock options 50,000 500 37,000
Net loss (8,494,358)
---------- --------- ----------- -------- ---------- ------------
Balance, December 31, 1995 9,937,936 99,379 30,188,122 -- -- (21,301,179)
Options and warrants granted
as compensation 222,489
Amortization of deferred
compensation
Private sale of common stock, net 505,000 5,050 1,650,827
Exercise of stock options 217,774 2,178 348,461
Net loss (5,494,985)
---------- --------- ----------- -------- ---------- ------------
Balance, December 31, 1996 10,660,710 106,607 32,409,899 (26,796,164)
Options granted as compensation
Company contribution to
Employee 401k plan 771 8 2,491
Amortization of deferred
compensation
Private sale of common stock, net 1,200,000 12,000 4,990,718
Exercise of stock options 170,276 1,703 617,513
Net loss (4,546,617)
---------- --------- ----------- -------- ---------- ------------
Balance, December 31, 1997 12,031,757 $120,318 $38,020,621 $ -- $ -- $(31,342,780)
========== ========= =========== ======== ========== ============
Deferred Total
Compensation Stockholders'
on Stock Treasury Stock Equity
Options Granted Shares Dollars (Deficit)
- -----------------------------------------------------------------------------------------------------------------
Balance, January 1, 1995 $(2,202,868)
Proceeds from payable to
former parent 7,221,646
Proceeds from note payable to
former parent 4,172,401
Restructuring and recapitalization 1,263,253
License agreement with
former parent 5,000,000
Options granted as compensation $(1,988,748) --
Amortization of deferred
compensation 101,183 101,183
Exercise of stock options 37,500
Net loss (8,494,358)
----------- ------ --------- ---------
Balance, December 31, 1995 (1,887,565) -- -- 7,098,757
Options and warrants granted
as compensation (222,489) --
Amortization of deferred
compensation 1,506,790 1,506,790
Private sale of common stock, net 1,655,877
Exercise of stock options 350,639
Net loss (5,494,985)
----------- ------ --------- ---------
Balance, December 31, 1996 (603,264) -- 5,117,078
Options granted as compensation
Company contribution to
Employee 401k plan 1,330 $ 7,230 9,729
Amortization of deferred
compensation 577,644 577,644
Private sale of common stock, net 5,002,718
Exercise of stock options (21,074) (257,999) 361,217
Net loss (4,546,616)
----------- ------ --------- ---------
Balance, December 31, 1997 $ (25,620) (19,744) $(250,769) $6,521,770
=========== ====== ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
26
21
NOVAVAX, INC. AND SUBSIDIARIES
1. DESCRIPTION OF BUSINESS AND BASIS OF
PRESENTATION
DESCRIPTION OF BUSINESSDescription of Business
Novavax, Inc., a Delaware corporation ("Novavax"(“Novavax” or the "Company"“the Company”), was incorporated in 1987, and is a specialty biopharmaceutical company focusing onengaged in the research, development and developmentcommercialization of proprietary topicalproducts focused on women’s health and oral drug delivery technologiesinfectious diseases. The Company sells, markets, and applicationsdistributes a line of those technologies.ethical pharmaceuticals and pre-natal vitamins. The Company'sCompany’s principal technology platforms involveplatform involves the use of proprietary, microscopic, organized, lipidnon-phospholipid structures made into microscopic vesiclesas vehicles for the delivery of a wide variety of drugs and other therapeutic products, includingproducts. These include certain hormones, antibacterialanti-bacterial, and anti-viral products and vaccine adjuvants. The Company currentlyNovavax has three leadseveral product candidates in various stages of
development and animalpre-clinical and human trials. These include, ESTRASORB(TM)clinical trials, including ESTRASORB™, a topicaltransdermal lotion for estrogen cream, ANDROSORB(TM),replacement therapy which recently completed Phase III testing. In addition, Novavax conducts research and development on preventative and therapeutic vaccines for a topical testosterone cream, and
Helicore(TM), an oral anti-bacterial preparation for the treatmentvariety of Helicobacter pylori infection.infectious diseases, including human papillomavirus (HPV).
The regulatory process is lengthy, requiring
substantial funds, andproducts currently under development or in clinical trials by the Company cannot predict whenwill require significant additional research and development efforts, including extensive pre-clinical and clinical testing and regulatory approval, of any product
or a licenseprior to sell any product might occur. In addition, therecommercial use. There can be no assurancesassurance that the Company’s research and development efforts will be successful and that any of the Company’s potential products will prove to be safe and effective in clinical trial. Even if developed, these products may not receive regulatory approval or be successfully introduced and marketed at prices that would permit the Company will have sufficient funds necessary or that the
additional funds will be available at all or on acceptable terms.to operate profitably. The Company also recognizes that the commercial launch of any product is subject to certain risks including but not limited to manufacturing scale-up and market acceptance. BASIS OF PRESENTATIONNo 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.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include the accounts of Novavax (formerly Molecular Packaging Systems,and its wholly owned subsidiaries Fielding Pharmaceuticals, Inc.), its wholly-owned
subsidiaries Micro-Pak, Inc. ("Micro-Pak") and, Micro Vesicular Systems, Inc. ("MVS"), and Lipovax, Inc. ("Lipovax", formerly known as Novavax, Inc.). All significant intercompany accounts and transactions have been eliminated in consolidation.
The financial statements for the period January 1, 1995 through December 12,
1995 have been prepared for the aforementioned companies on a combined basis
from books and records maintained by IGI, Inc. ("IGI"). These combined financial
statements reflect the financial position and results
Use of operations of the
combined companies at their historical bases, including allocations of certain
costs by IGI. The accounts and transactions between the companies have been
eliminated. The financial statements may not be indicative of the results that
would have been attained had the entities operated together independently of
IGI.
2. DISTRIBUTION
On December 12, 1995 (the "Distribution Date"), IGI distributed to the holders
of record of IGI's common stock, at the close of business on the Record Date,
November 28, 1995, one share of the Company's common stock for every one share
of IGI common stock outstanding (the "Distribution"). The Distribution resulted
in 93.2% of the outstanding shares of the Company's common stock being
distributed to holders of IGI common stock on a proportionate basis after taking
into account the Restructuring and Recapitalization described in Note 3. As a
result of the Distribution, the Company is no longer a subsidiary of IGI but an
independent publicly-owned company whose shares are traded on the American Stock
Exchange under the trading symbol NOX.
