ICOSAVAX, INC. The following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this Annual Report. This discussion and analysis and other parts of this Annual Report contain forward-looking statements based upon current beliefs, plans and expectations that involve risks, uncertainties and assumptions, such as statements regarding our plans, objectives, expectations, intentions and projections. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth in the section titled "Risk Factors" and elsewhere in this Annual Report. You should carefully read the "Risk Factors" section of this Annual Report to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section titled "Forward-Looking Statements and Market Data."
Overview
We are a biopharmaceutical company leveraging our innovative virus-like particle
(VLP) platform technology to develop vaccines against infectious diseases, with
an initial focus on life-threatening respiratory diseases. Our VLP platform
technology is designed to enable multivalent, particle-based display of complex
viral antigens, which we believe will induce broad, robust, and durable
protection against the specific viruses targeted. Our pipeline includes vaccine
candidates targeting some of the most prevalent viral causes of pneumonia. We
are developing these candidates for older adults, a patient population with high
unmet need. Our vaccine candidate IVX-A12 is a bivalent candidate, or a mixture
of two different VLP candidates. IVX-A12 combines IVX-121, a vaccine candidate
designed to target respiratory syncytial virus (RSV), and IVX-241, a vaccine
candidate designed to target human metapneumovirus (hMPV). There are currently
no vaccines approved for either RSV or hMPV, which are two common causes of
pneumonia in older adults. We initiated a clinical trial of IVX-121 in
We are developing additional vaccine candidates as part of our strategy to
develop combination VLP vaccines targeting the viral causes of pneumonia in
older adults. We are conducting a Phase 1/2 clinical trial of our coronavirus
disease 2019 (COVID-19) candidate IVX-411 in
We commenced our operations in 2017 and have devoted substantially all of our
resources to date to organizing and staffing our company, business planning,
raising capital, in-licensing intellectual property rights, developing vaccine
candidates, scaling up manufacturing of vaccine candidates, and preparing for
our preclinical studies and current and planned clinical trials. Our operations
to date have been funded primarily through the sale and issuance of convertible
preferred stock and our common stock, generating net proceeds of
We have incurred significant operating losses since inception. Our net losses
for the years ended
108
--------------------------------------------------------------------------------
Based on our current operating plan, we believe that our existing cash and restricted cash will be sufficient to fund our operations through at least 2024. We have never generated any revenue from product sales and do not expect to generate any revenues from product sales unless and until we successfully complete development of and obtain regulatory approval for our vaccine candidates, which will not be for several years, if ever. As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from sales of our vaccine candidates, if ever, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including potential collaborations, licenses, and other similar arrangements. However, we may not be able to raise additional funds or enter into such other arrangements when needed or on favorable terms, or at all. If we are unable to raise additional capital or enter into such arrangements when needed, we could be forced to delay, limit, reduce or terminate our research and development programs or future commercialization efforts, or grant rights to develop and market our vaccine candidates to third parties where we might otherwise prefer to develop and market such vaccine candidates ourselves.
COVID-19
The global COVID-19 pandemic continues to evolve, and we will continue to monitor the COVID-19 situation closely. The extent of the impact of the COVID-19 pandemic on our business, operations and clinical development timelines and plans remains uncertain, and will depend on certain developments, including its impact on our clinical trial enrollment, trial sites, manufacturers, contract research organizations (CROs) and other third parties with whom we do business, as well as its impact on regulatory authorities and our key scientific and management personnel. The ultimate impact of the COVID-19 pandemic, including the impact of new variants of the virus that causes COVID-19, or a similar health epidemic is highly uncertain and subject to change. To the extent possible, and consistent with applicable guidance from federal, state and local authorities, we are conducting business as usual, with necessary or advisable modifications to employee travel. We will continue to actively monitor the evolving situation related to COVID-19 and may take further actions that alter our operations, including those that may be required by federal, state or local authorities, or that we determine are in the best interests of our employees and other third parties with whom we do business. At this point, the extent to which the COVID-19 pandemic may affect our business, operations and development timelines and plans, including the resulting impact on our expenditures and capital needs, remains uncertain and is subject to change.
Components of Results of Operations
Grant Revenue
To date, we have not generated any revenues from the commercial sale of approved
products, and we do not expect to generate revenues from the commercial sale of
our vaccine candidates for at least the foreseeable future, if ever. For the
years ended
Operating Expenses
Research and Development
Research and development expenses consist primarily of external and internal costs related to the development of vaccine candidates. Research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received.
