UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31,
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2017 |
or
☐ |
|
For the transition period from to |
Commission file number: 001-35285
Aviragen Therapeutics, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 59-1212264 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
2500 Northwinds Parkway, Suite 100, Alpharetta, GA 30009
(Address of principal executive offices, including zip code)
(678) 221 3343
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ||||||||||||||||||||||||||||||||
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
|
|
|
| |||
Non-accelerated filer | ☐ | Smaller reporting company | ☒ | |||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☒
The number of shares outstanding of the registrant’s common stock, par value $0.10 per share at May 8,November 3, 2017 was 38,649,237 shares.
|
| |||
| ||||
|
| |||
| ||||
Condensed Consolidated Balance Sheets as of September 30, 2017 and June 30, 2017 (unaudited) | 3 | |||
|
| |||
| ||||
|
| |||
4 | ||||
|
| |||
5 | ||||
|
| |||
6 | ||||
|
| |||
Notes to the Condensed Consolidated Financial Statements (unaudited) | 7 | |||
|
| |||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| 13 | ||
|
| |||
Item 3. Quantitative and Qualitative Disclosures About Market Risk |
| 17 | ||
|
| |||
| 17 | |||
|
| |||
|
| |||
18 | ||||
|
| |||
|
| |||
| 18 | |||
| ||||
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
| |||
| ||||
| ||||
| ||||
| 19 | |||
| 20 | |||
|
| |||
|
| 21 |
Aviragen Therapeutics, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
(in millions, except share amounts)
March 31, 2017 | June 30, 2016 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 11.8 | $ | 49.7 | ||||
Short-term investments | 25.8 | 19.3 | ||||||
Accounts receivable, net of allowance | 6.6 | 0.7 | ||||||
Prepaid and other current assets | 2.2 | 2.7 | ||||||
Total current assets | 46.4 | 72.4 | ||||||
Non-current assets: | ||||||||
Property and equipment, net | 0.3 | 0.3 | ||||||
Total assets | $ | 46.7 | $ | 72.7 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 1.8 | $ | 3.9 | ||||
Accrued expenses | 3.0 | 3.6 | ||||||
Short-term note payable | 0.3 | 0.4 | ||||||
Liability related to sale of future royalties, current portion | 0.4 | 1.3 | ||||||
Total current liabilities | 5.5 | 9.2 | ||||||
Non-current liabilities: | ||||||||
Long-term note payable, net of current portion | 0.1 | 0.3 | ||||||
Liability related to sale of future royalties, net of current portion | 16.7 | 16.8 | ||||||
Other long-term liabilities, net of current portion | 0.2 | 0.2 | ||||||
Total liabilities | 22.5 | 26.5 | ||||||
Commitments and contingencies | - | - | ||||||
Stockholders’ equity: | ||||||||
Preferred stock, $0.10 par value: 5,000,000 shares authorized, no shares issued and outstanding | - | - | ||||||
Common stock, $0.10 par value: 200,000,000 shares authorized; 38,649,237 and 38,640,487 shares issued and outstanding at March 31, 2017 and June 30, 2016, respectively | 3.9 | 3.9 | ||||||
Additional paid-in capital | 159.1 | 157.6 | ||||||
Accumulated other comprehensive income | 19.0 | 19.0 | ||||||
Accumulated deficit | (157.8 | ) | (134.3 | ) | ||||
Total stockholders’ equity | 24.2 | 46.2 | ||||||
Total liabilities and stockholders’ equity | $ | 46.7 | $ | 72.7 | ||||
September 30, 2017 | June 30, 2017 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 19.6 | $ | 17.7 | ||||
Short-term investments | 14.5 | 20.9 | ||||||
Accounts receivable, net of allowance | 0.1 | 0.6 | ||||||
Prepaid and other current assets | 0.3 | 0.7 | ||||||
Total current assets | 34.5 | 39.9 | ||||||
Non-current assets: | ||||||||
Property and equipment, net | 0.2 | 0.2 | ||||||
Total assets | $ | 34.7 | $ | 40.1 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 1.3 | $ | 1.4 | ||||
Accrued expenses | 2.2 | 2.9 | ||||||
Short-term note payable | 0.2 | 0.2 | ||||||
Liability related to sale of future royalties, current portion | 1.5 | 1.4 | ||||||
Total current liabilities | 5.2 | 5.9 | ||||||
Non-current liabilities: | ||||||||
Long-term note payable, net of current portion | 0.1 | 0.1 | ||||||
Liability related to sale of future royalties, net of current portion | 15.4 | 15.3 | ||||||
Other long-term liabilities, net of current portion | 0.1 | 0.1 | ||||||
Total liabilities | 20.8 | 21.4 | ||||||
Commitments and contingencies | - | - | ||||||
Stockholders’ equity: | ||||||||
Preferred stock, $0.10 par value: 5,000,000 shares authorized, no shares issued and outstanding | - | - | ||||||
Common stock, $0.10 par value: 200,000,000 shares authorized; 38,649,237 shares issued and outstanding at September 30, 2017 and June 30, 2017 | 3.9 | 3.9 | ||||||
Additional paid-in capital | 160.1 | 159.6 | ||||||
Accumulated other comprehensive income | 19.0 | 19.0 | ||||||
Accumulated deficit | (169.1 | ) | (163.8 | ) | ||||
Total stockholders’ equity | 13.9 | 18.7 | ||||||
Total liabilities and stockholders’ equity | $ | 34.7 | $ | 40.1 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Aviragen Therapeutics, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
(in millions, except share and per share amounts)
Three Months Ended | Nine Months Ended | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenue: | ||||||||||||||||
Royalty revenue | $ | 4.1 | $ | 5.3 | $ | 5.8 | $ | 8.8 | ||||||||
Non-cash royalty revenue related to the sale of future royalties | 0.8 | - | 3.0 | - | ||||||||||||
Total revenue | 4.9 | 5.3 | 8.8 | 8.8 | ||||||||||||
Operating expense: | ||||||||||||||||
Research and development | 6.8 | 8.5 | 24.6 | 20.4 | ||||||||||||
General and administrative | 1.8 | 2.3 | 6.0 | 6.7 | ||||||||||||
Foreign exchange (gain) loss, net | 0.1 | (0.3 | ) | 0.1 | 0.2 | |||||||||||
Total operating expense | 8.7 | 10.5 | 30.7 | 27.3 | ||||||||||||
Loss from operations | (3.8 | ) | (5.2 | ) | (21.9 | ) | (18.5 | ) | ||||||||
Other (expense) income: | ||||||||||||||||
Non-cash interest expense on liability related to sale of future royalties | (0.5 | ) | - | (1.4 | ) | - | ||||||||||
Interest income | 0.1 | - | 0.1 | 0.1 | ||||||||||||
Total other (expense) income | (0.4 | ) | - | (1.3 | ) | 0.1 | ||||||||||
Loss before tax | (4.2 | ) | (5.2 | ) | (23.2 | ) | (18.4 | ) | ||||||||
Income tax expense | 0.2 | - | 0.3 | - | ||||||||||||
Net loss | $ | (4.4 | ) | $ | (5.2 | ) | $ | (23.5 | ) | $ | (18.4 | ) | ||||
Basic and diluted net loss per share | $ | (0.11 | ) | $ | (0.14 | ) | $ | (0.61 | ) | $ | (0.48 | ) | ||||
Basic and diluted weighted-average shares outstanding | 38,647,487 | 38,640,254 | 38,642,786 | 38,633,786 | ||||||||||||
Three Months Ended | ||||||||
2017 | 2016 | |||||||
Revenue: | ||||||||
Royalty revenue | $ | - | $ | 0.1 | ||||
Non-cash royalty revenue related to the sale of future royalties | 0.1 | - | ||||||
Total revenue | 0.1 | 0.1 | ||||||
Operating expense: | ||||||||
Research and development | 2.8 | 7.6 | ||||||
General and administrative | 2.3 | 2.2 | ||||||
Foreign exchange (gain) loss, net | - | (0.1 | ) | |||||
Total operating expense | 5.1 | 9.7 | ||||||
Loss from operations | (5.0 | ) | (9.6 | ) | ||||
Other (expense) income: | ||||||||
Non-cash interest expense on liability related to sale of future royalties | (0.4 | ) | (0.4 | ) | ||||
Interest income | 0.1 | - | ||||||
Total other (expense) income | (0.3 | ) | (0.4 | ) | ||||
Loss before tax | (5.3 | ) | (10.0 | ) | ||||
Income tax expense | - | - | ||||||
Net loss | $ | (5.3 | ) | $ | (10.0 | ) | ||
Basic and diluted net loss per share | $ | (0.14 | ) | $ | (0.26 | ) | ||
Basic and diluted weighted-average shares outstanding | 38,649,237 | 38,640,487 | ||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
Aviragen Therapeutics, Inc.
