VAXART, INC. 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 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 theSEC onFebruary 25, 2021 . 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. 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 theSEC , 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 SARS-CoV-2, (the virus that causes coronavirus
disease 2019 ("COVID-19")), norovirus (a widespread cause of acute
gastro-intestinal enteritis), seasonal influenza and respiratory syncytial virus
("RSV") (a common cause of respiratory tract infections). We have completed
human dosing for our Phase 1 clinical trial for our SARS CoV-2 vaccine candidate
that commenced in October 2020 and met its primary and secondary endpoints.
Three Phase 1 human studies for our norovirus vaccine candidate have been
completed, including a study with a bivalent norovirus vaccine which, as we
disclosed in September 2019 , met its primary and secondary endpoints. Our
monovalent H1 influenza vaccine generated protective immunity, similar to a
licensed intramuscular vaccine, against H1 influenza infection in a Phase 2
challenge study. In addition, we are developing our first therapeutic vaccine
targeting cervical cancer and dysplasia caused by human papillomavirus ("HPV").
For the current Good Manufacturing Practice ("cGMP") manufacturing of our
candidate vaccines we are using both internal capacity and third-party
manufacturers. In addition, we are developing the vaccine programs currently in
our pipeline, including the bivalent norovirus vaccine program, our seasonal flu
vaccine, and the Universal Influenza vaccine collaboration with Janssen Vaccines
& Prevention B.V . ("Janssen") while also exploring partnership
opportunities. Finally, we are focusing on the development of a coronavirus
vaccine candidate utilizing our proprietary oral vaccine platform. Pending
licensing, partnering or collaboration agreements, our RSV and HPV programs are
currently on hold.
Vaxart Biosciences, Inc. was originally incorporated in California in
March 2004 , under the name West Coast Biologicals, Inc. and changed its name to
Vaxart, Inc. ("Private Vaxart"), in July 2007 , and 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 continues to present a substantial public health and economic challenge around the world and is affecting employers, employees, patients, communities and business operations, as well as theU.S. economy and financial markets. The full extent to which the continuing severity and magnitude of the COVID-19 outbreak will directly or indirectly impact our business, operations and financial condition will depend on future developments that remain 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, the success of worldwide vaccination efforts 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 continue 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 sincemid-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 emergence of coronavirus strains with mutated S proteins which are more contagious. 18 --------------------------------------------------------------------------------
Our Product Pipeline
The following table outlines the status of our oral vaccine development programs:
[[Image Removed: pipelineqone.jpg]]
1. Bivalent GI.1 - GII.4 Norovirus vaccine generated IgA ASC response rates of
78 - 86% for GI.1 and 90 - 93% for GII.4. Program restarted with second
dosing.
2. Monovalent H1 flu vaccine completed Phase 2 Proof of Concept efficacy study.
Quadrivalent flu Phase 1 on hold pending partnering process.
3. Janssen collaboration. Janssen had an option to negotiate an exclusive license.
4. RSV program to be partnered with new antigen partner, pending which the
program is on hold.
5. HPV therapeutic pre-IND feedback received. Program presently on hold.
We are developing the following tablet vaccine candidates, which are based on our proprietary platform:
? Coronavirus Vaccine. We are developing an oral tablet vaccine to protect
against SARS-CoV-2 infection, the virus that causes COVID-19. 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 be the
mucosal immune responses, as coronavirus is primarily an infection of 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 T cells against conserved epitopes may have significant
advantages.
According to the U.S. Centers for Disease Control and Prevention (the "CDC"), in
late 2019 an outbreak of COVID-19, caused by the virus SARS-CoV-2, began in
Wuhan, China . The disease spread rapidly and person-to-person transmission has
been widely documented. Stay-at-home orders or similar mandates were issued in
all 50 states in the U.S. and throughout Europe and restrictions on certain
activities, especially those involving large gatherings of people, remain in
place, with regional variations. By May 5, 2021 , more than 155 million COVID-19
cases had been identified in over 200 countries and territories worldwide,
including the United States , where the CDC had reported over 32.3 million
infections and 575,000 deaths.
