Table of Contents



 

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, 20222023

 

OR

 

  ☐

 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                      to                     

 

Commission file number: 001-35285

 

  

Vaxart, Inc.

  

  

(Exact Name of Registrant as Specified in its Charter)

  

 

  

Delaware

  

59-1212264

  

  

(State or other jurisdiction of incorporation or organization)

  

(IRS Employer Identification No.)

  

 

  

170 Harbor Way, Suite 300South San Francisco, CA 94080

  

(650) 550-3500

  

  

(Address of principal executive offices, including zip code)

  

(Registrant’s telephone number, including area code)

  

 

Securities registered pursuant to Section 12(b) of the Act:

 

  

Title of each class

 

Trading symbol

  

Name of each exchange on which registered 

  

Common stock,Stock, $0.0001 par value

 

VXRT

  

The Nasdaq Capital Market 

 

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☑   No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “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 Exchange Act).   Yes ☐   No ☑

 

The Registrant had 126,445,811135,597,316 shares of common stock, $0.0001 par value, outstanding as of May 6, 2022.3, 2023.

 



 

 

 

 

 

FORM 10-Q

FOR THE QUARTER ENDED March 31, 20222023

TABLE OF CONTENTS

 

 

  

Page

Part I

FINANCIAL INFORMATION

1
     
  

Item 1.

Financial Statements (Unaudited)

1
     
   

Condensed Consolidated Balance Sheets as of March 31, 20222023 and December 31, 20212022

1
     
   

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 20222023 and 20212022

2
     
   

Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 20222023 and 20212022

3
     
   

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 20222023 and 20212022

4
     
   

Notes to the Condensed Consolidated Financial Statements

5
     
  

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

1615
     
  

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26
     
  

Item 4.

Controls and Procedures

26
     
     

Part II

OTHER INFORMATION

27
     
  

Item 1.

Legal Proceedings

27
     
  

Item 1A.

Risk Factors

27
     
  

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

2728
     
  

Item 3.

Defaults Upon Senior Securities

2728
     
  

Item 4.

Mine Safety Disclosures

2728
     
  

Item 5.

Other Information

2728
     
  

Item 6.

Exhibits

2829
     

SIGNATURES

 2930


FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Quarterly Report”) for the quarterly period ended March 31, 2023, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created by those sections, concerning our business, operations, and financial performance and condition as well as our plans, objectives, and expectations for business operations and financial performance and condition. Any statements contained herein that are not of historical facts may be deemed to be forward-looking statements. You can identify these statements by words such as “anticipate,” “assume,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “should,” “will,” “would,” and other similar expressions that are predictions of or indicate future events and future trends. These forward-looking statements are based on current expectations, estimates, forecasts, and projections about our business and the industry in which we operate and management’s beliefs and assumptions and are not guarantees of future performance or development and involve known and unknown risks, uncertainties, and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this Quarterly Report may turn out to be inaccurate. Factors that could materially affect our business operations and financial performance and condition include, but are not limited to, those risks and uncertainties described herein under “Item 1A. Risk Factors.” and those described in our Annual Report on Form 10-K for the year ended December 31, 2022. You are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on the forward-looking statements. The forward-looking statements are based on information available to us as of the filing date of this Quarterly Report. Unless required by law, we do not intend to publicly update or revise any forward-looking statements to reflect new information or future events or otherwise. You should, however, review the factors and risks we describe in the reports we will file from time to time with the Securities and Exchange Commission (the “SEC”) after the date of this Quarterly Report.

This Quarterly Report also contains market data related to our business and industry. These market data include projections that are based on a number of assumptions. If these assumptions turn out to be incorrect, actual results may differ from the projections based on these assumptions. As a result, our markets may not grow at the rates projected by these data, or at all. The failure of these markets to grow at these projected rates may harm our business, results of operations, financial condition and the market price of our common stock.

 

 

 

 

PART I FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

VAXART,, INC.

 

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(Unaudited)

 

 

March 31, 2022

  

December 31, 2021

  

March 31, 2023

  

December 31, 2022

 

Assets

          

Current assets:

  

Cash and cash equivalents

 $123,404  $143,745 

Cash, cash equivalents and restricted cash

 $48,434  $46,013 

Short-term investments

 24,254 22,742  23,377  49,704 

Accounts receivable

 81  71  264  20 

Prepaid expenses and other current assets

  6,441   2,609   3,755   3,714 
  

Total current assets

 154,180  169,167  75,830  99,451 
  

Long-term investments

 9,349 16,210 

Property and equipment, net

 7,629  6,601  14,373  15,585 

Right-of-use assets, net

 12,870  13,168  27,843  25,715 

Intangible assets, net

 10,286  10,624  4,837  5,020 

Goodwill

 4,508 4,508  4,508  4,508 

Other long-term assets

  1,556   890   2,460   3,568 
  

Total assets

 $200,378  $221,168  $129,851  $153,847 
  

Liabilities and Stockholders’ Equity

          

Current liabilities:

  

Accounts payable

 $4,017  $3,872  $3,882  $5,514 

Deferred grant revenue

 1,603  2,000 

Other accrued current liabilities

 6,977  8,084 

Current portion of operating lease liability

 1,079  1,011  2,344  2,228 

Current portion of liability related to sale of future royalties

 836  836   877   95 

Other accrued liabilities

  5,103   5,064 
  

Total current liabilities

 11,035  10,783  15,683  17,921 
  

Operating lease liability, net of current portion

 11,837  11,997  19,172  19,477 

Liability related to sale of future royalties, net of current portion

 10,955  10,686  4,997  5,621 

Other long-term liabilities

  186   171   246   231 
  

Total liabilities

  34,013   33,637   40,098   43,250 
  

Commitments and contingencies (Note 8)

              
  

Stockholders’ equity:

  

Preferred stock: $0.0001 par value; 5,000,000 shares authorized; none issued and outstanding as of March 31, 2022 and December 31, 2021

 0  0 

Common stock: $0.0001 par value; 150,000,000 shares authorized; 125,840,811 and 125,594,393 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively

 13  13 

Preferred stock: $0.0001 par value; 5,000,000 shares authorized; none issued and outstanding as of March 31, 2023 and December 31, 2022

    

Common stock: $0.0001 par value; 250,000,000 shares authorized as of March 31, 2023 and December 31, 2022, respectively; 135,610,869 shares issued and 135,597,316 shares outstanding as of March 31, 2023 and 134,199,429 shares issued and outstanding as of December 31, 2022.

 14  13 

Additional paid-in capital

 411,113  406,943  442,068  437,992 

Treasury stock at cost, 13,553 shares and none as of March 31, 2023 and December 31, 2022, respectively

 (10)  

Accumulated deficit

 (244,452) (219,351) (352,249) (327,109)

Accumulated other comprehensive loss

  (309)  (74)  (70)  (299)
  

Total stockholders’ equity

  166,365   187,531   89,753   110,597 
  

Total liabilities and stockholders’ equity

 $200,378  $221,168  $129,851  $153,847 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

1

 

 

VAXART, INC.

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share amounts)

(Unaudited)

 

 

Three Months Ended March 31,

  

Three Months Ended March 31,

 
 

2022

  

2021

  

2023

  

2022

 

Revenue:

  

Revenue from customer service contracts

 $0  $13 

Non-cash royalty revenue related to sale of future royalties

  85   493  $278 $85 

Grant revenue

  397    
  

Total revenue

  85   506   675   85 
  

Operating expenses:

  

Research and development

 18,203  10,073  19,622  18,203 

General and administrative

  6,658   5,944   6,625   6,658 
  

Total operating expenses

  24,861   16,017   26,247   24,861 
  

Operating loss

 (24,776) (15,511) (25,572) (24,776)
  

Other income (expense):

  

Interest income

 35  9  642  35 

Non-cash interest expense related to sale of future royalties

 (340) (466) (178) (340)

Foreign exchange loss, net

  0   (1)  (3)   
  

Loss before income taxes

 (25,081) (15,969) (25,111) (25,081)
  

Provision for income taxes

  20   38   29   20 
  

Net loss

 $(25,101) $(16,007) $(25,140) $(25,101)
  

Net loss per share - basic and diluted

 $(0.20) $(0.14) $(0.19) $(0.20)
  

Shares used to compute net loss per share - basic and diluted

  125,795,255   115,422,628   135,213,196   125,795,255 
  

Comprehensive loss:

        

Net loss

 $(25,101) $(16,007) $(25,140) $(25,101)

Unrealized loss on available-for-sale investments, net of tax

  (235)  (5)

Unrealized gain (loss) on available-for-sale investments, net of tax

  229   (235)

Comprehensive loss

 $(25,336) $(16,012) $(24,911) $(25,336)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

2

 

 

VAXART, INC.

 

Condensed Consolidated Statements of Stockholders’ Equity

For the Three Months Ended March 31, 20222023 and 20212022

(In thousands, except share amounts)

(Unaudited)

 

                  

Accumulated

     
          

Additional

      

Other

  

Total

 
  

Common Stock

  

Paid-in

  

Accumulated

  

Comprehensive

  

Stockholders’

 
  

Shares

  

Amount

  

Capital

  

Deficit

  

Loss

  

Equity

 
                         

Three Months Ended March 31, 2022

                        
                         

Balances as of December 31, 2021

  125,594,393  $13  $406,943  $(219,351) $(74) $187,531 
                         

Issuance of common stock under September 2021 ATM, net of offering costs of $314

  216,000   0   992   0   0   992 
                         

Issuance of common stock upon exercise of stock options

  30,418   0   48   0   0   48 
                         

Stock-based compensation

     0   3,130   0   0   3,130 
                         

Unrealized losses on available-for-sale investments

     0   0   0   (235)  (235)
                         

Net loss

     0   0   (25,101)  0   (25,101)
                         

Balances as of March 31, 2022

  125,840,811  $13  $411,113  $(244,452) $(309) $166,365 
                          

Accumulated

     
                  

Additional

      

Other

  

Total

 
  

Common Stock

  

Treasury Stock

  

Paid-in

  

Accumulated

  

Comprehensive

  

Stockholders’

 

Three Months Ended March 31, 2023:

  Shares   Amount   Shares   Amount   Capital   Deficit   (Loss) Gain   Equity 
                                 

Balances as of December 31, 2022

  134,199,429  $13     $-  $437,992  $(327,109) $(299) $110,597 
                                 

Issuance of common stock under September 2021 ATM, net of offering costs of $103

  1,362,220   1         1,429         1,430 
                                 

Stock-based compensation

              2,647         2,647 
                                 

Release of common stock for vested restricted stock units

  49,220                      
                                 

Repurchase of common stock to satisfy tax withholding

        (13,553)  (10)           (10)
                                 

Unrealized gains on available-for-sale investments

                    229   229 
                                 

Net loss

                 (25,140)     (25,140)
                                 

Balances as of March 31, 2023

  135,610,869  $14   (13,553) $(10) $442,068  $(352,249) $(70) $89,753 

 

 

                  

Accumulated

     
          

Additional

      

Other

  

Total

 
  

Common Stock

  

Paid-in

  

Accumulated

  

Comprehensive

  

Stockholders’

 

Three Months Ended March 31, 2022:

  Shares   Amount   Capital   Deficit   Loss   Equity 
                         

Balances as of December 31, 2021

  125,594,393  $13  $406,943  $(219,351) $(74) $187,531 
                         

Issuance of common stock under September 2020 ATM, net of offering costs of $314

  216,000      992         992 
                         

Issuance of common stock upon exercise of stock options

  30,418      48         48 
                         

Stock-based compensation

        3,130         3,130 
                         

Unrealized losses on available-for-sale investments

              (235)  (235)
                         

Net loss

           (25,101)     (25,101)
                         

Balances as of March 31, 2022

  125,840,811  $13  $411,113  $(244,452) $(309) $166,365 

 

                  

Accumulated

     
          

Additional

      

Other

  

Total

 
  

Common Stock

  

Paid-in

  

Accumulated

  

Comprehensive

  

Stockholders

 
  

Shares

  

Amount

  

Capital

  

Deficit

  

Loss

  

Equity

 
                         

Three Months Ended March 31, 2021

                        
                         

Balances as of December 31, 2020

  110,271,093  $11  $272,274  $(148,881) $0  $123,404 
                         

Issuance of common stock under October 2020 ATM, net of offering costs of $3,182

  6,654,367   1   65,711   0   0   65,712 
                         

Issuance of common stock upon exercise of common stock warrants

  830,722   0   1,649   0   0   1,649 
                         

Issuance of common stock upon exercise of stock options

  207,730   0   231   0   0   231 
                         

Stock-based compensation

     0   1,251   0   0   1,251 
                         

Unrealized losses on available-for-sale investments

     0   0   0   (5)  (5)
                         

Net loss

     0   0   (16,007)  0   (16,007)
                         

Balances as of March 31, 2021

  117,963,912  $12  $341,116  $(164,888) $(5) $176,235 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

3

 

 

VAXART, INC.

 

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

Three Months Ended March 31,

  

Three Months Ended March 31,

 
 

2022

  

2021

  

2023

  

2022

 
  

Cash flows from operating activities:

      

Net loss

 $(25,101) $(16,007) $(25,140) $(25,101)

Adjustments to reconcile net loss to net cash used in operating activities:

      

Depreciation and amortization

 1,131  996  2,062  1,131 

Accretion of premium (discount) on investments

 36 0 

Accretion of (discount) premium on investments

 (144) 36 

Stock-based compensation

 3,130  1,251  2,647  3,130 

Non-cash interest expense related to sale of future royalties

 340  466  178  340 

Non-cash revenue related to sale of future royalties

 (71) (334) (20) (71)

Change in operating assets and liabilities:

      

Accounts receivable

 (10) (366) (244) (10)

Prepaid expenses and other assets

 (4,498) (2,694) 1,067  (4,498)

Accounts payable

 113  2,281  (270) 113 

Deferred grant revenue

 (397)  

Other accrued liabilities

  (183)  (2,185)  (4,199)  (183)
  

Net cash used in operating activities

  (25,113)  (16,592)  (24,460)  (25,113)
  

Cash flows from investing activities:

      

Purchase of property and equipment

 (1,346) (615)

Purchases of property and equipment

 (1,239) (1,346)

Purchases of investments

 (8,522) (19,944)   (8,522)

Proceeds from maturities of investments

  13,600  0   26,700   13,600 
  

Net cash provided by (used in) investing activities

  3,732   (20,559)

Net cash provided by investing activities

  25,461   3,732 
  

Cash flows from financing activities:

      

Net proceeds from issuance of common stock through ATM facilities

 992 65,712  1,430  992 

Proceeds from issuance of common stock upon exercise of common stock warrants

 0 1,649 

Shares acquired to settle employee tax withholding liabilities

 (10)  

Proceeds from issuance of common stock upon exercise of stock options

  48   231      48 
  

Net cash provided by financing activities

  1,040   67,592   1,420   1,040 
  

Net (decrease) increase in cash and cash equivalents

 (20,341) 30,441 

Net increase (decrease) in cash, cash equivalents and restricted cash

 2,421  (20,341)
  

Cash and cash equivalents at beginning of the period

  143,745   126,870 

Cash, cash equivalents and restricted cash at beginning of the period

  46,013   143,745 
  

Cash and cash equivalents at end of the period

 $123,404  $157,311 

Cash, cash equivalents and restricted cash at end of the period

 $48,434  $123,404 

 

  

Supplemental disclosure of non-cash financing activity:

      

Supplemental disclosure of non-cash investing and financing activity:

      

Operating lease liabilities arising from obtaining right-of-use assets

 $125 $0  $296 $125 

Acquisition of property and equipment included in accounts payable and accrued expenses

 $505  $303  $246  $505 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

4

 

VAXART, INC.

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

NOTE 1.  Organization and BasisNature of PresentationBusiness

 

General 

 

Vaxart Biosciences, Inc. was originally incorporated in California in March 2004, under the name West Coast Biologicals, Inc. The Company changed its name to Vaxart, Inc. (“Private Vaxart”) in July 2007, and reincorporated in the state of Delaware. OnIn February 13,2018, 2018,Private Vaxart completed a business combination with Aviragen Therapeutics, Inc. (“Aviragen”), pursuant to which Aviragen merged with Private Vaxart, with Private Vaxart surviving as a wholly ownedwholly-owned subsidiary of Aviragen (the “Merger”). Pursuant to the terms of the Merger, Aviragen changed its name to Vaxart, Inc. (together with its subsidiaries, the “Company” or “Vaxart”) and Private Vaxart changed its name to Vaxart Biosciences, Inc.

 

OnOctober 13, 2020, the Company entered into the Open Market Sale Agreement, (the “October 2020 ATM”) pursuant to which it could offer and sell, from time to time through sales agents, shares of its common stock having an aggregate offering price of up to $250 million. The Company incurred direct expenses of approximately $0.3 million in connection with filing a prospectus supplement, dated October 13, 2020, with the U.S. Securities and Exchange Commission (the “SEC”), and paid sales commissions of up to 4.5% of gross proceeds from the sale of shares. As of December 31, 2020, the Company had sold 692,651 shares for gross proceeds of $5.5 million which, after deducting sales commissions and expenses, resulted in net proceeds under the October 2020 ATM of $4.9 million in 2020.