External costs include:
?
expenses incurred in connection with research, laboratory consumables and preclinical studies;
?
expenses incurred in connection with conducting clinical trials and site payments for time and pass-through expenses and expenses incurred under agreements with CROs, other vendors, or service providers engaged to conduct our trials;
?
expenses incurred in connection with manufacturing of our vaccine candidates and related intermediates under agreements with contract development and manufacturing organizations or other service providers;
?
the cost of consultants engaged in research and development related services and the cost to manufacture vaccine candidates for use in our preclinical studies and clinical trials;
109
--------------------------------------------------------------------------------
?
costs related to regulatory compliance; and
?
the cost of annual license fees and milestone payments under our license agreements.
Internal costs include: ?
employee-related expenses, including salaries, related benefits, travel and stock-based compensation expenses for employees engaged in research and development functions; and
?
facilities, depreciation and other expenses, which include allocated expenses for rent and maintenance of facilities, insurance and supplies.
Research and development activities are central to our business model. There are numerous factors associated with the successful development and regulatory approval of any of our vaccine candidates, including future trial design and various regulatory requirements, as well as the safety and efficacy of our vaccine candidates, which cannot be determined with accuracy at this time. We may never succeed in obtaining regulatory approval for any of our vaccine candidates. Vaccine candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our vaccine candidates. In addition, we cannot forecast which vaccine candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements. However, we expect that our research and development expenses will increase substantially in connection with our planned preclinical and clinical development activities in the near term and in the future.
Our future development costs may vary significantly based on factors such as:
?
the number and scope of preclinical and regulatory filing-enabling studies;
?
the number of trials required for approval;
?
the number of sites included in the trials;
?
the countries in which the trials are conducted;
?
the length of time required to enroll eligible patients;
?
the number of patients that participate in the trials;
?
the number of doses evaluated in the trials;
?
the costs and timing of manufacturing our vaccine candidates;
?
the drop-out or discontinuation rates of clinical trial subjects;
?
potential additional safety monitoring requested by regulatory agencies;
?
the duration of subject participation in the trials and follow-up;
?
the phase of development of the vaccine candidate;
?
the impact of any interruptions to our operations or to those of the third parties with whom we work due to the ongoing COVID-19 pandemic; and
?
the efficacy and safety profile of the vaccine candidate.
General and Administrative
General and administrative expenses consist of personnel-related costs,
including salaries, payroll taxes, employee benefits, and stock-based
compensation charges for personnel in executive, finance and other
administrative functions. Other significant costs include facility-related
costs, legal fees relating to intellectual property and corporate matters,
professional fees for accounting and consulting services, and insurance costs.
We anticipate that our general and administrative expenses will increase
substantially for the foreseeable future to support our continued research and
development activities, pre-commercial preparation activities for our vaccine
candidates, and, if any vaccine candidate receives marketing approval,
commercialization activities. We also anticipate increased expenses related to
audit, legal, regulatory, and tax-related services associated with maintaining
compliance with exchange listing and
Change in Fair Value of Derivative Liability
We issued a convertible promissory note in
110
--------------------------------------------------------------------------------
estimated fair value at each reporting date, with any related changes in fair
value recorded as change in fair value of derivative liability in our statements
of operations and comprehensive loss. The convertible promissory note converted
into 2,805,850 shares of our Series B-2 convertible preferred stock in
Prior to the conversion of the convertible promissory note into our Series B-2
convertible preferred stock in
Loss on Extinguishment of Convertible Promissory Note
We recorded a loss on extinguishment of convertible promissory note of
Interest and Other Income (Expense)
Interest income consists of interest income earned on interest bearing demand accounts.
Interest expense consisted of interest on our outstanding convertible promissory
note at a per annum interest rate of 6.0% and non-cash interest expense related
to discount amortization prior to its conversion into shares of our Series B-2
convertible preferred stock in
Results of Operations
Comparison of the Years Ended
The following table summarizes our results of operations for the years ended
Year Ended
December 31,
2021 2020 Change
Grant revenue $ 7,802 $ 1,616 $ 6,186
Operating expenses:
Research and development 38,776 17,667 21,109
General and administrative 34,887 2,659 32,228
Total operating expenses 73,663 20,326 53,337
Loss from operations (65,861 ) (18,710 ) (47,151 )
Other income (expense)
Change in fair value of embedded derivative
liability (205 ) 187 (392 )
Loss on extinguishment of convertible
promissory note (754 ) - (754 )
Interest and other expense (151 ) (331 ) 180
Total other expense (1,110 ) (144 ) (966 )
Net loss and comprehensive loss $ (66,971 ) $ (18,854 ) $ (48,117 ) Grant Revenue
We recognized revenue from the Grant Agreement of
Research and Development Expenses
Research and development expenses were
111
--------------------------------------------------------------------------------
We track outsourced development, outsourced personnel costs and other external
research and development costs of specific programs. We do not track our
internal research and development costs on a program-by-program basis. Research
and development expenses are summarized by program in the table below (in
thousands):
Year Ended
December 31,
2021 2020
RSV-hMPV $ 12,484 $ 12,830
SARS-CoV-2 13,487 1,415
Unallocated research and development expense 12,805 3,422
Total research and development expense
General and Administrative Expenses
General and administrative expenses were
Other Income (Expense)
Other income (expense) was expense of
Liquidity and Capital Resources
We have incurred significant operating losses since our inception and anticipate
we will continue to incur significant operating losses for the foreseeable
future as we continue to develop our current and future vaccine candidates, and
may never become profitable. Since our inception, we have funded our operations
primarily through the sale of our convertible preferred stock and common stock.