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. On October 13, 2020 , we announced
that Phase 1 clinical testing had commenced and on 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. We
plan to commence a Phase 2a study in the third quarter of 2021, with 24
participants aged 18 to 55 and 24 participants aged 56 to 75 years old, to
further evaluate safety and immunogenicity and to assess optimal dosage.
? Norovirus Vaccine. We are developing an oral tablet vaccine for norovirus, a
leading cause of acute gastroenteritis in
Because norovirus infects the small intestine, we believe that our vaccine,
which is designed to generate mucosal antibodies locally in the intestine in
addition to systemic antibodies in the blood, may better protect against
norovirus infection than an injectable vaccine. Clinical evidence that
vaccines based on our platform technology can protect against infection is
described in the "Seasonal Influenza Vaccine" section below. Recently, weresumed this program by adding a second dose, which will be administered to
participants in the Phase 1b norovirus trial more than 12 months after their
first vaccination.
19-------------------------------------------------------------------------------- Norovirus is the leading cause of acute gastroenteritis symptoms, such as vomiting and diarrhea, among people of all ages inthe 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 theCDC andJohns 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 includingthe United States ,Europe andJapan . An update by the lead authors estimated the burden in theU.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. Clinical Trial Update. 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.Vaxart's bivalent vaccine 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, and 86% and 90%, respectively, for the two monovalent cohorts of the study. There was no interference observed in the bivalent arm of the study. Having suspended our norovirus program in late 2019, we resumed clinical development of our norovirus vaccine candidate inOctober 2020 . We are currently completing the boost phase (second dose after 1 year) in the Phase 1b bivalent study. The next steps in the clinical development of our norovirus oral vaccine will include (i) the initiation of a Phase 1b placebo-controlled, dose ranging study in elderly adult subjects, and (ii) initiation of a boost (second dose) schedule optimization study in young adults. Additionally, a Phase 2 safety and dose confirmation study withVaxart's bivalent norovirus vaccine in subjects age 18 years and older is being planned. Lastly, the feasibility of a Phase 2 norovirus challenge study may also be considered; this study would possibly be conducted in parallel with the Phase 2 dose confirmation study. These set of studies would 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 of the Phase 3 pivotal efficacy study in adults over 18 years of age.
? Seasonal Influenza Vaccine. Influenza is a major cause of morbidity and
mortality in the
eligible
vaccination rates among adults between ages 18 and 49. We believe our oral
tablet vaccine 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 theU.S. alone, according to theCDC . Very young children and the elderly are at the greatest risk. Inthe United States , between 5% and 20% of the population contracts influenza, 226,000 people are hospitalized with complications of influenza, and between 3,000 and 49,000 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 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. 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 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 may be manufactured more rapidly than vaccines manufactured using egg-based methods by using recombinant methods; and (iv) using our tablet vaccine in lieu of egg-based vaccines would eliminate the risk of experiencing allergic reactions to egg protein. InSeptember 2018 , we completed a$15.7 million contract with theU.S. Government through theDepartment 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 had announced that, in healthy volunteers immunized and then experimentally infected with H1 influenza, our H1 influenza oral tablet vaccine 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 also showed a favorable safety profile, indistinguishable from placebo. OnOctober 4, 2018 , we presented data from the study demonstrating that our vaccine 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. This data also indicates that our vaccines 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. At this time, we aim to finance development and commercialization of our seasonal quadrivalent influenza oral tablet vaccine through third-party collaboration and licensing arrangements and/or non-dilutive funding. In the future, we may also consider equity offerings and/or debt financings to fund the program. Pending a licensing, partnering or collaboration agreement, the seasonal flu program is currently on hold. 20 -------------------------------------------------------------------------------- In addition to our conventional seasonal flu vaccine, we entered into a research collaboration agreement with Janssen 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. Janssen had an option to negotiate an exclusive worldwide license to our technology encompassing the Janssen antigens.