In the three months ended March 31, 2021, the Company sold an additional 6,654,367 shares under the October 2020 ATM for gross proceeds of $68.9 million which, after deducting sales commissions and expenses, resulted in net proceeds of $65.7 million. A total of 13,932,490 shares were issued and sold under the October 2020 ATM for gross proceeds of $133.4 million which, after deducting sales commissions and expenses, resulted in net proceeds of $127.1 million.

On September 13, 2021, the October 2020 ATM was terminated, and on September 15, 2021, the Company entered into a Controlled Equity Offering Sales Agreement (the “September 2021 ATM”), pursuant to which it may offer and sell, from time to time through sales agents, shares of its common stock having an aggregate offering price of up to $100 million. The Company filed a prospectus supplement with the SECU.S. Securities and Exchange Commission (the “SEC”) on September 16, 2021, and will pay sales commissions of up to 3.0% of gross proceeds from the sale of shares. As of December 31, 2021, 0 shares had been issued under the September 2021 ATM. InDuring the three months ended March 31, 20222023, 216,0001,362,220 shares were issued and sold under the September 2021 ATM for gross proceeds of $1.3$1.5 million, which, after deducting sales commissions and expenses incurred to date, resulted in net proceeds of $1.0$1.4 million. Since March 31, 2023, we have not raised any additional capital under the September 2021 ATM and we will not raise capital under the September 2021 ATM until the registration statement on Form S-3 (SEC File No.333-270671) that we filed with the SEC on March 17, 2023, which includes the prospectus relating to the September 2021 ATM, is declared effective by the SEC.

 

The Company’s principal operations are based in South San Francisco, California, and it operates in one reportable segment, which is the discovery and development of oral recombinant protein vaccines, based on its proprietary oral vaccine platform.

 

 

NOTE 2.  Summary of Significant Accounting Policies

 

Basis of Presentation, Liquidity and Going Concern – The Company has prepared the accompanying condensed consolidated financial statements pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in consolidated financial statementshave been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the accounting and disclosure rules and regulations of the SEC assuming the Company will continue as a going concern. 

The Company is a clinical-stage biotechnology company with no product sales. Its primary source of capital is from the sale and issuance of common stock and common stock warrants. At March 31, 2023, the Company had cash, cash equivalents, restricted cash, and investments of $71.8 million. A substantial doubt has been raised with regard to the ability of the Company to continue as a going concern for a period of one year after the date that the financial statements are issued as the Company is expected to generate operating losses and negative operating cash flows and had no committed source of debt or equity financing. 

During the first quarter of 2023, the Company decided to primarily focus on advancing its norovirus oral vaccine candidate and postponed initiating a SARS-CoV-2 human challenge study. The Company also implemented a restructuring plan to reduce operating costs and better align its workforce with the needs of its business. The plan resulted in a reduction of approximately 27% of the Company’s workforce and severance costs of $732,000. The Company projects it has enough cash runway into the second quarter of 2024.

The Company will be dependent upon raising additional capital through placement of its common stock, notes or other securities, borrowings, or entering into a partnership with a strategic party in order to implement its business plan. The Company is currently not in compliance with the minimum bid price requirement for continued listing on Nasdaq and has been provided an initial compliance period until September 25, 2023 to regain compliance. The Company may be eligible for an additional 180 calendar days compliance period under certain circumstances. If the Company does not regain compliance during the compliance period, the Company’s common stock will be delisted from Nasdaq. The delisting of our common stock from Nasdaq may make it more difficult for us to raise capital on favorable terms in the future, or at all. There can be no assurance that the Company will be successful raising additional capital. If the Company is unable to raise additional capital in sufficient amounts or on acceptable terms, management’s plans include further reducing or delaying operating expenses. The Company has concluded, even without raising any additional capital, management’s plan to successfully reduce expenses is probable and sufficient to alleviate substantial doubt for a period of at least 12 months from the date of issuance of these condensed consolidated financial statements.

The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Certain information and footnote disclosures normally included in consolidated financial statements have been condensed or omitted pursuant to these rules and regulations. These condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and footnotes related thereto for the year ended December 31, 2021,2022, included in the Company’s Annual Report on Form 10-K filed with the SEC on February 24, 2022 (March 15, 2023the (the “Annual Report”). Unless noted below, there have been no material changes to the Company’s significant accounting policies described in Note 2 to the consolidated financial statements included in the Annual Report. In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the Company’s financial position and the results of its operations and cash flows. The results of operations for such interim periods are not necessarily indicative of the results to be expected for the full year or any future periods.

 

Basis of Consolidation – The condensed consolidated financial statements include the financial statements of Vaxart, Inc. and its subsidiaries. All significant transactions and balances between Vaxart, Inc. and its subsidiaries have been eliminated in consolidation.

 

Use of Estimates – The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities in the financial statements and accompanying notes. Actual results and outcomes could differ from these estimates and assumptions.

 

Concentration of Credit Risk – Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents, restricted cash and available-for-sale investments. The Company places its cash, cash equivalents, restricted cash and available-for-sale investments at financial institutions that management believes are of high credit quality. The Company is exposed to credit risk in the event of default by the financial institutions holding the cash, and cash equivalents and restricted cash to the extent such amounts are in excess of the federally insured limits. The Company has not experienced any lossesLosses incurred or a lack of access to such funds could have a significant adverse impact on its deposits since inception.the Company’s financial condition, results of operations, and cash flows.

 

5

 

VAXART, INC.

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

The primary focus of the Company’s investment strategy is to preserve capital and meet liquidity requirements. The Company’s investment policy addresses the level of credit exposure by limiting the concentration in any one corporate issuer or sector and establishing a minimum allowable credit rating.

 

Recent Accounting Pronouncements

 

The Company has reviewed all newly-issued accounting pronouncements that are not yet effective and concluded that they are either not applicable to its operations or their adoption is not expected to have a material impact on its financial position or results of operations.

 

 

NOTE 3.  Fair Value of Financial Instruments

 

Fair value accounting is applied for all financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Financial instruments include cash and cash equivalents, marketable securities, accounts receivable, accounts payable and accrued liabilities that approximate fair value due to their relatively short maturities.

 

Assets and liabilities recorded at fair value on a recurring basis in the balance sheets are categorized based upon the level of judgment associated with inputs used to measure their fair values. The accounting guidance for fair value provides a framework for measuring fair value and requires certain disclosures about how fair value is determined. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance also establishes a three-level valuation hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based upon whether such inputs are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions made by the reporting entity.

 

The three-level hierarchy for the inputs to valuation techniques is briefly summarized as follows:

 

Level 1 – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

 

Level 2 – Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities 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 related assets or liabilities; and

 

Level 3 – Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

 

The following table sets forth the fair value of the Company’s financial assets that are measured on a recurring basis as of March 31, 20222023 and December 31, 20212022 (in thousands):

 

 

Level 1

  

Level 2

  

Level 3

  

Total

  

Level 1

  

Level 2

  

Level 3

  

Total

 

March 31, 2022

         

Recurring financial assets:

         

March 31, 2023

         

Financial assets:

         

Money market funds

 $76,094  $0  $0  $76,094  $38,179  $  $  $38,179 

U.S. Treasury securities

 0  20,319  0  20,319    21,379    21,379 

Commercial paper

 0  6,882  0  6,882    999    999 

Corporate debt securities

  0   6,402   0   6,402      999      999 

Total

 $76,094  $33,603  $0  $109,697  $38,179  $23,377  $  $61,556 

 

 

Level 1

  

Level 2

  

Level 3

  

Total

  

Level 1

  

Level 2

  

Level 3

  

Total

 

December 31, 2021

        

Recurring financial assets:

 

December 31, 2022

        

Financial assets:

 

Money market funds

 $70,978  $0  $0  $70,978  $30,834  $  $  $30,834 

U.S. Treasury securities

 0  24,997  0  24,997    41,542    41,542 

Commercial paper

 0  7,491  0  7,491    5,674    5,674 

Corporate debt securities

  0   6,464   0   6,464      2,488      2,488 

Total

 $70,978  $38,952  $0  $109,930  $30,834  $49,704  $  $80,538 

 

The Company held 0no recurring financial liabilities as of March 31, 20222023 or December 31, 20212022, or in the three months ended March 31, 20222023 or 20212022.

 

6

 

VAXART, INC.

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

NOTE 4.  Balance Sheet Components

 

 

(a)

Cash, Cash Equivalents, Restricted Cash and Investments

 

Cash, cash equivalents, restricted cash and investments consisted of the following (in thousands):

 

 

Amortized

  

Gross Unrealized

  

Estimated

  

Cash and Cash

  

Short-Term

  

Long-Term

  

Amortized

 

Gross Unrealized

  

Estimated

 

Cash and Cash Equivalents

 

Short-Term

 

Long-Term

 
 

Cost

  

Gains

  

Losses

  

Fair Value

  

Equivalents

  

Investments

  

Investments

  

Cost

  

Gains

  

Losses

  

Fair Value

  

and Restricted Cash

  

Investments

  

Investments

 

March 31, 2022

               

March 31, 2023

                     

Cash at banks

 $47,310 $ $ $47,310 $47,310 $ $  $10,255  $  $  $10,255  $10,255  $  $ 

Money market funds

 76,094      76,094  76,094      38,179      38,179  38,179     

U.S. Treasury securities

 20,576    (257) 20,319    10,970  9,349  21,448    (69) 21,379    21,379   

Commercial paper

 6,882      6,882    6,882    999      999    999   

Corporate debt securities

  6,454    (52)  6,402    6,402     1,000      (1)  999      999    

Total

 $157,316  $  $(309) $157,007  $123,404  $24,254  $9,349  $71,881  $  $(70) $71,811  $48,434  $23,377  $ 

  

Amortized

  

Gross Unrealized

  

Estimated

  

Cash and Cash Equivalents

  

Short-Term

  

Long-Term

 
  

Cost

  

Gains

  

Losses

  

Fair Value

  

and Restricted Cash

  

Investments

  

Investments

 

December 31, 2022

                            

Cash at banks

 $15,179  $  $  $15,179  $15,179  $  $ 

Money market funds

  30,834         30,834   30,834       

U.S. Treasury securities

  41,812      (270)  41,542      41,542    

Commercial paper

  2,488         2,488      2,488    

Corporate debt securities

  5,703      (29)  5,674      5,674    

Total

 $96,016  $  $(299) $95,717  $46,013  $49,704  $ 

 

Cash and cash equivalents and restricted cash of $48.4 million as of March 31, 2023 and $46.0 million as of December 31, 2022, includes restricted cash of $1.6 million and $2.0 million, respectively.

  

Amortized

  

Gross Unrealized

  

Estimated

  

Cash and Cash

  

Short-Term

  

Long-Term

 
  

Cost

  

Gains

  

Losses

  

Fair Value

  

Equivalents

  

Investments

  

Investments

 

December 31, 2021

                            

Cash at banks

 $72,767  $  $  $72,767  $72,767  $  $ 

Money market funds

  70,978         70,978   70,978       

U.S. Treasury securities

  25,055      (58)  24,997      12,022   12,975 

Commercial paper

  7,491         7,491      7,491    

Corporate debt securities

  6,480      (16)  6,464      3,229   3,235 

Total

 $182,771  $  $(74) $182,697  $143,745  $22,742  $16,210 

 

 

(b)

Accounts Receivable

Accounts receivable comprises royalties receivable of $81,000 and $71,000 as of March 31, 2022 and December 31, 2021, respectively. The Company has provided 0 allowance for uncollectible accounts as of March 31, 2022 and December 31, 2021.

(c)

Property and Equipment, Net

 

Property and equipment, net consists of the following (in thousands):

 

 

March 31, 2022

  

December 31, 2021

  

March 31, 2023

  

December 31, 2022

 
        

Laboratory equipment

 $5,537  $5,057  $13,512  $12,035 

Office and computer equipment

 526  481  1,057  1,078 

Leasehold improvements

 1,063 1,063  3,494  1,760 

Construction in progress

  2,178  1,305   476   3,984 

Total property and equipment

 9,304  7,906  18,539  18,857 

Less: accumulated depreciation

  (1,675)  (1,305)  (4,166)  (3,272)

Property and equipment, net

 $7,629  $6,601  $14,373  $15,585 

 

Depreciation expense was $370,000$894,000 and $75,000$370,000 for the three months ended March 31,2022 2023 and 2021,2022, respectively. There were 0no material impairments of the Company’s property and equipment recorded in the three months ended March 31,2022 2023 or 2021.2022, respectively.

 

 

(d)(c)

Right-of-Use Assets, Net

 

Right-of-use assets, net comprises facilities of $12.9$27.8 million and $13.2$25.7 million as of March 31, 20222023 and December 31, 20212022, respectively.

 In September 2021, the Company executed a lease for a facility in South San Francisco, California with an initial term expiring on March 31, 2029.  The lease has two separate components, one commenced in the third quarter of 2022 and the other the first quarter of 2023 resulting in an additional $15.0 million and $3.1 million, respectively, of right-of-use assets.

 

7

VAXART, INC.

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

(e)(d)

Intangible Assets, Net

 

Intangible assets comprise developed technology and intellectual property. Intangible assets are carried at cost less accumulated amortization. Amortization is computed using the straight-line method over useful lives ranging from 1.3 tolife of 11.75 years for developed technology and 20 years for intellectual property. As of March 31, 20222023, developed technology and intellectual property had remaining lives of 7.66.6 and 5.754.75 years, respectively. As of March 31, 2023, there have been no indicators of impairment. Intangible assets consist of the following (in thousands):

 

 

March 31, 2022

  

December 31, 2021

  

March 31, 2023

  

December 31, 2022

 
         

Developed technology

 $10,600  $10,600  $5,000  $5,000 

Intellectual property

  80   80   80   80 

Total cost

 10,680  10,680  5,080   5,080 

Less: accumulated amortization

  (394)  (56)  (243)  (60)

Intangible assets, net

 $10,286  $10,624  $4,837  $5,020 

 

TotalIntangible asset amortization expense for the three months ended March 31, 20222023 and 20212022, was $183,000 and $338,000, and $433,000, respectively.

As of March 31, 20222023, the estimated future amortization expense by year is as follows (in thousands):

 

Year Ending December 31,

 

Amount

  

Amount

 

2022 (nine months remaining)

 $1,012 

2023

 1,350 

2023 (nine months remaining)

 $548 

2024

 1,350  731 

2025

 1,350  731 

2026

 1,350  731 

2027

 731 

Thereafter

  3,874   1,365 

Total

 $10,286  $4,837 

 

 

(f)(e)

Goodwill

 

Goodwill, which represents the excess of the purchase price over the fair value of assets acquired, comprises $4.5 million as of March 31, 20222023 and December 31, 20212022. As of March 31, 20222023, there have been 0no indicators of impairment.

 

 

(g)(f)

Other Accrued Liabilities

 

Other accrued liabilities consist of the following (in thousands):

 

 

March 31, 2022

  

December 31, 2021

  

March 31, 2023

  

December 31, 2022

 
      

Accrued compensation

 $1,907  $2,786  $2,865  $3,112 

Accrued clinical and manufacturing expenses

 848  986  1,497  2,413 

Accrued professional and consulting services

 1,175  556  524  691 

Other liabilities, current portion

  1,173   736   2,091   1,868 

Total

 $5,103  $5,064  $6,977  $8,084 

 

 

NOTE 5.  Revenue

 

Royalty Agreement

 

The Company generates royalty revenue from the sale of Inavir in Japan, pursuant to a collaboration and license agreement that Aviragen entered into with Daiichi Sankyo Company, Limited (“Daiichi Sankyo”) in 2009. In September 2010, laninamivir octanoate was approved for sale by the Japanese Ministry of Health and Welfare for the treatment of influenza in adults and children, which Daiichi Sankyo markets as Inavir. Under the agreement, the Company currently receives a 4% royalty on net sales of Inavir in Japan. The last patent related to Inavir is set to expire in December 2029, at which time royalty revenue will cease. NaN royalty revenue was recognized in the  three months ended March 31,2022 and  2021. The Company recognized non-cash royalty revenue related to the sale of future royalties (see Note 6) of $85,000 and $493,000 in the  three months ended March 31,2022 and  2021, respectively. Both royalty revenue and the non-cash royalty revenue related to sale of future royalties are subject to a 5% withholding tax in Japan, for which $4,000 and $25,000 was included in income tax expense in the  three months ended March 31,2022 and  2021, respectively.