Condensed Consolidated Statement of Stockholders’ Equity
(unaudited)
(in millions, except for share amounts)
Common Stock | Accumulated | |||||||||||||||||||||||
Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Other Comprehensive Income | Total Stockholders’ Equity | |||||||||||||||||||
Balances at June 30, 2016 | 38,640,487 | $ | 3.9 | $ | 157.6 | $ | (134.3 | ) | $ | 19.0 | $ | 46.2 | ||||||||||||
Net loss | - | - | - | (23.5 | ) | - | (23.5 | ) | ||||||||||||||||
Common stock issued | 8,750 | - | - | - | - | - | ||||||||||||||||||
Share-based compensation | - | - | 1.5 | - | - | 1.5 | ||||||||||||||||||
Balances at March 31, 2017 | 38,649,237 | $ | 3.9 | $ | 159.1 | $ | (157.8 | ) | $ | 19.0 | $ | 24.2 | ||||||||||||
Common Stock | Accumulated | |||||||||||||||||||||||
Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Other Comprehensive Income | Total Stockholders’ Equity | |||||||||||||||||||
Balances at June 30, 2017 | 38,649,237 | $ | 3.9 | $ | 159.6 | $ | (163.8 | ) | $ | 19.0 | $ | 18.7 | ||||||||||||
Net loss | - | - | - | (5.3 | ) | - | (5.3 | ) | ||||||||||||||||
Share-based compensation | - | - | 0.5 | - | - | 0.5 | ||||||||||||||||||
Balances at September 30, 2017 | 38,649,237 | $ | 3.9 | $ | 160.1 | $ | (169.1 | ) | $ | 19.0 | $ | 13.9 | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Aviragen Therapeutics, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in millions)
Nine Months Ended | Three Months Ended | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net loss | $ | (23.5 | ) | $ | (18.4 | ) | $ | (5.3 | ) | $ | (10.0 | ) | ||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||
Share-based compensation | 1.4 | 1.6 | 0.5 | 0.4 | ||||||||||||
Non-cash interest expense related to sale of future royalties | 1.4 | - | 0.4 | 0.4 | ||||||||||||
Non-cash royalty revenue related to sale of future royalties | (3.0 | ) | - | (0.1 | ) | - | ||||||||||
Change in operating assets and liabilities: | ||||||||||||||||
Accounts receivables | (5.2 | ) | 2.5 | |||||||||||||
Accounts receivable | 0.5 | - | ||||||||||||||
Prepaid expenses and other current assets | 0.5 | (0.8 | ) | 0.4 | (1.2 | ) | ||||||||||
Accounts payable and accrued expenses | (2.8 | ) | (0.1 | ) | (0.9 | ) | (0.3 | ) | ||||||||
Net cash used in operating activities | (31.2 | ) | (15.2 | ) | (4.5 | ) | (10.7 | ) | ||||||||
Cash flows from investing activities: | ||||||||||||||||
Purchases of short and long-term investments | (26.8 | ) | (13.5 | ) | (7.0 | ) | - | |||||||||
Maturity of short-term investments | 20.3 | 14.9 | 13.4 | 6.9 | ||||||||||||
Purchases of property and equipment | - | (0.1 | ) | |||||||||||||
Net cash provided by investing activities | 6.4 | 6.9 | ||||||||||||||
Net cash (used in) provided by investing activities | (6.5 | ) | 1.3 | |||||||||||||
Cash flows from financing activities: | ||||||||||||||||
Payment on note payable | (0.2 | ) | (0.2 | ) | ||||||||||||
Net cash used in financing activities | (0.2 | ) | (0.2 | ) | ||||||||||||
Decrease in cash and cash equivalents | (37.9 | ) | (14.1 | ) | ||||||||||||
Increase (decrease) in cash and cash equivalents | 1.9 | (3.8 | ) | |||||||||||||
Cash and cash equivalents at beginning of period | 49.7 | 44.7 | 17.7 | 49.7 | ||||||||||||
Cash and cash equivalents at end of period | $ | 11.8 | $ | 30.6 | $ | 19.6 | $ | 45.9 | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Aviragen Therapeutics, Inc., together with its wholly owned subsidiaries (“Aviragen”, or the “Company”) is a biopharmaceutical company focused on the discovery and development of direct-acting antivirals to treat infections that have limited therapeutic options and affect a significant number of patients globally. The Company has three Phase 2 clinical stage compounds: BTA074 (teslexivir), an antiviral treatment for condyloma caused by human papillomavirus types 6 & 11; vapendavir, a capsid inhibitor for the prevention or treatment of rhinovirus (RV)(“RV”) upper respiratory infections; and BTA585 (enzaplatovir), a fusion protein inhibitor in development for the treatment of respiratory syncytial virus infections; and BTA074, an antiviral treatment for condyloma caused by human papillomavirus types 6 & 11. Weinfections. The Company also havehas a preclinical RSV non-fusion inhibitor program that we believe complements our F-protein inhibitor BTA585.program. The Company is incorporated in the state of Delaware and its corporate headquarters are located in Alpharetta, Georgia.
Although several of the Company’s influenza product candidates have been successfully developed and commercialized to dateto-date by other larger pharmaceutical companies under collaboration, license or commercialization agreements with the Company, it has not independently developed or received regulatory approval for any product candidate, and the Company does not currently have any sales, marketing or commercial capabilities. Therefore, it is possible that the Company may not successfully derive any significant product revenues from any product candidates that it is developing now, or may develop in the future. The Company expects to incur losses for the foreseeable future as it intends to support the clinical and preclinical development of its product candidates.
In AprilOn October 30, 2017, the Company announced that it planshad entered into a definitive Agreement and Plan of Merger and Reorganization dated October 27, 2017, among the Company, Agora Merger Sub, Inc. and Vaxart, Inc. (the “Merger Agreement”) pursuant to explorewhich Vaxart., a wide rangeprivately-held clinical-stage company focused on developing oral recombinant vaccines from its proprietary delivery platform, would become a wholly-owned subsidiary of strategic alternatives that include a business combination or strategic merger, in-licensing clinical stage programs, an acquisition, or otherthe Company (the “Merger”). This transaction that would complementmarks the culmination of the Company’s current pipelineStrategic Review process which was initiated in April. The Merger will result in a combined company focused on developing orally-delivered vaccines and could maximize both neartherapeutics to address a variety of viral infections.
The exchange ratio in the merger agreement was determined by Vaxart assigning $60,000,000 in value to Aviragen for its financial and long-termclinical assets, and $90,000,000 in value for its shareholders.own assets. On a pro forma basis after giving effect to the number of shares of Aviragen common stock that will be issued to Vaxart security holders in the Merger and assuming no adjustments for cash balances as provided for in the Merger Agreement, current Vaxart security holders will own approximately 60% of the combined company and current Aviragen security holders will own approximately 40% of the combined company. The Companytransaction has retained Stifel, Nicolaus & Company, Incorporatedbeen approved by the boards of directors of both companies. The Merger is expected to close in the first quarter of 2018, subject to the approval of the stockholders of each company as well as other customary conditions.
Upon closing of the Merger, the name of the combined company will become Vaxart, Inc. and shares of the combined company are expected to continue trading on the NASDAQ Capital Market under the proposed ticker symbol VXRT. Wouter Latour, M.D., will serve as its financial advisor inChief Executive Officer of the process. Duringcombined company.
Prior to the strategic alternatives process,completion of the proposed merger, the Company plans to continue to finance its operations with its existing cash. The Company’s ability to continue to support its operations is dependent, in the near-term, upon managing its cash, resources (including royalty revenue received under existing licenses) as it continues with its ongoing clinical development activities. Aviragen does not have a defined timeline for the exploration of strategic alternativescash equivalents and there can be no assurance that the process will result in any strategic alternative being announced or consummated. Aviragen does not intend to discuss or disclose further developments during this process unless and until its Board of Directors has approved a specific action or otherwise determined that further disclosure is appropriate.investments.
(2) Basis of Presentation
(2) | Basis of Presentation |
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. All material adjustments considered necessary for a fair presentation have been included. Certain information and footnote disclosure normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to instructions, rules and regulations prescribed by the U.S. Securities and Exchange Commission (“SEC”). Except as disclosed herein, there has been no material change in the information disclosed in the notes to the condensed consolidated financial statements included in the Company’s Annual Report on Form 10-K that was filed with the SEC on September 13, 2016.1, 2017.
The unaudited interim condensed consolidated financial statements include the accounts of the Company and all of its wholly owned subsidiaries. All inter-company transactions and balances are eliminated in consolidation.
Operating results for the three and nine months ended March 31,September 30, 2017 are not necessarily indicative of those in future quarters or the annual results that may be expected for the Company’sCompany’s fiscal year ending June 30, 2017.2018. For a more complete discussion of the Company’s significant accounting policies and other information, this report should be read in conjunction with the consolidated financial statements for the fiscal year ended June 30, 20162017 included in the Company’s Annual Report on Form 10-K.
Aviragen Therapeutics, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)(for the period ended March 31, 2017)
The Company’s significant accounting policies have not changed since June 30, 2016, except as described below in Recently Adopted Accounting Standards.2017.
Recently Adopted Accounting Standards
In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-09 - Improvements to Employee Share-Based Payment Accounting. This ASU simplifies several aspects of the accounting for employee share-based payments, including the accounting for employer tax withholding on share-based compensation, forfeitures and the financial statement presentation of excess tax benefits and deficiencies. The ASU also clarifies the statement of cash flows presentation for certain components of share-based awards.
The Company has elected to early adopt ASU 2016-09 for the three months ended March 31, 2017 using a modified retrospective approach, effective as if adopted the first day of the fiscal year, July 1, 2016. As a result of the adoption, the Company made an accounting policy election to account for forfeitures as they occur. The impact of the change in accounting policy has been recorded as a $0.1 million cumulative effect adjustment as a decrease to the Company’s accumulated deficit and an increase to additional paid-in capital as of January 1, 2017 to reflect actual forfeitures versus the previously-estimated forfeiture rate.