? 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. We will seek to develop a tablet RSV vaccine by licensing one or more
RSV protein antigens that have demonstrated protection against RSV infection in
clinical studies, or by partnering with a third party with RSV antigens that can
be delivered with our platform. Pending a licensing, partnering or collaboration
agreement, the RSV program is currently on hold.
? HPV Therapeutic Vaccine. Our first therapeutic oral vaccine candidate
targets HPV-16 and 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
We have tested our HPV-16 vaccine candidate in two different HPV-16 solid tumor models in mice. The vaccine candidate successfully 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-16 vaccine generally showed a significant reduction in volume of their established tumors. InOctober 2018 , we filed a pre-IND meeting request with the FDA for our first therapeutic vaccine targeting HPV16 and HPV18 and we subsequently submitted our pre-IND briefing package. We received feedback from the FDA inJanuary 2019 to support submission of an IND application to support initiation of clinical testing. However, the program is currently on hold while the Company is focusing its efforts on the COVID-19 vaccine. Anti-Virals
? Through the Merger, we acquired two royalty earning products, Relenza and Inavir.
? 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
2019 and the last patent for Inavir expires in
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 and competition with other antivirals such as
Tamiflu. Importantly, on
influenza developed by Shionogi, was approved in
significant market share, substantially reducing sales of Inavir.
Financial Operations Overview
Revenue
Revenue from Customer Service Contracts
We have been earning revenue from a fixed price service contract, as amended,
for a total of
Royalty Revenue We earn royalty revenue on sales of Inavir and, until the patent expired, Relenza, both treatments for influenza, from our licensees, Daiichi Sankyo and GSK, respectively, under royalty agreements with expiry dates inDecember 2029 andJuly 2019 , respectively, based on fixed percentages of net sales of these drugs.
Non-Cash Royalty Revenue Related to the Sale of Future Royalties
InApril 2016 , Aviragen sold certain royalty rights related to Inavir in the Japanese market for$20.0 million toHealthCare Royalty Partners III, L.P. ("HCRP"). At the time of the Merger, the fair value of the estimated future benefit to HCRP was$15.9 million , which we recorded as a liability that we are amortizing using the effective interest method over the remaining estimated life of the arrangement. Even though we did 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. 21 --------------------------------------------------------------------------------
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 releasetesting 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;
? 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 incur significant external costs to manufacture our tablet vaccine candidates, and for CROs that conduct clinical trials on our behalf. We capture these expenses 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,
2021 2020
External program costs:
COVID-19 program $ 2,939 $ -
Norovirus program 454 112
All other programs - 7
Preclinical research 422 121
Process development 1,106 -
Total external costs 4,921 240
Internal costs 5,152 1,302
Total research and development
We expect that research and development expenses will increase in 2021 and beyond as we advance our tablet vaccine candidates further into and through additional 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 VXA-CoV2-1 or any of 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, 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 related
expenses.
