e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For Quarterly Period Ended
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Commission File No. |
June 30, 2005
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0-26770 |
NOVAVAX, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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22-2816046 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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508 Lapp Road, Malvern, PA
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19355 |
(Address of principal executive offices)
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(Zip code) |
(484) 913-1200
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
þ Yes o No
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act.)
þ Yes o No
The number of shares outstanding of each of the issuers classes of common stock, as of the latest
practicable date:
Shares of Common Stock Outstanding at July 29, 2005: 43,553,876
NOVAVAX, INC.
Form 10-Q
For the Quarter Ended June 30, 2005
Table of Contents
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Page No. |
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Part I. Financial Information |
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Item 1 |
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Financial Statements |
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Consolidated Balance Sheets as of June 30, 2005 and December 31, 2004 |
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3 |
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Consolidated Statements of Operations for the three-month and six-month periods ended |
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June 30, 2005 and 2004 |
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4 |
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Consolidated Statements of Cash Flows for the six months ended |
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June 30, 2005 and 2004 |
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5 |
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Notes to the Consolidated Financial Statements |
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6 |
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Item 2 |
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Management's Discussion and Analysis of Financial |
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Condition and Results of Operations |
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16 |
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Item 3 |
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Quantitative and Qualitative Disclosures about Market Risk |
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27 |
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Item 4 |
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Controls and Procedures |
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27 |
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Part II. Other Information |
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Item 1 |
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Legal Proceedings |
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28 |
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Item 2 |
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Unregistered Sales of Equity Securities and Use of Proceeds |
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28 |
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Item 3 |
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Defaults upon Senior Securities |
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28 |
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Item 4 |
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Submission of Matters to a Vote of Security Holders |
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28 |
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Item 5 |
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Other Information |
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29 |
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Item 6 |
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Exhibits |
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29 |
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Signature |
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30 |
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Certifications |
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31 |
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2
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Part I. |
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Financial Information |
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Item 1. |
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Financial Statements |
NOVAVAX, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share information)
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June 30, |
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December 31, |
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2005 |
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2004 |
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(unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
4,442 |
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$ |
17,876 |
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Trade accounts receivable, net of allowance for doubtful accounts
of $765 and $752 as of June 30, 2005 and December 31, 2004,
respectively |
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1,133 |
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827 |
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Inventory, net |
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1,400 |
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3,464 |
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Prepaid expenses and other current assets |
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1,329 |
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1,770 |
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Total current assets |
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8,304 |
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23,937 |
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Property and equipment, net |
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12,759 |
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14,147 |
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Goodwill |
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33,141 |
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33,141 |
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Other intangible assets, net |
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4,617 |
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5,048 |
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Other non current assets |
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1,477 |
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1,720 |
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Total assets |
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$ |
60,298 |
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$ |
77,993 |
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LIABILITIES and STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
1,230 |
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$ |
3,242 |
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Accrued expenses |
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3,747 |
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4,140 |
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Current portion of capital lease obligations and other liabilities |
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654 |
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1,194 |
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Total current liabilities |
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5,631 |
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8,576 |
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Convertible notes |
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35,000 |
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35,000 |
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Deferred rent |
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165 |
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166 |
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Non-current portion of capital lease obligations and other liabilities |
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808 |
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970 |
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Stockholders equity: |
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Preferred stock, $.01 par value, 2,000,000 shares authorized;
no shares issued and outstanding |
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Common stock, $.01 par value, 100,000,000 shares authorized;
39,807,724 shares issued and 39,553,876 outstanding |
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398 |
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398 |
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Additional paid-in capital |
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167,511 |
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167,496 |
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Notes receivable from directors |
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(1,480 |
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(1,480 |
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Accumulated deficit |
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(145,322 |
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(130,720 |
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Treasury stock, 253,848 shares, cost basis |
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(2,413 |
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(2,413 |
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Total stockholders equity |
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18,694 |
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33,281 |
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Total liabilities and stockholders equity |
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$ |
60,298 |
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$ |
77,993 |
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The accompanying notes are an integral part of the consolidated financial statements.
3
NOVAVAX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share information)
(unaudited)
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Three months ended |
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Six months ended |
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June 30, |
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June 30, |
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2005 |
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2004 |
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2005 |
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2004 |
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Revenues: |
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Net product sales |
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$ |
1,889 |
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$ |
2,656 |
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$ |
2,608 |
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$ |
4,854 |
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Contract research and development |
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426 |
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286 |
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669 |
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1,246 |
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Milestone and licensing fees |
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63 |
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125 |
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Total revenues |
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2,315 |
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3,005 |
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3,277 |
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6,225 |
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Operating costs and expenses: |
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Cost of products sold |
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2,027 |
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1,501 |
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4,006 |
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1,763 |
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Research and development |
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1,377 |
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1,229 |
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2,599 |
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4,277 |
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Selling and marketing |
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1,844 |
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5,556 |
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5,901 |
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8,330 |
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General and administrative |
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2,292 |
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2,059 |
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4,413 |
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4,091 |
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Total operating costs and expenses |
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7,540 |
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10,345 |
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16,919 |
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18,461 |
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Loss from operations |
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(5,225 |
) |
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(7,340 |
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(13,642 |
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(12,236 |
) |
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Interest expense, net |
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(491 |
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(377 |
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(960 |
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(739 |
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Net loss |
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$ |
(5,716 |
) |
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$ |
(7,717 |
) |
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$ |
(14,602 |
) |
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$ |
(12,975 |
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Basic and diluted loss per share |
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$ |
(.14 |
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$ |
(.22 |
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$ |
(.37 |
) |
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$ |
(.37 |
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Basic and diluted weighted average number
of common shares outstanding |
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39,553,876 |
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34,779,657 |
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39,553,876 |
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34,750,944 |
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The accompanying notes are an integral part of the consolidated financial statements.
4
NOVAVAX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
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Six months ended |
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June 30, |
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2005 |
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2004 |
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Operating Activities: |
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Net loss |
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$ |
(14,602 |
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$ |
(12,975 |
) |
Reconciliation of net loss to net cash used in
operating activities: |
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Amortization |
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431 |
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327 |
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Depreciation |
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1,426 |
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1,029 |
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Retirement of capital assets |
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42 |
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Provision for bad debts |
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12 |
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59 |
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Amortization of deferred financing costs |
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206 |
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51 |
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Deferred rent |
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(1 |
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17 |
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Non-cash stock compensation |
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15 |
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Changes in operating assets and liabilities: |
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Trade accounts receivable |
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(318 |
) |
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(1,398 |
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Inventory |
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2,063 |
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108 |
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Prepaid expenses and other assets |
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440 |
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(1,442 |
) |
Accounts payable and accrued expenses |
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(2,405 |
) |
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3,905 |
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Facility exit costs |
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(85 |
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Deferred revenue |
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(125 |
) |
Other non current assets |
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38 |
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(300 |
) |
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Net cash used in operating activities |
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(12,738 |
) |
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(10,744 |
) |
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Investing Activities: |
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Capital expenditures |
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(80 |
) |
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(902 |
) |
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Net cash used in investing activities |
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(80 |
) |
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(902 |
) |
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Financing Activities: |
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Principal payments of capital lease obligations |
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(616 |
) |
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(733 |
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Proceeds from exercise of stock options and warrants |
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369 |
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Net cash used in financing activities |
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(616 |
) |
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|
(364 |
) |
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Net change in cash and cash equivalents |
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(13,434 |
) |
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|
(12,010 |
) |
Cash and cash equivalents at beginning of period |
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17,876 |
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27,633 |
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Cash and cash equivalents at end of period |
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$ |
4,442 |
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$ |
15,623 |
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The accompanying notes are an integral part of the consolidated financial statements.