The amendments within the ASU related to the recognition of excess tax benefits and deficiencies and tax withholding requirements were adopted prospectively, with no impact to prior periods in the Statement of Stockholder's Equity.
Recently Issued Accounting Standards
In May 2014, the FASB issued authoritative accounting guidance related to revenue from contracts with customers. This guidance is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. This guidance is effective for annual reporting periods beginning after December 15, 2017. Accordingly, the Company will adopt this guidance on July 1, 2018. Companies may use either a full retrospective or a modified retrospective approach to adopt this guidance. The Company is evaluating which transition approach to use and its impact, if any, on its consolidated financial statements.
In August 2014, the FASB issued authoritative accounting guidance related to management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. Management’s evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued. In doing so, the amendments should reduce diversity in the timing and content of footnote disclosures. This guidance is effective for annual reporting ending after December 15, 2016, and for annual periods and interim periods thereafter, with early application permitted. Accordingly, the standard is effective for the Company on June 30, 2017. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.
In January 2016, the FASB issued guidance related to financial instruments - overall recognition and measurement of financial assets and financial liabilities. The guidance enhances the reporting model for financial instruments, which includes amendments to address aspects of recognition, measurement, presentation and disclosure. The update to the standard is effective for public companies for interim and annual periods beginning after December 15, 2017. Accordingly, the standard is effective for the Company on July 1, 2018. The Company is currently evaluating the impact that the standard will have on the consolidated financial statements.
In February 2016, the FASB issued new guidance on leases. This guidance replaces the prior lease accounting guidance in its entirety. The underlying principle of the new standard is the recognition of lease assets and lease liabilities by lessees for substantially all leases, with an exception for leases with terms of less than twelve months. The standard also requires additional quantitative and qualitative disclosures. The guidance is effective for interim and annual reporting periods beginning after December 15, 2018, and early adoption is permitted. The standard requires a modified retrospective approach, which includes several optional practical expedients. Accordingly, the standard is effective for the Company on July 1, 2019. The Company is currently evaluating the impact that this guidance will have on the consolidated financial statements.
Aviragen Therapeutics, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)(for the period ended March 31, 2017)
In August 2016, the FASB issued new guidance on how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The standard is effective for the Company beginning July 1, 2018. Early adoption is permitted. We do not expect the adoption of this guidance to have a material impact on the consolidated financial statements.
(3) Fair Value Measurements
(3) | Fair Value Measurements |
A fair value hierarchy has been established that requires the Company to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value. The fair value hierarchy describes three levels of inputs that may be used to measure fair value:
Level 1 | Quoted prices in active markets for identical assets or liabilities. | |
Level 2 | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | |
Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
The following table sets forth the financial assets and liabilities that were measured at fair value on a recurring basis at March 31,September 30, 2017 and June 30, 2016,2017, by level within the fair value hierarchy. The assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
The Company’s short-term investments have been classified as Level 2, which have been initially valued at the transaction price and subsequently revalued, at the end of each reporting period, utilizing a third party pricing service. The pricing service utilizes industry standard valuation models and observable market inputs to determine value that include surveying the bond dealer community, obtaining benchmark quotes, incorporating relevant trade data, and updating spreads daily. There have been no transfers of assets or liabilities between the fair value measurement classifications.
Quoted Prices in | Significant | Quoted Prices in | Significant | |||||||||||||||||||||||||||||
Active Markets | Other | Significant | Active Markets | Other | Significant | |||||||||||||||||||||||||||
(in millions) | for Identical Assets | Observable Inputs | Unobservable Inputs | for Identical Assets | Observable Inputs | Unobservable Inputs | ||||||||||||||||||||||||||
March 31, 2017 | Total | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||||||||||||||||
September 30, 2017 | Total | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||||||||||||||||
Cash equivalents | $ | 7.4 | $ | 7.4 | $ | — | $ | — | $ | 17.0 | $ | 6.3 | $ | 10.7 | $ | — | ||||||||||||||||
Short-term investments available-for-sale | 25.8 | — | 25.8 | — | 14.5 | — | 14.5 | — | ||||||||||||||||||||||||
Total | $ | 33.2 | $ | 7.4 | $ | 25.8 | $ | — | $ | 31.5 | $ | 6.3 | $ | 25.2 | $ | — | ||||||||||||||||
| Quoted Prices in | Significant | |||||||||||||||||||||||||||||||
| Active Markets | Other | Significant | ||||||||||||||||||||||||||||||
| (in millions) | for Identical Assets | Observable Inputs | Unobservable Inputs | |||||||||||||||||||||||||||||
June 30, 2016 | Total | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||||||||||||||||
(in millions) June 30, 2017 | Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||||||||
Cash equivalents | $ | 1.5 | $ | 1.5 | $ | — | $ | — | $ | 10.9 | $ | 5.9 | $ | 5.0 | $ | — | ||||||||||||||||
Short-term investments available-for-sale | 19.3 | 10.0 | 9.3 | — | 20.9 | — | 20.9 | — | ||||||||||||||||||||||||
Total | $ | 20.8 | $ | 11.5 | $ | 9.3 | $ | — | $ | 31.8 | $ | 5.9 | $ | 25.9 | $ | — | ||||||||||||||||
Cash equivalents consist primarily of money market funds. Short-term investments consist of certificates of deposit, corporate securities, U.S. Treasury securities and U.S. agency securities, classified as available-for-sale and have maturities less than 365 days from the date of acquisition.
Aviragen Therapeutics, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)(for the period ended March 31, 2017)
The following table shows the unrealized gains and losses and fair values for those investments as of March 31,September 30, 2017 and June 30, 20162017 aggregated by major security type:
(in millions) | Unrealized | Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||||||||
March 31, 2017 | At Cost | Gains | (Losses) | At Fair Value | ||||||||||||||||||||||||||||
September 30, 2017 | At Cost | Gains | (Losses) | At Fair Value | ||||||||||||||||||||||||||||
Money market funds | $ | 7.4 | $ | - | $ | - | $ | 7.4 | $ | 6.3 | $ | - | $ | - | $ | 6.3 | ||||||||||||||||
Corporate notes | 19.8 | - | - | 19.8 | 9.7 | - | - | 9.7 | ||||||||||||||||||||||||
Commercial paper | 5.0 | - | - | 5.0 | 15.5 | - | - | 15.5 | ||||||||||||||||||||||||
Certificates of deposit | 1.0 | - | - | 1.0 | ||||||||||||||||||||||||||||
Total | $ | 33.2 | $ | - | $ | - | $ | 33.2 | $ | 31.5 | $ | - | $ | - | $ | 31.5 | ||||||||||||||||
(in millions) | Unrealized | Unrealized | ||||||||||||||
June 30, 2016 | At Cost | Gains | (Losses) | At Fair Value | ||||||||||||
Money market funds | $ | 1.5 | $ | — | $ | — | $ | 1.5 | ||||||||
Debt securities of U.S. government agencies | 2.0 | — | — | 2.0 | ||||||||||||
U.S. Treasury securities | 7.0 | — | — | 7.0 | ||||||||||||
Corporate notes | 2.9 | 0.1 | — | 3.0 | ||||||||||||
Certificates of deposit | 7.3 | — | — | 7.3 | ||||||||||||
Total | $ | 20.7 | $ | 0.1 | $ | — | $ | 20.8 | ||||||||
(in millions) | Unrealized | Unrealized | ||||||||||||||
June 30, 2017 | At Cost | Gains | (Losses) | At Fair Value | ||||||||||||
Money market funds | $ | 5.9 | $ | — | $ | — | $ | 5.9 | ||||||||
Commercial paper | 8.5 | — | — | 8.5 | ||||||||||||
Corporate notes | 17.4 | — | — | 17.4 | ||||||||||||
Total | $ | 31.8 | �� | $ | — | $ | — | $ | 31.8 | |||||||
As of March 31,September 30, 2017 the Company had no investments in an unrealized gain (loss) position. As ofand June 30, 2016,2017, the Company had investments in an unrealized gain position.(loss) position below material disclosure thresholds in the table above. The Company determined that the unrealized gains and losses on these investments were temporary in nature and expected the security to mature at its stated maturity principal. All available-for-sale securities held at March 31,September 30, 2017, will mature within ain less than one year period.year. The fair value of cash, accounts receivable, accounts payable and accrued liabilities approximate their carrying value because of the short-term nature of these financial instruments respectively, at March 31,September 30, 2017 and June 30, 2016.2017, respectively. The fair value of the Company’s short-term note payable, which is measured using Level 2 inputs, approximates book value, at March 31,September 30, 2017 and June 30, 2016.2017.