The Company’s royalty revenue is seasonal, in line with the flu season, so the majority of the Company’s royalty revenue and non-cash royalty revenue related to the sale of future royalties are earned in the first and fourth fiscal quarters. The royalty revenue related to Inavir recognized in the three months ended March 31,2023 and 2022, was nil. In addition, the Company recognized non-cash royalty revenue related to sale of future royalties (see Note 6) of $278,000 and $85,000 in the three months ended March 31,2023 and 2022, respectively. Both royalty revenue and the non-cash royalty revenue related to sale of future royalties are subject to a 5% withholding tax in Japan, for which $14,000 and $4,000 was included in income tax expense in the three months ended March 31,2023 and 2022, respectively.

Grant Revenue

In November 2022, the Company accepted a grant to perform research and development work for the Bill & Melinda Gates Foundation ("BMGF") and received $2.0 million in advance that was recorded as restricted cash and deferred revenue.  The Company recognizes revenue under research contracts only when a contract has been executed and the contract price is fixed or determinable. Revenue from the BMGF grant is recognized in the period during which the related costs are incurred and the related services are rendered, provided that the applicable conditions under the contract have been met. Costs of contract revenue are recorded as a component of operating expenses in the consolidated statements of operations and comprehensive loss. The Company recognized $397,000 revenue from the BMGF Grant in the three-months ended March 31, 2023.  As of March 31, 2023 and December 31, 2022, restricted cash and deferred revenue were $1.6 million and $2.0 million, respectively.

8

 

VAXART, INC.

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

NOTE 6.  Liabilities Related to Sale of Future Royalties

 

In April 2016, Aviragen entered into a Royalty Interest Acquisition Agreement (the “RIAA”) with HealthCare Royalty Partners III, L.P. (“HCRP”("HCRP"). Under the RIAA, HCRP made a $20.0 million cash payment to Aviragen in consideration for acquiring certain royalty rights (“Royalty Rights”) related to the approved product Inavir in the Japanese market. The Royalty Rights were obtained pursuant to the collaboration and license agreements (the “License Agreement”) and a commercialization agreement that the Company entered into with Daiichi Sankyo. Per the terms of the RIAA, HCRP is entitled to the first $3.0 million plus 15% of the next $1.0 million in royalties earned in each year commencing on April 1, with any excess revenue being retained by the Company.

 

Under the relevant accounting guidance, due to a limit on the amount of royalties that HCRP can earn under the RIAA, this transaction iswas accounted for as a liability that is being amortized using the effective 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. In order toTo 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 and the payments that will be passed through to HCRP over the life of this agreement. 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 royalties earned in each period that will be passed through to HCRP are recorded as non-cash royalty revenue related to sale of future royalties, with any excess not subject to pass-through being recorded as royalty revenue. When the pass-through royalties are paid to HCRP in the following quarter, the imputed liability related to sale of future royalties is commensurately reduced. The Company periodically assesses the expected royalty payments, and to the extent such payments are greater or less than the initial estimate, the Company adjusts the amortization of the liability and interest rate. As a result of this accounting, even though the Company does not retain HCRP’s share of the royalties, it will continue to record non-cash revenue related to those royalties until the amount of the associated liability, including the related interest, is fully amortized.

 

The following table shows the activity within the liability account during the three months ended March 31, 20222023 (in thousands):

 

Total liability related to sale of future royalties, start of period

 $11,522  $5,716 

Non-cash royalty revenue paid to HCRP

 (71) (20)

Non-cash interest expense recognized

  340   178 

Total liability related to sale of future royalties, end of period

 11,791  5,874 

Current portion

  (836)  (877)

Long-term portion

 $10,955  $4,997 

 

9

 

VAXART, INC.

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

NOTE 7.  Leases

 

The Company has obtained the right of use for office and manufacturing facilities under 6seven operating lease agreements with initial terms exceeding one year and has 2one operating lease agreements for facilities and one for manufacturing equipment with initial terms of one year or less. The lease term at the commencement date is determined by considering whether renewal options and termination options are reasonably assured of exercise.

 

TheIn September 2021 the Company obtained the right of use of real estate locatedexecuted a lease for a facility in South San Francisco, California, in November 2020 under a lease that was scheduled to terminatewith an initial term expiring onSeptember 30, 2025, which has been extended until March 31, 2029,2029. withThis lease has two separate components, noone commenced in the third quarter of 2022 and the other in the first quarter of 2023 resulting in an additional extension option. The Company also obtained the right of use of real estate located in South San Francisco, California, in June 2015 that was scheduled to terminate on April 30, 2020, with a five-year extension option that the Company exercised in July 2019, extending the lease until April 30, 2025, which has been further extended until March 31, 2029, with an option to extend for an additional eight years. In addition, the Company has the right of use of a facility located in South San Francisco, California, under a lease that, following a one-year extension, now terminates on July 31, 2022, with no extension option. Further, the Company has the right of use of a facility located in South San Francisco, California, under a lease that terminates on March 30, 2029, with a five-year renewal option. The Company also has the right of use of 2 facilities in Burlingame, California, under leases that terminate on May 31, 2025, both of which have 2 30-month extension options. The Company has also identified short-term embedded leases for the rental of facilities in South San Francisco, Californiaasset $15.0 million and Lodi, Wisconsin.$3.1 million respectively.

 

As of March 31, 20222023, the weighted average discount rate for operating leases with initial terms of more than one year was 9.27%9.8% and the weighted average remaining term of these leases was 6.675.9 years. Discount rates were determined using the Company’s marginal rate of borrowing at the time each lease commencedwas executed or was extended.

 

The following table summarizes the Company’s undiscounted cash payment obligations for its operating lease liabilities with initial terms of more than twelve months as of March 31, 20222023 (in thousands):

 

Year Ending December 31,

    

2022 (nine months remaining)

 $1,590 

2023

 2,168 

2023 (nine months remaining)

 $3,117 

2024

 2,242  4,275 

2025

  2,316  4,421 

2026

  2,852  4,975 

2027

 5,205 

Thereafter

  6,770   6,797 

Undiscounted total

 17,938  28,790 

Less: imputed interest

  (5,022)  (7,274)

Present value of future minimum payments

 12,916  21,516 

Current portion of operating lease liability

  (1,079)  (2,344)

Operating lease liability, net of current portion

 $11,837  $19,172 

 

The Company presently has 0no finance leases and 0no future obligations under operating leases with initial terms of one year or less.

 

CertainThe Company is also required to pay for operating lease agreements for facilities include non-lease costs, such as common area maintenance,expenses related to the leased space, which are recorded as variable lease costs. Operating lease expenseswere $2.0 million and $1.1 million for the three months ended March 31, 20222023 and 20212022., The operating expenses are summarized as follows (in thousands):

  

Three Months Ended March 31,

 
  

2022

  

2021

 

Lease cost

        

Operating lease cost

 $719  $662 

Short-term lease cost

  118   60 

Variable lease cost

  265   293 

Sublease income

  0   (36)

Total lease cost

 $1,102  $979 

Net cash outflows associated with operating leases totaled $889,000incurred separately and $934,000 in the three months ended March 31,2022 and 2021, respectively.

In addition, in September 2021 the Company executed a lease for a facility in South San Francisco, California, with an initial term expiring on March 31, 2029, with an option to extend for an additional eight years. The lease was rent free until April 1, 2022, with escalating rent payments over the remaining life of the lease, under which minimum rent payments total $14.9 million. The lease includes tenant improvement provisions which are expected to cost the Company approximately $7 million, of which $678,000 had been expended by March 31, 2022, recorded within other long-term assets in the condensed consolidated balance sheet. The Company has concluded that the leasehold improvements are lessor-owned and determined that the lease haswere not yet commenced for accounting purposes. The cost of leasehold improvements incurred prior to lease commencement will be included in the related right-of-use asset when thepresent value of lease is deemed to commence, which is expected to occur in the three months ending September 30, 2022.payments.

 

10

VAXART, INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

  

Three Months Ended March 31,

 
  

2023

  

2022

 

Lease cost

        

Operating lease cost

 $1,510  $719 

Short-term lease cost

  21   118 

Variable lease cost

  511   265 

Total lease cost

 $2,042  $1,102 

 

 

NOTE 8.  Commitments and Contingencies

 

 

(a)

Purchase Commitments

 

As of March 31, 20222023, the Company had approximately $20.7$7.8 million of non-cancelable purchase commitments, principally for contract manufacturing and clinical services and leasehold improvements which are expected to be paid within the next year. In addition, the Company has operating lease commitments as detailed in Note 7 and a further commitment for an operating lease with rental payments totaling $14.9 million payable by March 31, 2029, which has been executed but has not yet commenced, for which we expect to spend a net total of approximately $7 million on leasehold improvements, of which $678,000 has already been expended and $6.1 million is included within non-cancelable purchase commitments, which will be recorded as right-of-use assets when the lease commences.

 

 

(b)

Indemnifications

 

In the ordinary course of business, the Company enters into agreements that may include indemnification provisions. Pursuant to such agreements, the Company may indemnify, hold harmless and defend indemnified parties for losses suffered or incurred by the indemnified party. Some of the provisions will limit losses to those arising from third-party actions. In some cases, the indemnification will continue after the termination of the agreement. The maximum potential amount of future payments the Company could be required to make under these provisions is not determinable. The Company has also entered into indemnification agreements with certain officers and directors which provide, among other things, that the Company will indemnify and advance expenses incurred in connection with certain actions, suits or proceedings to such officer or director, under the circumstances and to the extent provided for therein, for expenses, damages, judgments, fines and settlements he or she may be required to pay in actions or proceedings which he or she is or may be made a party by reason of his or her position as a director, officer or other agent of the Company, and otherwise to the fullest extent permitted under Delaware law and the Company’s Bylaws. The Company currently has directors’ and officers’ insurance.

 

10

VAXART, INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

(c)

Litigation

 

From time to time the Company may be involved in legal proceedings arising in connection with its business. Based on information currently available, the Company believes that the amount, or range, of reasonably possible losses in connection with any pending actions against it in excess of established reserves, in the aggregate, is not materialindeterminable to its consolidated financial condition or cash flows. However, any current or future dispute resolution or legal proceeding, regardless of the merits of any such proceeding, could result in substantial costs and a diversion of management’s attention and resources that are needed to run the Company successfully, and could have a material adverse impact on its business, financial condition and results of operations.

 

On August 4, 2020, a purported shareholder derivative complaint was filed in the Superior Court of California, San Mateo County, entitled Godfrey v. Latour, et al. An amended complaint was filed on September 4, 2020 and the case was re-named Ennis v. Latour, et al. A second amended complaint was filed on November 25, 2020. On March 15, 2021, the court sustained demurrers to the second amended complaint, without prejudice to file a further amended complaint. A third amended complaint was filed on June 11, 2021. The third amended complaint namesnamed certain current and former Vaxart directors as defendants, asserting claims against them for breach of fiduciary duty, unjust enrichment, and waste and seeking, among other things, an award of unspecified damages, certain equitable relief, and attorneys’ fees and costs. The third amended complaint also assertsasserted claims for breach of fiduciary duty and aiding and abetting breach of fiduciary duty against Armistice Capital, LLC (“Armistice”). The third amended complaint challengeschallenged certain stock options granted to certain of the Company’s officers and directors in June 2020; certain alleged statements and omissions made in the Company’s April 24, 2020, proxy statement; and certain amendments to two warrants held by Armistice, as disclosed on June 8, 2020. The third amended complaint purportspurported to bring the lawsuit derivatively on behalf of and for the benefit of the Company and namesnamed the Company as a “nominal defendant” against which no damages arewere sought. On August 31, 2021, the Company and certain of its directors (the “Vaxart Defendants”), as well as all other defendants, filed demurrers to the third amended complaint. The demurrer filed by the Vaxart Defendants has not yet been decided.

On September 8, 2020, a purported shareholder derivative complaint was filed in the Court of Chancery of the State of Delaware, entitled Galjour v. Floroiu, et al. On October 20, 2020, a purported shareholder derivative and class action complaint, entitled Jaquith v. Vaxart, Inc., was filed in the Court of Chancery of the State of Delaware. On November 12, 2020, the two actions were consolidated under the caption In re Vaxart, Inc. Stockholder Litigation and the complaint filed in the Jaquith action was deemed the operative pleading. The operative complaint names certain current and former Vaxart directors as defendants, asserting claims against them for breach of fiduciary duty and unjust enrichment and seeking, among other things, an award of unspecified damages, certain equitable relief, and attorneys’ fees and costs. The complaint also asserts claims for unjust enrichment and breach of fiduciary duty or alternatively aiding and abetting breach of fiduciary duty against Armistice. The complaint challenges certain stock options granted to certain of the Company’s officers and directors between March 24, 2020 and June 15, 2020; certain alleged statements and omissions made in the Company’s April 24, 2020, proxy statement; and certain amendments to two warrants held by Armistice, as disclosed on June 8, 2020. The complaint purports to bring all but one of the claims derivatively on behalf of and for the benefit of the Company. It also purports to bring one claim, for breach of fiduciary duty based on alleged statements and omissions in the Company’s April 24, 2020, proxy statement, directly on behalf of a class of Vaxart stockholders. The complaint names the Company as a “nominal defendant” against which no damages are sought. On January 4, 2021, all defendants filed motions to dismiss. In a decisionBy Order dated November 30, 2021 and corrected on December 1, 2021,17, 2022, the court dismissedsustained the claims relatingdefendants’ demurrers without leave to amend, and the warrant amendments. The motionstime for plaintiffs to dismiss the remaining claims have not yet been decided.

11

VAXART, INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

appeal has since lapsed.

 

In August and September 2020, two substantially similar securities class actions were filed in the U.S. District Court for the Northern District of California. The first action, titled Himmelberg v. Vaxart, Inc. et al. was filed on August 24, 2020. The second action, titled Hovhannisyan v. Vaxart, Inc. et al. was filed on September 1, 2020 (together, the “Putative Class Action”). By Order dated September 17, 2020, the two actions were deemed related. On December 9, 2020, the court appointed lead plaintiffs and lead plaintiffs’ counsel.

On January 29, 2021, lead plaintiffs filed their consolidated amended complaint. On July 8, 2021, all defendants moved to dismiss the consolidated amended complaint. On May 14, 2021, the court granted lead plaintiffs’ request to amend the consolidated amended complaint and denied defendants’ motions to dismiss as moot. On June 10, 2021, lead plaintiffs filed ana first amended consolidated complaint. Oncomplaint, and on August 9, 2021, lead plaintiffs filed a corrected firstamended consolidated complaint. The firstamended consolidated complaint, namesas corrected, named certain of Vaxart’s current and former executive officers and directors, as well as Armistice, as defendants. It claimsclaimed three violations of federal civil securities laws; violation of Section 10(b) of the Exchange Act and SEC Rule 10b-5, as against the Company and all individual defendants; violation of Section 20(a) of the Exchange Act, as against Armistice and all individual defendants; and violation of Section 20A of the Exchange Act against Armistice. The firstamended consolidated complaint, allegesas corrected, alleged that the defendants violated securities laws by misstating and/or omitting information regarding the Company’s development of a norovirus vaccine, the vaccine manufacturing capabilities of a business counterparty, and the Company’s involvement with Operation Warp Speed (“OWS”); and by engaging in a scheme to inflate Vaxart’s stock price. The first amended consolidated complaint seeks to be certifiedsought certification as a class action for similarly situated shareholders and seeks,sought, among other things, an unspecified amount of damages and attorneys’ fees and costs. On July 8, 2021, all defendants moved to dismiss the first amended consolidated complaint. OnBy Order dated December 22, 2021, the court granted in partthe motion to dismiss by Armistice with leave to amend and otherwise denied in part the motions to dismiss. The parties appeared at an initial case management conference onOn FebruaryJuly 27, 2022, lead plaintiffs filed a notice announcing that they had reached a partial settlement (the “Partial Settlement”) to resolve all claims against the Company and its current or former officers and/or directors in their capacity as officers and/or directors of the Company (the “Settling Defendants”). Pursuant to the Partial Settlement, the Company agreed to a settlement amount of $12.0 million with $2.0 million to be paid by the Company and the remainder to be paid by the Company’s insurers. On November 2, 2022, the Company paid the $2.0 million settlement amount with respect to set a schedule for the restPutative Class Action pursuant to the terms of the action.settlement agreement reached in that case. On February 8,November 14, 2022,lead plaintiffs filed a second amended consolidated class action complaint that purported to include new allegations to support claims against Armistice. By Orders dated January 25, 2023, the court approved the Partial Settlement and entered a Case Management Plan, setting forth certain case deadlines.judgment dismissing with prejudice all claims asserted in the Putative Class Action against the Settling Defendants.

 

On October 23, 2020, a complaint was filed in the U.S. District Court for the Southern District of New York, entitled Roth v. Armistice Capital LLC, et al. The complaint names Armistice and certain Armistice-related parties as defendants, asserting a violation of Exchange Act Section 16(b) and seeking the disgorgement of short-swing profits. The complaint purports to bring the lawsuit on behalf of and for the benefit of the Company and names the Company as a “nominal defendant” for whose benefit damages are sought.

