10-Q 1 e10-q.txt FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended Commission File No. JUNE 30, 2000 0-26770 ------------- ------- NOVAVAX, INC. (Exact name of registrant as specified in its charter) Delaware 22-2816046 ---------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 8320 GUILFORD ROAD, COLUMBIA, MD 21046 -------------------------------- ----- (Address of principal executive offices) (Zip code) (301) 854-3900 -------------- 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 X No ----- ----- The number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Common Shares Outstanding at August 8, 2000 19,396,718 1 2 NOVAVAX, INC. FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2000 INDEX
PART I. FINANCIAL INFORMATION PAGE NO. Item 1. Financial Statements Statements of Operations for the three-month and six-month periods ended June 30, 2000 and 1999............................................3 Balance Sheets as of June 30, 2000 and December 31, 1999........................4 Statements of Cash Flows for the six-month periods ended June 30, 2000 and 1999....................................................5 Notes to Financial Statements...................................................6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................... 8 PART II. OTHER INFORMATION Item 4 Submission of Matters to a Vote of Security Holders............................12 Item 6. Exhibits and Reports on Form 8-K...............................................13 Signatures.................................................................................14
2 3 NOVAVAX, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 2000 1999 2000 1999 ---- ---- ---- ---- Revenues $ 588 $ 252 $ 1,298 $ 328 ----------- ---------- ----------- ----------- Operating expenses: General and administrative 1,302 531 1,943 999 Research and development 2,113 627 3,637 1,124 ----------- ---------- ----------- ----------- Total operating expenses 3,415 1,158 5,580 2,123 ----------- ---------- ----------- ----------- Loss from operations (2,827) (906) (4,282) (1,795) Interest income, net 186 22 291 30 ----------- ---------- ----------- ----------- Net loss $ (2,641) $ (884) $ (3,991) $ (1,765) ----------- ---------- ----------- ----------- Per share information (basic and diluted): Net loss $ (.14) $ (.06) $ (.22) $ (.13) ----------- ---------- ----------- ----------- Weighted average number of common shares outstanding (basicand diluted) 19,385,903 14,747,719 18,349,819 14,000,418 =========== ========== =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 3 4 NOVAVAX, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
JUNE 30, DECEMBER 31, 2000 1999 --------------- --------------- ASSETS (UNAUDITED) Current assets: Cash and cash equivalents $ 12,285 $ 732 Accounts receivable 668 341 Prepaid expenses and other current assets 43 70 --------------- --------------- Total current assets 12,996 1,143 Property and equipment, net 1,450 1,053 Patent costs, net 1,613 1,619 Other assets 579 648 --------------- --------------- Total assets $ 16,638 $ 4,463 =============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Capital lease obligations, current maturities $ 37 $ 111 Accounts payable 1,311 637 Accrued payroll 116 125 Deferred revenue 250 750 --------------- --------------- Total current liabilities 1,714 1,623 --------------- --------------- Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value, 2,000,000 shares authorized; no shares issued and outstanding -- -- Common stock, $.01 par value, 50,000,000 and 30,000,000 shares authorized at June 30, 2000 and December 31, 1999, respectively; 19,868,651 issued and 19,396,718 outstanding at June 30, 2000 and 15,173,688 issued and 15,167,166 outstanding at December 31, 1999 199 152 Additional paid-in capital 66,448 45,622 Accumulated deficit (46,885) (42,894) Deferred compensation on stock options granted (3) (5) Treasury stock, 471,933 and 6,522 shares, cost basis, at June 30, 2000 and December 31, 1999, respectively (4,835) (35) --------------- --------------- Total stockholders' equity 14,924 2,840 --------------- --------------- Total liabilities and stockholders' equity $ 16,638 $ 4,463 =============== ===============
The accompanying notes are an integral part of the consolidated financial statements. 4 5 NOVAVAX, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2000 1999 -------- -------- Cash flows from operating activities: Net loss $(3,991) $(1,765) Reconciliation of net loss to net cash used by operating activities: Non-cash compensation expense 2 5 Depreciation and amortization 206 139 Changes in operating assets and liabilities: Accounts receivable (327) (19) Prepaid expenses and other assets 27 (3) Accounts payable and accrued expenses 665 (541) Deferred revenue (500) -- --------- -------- Net cash used by operating activities (3,918) (2,184) --------- -------- Cash flows from investing activities: Capital expenditures (485) (21) Deferred patent costs (43) (71) --------- -------- Net cash used by investing activities (528) (92) --------- -------- Cash flows from financing activities: Payment of debt obligations (74) (18) Issuance of common stock 11,255 4,128 Offering costs of common stock (757) (174) Proceeds from the exercise of stock options and warrants 5,575 85 --------- -------- Net cash provided by financing activities 15,999 4,021 --------- -------- Net change in cash and cash equivalents 11,553 1,745 Cash and cash equivalents at beginning of period 732 1,031 --------- -------- Cash and cash equivalents at end of period $ 12,285 $ 2,776 ========= ========