(4) |
|
Accrued expenses consist of the following (in millions):
March 31, 2017 | June 30, 2016 | |||||||
Professional fees | $ | 0.4 | $ | 0.1 | ||||
Salary and benefits | 0.4 | 0.6 | ||||||
Research and development expenses | 2.2 | 2.2 | ||||||
Other accrued expenses | - | 0.7 | ||||||
Total accrued expenses and other liabilities | $ | 3.0 | $ | 3.6 | ||||
September 30, 2017 |
June 30, 2017 | |||||||
Professional fees | $ | 0.4 | $ | 0.4 | ||||
Salary and benefits | 0.4 | 0.4 | ||||||
Research and development expenses | 1.3 | 1.8 | ||||||
Other accrued expenses | 0.1 | 0.3 | ||||||
Total accrued expenses and other liabilities | $ | 2.2 | $ | 2.9 | ||||
(5) | Liabilities Related to Sale of Future Royalties |
In April 2016, the Company sold certain royalty rights related to the approved product Inavir®, sold by Daiichi Sankyo Company, Limited (“Daiichi Sankyo”) in the Japanese market, for $20 million to HealthCare Royalty Partners III, L.P. (“HCRP”). Under the relevant accounting guidance, due to a limit on the amount of royalties that HCRP can earn under the arrangement, this transaction was accounted for as a liability that will be amortized using the interest method over the life of the arrangement. The Company has no obligation to pay any amounts to HCRP other than to pass through to HCRP its share of royalties as they are received from Daiichi Sankyo. As of March 31, 2017 and June 30, 2016, the amount receivable from Daiichi Sankyo related to the HCRP transaction was $0.8 million and $0.2 million, respectively, which has been included in “Accounts Receivable” in the accompanying condensed consolidated balance sheets.
Aviragen Therapeutics, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)(for the period ended March 31, 2017)
In order to record the amortization of the liability, the Company is required to estimate the total amount of future royalty payments to be received under the License Agreement with Daiichi Sankyo and the payments that will be passed through to HCRP over the life of the agreement. The sum of the pass through amounts less the net proceeds received will be recorded as non-cash interest expense over the life of the liability. Consequently, the Company imputes interest on the unamortized portion of the liability and records non-cash interest expense using an estimated effective interest rate. The Company will periodically assess the expected royalty payments, and to the extent such payments are greater or less than the initial estimate, the Company will adjust the amortization of the liability and interest rate. As a result of this accounting, even though the Company does not retain HCRP’sHCRP’s share of the royalties, it will continue to record non-cash revenue related to those royalties until the amount of the associated liability and related interest is fully amortized.
The following table shows the activity within the liability account during the ninethree months ended March 31,September 30, 2017:
in millions | in millions | |||||||
Total Liability related to sale of future royalties, June 30, 2016 | $ | 18.1 | ||||||
Total Liability related to sale of future royalties, June 30, 2017 | $ | 16.7 | ||||||
Non-cash royalty revenue paid to HCRP | (2.4 | ) | (0.2 | ) | ||||
Non-cash interest expense recognized | 1.4 | 0.4 | ||||||
Total Liability related to sale of future royalties, March 31, 2017 | $ | 17.1 | ||||||
Total Liability related to sale of future royalties, September 30, 2017 | $ | 16.9 | ||||||
(6) |
|
Basic and diluted net loss per share has been computed based on net loss and the weighted-average number of common shares outstanding during the applicable period. For diluted net loss per share, common stock equivalents (shares of common stock issuable upon the exercise of stock options and unvested restricted stock units) are excluded from the calculation as their inclusion would be anti-dilutive. The Company has excluded all anti-dilutive share-based awards to purchase common stock in periods indicating a loss, as their effect is anti-dilutive.
The following tables set forth the computation of historical basic and diluted net loss per share.
Three Months Ended | ||||||||
2017 | 2016 | |||||||
Net loss (in millions) | $ | (4.4 | ) | $ | (5.2 | ) | ||
Weighted-average shares outstanding | 38,647,487 | 38,640,254 | ||||||
Dilutive effect of restricted stock and stock options | - | - | ||||||
Shares used to compute diluted earnings per share | 38,647,487 | 38,640,254 | ||||||
Basic net loss per share | $ | (0.11 | ) | $ | (0.14 | ) | ||
Diluted net loss per share | $ | (0.11 | ) | $ | (0.14 | ) | ||
Number of anti-dilutive share-based awards excluded from computation | 6,635,527 | 4,639,959 | ||||||
Nine Months Ended | ||||||||
2017 | 2016 | |||||||
Net loss (in millions) | $ | (23.5 | ) | $ | (18.4 | ) | ||
Weighted-average shares outstanding | 38,642,786 | 38,633,786 | ||||||
Dilutive effect of restricted stock and stock options | - | - | ||||||
Shares used to compute diluted earnings per share | 38,642,786 | 38,633,786 | ||||||
Basic net loss per share | $ | (0.61 | ) | $ | (0.48 | ) | ||
Diluted net loss per share | $ | (0.61 | ) | $ | (0.48 | ) | ||
Number of anti-dilutive share-based awards excluded from computation | 6,635,527 | 4,639,959 | ||||||
Aviragen Therapeutics, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)(for the period ended March 31, 2017)
Three Months Ended | ||||||||
2017 | 2016 | |||||||
Net loss (in millions) | $ | (5.3 | ) | $ | (10.0 | ) | ||
Weighted-average shares outstanding | 38,649,237 | 38,640,487 | ||||||
Dilutive effect of restricted stock and stock options | - | - | ||||||
Shares used to compute diluted earnings per share | 38,649,237 | 38,640,487 | ||||||
Basic net loss per share | $ | (0.14 | ) | $ | (0.26 | ) | ||
Diluted net loss per share | $ | (0.14 | ) | $ | (0.26 | ) | ||
Number of anti-dilutive share-based awards excluded from computation | 7,452,999 | 5,806,900 | ||||||
(7) Licenses, Royalty Collaborative and Contractual Arrangements
(7) | Licenses, Royalty Collaborative and Contractual Arrangements |
Royalty agreements
The Company entered into a royalty-bearing research and license agreement with GlaxoSmithKline (“GSK”) in 1990 for the development and commercialization of zanamivir, a neuraminidase inhibitor (“NI”) marketed by GSK as Relenza®Relenza® to treat influenza. Under the terms of the agreement, the Company licensed zanamivir to GSK on an exclusive, worldwide basis and has been entitled to receive royalty payments of 7% of GSK's annual net sales of Relenza® in the U.S., Europe, Japan and certain other countries as well as 10% of GSK's annual net sales of Relenza® in Australia, New Zealand, South Africa and Indonesia.basis. Most of the Company’s Relenza® patents have expired and the only substantial remaining intellectual property related to the Relenza® patent portfolio is scheduled to expire in July 2019 in Japan. Until that patent expires, the Company will receive a 7% royalty on GSK’s annual net sales of Relenza® in Japan.
The Company also generates royalty revenue from the sale of Inavir® (laninamivir octanoate or LANI) in Japan, pursuant to a collaboration and license agreement and a related commercialization agreement (collectively, the “Inavir® License Agreement”) with Daiichi Sankyo. Under the Inavir® License Agreement, the Company currently receives a 4% royalty on net sales of Inavir® in Japan and is eligible to earn sales milestone payments. Under the Inavir® License Agreement, the Company and Daiichi Sankyo have cross-licensed the world-wide rights to develop and commercialize the related intellectual property, and have agreed to share equally in any royalties, license fees, or milestone or other payments received from any third party licenses outside of Japan. Patents onThe patent relating to hydrates and the compositioncrystalline form of matter for LANI used in Inavir® expires in 2021 (not including extensions) in the U.S. and EU and in 2024 in Japan. In February 2015, a patent containing claims relevant to the manufacture of Inavir ® was issued in Japan generally expireand expires in 2024.December 2029.
In April 2016, the Company entered into a Royalty Interest Acquisition Agreement (“Agreement”) with HCRP. Under the Agreement, HCRP made a $20 million cash payment to the Company in consideration for acquiring from the SellersCompany certain royalty rights (“Royalty Rights”) related to the approved product Inavir® in the Japanese market. The Royalty Rights were obtained pursuant to the Inavir License Agreement.
The following tables summarize the key components of the Company’s revenues (in millions):
Three Months Ended March 31, | Three Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
(in millions) | (in millions) | |||||||||||||||
Royalty revenue - Relenza® | $ | 1.1 | $ | 1.7 | $ | - | $ | 0.1 | ||||||||
- Inavir® | 3.0 | 3.6 | ||||||||||||||
Non-cash royalty revenue related to the sale of future royalties | 0.8 | - | 0.1 | - | ||||||||||||
Total revenue | $ | 4.9 | $ | 5.3 | $ | 0.1 | $ | 0.1 | ||||||||
Nine Months Ended March 31, | ||||||||
2017 | 2016 | |||||||
(in millions) | ||||||||
Royalty revenue - Relenza® | $ | 2.7 | $ | 4.5 | ||||
- Inavir® | 3.1 | 4.3 | ||||||
Non-cash royalty revenue related to the sale of future royalties | 3.0 | - | ||||||
Total revenue | $ | 8.8 | $ | 8.8 | ||||
Aviragen Therapeutics, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)(for the period ended March 31, 2017)
Collaborative and contract arrangements
In July 2016, the Company entered into an exclusive, worldwide license for RSV replication inhibitors intellectual property with Georgia State University Research Foundation (“GSURF”) in exchange for an upfront fee, future milestone payments and royalties on future net sales of any products that utilize the underlying RSV intellectual property. The Company has an obligation to make a minimum payment of $10,000 to GSURF annually until the license agreement expires or is terminated. The Company also entered into a two year sponsored research agreement with GSURF for annual sponsored research payments.
(8) Share-based Compensation
(8) | Subsequent Events |
For the three month period ended March 31,On October 30, 2017, and 2016, the Company recorded share-based compensation expense relatedannounced that it had entered into the Merger Agreement pursuant to grantswhich Vaxart., a privately-held clinical-stage company focused on developing oral recombinant vaccines from equity incentive plans of $0.5 million and $0.5 million, respectively. For the nine month period ended March 31, 2017 and 2016, the Company recorded share-based compensation expense related to grants from equity incentive plans of $1.4 million and $1.6 million, respectively. No income tax benefit was recognized in the statements of operations and no share-based compensation expense was capitalized as part of any assets for the three month and nine month periods ended March 31, 2017 and 2016.