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Table of Contents Results of Operations
The following table presents selected items in the condensed consolidated
statements of operations and comprehensive loss for the three months ended
Three Months Ended March 31,
2021 2020 % Change
Revenue $ 506 $ 2,902 (83 )%
Operating expenses 16,017 3,596 345 %
Operating loss (15,511 ) (694 ) 2,135 %
Other income and (expenses) (458 ) (450 ) 2 %
Loss before income taxes (15,969 ) (1,144 ) 1,296 %
Provision for income taxes 38 153 (75 )%
Net loss $ (16,007 ) $ (1,297 ) 1,134 %
Total Revenue
The following table summarizes our revenues for the three months ended
Three Months Ended March 31,
2021 2020 % Change
Revenue from customer service
contracts $ 13 $ 99 (87 )%
Royalty revenue - 2,769 (100 )%
Non-cash royalty revenue related to
sale of future royalties 493 34 1,350 %
Total revenue $ 506 $ 2,902 (83 )%
Revenue from Customer Service Contracts
We earned revenue from customer service contracts of$13,000 and$99,000 in the three months endedMarch 31, 2021 and 2020, respectively. This revenue was recognized from a fixed price contract executed inJuly 2019 , as amended, for a total of$617,000 , which we have now completed. 23
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Table of Contents Royalty Revenue For the three months endedMarch 31, 2021 , we earned no royalty revenue, compared to$2.8 million earned in the three months endedMarch 31, 2020 . We do not recognize any royalty revenue from sales of Inavir until the first$3 million net of 5% withholding tax in years ending onMarch 31 has been recognized as non-cash royalty revenue related to sale of future royalties. We recognized no royalty revenue in the year endedMarch 31, 2021 , because net royalties were only$1.3 million , compared to$6.4 million in the year endedMarch 31, 2020 . We believe this 80% decrease is primarily because social distancing, mask wearing and increased vaccination rates 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, that we will earn in the future.
Non-cash Royalty Revenue Related to Sale of Future Royalties
For the three months endedMarch 31, 2021 , non-cash royalty revenue related to sale of future royalties was$493,000 , compared to$34,000 in the three months endedMarch 31, 2020 . The increase is due to a ceiling of$3.3 million that may be earned in years ending onMarch 31 , and for the year endedMarch 31, 2020 , we recognized all but$34,000 of this in the nine months endedDecember 31, 2019 , whereas in the year endedMarch 31, 2021 , total royalty revenue from Inavir sales was only$1.3 million , all of which was recognized as non-cash royalty revenue. Total Operating Expenses
The following table presents our operating expenses for the three months ended
Three Months Ended March 31,
2021 2020 % Change
Research and development $ 10,073 $ 1,542 553 %
General and administrative 5,944 1,990 199 %
Restructuring costs - 64 (100 )%
Total operating expenses $ 16,017 $ 3,596 345 %
Research and Development
For the three months ended March 31, 2021 , research and development
expenses increased by $8.5 million , or 553%, compared to the three months ended
March 31, 2020 . The increase is primarily due to preclinical, manufacturing and
clinical expenses related to our COVID-19 and norovirus vaccine candidates and
increased personnel costs, including stock-based compensation and facilities
allocation, related to headcount increases.
We expect that research and development expenses will be higher in 2021 than in
2020 as we expect significant expenditures on manufacturing and clinical trials
for our COVID-19 and norovirus vaccine candidates.
General and Administrative
For the three months ended March 31, 2021 , general and administrative
expenses increased by $4.0 million , or 199%, compared to the corresponding
period in 2020. The principal reasons are increased legal fees to defend
ourselves against various shareholder lawsuits and class actions, additional
directors and officers liability insurance costs and increased personnel costs,
including stock-based compensation and facilities allocation, in line with our
corporate growth.
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Table of Contents Other Income and (Expenses)
The following table presents our non-operating income and expenses for the three
months ended
Three Months Ended March 31,
2021 2020 % Change
Interest income $ 9 $ 41 (78 )%
Non-cash interest expense related
to sale of future royalties (466 ) (491 ) (5 )%
Foreign exchange loss, net (1 ) - N/A
Net non-operating income and
(expenses) $ (458 ) $ (450 ) 2 %
For the three months ended
Interest income decreased in 2021, despite higher cash balances, because rates of interest were lower. Non-cash interest expense related to sale of future royalties, which relates to accounting for sums that will become payable to HCRP for royalty revenue earned from Inavir as debt, decreased in 2021 as the outstanding balance due to HCRP has been paid down. Provision for Income Taxes
The following table presents our provision for income taxes for the three months
ended
Three Months Ended March 31,
2021 2020 % Change
Foreign withholding tax on royalty revenue $ 25 $ 140 (82 )%
Foreign taxes payable on intercompany interest 13 13 - %
Provision for income taxes $ 38 $ 153 (75 )%
The provision for income taxes comprises $38,000 and $153,000 in the three
months ended March 31, 2021 and 2020, respectively. The majority of the charge
represents 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 decrease arose because Inavir royalties, net of withholding tax, including
the portion that we pass through to HCRP, fell from $2.7 million in the three
months ended March 31, 2020 to $468,000 in the three months ended March
31, 2021 . In addition, we incur charges relating to interest on an intercompany
loan from a foreign subsidiary.