 

On January 8, 2021, a purported shareholder, Phillip Chan, commenced a pro se lawsuit in the U.S. District Court for the Northern District of California titled Chan v. Vaxart, Inc. et al. (the Opt-Out Action“Opt-Out Action”). Because this complaint is nearly identical to an earlier version of a complaint filed in the Putative Class Action, the Opt-Out Action has been stayed pending resolution of the Putative Class Action.

On March 5, 2021, a purported shareholder, Kathleen Sanetel, served a demand letter on the Company’s board of directors demanding that it investigate and commence appropriate legal action against certain members of the board of directors, certain executive officers, and Armistice to remedy purportedly wrongful conduct. On or about June 2, 2021, another purported shareholder, Jerry Besa, served a substantially identical demand letter. The specific allegations and alleged wrongful conduct set forth in the demand letter are, in all material respects, substantially similar to the allegations and claims made in the amended consolidated complaint in the Putative Class Action. After receipt of the Sanetel demand letter, the Board appointed a committee of the Board (the “Demand Committee”) and delegated to the Demand Committee the authority to investigate the matters referenced in the demand letter and determine action(s), if any, to be taken by the Company in response to the demand. On February 10, 2022, a purported shareholder, Kevin Meehan, served a similar demand letter on the Company’s current board of directors, premised on the same allegations and claims made in the amended consolidated complaint inwhile the Putative Class Action and demanding the Company take legal action against the defendants in the Putative Class Action. On April 29, 2022, purported shareholder Vijay Gururaj served a letter informing the Company that he was joining in the March 5, 2021, Sanetel demand letter. The Demand Committee is working towards completing its evaluationpending.

11

VAXART, INC.

 

No amounts have been accrued becauseNotes to the Company’s management does not presently believe that any loss is probable and it is not possible to reasonably estimate the loss, or range of losses, if any, that may result from any of the ongoing litigation. The Company’s legal costs incurred in its defense against these claims are expensed as incurred.Condensed Consolidated Financial Statements (Unaudited)

 

 

NOTE 9.  Stockholders’ Equity

 

 

(a)

Preferred Stock

 

The Company is authorized to issue 5,000,000 shares of preferred stock, $0.0001 par value per share. The Company’s board of directors may, without further action by the stockholders, fix the rights, preferences, privileges and restrictions of up to an aggregate of 5,000,000 shares of preferred stock in one or more series and authorize their issuance. These rights, preferences and privileges could include dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and the number of shares constituting any series or the designation of such series, any or all of which may be greater than the rights of the Company’sour common stock. The issuance of preferred stock could adversely affect the voting power of holders of common stock and the likelihood that such holders will receive dividend payments and payments upon liquidation. In addition, the issuance of preferred stock could have the effect of delaying, deterring or preventing a change of control or other corporate action. NaNNo shares of preferred stock are currently outstanding, and the Company has no present plan to issue any shares of preferred stock.

 

12

VAXART, INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

(b)

Common Stock

 

TheAs of March 31,2023, the Company iswas authorized to issue 150,000,000250,000,000 shares of common stock, $0.0001 par value per share.share, which includes an increase of 100,000,000 on August 4, 2022, when the Company’s stockholders approved an amendment to the Company’s certificate of incorporation to increase the number of authorized shares of common stock from 150,000,000. Except as otherwise required by law or as otherwise provided in any certificate of designation for any series of preferred stock, the holders of common stock possess all voting power for the election of the Company’s directors and all other matters requiring stockholder action. Holders of common stock are entitled to one vote per share on matters to be voted on by stockholders. Holders of common stock are entitled to receive such dividends, if any, as may be declared from time to time by the Company’s board of directors in its discretion out of funds legally available therefor. In no event will any stock dividends or stock splits or combinations of stock be declared or made on common stock unless the shares of common stock at the time outstanding are treated equally and identically. As of March 31, 20222023, 0no dividends had been declared by the board of directors.

 

In the event of the Company’s voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up, the holders of the common stock will be entitled to receive an equal amount per share of all of the Company’s assets of whatever kind available for distribution to stockholders, after the rights of the holders of the preferred stock have been satisfied. There are no sinking fund provisions applicable to the common stock.

 

The Company had shares of common stock reserved for issuance as follows:

 

 

March 31, 2022

  

December 31, 2021

  

March 31, 2023

  

December 31, 2022

 
      

Options issued and outstanding

 13,253,647  10,216,106  19,305,219  14,725,261 

RSUs issued and outstanding

 245,625 0  3,708,708  808,310 

Available for future grants of equity awards

 2,269,093  5,582,742  4,540,768  12,074,692 

Common stock warrants

  232,434   232,434  227,434  227,434 

2022 Employee Stock Purchase Plan

  1,800,000   1,800,000 

Total

  16,000,799   16,031,282   29,582,129   29,635,697 

 

 

(c)

Warrants

 

The following warrants were outstanding as of March 31, 20222023, all of which contain standard anti-dilution protections in the event of subsequent rights offerings, stock splits, stock dividends or other extraordinary dividends, or other similar changes in the Company’s common stock or capital structure, and none of which have any participating rights for any losses:

 

Securities into which warrants are convertible

 

Warrants Outstanding

  

Exercise Price

 

Expiration Date

 

Warrants Outstanding

  

Exercise Price

 

Expiration Date

  

Common Stock

 5,000  $0.30 

September 2024

 44,148  $1.10 

April 2024

Common Stock

 44,148  $1.10 

April 2024

 26,515  $1.375 

April 2024

Common Stock

 26,515  $1.375 

April 2024

 29,150  $2.50 

March 2025

Common Stock

 29,150  $2.50 

March 2025

 100,532  $3.125 

February 2025

Common Stock

 100,532  $3.125 

February 2025

 16,175  $3.125 

March 2024

Common Stock

 16,175  $3.125 

March 2024

  10,914  $22.99 

December 2026

Common Stock

  10,914  $22.99 

December 2026

Total

  232,434       227,434     

 

In the event of a Fundamental Transaction (a transfer of ownership of the Company as defined in the warrant) within the Company’s control, the holders of the unexercised common stock warrants exercisable for $0.30, $1.10 and $2.50 and those exercisable for $3.125 expiring in February 2025 shall be entitled to receive cash consideration equal to a Black-Scholes valuation, as defined in the warrant. If such Fundamental Transaction is not within the Company’s control, the warrantholderswarrant holders would only be entitled to receive the same form of consideration (and in the same proportion) as the holders of the Company’s common stock, hence these warrants are classified as a component of permanent equity.

 

1312

 

VAXART, INC.

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

NOTE 10.  Equity Incentive Plans

 

On April 23, 2019, the Company’s stockholders approved the adoption of the 2019 Equity Incentive Plan (the “2019 Plan”), under which the Company is authorized to issue incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, and restricted stock units (RSUs), other stock awards and performance awards that may be settled in cash, stock, or other property. The 2019 Plan is designed to secure and retain the services of employees, directors and consultants, provide incentives for the Company’s employees, directors and consultants to exert maximum efforts for the success of the Company and its affiliates, and provide a means by which employees, directors and consultants may be given an opportunity to benefit from increases in the value of the Company’s common stock. Following adoption of the 2019 Plan, all previous plans were frozen, and on forfeiture, cancellation and expiration, awards under those plans are not assumed by the 2019 Plan.

 

The aggregate number of shares of common stock authorized for issuance under the 2019 Plan was initially 1,600,000 shares, which was increased through an amendment to the 2019 Plan adopted by the Company’s stockholders (a “Plan Amendment”) on June 8, 2020, to 8,000,000, and by a Plan Amendment on June 16, 2021, to 16,900,000.16,900,000, and by a Plan Amendment on August 4, 2022, to 28,900,000. Further amendments to the 2019 Plan to increase the share reserve would require stockholder approval. Awards that are forfeited or canceled generally become available for issuance again under the 2019 Plan. Awards have a maximum term of ten years from the grant date and may vest over varying periods, as specified by the Company’s board of directors for each grant.

 

In March 2022, the Company granted 245,625 restricted stock unit (“RSU”) awards to employees which vest annually over four years, subject to each employee’s continued service relationship with the Company. The related compensation cost, which is based on the grant date fair value of the Company’s common stock multiplied by the number of RSUs granted, is recognized, net of estimated forfeitures, as an expense ratably over the service period.

A summary of stock option and RSU transactions in the three months ended March 31, 20222023, is as follows:

 

         

Weighted

     

Weighted

        

Weighted

    

Weighted

 
 

Shares

 

Number of

 

Average

 

Number of

 

Average

  

Shares

 

Number of

 

Option Average

 

Unvested

 

RSU Average

 
 

Available

 

Options

 

Exercise

 

RSUs

 

Grant Date

  

Available

 

Options

 

Exercise

 

RSU Shares

 

Grant Date

 
 

For Grant

  

Outstanding

  

Price

  

Outstanding

  

Fair Value

  

For Grant

  

Outstanding

  

Price

  

Outstanding

  

Fair Value

 
            

Balance at January 1, 2022

 5,582,742  10,216,106  $4.96  0  $0 

Balance at January 1, 2023

 12,074,692  14,725,261  $4.48  808,310  $3.57 

Granted

 (3,486,375) 3,240,750  $5.06  245,625  $5.09  (10,071,992) 6,960,943  $0.78  3,111,049  $0.78 

Exercised

   (30,418) $1.57  0  $0      $    $ 

Released

   $ (49,220) $5.09 

Forfeited

  172,726   (172,791) $7.04   0  $0  1,887,633  (1,726,202) $5.43  (161,431) $3.49 

Canceled

  650,435   (654,783) $3.72     $ 
            

Balance at March 31, 2022

  2,269,093   13,253,647  $4.97   245,625  $5.09 

Balance at March 31, 2023

  4,540,768   19,305,219  $3.09   3,708,708  $1.21 

 

As of March 31, 2022,2023, there were 13,253,64719,305,219 options outstanding with a weighted average exercise price of $4.97,$3.09, a weighted average remaining term of 8.758.28 years and an aggregate intrinsic value of $13.2 million.$72,000. Of these options, 4,514,9156,185,977 were vested, with a weighted average exercise price of $3.13,$4.11, a weighted average remaining term of 7.556.06 years and an aggregate intrinsic value of $10.7 million.$64,000. 

The aggregate intrinsic value represents the total pre-tax value (i.e., the difference between the Company’s stock price and the exercise price) of stock options outstanding as of March 31, 2023, based on the Company’s common stock closing price of $0.76, which would have been received by the option holders had all their in-the-money options been exercised as of that date.

There were no options exercised during the three months ended March 31, 2023. The Company received $48,000 for the 30,418 options exercised during the three months ended March 31,2022,, which had an intrinsic value of $101,000, and received $231,000 for the 207,730 options exercised during the three months ended March 31,2021, which had an intrinsic value of $1.1 million.$101,000. 

 

The weighted average grant date fair value of options awarded in the three months ended March 31, 20222023 and 20212022, was $4.48$0.78 and $5.46,$4.48, respectively. Their fair values were estimated using the following assumptions:

 

  

Three Months Ended March 31,

 
  

2022

  

2021

 
         

Risk-free interest rate

  1.62% - 2.55%   1.02% - 1.07% 

Expected term (in years)

  6.02 - 6.08   5.87 - 6.07 

Expected volatility

  125% - 126%   122% - 124% 

Dividend yield

  0%  0%

Three Months Ended March 31,

2023

2022

Risk-free interest rate

3.45% - 3.56%1.62% - 2.55%

Expected term (in years)

6.006.02 - 6.08

Expected volatility

128%125% - 126%

Dividend yield

%%

 

13
14

 

VAXART, INC.

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

The Company measures the fair value of all stock-based awards on the grant date and records the fair value of these awards, net of estimated forfeitures, to compensation expense over the service period. Total stock-based compensation recognized for options, RSUs and RSUsESPP was as follows (in thousands):

 

 

Three Months Ended March 31,

  

Three Months Ended March 31,

 
 

2022

  

2021

  

2023

  

2022

 
       

Research and development

 $2,027  $579  $1,372  $2,027 

General and administrative

  1,103   672   1,275   1,103 

Total stock-based compensation

 $3,130  $1,251  $2,647  $3,130 

 

As of March 31, 20222023, the unrecognized stock-based compensation cost related to outstanding unvested stock options and RSUs expected to vest was $38.7$28.1 million, which the Company expects to recognize over an estimated weighted average period of 3.322.6 years.

On August 4, 2022, the 2022 Employee Stock Purchase Plan (the “2022 ESPP”) was approved by the Company’s stockholders. The Company reserved 1,800,000 shares of the Company’s common stock for purchase under the ESPP. The ESPP has a 6-month offering period comprised of one purchase period.  The purchase price of the stock is equal to 85% of the lesser of the market value of such shares at the beginning of the 6-month offering period or the end of such offering period. No ESPP shares were issued or outstanding during the three months ended March 31,2023, accordingly 1,800,000 shares were available and reserved for issuance under the ESPP. 

The fair value of the ESPP shares is estimated using the Black-Scholes option pricing model. The weighted average estimated fair value for shares issued under our ESPP in fiscal years 2022 was $0.46 per share, with the assumptions of 0.5 expected term (in years), 84.66% expected volatility, 4.60% risk-free interest rate, and 0% expected dividend yield. Stock-based compensation expense related to the ESPP for the three months ended March 31, 2023 was $100,000. As of March 31, 2023, the unrecognized stock-based compensation cost related to outstanding ESPP expected to be recognized is $50,000 by May 2023.

 

 

NOTE 11.  Net Loss Per Share

 

The following table presents the calculation of basic and diluted net loss per share (in thousands, except share and per share amounts):

 

 

Three Months Ended March 31,

  

Three Months Ended March 31,

 
 

2022

  

2021

  

2023

  

2022

 
  

Net loss

 $(25,101) $(16,007) $(25,140) $(25,101)
  

Shares used to compute net loss per share – basic and diluted

  125,795,255   115,422,628   135,213,196   125,795,255 
  

Net loss per share – basic and diluted

 $(0.20) $(0.14) $(0.19) $(0.20)

 

NaNNo adjustment has been made to the net loss in the three months ended March 31,2022 2023 or 2021,2022, as the effect would be anti-dilutive due to the net loss.

 

The following potentially dilutive weighted average securities were excluded from the computation of diluted weighted average shares outstanding because they would have been antidilutive:

 

 

Three Months Ended March 31,

  

Three Months Ended March 31,

 
 

2022

  

2021

  

2023

  

2022

 
  

Options to purchase common stock

 10,903,711  6,834,510  14,436,046  10,903,711 
  

Restricted stock units

 10,917 0 

Restricted stock units to purchase common stock

 1,218,200  10,917 
  

Warrants to purchase common stock

  232,434   622,942  227,434  232,434 
  

Employee Stock Purchase Plan

  433,328    
 

Total potentially dilutive securities excluded from denominator of the diluted earnings per share computation

  11,147,062   7,457,452   16,315,008   11,147,062 

 

 

NOTE 12.  Subsequent Events

Since March 31, 2022, the Company has issued 560,000 shares of common stock under the September 2021 ATM (see Note 1) for net proceeds totaling $2.8 million.

Changes in the status of litigation since March 31, 2022, are included in “Note 8. Commitments and Contingencies—(c) Litigation”.

 

1514

 

Item 2.  Managements Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in our Annual Report on Form 10-K filed with the SEC on February 24, 2022.March 15, 2023. This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the “safe harbor” created by those sections. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “goal,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential” and similar expressions intended to identify forward-looking statements and reflect our beliefs and opinions on the relevant subject. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and in this Quarterly Report on Form 10-Q, particularly in the section entitled “Risk Factors” in Part II, Item 1A.10-Q. The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date hereof. These statements are based upon information available to us as of the filing date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and we caution investors against unduly relying upon these statements. In all events, we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, change in circumstances, future events or otherwise, and you are advised to consult any additional disclosures that we may make directly to you or through reports that we, in the future, may file with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

 

Company Overview and Background

 

We are a clinical-stage biotechnology company primarily focused on the development of oral recombinant vaccines based on our Vector-Adjuvant-Antigen Standardized Technology (“VAAST”) proprietary oral vaccine platform. Our oral vaccines are designed to generate broad and durable immune responses that may protect against a wide range of infectious diseases and may be useful for the treatment of chronic viral infections and cancer. Our investigational vaccines are administered using a room temperature-stable tablet, rather than by injection.