Stock Options
The fair value of each stock option award was estimated at its respective date of grant using the Black-Scholes method with the following assumptions:
Three Months Ended | Nine Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Weighted-average risk-free interest rate | 1.27 | % | 1.10 | % | 1.19 | % | 1.50 | % | ||||||||
Dividend yield | — | — | — | — | ||||||||||||
Expected weighted-average volatility | .65 | .76 | .71 | .75 | ||||||||||||
Expected weighted-average life of options (years) | 2.0 | 6.0 | 4.2 | 4.5 | ||||||||||||
Weighted-average fair value of options granted | $ | 0.24 | $ | 0.88 | $ | 0.58 | $ | 1.34 | ||||||||
The risk-free rate interest rate is based on the expected lifeproprietary delivery platform, would become a wholly-owned subsidiary of the option andCompany. This transaction marks the corresponding U.S. Treasury bond. The expected term of stock options granted is derived from actual and expected option behavior and represents the period of time that options granted are expected to be outstanding. Expected volatility is based on the historical volatilityculmination of the Company’s publicly traded common stock.
A summaryCompany’s Strategic Review process which was initiated in April. The Merger will result in a combined company focused on developing orally-delivered vaccines and therapeutics to address a variety of the Company’s outstanding stock option activity for the nine months ended March 31, 2017 is as follows:
Number of Stock Options | Weighted Average Exercise Price Per Option | Weighted-Average Remaining Contractual Term | Aggregate Intrinsic Value($000) | |||||||||||||
(In Years) | ||||||||||||||||
Outstanding at June 30, 2016 | 4,751,423 | $ | 4.07 | - | ||||||||||||
Granted | 2,392,000 | 1.02 | ||||||||||||||
Exercised | — | — | ||||||||||||||
Forfeited | (337,193 | ) | 2.35 | |||||||||||||
Expired | (170,703 | ) | 4.46 | |||||||||||||
Outstanding at March 31, 2017 | 6,635,527 | $ | 3.05 | 7.5 | $ | - | ||||||||||
The total intrinsic value of stock options exercised during the three month period ended March 31, 2017 was zero, and no cash proceeds were received by the Company. Further, no actual tax benefits were realized, as the Company currently records a full valuation allowance for all tax benefits due to uncertainties with respect to its ability to generate sufficient taxable income in the future.
Aviragen Therapeutics, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)(for the period ended March 31, 2017)viral infections.
The following tables summarize information relating to outstanding and exercisable options as
March 31, 2017 | |||||||||||||||||||||||
Outstanding | |||||||||||||||||||||||
Weighted Average | Exercisable | ||||||||||||||||||||||
Number of | Remaining | Weighted Average | Number of | Weighted Average | |||||||||||||||||||
Exercise Prices | Stock Options | Contractual Life | Exercise Price | Stock Options | Exercise Price | ||||||||||||||||||
(In Years) | |||||||||||||||||||||||
| $0.65 | — | $1.21 | 1,082,000 | 9.99 | $ | 0.65 | 0 | $ | 0.00 | ||||||||||||||
| $1.30 | — | $1.95 | 1,684,167 | 9.28 | 1.38 | 37,217 | 1.76 | ||||||||||||||||
| $2.02 | — | $3.98 | 2,468,750 | 6.42 | 2.47 | 1,295,566 | 2.49 | ||||||||||||||||
| $4.05 | — | $34.86 | 1,400,610 | 5.33 | 7.93 | 1,354,360 | 8.03 | ||||||||||||||||
| 6,635,527 | 7.50 | $ | 3.05 | 2,687,143 | 5.27 | ||||||||||||||||||
As of March 31, 2017 there was $2.4 million of unrecognized share-based compensation expense related to all unvested share-based awards. This balance is expected to be recognized over a weighted-average period of approximately 1.6 years.
ITEM 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In most cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “forecast,” “potential,” “likely” or “possible”, as well as the negative of such expressions, and similar expressions intended to identify forward-looking statements. These forward-looking statements include, without limitation, statements relating to:
● | our expectations as to when enrollment will be completed and top-line safety and efficacy data for BTA074 (teslexivir), are expected; |
● | our anticipation that we will generally incur net losses from operations in the future due to our intention to continue to support the preclinical and clinical development of our product candidates; |
● | our future financing requirements, the factors that may influence the timing and amount of those requirements and our ability to fund them; |
● | the number of months that our current cash, cash equivalents, investments and anticipated future proceeds from existing royalty-bearing licenses will allow us to operate;and |
● |
|
Various important factors could cause actual results, performance, events or achievements to materially differ from those expressed or implied by forward-looking statements, including the U.S. Food and Drug Administration (“FDA”) or a similar regulatory body in another country, a data safety monitoring board, or an institutional review board delaying, limiting, suspending or terminating any of the Company’s clinical development programs at any time for a lack of safety, efficacy, tolerability, anti-viral activity, commercial viability, regulatory or manufacturing issues, or any other reason whatsoever; the Company's ability to secure, manage and retain qualified third-party clinical research, preclinical research, data management and contract manufacturing organizations upon which it relies to assist in the design, development, implementation and execution of the clinical and preclinical development of all its product candidates; and these third-party organizations fulfilling their contractual obligations on a timely and satisfactory basis; the safety or efficacy data from planned or ongoing future preclinical and clinical studies of any of its product candidates not supporting the clinical development of that product candidate; the successful enrollment of the requisite number of study participants on a timely basis; the Company’s ability to comply with applicable government regulations in various countries and regions in which we are conducting, or expect to conduct, clinical trials; the Company’s ability to retain and recruit sufficient staff, including key executive management and employees, to manage our business; the Company’s ability to maintain, protect or defend its proprietary rights from unauthorized use by others, or not infringe on the intellectual property rights of others; our ability to successfully manage our expenses, operating results and financial position in line with our plans and expectations; the condition of the financial equity and debt markets and our ability to raise sufficient funding in such markets; changes in the general economic business or competitive conditions in the industry or with respect to our product candidates; potential employee resignations on short notice; provisions in certificate of incorporation, bylaws and laws of Delaware containing provisions that could delay or discourage a change in control of the Company; the success of our strategic alternatives exploration processCompany’s obtaining the requisite stockholder approval and other conditions to the Merger being satisfied; and other cautionary statements contained elsewhere in this Quarterly Report on Form10-QForm10-Q and in the Company’s Annual Report on Form 10-K for the year ended June 30, 2016,2017, as filed with the U.S. Securities and Exchange Commission on September 13, 2016.1, 2017.
There may be events in the future that we are unable to predict accurately, or over which we have no control. You should completely read this Form 10-Q and the documents that we reference herein that have been filed or incorporated by reference as exhibits and with the understanding that our actual future results may be materially different from what we expect. Our business, financial condition, results of operations, and prospects may change. We may not update these forward-looking statements, even though our situation may change in the future, unless we have an obligation under the federal securities laws to update and disclose material developments related to previously disclosed information. We qualify all of the information presented in this Form 10-Q, and particularly our forward-looking statements, by these cautionary statements.
Aviragen is a registered trademark of Aviragen Therapeutics Inc., Relenza® is a registered trademark of GlaxoSmithKline plc, and Inavir® is a registered trademark of Daiichi Sankyo Company, Ltd.
References to “we,” “us,” and “our” refer to Aviragen Therapeutics, Inc. and its subsidiaries.
The following is a discussion and analysis of the major factors contributing to our results of operations for the three and nine months ended March 31,September 30, 2017, and our financial condition at that date, and should be read in conjunction with the financial statements and the notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Company Overview
We are focused on the discovery and development of direct-acting antivirals to treat infections that have limited therapeutic options and affect a significant number of patients globally. The Company has three Phase 2 clinical stage compounds: BTA074 (teslexivir), an antiviral treatment for condyloma caused by human papillomavirus types 6 & 11; vapendavir, a capsid inhibitor for the prevention or treatment of rhinovirus (RV)(“RV”) upper respiratory infections; and BTA585 (enzaplatovir), a fusion protein inhibitor in development for the treatment of respiratory syncytial virus infections; and BTA074, an antiviral treatment for condyloma caused by human papillomavirus types 6 & 11. We also have preclinical RSV non-fusion inhibitor program that we believe complements our F-protein inhibitor BTA585.infections.
Although several of our influenza product candidates have been successfully developed and commercialized to date by other larger pharmaceutical companies under license, collaboration or commercialization agreements with us, we have not independently developed or received regulatory approval for any product candidate, and we do not currently have any sales, marketing or commercial capabilities. Therefore, it is possible that we may not derive any significant product revenues from any product candidates that we are developing now, or may develop in the future. We expect to incur losses for the foreseeable future as we intend to support the clinical and preclinical development of our product candidates.