In
Funding Requirements
Based on our current operating plan we believe that our existing cash and restricted cash will be sufficient to meet our anticipated operating expenses and capital expenditures through at least 2024. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect. Additionally, the process of testing vaccine candidates in clinical trials is costly, and the timing of progress and expenses in these trials is uncertain.
Our future capital requirements will depend on many factors, including:
?
the initiation, type, number, scope, results, costs and timing of, our ongoing and planned clinical trials and preclinical studies or clinical trials of other potential vaccine candidates we may choose to pursue in the future, including feedback received from regulatory authorities;
?
the costs and timing of manufacturing for current or future vaccine candidates, including commercial scale manufacturing if any vaccine candidate is approved;
?
the costs, timing and outcome of regulatory review of current or future vaccine candidates;
?
any delays and cost increases that may result from the COVID-19 pandemic;
?
the costs of obtaining, maintaining and enforcing our patents and other intellectual property rights;
112
--------------------------------------------------------------------------------
?
our efforts to enhance operational systems and hire additional personnel to satisfy our obligations as a public company, including enhanced internal controls over financial reporting;
?
the costs associated with hiring additional personnel and consultants as our business grows, including additional executive officers and clinical development personnel;
?
the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements;
?
the timing and amount of the milestone or other payments we must make to current and future licensors;
?
the costs and timing of establishing or securing sales and marketing capabilities if current or future vaccine candidate is approved;
?
our ability to achieve sufficient market acceptance, coverage and adequate reimbursement from third-party payors and adequate market share and revenue for any approved products;
?
patients' willingness to pay out-of-pocket for any approved products in the absence of coverage and/or adequate reimbursement from third-party payors; and
?
costs associated with any products or technologies that we may in-license or acquire.
Our existing cash and restricted cash will not be sufficient to complete development of IVX-A12, IVX-411, an influenza vaccine candidate, or any other vaccine candidate. Accordingly, we will be required to obtain further funding to achieve our business objectives.
Until such time, if ever, as we can generate substantial product revenues to support our cost structure, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including potential collaborations, licenses, and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, or other similar arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or vaccine candidates or grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our vaccine candidates to third parties where we might otherwise prefer to develop and market such vaccine candidates ourselves.
Cash Flows
The following table sets forth a summary of the net cash flow activity for each of the periods set forth below (in thousands):
Year Ended
December 31,
2021 2020
Net cash (used in) provided by
Operating activities $ (38,540 ) $ (14,208 )
Investing activities (1,006 ) (11 )
Financing activities 304,772 6,638
Net change in cash and restricted cash
Operating Activities
Net cash used in operating activities for the year ended
113
--------------------------------------------------------------------------------
Net cash used in operating activities for the year ended
Investing Activities
Net cash used in investing activities for the years ended
Financing Activities
Net cash provided by financing activities for the year ended
Net cash provided by financing activities for the year ended
Contractual Obligations and Commitments
We had no contractual obligations and commitments as of
Under our license agreements, we have milestone payment obligations that are
contingent upon the achievement of specified development, regulatory, and
commercial sales milestones and are required to make certain royalty payments in
connection with the sale of products developed under the agreements. As of
We enter into contracts in the normal course of business for contract research services, contract manufacturing services, professional services and other services and products for operating purposes. These contracts generally provide for termination after a notice period, and, therefore, are cancelable contracts and not included as contractual obligations herein.
Critical Accounting Policies and Significant Judgments and Estimates
Our financial statements are prepared in accordance with generally accepted
accounting principles in
While our significant accounting policies are more fully described in Note 2 to our audited financial statements included elsewhere in this Annual Report, we believe that the following accounting policies are the most critical for fully understanding and evaluating our financial condition and results of operations.