 

We are developing prophylactic vaccine candidates that target a range of infectious diseases, including norovirus (a widespread cause of acute gastro-intestinal enteritis), SARS-CoV-2 (the virus that causes coronavirus disease 2019 (“COVID-19”)), norovirus (a widespread cause of acute gastro-intestinal enteritis) and seasonal influenza. Several Phase 1 human studies with our norovirus vaccine candidates have been successfully completed. A Phase 2 challenge study evaluating safety and clinical efficacy of our GI.1 norovirus vaccine candidate is currently ongoing. A Phase 2 dose-ranging study evaluating the safety and immunogenicity of our bivalent GI.1 and GII.4 norovirus vaccine candidate is currently ongoing. We have completed a Phase 1 clinical trial for our first SARS CoV-2COVID-19 vaccine candidate and reported that commenced in October 2020; the study met its primary and secondary endpoints. AThe first part of a Phase 2 study with our second SARS CoV-2COVID-19 vaccine candidate that commenced dosing in Octoberlate 2021 and is currently ongoing. Three Phase 1 human studies for our norovirushas been completed. We have also initiated preclinical work on novel COVID-19 vaccine constructs that seek to create a potent pan-betacoronavirus vaccine candidate have been completed, including a study with a bivalent norovirus vaccine which,that would respond to SARS-CoV-2 and also other betacoronaviruses (such as we disclosed in September 2019, met its primarySARS-CoV-1 and secondary endpoints. Additional Phase 1 studies withMERS-CoV). Data indicating that our norovirus vaccine are currently ongoing. Our monovalent H1 influenza vaccine candidate protected participants against H1 influenza infection as well as a leading marketed injectable vaccine in a Phase 2 challenge study aswas published in 2020 (Lancet ID). In addition, we are in early development ofhave generated preclinical data for a prophylactic vaccine candidate targeting respiratory syncytial virus (“RSV”) (a common cause of respiratory tract infection) and of our first therapeutic vaccine candidate targeting cervical cancer and dysplasia caused by human papillomavirus (“HPV”).

 

Vaxart Biosciences, Inc. was originally incorporated in California in March 2004, under the name West Coast Biologicals, Inc. in March 2004 and changed its name to Vaxart, Inc. (“Private Vaxart”), in July 2007, andwhen it reincorporated in the state of Delaware. On February 13, 2018, Private Vaxart completed a reverse merger (the “Merger”), with Aviragen Therapeutics, Inc. (“Aviragen”), pursuant to which Private Vaxart survived as a wholly owned subsidiary of Aviragen. Under the terms of the Merger, Aviragen changed its name to Vaxart, Inc. and Private Vaxart changed its name to Vaxart Biosciences, Inc.

 

Business Update Regarding COVID-19

The COVID-19 outbreak has presented a substantial public health and economic challenge around the world and is affecting employers, employees, patients, communities and business operations, as well as the U.S. economy and financial markets. The full extent to which the COVID-19 outbreak will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets.

To date, we have been able to continue our operations and do not anticipate any material interruptions in the foreseeable future. However, we are continuing to assess the potential impact of the COVID-19 pandemic and the development of other competing COVID-19 vaccines on our business and operations, including our expenses, supply chain and clinical trials. Our office-based employees have been mostly working from home since mid-March 2020 and will continue to do so until we believe it is safe to return to the workplace. Our partners have mostly continued to operate their facilities at or near normal levels. While we currently do not anticipate any interruptions in our operations, it is possible that the COVID-19 pandemic and response efforts may have an impact in the future on our operations and/or the operations of our third-party suppliers and partners. Any recovery from negative impacts to our business and related economic impact due to the COVID-19 outbreak may also be slowed or reversed by a number of factors, including the recent emergence of coronavirus strains with mutated S proteins.

1615

 

Our Product Pipeline

 

Figure1.The following table outlines the status of our oral vaccine development programs:

 

pipelinefy21.jpgimg17.jpg

 

We are developing the following tablet vaccine candidates, which are all based on our proprietary platform:

 

 

Norovirus Vaccine. Norovirus is the leading cause of acute gastroenteritis symptoms, such as vomiting and diarrhea, among people of all ages in the United States. Each year, on average, norovirus causes 19 to 21 million cases of acute gastroenteritis and contributes to 109,000 hospitalizations and 900 deaths, mostly among young children and older adults. Typical symptoms include dehydration, vomiting, diarrhea with abdominal cramps, and nausea. In a study by the CDC and Johns Hopkins University, published in 2016, the global annual economic impact of norovirus disease was estimated at $60 billion, $34 billion of which occurred in high income regions including the United States. An update by the lead authors estimated the burden in the U.S. alone to be $10.5 billion annually in 2018. Virtually all norovirus disease is caused by norovirus GI and GII genotypes, and we are developing a bivalent vaccine candidate designed to protect against both. Because norovirus is an enteric pathogen that infects epithelial cells of the small intestine, we believe that a vaccine that produces antibodies against norovirus in the intestine, such as our tablet vaccine candidate which is delivered directly to the gut, may provide optimal protection. We anticipate that, if approved, the vaccine will be an annual, one-time administration ahead of the winter season when norovirus incidence is at its peak, similar to the influenza season.

In 2019, we completed the active phase of a Phase 1b clinical trial with our oral tablet vaccine candidates for the GI.1 and GII.4 norovirus strains. Both the oral norovirus GI.1 and GII.4 vaccine candidates were well tolerated with no serious adverse events reported. Most solicited and unsolicited adverse events were mild in severity, and there were no significant differences observed between the vaccine candidate and placebo treatment groups. 

Our bivalent vaccine candidate (GI.1 and GII.4 co-administered) demonstrated robust immunogenicity, with an IgA ASC response rate of 78% for the GI.1 strain and 93% for the GII.4 strain for the bivalent cohort of the study, when compared to 86% and 90%, respectively, for the two monovalent cohorts of the study. These results indicate that co-administration of the two vaccine candidates, the intended approach for proceeding into Phase 2 and 3 trials, shows no cross-strain interference, or reduction of the immune response compared with individual (monovalent) vaccine delivery. 

In early 2021, we initiated G1.1 dosing in a subset of subjects (second dose after more than one year) in the Phase 1b bivalent study. In results announced in July 2021, we reported that we were able to successfully boost immune responses with the G1.1 norovirus vaccine candidate in prior vaccinated subjects. These boosted responses include IgA antibody secreting cells, as well as IgG and IgA serum antibody responses. In mid-2021, we started a placebo-controlled, dose ranging study in elderly adult subjects aged 55 to 80 to evaluate the safety and immunogenicity of the G1.1 vaccine candidate in the older population. The top-line results were disclosed in June 2022. The immune response to the vaccine candidate was similar in healthy older individuals (ages 55 to 80) as it was in younger individuals in a previous study as measured by the numbers of antibody secreting cells (IgA ASC) and serum antibodies. Lastly, we conducted an open-label trial to evaluate the optimal timing of boost administration in young adults in which 3 cohorts of subjects received their second dose (boost) at varying timepoints between 1 and 3 months post initial vaccination. The top-line results from this study were disclosed in June 2022. Data indicated that the G1.1 vaccine candidate was able to successfully boost antibody responses, with antibody responses trending better with administration spread out over 3 months versus a shorter interval.

We are currently conducting additional Phase 2 clinical trials with our norovirus vaccine candidates. The first trial, which was initiated in early 2022, is a Phase 2 norovirus challenge study which will evaluate safety, immunogenicity and clinical efficacy of a norovirus GI.1 vaccine candidate compared to a placebo control post norovirus challenge.  In 2023, Vaxart expanded the ongoing Phase 2 GI.1 norovirus challenge study to include additional challenge cohorts. Vaxart believes the increased dataset will improve the likelihood of identifying a correlate of protection between immune responses to the vaccine and a reduction in risk of norovirus infection and/or acute gastroenteritis. Vaxart expects that identifying novel correlate(s) of protection may reduce the size and duration of a Phase 3 trial. Top-line data from this trial is expected in the third quarter of 2023. The second clinical trial, initiated in early 2023, is a Phase 2 multi-center, placebo-controlled dose-ranging trial evaluating the safety and immunogenicity of Vaxart’s bivalent norovirus vaccine candidate in subjects aged 18 years and older. Top-line data from this Phase 2 clinical trial is expected in the middle of 2023, and the study is designed to allow us to select the dose that we intend to use in Phase 3. Upon dose selection, a follow-on Phase 2 study will enroll an estimated 500 subjects which we expect will generate sufficient safety data at the selected dose to enable us to have an end of Phase 2 meeting with the FDA to gain concurrence on the scope and design of the Phase 3 pivotal efficacy study in adults over 18 years of age.

16

In the Fall of 2022, we announced a study that would receive significant funding and support from the Bill and Melinda Gates Foundation to evaluate whether our bivalent norovirus vaccine candidate induces antibodies in the breast milk of lactating mothers and whether infants up to six months of age can acquire those antibodies by breastfeeding.  Young infants are particularly susceptible to norovirus infection, causing severe dehydration and potentially death, particular in the developing world.  Further, the ability to immunize the youngest of children can be difficult due to the nascent immune system. Passive transfer of antibodies from mother to infant that are induced in milk may protect breastfeeding infants from infectious pathogens. If successful in eliciting antibodies in breast milk, the next step would be to prove that these antibodies can protect young infants and inhibit norovirus transmission among family members.  The study is expected to start in 2023. As a grant recipient from the Bill and Melinda Gates Foundation, Vaxart has agreed to a global access commitment for use of its bivalent norovirus vaccine candidate, if proven effective and approved, in breastfeeding mothers from low- and middle-income countries.

Coronavirus Vaccine. COVID-19, a severe respiratory tract infection caused by the virus SARS-CoV-2, is a major cause of hospitalization and death in the U.S. and worldwide. According to the U.S. Centers for Disease Control and Prevention (the “CDC”),CDC, an outbreak of COVID-19 began in Wuhan, China, in late 2019 and rapidly spread worldwide. By May 8, 2022,April 13, 2023, more than 517762 million COVID-19 cases had been identified globally, including in the United States, where the CDC had reported over 81104 million infections and 995,000one million deaths. While most COVID-19 restrictions, such as stay-at-home orders, have been lifted, COVID-19 continues to spread particularly among the unvaccinated population, and remains a public health threat, not least due to the continuing emergence of new variants. The COVID-19 risk remains even greater in developing regions where vaccination rates still remain low.

 

We arehave spent significant effort developing an oral tabletCOVID-19 vaccine to protect against SARS-CoV-2 infection,candidates over the virus that causes COVID-19.past few years. We generated multiple vaccine candidates based on the published genome of SARS-CoV-2 and evaluated them in preclinical models for their ability to generate both mucosal and systemic immune responses. Of particular interest will bewere the mucosal immune responses, as coronavirus iscoronaviruses primarily an infection ofinfect the respiratory tract. We believe the logistical advantages of an oral vaccine that is administered using a convenient room temperature-stable tablet could be of critical benefit when rolling out a major public health vaccination campaign. Given the recent emergence of coronavirus strains with mutated S proteins that are considered more contagious than the original strain, serum antibodies from injected vaccines may not adequately protect against these SARS-CoV-2 variants over time, whereas a vaccine that is able to create cross-reactive mucosal antibodies and T cells against conserved epitopes may have significant advantages.

 

On September 14, 2020, we announced that the U.S. Food and Drug Administration (the “FDA”) had cleared our Investigational New Drug (“IND”) application to allow initiation of human clinical testing of our first oral COVID-19 (S and N proteins) vaccine candidate VXA-CoV2-1. On October 13, 2020, we announced that Phase 1 clinical testing had commenced and onIn February 3, 2021, we announced the preliminary results of the trial. The study achieved both its primary and secondary endpoints of safety and immunogenicity, respectively. Initial results showing cross-reactive mucosal antibody responses were published in Science Translational Medicine. Additional detailed study results and mucosal durability data were reported in medRxiv in July 2022.

We announced in February 2021 that we would evaluate additional COVID-19 vaccine candidates that contain just the Spikespike (“S”) protein, and different variant-specific vaccines in research.vaccine candidates. After preclinical evaluations (including in non-human primate studies) showed that an improved antibody response could be achieved with a new COVID-19 vaccine candidate (VXA-CoV2-1.1-S) that expressed just the Spikespike protein, we decided to move this candidate forward for clinical evaluation. This new vaccine candidate, VXA-CoV2-1.1-S, was also able to elicit antibody responses against human coronavirus strain variants such as Beta (first identified in South Africa) and Delta (first identified in India) in animals. Further, this new vaccine candidate was tested in a vaccine breakthrough/transmission model led by Duke University and found to inhibit aerosol transmission to vaccine-naïve animals better than an injected S-protein-based vaccine candidate. These results were published in bioRxiv in October 2021.

 

A newAn IND was filed for this S-only vaccine candidate in June 2021 andVXA-CoV2-1.1-S was cleared by the FDA in July 2021. We initiated dosing with this candidate in a two-part Phase 2a2 clinical study in October 2021, with approximately 896 participants planned for enrollment utilizing a two-part study design. The first part of the study (“Part 1”) is currently underway and planned enrollment isof 48 participants aged 18 to 55 and 48 participants aged 56 to 75, in order to further evaluate safety and immunogenicity and to assess optimal dosage. Further, half the subjects in the trial willwould be prior vaccinated (have received two doses of an mRNA vaccine) to test the ability of the Vaxart COVID-19 vaccine candidateVXA-CoV2-1.1-S to boost immune responses and enhance variant-specific cross-reactivity, and half the subjects willwould be naïve to prior vaccinations. We expect data from this portionThe purpose of the trialstudy was to be available in the third quarter of 2022.evaluate safety and immunogenicity and to assess optimal dosage. Upon dose selection from Part 1, the second part of the study is expected to enroll(“Part 2”) planned enrollment of approximately 800 subjects aged 18 to 75 and be75. Part 2 was designed to test preliminary vaccine efficacy to protect against SARS-CoV-2 infection.

Additionally, international Phase 1b and Phase 2 COVID-19 trials, including a placebo-controlled efficacy trial in India, are anticipated to begin this year, though there can be no assurance that these trials will occur.

Norovirus Vaccine. Norovirus is the leading cause of acute gastroenteritis symptoms, such as vomiting and diarrhea, among people of all ages in the United States. Each year, on average, norovirus causes 19 to 21 million cases of acute gastroenteritis and contributes to 56,000 to 71,000 hospitalizations and 570 to 800 deaths, mostly among young children and older adults. Typical symptoms include dehydration, vomiting, diarrhea with abdominal cramps, and nausea. In a study by the CDC and Johns Hopkins University, published in 2016, the global economic impact of norovirus disease was estimated at $60 billion, $34 billion of which occurred in high income countries including the United States, Europe and Japan. An update by the lead authors estimated the burden in the U.S. alone to be $10.5 billion in 2018. Virtually all norovirus disease is caused by norovirus GI and GII genotypes, and we are developing a bivalent vaccine designed to protect against both. We anticipate that, if approved, the vaccine will be an annual, one-time administration ahead of the winter season when norovirus incidence is at its peak, similar to the influenza season.

17

In 2019, we completed the active phase of a Phase 1b clinical trial with our bivalent oral tablet vaccines for the GI.1 and GII.4 norovirus strains. Both the oral norovirus GI.1 and GII.4 vaccines were well tolerated with no serious adverse events reported. Most solicited and unsolicited adverse events were mild in severity, and there were no significant differences observed between the vaccine and placebo treatment groups.

Importantly, Vaxart’s bivalent vaccine (GI.1 and GII.4 co-administered) demonstrated robust immunogenicity, with an IgA ASC response rate of 78% for the GI.1 strain and 93% for the GII.4 strain for the bivalent cohort The first part of the study when compared(“Part 1”) has been completed. The actual enrollment of participants for Part 1 was less than planned due to 86%the inability to identify and 90%, respectively, for the two monovalent cohorts of the study. These results indicate that co-administration of the two vaccines, the intended approach for proceeding into phase 2 and 3 trials, shows no cross-interference, or reductionenroll vaccine-naïve individuals in a timely manner. Top-line data from the response observed with individual (monovalent) vaccine delivery.

We resumed clinical development of our norovirus vaccine candidate in late 2020 by planning the conduct of three clinical trials. In early 2021 we initiated dosing a subset of subjects (second dose after more than one year) in the Phase 1b bivalent study. In results announced on July 29, 2021, we reported that we were able to successfully boost immune responses with the G1.1 norovirus tablets in prior vaccinated subjects. These responses include IgA antibody secreting cells, as well as IgG and IgA serum antibody responses. In mid-2021 we initiated conduct of a placebo-controlled, dose ranging study in elderly adult subjects aged 55 to 80 to evaluate the safety and immunogenicity of the vaccine in the older population. This study has completed enrollment and study assessments through the activethis portion of the trial (4 weeks post last dose); sample analysis is currently underway with database lockwas announced in September 2022, indicating that the primary and topline results are expectedsecondary endpoints were both met. VXA-CoV2-1.1-S was able to boost the serum antibody responses for volunteers that previously received an mRNA vaccine (either Pfizer/BioNTech or Moderna). Serum neutralizing antibody responses to SARS-CoV-2 (Wuhan), a recognized correlate of protection, were boosted in this population from a geometric mean of 481 to 778, a fold rise of 1.6. Volunteers that had lower starting titers had larger increases than subjects that had higher titers. There were also substantial increases in the secondneutralizing antibody responses to the SARS-CoV-2 Omicron BA4/5 in these volunteers as measured by sVNT assay. Increases in the mucosal IgA antibody responses (antibodies in the nose and mouth) were observed in approximately 50% of subjects.  Subjects that had an increase in the mucosal IgA response to SARS-CoV-2 Wuhan S had an increase in IgA responses to other coronaviruses including SARS-CoV-2 Omicron BA4/5, SARS-CoV-1, and MERS-CoV, demonstrating the cross-reactive nature of these immune readouts.