In April 2017, we announced that we plan to explore a wide range of strategic alternatives that include a business combination or strategic merger, in-licensing clinical stage programs, an acquisition, or other transaction that would complement our current pipeline and could maximize both near and long-term value for our shareholders. We have retained Stifel, Nicolaus & Company, Incorporated to serve as our financial advisor in the process. During the strategic alternatives process, we plan to continue to finance our operations with its existing cash. The Company’s ability to continue to support its operations is dependent, in the near-term, upon managing its cash resources (including royalty revenue received under existing licenses) as we continue with our ongoing clinical development activities. We do not have a defined timeline for the exploration of strategic alternatives and we can provide no assurance that the process will result in any strategic alternative being announced or consummated. We do not intend to discuss or disclose further developments during this process unless and until our Board of Directors has approved a specific action or otherwise determined that further disclosure is appropriate.
Recent Clinical Highlights and Updates
Strategic Review Process. The Company is actively engaged, with the assistance of its financial advisor, Stifel, Nicolaus & Company, Incorporated, in evaluating a wide range of strategic alternatives that include a business combination or strategic merger, in-licensing clinical stage programs, an acquisition, or other transaction that would complement the Company's pipeline.
BTA074. The Phase 2 trial of BTA074, a topical antiviral treatment for condyloma caused by human papillomavirus (HPV), is ongoing with completion of enrollment in the 210 patient trial anticipated in the second half of 2017. Top-line safety and efficacy data are expected in the first half of 2018.
Vapendavir. On February 13,October 30, 2017, the Company announced top-line datathat it had entered into the Merger Agreement pursuant to which Vaxart., a privately-held clinical-stage company focused on developing oral recombinant vaccines from its Phase 2b SPIRITUS trial,proprietary delivery platform, would become a multi-center, randomized, double-blind, placebo controlled, dose-ranging studywholly-owned subsidiary of vapendavirthe Company. This transaction marks the culmination of the Company’s Strategic Review process which was initiated in moderateApril. The Merger will result in a combined company focused on developing orally-delivered vaccines and therapeutics to severe asthmatics withaddress a rhinovirus (RV) infection. Vapendavir did not demonstrate a statistically significant reduction in the primary endpoint, asthma control questionnaire-6 (ACQ-6) at day 14 compared to placebo; however, Vapendavir did demonstrate an antiviral effect and clinical benefit in subjects dosed within 24 hoursvariety of symptom onset, consistent with that observed in earlier clinical trials with the drug. The Company is working with several key opinion leaders in evaluating a potential clinical development path for the drug based on the consistent antiviral effect observed in all of its Phase 2 clinical studies, and its favorable safety profile.viral infections.
RSV Programs. On February 1, 2017 the Company announced top-line data from its double-blind, placebo-controlled Phase 2a study of BTA585 in adults challenged intranasally with respiratory syncytial virus (RSV). The data indicate there was not a significant reductionexchange ratio in the primary endpoint, whichmerger agreement was viral load. The overall safety profile of BTA585 was favorabledetermined by Vaxart assigning $60,000,000 in value to Aviragen for its financial and consistent across treatment groups. The Company continues to progress non-clinical activitiesclinical assets, and $90,000,000 in support ofvalue for its responseown assets. On a pro forma basis after giving effect to the U.S. Food and Drug Administration regarding the clinical hold on BTA585 for the treatmentnumber of respiratory syncytial virus (RSV) infections. In addition the Company is making progress in identifying several compounds for its non-nucleoside inhibitor programshares of Aviragen common stock that will be issued to Vaxart security holders in the same indication.Merger and assuming no adjustments for cash balances as provided for in the Merger Agreement, current Vaxart security holders will own approximately 60% of the combined company and current Aviragen security holders will own approximately 40% of the combined company. The transaction has been approved by the boards of directors of both companies. The Merger is expected to close in the first quarter of 2018, subject to the approval of the stockholders of each company as well as other customary conditions.
Overhead Expense. The Company has reduced its headcount by approximately 25% and has taken several additional steps to preserve cash during the strategic review process.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management’s Discussion and Analysis of Results of Operations discusses our financial results, which (except to the extent described in the Notes thereto) have been presented in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The preparation of financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
We base our estimates and judgments on historical experience, current economic and industry conditions, and various other factors that we believe to be reasonable under the circumstances. This forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe there have been no changes to our critical accounting policies that require significant judgment and estimates as discussed in detail in our 20162017 annual 10-K filing:
• | Use of estimates | ||
• | Revenue recognition | ||
• | Accrued expenses | ||
• | Share-based compensation |
For a description of recent accounting policies and the impact on our financial statements, refer to Note 2 in the condensed consolidated financial statements.
Results of Operations for the Three months ended March 31,September 30, 2017 and March 31,September 30, 2016
Summary. For the three months ended March 31,September 30, 2017, we reported a net loss of $4.4$5.3 million, as compared to a net loss of $5.2$10.0 million in the same period of the prior fiscal year. Basic and diluted net loss per share was $0.11$0.14 for the three month period ended March 31,September 30, 2017, as compared to a basic and diluted net loss per share of $0.14$0.26 in the same period of 2016. The following commentary provides details underlying changes from last year in the major line items of our statement of operations:
Revenue. Revenue decreased to $4.9remained the same at $0.1 million for the three month periodperiods ended March 31,September 30, 2017 from $5.3 million in the same period in 2016 mainly due to a $0.6 million decrease in Relenza® royalties which was partially offset by a $0.2 million increase in Inavir® royalties. Of the total $3.8 million Inavir royalties earned for the three months ended March 31, 2017, $0.8 million are related to the sale of certain royalty rights to HealthCare Royalty Partners III, L.P. (HCRP) in April 2016 and will be passed through to HCRP. These are accounted for as non-cash royalty revenue in the condensed consolidated statement of operations.2016. The following table summarizes the key components of our revenue for the three months ended March 31,September 30, 2017 and 2016:
Three Months Ended March 31, | Three Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
(in millions) | (in millions) | |||||||||||||||
Royalty revenue - Relenza® | $ | 1.1 | $ | 1.7 | $ | - | $ | 0.1 | ||||||||
- Inavir® | 3.0 | 3.6 | ||||||||||||||
Non-cash royalty revenue related to the sale of future royalties | 0.8 | - | 0.1 | - | ||||||||||||
Total revenue | $ | 4.9 | $ | 5.3 | $ | 0.1 | $ | 0.1 | ||||||||
Research and Development Expense. Research and development expense decreased to $6.8$2.8 million for the three months ended March 31,September 30, 2017 from $8.5$7.6 million for the same period in 2016. The following table summarizes the components of our research and development expense for the three months ended March 31,September 30, 2017 and 2016.
Three Months Ended March 31, | Three Months Ended September 30, | |||||||||||||||
(in millions) | (in millions) | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Direct preclinical, clinical and product development expenses | $ | 5.9 | $ | 7.1 | $ | 1.9 | $ | 6.4 | ||||||||
Salaries, benefits and share-based compensation expenses | 0.8 | 1.1 | 0.8 | 1.1 | ||||||||||||
Depreciation and facility related expenses | 0.1 | 0.3 | 0.1 | 0.1 | ||||||||||||
Total research and development expense | $ | 6.8 | $ | 8.5 | $ | 2.8 | $ | 7.6 | ||||||||
Direct preclinical, clinical and product development expense decreased largely due to reduced clinical trial activity and manufacturing costs, as two of our three Phase 2 clinical trials came to a close in the end of the prior fiscal year. Salaries, benefits and reductionsshare-based compensation expenses decrease due to a reduction in overheadheadcount during the period.fourth quarter of fiscal 2017.
General and Administrative Expense. General and administrative expense decreasedincreased to $1.8$2.3 million for the three months ended March 31,September 30, 2017 from $2.3$2.2 million for the same period in 2016. The following table summarizes the components of our general and administrative expense for the three months ended March 31,September 30, 2017 and 2016.
Three Months Ended March 31, | Three Months Ended September 30, | |||||||||||||||
(in millions) | (in millions) | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Salaries, benefits and share-based compensation expenses | $ | 1.0 | $ | 1.2 | $ | 1.1 | $ | 1.0 | ||||||||
Professional and legal fees expenses | 0.3 | 0.3 | 0.6 | 0.4 | ||||||||||||
Other expenses | 0.5 | 0.8 | 0.6 | 0.8 | ||||||||||||
Total general and administrative expense | $ | 1.8 | $ | 2.3 | $ | 2.3 | $ | 2.2 | ||||||||
Foreign Exchange Loss (Gain), net. The impact of foreign exchange changed from a gain of $0.3$0.1 million in March 31, 2016 to a loss of $0.1 million forthe three months ended March 31,September 30, 2016 to no gain or loss for the three months ended September 30, 2017. The negative impact on foreign exchange on our condensed consolidated statement of operations was due to fluctuations in foreign currency exchange rates versus the U.S. dollar, largely related to the British Pound and Australian dollar. The vast majority of our cash holdings are held in the U.S. dollar. We re-measure all of our foreign assets and liabilities at the period-end exchange rate and the net effect of these translation adjustments is shown as a foreign currency loss or gain.
Results of Operations for the Nine months ended March 31, 2017and March 31, 2016
Summary. For the nine months ended March 31, 2017, we reported a net loss of $23.5 million, as compared to a net loss of $18.4 million in the same period of the prior fiscal year. Basic and diluted net loss per share was $0.61 for the nine month period ended March 31, 2017, as compared to a basic and diluted net loss per share of $0.48 in the same period of 2016. The following commentary provides details underlying changes from last year in the major line items of our statement of operations:
Revenue. Revenue was $8.8 million for both the nine month periods ended March 31, 2017 and 2016. Relenza® royalty revenue for the nine months ended March 31, 2017 decreased while Inavir® revenue increased compared to the same period in 2016. Of the total $6.1 million Inavir royalties earned for the nine months ended March 31, 2017, $3.0 million are related to the sale of certain royalty rights to HCRP in April 2016 and will be passed through to HCRP. These are accounted for as non-cash royalty revenue in the condensed consolidated statement of operations. The following table summarizes the key components of our revenue for the nine months ended March 31, 2017 and 2016.