3. RESTRUCTURING AND RECAPITALIZATION
Prior to the Distribution, IGI consolidated its animal health products and
cosmetics and consumer products businesses (the "Core Businesses") within itself
and its subsidiaries. Concurrently it consolidated the biotechnology business
(the "Biotechnology Business") within Novavax and its subsidiaries (the
"Restructuring"). At the time of the Restructuring, IGI owned, through its
wholly-owned subsidiary, IGEN, Inc. ("IGEN"), the following percentages of the
voting power of the subsidiaries conducting the Biotechnology Business: 84.7% of
the voting power of Novavax, the sole stockholder of both Micro-Pak and MVS, and
90.3% of the voting power of Lipovax. The Biotechnology Business resided, and
continues to reside, within Novavax, Micro-Pak, MVS and Lipovax. Prior to the
Restructuring, the current and former employees of Novavax and Lipovax held
approximately 15.3% and 9.7% of the voting power of Novavax and Lipovax,
respectively.
On September 20, 1995, Novavax, Lipovax and Novavax Acquisition Subsidiary,
Inc., a wholly-owned subsidiary of Novavax created for purposes of the
Restructuring ("Acquisition Corporation"), entered into a merger agreement (the
"Merger Agreement"). The Merger Agreement, which was approved by Lipovax
stockholders on October 12, 1995, provided, among other things, for a reverse
triangular merger (the "Merger") in which Acquisition Corporation merged with
and into Lipovax and Lipovax became a wholly-owned subsidiary of Novavax. As
consideration for the Merger, Novavax issued an aggregate of 21,698 shares, of
which 90.3% were issued to IGEN and the remaining 9.7% to the minority
stockholders of Lipovax. The issuance of shares to the minority stockholders of
Lipovax resulted in a charge to the statement of operations of $866,966 to
reflect the purchase of in process research and development. After the Merger,
IGEN owned 85.5% of the outstanding shares of Novavax, and the remaining 14.5%
were held by the minority stockholders of Novavax (8.8%) and by the former
minority stockholders of Lipovax (5.7%).
As part of the Restructuring, Novavax issued to IGEN 41,569 shares of Novavax
Common Stock in exchange for the transfer by
27
22
IGEN to Novavax of all of IGEN's rights to the payment of $17,024,000 aggregate
indebtedness owed to ImmunoGenetics, Inc., a wholly-owned subsidiary of IGEN
(and the primary operating entity of the Core Businesses ("ImmunoGenetics")), by
MVS ($9,996,504) and Lipovax ($7,027,496) (collectively, "Novavax Sub Debt").
The Novavax Sub Debt resulted from loans made by ImmunoGenetics to MVS and
Lipovax during the period from 1991 to the Distribution Date. The number of
shares of Novavax Common Stock issued in exchange for the Novavax Sub Debt was
based on the value of $409.54 per share of Novavax Common Stock. In connection
with the Restructuring, Novavax converted $17,024,000 of these loans for 41,569
shares of Novavax stock.
In addition to the Restructuring, Novavax recapitalized its capital stock
(the "Recapitalization"). Immediately prior to the Recapitalization, Novavax's
issued and outstanding capital stock consisted of approximately 75,240 shares of
Class A Common Stock and 3,000 shares of Class B Common Stock. As a result of
the Recapitalization, each share of Class A and Class B Common Stock was
converted into approximately 126.37944 shares of Novavax Common Stock. After the
Restructuring and Recapitalization, there were 9,887,936 shares of Novavax
Common Stock outstanding.
To complete the separation of the Core Businesses from the Biotechnology
Business, on December 12, 1995, IGEN distributed all of the shares of Novavax
Common Stock held by IGEN (approximately 93.2% of the voting securities of
Novavax) to IGI in a transaction intended to qualify as a tax-free distribution
under section 355 of the Code. IGI received a private letter ruling from the
Internal Revenue Service ("IRS") that the Distribution would not be taxable to
IGI or its shareholders.
4. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS AND MARKETABLE SECURITIES
Cash equivalents are considered to be short-term highly liquid investments with
original maturities of 90 days or less. Marketable securities consist of
investments in fixed income securities with original maturities of greater than
three months and less than one year. Marketable securities are stated at cost
which approximates market. Interest income is accrued as earned.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation of furniture, fixtures
and equipment is provided under the straight-line method over the estimated
useful lives, generally five years. Amortization of leasehold improvements is
provided over the estimated useful lives of the improvements or the term of the
lease, which ever is shorter. Furniture and equipment held under capital leases
are amortized under the straight-line method over the shorter of the lease term
or the estimated useful life of the asset.
Repair and maintenance costs are charged to operations as incurred while
major improvements are capitalized. When assets are retired or disposed of, the
cost and accumulated depreciation thereon are removed from the accounts and any
gains or losses are included in operations.
PATENT COST
Costs associated with obtaining patents, principally legal costs and filing
fees, are being amortized on a straight line basis over the remaining economic
lives of the respective patents. The Company periodically evaluates the carrying
amount of these assets based on current licensing and future commercialization
efforts and if warranted, impairment would be recognized. Accumulated
amortization of patent costs was $549,397 and $430,057 at December 31, 1997 and
1996, respectively.
REVENUE RECOGNITION
Revenues from the sale of scientific prototype vaccines and adjuvants are
recorded as the products are produced and shipped. Revenues earned under
research contracts are recognized when the related contract provisions are met.
NET LOSS PER SHARE
In 1997, the Company adopted SFAS No. 128, Earnings per Share. Basic earnings
per share is computed by dividing the net loss available to common shareholders
by the weighted average number of common share outstanding during the period.
Diluted earnings per share is computed by dividing net earnings available to
common shareholders by the weighted average number of common shares outstanding
after giving effect to all dilutive potential common shares that were
outstanding during the period.
Potential common shares are not included in the computation of dilutive
earning per share if they are antidilutive. Net loss per share as reported was
not adjusted for potential common shares as they are antidilutive. Earnings per
share for all other periods presented conform to SFAS No. 128.
Pro forma net loss per share for the year ended December 31, 1995 is based
upon weighted average shares outstanding of 9,937,936 representing primarily
shares issued in connection with the Recapitalization. These shares have been
treated as outstanding as if the transaction had occurred on January 1, 1995.
INCOME TAXES
The Company's income taxes are determined in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109 which requires the
asset and liability method of accounting for income taxes. Under the asset and
liability method deferred income taxes are recognized for the tax consequences
of temporary differences by applying enacted statutory tax rates applicable to
future years to
28
23
differences between the financial statement carrying amounts and the tax basis
of existing assets and liabilities.