The accompanying notes are an integral part of the consolidated financial statements. 5 6 NOVAVAX, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION Novavax, Inc., a Delaware corporation, ("Novavax" or the "Company"), is a biopharmaceutical company engaged in the research and development of differentiated drug products primarily in the fields of women's health, infectious diseases and cancer. The accompanying consolidated financial statements include the accounts of Novavax and its wholly-owned subsidiaries, Micro-Pak, Inc., Micro Vesicular Systems, Inc. and Lipovax, Inc. All significant intercompany accounts and transactions have been eliminated in consolidation. These statements have been prepared by Novavax, Inc., without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, and reflect all adjustments, which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature. Certain information in footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles has been condensed or omitted pursuant to such rules and regulations, although the Company believes the disclosures are adequate to make the information presented not misleading. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. 2. FINANCING REQUIREMENTS Past spending levels are not necessarily indicative of future spending. The Company will seek to establish one or more collaborations with industry partners to defray the costs of clinical trials and other related activities. Novavax will also seek to obtain additional funds through public or private equity or debt financings, collaborative arrangements with pharmaceutical companies or from other sources. If adequate funds are not available, Novavax may be required to significantly delay, reduce the scope of or eliminate one or more of its research or development programs, or seek alternative measures. As of August 8, 2000, Novavax estimates that its existing cash resources will be sufficient to finance its operations at current and projected levels of development activity for the next 15 to 21 months. 3. SUPPLEMENTAL CASH FLOW INFORMATION During the six month period ended June 30, 2000, the Company received $4,277,000 from the exercise of existing common stock warrants that had been issued in connection with earlier private placements of Novavax's common stock. Included in this amount was $3,600,000 received from Anaconda Opportunity Fund, a principal of which is a director of Novavax. In connection with additional warrants exercised by Anaconda, the Company issued 193,680 shares of its common stock in a 'cashless' exercise where Novavax accepted 465,410 shares of its common stock, valued at $4,800,000. These shares are included as treasury stock in the accompanying consolidated balance sheets. Additionally, the Company received approximately $1,298,000 from the exercise of previously issued common stock options. 6 7 NOVAVAX, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 4. FINANCING TRANSACTION In January 2000, the Company closed a private placement of 2,813,850 shares of its Common Stock to accredited investors (the "2000 Private Placement"). The issuance price of the Common Stock was $4.00 per share. Each share was sold together with a non-transferable warrant for the purchase of .25 additional shares at an exercise price of $6.75 per warrant. The warrants have a three-year term. Gross proceeds from the 2000 Private Placement were $11,255,400. Placement agent fees were approximately $675,000, which was paid in cash. Additionally, non-transferable warrants for the purchase of 281,385 shares of the Company's Common Stock, with an exercise price of $6.75 per share and a three-year term, were issued to the placement agent. Other costs connected with the 2000 Private Placement, including legal, stock exchange listing and registration fees, were approximately $82,000. Net proceeds to the Company from the 2000 Private Placement were approximately $10,500,000. 7 8 ITEM 2. NOVAVAX, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION The following discussion may contain statements that are not purely historical. Certain statements contained herein or as may otherwise be incorporated by reference herein constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include but are not limited to statements regarding future product development and related clinical trials and statements regarding future research and development. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, the following: general economic and business conditions; competition; unexpected changes in technologies and technological advances; ability to obtain rights to technology; ability to obtain and enforce patents; ability to commercialize and manufacture products; statements regarding establishment of commercial-scale manufacturing capabilities; statements regarding future collaboration with industry partners; results of clinical studies; research and development activities; business abilities and judgment of personnel; availability of qualified personnel; changes in, or failure to comply with, governmental regulations; ability to obtain adequate financing in the future; and other factors referenced herein. All forward-looking statements contained in this document are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statements. Accordingly, past results and trends should not be used to anticipate future results or trends. The following is a discussion of the historical consolidated financial condition and results of operations of Novavax, Inc. and its subsidiaries and should be read in conjunction with the consolidated financial statements and notes thereto set forth in this Form 10-Q. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time to time in the Company's SEC filings, including, but not limited to, the Company's Annual Report on Form 10-K for the year ended December 31, 1999. RESULTS OF OPERATIONS The Company has incurred net losses since its inception from the development of its technologies for human pharmaceuticals, vaccines and vaccine adjuvants. Novavax expects the losses to increase in the near-term as it conducts additional human clinical trials and seeks regulatory approval for its product candidates. The Company also expects to continue to incur substantial operating losses over the extensive time period required to develop the Company's products, or until such time as revenues, to offset the costs, are sufficient to fund its operations. 8 9 NOVAVAX, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO 1999 The net loss was $2,641,000, compared to $884,000 for 1999, an increase of $1,757,000 or 199%. Revenues of $588,000 were recognized during the three months ended June 30, 2000, compared to $252,000 for the same period in the prior year. Revenues included $250,000 from a license agreement entered into in October 1999 with Parkedale Pharmaceuticals, a wholly-owned subsidiary of King Pharmaceuticals, Inc. The license agreement included a non-refundable license payment of $1,000,000. Novavax recognized $250,000 under this agreement in the fourth quarter of 1999 as well as the first quarter of 2000. The remaining $250,000 has been recorded in the accompanying balance sheet as Deferred Revenue and will be recognized as revenue during the third quarter of 2000. Additional revenues were recognized under contracts with the National Institute of Health and other government agencies. Quarterly fluctuations in revenues result from numerous factors including the timing of contracts with industry partners and completion of research and products due under these contracts. General and administrative expenses were $1,302,000 for the three months ended June 30, 2000, compared to $531,000 incurred for the same period in 1999. The $771,000 or 145% increase in these expenses related to increased salary expense due to an increase in the number of employees, as well as fees related to financing, bid and proposal costs related to government contracts and other transactions. The Company expects to further increase the number of administrative employees during the remainder of 2000. Research and development expenses were $2,113,000 and $627,000 for the three months ended June 30, 2000 and 1999, respectively. This $1,486,000 or 237% increase in these expenses relates principally to $589,000 incurred by the Biomedical Services Division, which was acquired in August 1999. The remaining increase of $897,000 relates primarily to cost associated with the Company's Phase III clinical trial for its ESTRASORB product as well as manufacturing process validation costs for this product. Novavax expects cost related to its clinical trials and manufacturing process costs to continue to increase during the remainder of 2000. Net interest income was $186,000 and $22,000 for the three months ended June 30, 2000 and 1999, respectively. The increase in the interest income relates to higher average cash balances during the second quarter of 2000 compared to the same period in the prior year. 9 10 NOVAVAX, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO 1999 The net loss for the six month period ended June 30, 2000 was $3,991,000, compared to $1,765,000 for similar period in 1999, an increase of $2,226,000 or 126%. Revenues of $1,298,000 were recognized during the six months ended June 30, 2000, compared to $328,000 for the same period in the prior year. Revenues included $500,000 from a license agreement entered into in October 1999 with Parkedale Pharmaceuticals, a wholly-owned subsidiary of King Pharmaceuticals, Inc. The license agreement included a non-refundable license payment of $1,000,000. Novavax recognized $250,000 under this agreement in the fourth quarter of 1999. The remaining $250,000 has been recorded in the accompanying balance sheet as Deferred Revenue and will be recognized as revenue during the third quarter of 2000. Additional revenues were recognized under contracts with the National Institute of Health and other government agencies. General and administrative expenses were $1,943,000 for the six months ended June 30, 2000, compared to $999,000 incurred for the same period in 1999. The $944,000 or 95% increase in these expenses related to increased salaries expense due to an increase in the number of employees, as well as fees related to financing and other transactions. The Company expects to further increase the number of administrative employees during the remainder of 2000. Research and development expenses were $3,637,000 and $1,124,000 for the six months ended June 30, 2000 and 1999, respectively. This $2,513,000 or 224% increase in these expenses relates principally to $1,179,000 incurred by the Biomedical Services Division, which was acquired in August 1999. The remaining increase of $1,334,000 relates primarily to cost