5
NOVAVAX, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Novavax, Inc., a Delaware corporation (Novavax or the Company), was incorporated in 1987,
and is a specialty biopharmaceutical company engaged in the research, development and
commercialization of proprietary products using our topical drug delivery technology and the
development of preventive vaccines and proteins for infectious diseases and cancers. The Company
sells, markets, and distributes a line of prescription pharmaceuticals and prenatal vitamins. The
Companys principal technology platform involves the use of patented oil and water emulsions that
the Company believes can be used as vehicles for the topical delivery of a wide variety of drugs
and other therapeutic products, including hormones. In October 2003, the Companys initial product
candidate, ESTRASORB®, the first topical emulsion for estrogen therapy, was approved for
marketing by the Food and Drug Administration. The FDA approved ESTRASORB for the treatment of
moderate to severe vasomotor systems (hot flashes) associated with menopausal women. Since its
launch in June 2004, ESTRASORB prescription trends have not met the Companys initial expectations,
however, ESTRASORB continues to be an important product and asset to the Company. We are actively
seeking a well established, global pharmaceutical partner that could provide the optimal
opportunity and resources for ESTRASORB to be successful on a larger
scale.
The Company plans to continue leveraging our technologies to develop other new product
candidates to be marketed by the Company, co-promoted or licensed to other drug companies. While
our main therapeutic areas of concentration have been womens health and infectious diseases, we
believe our technologies can be applied more broadly.
The products currently under development or in clinical trials by the Company will require
significant additional research and development efforts, including extensive preclinical and
clinical testing and regulatory approval, prior to commercial use. There can be no assurance that
the Companys research and development efforts will be successful or that any of the Companys
potential products will prove to be safe and effective in clinical trial. Even if developed, these
products may not receive regulatory approval or be successfully introduced and marketed at prices
that would permit the Company to operate profitably. The Company also recognizes that the
commercial launch of any product is subject to certain risks including, but not limited to,
manufacturing scale-up and market acceptance. No assurance can be given that the Company can
generate sufficient product revenue to become profitable or generate positive cash flow from
operations at all or on a sustained basis.
The consolidated financial statements of Novavax for the three and six months ended June 30,
2005 and 2004 are unaudited. These financial statements reflect all adjustments which, in the
opinion of management, are necessary for a fair presentation of the results for the interim periods
presented. All such adjustments are of a normal recurring nature. These interim results are not
necessarily indicative of the results to be expected for the fiscal year ending December 31, 2005.
6
NOVAVAX, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Certain information in footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles has been condensed or omitted pursuant
to the rules and regulations of the Securities and Exchange Commission, although the Company
believes the disclosures herein are adequate to make the information presented not misleading. We
suggest that these consolidated financial statements be read in conjunction with the audited
consolidated financial statements and the notes thereto in the Companys Annual Report on Form 10-K
for the year ended December 31, 2004.
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2. |
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Summary of Significant Accounting Policies |
Basis of Presentation
The accompanying consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiary. All significant inter-company accounts and transactions have been
eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Inventories
Inventories consist of raw materials, work-in-process and finished goods, are priced at the
lower of cost or market, using the first-in-first-out method, and were as follows:
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|
June 30, 2005 |
|
|
December 31, 2004 |
|
|
|
(unaudited) |
|
|
|
|
|
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|
(amounts in thousands) |
|
Raw materials |
|
$ |
324 |
|
|
$ |
351 |
|
Work-in-process |
|
|
|
|
|
|
700 |
|
Finished goods |
|
|
1,134 |
|
|
|
2,413 |
|
|
|
|
|
|
|
|
|
|
|
1,458 |
|
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|
3,464 |
|
Less: Inventory reserve |
|
|
(58 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,400 |
|
|
$ |
3,464 |
|
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7
NOVAVAX, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition
The Company recognizes revenue in accordance with the provisions of Staff Accounting Bulletin
No. 104, Revenue Recognition. For our product sales, revenue is recognized when all of the
following criteria are met: persuasive evidence of an arrangement exists, shipment of product to
our distributor has occurred, the sellers price to the buyer is fixed or determinable, and
collectibility is reasonably assured. The Company recognizes these sales net of allowances for
returns, rebates and chargebacks. A large part of our product sales are to distributors who resell
the products to their customers. The Company provides rebates to members of certain buying groups
who purchase from our distributors, to the distributors that sell to these customers at prices
determined under contracts between us and the customer and to state agencies that administer
various programs such as the federal Medicaid and Medicare programs. Rebate amounts are usually
based upon the volume of purchases or by reference to a specific price for a product. The Company
estimates the amount of the rebate that will be paid, and records the liability as a reduction of
revenue when we record our sale of the products. Settlement of the rebate generally occurs from
three to 12 months after sale. The Company regularly analyzes historical rebate trends and makes
adjustments to recorded reserves for changes in trends and terms of rebate programs. In a similar
manner, we estimate amounts for returns based on historical trends, distributor inventory levels
and product prescription data and adjust those reserves as product returns occur. The shipping and
handling costs the Company incurs are included in cost of sales in our accompanying statements of
operations.
For up-front payments and licensing fees related to our contract research or technology, the
Company defers and recognizes revenue as earned over the life of the related agreement. Milestone
payments are recognized as revenue upon achievement of contract-specified events and when there are
no remaining performance obligations. Revenue earned under current research contracts is
recognized per the contracts terms and conditions for invoicing of costs incurred and the
achievement of defined milestones.
Net Loss per Share
Basic loss per share is computed by dividing the net loss (the numerator) by the weighted
average number of common shares outstanding (the denominator) during the period. Shares issued
during the period and shares reacquired during the period are weighted for the portion of the
period that they were outstanding. The computation of diluted loss per share is similar to the
computation of basic loss per share except that the denominator is increased to include the number
of additional common shares that would have been outstanding if the dilutive potential common
shares had been issued (e.g. upon exercise of stock options). Potentially dilutive common shares
are not included in the computation of diluted earnings per share if they are anti-dilutive. Net
loss per share as reported was not adjusted for potential common shares, as they are anti-dilutive.
8
NOVAVAX, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Property and Equipment
Property and equipment are recorded at cost. Manufacturing equipment is generally depreciated
over 7 to 10 years. Manufacturing leaseholds are amortized over the remaining lease term of our
manufacturing facility, under the straight line method. Depreciation of other fixtures and
equipment is also provided under the straight line method over the estimated useful lives of the
assets, generally 3 to 7 years. Amortization of other leasehold improvements is provided over the
shorter of the estimated useful lives of the improvements or the term of the respective lease.