The effect on deferred taxes of changes in tax rates is recognized in income
in the period that includes the enactment date. A valuation allowance is
recorded based on management's determination of the ultimate realizability of
future deferred tax assets. Novavax was included in IGI's consolidated federal
income tax return through the effective date of the Distribution. Provisions for
income taxes were calculated on a separate return basis and were determined in
accordance with the provisions of SFAS No. 109.
USE OF ESTIMATESEstimates
The preparation of financial statements in conformity with generally accepted accounting principles 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. Significant estimates include valuation of patent costs and benefits for income
taxes and related valuation allowances. Actual results could differ from those estimates.
NEW ACCOUNTING STANDARDS
Cash and Cash Equivalents
The Company considers all highly-liquid investments with insignificant interest rate risk and original maturities of three months or less from the date of purchase to be cash equivalents. The carrying amounts of cash and cash equivalents approximate their fair values.
Concentration of Credit Risk
Financial instruments, which possibly expose the Company to concentration of credit risk, consist primarily of cash and cash equivalents and accounts receivable. The Company maintains its cash and cash equivalents in bank accounts and with high credit quality financial institutions, which, at times, may exceed
F-8
federally insured limits. The Company has not experienced any losses on such accounts. Accounts receivable consist principally of amounts due from credit worthy wholesale drug distributors, the Federal Government and other large institutions.
The company monitors the balances of individual accounts to assess any collectibility issues. The Company has not experienced significant credit losses on customer accounts. As of December 31, 1999, three customers accounted for 74% of accounts receivable.
Inventories
Inventories consist of raw materials and are priced at the lower of cost or market, using the first-in-first-out method (FIFO).
Property and Equipment
Property and equipment are recorded at cost. Depreciation of furniture, fixtures and equipment is provided under the straight-line method over the estimated useful lives, generally 3 to 7 years. Amortization of leasehold improvements is provided over the estimated useful lives of the improvements or the term of the lease, which ever is shorter.
Patent Cost
Costs associated with obtaining patents, principally legal costs and filing fees, are being amortized on a straight-line basis over the remaining estimated economic lives of the respective patents.
Goodwill and Intangible Assets
Goodwill and intangible assets principally result from business acquisitions. Assets acquired and liabilities assumed are recorded at their fair values; the excess of the purchase price over the net assets acquired is recorded as goodwill. Goodwill and intangible assets are amortized on a straight-line basis over their estimated useful lives, ranging from 5 to 15 years.
Impairment of Long-Lived Assets
The Company periodically evaluates the recoverability of the carrying value of its long-lived assets. 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 reaction to the operating performance of the business and future discounted and undiscounted cash flows expected to result from the use of these assets.
Impairment losses are recognized when the sum of expected future cash flows are less than the assets’ carrying value. No such impairment losses have been recognized to date.
Revenue Recognition
Revenues from product sales are recognized upon shipment, net of allowances for returns, rebates and chargebacks. The Company is obligated to accept from customers the return of pharmaceuticals which have reached their expiration date.
F-9
Revenues from the sale of scientific prototype vaccines and adjuvants are recorded as the products are produced and shipped. Revenues earned under research contracts are recognized when the related contract services are performed.
Net Loss per Share
Basic earnings per share is computed by dividing the net loss available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted loss per share is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding after giving effect to all dilutive potential common shares that were outstanding during the period.
Potential common shares are not included in the computation of dilutive earnings per share if they are antidilutive. Net loss per share as reported was not adjusted for potential common shares, as they are antidilutive.
Stock-Based Compensation
The Company measures compensation expense for its employee stock-based compensation using the intrinsic value method. Under the intrinsic value method of accounting for stock-based compensation, when the exercise price of options granted to employees is less than the estimated fair value of the underlying stock on the date of grant, deferred compensation is recognized and is amortized to compensation expense over the applicable vesting period.
Research and Development Costs
Research and development costs are expensed as incurred.
Income Taxes
The Company’s income taxes are accounted for using the liability method. Under the liability method, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities.
The effect on deferred taxes of changes in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded based on management’s determination of the ultimate realizability of future deferred tax assets. The Company has provided a full valuation allowance against its net deferred tax assets as of December 31, 2000 and 1999.
Comprehensive Loss
Under Financial Accounting Standards Board has issued two new standards which
become effective for reporting periods beginning after December 15, 1997. SFAS
No. 130 Reporting(“SFAS 130”), “Reporting Comprehensive Income, requires additional disclosures with
respect” the Company is required to display comprehensive loss and its components as part of the consolidated financial statements. Comprehensive loss is comprised of the net loss and other comprehensive income (loss), which includes certain changes in assets and liabilitiesequity that previously were not
required to be reported as results of operations for the period. The Company
will begin making the additional disclosures required by SFAS No. 130 in the
first quarter of 1998. SFAS no. 131, Disclosures about Segments of an Enterprise
and Related Information, requires financial and descriptive information with
respect to "operating segments" of an entity based on the way management makes
internal operating decisions. The Company will begin making the disclosures
required by SFAS No. 131 with financial statements for the period ending
December 31, 1998.
5. TRANSACTIONS WITH FORMER PARENT
CHARGES
Through the Distribution Date, IGI charged Novavax for expenses incurred on its
behalf, including executive, legal, accounting, data processing, consulting,
cash management, human resources and employee benefits. These costs were
allocated on a variety of methods, including:
- - Specific identification based on estimates of time and services provided
- - Relative identification allocated based on Novavax's relationship to the
entire pool of beneficiaries
The allocation methods, while reasonable under the then current
circumstances, may not represent the cost of similar activities on a separate
entity basis. For the period January 1, 1995 through December 31, 1995 such
costs have been included in general and administrative expenses ($850,000), and
interest expense ($1,749,706). These amounts have been accumulated on Novavax's
accompanying Balance Sheet as payable to parent through the Distribution Date,
at which time such amounts were reversed to the Deficit since these charges will
not be repaid.
BORROWING ARRANGEMENTS
On the Distribution Date, Novavax had a note payable to IGI under which
borrowings bore interest at IGI's borrowing rate. The note was converted into
shares of Novavax common stock based on an appraisal of Novavax common stock.
The outstanding loan balance of $17,024,000 was converted into 5,253,494 shares
of Novavax common stock after the Restructuring and Recapitalization. Such
amount was included in the Distribution and, accordingly, has been included in
stockholders' equity in the accompanying balance sheets. In accordance with the
plan of Distribution, $250,000, representing loans made by IGI to Novavax in
excess of $17,024,000, was deducted from IGI's $5,000,000 payment due under the
License Agreement. Novavax has no outside borrowing arrangements.