We have initiated preclinical work on novel vaccine constructs that seek to create a potent pan-betacoronavirus vaccine candidate that would respond to SARS-CoV-2 and also other betacoronaviruses (such as SARS-CoV-1 and MERS-CoV). As described in the preceding paragraph, Vaxart’s clinical data demonstrated that it is possible to induce cross-reactive antibodies to multiple SARS-CoV-2 strains as well as SARS-CoV-1 and MERS-CoV at mucosal surfaces.  

In June 2022, we announced a partnership with hVivo Services Limited (“hVIVO”) to test a Vaxart COVID-19 vaccine candidate for efficacy in a SARS-CoV-2 human challenge study. Subsequently in the first quarter of 2022. Lastly,2023, we also conducted an open-label trialdecided to evaluatepostpone initiating the optimal timing of boost administration in young adults inSARS-CoV-2 human challenge study. As we advance new vaccine candidates, we will determine the best development plan, which 3 cohorts of subjects received their second dose (boost) at varying timepoints between 1 and 3 months post initial vaccination. This study was performed as data from trials with adenovirus vaccines indicate that boost administration atmay include a later timepoint (e.g., 12 weeks) may offer a more robust immune response. This study has completed enrollment and study visits through the active phase; sample analysis is currently underway with database lock and topline results are also expected in the second quarter of 2022.

Within 2022, we plan to initiate Phase 2 clinical trials with our norovirus vaccines. The first trial, which has recently been initiated, is a Phase 2 norovirushuman challenge study which will evaluate safety, immunogenicity and clinical efficacy of a norovirus GI.1 vaccine against placebo control post viral challenge. The second clinical trial to be initiated will be a Phase 2 multi-center, placebo-controlled dose confirmation trial evaluating the safety and immunogenicity of Vaxart’s bivalent norovirus vaccine in subjects aged 18 years and older. The data from these Phase 2 studies is expected to form the basis (safety, immunogenicity and preliminary efficacy data) for an End of Phase 2 Meeting with the FDA to gain concurrence on the scope and design of the Phase 3 pivotal efficacy study in adults over 18 years of age.study.

 

 

Seasonal Influenza Vaccine. Influenza is a major cause of morbidity and mortality in the U.S. and worldwide and, according to the CDC, only 49%approximately 51% of eligible U.S. citizens were vaccinated in 2018/2019,2021/2022, with particularly low vaccination rates among adults between ages 18 and 49. We believe our oral tablet vaccine candidate has the potential to improve the protective efficacy of currently available influenza vaccines and increase flu vaccination rates.

 

Influenza is one of the most common global infectious diseases, causing mild to life-threatening illness and even death. Approximately 350 million cases of seasonal influenza occur annually worldwide, of which three to five million cases are considered severe, causing 290,000 to 650,000 deaths per year. During the flu season of 2018/2019 there were 34,200 flu related deaths in the U.S. alone, according to the CDC. Very young children and the elderly are at the greatest risk. In the United States, between 5% and 20% of the population contracts influenza, 226,000between 140,000 and 710,000 people are hospitalized with complications of influenza, and between 3,00012,000 and 49,00052,000 people die from influenza and its complications each year, with up to 90% of the influenza-related deaths occurring in adults older than 65. The total economic burden of seasonal influenza in the United States has been estimated to be $87.1 billion, including medical costs which average $10.4 billion annually, while lost earnings due to illness and loss of life amount to $16.3 billion annually.

17

 

We believe our tablet vaccine candidate may potentially address many of the limitations presented by injectable egg-based influenza vaccines for the following reasons: (i) our tablet vaccine candidates are designed to create broad and durable immune responses, which may provide more effective immunity and protect against additional strain variants; (ii) our vaccine candidate is delivered as a room temperature-stable tablet, which we believe would provide a more convenient method of administration, enhancing patient acceptance and simplifying the distribution and administration process; (iii) we believe our tablet vaccine candidate may be manufactured more rapidly than vaccines manufactured using egg-based methods by using recombinant methods; and (iv) using our tablet vaccine candidate in lieu of egg-based vaccines would eliminate the risk of experiencing allergic reactions to egg protein.

 

In September 2018, we completed a $15.7 million contract with the U.S. Government through the Department of Health and Human Services, Office of Biomedical Advanced Research and Development Authority (“HHS BARDA”) under which a Phase 2 challenge study of our H1N1 flu vaccine candidate was conducted. Previously, we hadWe announced that, in healthy volunteers immunized and then experimentally infected with H1 influenza, our H1 influenza oral tablet vaccine candidate reduced clinical disease by 39% relative to placebo. Fluzone, the market-leading injectable quadrivalent influenza vaccine, reduced clinical disease by only 27%. Our tablet vaccine candidate also showed a favorable safety profile, indistinguishable from placebo.

 

On October 4, 2018, we presented data from the study demonstrating that our vaccine candidate elicited a significant expansion of mucosal homing receptor plasmablasts to approximately 60% of all activated B cells. We believe these mucosal plasmablasts are a key indicator of a protective mucosal immune response and a unique feature of our vaccines.vaccine candidates. This data also indicates that our vaccinesvaccine candidates provide protection by inducing mucosal immunity (the first line of defense against mucosal infections such as flu, norovirus and RSV), marking what could be a key advantage over injectable vaccines.

 

18

In addition to our conventional seasonal flu vaccine candidate, we entered into a research collaboration agreement with Janssen Vaccines & Prevention B.V. (“Janssen”) in July 2019 to evaluate our proprietary oral vaccine platform for the Janssen universal influenza vaccine program. Under the agreement, we produced a non-GMP oral vaccine candidate containing certain proprietary antigens from Janssen and tested the product in a preclinical challenge model. The preclinical study has been completed and we have submitted a report to Janssen.

Vaxart will work with governments around the world to create pandemic monovalent influenza vaccines for emergency use or stockpiling, if requested.  We are also continuing development of our preclinical seasonal and universal influenza vaccine candidates.

 

 

RSV Vaccine. RSV is a major respiratory pathogen with a significant burden of disease in the very young and in the elderly.

 

Based on the positive results of our preclinical cotton rat study, we believe our proprietary oral vaccine platform has the potential to be the optimal vaccine delivery system for RSV, offering significant advantages over injectable vaccines.

 

The Company remains engaged in discussions with regulatory agencies, governments, non-governmental organizations and other potential strategic parties to determine the best way to progress its RSV program.

 

HPV Therapeutic Vaccine. Ourfirst therapeutic oral vaccine candidate targets HPV-16HPV 16 and HPV-18,HPV 18, the two strains responsible for 70% of cervical cancers and precancerous cervical dysplasia.

 

Cervical cancer is the fourth most common cancer in women worldwide and in the United States with about 13,000 new cases diagnosed annually in the United States according to the National Cervical Cancer Coalition.

 

We have tested our HPV-16HPV 16 vaccine candidate in two different HPV-16HPV 16 solid tumor models in mice. The HPV 16 vaccine candidate elicited T cell responses and promoted migration of the activated T cells into the tumors, leading to tumor cell killing. Mice that received our HPV-16HPV 16 vaccine candidate showed a significant reduction in volume of their established tumors.

 

In October 2018, we filed a pre-IND meeting request with the FDA for our first therapeutic vaccine candidate targeting HPV-16HPV 16 and HPV-18HPV 18 and we subsequently submitted our pre-IND briefing package. We received feedback from the FDA in January 2019 to support submission of an IND application to support initiation of clinical testing. Vaxart plans to initiate its clinical program of an oral HPV tableted vaccine with a clinical trial in young adult women with HPV 16 or 18 associated Cervical Intraepithelial Neoplasia (CIN) Grade 2/3 or 3, pending regulatory and IRB/EC approvals. The trial would evaluate the safety, immunogenicity and preliminary clinical efficacy with repeat dose vaccine administration against a placebo control group.

 

AntiviralsThe Company remains engaged in discussions with regulatory agencies, governments, non-governmental organizations and other potential strategic parties to determine the best way to progress its HPV program.

Anti-Virals

 

 

Through the Merger, we acquired two royalty earning products, Relenza and Inavir. We also acquired three Phase 2 clinical stage antiviral compounds, which we have discontinued independent clinical development of. However, for one of these, Vapendavir, we have entered into an exclusive worldwide license agreement with Altesa Biosciences, Inc. (“Altesa”) onIn July 6, 2021, permitting Altesa to develop and commercialize this capsid-binding broad spectrum antiviral. In May 2022, Altesa announced its intention to initiate clinical trials.

 

 

Relenza and Inavir are antivirals for the treatment of influenza, marketed by GlaxoSmithKline, plc (“GSK”) and Daiichi Sankyo Company, Limited (“Daiichi Sankyo”), respectively. We have earned royalties on the net sales of Relenza and Inavir in Japan. The last patent for Relenza expired in July 2019 and the last patent for Inavir expires in December 2029. Sales of these antivirals vary significantly by quarter, because influenza virus activity displays strong seasonal cycles, and by year depending on the intensity and duration of the flu season, the impact COVID-19 has had, and may continue to have, on seasonal influenza, and competition withfrom other antivirals such as Tamiflu. Importantly, on February 23, 2018, Xofluza, a new drug that treats influenza developed by Shionogi, was approved in Japan. The drug has gained significant market share, substantially reducing sales of Inavir.Tamiflu and Xofluza.

 

18

Financial Operations Overview

 

Revenue

 

Revenue from Customer Service Contracts

We earned revenue from a fixed price service contract, as amended, for a total of $617,000, which we completed in the first three months of 2021.

Royalty Revenue

We earn royalty revenue, net of amounts recognized as non-cash royalty revenue related to the sale of future royalties, based on a fixed percentage of net sales of Inavir, a treatment for influenza, from our licensee, Daiichi Sankyo, under a royalty agreement which will expire in December 2029.

Non-Cash Royalty Revenue Related to the Sale of Future Royalties

 

In April 2016, Aviragen sold certain royalty rights related to Inavir in the Japanese market for $20.0 million to HealthCare Royalty Partners III, L.P. (“HCRP”). We pay HCRP the first $3 million plus 15% of the next $1 million of royalties earned in annual periods ending on March 31. At the time of the Merger, the estimated future benefit to HCRP was remeasured at fair value and was estimated to be $15.9 million, which we account for as a liability and amortize using the effective interest method over the remaining estimated life of the arrangement. The estimated future benefit was remeasured as of December 31, 2022 and 2021 when the fair value was estimated to be $5.7 million and $11.5 million, respectively, resulting in a revaluation gain of $7.0 million in the year ended December 31, 2022 and $3.8 million.million in the year ended December 31, 2021. Even though we do not retain the related royalties under the transaction, as the amounts are remitted to HCRP, we will continue to record revenue related to these royalties until the amount of the associated liability and related interest is fully amortized.

 

19

contract revenue are recorded as a component of operating expenses in the consolidated statements of operations and comprehensive loss. The Company recognized $397,000 revenue from the BMGF Grant in the three-months ended March 31, 2023.  As of March 31, 2023 and December 31, 2022, restricted cash and deferred revenue were $1.6 million and $2.0 million, respectively. 

 

Research and Development Expenses

 

Research and development expenses represent costs incurred on conducting research, such as developing our tablet vaccine platform, and supporting preclinical and clinical development activities of our tablet vaccine candidates. We recognize all research and development costs as they are incurred. Research and development expenses consist primarily of the following:

 

 

employee-related expenses, which include salaries, benefits and stock-based compensation;

expenses incurred under agreements with contract research organizations (“CROs”), that conduct clinical trials on our behalf;

 

expenses incurred under agreements with contract manufacturing organizations (“CMOs”), that manufacture product used in the clinical trials;

 

expenses incurred in procuring materials and for analytical and release testing services required to produce vaccine candidates used in clinical trials;

 

process development expenses incurred internally and externally to improve the efficiency and yield of the bulk vaccine and tablet manufacturing activities;

activities

 

laboratory supplies and vendor expenses related to preclinical research activities;

 

consultant expenses for services supporting our clinical, regulatory and manufacturing activities; and

 

facilities, depreciation and allocated overhead expenses.

 

We do not allocate our internal expenses to specific programs. Our employees and other internal resources are not directly tied to any one research program and are typically deployed across multiple projects. Internal research and development expenses are presented as one total.


We incurhave incurred significant external costs to manufacture our tablet vaccine candidates, and for CROs that conduct clinical trials on our behalf.behalf, and for CMOs that manufacture our tablet vaccine candidates, although these costs have decreased since 2022 since we now perform the majority of our manufacturing activities in-house. We capturehave captured these expensesexternal costs for each vaccine program. We do not allocate external costs incurred on preclinical research or process development to specific programs.


The following table shows our period-over-period research and development expenses, identifying external costs that were incurred in each of our vaccine programs and, separately, on preclinical research and process development (in thousands):

 

 

Three Months Ended March 31,

  

Three Months Ended March 31,

 
 

2022

  

2021

  

2023

  

2022

 

External program costs:

  

Norovirus program

 $2,704  $2,199 

COVID-19 program

 $1,530  $2,939   1,678   1,530 

Norovirus program

 2,199  454 

Preclinical research

 460  422  465  460 

Process development

  610   1,106   520   610 

Total external costs

 4,799  4,921  5,367  4,799 

Internal costs

  13,404   5,152   14,255   13,404 

Total research and development

 $18,203  $10,073  $19,622  $18,203 

19

 

We expect thatto incur significant research and development expenses will increase in 20222023 and beyond as we advance our tablet vaccine candidates into and through clinical trials, pursue regulatory approval of our tablet vaccine candidates and prepare for a possible commercial launch, all of which will also require a significant investment in manufacturing and inventory related costs. To the extent that we enter into licensing, partnering or collaboration agreements, a significant portion of such costs may be borne by third parties.

 

The process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming. We may never succeed in achieving marketing approval for our tablet vaccine candidates. The probability of successful commercialization of our tablet vaccine candidates may be affected by numerous factors, including clinical data obtained in future trials, competition, manufacturing capability and commercial viability. As a result, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our tablet vaccine candidates.

 

General and Administrative Expense

 

General and administrative expenses consist of personnel costs, insurance, allocated expenses and expenses for outside professional services, including legal, audit, accounting, public relations, market research and other consulting services. Personnel costs consist of salaries, benefits and stock-based compensation. Allocated expenses consist of rent, depreciation and other facilities-relatedfacilities related expenses.

20

 

Results of Operations

 

The following table presents period-over-period changes in selected items in the condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 20222023 and 20212022 (in thousands, except percentages):

 

 

Three Months Ended March 31,

  

Three Months Ended March 31,

 
 

2022

  

2021

  

% Change

  

2023

  

2022

  

% Change

 
  

Revenue

 $85  $506  (83

)%

 $675  $85  694

%

  

Operating expenses

  24,861   16,017  55

%

  26,247   24,861   6

%

  

Operating loss

 (24,776) (15,511) 60

%

 (25,572) (24,776) 3

%

  

Net non-operating income (expense)

  (305)  (458) (33

)%

  461   (305)  (251

)%

  

Loss before income taxes

 (25,081) (15,969) 57

%

 (25,111) (25,081) 0

%

  

Provision for income taxes

  20   38  (47

)%

  29   20   45

%

  

Net loss

 $(25,101) $(16,007) 57

%

 $(25,140) $(25,101)  0

%

20

 

Total Revenue 

 

The following table summarizes our revenues for the three months ended March 31, 2022 and 2021 (in thousands, except percentages):

  

Three Months Ended March 31,

 
  

2022

  

2021

  

% Change

 

Revenue from customer service contracts

 $  $13   (100

)%

Non-cash royalty revenue related to sale of future royalties

  85   493   (83

)%

Total revenue

 $85  $506   (83

)%

Revenue from Customer Service Contracts

We earned revenue from customer service contracts of $13,000 in the three months ended March 31, 2021. This revenue was recognized from a fixed price contract executed in July 2019, as amended, for a total of $617,000, which we have now completed.