Nine Months Ended March 31, | ||||||||
2017 | 2016 | |||||||
(in millions) | ||||||||
Royalty revenue - Relenza® | $ | 2.7 | $ | 4.5 | ||||
- Inavir® | 3.1 | 4.3 | ||||||
Non-cash royalty revenue related to the sale of future royalties | 3.0 | - | ||||||
Total revenue | $ | 8.8 | $ | 8.8 | ||||
Research and Development Expense. Research and development expense increased to $24.6 million for the nine months ended March 31, 2017 from $20.4 million for the same period in 2016. The following table summarizes the components of our research and development expense for the nine months ended March 31, 2017 and 2016.
Nine Months Ended March 31, | ||||||||
(in millions) | ||||||||
2017 | 2016 | |||||||
Direct preclinical, clinical and product development expenses | $ | 21.5 | $ | 16.5 | ||||
Salaries, benefits and share-based compensation expenses | 2.8 | 3.1 | ||||||
Depreciation and facility related expenses | 0.3 | 0.8 | ||||||
Total research and development expense | $ | 24.6 | $ | 20.4 | ||||
Direct preclinical, clinical and product development expense increased largely due to clinical and manufacturing costs associated with the Phase 2a challenge trial for BTA585, the Phase 2b SPIRITUS clinical trial for vapendavir, and clinical and chemistry expenses for BTA074 for the Phase 2 clinical trial that was initiated in February 2016.
General and Administrative Expense. General and administrative expense was $6.0 million for the nine months ended March 31, 2017 compared to $6.7 million for the same period in 2016. The following table summarizes the components of our general and administrative expense for the nine months ended March 31, 2017 and 2016.
Nine Months Ended March 31, | ||||||||
(in millions) | ||||||||
2017 | 2016 | |||||||
Salaries, benefits and share-based compensation expenses | $ | 3.0 | $ | 3.7 | ||||
Professional and legal fees expenses | 1.2 | 0.9 | ||||||
Other expenses | 1.8 | 2.1 | ||||||
Total general and administrative expense | $ | 6.0 | $ | 6.7 | ||||
Salaries, benefits and share-based compensation decreased primarily due to a reduction in administrative personnel. Professional and legal fees expenses increased due to timing of fees incurred compared to the same period in the prior year.
Foreign Exchange Loss (Gain),net. The impact of foreign exchange changed from a loss of $0.2 million in March 31, 2016 to a loss of $0.1 million for the nine months ended March 31, 2017. The positive impact on foreign exchange on our condensed consolidated statement of operations was due to fluctuations in foreign currency exchange rates versus the U.S. dollar, largely related to the British Pound and Australian Dollar. The vast majority of our cash holdings are held in the U.S. dollar. We re-measure all of our foreign assets and liabilities at the period-end exchange rate and the net effect of these translation adjustments is shown as a foreign currency loss or gain.
LIQUIDITY AND CAPITAL RESOURCES
For the ninethree months ended March 31,September 30, 2017, cash and cash equivalents decreasedincreased by $37.9$1.9 million. This decreaseincrease was primarily the result of the maturities of our operating activities and purchases of short-term investments.
Net cash used by operating activities was $31.2$4.5 million for the ninethree months ended March 31,September 30, 2017, which reflected our net loss during the period of $23.5$5.3 million, a net decrease in operating liabilities of $0.9 million, partially offset by net non-cash adjustments of $0.2 million, a net increase in operating assets of $4.7$0.8 million and a net decrease in operating liabilitiesassets of $2.8$0.9 million. Non-cash adjustments consist of $3.0 million in non-cash royalty income, offset by $1.4$0.4 million in non-cash interest expense and $1.4$0.5 million in share-based compensation expense.expense, partially offset by $0.1 million in non-cash royalty income.
Our net loss resulted largely from our funding of research and development activities including conducting clinical and preclinical studies, manufacturing and formulation of our product candidates, as well as ongoing general and administrative expenses. The net changechanges in operating assets and liabilities primarily reflects a $0.5 million decrease in prepaid expenses and $5.2 million increase in trade accounts receivable, which is largely related to royalty income, and a $2.8$0.9 million decrease in accounts payable and accrued expenses.expense due to reduced clinical trial activity, offset by a $0.4 million decrease in prepaid expenses, also due to reduced clinical trial activity and a $0.5 million decrease in receivables, which is largely related to royalty income.
Net cash used inprovided by investing activities during the ninethree months ended March 31,September 30, 2017 consisted of the purchasematurity of $26.8$13.4 million of investments, partially offset by the maturitypurchase of $20.3$7.0 million of investments.
At March 31,September 30, 2017, our cash, cash equivalents and investments totaled $37.6$34.1 million. Our cash and cash equivalents are currently held in the form of short-term deposits with large U.S. banks. Our short-term investments consist primarily of certificates of deposit and highly-rated corporate securities.
Based on our current strategy and operating plan, and considering the potential costs associated with advancing the preclinical and clinical development of our product candidates, we believe that our existing cash, cash equivalents and investments of approximately $37.6 34.1 millionand our accounts receivable as of March 31,September 30, 2017, which includes $3.0 million in Relenza royalties and $2.8 million in Inavir royalties that will be retained byalong with the Company,anticipated proceeds from existing royalty-bearing licenses will enable us to operate for a period of at least 12 months.months from the date of this report.
We have an ATM facility in place, which may allow us to quickly access the equity capital markets if we think it is prudent to do so and if market conditions allow. However, we currently do not have any commitments for future funding, nor do we anticipate that we will generate significant revenue, aside from revenue from existing royalty-bearing arrangements.
In AprilOn October 30, 2017, wethe Company announced that we planit had entered into the Merger Agreement pursuant to explorewhich Vaxart, a wide rangeprivately-held clinical-stage company focused on developing oral recombinant vaccines from its proprietary delivery platform, would become a wholly-owned subsidiary of strategic alternatives that include a business combination or strategic merger, in-licensing clinical stage programs, an acquisition, or otherthe Company. This transaction that would complement our current pipeline and could maximize both near and long-term value for our shareholders. We have retained Stifel, Nicolaus & Company, Incorporated to serve as our financial advisormarks the culmination of the Company’s Strategic Review process which was initiated in the process. During the strategic alternatives process, we plan to continue to finance our operations with its existing cash.April. The Company’s ability to continue to support its operations is dependent, in the near-term, upon managing its cash resources (including royalty revenue received under existing licenses) as we continue with our ongoing clinical development activities. We do not have a defined timeline for the exploration of strategic alternatives and we can provide no assurance that the processMerger will result in any strategic alternative being announced or consummated. We do not intenda combined company focused on developing orally-delivered vaccines and therapeutics to discuss or disclose further developments during this process unless and until our Boardaddress a variety of Directors has approved a specific action or otherwise determined that further disclosure is appropriate.viral infections.
Contractual and Commercial Commitments
There have been no material changes from the information included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2016. 2017.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, as defined in Item 303(a)(4) (ii) of Regulation S-K under the Securities Exchange Act of 1934, as amended.
ITEM 3: Quantitative and Qualitative Disclosures about Market Risk
There has been no material change in our assessment of sensitivity to market risk since our presentation set forth in Item 7A “Quantitative and Qualitative Disclosures about Market Risk” in the our Annual Report on Form 10-K for the fiscal year ended June 30, 2016.2017.
ITEM 4: Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
Changes in Internal Controls over Financial Reporting
There has been no change in our internal control over financial reporting during the quarter ended March 31,September 30, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
The Company is involved in various legal proceedings that are incidental to the conduct of its business. The Company is not involved in any pending or threatened legal proceedings that it believes could reasonably be expected to have a material adverse effect on its financial condition or results of operations.
Risks Related to Investment in our Business
Any investment in our business involves a high degree of risk. Before making an investment decision, you should carefully consider the information we include in this Quarterly Report on Form 10-Q, including our condensed consolidated financial statements and accompanying notes, and the additional information in the other reports we file with the Securities and Exchange Commission along with the risks described in our Annual Report on Form 10-K for the fiscal year ended June 30, 2016.2017. These risks may result in material harm to our business and our financial condition and results of operations. In this event, the market price of our common stock may decline and you could lose part or all of your investment. We have described below those risks that reflect substantive changes from, or additions to, the risks described in our Annual Report on Form 10‑K for the fiscal year ended June 30, 2016.
Risks Related to Our exploration of strategic alternatives process may not be successful.Pending Merger
In April 201
There is no assurance that the proposed Merger between us and Vaxart will be completed in a timely manner or at all. If the Merger with Vaxart is not consummated, our business could suffer materially and our stock price could decline.
The consummation of the proposed Merger between us and Vaxart is subject to a number of closing conditions, including the approval by our stockholders of the issuance of our shares in the Merger and other customary closing conditions. If the conditions are not limitedsatisfied or waived, the Merger will not occur or will be delayed.