TRANSITION SERVICES
Under a Transition Services Agreement, established at the time of the
Distribution, IGI continued to provide certain administrative services to
Novavax, including services relating to human resources, purchasing and
accounting, data processing and payroll servicesare excluded from the day of the
Distribution until June 30, 1996. Novavax paid IGI a feenet loss. Comprehensive loss for all services
provided by IGI employees, based on IGI's cost. The agreement was terminated on
June 30, 1996. Costs of $230,474 were incurred for the six month period ended
June 30, 1996. For the period December 13, 1995 through December 31, 1995,
$35,000 of such costs were incurred. These charges have been offset in part by
receivables due from IGI and recorded as a payable to former parent on the
December 31, 1995 balance sheet. At December 31, 1996 the Company was owed
$32,285 from IGI primarily related to patent costs.
ROYALTY REVENUES
Novavax earned royalties from IGI at 10% of the sales of the licensed products.
The agreements were terminated in connection with the Distribution and execution
of the License Agreement. In connection with the Distribution, IGI paid Novavax
$5,000,000 in returnsame as net loss for a fully paid-up, ten-year license (the "License
Agreement") entitling it to the exclusive use of the Novavax Technologies in the
fields of (i) animal pharmaceuticals, biologicals and other animal health
products; (ii) foods, food applications, nutrients and flavorings; (iii)
cosmetics, consumer products and dermatological over-the-counter and
29
24
prescription products (excluding certain topically delivered hormones); (iv)
fragrances; and (v) chemicals, including herbicides, insecticides, pesticides,
paints and coatings, photographic chemicals and other specialty chemicals; and
the processes for making the same. IGI has the option, exercisable within the
last year of the ten-year term, to extend the License Agreement for an
additional ten-year period for $1,000,000. Novavax will retain the right to use
its Novavax Technologies for all other applications, including human vaccines
and pharmaceuticals.
Novavax has presented the payment under the License Agreement as a capital
contribution in its financial statements to reflect the intercompany nature and
substance of the transaction. The form was structured as a prepaid license
agreement to address various considerations of the Distribution including tax
and financing considerations. For tax purposes, the transaction was treated as
income for the period ended December 31, 1995. IGI has no further obligations or
intentions to fund Novavax.
6. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for:
1997 1996 1995
- --------------------------------------------------
Taxes $ -- $100,000 $--
Interest -- 10,955 --
For the years ended December 31, 1997, 19962000, 1999 and 1995,1998.
F-10
Recent Accounting Standards
In June 1998, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. SFAS 133 requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. Implementation of SFAS 133 is required as of the beginning of fiscal year 2001 and will not have a material effect on the Company’s financial position or results of operation.
In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 (“SAB 101”), “Revenue Recognition in Financial Statement.” SAB 101 provides guidance on applying generally accepted accounting principles to revenue recognition issues in financial statements. The adoption of SAB 101 did not have a material effect on the financial position or results of operations of the Company.
In March 2000, the FASB issued Interpretation No. 44 (“FIN 44”) “Accounting for Certain Transactions Involving Stock Compensation,” which addresses certain accounting issues which arose under the previously established accounting principles relating to stock-based compensation. The adoption of this interpretation did not have a material effect on the Company’s financial position or results of operations.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
3. Acquisitions
Fielding Pharmaceutical Company
In December 2000, Novavax acquired privately owned Fielding Pharmaceutical Company (“Fielding”), based in St. Louis, Missouri, which sells, markets and distributes a proprietary line of pharmaceutical products focused on women’s health. Novavax will operate Fielding as a wholly owned subsidiary. Under the terms of the acquisition agreement, Novavax acquired 100% of the outstanding shares of Fielding. The purchase method of accounting was used to account for the transaction.
The total purchase price of $38.7 million consisted of $18.5 million in Novavax common stock (2,312,501 shares), $13 million in cash, $5 million payable in cash or common stock to the former owners of Fielding (due March 2002), $1.1 million in assumed liabilities and $1.1 million in transaction costs.
The aggregate consideration of $38.7 million was allocated to cash ($1.7 million), accounts receivable and inventory ($1.2 million), property and equipment ($300,000) and goodwill ($35.5 million).
The operating results of Fielding have been included in the consolidated statement of operations from the acquisition date. The following summary represents pro forma results of operations as if the acquisition had occurred at the beginning of 1998. These pro forma results have been prepared for comparative purposes only
F-11
and do not purport to be indicative of the results of operations that would have actually resulted had the combination been in effect and are not intended to be indicative of future results.
| Year ended December 31, | ||||||||||||
| 2000 | 1999 | 1998 | ||||||||||
| (amounts in thousands, | ||||||||||||
| except per share information) | ||||||||||||
| Revenue | $ | 12,843 | $ | 12,750 | $ | 5,767 | ||||||
| Net loss | (13,602 | ) | (3,824 | ) | (9,408 | ) | ||||||
| Loss per share applicable to common stockholders | (.64 | ) | (.23 | ) | (.64 | ) | ||||||
Biomedical Services Laboratory
On August 10, 1999, the Company hadacquired substantially all of the following non-cash financingassets (excluding cash and investing activities:
The purchase method of accounting was used to account for the transaction. The total purchase price of $860,000 consisted of $740,000 in cash, $60,000 in assumed liabilities and $60,000 in transaction costs.
The aggregate consideration of $860,000 was allocated to property and equipment ($170,000) and goodwill and other intangible assets ($690,000).
Property and equipment statedconsists primarily of laboratory equipment that the Company believes will continue to be used in the operations of BSD. Other intangible assets included patents, workforce, favorable lease and approved FDA facility. Goodwill and other intangible assets are being amortized over their useful lives of five years.
The operating results of BSD have been included in the consolidated statement of operations from the acquisition date. The following summary represents pro forma results of operations as if the acquisition had occurred at cost,the beginning of 1998. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations that would have actually resulted had the combination been in effect and are not intended to be indicative of future results.
| Year ended | ||||||||
| December 31, | ||||||||
| 1999 | 1998 | |||||||
| (in thousands, except | ||||||||
| per share information) | ||||||||
| Revenue | $ | 3,597 | $ | 3,037 | ||||
| Net loss | $ | (4,484 | ) | $ | (4,798 | ) | ||
| Loss per share applicable to common stockholders | $ | (.31 | ) | $ | (.57 | ) | ||
F-12
4. Supplemental Financial Data
Property and Equipment
Property and equipment is comprised of the following:
| 2000 | 1999 | |||||||
| (in thousands) | ||||||||
| Machinery and equipment | $ | 2,226 | $ | 1,433 | ||||
| Leasehold improvements | 703 | 428 | ||||||
| Furniture and fixtures | 101 | 63 | ||||||
| 3,030 | 1,924 | |||||||
| Less accumulated depreciation | (1,103 | ) | (871 | ) | ||||
| $ | 1,927 | $ | 1,053 | |||||
Depreciation expense of $134,251, $221,237was $232,000, $183,000 and $189,085 and was recorded in$152,000 for the years ended December 31, 19972000, 1999 and 1996, 1995,1998, respectively.