  

Three Months Ended March 31, 2023

 
  

2023

  

2022

  

% Change

 

Non-cash royalty revenue related to sale of future royalties

 $278  $85   227%

Grant revenue

  397      100%

Total revenue

 $675  $85   694

%

 

Non-cash Royalty Revenue Related to Sale of Future Royalties

For the three months ended March 31, 2022, non-cash

Non-cash royalty revenue related to sale of future royalties was $ 85,000, compared to $ 493,000 infor the three months ended March 31, 2021, the decrease being2023 and 2022, was $278,000 and $85,000, respectively. The increase was due to a reductionan increase in sales of Inavir in Japan. We do not recognize anyNon-cash royalty revenue from sales of Inavir untilup to $3.3 million may be earned each year ending March 31. The Company’s royalty revenue is seasonal, in line with the first $3 million netflu season, so the majority of 5% withholding tax in years ending on March 31 has been recognized asthe Company’s royalty revenue and non-cash royalty revenue related to sale of future royalties. We recognized no royalty revenue in the years ended March 31, 2022 and 2021, because net royalties were only $448,000 and $1.3 million, respectively. We believe royalties have been abnormally low for the last two years primarily because social distancing an mask wearing due to the COVID-19 pandemic have caused the number of influenza infections to decline. Due to the unpredictability of the impact of COVID-19 on future flu seasons we are unable to forecast the amount of royalty revenue, if any, and non-cash royalty revenue related to sale of future royalties that we will earnare earned in the future.

first and fourth fiscal quarters. 

 

21

Grant Revenue

The Company recognized $397,000 revenue from the Bill and Melinda Gates Foundation Grant in the three-months ended March 31, 2023.

 

Total Operating Expenses

 

The following table presentssummarizes the period-over-period changes in our operating expenses for the three months ended March 31, 20222023 and 20212022 (in thousands, except percentages):

 

 

Three Months Ended March 31,

  

Three Months Ended March 31,

 
 

2022

  

2021

  

% Change

  

2023

  

2022

  

% Change

 

Research and development

 $18,203  $10,073  81

%

 $19,622  $18,203  8

%

General and administrative

  6,658   5,944  12

%

  6,625   6,658   (0

)%

Total operating expenses

 $24,861  $16,017  55

%

 $26,247  $24,861   6

%

 

Research and Development

 

For the three months ended March 31,202231,2023, research and development expenses increased by $8.1$1.4 million, or 81%8%, compared to the three months ended March 31,202131,2022. The increase is primarily due to increasedincreases in personnel related costs including stock-based compensation, facilities allocation related to headcount increases, manufacturingthe reduction in workforce and increased clinical trial expenses related to our COVID-19 and norovirus vaccine candidates and higher depreciation..

 

We expect thatto incur significant research and developmentdevelopment expenses will be significantly higher in 2022 and beyond than in 2021 as we continue to increase our headcount and incur significant expenditures onfor manufacturing and clinical trials forrelated to our COVID-19 and norovirus vaccine candidates.candidates in 2023. 

 

General and Administrative

 

For the three months ended March 31, 2022,2023, general and administrative expenses increasedremained almost flat, due to an increase in personnel costs including the workforce reduction and legal fees offset mainly by $714,000, or 12%,decreases in D&O insurance and consulting expenses resulting in a reduction of $33,000 as compared to the corresponding period in 2021. The principal reasons are increased personnel costs, including stock-based compensation, partially offset by a net reduction in professional costs.three months ended March 31, 2022.

 

21

Other

Non-Operating Income (Expense)

 

The following table presentssummarizes the period-over-period changes in our non-operating income and expenses for the three months ended March 31, 20222023 and 2021,2022, respectively (in thousands, except percentages):

 

 

Three Months Ended March 31,

  

Three Months Ended March 31,

 
 

2022

  

2021

  

% Change

  

2023

  

2022

  

% Change

 

Interest income

 $35  $9  289

%

 $642  $35  1,734

%

Non-cash interest expense related to sale of future royalties

 (340) (466) (27

)%

 (178) (340) (48

)%

Foreign exchange loss, net

     (1) (100

)%

  (3)     (100)%

Net non-operating income (expense)

 $(305) $(458) (33

)%

 $461  $(305)  (251

)%

 

For the three months ended March 31, 2022,2023, we recorded net non-operating expensesinterest income of $305,000,$642,000, a 33% decrease1,734% increase from the $458,000$35,000 interest income recorded in the three months ended March 31, 2021.2022. The increase is due to an increase in interest rates on our cash, cash equivalents, restricted cash and marketable securities. 

 

Interest income increased in the three months ended March 31, 2022, compared to the three months ended March 31, 2021, due to higher investment balances. Non-cash interest expense related to sale of future royalties, which relates to accounting for amountssums that will become payable to HCRP for royalty revenue earned from Inavir as debt, decreasedwas $178,000 in the three months ended March 31, 2023, down from the $340,000 in the three months ended March 31, 2022, compared to the corresponding period in the prior year, as the outstanding balance due to HCRP was revalued ashas been paid down and remeasured. We project a further reduction in 2023 following the revaluation of December 31, 2021, resulting in a reduction of $3.8 million in the estimated liability.our liability to HCRP.

 

Provision for Income Taxes

 

The following table presentssummarizes the period-over-period changes in our provision for income taxes for the three months ended March 31, 20222023 and 2021,2022, respectively (in thousands, except percentages):

 

 

Three Months Ended March 31,

  

Three Months Ended March 31,

 
 

2022

  

2021

  

% Change

  

2023

  

2022

  

% Change

 

Foreign withholding tax on royalty revenue

 $4  $25  (84

)%

 $14  $4  250

%

Foreign taxes payable on intercompany interest

 14  13  8

%

 15  14  7

%

State income taxes

  2     N/A      2   (100

)%

Provision for income taxes

 $20  $38  (47

)%

 $29  $20   45

%

 

The provision for income taxes comprises $20,000$29,000 and $38,000$20,000 in the three months ended March 31, 20222023 and 2021,2022, respectively. The tax charge relates primarily to interest on an intercompany loan from a foreign subsidiary and a 5% withholding tax on royalty revenue earned on sales of Inavir in Japan, which is potentially recoverable as a foreign tax credit but expensed because we record a 100% valuation allowance against our deferred tax assets. The amount of income tax expense recorded is directly proportional to Inavir royalties, including the portion that we pass through to HCRP, and has declined in line with reductions in royalty revenue.

 

22

Liquidity and Capital Resources

 

Our primary source of financing is from the sale and issuance of common stock and common stock warrants in public offerings, along with proceeds from the exercise of warrants. In the past, we have also obtained funds from the issuance of secured debt and preferred stock and from collaboration agreements. In September 2021 we entered into a Controlled Equity Offering Sales Agreement (the “September 2021 ATM”), under which we may offer and sell, from time to time through sales agents, shares of our common stock having an aggregate offering price of up to $100 million. As of March 31, 2022, we had received net proceeds of $1.0 million from the sale of common stock under the September 2021 ATM. We will incur direct expenses and pay sales commissions of up to 3.0% of gross proceeds from the sale of shares under the September 2021 ATM.

 

As of March 31, 2022,2023, we had approximately $157.0 million of cash, cash equivalents and marketable securities. Since then, we have received net proceeds of $2.8$1.4 million from the sale of common stock under the September 2021 ATM withand there is approximately $92$79.0 million in net proceeds still available to us. Since March 31, 2023, we have not raised any additional capital under the September 2021 ATM and we will not raise capital under the September 2021 ATM until the registration statement on Form S-3 (SEC File No. 333-270671) that we filed with the SEC on March 17, 2023, which includes the prospectus relating to the September 2021 ATM, is declared effective by the SEC.

 

We believe our existing funds are sufficient to fund us for at least one year from the dateAs of issuanceMarch 31, 2023, we had approximately $71.8 million of this Quarterly Report. To continue operations thereafter, we expectcash, cash equivalents, restricted cash and marketable securities. Our expectation is that we will continue to generate operating losses and negative operating cash flows in the future and the need for additional funding to support our planned operations raise further capital, throughsubstantial doubt regarding our ability to continue as a going concern for a period of one year after the date that the financial statements are issued.

Management intends on completing additional financing transactions in the next twelve months. The sale of additional securities or otherwise. Our operating needs include the planned costsequity would result in additional dilution to operate our business, including amounts required to fund working capital and capital expenditures. Our future capital requirements and the adequacy of our available funds will depend on many factors, most notably our ability to successfully commercialize our products and services.

stockholders. We may fund a significant portion of our ongoing operations through partnering and collaboration agreements which, while reducing our risks and extending our cash runway, maywill also reduce our share of eventual revenues, if any, from our vaccine product candidates. We may be able to fund certain activities with assistance from government programs. The sale of additional equity would result in additional dilution to our stockholders. We may also fund our operations through debt financing, which would result in debt service obligations, and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations.

However, due to several factors, including those outside management’s control, there can be no assurance that the Company will be able to complete additional financing transactions.  If we are unable to raise additional capital in sufficient amounts or on acceptable terms, we may be requiredmanagement’s plans include further reducing or delaying operating expenses. We have concluded our plan to delay, limit,successfully reduce or terminate our product development or future commercialization efforts or grant rightsexpenses is probable and sufficient to develop and market vaccine candidates that we would otherwise prefer to develop and market ourselves. Anyalleviate substantial doubt for a period of at least 12 months from the date of issuance of these actions could harm our business, resultscondensed consolidated financial statements.

22

 

Our future funding requirements will depend on many factors, including the following:

 

 

the timing and costs of our planned preclinical studies for our product candidates;

 

 

the timing and costs of our planned clinical trials of our product candidates;

 

 

our manufacturing capabilities, including the availability of contract manufacturing organizations to supply our product candidates at reasonable cost;

 

 

the amount and timing of royalties received on sales of Inavir;

the number and characteristics of product candidates that we pursue;

 

 

the outcome, timing and costs of seeking regulatory approvals;

 

 

revenue received from commercial sales of our future products, which wouldwill be subject to receipt of regulatory approval;

 

 

the terms and timing of any future collaborations, licensing, consulting or other arrangements that we may enter into;

 

 

the amount and timing of any payments that may be required in connection with the licensing, filing, prosecution, maintenance, defense and enforcement of any patents or patent applications or other intellectual property rights; and

 

 

our ability to stay listed on Nasdaq; and

the extent to which we in-license or acquire other products and technologies.

 

23

Cash Flows

 

The following table summarizes our cash flows for the periods indicated:indicated (in thousands):

 

Three Months Ended March 31,

  

Three Months Ended March 31,

 
 

2022

  

2021

  

2023

  

2022

 
      

Net cash used in operating activities

 $(25,113) $(16,592) $(24,460) $(25,113)

Net cash provided by (used in) investing activities

 3,732  (20,559)

Net cash provided by investing activities

 25,461  3,732 

Net cash provided by financing activities

  1,040   67,592   1,420   1,040 
      

Net (decrease) increase in cash and cash equivalents

 $(20,341) $30,441 

Net increase (decrease) in cash, cash equivalents and restricted cash

 $2,421  $(20,341)

 

Net Cash Used in Operating Activities

 

VaxartWe experienced negative cash flow from operating activities for the three months ended March 31, 20222023 and 2021,2022, in the amounts of $24.5 million and $25.1 million, respectively. The cash used in operating activities in the three months ended March 31, 2023, was due to cash used to fund a net loss of $25.1 million and $16.6a decrease in working capital of $4.0 million, respectively.partially offset by adjustments for net non-cash income related to depreciation and amortization, discount of premium on investments, stock-based compensation, non-cash interest expense related to sale of future royalties and non-cash revenue related to sale of future royalties totaling $4.7 million. The cash used in operating activities in the three months ended March 31, 2022, was due to cash used to fund a net loss of $25.1 million and an increasea decrease in working capital of $4.6 million, partially offset by adjustments for net non-cash income related to depreciation and amortization, accretion of premium on investments, stock-based compensation, non-cash interest expense related to sale of future royalties and non-cash revenue related to sale of future royalties totaling $4.6 million. The cash used in operating activities in

23

Net Cash Provided by Investing Activities

In the three months ended March 31, 2021, was due2023, we received $26.7 million from maturities of marketable securities, net of purchases, and used $1.2 million to cash used to fund a net loss of $16.0 millionpurchase property and an increase in working capital of $3.0 million, partially offset by adjustments for net non-cash income related to depreciation and amortization, stock-based compensation, non-cash interest expense related to sale of future royalties and non-cash revenue related to sale of future royalties totaling $2.4 million.

Net Cash Provided by (Used in) Investing Activities

equipment. In the three months ended March 31, 2022, we received $5.1 million from maturities of marketable securities, net of purchases, and used $1.3 million to purchase property and equipment. We used $19.9 million to purchase marketable securities, net of maturities, and $615,000 to purchase property and equipment in the three months ended March 31, 2021.

 

Net Cash Provided by Financing Activities

 

In the three months ended March 31, 2023, we received net proceeds of $1.4 million from the sale of common stock under the September 2021 ATM. In the three months ended March 31, 2022, we received $992,000 from the sale of common stock under the September 2021 ATM and $48,000 from the exercise of stock options. In the three months ended March 31, 2021, we received $65.7 million from the sale of common stock under the October 2020 ATM and $1.9 million from the exercise of common stock warrants and stock options.

 

Contractual Obligations and Commercial Commitments

 

We have the following contractual obligations and commercial commitments as of March 31, 20222023 (in thousands):

Contractual Obligation

 

Total

  

< 1 Year

  

1 - 3 Years

  

3 - 5 Years

  

> 5 Years

  

Total

  

< 1 Year

  

1 - 3 Years

  

3 - 5 Years

  

> 5 Years

 
                        

Long Term Debt, HCRP

 $17,790  $836  $6,368  $5,068  $5,518  $9,899  $877  $2,218  $3,706  $3,098 

Operating Leases

  32,831  4,041  8,479  9,634  10,677   28,790  3,117  8,696  10,180  6,797 

Purchase Obligations

  20,687   20,687            7,800   7,800          

Total

 $71,308  $25,564  $14,847  $14,702  $16,195  $46,489  $11,794  $10,914  $13,886  $9,895 

 

Long Term Debt, HCRP. Under an agreement executed in 2016, we are obligated to pay HCRP the first $3 million plus 15% of the next $1 million of royalty revenues that we earn for sales of Inavir in each year ending on March 31. See Note 6 to the Condensed Consolidated Financial Statements in Part I, Item 1 for further details.

 

Operating leases. Operating lease amounts include future minimum lease payments under all our non-cancellable operating leases with an initial term in excess of one year, including a total of $14.9 million for one lease that has been executed but has not yet commenced, for which we expect to spend approximately $7 million on leasehold improvements, of which $6.8 million has either been expended already or is included in purchase obligations (see next paragraph), that will be recorded as right-of-use assets when the lease commences.year. See Note 7 to the Condensed Consolidated Financial Statements in Part I, Item 1 for further details of leases.

 

Purchase obligations. These amounts include an estimate of all open purchase orders and contractual obligations in the ordinary course of business, including commitments with contract manufacturers and suppliers for which we have not received the goods or services. We consider all open purchase orders, which are generally enforceable and legally binding, to be commitments, although the terms may afford us the option to cancel based on our business needs prior to the delivery of goods or performance of services.

 

24

options and restricted stock units (“RSUs”) to our employees. As of March 31, 2023, the unrecognized stock-based compensation cost related to outstanding unvested stock options and RSUs expected to vest was $28.1 million, which the Company expects to recognize over an estimated weighted average period of 2.6 years. See Note 10 for further details on stock-based compensation expense recognized.

 

Critical Accounting Policies and Estimates

 

Our management’s discussion and analysis of financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses. On an ongoing basis, we evaluate these estimates and judgments. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially from these estimates. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

 

Accrued Research and Development Expenses

 

We record accrued expenses for estimated costs of research and development activities conducted by third-party service providers, which include the conduct of preclinical studies and clinical trials, and contract manufacturing activities. We record the estimated costs of research and development activities based upon the estimated amount of services provided and include the costs incurred but not yet invoiced within other accrued liabilities in the condensed consolidated balance sheets and within research and development expense in the condensed consolidated statements of operations and comprehensive loss. These costs can be a significant component of our research and development expenses.

 

We estimate the amount of work completed through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fee to be paid for such services. We make significant judgments and estimates in determining the accrued balance in each reporting period. As actual costs become known, we adjust our accrued estimates.

 

24

Intangible Assets

 

Intangible assets acquired in the Merger were initially recorded at their estimated fair values of $20.3 million for developed technology related to Inavir which was, until it was revalued, being amortized on a straight-line basis over the estimated period of future royalties of 11.75 years and $1.8 million for the developed technology related to Relenza which was fully amortized over the remaining royalty periodas of 1.3 years.December 31, 2022. The developed technology related to Inavir was revalued at $10.6$5.0 million as of December 31, 2021,2022, resulting in an impairment loss of $3.0$4.3 million being recorded. The fair value is being amortized on a straight-line basis over 7.9 years, the estimated period of future royalties remaining as of December 31, 2021, when it was revalued. These valuations were prepared by an independent third party based on discounted cash flows of estimated future revenue streams, which are highly subjective, especially sincesubjective. The fair value, as reassessed as of December 31, 2022, is being amortized on a straight-line basis over the startremaining period of the COVID-19 pandemic due to the unpredictabilityfuture royalties of the duration of its impact on future flu seasons.6.6 years.