Repairs and maintenance costs are expensed as incurred.
Property and equipment is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
|
June 30, 2005 |
|
|
December 31, 2004 |
|
|
|
(unaudited) |
|
|
|
|
|
|
|
(amounts in thousands) |
|
Machinery and equipment |
|
$ |
16,104 |
|
|
$ |
16,082 |
|
Leasehold improvements |
|
|
1,441 |
|
|
|
1,437 |
|
Computer software and hardware |
|
|
481 |
|
|
|
480 |
|
|
|
|
|
|
|
|
|
|
|
18,026 |
|
|
|
17,999 |
|
Less accumulated depreciation. |
|
|
(5,267 |
) |
|
|
(3,852 |
) |
|
|
|
|
|
|
|
|
|
$ |
12,759 |
|
|
$ |
14,147 |
|
|
|
|
|
|
|
|
Accounting for Facility Exit Costs
In July 2004, the Company entered into a long-term agreement to lease a 32,900 square foot
facility in Malvern, Pennsylvania, for the consolidation and expansion of corporate headquarters
and product development activities. The lease, with a commencement date of September 15, 2004, has
an initial term of ten years with two five year renewal options. Standard annual escalation rental
rates are in effect during the initial lease term. With advance notice, the Company also has an
option to lease adjoining space of 17,000 square feet, which could be built out for future
manufacturing needs.
The Company applied the principles of SFAS No. 146, Accounting for Costs Associated with Exit
or Disposal Activities, in accounting for contract termination costs and associated costs that will
continue to be incurred under the operating lease expiring on October 31, 2006 related to the
Companys former corporate offices located in Columbia, Maryland. For the year ended December 31,
2004, $252,000 was included in facility exit costs on the consolidated statement of operations,
which represents the difference between the fair value of the remaining lease payments, reduced by
current estimated sublease rentals that could be reasonably obtained.
9
NOVAVAX, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
A roll-forward of Facility Exit Cost liability is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
Current |
|
|
Current |
|
|
|
(in thousands) |
|
Original amount expensed and set up as a liability |
|
$ |
151 |
|
|
$ |
101 |
|
Lease payments applied to the liability |
|
|
(28 |
) |
|
|
(24 |
) |
|
|
|
Balance as of December 31, 2004 |
|
|
123 |
|
|
|
77 |
|
Lease payments applied to the liability |
|
|
(49 |
) |
|
|
(33 |
) |
Adjustment to original estimate |
|
|
20 |
|
|
|
(22 |
) |
|
|
|
Balance as of June 30, 2005 |
|
$ |
94 |
|
|
$ |
22 |
|
|
|
|
Goodwill and Intangible Assets
Goodwill principally results from business acquisitions. Assets acquired and liabilities
assumed are recorded at their fair values; the excess of the purchase price over the value of the
identifiable net assets acquired is recorded as goodwill. Other intangible assets are the result of
product acquisitions, non-compete arrangements, and internally-discovered patents. In accordance
with SFAS No. 142, Goodwill and Other Intangible Assets (SFAS No. 142), goodwill and intangible
assets deemed to have indefinite lives are not amortized but are subject to impairment tests
annually, or more frequently should indicators of impairment arise. As of June 30, 2005 the
Company determined a reassessment of goodwill was necessary due to a substantial drop in the
market value of the companys stock since December 31, 2004 and below performance expectations of
its product, ESTRASORB. The Company engaged an independent business valuation firm to assist in
this assessment. and ultimately determined that there was no impairment of goodwill as of June 30,
2005. The Company utilizes a discounted cash flow analysis that includes profitability
information, estimated future operating results, trends and other information in assessing whether
the value of indefinite-lived intangible assets can be recovered. Under SFAS No. 142, goodwill
impairment is deemed to exist if the carrying value of a reporting unit exceeds its estimated fair
value. Other intangible assets are amortized on a straight-line basis over their estimated useful
lives, ranging from five to 15 years. Amortization expense was $215,000 and $164,000 for the three
months ending June 30, 2005 and 2004, respectively, and $431,000 and $327,000 for the six months
ending June 30, 2005 and 2004, respectively.
10
NOVAVAX, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of June 30, 2005 and December 31, 2004, the Companys other intangible assets and related
accumulated amortization consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2005 |
|
|
As of December 31, 2004 |
|
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Gross |
|
|
Amortization |
|
|
Net |
|
|
Gross |
|
|
Amortization |
|
|
Net |
|
Other intangible assets, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition |
|
$ |
148 |
|
|
$ |
(148 |
) |
|
$ |
|
|
|
$ |
148 |
|
|
$ |
(148 |
) |
|
$ |
|
|
ESTRASORB rights |
|
|
2,514 |
|
|
|
(263 |
) |
|
|
2,251 |
|
|
|
2,514 |
|
|
|
(136 |
) |
|
|
2,378 |
|
AVC product acquisition |
|
|
3,332 |
|
|
|
(2,142 |
) |
|
|
1,190 |
|
|
|
3,332 |
|
|
|
(1,904 |
) |
|
|
1,428 |
|
Patents |
|
|
2,525 |
|
|
|
(1,349 |
) |
|
|
1,176 |
|
|
|
2,525 |
|
|
|
(1,283 |
) |
|
|
1,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
8,519 |
|
|
$ |
(3,902 |
) |
|
$ |
4,617 |
|
|
$ |
8,519 |
|
|
$ |
(3,471 |
) |
|
$ |
5,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-Based Compensation
In December 2004, the Financial Accounting Standards Board issued Statement No. 123 (revised)
Share-Based Payment (SFAS No. 123R), which is a revision of Statement No. 123, Accounting for
Stock-Based Compensation (SFAS No. 123). SFAS No. 123R supersedes APB No. 25, Accounting for
Stock Issued to Employees (APB No. 25), and amends SFAS No. 95, Statement of Cash Flows.
Generally, the approach in SFAS No. 123R is similar to the approach described in SFAS No. 123.
However, SFAS No. 123R requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the income statement based on their fair values. Pro forma
disclosure is no longer an alternative.
SFAS No. 123R must be adopted in the first annual financial reporting period beginning after
June 15, 2005. The Company will adopt SFAS No. 123R on January 1, 2006.
SFAS No. 123R permits public companies to adopt its requirements using one of two methods:
|
1. |
|
A modified prospective method in which compensation cost is recognized beginning with
the effective date (a) based on the requirements of SFAS No. 123R for all share-based
payments granted after the effective date and (b) based on the requirements of SFAS No. 123
for all awards granted to employees prior to the effective date of SFAS No. 123R that
remain unvested on the effective date. |
11
NOVAVAX, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Stock-Based Compensation (continued):
|
2. |
|
A modified retrospective method which includes the requirements of the modified
prospective method described above, but also permits entities to restate based on the
amounts previously recognized under SFAS No. 123 for purposes of pro forma disclosures
either for (a) all prior periods presented or (b) prior interim periods of the year of
adoption. |
The Company plans to adopt SFAS No. 123R using the modified prospective method.