8. STOCK OPTIONS AND WARRANTS
1995 STOCK OPTION PLAN
Various directors, officers
Goodwill and employees of IGI including those employed by
Novavax have been awarded stock options under various IGI stock option plans at
100%Intangible Assets
Goodwill and intangible assets consist of the fair market valuefollowing at December 31:
| 2000 | 1999 | |||||||
| (in thousands) | ||||||||
| Goodwill — Biomedical Services Acquisition | $ | 542 | $ | 542 | ||||
| Non-Compete — Biomedical Services Acquisition | 148 | 148 | ||||||
| Goodwill — Fielding Acquisition | 35,590 | — | ||||||
| Patents | 2,525 | 2,454 | ||||||
| 38,805 | 3,144 | |||||||
| Accumulated Amortization | (1,239 | ) | (877 | ) | ||||
| $ | 37,566 | $ | 2,267 | |||||
Accrued Expenses
Accrued expenses consist of IGI'sthe following at December 31:
| 2000 | 1999 | |||||||
| (in thousands) | ||||||||
| Accrued clinical trial expenses | $ | 900 | $ | 90 | ||||
| Accrued acquisition costs | 897 | — | ||||||
| Accrued compensation | 759 | 126 | ||||||
| Accrued operating expenses | 618 | 65 | ||||||
| Accrued interest | 26 | — | ||||||
| $ | 3,200 | $ | 281 | |||||
5. Convertible note
On December 19, 2000 Novavax entered into a Note Purchase Agreement with King Pharmaceuticals, Inc. (“King”) whereby it agreed to issue to King a 4% senior convertible promissory note in the aggregate amount of $25.0 million. On that same date, Novavax entered into a 4% senior convertible promissory note with King for $20.0 million in principal due December 19, 2007 with interest payable in semi-annual
F-13
installments on June 30 and December 31 commencing on June 30, 2001. Up to 50% of the interest due may be paid in common stock of the Company. A second promissory note of $5.0 million is due to be executed when the Company files a New Drug Application for its ESTRASORB product which is expected to occur during 2001.
The first note is convertible into common stock at $10.00 per share or 2,000,000 shares. The note has a mandatory conversion from January 2002 through December 31, 2004 if the date of grant. In connection
with the Distribution, the Board of Directors of Novavax authorized the grant of
Novavax options to all holders of options to purchase IGI Common Stock as of the
Distribution Date ("Spin-off Options"). The Spin-off Options were granted to
such holders on substantially similar terms to the corresponding options to
purchase IGI Common Stock. The number of sharesclosing price of Novavax common stock underexceeds 180% of the options as comparedconversion price for 60 trading days. The note can be redeemed by the Company at 102%, 101% and 100% of face value during the years ended December 31, 2005, 2006 and 2007, respectively.
6. Equity
In January 2000, the Company closed a private placement of 2,813,850 shares of its Common Stock to their IGI counterparts reflectsaccredited investors (the “2000 Private Placement”). The issuance price of the distribution
ratioCommon Stock was $4.00 per share. Each share was sold together with a non-transferable warrant for the purchase of .25 additional shares at an exercise price of $6.75. The warrants have a three-year term. Gross proceeds from the 2000 Private Placement were $11,255,400. Placement agent fees were approximately $675,000, which was paid in cash. Additionally, non-transferable warrants for the purchase of 281,385 shares of the Company’s Common Stock, with an exercise price of $6.75 per share and a three-year term, were issued to the placement agent. Other costs connected with the 2000 Private Placement, including legal, stock exchange listing and registration fees, were approximately $80,000. Net proceeds to the Company from the 2000 Private Placement were approximately $10.5 million.
In April 1999, the Company entered into Stock and Warrant Purchase Agreements for the private placement of 1,651,000 shares of its Common Stock to accredited investors (the “Private Placement”). One of the principals of one of the investors is also a director of the Company. The issuance price of the Common Stock was $2.50 per share. Each share was sold together with a non-transferable warrant for the purchase of Novavax common.25 additional shares at an exercise price of $3.75. The warrants have a three-year term. Placement agents’ fees were approximately $215,000, which was paid with cash of $107,000 and 42,933 shares of the Company’s Common Stock, which were issued together with non-transferable warrants for the purchase of 10,733 shares of the Company’s Common Stock at an exercise price of $3.75. These warrants have a three-year term. Additionally, non-transferable warrants for the purchase of 143,000 shares of the Company’s Common Stock, with an exercise price of $3.00 per share and a three-year term, were issued to the placement agents. Other costs connected with the Private Placement, including legal, stock exchange listing and registration fees, were approximately $67,000. Net proceeds to the Company from the Private Placement were approximately $4.1 million.
In 1998, the Company closed on a private placement of 6,500 shares of Series A Custom Convertible Preferred Stock, $1,000 par value per share (the “Preferred Stock”), at an aggregate purchase price of $6.5 million. During 1998, $1,522,000 of the original shares were converted into 1,043,956 shares of Common Stock, pursuant to the terms and conditions of the Preferred Stock. In October 1998, the Company repurchased the outstanding Preferred Stock for one shareapproximately $4.9 million. The Company incurred placement agent and other transaction fees relating to the placement, conversion and repurchase of IGIthe Preferred Stock of $502,000, which are included in the accompanying financial statements as preferred stock offering costs. Per the terms of the Preferred Stock, the Company was required to pay the holders of the Preferred Stock dividends of $225,000. This amount was paid in cash and shares of common stock.
Exercise prices of the options were based on the relative market capitalization
of IGI
F-14
The 1998 preferred stock transactions are summarized as follows:
| (in thousands) | ||||
| Private sale of preferred stock, net | $ | 4,415 | ||
| Deemed dividend of preferred stock | 1,583 | |||
| Conversion or preferred stock | (1,439 | ) | ||
| Accretion of offering costs | 420 | |||
| Repurchase of preferred stock | (4,979 | ) | ||
| $ | — | |||
7. Stock Options to
purchase shares of Novavax common stock were granted to holders of options to
purchase IGI common stock at $3.69 per share.and Warrants
1995 Stock Option Plan
Under the Novavax 1995 Stock Option Plan (the "Plan"“Plan”), options may be granted to officers, employees and consultants or advisors to Novavax and any present or future subsidiary to purchase a maximum of 4,000,0006,000,000 shares of Novavax common stock (including the Spin-off Options).stock. Incentive options, having a maximum term of ten years, can be granted at no less than 100% of the fair market value of Novavax'sNovavax’s 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 the 1995
plan.Plan. There is no minimum exercise price for non-statutory stock options.