 

Stock-Based Compensation

 

We measure the fair value of all stock option awards to employees, non-executive directors and consultants on the grant date, and record the fair value of these awards, net of estimated forfeitures, as compensation expense over the service period. The fair value of options is estimated using the Black-Scholes valuation model and the expense recorded is affected by subjective assumptions regarding a number of variables, as follows:

 

Expected term – This represents the period that our stock-based awards granted are expected to be outstanding and is determined using the simplified method (the arithmetic average of its original contractual term and its average vesting term). We have very limited historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for our stock-based awards. Based on the weighted average applied to options awarded in three months ended March 31, 2022,2023, a notional 10% decrease in expected term would have reduced the fair value and the related compensation expense by approximately 2.3%2.2%.

 

Expected volatility – This is a measure of the amount by which our common stock price has fluctuated or is expected to fluctuate. We measureSince the beginning of 2020 we have measured volatility based on the historical volatility of our own stock over the retrospective period corresponding to the expected term of the options on the measurement date. Based on the weighted average applied to options awarded in three months ended March 31, 2022,2023, a notional 10% decrease in expected volatility (from 125%128% to 113%115%) would have reduced the fair value and the related compensation expense by approximately 4.4%4.2%.

 

Risk-Free Interest RateRisk-free interest rate – This is based on the U.S. Treasury yield curve on the measurement date corresponding with the expected term of the stock-based awards.

 

Expected Dividenddividend – We have not made any dividend payments and do not plan to pay dividends in the foreseeable future. Therefore, we use an expected dividend yield of zero.

 

Forfeiture Raterate – This is a measure of the number of awards that are expected to not vest and is reassessed quarterly. An increase in the estimated forfeiture rate will cause a small decrease the related compensation expense early in the service period, but since the final expense recorded for each award is the number of options vested times their grant date fair value, it has no impact on the total expense recorded.

 

Recent Accounting Pronouncements

 

See the “Recent Accounting Pronouncements” in Note 2 to the Condensed Consolidated Financial Statements in Part I, Item 1 for information related to the issuance of new accounting standards in the first three months of 2022,2023, none of which had a material impact on our condensed consolidated financial statements.

 

25

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Interest Rate Sensitivity

 

Our exposure to market risk for changes in interest rates relates primarily to our investments in marketable debt securities. The primary objective of our investment activities is to preserve principal, maintain liquidity that is sufficient to meet cash needs and maximize total return without significantly increasing risk. To achieve this goal, we maintain our excess cash and cash equivalents in money market funds and debt securities. We do not enter into investments for trading or speculative purposes and we hold no equity securities. We presently have no borrowings or lines of credit.

 

Specifically, as of March 31, 2022,2023, we had cash, cash equivalents, restricted cash and investments of approximately $157.0$71.8 million, which consist of bank deposits, money market funds, direct obligations of the U.S. government or its agencies, commercial paper and corporate bonds. All of our investments must satisfy high credit rating requirements at the time of purchase. Such interest-earning instruments carry a degree of interest rate risk, however, because our investments are rated highly and mostly short-term, we believe that our exposure to risk of loss due to interest rate changes is not significant.

 

Exchange Rate Sensitivity

 

Our royalty revenue, which is calculated in U.S. dollars, is based on sales in Japanese yen, so a 1% increase in the strength of the U.S. dollar against the yen would lead to a 1% reduction in royalty revenue. Presently, we are not retaining any cash related to our income from royalties and all ofAll our other revenue and substantially all of our expenses, assets and liabilities are denominated in U.S. dollars. Asdollars and, as a result, we have not experienced significant foreign exchange gains recently and do not anticipate that foreign exchange gains or losses recently and consider our exposure to exchange rate fluctuations towill be insignificant.

significant in the near future.

 

Item 4.  Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our President and Chief Executive Officer (who serves as our principal executive officer and principal accounting and financial officer),officer, has 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 Quarterly Report on Form 10-Q. Based on such evaluation, our management has concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2022.2023.

 

Changes in Internal Control over Financial Reporting

 

There was no material change in our internal control over financial reporting that occurred during the quarter ended March 31, 2022,2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 

Inherent Limitations on Effectiveness of Controls

 

Our management, including our Presidentprincipal executive officer and Chief Executive Officer,principal accounting and financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Vaxart have been detected.

 

26

 

PART II OTHER INFORMATION

 

 

Item 1.  Legal Proceedings

 

The information included in “Note 8. Commitments and Contingencies—(c) Litigation” to the Condensed Consolidated Financial Statements in Part I, Item 1 is incorporated by reference into this Item.

 

We may also from time to time be involved in legal proceedings arising in connection with our business. Based on information currently available, we believe that the amount, or range, of reasonably possible losses in connection with any pending actions against us in excess of established reserves, in the aggregate, is not material to our consolidated financial condition or cash flows. However, any current or future dispute resolution or legal proceeding, regardless of the merits of any such proceeding, could result in substantial costs and a diversion of management’s attention and resources that are needed to run our business successfully, and could have a material adverse impact on our business, financial condition and results of operations.

 

 

Item 1A.  Risk Factors

 

You should consider the risks and uncertainties described under Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021,2022, which we filed with the Securities and Exchange Commission on February 24, 2022,March 15, 2023, together with all other information contained or incorporated by reference in this Quarterly Report on Form 10-Q, including the risk factor described below, when evaluating our business and our prospects. Other than as set forth below, thereThere are no material changes to the risk factors set forth in Part I, Item 1A, in our Annual Report on Form 10-K for the year ended December 31, 2021.2022. We have marked with an asterisk (*) those risks described below that reflect additions to the risks described in our Annual Report on Form 10-K for the year ended December 31, 2022.

 

* Our failure to meet the continued listing requirements of The ongoing military conflict between Russia and UkraineNasdaq Capital Market could cause geopolitical instability, economic uncertainty, financial markets volatility and capital markets disruption, which may adversely affectresult in a delisting of our revenue, financial condition, or results of operations.common stock.

 

Our common stock is listed on The current military conflict between RussiaNasdaq Capital Market, which imposes, among other requirements a $1.00 minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2). Our common stock traded for less than $1.00 for 30 consecutive trading days, and Ukrainewe received notice of this from the Listing Qualifications Department of The Nasdaq Stock Market on March 27, 2023. Under Nasdaq Listing Rule 5810(c)(3)(A), we were granted a 180 calendar day grace period, or until September 25, 2023, to regain compliance with the minimum bid price requirement. The minimum bid price requirement would be met if our common stock had a minimum closing bid price of at least $1.00 per share for a minimum of ten consecutive business days during the 180 calendar day grace period. If at any time during this 180 calendar day period the bid price of the Company’s common stock closes at or above $1.00 per share for a minimum of ten consecutive business days, the Nasdaq staff stated that it will provide the Company with a written confirmation of compliance and the matter will be closed. However, under Nasdaq Listing Rule 5810(c)(3)(A), the Nasdaq staff may disruptexercise its discretion to extend this ten day period as discussed in Rule 5810(c)(3)(H).

Alternatively, if we fail to regain compliance with Rule 5550(a)(2) prior to the expiration of the initial 180 calendar day period, we may be eligible for an additional 180 calendar day compliance period, provided (i) we meet the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on The Nasdaq Capital Market (except for the $1.00 minimum bid price requirement) and (ii) we provide written notice to Nasdaq of our intention to cure this deficiency during the second compliance period by effecting a reverse stock split, if necessary. In the event we do not regain compliance with Rule 5550(a)(2) prior to the expiration of the initial 180 calendar day period, and if it appears to the Staff that we will not be able to cure the deficiency, or if we are not otherwise adversely impacteligible, the Staff stated that it will provide us with written notification that our operations and thosesecurities are subject to delisting from The Nasdaq Capital Market. At that time, we may appeal the delisting determination to a Hearings Panel. There can be no assurance that we will be able to regain compliance or that Nasdaq will grant us a further extension of third parties upon which we rely. Related sanctions, export controls or other actions that have already been initiated ortime to regain compliance, if necessary.

The delisting of our common stock from Nasdaq may make it more difficult for us to raise capital on favorable terms in the future, or at all. Such a delisting would likely have a negative effect on the price of our common stock and would impair our stockholders’ ability to sell or purchase our common stock when they wish to do so. Further, if our common stock were to be initiated by nations including the U.S., the European Union or Russia (e.g., potential cyberattacks, disruption of energy flows, etc.) can adversely affectdelisted from The Nasdaq Capital Market, our business, our contract research organizations, contract manufacturing organizationscommon stock would cease to be recognized as a covered security and other third parties withwe would be subject to additional regulation in each state in which we conduct business. Resulting volatility, disruption,offer our securities. Moreover, there is no assurance that any actions that we take to restore our compliance with the Nasdaq minimum bid requirement would stabilize the market price or deteriorationimprove the liquidity of our common stock, prevent our common stock from falling below the Nasdaq minimum bid price required for continued listing again, or prevent future non-compliance with Nasdaq’s listing requirements.

There can be no assurance that we will continue to meet the minimum bid price requirement, or any other requirement in the creditfuture. If we fail to meet the minimum bid price requirement, or other applicable Nasdaq listing requirements, including maintaining minimum levels of stockholders’ equity or market values of our common stock, our common stock could be delisted. If our common stock were to be delisted, the liquidity of our common stock would be adversely affected, and financial markets may further make any necessary debtthe market price of our common stock could decrease.

* Unless our common stock continues to be listed on a national securities exchange it will become subject to the so-called penny stock rules that impose restrictive sales practice requirements.

If we are unable to maintain the listing of our common stock on Nasdaq or equity financing more difficult and more costly. Failureanother national securities exchange, our common stock could become subject to secure any necessary financing in a timely manner and on favorable terms couldthe so-called “penny stock” rules if the shares have a material adverse effectmarket value of less than $5.00 per share. The SEC has adopted regulations that define a penny stock to include any stock that has a market price of less than $5.00 per share, subject to certain exceptions, including an exception for stock traded on our growth strategy, financial performancea national securities exchange. The SEC regulations impose restrictive sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and stock“accredited investors” as defined by relevant SEC rules. These additional requirements may discourage broker-dealers from effecting transactions in securities that are classified as penny stocks, which could severely limit the market price and could require usliquidity of such securities and the ability of purchasers to delay or abandon clinical development plans. In addition, there is a risksell such securities in the secondary market. This means that one or moreif we are unable maintain the listing of our current service providers, manufacturers and other partners maycommon stock on a national securities exchange, the ability of stockholders to sell their common stock in the secondary market could be adversely impacted by deteriorating economic conditions, which could directly affect our ability to attain our operating goals and to accurately forecast and plan our future business activities.affected.

 

If a transaction involving a penny stock is not exempt from the SEC’s rule, a broker-dealer must deliver a disclosure schedule relating to the penny stock market to each investor prior to a transaction. The broker-dealer also must disclose the commissions payable to both the broker-dealer and its registered representative, current quotations for the penny stock, and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the customer’s account and information on the limited market in penny stocks.

27

 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

 

Not applicable.

 

 

Item 3.  Defaults Upon Senior Securities

 

Not applicable.

 

 

Item 4.  Mine Safety Disclosures

 

Not applicable.

 

 

Item 5.  Other Information

 

Not applicable.On May 2, 2023, the Company’s board of directors approved and adopted a new Code of Conduct applicable to all directors, officers, and employees of the Company. As described in the Code of Conduct, the Company also expects its agents and representatives, including consultants, to observe the Code of Ethics’s standards when conducting business with and for the Company. The foregoing description of the Code of Ethics does not purport to be complete and is qualified in its entirety by reference to the full text of the Code of Ethics, a copy of which is filed herewith as Exhibit 14.1 and incorporated herein by reference.

On May 2, 2023, the Company’s board of directors approved an amendment to Mr. Floroiu’s offer letter dated as of June 14, 2020 (the “CEO Offer Letter”).  The amendment increases his “Non-CiC Severance Period”, as defined in the Vaxart, Inc. Severance Benefit Plan (the “Severance Plan”) from 3 months to 6 months, and increases his “CiC Severance Period”, as defined in the Severance Plan, from 6 months to 12 months. In addition, the Company’s board of directors amended the Severance Plan, which provides severance protections to our officers, including our named executive officers, to clarify that the “Non-CiC Severance Period”, as defined in the Severance Plan, is 6 months for all participants, and that the “CiC Severance Period”, as defined in the Severance Plan, is 12 months for all participants. The amendment to the Severance Plan did not increase the severance multiples applicable to our named executive officers other than the Chief Executive Officer.

The foregoing descriptions are qualified in their entirety by reference to the amendments to the CEO Offer Letter and the Severance Plan, copies of which are attached hereto as Exhibit 10.1 and Exhibit 10.2, respectively, and are incorporated herein by reference.

  

2728

 

Item 6.  Exhibits

 

 

Incorporated by Reference

 

Incorporated by Reference

Exhibit
Number

Description of Document

Schedule/Form

File
Number

Exhibit

Filing Date

Description of Document

Schedule/Form

File
Number

Exhibit

Filing Date

          
3.1Certificate of Amendment to Restated Certificate of Incorporation of Vaxart, Inc.Form 8-K001-352853.1April 24, 2019Certificate of Amendment to Restated Certificate of Incorporation of Vaxart, Inc.Form 8-K001-352853.1April 24, 2019
          
3.2Certificate of Amendment to Restated Certificate of Incorporation of Vaxart, Inc.Form 8-K001-352853.1June 9, 2020Certificate of Amendment to Restated Certificate of Incorporation of Vaxart, Inc.Form 8-K001-352853.1June 9, 2020
          
3.3Amended and Restated Bylaws of Vaxart, Inc., effective as of April 7, 2021Form 8-K001-352853.1April 13, 2021Certificate of Amendment to Restated Certificate of Incorporation of Vaxart, Inc.Form 10-Q001-352853.3August 8, 2022
          
10.1 #Offer Letter, dated January 18, 2022, by and between the Company and Edward BergForm 10-K001-3528510.46February 24, 2022
3.4Amended and Restated Bylaws of Vaxart, Inc., effective as of April 7, 2021Form 8-K001-352853.1April 13, 2021
          
10.2 * #Non-Employee Director Compensation Program, effective as of April 1, 2022    
10.1 *Amendment to Letter Agreement dated May 2, 2023 between Andrei Floroiu and Vaxart, Inc.    
     
10.2 #*Amendment to the Vaxart, Inc. Severance Benefit Plan dated May 2, 2023    
     
14.1 *Code of Conduct    
          

31.1 *

Certification of Principal Executive and Financial Officer pursuant to Exchange Act Rule, 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

    

Certification of Principal Executive Officer pursuant to Exchange Act Rule, 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

    
     
31.2 *Certification of Principal Financial Officer pursuant to Exchange Act Rule, 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002    
          
32.1 §Certification of Principal Executive and Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002    Certification of Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002    
          

101.INS *

Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document    Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document    
          
101.SCH *Inline XBRL Taxonomy Extension Schema Document    Inline XBRL Taxonomy Extension Schema Document    
          
101.CAL *Inline XBRL Taxonomy Extension Calculation Linkbase Document    Inline XBRL Taxonomy Extension Calculation Linkbase Document    
          
101.DEF *Inline XBRL Taxonomy Extension Definition Linkbase Document    Inline XBRL Taxonomy Extension Definition Linkbase Document    
          
101.LAB *Inline XBRL Taxonomy Extension Label Linkbase Document    Inline XBRL Taxonomy Extension Label Linkbase Document    
          
101.PRE *Inline XBRL Taxonomy Extension Presentation Linkbase Document    Inline XBRL Taxonomy Extension Presentation Linkbase Document    
          
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)    Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)    
     
     
*Filed herewith    
     
#Management contract or compensation plan or arrangement    
     

§

In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release Nos. 33-8238 and 34-47986, Final Rule: Management’s Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certification furnished in Exhibit 32.1 hereto is deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Exchange Act. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

*Filed herewith.
#Management contract or compensation plan or arrangement.

§

In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release Nos. 33-8238 and 34-47986, Final Rule: Management’s Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certification furnished in Exhibit 32.1 hereto is deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Exchange Act. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

 


 

2829

 

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, thereunto duly authorized.

 

 

  

VAXART, INC.

 
    
Dated: May 4, 2023 By:  /s/ ANDREI FLOROIU 
  Andrei Floroiu

President and Chief Executive Officer
(Principal Executive Officer) 
    

Dated: May 9, 20224, 2023

 

By:  /s/ ANDREI FLOROIUPHILLIP LEE

 
  

Andrei FloroiuPhillip Lee

 
  

President and Chief ExecutiveFinancial Officer

 
  

(Principal Executive OfficerFinancial and Principal FinancialAccounting Officer)

 
  

 

 

 

2930