As permitted by SFAS No. 123, the Company currently accounts for share-based payments to
employees using the intrinsic value method permitted by APB No. 25 and, as such, generally
recognizes no compensation cost for employee stock options. Accordingly, the adoption of SFAS No.
123Rs fair value method will have a significant impact on the Companys results of operations,
although it will have no impact on the Companys overall financial position. The impact of adoption
of SFAS No. 123R cannot be predicted at this time because it will depend on levels of share-based
payments granted in the future. However, had the Company adopted SFAS No. 123R in prior periods,
the impact of that standard would have approximated the impact of SFAS No. 123 as described in the
disclosure of pro forma net income and earnings per share below. SFAS No. 123R also requires the
benefits of tax deductions in excess of recognized compensation cost to be reported as a financing
cash flow, rather than as an operating cash flow as required under current literature.
This requirement will reduce net operating cash flows and increase net financing cash flows in
periods after adoption. The Company cannot estimate what those amounts will be in the future
because they depend on, among other things, when employees exercise stock options. For the six
months ended June 30, 2005 and 2004, the Company did not pay any taxes, therefore, there was no
effect on operating cash flows for such excess tax deductions.
Had the Company applied the fair value principles of SFAS No. 123, for its employee options,
its net loss for the three and six months ending June 30, 2005 and 2004 would have increased as
follows:
12
NOVAVAX, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
(unaudited) |
|
|
|
(Amounts in thousands, except per share data) |
|
Net loss, as reported |
|
$ |
(5,716 |
) |
|
$ |
(7,717 |
) |
|
$ |
(14,602 |
) |
|
$ |
(12,975 |
) |
Deduct: Total
stock-based employee
compensation expense
determined under
fair value based
method for all
awards |
|
|
(1,025 |
) |
|
|
(1,504 |
) |
|
|
(1,970 |
) |
|
|
(2,639 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss |
|
$ |
(6,741 |
) |
|
$ |
(9,221 |
) |
|
$ |
(16,572 |
) |
|
$ |
(15,614 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and
diluted
as reported |
|
$ |
(.14 |
) |
|
$ |
(0.22 |
) |
|
$ |
(.37 |
) |
|
$ |
(.37 |
) |
Basic and
diluted
pro forma |
|
$ |
(.17 |
) |
|
$ |
(0.27 |
) |
|
$ |
(.42 |
) |
|
$ |
(.45 |
) |
These pro forma amounts are not necessarily indicative of the future effects of applying
the fair value-based method due to, among other things, the vesting period of the stock options and
the fair value of additional stock options issued in future years.
In May 2005, the Company granted 182,434 restricted shares totaling $270,000 in value at the
date of grant to various employees and officers of the Company which vests over a three-year
period. In accordance with APB No. 25, for the three months
ended June 30, 2005, $15,000 of non-cash
stock compensation expense was included in total operating costs and expenses related to this
restricted stock and additional paid-in capital was increased accordingly.
Sales and Issuance of Common Stock
There were no sales or issuances of common stock during the three or six month periods ended
June 30, 2005. See Subsequent Events for a discussion of stock issuances subsequent to June 30,
2005.
13
NOVAVAX, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Segment Information
The Company currently operates in one business segment, which is the research, development and
commercialization of products focused on womens health and infectious diseases. The Company is
managed and operated as one business. A single management team that reports to the Chief Executive
Officer comprehensively manages the entire business. The Company does not operate separate lines
of business with respect to its products or product candidates. Accordingly, the Company does not
have separately reportable segments as defined by FASB Statement No. 131, Disclosure about Segments
of an Enterprise and Related Information.
Related Party Transactions
In March 2002, pursuant to the Novavax, Inc. 1995 Stock Option Plan, the Company approved the
payment of the exercise price of options by two of its directors, through the delivery of
full-recourse, interest-bearing promissory notes in the aggregate amount of $1,479,268. The
borrowings accrue interest at 5.07% per annum and are secured by an aggregate of 261,667 shares of
common stock owned by the directors. The notes are payable upon the earlier to occur of the
following: (i) payable in full upon the date on which the director ceases for any reason to be a
director of the Company, (ii) payable in part to the extent of net proceeds, upon the date on which
the director sells all or any portion of the pledged shares or (iii) payable in full on March 21,
2007. As of June 30, 2005 and December 31, 2004, accrued interest receivable related to the
borrowing was $246,000 and $209,000, respectively.
In addition, in April 2002, we executed a conditional guaranty of a brokerage margin account
for a director, in the amount of $500,000. Prior to demanding payment from the Company, the
brokerage firm must first make demand for payment to the director and then liquidate the account.
Thereafter, if there remains a shortfall, the brokerage firm may demand payment from the Company.
As of June 30, 2005 and December 31, 2004, the Company had not recorded any liability on its
balance sheet related to this guarantee as we believe the possibility of required payment by the
Company to be unlikely.
Restructuring of the Sales Force
In March, 2005, the Company implemented a measure to control expenses by reducing the size of
its sales force. The total estimated cost to be incurred in connection with this restructuring
was approximately $238,000. Included in this amount were one-time termination benefits of $129,000,
all of which were paid as of June 30, 2005, auto lease contract termination costs of approximately
$95,000, which are still included in accrued expenses as of June 30, 2005, and $14,000 of other
associated costs, all of which were paid as of June 30, 2005. Included in the accompanying
statements of operations for the three and six months ended June 30, 2005 are $32,000 and $206,000
related to these expenses, respectively.
14
NOVAVAX, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Subsequent Events
In July 2005, the Company completed an agent-led offering of 4,000,000 shares of common stock
at $1.00 per share for gross proceeds of $4,000,000. The stock was issued pursuant to an existing
shelf registration statement. Net proceeds after deducting underwriter, legal, accounting and
other miscellaneous fees, were approximately $3.6 million.
15
Item 2.
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion may contain statements that are not purely historical. Certain
statements contained herein or as may otherwise be incorporated by reference herein constitute
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995. Forward-looking statements include, but are not limited to, statements regarding product
sales, future product development and related clinical trials, and statements regarding future
research and development, including Food and Drug Administration approval. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of the Company, or industry results, to be materially
different from those expressed or implied by such forward-looking statements.
Such factors include, among other things, the following: general economic and business
conditions; competition; ability to enter into future collaborations with industry partners,
including an ESTRASORB® licensing agreement, unexpected changes in technologies and
technological advances; ability to obtain rights to technology; ability to obtain and enforce
patents; ability to commercialize and manufacture products; ability to establish and maintain
commercial-scale manufacturing capabilities; results of clinical studies; progress of research and
development activities; business abilities and judgment of personnel; availability of qualified
personnel; changes in, or failure to comply with, governmental regulations; ability to obtain
adequate financing in the future through product licensing, co-promotional arrangements, public or
private equity financing or otherwise; and other factors referenced herein.