The Board of Directors of Novavax granted, as of the Distribution Date,
options to purchase 600,000 shares of Novavax common stock to various employees
at an exercise price of $.01 per share. Concurrently, the Board granted options
to purchase 415,000 shares of Novavax common stock at $3.24 per share to Novavax
employees, the estimated fair market value. 890,000 of these options first
become exercisable on the six month anniversary of the Distribution Date as to
50% of the shares covered thereby and as to an additional 25% of the shares on
each of the first and second anniversaries of the Distribution Date. 125,000 of
these options first become exercisable in increments of
30
25
25% of the shares on each of the first through fourth anniversaries of the
Distribution Date. These options become immediately exercisable in the event of
the acquisition of Novavax, including a merger in which Novavax is not the
surviving entity, the sale of all or substantially all of the assets of Novavax
or the acquisition of a majority of the equity securities of Novavax. The
options also become immediately exercisable in the event the optionee is
terminated without cause. As of the Distribution Date, 28,871 substitute options
were issued in exchange for options to purchase Lipovax, which existed prior
to the Distribution Date.
1995 DIRECTOR STOCK OPTION PLAN
The 1995 Director Stock Option Plan (the "Director Plan"“Director Plan”) provides for the issuance of up to 500,000 shares of Novavax Common Stock. 110,000, 80,000 and
120,000 options were granted under this plan in 1997, 1996 and 1995,
respectively. In addition, each Eligible Director then serving as a director on
the last business day of 1998 will be granted a non-qualified option to purchase
10,000 shares of Common Stock. The exercise price per share is the fair market value on the date of grant. Options granted to Eligible Directorseligible directors are exercisable in full beginning six months after the date of grant and terminate ten years after the date of grant.
Such options cease to be exercisable at the earlier of their expiration or three years after an Eligible Directoreligible director ceases to be a director for any reason. In the event that an Eligible Directoreligible director ceases to be a director on account of his death, his 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 ten years from its date of grant).
F-15
Activity under the 1995 Stock Option Plan and 1995 Director Stock Option Plan was:
| 1995 Stock | 1995 Director | ||||||||
| Option Plan | Stock Option Plan | ||||||||
Balance, December 31, 1997 | 3,203,558 | 310,000 | |||||||
| Granted at weighted average price of $4.03 per share | 501,000 | 140,000 | |||||||
| Exercised at weighted average price of $2.06 per share | (124,419 | ) | — | ||||||
| Expired or canceled at weighted average price of $3.74 per share | (465,892 | ) | (10,000 | ) | |||||
Balance, December 31, 1998 | 3,114,247 | 440,000 | |||||||
| Granted at weighted average price of $3.80 per share | 1,078,500 | — | |||||||
| Exercised at weighted average price of $2.20 per share | (226,537 | ) | — | ||||||
| Expired or canceled at weighted average price of $4.28 per share | (577,757 | ) | — | ||||||
Balance, December 31, 1999 | 3,388,453 | 440,000 | |||||||
| Granted at weighted average price of $7.50 per share | 1,019,500 | 60,000 | |||||||
| Exercised at weighted average price of $3.79 per share | (485,728 | ) | (80,000 | ) | |||||
| Expired or canceled at weighted average price of $3.75 per share | (28,040 | ) | — | ||||||
Balance, December 31, 2000 | 3,894,185 | 420,000 | |||||||
| Price range | $ | 0.01 to 10.63 | $ | 1.94 to 5.81 | |||||
| Weighted average exercise price | $ | 3.87 | $ | 3.24 | |||||
| Exercisable | 2,278,428 | 420,000 | |||||||
| Available for grant: | |||||||||
| December 31, 2000 | 810,664 | — | |||||||
Information with respect to stock options outstanding at December 31, 19972000 is as follows:
| Number of | Weighted Average | Weighted | |||||||||||
| Options | Remaining | Average | |||||||||||
| Outstanding | Contractual Life | Exercise Price | |||||||||||
| Options issued at below market value: | |||||||||||||
| $0.01 | 402,430 | 5.0 | $ | 0.01 | |||||||||
| Options issued at market value: | |||||||||||||
| $1.21 to 3.50 | 747,971 | 5.5 | $ | 3.07 | |||||||||
| $3.51 to 4.50 | 1,428,284 | 6.8 | $ | 3.79 | |||||||||
| $4.51 to 6.50 | 1,008,500 | 7.0 | $ | 5.70 | |||||||||
| $6.51 to 10.63 | 727,000 | 9.2 | $ | 8.32 | |||||||||
| 4,314,185 | 6.8 | $ | 4.52 | ||||||||||
Novavax makes no charges to operations in connection with employee stock options granted at the fair market value at the date of grant. With respect to options which were granted below fair market value at the date of grant, the Company records compensation expense for the difference between the fair market value at the date of grant and the exercise price, as the options become exercisable. $471,924, $1,410,648$5,000, $10,000, and $101,183$9,000 related to such options has been included as compensation expense in 1997, 19962000, 1999 and 1995,1998, respectively.
The Company has adopted the disclosure - only provisions of Statement of
Financial Accounting Standards No. 123 ("SFAS 123") as they pertain to financial
statement recognition of compensation expense attributable to option grants. As
such, no compensation cost has been recognized on the Company's option plans. If
the Company had elected to recognize the compensation cost for the 1995 Stock
Option Plan and the 1995 Director Stock Option Plan consistent with SFAS 123,
the Company's
Pro forma information regarding net loss and loss per share onis required by SFAS No. 123, Accounting for Stock-Based Compensation, and has been determined as if Novavax had accounted for its employee and director stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using the Black-Scholes option pricing model.
F-16
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because Novavax employee and director stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.