If the proposed Merger between us and Vaxart is not consummated, we may be subject to the potential for a number of material risks, and our business combination or strategic merger, in-licensing clinical stage programs, an acquisition or other strategic transactions. Weand stock price could be adversely affected, as follows:
• we have incurred and expect to continue to devote substantial timeincur significant expenses related to the proposed Merger with Vaxart even if the Merger is not consummated;
• we could be obligated to pay Vaxart up to a $1.95 million termination fee under certain circumstances pursuant to the Merger Agreement;
• the market price of our common stock may decline to the extent that the current market price reflects a market assumption that the proposed Merger will be completed; and resources
• we may not be able to exploring strategic alternatives; however, therepursue an alternate merger transaction if the proposed Merger with Vaxart is not completed.
The market price of our common stock following the Merger may decline as a result of the Merger.
The market price of our common stock may decline as a result of the Merger for a number of reasons including if:
• investors react negatively to the prospects of the combined organization’s business and prospects from the Merger;
• the effect of the Merger on the combined organization’s business and prospects is not consistent with the expectations of financial or industry analysts; or
• the combined organization does not achieve the perceived benefits of the Merger as rapidly or to the extent anticipated by financial or industry analysts.
During the pendency of the Merger, we may not be able to enter into a business combination with another party at a favorable price because of restrictions in the Merger Agreement, which could adversely affect our business.
Covenants in the Merger Agreement impede the ability of Aviragen to make acquisitions, subject to certain exceptions relating to fiduciaries duties, or complete other transactions that are not in the ordinary course of business, pending completion of the Merger. As a result, if the Merger is not completed, we may be at a disadvantage to our competitors during that period. In addition, while the Merger Agreement is in effect, each party is generally prohibited from soliciting, initiating, encouraging or entering into certain extraordinary transactions, such as a merger, sale of assets or other business combination outside the ordinary course of business, with any third party, subject to, in the case of Aviragen, certain exceptions. These restrictions apply even if such transactions could be favorable to our stockholders.
Certain provisions of the Merger Agreement may discourage third parties from submitting competing proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement.
The terms of the Merger Agreement prohibit each of Aviragen and Vaxart from soliciting competing proposals or cooperating with persons making unsolicited acquisition proposals, except in the case of Aviragen if Aviragen’s board of directors determines in good faith, after consultation with our outside financial advisors and outside legal counsel, that an unsolicited alternative competing proposal is or is reasonably likely to result in a superior competing proposal and that failure to enter into discussions with the proponent of the proposal is reasonably likely to be inconsistent with the board’s fiduciary duties. In addition, even if our board of directors desires to terminate the Merger Agreement to accept a superior competing proposal, the Merger Agreement requires that we must first hold a meeting of our stockholders before we can terminate the Merger Agreement. If we or Vaxart terminate the Merger Agreement under certain circumstances, including terminating because of a decision of our board of directors to recommend a superior proposal, we would be required to pay a termination fee of $1.95 million to Vaxart. This termination fee and the other requirements of the Merger Agreement described above may discourage third parties from submitting competing proposals to us or our stockholders, and may cause our board of directors to be less inclined to recommend an alternative proposal.
Some Aviragen executive officers and directors have interests in the Merger that are different from yours and that may influence them to support or approve the Merger without regard to your interests.
Certain officers and directors of Aviragen participate in arrangements that provide them with interests in the Merger that are different from yours, including, among others, the continued service as an officer or director of the combined organization and continued indemnification, severance payments upon termination of employment and acceleration of stock options.
Failure to obtain stockholder approval for the proposed reverse stock split may result in our stock being delisted from the NASDAQ Capital Market.
We are required pursuant to the terms of the Merger Agreement to submit to our stockholders a proposal to approve an amendment to our certificate of incorporation to authorize our board of directors to effect a reverse stock split of all outstanding shares of our common stock. If our proposal for implementing a reverse stock split is not approved by our stockholders, we will likely not be able to regain compliance with the minimum bid price requirement of the NASDAQ Stock Market LLC (“Nasdaq”) and as a consequence, Nasdaq will provide us written notification that our common stock will be delisted. Upon receipt of such delisting letter, we may appeal the determination to the Hearings Panel (the “Panel”). At the hearing, we will be required to provide a plan to regain compliance. If the Panel decides to continue with delisting of the Company, the Panel’s decision may be appealed to the Nasdaq Listing and Hearing Review Council but such appeal will not stay the delisting process. There can be no assurance that, if the Company does appeal any delisting determination, any such activities will result in any agreements or transactions that will enhance stockholder value. In addition, potential strategic transactions that require stockholder approval may notappeal would be approved by our stockholders. Further, any strategic transaction that is completed ultimately may not deliver the anticipated benefits or enhance stockholder value.successful.
Furthermore, we may acquire additional businesses, products or product candidates that complement or augmentThe issuance of shares of our existing business. Integrating any newly acquired business, product or product candidate could be expensive and time-consuming. We may not be ablecommon stock to integrate any acquired business, product or product candidate successfully. Our future financial performanceVaxart stockholders in the pending Merger will depend, in part, ondilute substantially the voting power of our ability to manage any future growth effectively and our ability to integrate any acquired businesses.current stockholders.
If no transactions with respectthe pending Merger is completed, each outstanding share of Vaxart common stock will be converted into the right to potential business alternatives are identified and completed, our boardreceive a number of directors may decide to pursue a dissolution and liquidation of our company. If our board of directors were to approve and recommend, and our stockholders were to approve, a dissolution and liquidation of our company, we would be required under Delaware corporate law to pay our outstanding obligations, as well as to make reasonable provision for contingent and unknown obligations, prior to making any distributions in liquidation to our stockholders. As a result of this requirement, a portion of our assets may need to be reserved pending the resolution of such obligations. In addition, we may be subject to litigation or other claims related to a dissolution and liquidation of our company. If a dissolution and liquidation were pursued, our board of directors, in consultation with its advisors, would need to evaluate these matters and make a determination about a reasonable amount to reserve. Accordingly, holders shares of our common stock may be delayed in receiving any payout or may lose their entire investment inequal to the event of a bankruptcy, liquidation, dissolution or winding up ofexchange ratio determined pursuant to the Merger Agreement. Immediately following the Merger, our company.
Weequityholders are substantially dependent on our remaining employeesexpected to facilitate the consummation of a strategic transaction.
Our ability to successfully complete a strategic transaction depends in large part on our ability to retain certain of our remaining personnel. Despite our efforts to retain these employees, one or more may terminate their employment with us on short notice. The lossown approximately 40% of the servicesoutstanding capital stock of any of these employees could potentially harm our ability to evaluate and pursue strategic alternatives, as well as fulfill our reporting obligations asthe combined company on a public company.
Our certificate of incorporation, our bylaws,fully diluted basis, and the laws of Delaware contain provisions that could discourage, delay or prevent a change in our control or in our management.
Certain provisions of our restated certificate of incorporation, our bylaws and the laws of Delaware, the state in which weVaxart equityholders are incorporated, may discourage, delay or prevent a change in control of us or a change in our directors or management that stockholders may consider favorable. These provisions:
|
|
|
|
|
|
|
|
|
|
|
|
In addition, we are governed by the provisions of Section 203expected to own approximately 60% of the Delaware General Corporation Law, which may, unless certain criteria are met, prohibit large stockholders, in particular those owning 15% or moreoutstanding capital stock of the voting rightscombined company on a fully diluted basis. Accordingly, the issuance of shares of our common stock from merging or combining with us for a prescribed period of time. These provisions could discourage proxy contests and make it more difficult for you and otherto Vaxart stockholders to remove and elect directors and take other corporate actions. These provisions could also limit the price that investors might be willing to pay in the future for sharesmerger will reduce significantly the relative voting power of each share of our common stock.stock held by our current equityholders. Consequently, our equityholders as a group will have significantly less influence over the management and policies of the combined company after the Merger than prior to the Merger.
The pendency of the Merger could have an adverse effect on the trading price of our common stock and our business, financial condition, results of operations or business prospects.
While there have been no significant adverse effects to date, the pendency of the Merger could disrupt our businesses in the following ways, including:
•the attention of our management may be directed toward completion of the Merger and related matters and may be diverted from the day-to-day business operations; and
•third parties may seek to terminate or renegotiate their relationships with us as a result of the Merger, whether pursuant to the terms of their existing agreements with us or otherwise.
Should they occur, any of these matters could adversely affect the trading price of our common stock or harm our financial condition, results of operations or business prospects.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable.
None.
The exhibits to this report are listed in the Exhibit Index, which is incorporated into this Item 6 by reference.
Pursuant to the requirements 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.
|
| Aviragen Therapeutics, Inc. |
|
|
|
|
|
Date: | By: | /s/ Joseph M. Patti |
|
|
| Joseph M. Patti Chief Executive Officer (Principal Executive Officer) |
|
|
|
|
|
| By: | /s/ Mark P. Colonnese |
|
|
| Mark P. Colonnese Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
|
|
|
|
| Filed |
| Incorporation by Reference | ||||
Exhibit Number |
| Exhibit Title |
| with this Form 10-Q |
| Form |
| File No. |
| Date Filed |
|
|
| ||||||||
31.1* |
|
| X |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
31.2* |
|
| X |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
32.1* |
|
| X |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
101 |
| The following financial information from the Aviragen Therapeutics, Inc. Quarterly Report on Form 10-Q for the period ended |
| X |
|
|
|
|
|
|
* This certification is being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and is not to be incorporated by reference into any filing of Aviragen Therapeutics, Inc., whether made before or after the date hereof, regardless of any general incorporation language in such filing.
2521