All forward-looking statements contained in this quarterly report are based on information
available to the Company on the date hereof, and the Company assumes no obligation to update any
such forward-looking statements, except as specifically required by law. Accordingly, past results
and trends should not be used to anticipate future results or trends.
Recent Development
In July 2005, we completed an agent-led offering of 4,000,000 shares of common stock at $1.00
per share for gross proceeds of $4,000,000. The stock was issued pursuant to an existing shelf
registration statement. Net proceeds were approximately $3.6 million.
Taking into effect this event, at June 30, 2005, on a pro-forma basis, our cash balance would
have been approximately $8.0 million, total assets of
approximately $63.9 million and stockholders
equity of approximately $22.3 million.
16
Overview
Novavax is a specialty biopharmaceutical company engaged in the research, development and
commercialization of proprietary products using our topical drug delivery technology and the
development of preventive vaccines and proteins for infectious diseases. We sell, market, and
distribute a line of prescription pharmaceuticals and prenatal vitamins. Our proprietary topical
micellar nanoparticle (MNP) drug delivery platform, our principal technology platform, involves
the use of patented oil and water nanoemulsions which can be used as vehicles for the delivery of a
wide variety of drugs and other therapeutic products, including hormones. In October 2003, our
initial product candidate, ESTRASORB, the first topical emulsion for estrogen therapy, was approved
for marketing by the Food and Drug Administration. The FDA approved ESTRASORB for the treatment of
moderate to severe vasomotor symptoms (hot flashes) associated with menopausal women, and we
commercially launched this product in June 2004.
Since its launch, ESTRASORB has been favorably accepted by those physicians who have
prescribed it and the patients who have been using it for the treatment of moderate to severe
vasomotor symptoms associated with menopause. However, to date, ESTRASORB prescription trends have
not met our initial expectations. We attribute the slow start to the long lasting effects of the
Womens Health Initiative study, the unanticipated simultaneous approval and launch of a
competitive product and an overall competitive market. During the first 12 months of marketing,
management concluded that our marketing resources were not sufficiently available to us in order to
generate the awareness of the product directly to the consumer. For
that reason we have continually evaluated the effective optimization and sizing of our sales forces and have been seeking a well
established, global pharmaceutical partner that could provide the optimal opportunity for ESTRASORB
to be successful on a larger scale.
We will continue to focus our efforts on the development of additional compounds that use our
proprietary topical MNP drug delivery platform that we believe have a high probability of technical
success and that have a large market potential. As part of our research and development efforts, we
intend to file or activate two Investigational New Drug Applications (INDs) with the FDA by the
first quarter of 2006 for two of our product candidates. The table below summarizes our most
advanced drug candidates currently in clinical or preclinical development.
We plan to continue leveraging our technologies to develop these and other new product
candidates to be marketed by the Company, or co-promoted, or licensed to other drug companies.
17
We also conduct research and development on preventative vaccines and proteins for
infectious diseases and cancers, and tolergens to prevent the initiation and progression of stroke,
heart attack and other inflammatory diseases. Currently, the major impetus is the development and
exploitation of our core Virus-like particle (VLP) technology for developing novel vaccines.
VLPs are genetically-engineered particles that imitate the important three-dimensional structures
of viruses but are composed of recombinant proteins and therefore are powerful immunogens but incapable
of causing infection and disease. Our proprietary production technology for VLPs employs insect
cells and the baculovirus expression system. We believe the main advantage of this technology is a
more rapid production of a safe, effective, low-cost vaccine as compared to the labor-intensive
egg-based and cell culture based production processes. Other key advantages of this technology are
the ability to rapidly respond to emerging threats or new strains and the reduced risk of allergic
reaction. Projects in development using our proprietary VLP technology include vaccines for HIV,
SARS and pandemic and seasonal influenza. We are also developing E-selectin tolergen for the
prevention of secondary strokes.
Critical Accounting Policies and Changes to Accounting Policies
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
18
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
There have been no material changes in our critical accounting policies or critical accounting
estimates since December 31, 2004, nor have we adopted any accounting policy that has or will have
a material impact on our consolidated financial statements. For further discussion of our
accounting policies see Note 2 Summary of Significant Accounting Policies, in the Notes to the
Consolidated Financial Statements included in this Quarterly Report on Form 10-Q and Note 3 in the
Notes to the Consolidated Financial Statements for our Annual Report on Form 10-K for the fiscal
year ended December 31, 2004.
Results of Operations
The following is a discussion of the historical consolidated financial condition and results
of operations of Novavax, Inc. and its wholly-owned subsidiary and should be read in conjunction
with the consolidated financial statements and notes thereto set forth in this Quarterly Report on
Form 10-Q. Additional information concerning factors that could cause actual results to differ
materially from those in the Companys forward-looking statements is contained from time to time in
the Companys SEC filings, including but not limited to the Companys Annual Report on Form 10-K
for the fiscal year ended December 31, 2004.
Three months ended June 30, 2005 (2005) compared to the three months ended June 30, 2004 (2004): (In thousands)
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
$ Change |
|
|
% Change |
|
|
|
(unaudited) |
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
Product Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vitamins |
|
$ |
530 |
|
|
$ |
653 |
|
|
$ |
(123 |
) |
|
|
-19 |
% |
Gynodiol |
|
|
297 |
|
|
|
238 |
|
|
|
59 |
|
|
|
25 |
% |
AVC Cream |
|
|
376 |
|
|
|
158 |
|
|
|
218 |
|
|
|
138 |
% |
ESTRASORB |
|
|
691 |
|
|
|
1,481 |
|
|
|
(790 |
) |
|
|
-53 |
% |
Other |
|
|
(5 |
) |
|
|
126 |
|
|
|
(131 |
) |
|
|
-104 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total product sales |
|
|
1,889 |
|
|
|
2,656 |
|
|
|
(767 |
) |
|
|
-29 |
% |
Contract research |
|
|
426 |
|
|
|
286 |
|
|
|
140 |
|
|
|
49 |
% |
Milestone and licensing fees |
|
|
|
|
|
|
63 |
|
|
|
(63 |
) |
|
|
-100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,315 |
|
|
$ |
3,005 |
|
|
$ |
(690 |
) |
|
|
-23 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
19
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Revenues for the second quarter of 2005 were $2.3 million, which was $1.2 million higher than
the first quarter of 2005 or 141%. Revenues for the second quarter 2005 consisted of product sales
of $1.9 million, compared to $2.7 million in 2004; contract revenues of $0.4 million in 2005,
compared to $0.3 million in 2004; and milestone and licensing fees of zero in 2005, compared to
$0.1 million in 2004. Total revenues for the three months ended June 30, 2005 of $2.3 million, when
compared to $3.0 million for 2004, decreased $0.7 million or 23%. The net decrease in 2005 product
sales compared to 2004 is primarily attributable to the $1.5 million of initial commercial launch
sales of ESTRASORB in June 2004 compared to $0.7 million of ESTRASORB sales in 2005. The major
wholesalers depleted their initial launch inventories from June 2004
into the second quarter of 2005 and are now placing additional orders that correspond with their anticipated monthly resell levels.