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Table of Contents
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. Most recently, inOctober 2020 we entered into an Open Market Sale Agreement, (the "Sales Agreement") under which we may sell shares of our common stock having an aggregate offering price of up to$250 million . As ofMarch 31, 2021 , we had$177.3 million of cash, cash equivalents and liquid investments. Since then, we have received net proceeds of$36.3 million from the sale of common stock under the Sales Agreement, with approximately$131 million in net proceeds still available to us. We believe our existing funds are sufficient to fund us well into 2022 and possibly beyond. To continue operations thereafter, we expect that we will need to raise further capital, through the sale of additional securities or otherwise. Our operating needs include the planned costs 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. 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, will 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 including HHS BARDA. We may also need to fund our operations through equity and/or debt financing. The sale of additional equity would result in additional dilution to our stockholders. Incurring debt financing would result in debt service obligations, and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. If we are unable to raise additional capital in sufficient amounts or on acceptable terms, we may be required to delay, limit, reduce, or terminate our product development or future commercialization efforts or grant rights to develop and market vaccine candidates that we would otherwise prefer to develop and market ourselves. Any of these actions could harm our business, results of operations and prospects.
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 will 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
? the extent to which we in-license or acquire other products and technologies.
26
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Table of Contents Cash Flows
The following table summarizes our cash flows for the periods indicated:
Three Months Ended March 31,
2021 2020
Net cash used in operating activities
(20,559 ) (1 )
Net cash provided by financing activities 67,592 19,542
Net increase in cash and cash equivalents
Vaxart experienced negative cash flow from operating activities for the three months endedMarch 31, 2021 and 2020, in the amounts of$16.6 million and$3.2 million , respectively. The cash used in operating activities in the three months endedMarch 31, 2021 , was due to cash used to fund a net loss of$16.0 million and a decrease 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 . The cash used in operating activities in the three months endedMarch 31, 2020 , was due to cash used to fund a net loss of$1.3 million , 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$1.6 million and an increase in working capital of$309,000 .
In the three months ended
Net Cash Provided by Financing Activities
In the three months endedMarch 31, 2021 , we received$65.7 million from the sale of common stock under the Sales Agreement that began inOctober 2020 and$1.9 million from the exercise of common stock warrants and stock options. In the three months endedMarch 31, 2020 , we received$9.2 million from the sale of common stock and warrants in a registered direct offering and$10.3 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
Contractual Obligation Total < 1 Year 1 - 3 Years
3 - 5 Years > 5 Years
Long Term Debt, HCRP
$ 5,596 $ 7,893 Operating Leases 8,026 2,536 3,144 2,346 - Purchase Obligations 26,765 19,765 7,000 - - Total$ 56,041 $ 24,123 $ 16,083
$ 7,942 $ 7,893
Long Term Debt, HCRP. Under an agreement executed in 2016, we are obligated to
pay HCRP the first
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. See Note 7 to the Condensed Consolidated Financial Statements in Part I, Item 1 for further details. 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.
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements in the periods presented.
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--------------------------------------------------------------------------------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 inthe 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.
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, clinical trials and 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 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 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. Intangible Assets Intangible assets acquired in the Merger were recorded at their estimated fair values of$20.3 million for developed technology related to Inavir which is 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 period of 1.3 years. These valuations were prepared by an independent third party based on estimated discounted cash flows based on probability-weighted future development expenditures and revenue streams, which are highly subjective.
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 2021, none of which had a material impact on our condensed consolidated financial statements.
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