For purposes of pro forma basis would be:
| Year ended December 31, | |||||||||||||
| 2000 | 1999 | 1998 | |||||||||||
| (in thousands) | |||||||||||||
| Net loss applicable to common stockholders: | |||||||||||||
| As reported (in thousands) | $ | (12,191 | ) | $ | (4,506 | ) | $ | (7,045 | ) | ||||
| Pro forma (in thousands) | $ | (14,609 | ) | $ | (6,430 | ) | $ | (7,983 | ) | ||||
| Basic and diluted loss per share: | |||||||||||||
| As reported | $ | (.64 | ) | $ | (.31 | ) | $ | (.57 | ) | ||||
| Pro forma | $ | (.77 | ) | $ | (.44 | ) | $ | (.64 | ) | ||||
| Risk-free interest rates | 6.0 | % | 5.8 | % | 6.0 | % | |||||||
| Expected life in years: | |||||||||||||
| Employees | 6.0 | 6.0 | 6.0 | ||||||||||
| Directors | 3.0 | 3.0 | 3.0 | ||||||||||
| Dividend yield | 0.0 | % | 0.0 | % | 0.0 | % | |||||||
| Volatility | 80 | % | 69 | % | 105 | % | |||||||
| Weighted average remaining contractual life in years | 6.8 | 6.8 | 6.7 | ||||||||||
| Weighted average fair value at date of grant | $ | 5.87 | $ | 3.56 | $ | 1.21 | |||||||
The Company has entered into agreements to receive advisory and consulting services from several individuals, four of whom serve on the Novavax Scientific Advisory Board. Non-qualified stock options have been granted to these individuals under the 1995 Stock Option Plan. Using the Black-Scholes option
pricing model, a charge of $39,685 and $30,107 related to these options has been
recorded in 1997 and 1996 respectively.
COMMON STOCK WARRANTS
Common Stock Warrants
In connection with the October 1996 private stock sale, the Company provided the underwriter warrants for the purchase of 50,000 shares of common stock, par
value $.01 per share.stock. The warrants are fully exercisable at $3.75 per share and expire onin October 30, 2001. After giving effect to the anti-dilution provision, the warrants were revised to allow for the purchase of 54,924 shares at $3.54 per share. In November 1996, in consideration for services performed by a consultant, the Company also issued warrants for 50,000 shares of common stock, par value $.01 per share.stock. The warrants are exercisable at $5.00 per share and are fully vestedexpire in November 2001. In March 1997, Novavax privately placed 1,200,000 shares of common stock. As part of the transaction, Novavax also granted warrants to purchase an additional 600,000 shares at a price of $6.00 per share and 600,000 shares at a price of $8.00 per share. After giving effect to the anti-dilution provision, the warrants were revised to allow for the purchase of 659,090 shares at $5.46 per share and 659,090 shares at $7.28 per share. The warrants had a three-year term and were exercised in March 2000 for cash of $3.6 million and a “cashless” exercise of 465,410 shares of common stock which were placed into treasury shares. In April 1999, Novavax privately placed 1,651,100 shares of common stock. As part of the transaction, Novavax also granted warrants to purchase 412,775 additional shares at an exercise price of $3.75. The placement agent for this transaction was given
F-17
warrants to purchase 10,733 additional shares at $3.75 and 143,000 additional shares at $3.00. These warrants have a three-year term and expire on
November 18, 2001.in April 2002. As of December 31, 1997, no2000, 136,204 of these warrants had been exercised. UsingAfter giving effect to the Black-Scholesanti-dilutive provisions of these warrants, the warrants outstanding were revised to allow for the purchase of 394,410 shares at $3.54 per share and 59,772 shares at $2.84 per share. In connection with the 2000 Private Placement the Company granted warrants to purchase an additional 703,462 shares at an exercise price of $6.75. In addition, warrants of 251,385 shares were issued to the placement agent at an exercise price of $6.75 per share. The warrants have a three year term. As of December 31, 2000, 35,127 of these warrants have been exercised.
Information with respect to warrants to purchase the Company’s common stock at December 31, 2000 is as follows:
| Number of | ||||||||
| Warrants | Exercise | Expiration | ||||||
| Outstanding | Price | Date | ||||||
| 54,924 | $ | 3.54 | October 2001 | |||||
| 50,000 | $ | 5.00 | November 2001 | |||||
| 394,410 | $ | 3.54 | April 2002 | |||||
| 59,772 | $ | 2.84 | April 2002 | |||||
| 919,720 | $ | 6.75 | January 2003 | |||||
| 1,478,826 | ||||||||
8. Employee Benefits
The Company has a defined contribution 401(k) retirement plan (the Plan), pursuant to which employees who have completed ninety days of employment with the Company as of specified dates may elect to contribute to the Plan, in whole percentages, up to 15% of their compensation and a maximum contribution of $10,500, $10,500 and 10,000 in 2000, 1999 and 1998, respectively.
The Company matches 25% of the first 5% of compensation contributed by the participant and $4.00 per week of employment during the year. At the option pricing model, a chargeof the Company matching contributions to the Plan can be made in the form of the Company’s common stock. All contributions to the Plan are immediately vested. The Company has recorded charges to expenses related to these warrantsthe Plan of $66,035,approximately $28,000, $16,000 and $66,035 has been recorded$23,000 in 19972000, 1999 and 1996 to the Statement of
Operations.
1998, respectively.
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9. INCOME TAXESIncome Taxes
Deferred tax assets (liabilities) included in the balance sheets consist of the following:
| 2000 | 1999 | |||||||
| (in thousands) | ||||||||
| Net operating losses | $ | 12,513 | $ | 8,420 | ||||
| Research tax credits | 1,229 | 1,024 | ||||||
| Disqualifying stock options | 673 | 671 | ||||||
| Alternative-minimum tax credit | 94 | 94 | ||||||
| Equipment and furniture | 44 | 51 | ||||||
| Intangibles from acquisition | 12 | 15 | ||||||
| Deferred patent costs | (602 | ) | (626 | ) | ||||
| Accrued vacation pay | 28 | 28 | ||||||
| Deferred revenues | 40 | 290 | ||||||
| Allowance for Doubtful Accounts | 19 | — | ||||||
| 14,050 | 9,967 | |||||||
| Less valuation allowance | $ | (14,050 | ) | $ | (9,967 | ) | ||
| Deferred tax assets, net | — | — | ||||||
The differences between the U.S. federal statutory tax rate and the Company’s effective tax rate are as follows:
| 2000 | 1999 | |||||||
| Statutory federal tax rate | (34)% | (34)% | ||||||
| State income taxes, net of federal benefit | (5)% | (4)% | ||||||
| Disqualifying stock options | 0% | 3% | ||||||
| Research and development credit | (2)% | (8)% | ||||||
| Alternative-minimum credit | 0% | (1)% | ||||||
| Other | 1% | (1)% | ||||||
| Change in valuation allowance | 40% | 45% | ||||||
| — | — | |||||||
Realization of net deferred tax assets at the balance sheet dates is dependent on the company'sCompany’s ability to generate future taxable income, which is uncertain. Accordingly, a full valuation allowance was recorded against these assets as of December 31, 19972000 and 1996.