The increase in contract revenue for 2005 as compared to 2004 is primarily attributable to the
first milestone completion on a new contract for 2005. We currently have research contracts
totaling over $2.0 million for 2005 and we expect that as contract milestones are met we will
continue to see an increase in revenues in subsequent quarters.
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
$ Change |
|
|
% Change |
|
|
|
(unaudited) |
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
Cost of sales |
|
$ |
2,027 |
|
|
$ |
1,501 |
|
|
$ |
526 |
|
|
|
35 |
% |
Research and development |
|
|
1,377 |
|
|
|
1,229 |
|
|
|
148 |
|
|
|
12 |
% |
Selling and marketing |
|
|
1,844 |
|
|
|
5,556 |
|
|
|
(3,712 |
) |
|
|
-67 |
% |
General and administrative |
|
|
2,292 |
|
|
|
2,059 |
|
|
|
233 |
|
|
|
11 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,540 |
|
|
$ |
10,345 |
|
|
$ |
(2,805 |
) |
|
|
-27 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales, which includes fixed idle capacity costs at our manufacturing facility,
increased to $2.0 million in 2005, compared to $1.5 million in 2004. Of the $2.0 million cost of
sales, $1.0 million was due to idle plant capacity costs at our ESTRASORB manufacturing facility,
which was operating at higher production levels at this time last year. The remaining $1.0 million
is lower than the $1.5 million in 2004 by 33% and correlates to 2005 revenues being lower than 2004
by $0.8 million or 29%. ESTRASORB cost of sales percentages will continue to be high until we can
increase production volumes or partner the product, to offset the fixed costs related to the
manufacturing process and facility. We are working to design alternative packaging solutions to
further streamline production and lower costs of production.
Research and development costs increased from $1.2 million in 2004 to $1.4 million in 2005, or
11%. The increase of $0.2 million was due to research and development spending incurred to
support the development of future products.
20
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Selling and marketing costs were $1.8 million in 2005 compared to $5.5 million in 2004. The
decrease of $3.7 million, or 67%, was primarily due to a $3.2 million decrease in marketing costs
for 2005 compared to 2004 as higher marketing costs were incurred in 2004 for the commercial launch
of ESTRASORB. A $0.5 million decrease in selling costs for 2005 compared to 2004 accounted the
remaining difference which resulted from the restructuring of our sales force in March 2005.
General and administrative costs were $2.3 million in 2005 compared to $2.1 million in 2004.
Increases in legal fees and business development costs accounted for the increase over 2004, offset
by other cost saving measures implemented during 2004 and 2005.
Interest Income/(Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
$ Change |
|
|
% Change |
|
|
|
(unaudited) |
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
Interest income. |
|
$ |
42 |
|
|
$ |
63 |
|
|
$ |
(21 |
) |
|
|
-33 |
% |
Interest expense |
|
|
(533 |
) |
|
|
(440 |
) |
|
|
(93 |
) |
|
|
-21 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(491 |
) |
|
$ |
(377 |
) |
|
$ |
(114 |
) |
|
|
-30 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest expense was $0.5 million for 2005 compared to $0.4 million in 2004. Our
2004 interest expense related primarily to the promissory notes with King of $40.0 million in 2002
though July 2004, at which time such notes were redeemed and we issued new convertible notes
totaling $35.0 million to a group of institutional investors. The 2005 increase in interest
expense of $0.1 million is due to the increase in the amortization of deferred financing costs
related to the new notes.
Net loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
$ Change |
|
|
%Change |
|
|
|
(unaudited) |
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(5,716 |
) |
|
$ |
(7,717 |
) |
|
$ |
(2,001 |
) |
|
|
26 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share |
|
$ |
(.14 |
) |
|
$ |
(.22 |
) |
|
$ |
(.08 |
) |
|
|
36 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted shares outstanding |
|
|
39,553,876 |
|
|
|
34,779,657 |
|
|
|
4,774,219 |
|
|
|
14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for 2005 was $5.7 million or $(.14) per share, as compared to $7.7 million or
$(.22) per share for 2004, a decrease of $2.0 million, or $.08 per share. The decrease is
primarily due to the decrease in operating expenses of $2.8 million partially offset by the
decrease in revenues of $0.7 million, all previously discussed.
21
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Six months ended June 30, 2005 (2005) compared to the six months ended June 30, 2004 (2004): (In thousands)
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
$ Change |
|
|
% Change |
|
|
|
(unaudited) |
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
Product Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vitamins |
|
$ |
752 |
|
|
$ |
2,107 |
|
|
$ |
(1,355 |
) |
|
|
-64 |
% |
Gynodiol |
|
|
335 |
|
|
|
613 |
|
|
|
(278 |
) |
|
|
-45 |
% |
AVC Cream |
|
|
472 |
|
|
|
430 |
|
|
|
42 |
|
|
|
10 |
% |
ESTRASORB |
|
|
1,035 |
|
|
|
1,481 |
|
|
|
(446 |
) |
|
|
-30 |
% |
Other |
|
|
14 |
|
|
|
223 |
|
|
|
(209 |
) |
|
|
-94 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total product sales |
|
|
2,608 |
|
|
|
4,854 |
|
|
|
(2,246 |
) |
|
|
-46 |
% |
Contract research |
|
|
669 |
|
|
|
1,246 |
|
|
|
(577 |
) |
|
|
-46 |
% |
Milestone and licensing fees |
|
|
|
|
|
|
125 |
|
|
|
(125 |
) |
|
|
-100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,277 |
|
|
$ |
6,225 |
|
|
$ |
(2,948 |
) |
|
|
-47 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues for 2005 consisted of product sales of $2.6 million, compared to $4.9 million in
2004; contract revenues of $0.7 million, compared to $1.2 million in 2004; and no milestone and
licensing fees in 2005, compared to $0.1 million in 2004. Total revenues for 2005 were $3.3
million, as compared to $6.2 million for 2004, a $2.9 million or 47% decrease.
Of the total decrease in revenues, product sales accounted for $2.3 million. This decrease is
primarily attributable to an overall reduction in sales of prenatal vitamins, Gynodiol, ESTRASORB
and other products. In addition, in 2004 we filled substantial backorders for our newest prenatal
vitamins which negatively effects the comparison to 2005. The reduction in 2005 product sales,
other than for ESTRASORB, is primarily due to continued generic pressure on our prenatal line.
The net decrease in ESTRASORB is primarily attributable to the $1.5 million of commercial launch
sales in June 2004 compared to $1.0 million of ESTRASORB sales in 2005. The major wholesalers
depleted their initial launch inventories from June 2004 into the
second quarter of 2005 and are now placing
additional orders that correspond with their anticipated monthly resell levels. In addition, $0.2
million of distributor services fees are included as an offset to revenue for 2005 which were not
incurred in 2004.
The decrease in contract revenue for 2005 as compared to 2004 is primarily due to the
completion of several contracts during the first quarter of 2004 which resulted in final payments
totaling $0.3 million, as well as $0.5 revenue recognized on the NIH contact that was later
cancelled in July 2004. This was partially offset by $0.1 million for the completion of the first
milestone on a new contract for 2005. We currently have research contracts totaling over $2.0
million for 2005 and we expect that as contract milestones are met we will continue to see an
increase in revenues in subsequent quarters.