114
--------------------------------------------------------------------------------
We are required to estimate our obligations for expenses incurred under contracts with vendors, consultants and CROs, in connection with conducting research and development activities. The financial terms of these contracts vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided under such contracts. We reflect research and development expenses in our financial statements by recognizing those expenses in the periods in which services and efforts are expended. We account for these expenses according to the progress of the preclinical study or clinical trial as measured by the timing of various aspects of the study, trial or related activities. We determine accrual estimates through review of the underlying contracts along with preparation of financial models taking into account discussions with research and other key personnel as to the progress of studies or trials, or other services being conducted. During the course of a study or trial, we adjust our rate of expense recognition if actual results differ from our estimates.
Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, it could result in us reporting amounts that are too high or too low in any particular period. To date, there have been no material differences between our estimates of such expenses and the amounts actually incurred.
Fair Value of Derivative Liability and Convertible Promissory Note
We adjusted the carrying value of the derivative liability that was bifurcated
from our convertible promissory note to the estimated fair value at each
reporting date, with any related increases or decreases in the fair value
recorded as change in fair value of derivative liability in the statements of
operations. There were significant judgments and estimates inherent in the
determination of the fair value of these liabilities. If we had made different
assumptions including, among others, those related to the timing and probability
of various financing scenarios, discount rates, volatilities and exit
valuations, the carrying values of our derivative liability and convertible
promissory note, and our net loss and net loss per share of common stock could
have been significantly different. The derivative liability was settled in
Stock-Based Compensation Expense
Stock-based compensation expense represents the cost of the grant date fair value of employee, officer, director and non-employee stock options. We estimate the fair value of stock options on the date of grant using the Black-Scholes option pricing model and recognize the expense over the requisite service period of the awards, which is generally the vesting period, on a straight-line basis. We account for forfeitures when they occur and reverse any compensation cost previously recognized for awards for which the requisite service has not been completed, in the period that the award is forfeited.
See Note 2 to our audited financial statements included elsewhere in this Annual Report for more information concerning certain of the specific assumptions we used in applying the Black-Scholes option pricing model to determine the estimated fair value of our stock options. The Black-Scholes option pricing model uses inputs which are assumptions that generally require judgment. For example, before our IPO, we estimated the fair value of the common stock underlying our stock-based awards on each grant date using valuation approaches appropriate for privately held companies that involved significant judgment. Also given our limited history of common stock price data, we derive the expected volatility of our common stock price from the average historical volatilities of comparable publicly traded companies within our peer group. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our stock-based compensation could be materially different.
Income Taxes
We are subject to corporate
Utilization of the net operating loss carryforwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions.
115
--------------------------------------------------------------------------------
This annual limitation may result in the expiration of net operating losses and credits before utilization. We have not performed an analysis to determine the limitation of our net operating loss carryforwards.
We estimate our income tax provision, including deferred tax assets and
liabilities, based on management's judgment. We record a valuation allowance to
reduce our deferred tax assets to the amounts that are more likely than not to
be realized. We consider future taxable income, ongoing tax planning strategies
and our historical financial performance in assessing the need for a valuation
allowance. Due to the uncertainty surrounding the realization of deductible tax
attributes in future tax returns, we have recorded a valuation allowance against
our net deferred tax assets as of
We record liabilities related to uncertain tax positions in accordance with the guidance that clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements by prescribing a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.
As an emerging growth company under the JOBS Act, we can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. We intend to rely on other exemptions provided by the JOBS Act, including without limitation, not being required to comply with the auditor attestation requirements of Section 404(b) of Sarbanes-Oxley. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
We will remain an emerging growth company until the earliest of (i) the last day
of the fiscal year following the fifth anniversary of the consummation of our
IPO, (ii) the last day of the fiscal year in which we have total annual gross
revenue of at least
We are also a smaller reporting company as defined in the Exchange Act. We may
continue to be a smaller reporting company even after we are no longer an
emerging growth company. We may take advantage of certain of the scaled
disclosures available to smaller reporting companies and will be able to take
advantage of these scaled disclosures for so long as our voting and non-voting
common stock held by non-affiliates is less than
Recent Accounting Pronouncements
See Note 2 to our audited financial statements included elsewhere in this Annual Report for recent accounting pronouncements.
Off-Balance Sheet Arrangements
During the periods presented we did not have, nor do we currently have, any
off-balance sheet arrangements as defined under
© Edgar Online, source