associated with the Company's Phase III clinical trial for its ESTRASORB product as well as manufacturing process validation costs associated with this product. Novavax expects cost related to its clinical trials and manufacturing processes to continue to increase during the remainder of 2000. Net interest income was $291,000 and $30,000 for the six months ended June 30, 2000 and 1999, respectively. The increase in the interest income relates to higher average cash balances during 2000 compared to the same period in the prior year. LIQUIDITY AND CAPITAL RESOURCES Novavax's capital requirements depend on numerous factors, including but not limited to the progress of its research and development programs, the progress of pre-clinical and clinical testing, the time and costs involved in obtaining regulatory approvals, the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights, competing technological and market developments, and changes in Novavax's development and commercialization activities and arrangements. The Company has two products in clinical trials. Future activities including clinical development and the establishment of commercial-scale manufacturing capabilities are subject to the Company's ability to raise funds through equity financing or collaborative arrangements with industry partners. 10 11 NOVAVAX, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION The Company used $4,446,000 during the six month period ended June 30, 2000 to fund the activities of its research and development programs and costs associated with obtaining regulatory approvals, and pre-clinical and clinical testing. Cash balances available to the Company, including the financing described in Notes 3 and 4 of the accompanying financial statements, funded these expenditures. Cash and cash equivalents on June 30, 2000 totaled $12,285,000. Novavax estimates that based on historical levels of spending and revenues, existing cash resources will be sufficient to finance its operations for approximately 15 to 21 months from August 8, 2000. Past spending levels are not necessarily indicative of future spending. Future expenditures for product development, including these related to outside testing and human clinical trials, are discretionary and, accordingly, can be adjusted to available cash. As the Company continues to progress in its clinical development activities and commercial scale-up of product manufacturing, it anticipates future increases in spending associated with these activities. Moreover, the Company will continue to seek to establish one or more collaborations with industry partners to defray the costs of clinical trials and other related activities. Novavax will also consider sources of additional funds through public or private equity or debt financing, collaborative arrangements with pharmaceutical companies or from other sources. There can be no assurance that additional funding or bank financing will be available at all or on acceptable terms to permit successful commercialization of Novavax's technologies and products. If adequate funds are not available, Novavax may be required to significantly delay, reduce the scope of or eliminate one or more of its research or development programs, or seek alternative measures including arrangements with collaborative partners or others that may require Novavax to relinquish rights to certain of its technologies, product candidates or products. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. 11 12 NOVAVAX, INC. AND SUBSIDIARIES PART II OTHER INFORMATION Item 1 - Legal Proceedings The Company is not a party to any material pending legal proceedings. Item 2 - Changes in Securities None. Item 3 - Defaults upon Senior Securities None. Item 4 - Submission of Matters to a Vote of Security Holders ------------------------------------------------------------ At the Company's Annual Meeting of Stockholders held on May 9, 2000, the following proposals were adopted by the vote specified below: 1. To elect the following nominees as Class II Directors to server on the Board of Directors for a three year term expiring at the Annual Meeting of Stockholders in 2003.
FOR ABSTAIN J. Michael Lazarus, M.D. 14,223,831 1,166,753 John O. Marsh, Jr. 11,918,328 3,472,256 Gary C. Evans 11,861,378 3,529,206
2. To approve an amendment to the Company's Certificate of Incorporation increasing the number of authorized shares of Common Stock ($.01 par value) by 20,000,000 from 30,000,000 to 50,000,000.
FOR AGAINST ABSTAIN 13,485,542 1,831,505 73,537
3. To approve an amendment to the 1995 Novavax, Inc. Stock Option Plan increasing the number of shares of Common Stock authorized for issuance thereunder by 1,600,000 from 4,400,000 to 6,000,000.
FOR AGAINST ABSTAIN DEL NON-VOTE 6,861,723 2,097,815 74,392 6,356,654
4. To ratify the appointment of PricewaterhouseCoopers LLP as independent accountants of the Company for the current fiscal year ending December 31, 2000.
FOR AGAINST ABSTAIN 14,713,746 577,747 99,091
12 13 NOVAVAX, INC. AND SUBSIDIARIES PART II OTHER INFORMATION Item 5 - Other Information None. Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K None. 13 14 NOVAVAX, INC. AND SUBSIDIARIES SIGNATURES 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 duly authorized. NOVAVAX, INC. (Registrant) Date: August 14, 2000 By: /s/ John A. Spears ------------------------ John A. Spears President and Chief Executive Officer (Principal Financial and Accounting Officer) 14