22
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
$ Change |
|
|
% Change |
|
|
|
(unaudited) |
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
Cost of sales |
|
$ |
4,006 |
|
|
$ |
1,763 |
|
|
$ |
2,243 |
|
|
|
127 |
% |
Research and development |
|
|
2,599 |
|
|
|
4,277 |
|
|
|
(1,678 |
) |
|
|
-39 |
% |
Selling and marketing |
|
|
5,901 |
|
|
|
8,330 |
|
|
|
(2,429 |
) |
|
|
-29 |
% |
General and administrative |
|
|
4,413 |
|
|
|
4,091 |
|
|
|
322 |
|
|
|
8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
16,919 |
|
|
$ |
18,461 |
|
|
$ |
(1,542 |
) |
|
|
-8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales, which includes fixed idle capacity costs at our manufacturing
facility, increased to $4.0 million in 2005, compared to $1.8 million in 2004. Of the $4.0 million
cost of sales, $2.5 million was due to idle plant capacity at our ESTRASORB manufacturing facility,
which was operating at higher production levels at this time last year. The remaining $1.5 million
for 2005 is lower than the $1.8 million for 2004 but is higher as a percentage of product revenues.
ESTRASORB sales in 2005 were 40% of net product sales in 2005 as compared to 31% in 2004, and
carry a higher cost of sales than our other products. In the initial periods of ESTRASORB
production, the cost of sales percentages have been and will be unusually high until we increase
production volumes or partner the product to offset the fixed costs related to the manufacturing
process and facility. We are working to design alternative packaging solutions to further
streamline production and lower costs of production.
Research and development costs decreased from $4.3 million in 2004 to $2.6 million in 2005.
The decrease of $1.7 million, or 39%, was due to manufacturing start-up costs in 2004 being
accounted for in the research and development category until April 2004. The 2004 manufacturing
costs were incurred to prepare and validate the facility for GMP and Food and Drug Administration
compliance and not to build inventory. Beginning in April 2004, manufacturing costs have been
included in cost of sales, inventory or written off to idle capacity cost.
Selling and marketing costs were $5.9 million in 2005 compared to $8.3 million in 2004. The
decrease of $2.4 million, or 29%, was primarily due to a $3.2 million decrease in marketing costs
for 2005 compared to 2004. Marketing costs for 2004 were related to the initial product launch
advertising and promotion for ESTRASORB. A $0.8 million increase in selling costs for 2005
compared to 2004 accounts for the remaining difference, and is due to a greater number sales
personnel in the first quarter of 2005 as compared to the same period in 2004.
General and administrative costs were $4.4 million in 2005 compared to $4.1 million in 2004.
Increases in legal fees and business development costs accounted for the increase over 2004, offset
by other cost saving measures implemented during 2004 and 2005.
23
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Interest Income/(Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
$ Change |
|
|
% Change |
|
|
|
(unaudited) |
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
Interest income. |
|
$ |
103 |
|
|
$ |
145 |
|
|
$ |
(42 |
) |
|
|
-29 |
% |
Interest expense |
|
|
(1,063 |
) |
|
|
(884 |
) |
|
|
(179 |
) |
|
|
-20 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(960 |
) |
|
$ |
(739 |
) |
|
$ |
(221 |
) |
|
|
-30 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest expense was $1.0 million in 2005 compared to $0.7 million in 2003. Our 2004
interest expense related primarily to the promissory notes with King of $40.00 million in 2003
through July 2004, at which time such notes were redeemed and we issued new convertible notes
totaling $35.0 million to a group of institutional investors. The 2005 increase in interest
expense of $0.2 million is due to the increase in the amortization of deferred financing costs
related to the new notes.
Net loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
$ Change |
|
|
%Change |
|
|
|
(unaudited) |
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(14,602 |
) |
|
$ |
(12,975 |
) |
|
$ |
1,612 |
|
|
|
12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share |
|
$ |
(.37 |
) |
|
$ |
(.37 |
) |
|
$ |
|
|
|
|
0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted shares outstanding |
|
|
39,553,876 |
|
|
|
34,750,944 |
|
|
|
4,802,932 |
|
|
|
22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for 2005 was $14.6 million or $(.37) per share, as compared to $13.0 million or
$(.37) per share for 2004, an increase of $1.6 million or 12%, with no change in net loss per
share, due to the issuance of additional shares in the second half of 2004. The increase in net
loss is the result of decreased revenues of $2.9 million and the increase in net interest expense
of $0.2 million, partially offset by decreased operating expenses of $1.6 million, all previously
described.
24
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Our capital requirements depend on numerous factors, including but not limited to product
sales and returns, the ability to enter into a satisfactory license agreement for ESTRASORB, the ability to gain
market share, the marketing and manufacturing costs related to
the commercialization of ESTRASORB, the commitments and progress of our research and development
programs, the progress of preclinical and clinical testing, the time and costs involved in
obtaining regulatory approvals, the costs of filing, prosecuting, defending and enforcing any
patent claims and other intellectual property rights, competing technological and market
developments, and changes in our product lines. We plan to have multiple products in various
stages of product development and we believe our research and development as well as selling,
marketing and general administrative expenses and capital requirements will continue to increase.
Future activities, including efficiencies in commercial-scale manufacturing capabilities, and
product development are subject to our ability to raise funds through debt or equity financing, or
collaborative arrangements with industry partners.
|
|
|
|
|
|
|
Six months |
|
|
|
ending |
|
|
|
June 30, 2005 |
|
|
|
(in thousands) |
|
Summary of Cash Flows: |
|
(unaudited) |
|
Net cash used in: |
|
|
|
|
Operating activities |
|
$ |
(12,738 |
) |
Investing activities |
|
|
(80 |
) |
Financing activities |
|
|
(616 |
) |
|
|
|
|
Net change in cash and cash equivalents |
|
|
(13,434 |
) |
Beginning cash and cash equivalents |
|
|
17,876 |
|
|
|
|
|
Ending cash and cash equivalents |
|
$ |
4,442 |
|
|
|
|
|
25
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cash and cash equivalents were $4.4 million at June 30, 2005, a decrease of $13.4 million from
the December 31, 2004 balance of $17.9 million. Of the $13.4 million of cash used in the first six
months of 2005, $12.7 million was used for operating activities, $0.1 million was used for
investing activities and $0.6 million for financing activities. Operating activities consisted of
the net loss of $14.6 million, as previously discussed, non-cash activities of $2.0 million, offset
by $(0.2) million of net changes in balance sheet accounts. Working capital was $2.7 million at
June 30, 2005 compared to $15.4 million at December 31, 2004. The decrease in working capital of
$12.7 million was primarily due to the $12.7 million used for operating activities.