In connection with1999.
Novavax has recorded no net benefit for income taxes in 2000, 1999 and 1998 in the filing of the Company's 1995 tax return during 1996,
it was determined that the Company had an Alternative Minimum Tax liability
resulting from the cash received from IGI in return for the license. The 1996
income tax expense is fully attributableaccompanying financial statements due to the Alternative Minimum Tax
calculation.
32
27uncertainty regarding ultimate realization of certain net operating losses and other tax credit carryforwards.
Federal net operating losses and tax credits available to Novavax andthe Company are as follows:
- -------------------------------------------------------------------------------
Net operating losses expiring through the year 2012 $12,089,502
Research tax credits expiring through the year 2012 820,641
Alternative-minimum tax credit (no expiration) 93,674
| 2000 | ||||
| (in thousands) | ||||
| Federal net operating losses expiring through the year 2020 | $ | 32,400 | ||
| State net operating losses expiring through the year 2015 | 37,142 | |||
| Research tax credits expiring through the year 2020 | 1,229 | |||
| Alternative-minimum tax credit (no expiration) | 94 | |||
F-19
10. COMMITMENTS AND CONTINGENCIESCommitments and Contingencies
Novavax leases laboratory and office space, machinery and equipment under capital and noncancelablenon-cancelable operating lease agreements expiring at various dates through 2006. Future minimum rental commitments under noncancelablenon-cancelable leases as of December 31, 19972000 are as follows:
| Operating | ||||
| Year | Leases | |||
| (in thousands) | ||||
| 2001 | $ | 781 | ||
| 2002 | 598 | |||
| 2003 | 509 | |||
| 2004 | 370 | |||
| 2005 | 377 | |||
| Thereafter | 165 | |||
| $ | 2,800 | |||
Aggregate rental expenses approximated $279,398, $183,327, $260,041,$411,000, $299,000, and $219,000 in 1997,19962000, 1999 and 19951998, respectively.
In October 1996,connection with the Company entered into a 10-year operating lease for office and laboratory facilities. In connection with this lease agreement,
Novavaxfacilities, the Company is required to maintain a "Net“Net Asset Value"Value” of $2,000,000.$2.0 million. The term "Net“Net Asset Value"Value” is defined as the difference between the total assets and the total liabilities. If the Net Asset Value falls below $2,000,000,$2.0 million, the Company is required to provide other reasonable financial assurances to the Landlordlandlord within five days of the Landlordslandlord’s request. The financial assurances may be, but
without limitation to,
11. Subsequent Event
In January 2001, the following:Company signed a bondco-promotion agreement with King for the Landlord's benefit, an
increasedistribution of one of the Company’s products in the deposit, or a letter of credit, as reasonably believed necessary
by the Landlord or its lenders.
Also in October 1996,United States. Additionally, the Company entered into a 2-year operating lease for
approximately 2,363 square feetand King will combine U.S. sales efforts to begin co-promoting one of laboratory space. This shared space housesKing’s products that is already on the Company's certified animal facility and laboratories for its biologics
development which includes the vaccine adjuvant program. Both leases include
various renewal options, purchase options, and escalation clauses.
11. SIGNIFICANT CUSTOMERS
Novavax's revenue includes amounts earned from arrangements with various
industry partners. In the year ended December 31, 1997, two different customers
each represented in excess of 10% of revenues.
12. SUBSEQUENT EVENTS
On January 23, 1998, the Company entered into Subscription Agreements to
effectuate the private placement of 6,500 share of Series A Custom Convertible
Preferred Stock, $.01 par value per share (the "Series A Preferred Stock"). The
closing occurred on January 28, 1998 (the "Issuance Date") at an aggregate
purchase price of $6,500,000.market. The Company received the proceeds therefor andalso paid Diaz & Altschul, LLC a fee of $425,233 in consideration for its services as
placement agent.
The Series A Preferred Stock is convertible into shares of Common Stock at a
conversion price equal to (i) during a period of 90 days following the Issuance
Date, 100% of the average of the two lowest consecutive trade prices of the
Common Stock as reported on the American Stock ExchangeKing $3.3 million for the 25 trading days
immediately preceding the conversion date (the "Two Day Average Trading Price")
or (ii) during the period on and after the date which is 91 days after the
Issuance Date, 94% of the Two Day Average Trading Price (the "Conversion
Price").
From the Issuance Date, there is ceiling price of $6.33 and within the first
180 days after the Issuance Date, the Conversion Price has applicable floor
prices based on conversion dates. The floor prices range from $5.67rights to $4.32.
The maximum number of shares as measured by the conversion terms most beneficial
to the holders of the Series A Preferred Stock at the time of closing will
result in a deemed dividend in the amount of $455,048 whichproduct that King has been recorded to
Accumulated Deficit and Additional Paid in Capital during the three months ended
March 31, 1998.
33
28
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.
Date: March 27, 1998 By: /s/ Richard F. Maradie
------------------------
Richard F. Maradie
Chief Executive Officer
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 in
the capacity and on the date indicated.
NAME TITLE DATE
- -------------------------------------------------------------------------------
/s/ Richard F. Maradie Chief Executive Officer March 27, 1998
- ----------------------
Richard F. Maradie
/s/ Brenda L. Fugagli Vice President, March 27, 1998
- --------------------- Principal Financial and
Brenda L. Fugagli Accounting Officer
/s/ Wayne A. Downing Director March 27, 1998
- --------------------
Wayne A. Downing
/s/ Mitchell J. Kelly Director March 27, 1998
- ---------------------
Mitchell J. Kelly
/s/ J. Michael Lazarus Director March 27, 1998
- ----------------------
J. Michael Lazarus
/s/ John O. Marsh, Jr. Director March 27, 1998
- ----------------------
John O. Marsh, Jr.
/s/ Ronald A. Schiavone Director March 27, 1998
- -----------------------
Ronald A. Schiavone
/s/ Ronald H. Walker Director March 27, 1998
- --------------------
Ronald H. Walker
34
29
EXHIBIT INDEX
Exhibit
- ----------------------------------
3.1 *
3.2 *
3.3 *
4 *
10.1 *
10.2 *
10.3 *
10.4 *
10.5 *
10.6 *
10.7 *
10.9 *
10.10
10.11
10.12
10.13
10.14 *
21 *
23
27
* These exhibits are incorporated by reference
35