As
previously mentioned in the Recent Development section, on July 5, 2005, the Company
completed an offering of 4,000,000 shares of common stock at $1.00 per share. The stock was issued
pursuant to an existing shelf registration statement. The net proceeds after deducting
underwriter, legal, accounting and other miscellaneous fees were
approximately $3.6 million. As of June 30, on a pro-forma basis,
our cash balance would have been approximately $8.0 million. We intend to use the
proceeds from this offering for general corporate purposes, including but not limited to our
internal research and development programs, such as preclinical and clinical testing and studies of
our product candidates and the development of new technologies, and general working capital.
During the remainder of 2005, we anticipate lower cash requirements than we experienced during
the first half of 2005 primarily due to the reduction in our sales force that occurred in March
2005 and the reduction in marketing costs. Partially offsetting this is an anticipated increase in
research and development expenditures as new product candidates progress to the Investigational New
Drug stage. Sales of ESTRASORB have been below our expectations and our 2005 sales for ESTRASORB
and subsequent cash receipts will not offset related sales and manufacturing expenses. In summary,
we expect our quarterly use of cash to decrease over the remainder of 2005.
We will continue to pursue obtaining capital through product licensing, co-development
arrangements on new products, or the public or private sale of securities of the Company. We have
demonstrated our ability to obtain capital, as required; however, there can be no assurance that we
will be able to obtain additional capital or, if such capital is available, that the terms of any
financing will be satisfactory to the Company. Based on our assessment of the availability of
capital and our business operations as currently contemplated, in the absence of new financings,
licensing arrangements or partnership agreements, we believe we will have adequate resources
through 2005. If we are unable to obtain additional capital, we will continue to assess our
capital resources and based on those resources we may be required to delay, reduce the scope of, or
eliminate one or more of our product research and development programs, downsize our organization,
reduce or defer our marketing expenses or reduce general and administrative infrastructure.
26
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
|
|
Item 3. |
|
Quantitative and Qualitative Disclosures about Market Risk |
There have been no material changes during the period from the end of our last fiscal year
through June 30, 2005 to the information concerning the Companys quantitative and qualitative
disclosures about market risk set forth in Item 7A of our Annual Report on Form 10-K for the fiscal
year ended December 31, 2004 as filed with the SEC.
|
|
|
Item 4. |
|
Controls and Procedures |
The Company maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the Companys reports (as defined in Rules 13a-15(e) and
15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended), is recorded,
processed, summarized and reported within the time periods specified in the SECs rules and forms,
and that such information is accumulated and communicated to the Companys management, including
its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well designed and operated,
can provide only reasonable assurance of achieving the desired control objectives, and management
necessarily was required to apply its judgment in evaluation the cost-benefit relationship of
possible controls and procedures.
Evaluation
The Company carried out an evaluation, under the supervision, and with the participation, of
the Companys management, including the Companys Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the Companys disclosure controls and procedures as of June 30,
2005. Based on that evaluation, the Companys Chief Executive Officer and Chief Financial Officer
concluded that the Companys disclosure controls and procedures were effective as of June 30, 2005.
Such evaluation did not identify any change in the Companys internal controls over financial
reporting during the quarter ended June 30, 2005 that could materially affect the internal control
over financial reporting.
27
Part II. Other Information
Item 1 Legal Proceedings
The Company is a defendant in a lawsuit filed by a former director alleging that the Company
wrongfully terminated the former directors stock options. Management believes that the
termination and cancellation of the options was in accordance with the terms of the option
agreements, following his termination for cause in 1997 by a former parent company, IGI, Inc., and
the lawsuit is without merit and intends to vigorously defend the claim. Management cannot
reasonably estimate the liability, if any, related to this claim, or the likelihood of an
unfavorable settlement. Accordingly, no liability related to this contingency is accrued in the
consolidated balance sheet as of June 30, 2005. Any unfavorable determination however, may have a
material adverse impact on future operating results.
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3 Defaults upon Senior Securities
Not applicable.
Item 4 Submission of Matters to a Vote of Security Holders
At the Companys Annual Meeting of Stockholders held on May 4, 2005, the following proposals
were adopted by the votes specified below:
|
1. |
|
To elect two directors as Class I directors to serve of the Board of Directors for a
three-year term expiring at the 2008 Annual Meeting of Stockholders: |
|
|
|
|
|
|
|
|
|
|
|
FOR |
|
|
WITHHELD |
|
Denis M. ODonnell, M.D. |
|
|
33,441,605 |
|
|
|
3,063,060 |
|
Nelson M. Sims |
|
|
33,233,109 |
|
|
|
3,271,466 |
|
In addition to the two Class I Directors elected at this years Annual Meeting of
Stockholders, the Board is composed of three Class II Directors and three Class III Directors.
The continuing Class II Directors, whose terms will expire at the Companys 2006 Annual Meeting,
are Gary C. Evans, John O. Marsh, Jr. and J. Michael Lazarus. The continue Class III Directors,
whose terms will expire at the Companys 2007 Annual Meeting, are Susan B. Bayh, Mitchell J.
Kelly and Michael A. McManus, Jr. Subsequent to the Annual Meeting Ms. Bayh have
resigned as a directors. On August 8, 2005, Mr. Sims retired as
a director.
2. To approve the Novavax, Inc. 2005 Stock Incentive Plan
|
|
|
|
|
FOR |
|
AGAINST |
|
ABSTAIN |
17,289,403 |
|
2,754,779 |
|
145,062 |
28
|
3. |
|
To approve the issuance of the share of Common Stock, $.01 par value, of the Company
issuable with respect to senior convertible notes in the aggregate principal amount of
$35,000,000 issued to certain qualified institutional buyers and accredited investors. |
|
|
|
|
|
FOR |
|
AGAINST |
|
ABSTAIN |
17,864,913 |
|
2,021,981 |
|
302,350 |
|
4. |
|
To ratify the appointment of Ernst & Young LLP as the independent registered public
accounting firm for the Company for the current fiscal year ending December 31, 2005 |
|
|
|
|
|
FOR |
|
AGAINST |
|
ABSTAIN |
28,122,826 |
|
8,262,889 |
|
118,950 |
Item 5 Other Information
On
August 8, 2005, Nelson M. Sims retired as President and Chief Executive Officer of the
Company and a director of the Company. Also, on August 8, 2005,
Dr. Rahul Singhvi was elected
President and Chief Executive Officer and a director of the Company
and Ray Hage was elected Chief Operating Officer.
Item 6 Exhibits
|
10.1 |
|
Lease Agreement, effective as of April 1, 2005 by, and between United
HealthCare Services, Inc., a Minnesota corporation and the Company. |
|
|
31.1 |
|
Certification of principal executive officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
31.2 |
|
Certification of principal financial officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
32.1 |
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Nelson M. Sims,
President and Chief Executive Officer of the Company. |
|
|
32.2 |
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Dennis W. Genge,
Vice President and Chief Financial Officer of the Company. |
29
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.
|
|
|
|
|
|
NOVAVAX, INC.
(Registrant)
|
|
Date: August 9, 2005 |
By: |
/s/ Dennis W. Genge
|
|
|
Dennis W. Genge |
|
|
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer) |
|
|
30