vxrt20210930_10q.htm
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Table of Contents



 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended September 30, 2021

 

OR

 

 

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

 

For the transition period from                      to                     

 

Commission file number: 001-35285

 

  

Vaxart, Inc.

  

  

(Exact Name of Registrant as Specified in its Charter)

  

 

  

Delaware

  

59-1212264

  

  

(State or other jurisdiction of incorporation or organization)

  

(IRS Employer Identification No.)

  

 

  

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

  

(650) 550-3500

  

  

(Address of principal executive offices, including zip code)

  

(Registrant’s telephone number, including area code)

  

 

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

 

  

Title of each class

 

Trading symbol

  

Name of each exchange on which registered 

  

Common stock, $0.0001 par value

 

VXRT

  

NASDAQ 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☑   No ☐

 

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

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☑

Accelerated filer ☐

Non-accelerated filer ☐ 

Smaller reporting company 

Emerging growth company 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes    No ☑

 

The Registrant had 125,496,066 shares of common stock, $0.0001 par value, outstanding as of November 3, 2021.

 



 

 

 

FORM 10-Q

FOR THE QUARTER ENDED September 30, 2021

TABLE OF CONTENTS

 

 

   

Page

Part I

FINANCIAL INFORMATION

1
         
   

Item 1.

Financial Statements (Unaudited)

1
         
     

Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020

1
         
     

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2021 and 2020

2
         
     

Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2021 and 2020

3
         
     

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020

5
         
     

Notes to the Condensed Consolidated Financial Statements

6
         
   

Item 2.

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

19
         
   

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

29
         
   

Item 4.

Controls and Procedures

30
         
         

Part II

OTHER INFORMATION

31
         
   

Item 1.

Legal Proceedings

31
         
   

Item 1A.

Risk Factors

31
         
   

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

31
         
   

Item 3.

Defaults Upon Senior Securities

31
         
   

Item 4.

Mine Safety Disclosures

31
         
   

Item 5.

Other Information

31
         
   

Item 6.

Exhibits

32
         

SIGNATURES

  33

 

 

 

PART I FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

VAXART, INC.

 

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(Unaudited)

 

 

  

September 30, 2021

  

December 31, 2020

 

Assets

        

Current assets:

        

Cash and cash equivalents

 $167,231  $126,870 

Short-term investments

  20,438    

Accounts receivable

  190   334 

Prepaid expenses and other current assets

  4,441   1,327 
         

Total current assets

  192,300   128,531 
         

Long-term investments

  16,282    

Property and equipment, net

  5,427   1,480 

Right-of-use assets, net

  12,237   6,838 

Intangible assets, net

  14,062   15,361 

Other long-term assets

  828   372 
         

Total assets

 $241,136  $152,582 
         

Liabilities and Stockholders’ Equity

        

Current liabilities:

        

Accounts payable

 $3,745  $2,133 

Current portion of operating lease liability

  1,345   2,052 

Current portion of liability related to sale of future royalties

  3,118   2,779 

Other accrued liabilities

  4,387   4,799 
         

Total current liabilities

  12,595   11,763 
         

Operating lease liability, net of current portion

  11,397   5,156 

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

  12,040   12,150 

Other long-term liabilities

  156   109 
         

Total liabilities

  36,188   29,178 
         

Commitments and contingencies (Note 8)

          
         

Stockholders’ equity:

        

Preferred stock: $0.0001 par value; 5,000,000 shares authorized; none issued and outstanding as of September 30, 2021 and December 31, 2020

      

Common stock: $0.0001 par value; 150,000,000 shares authorized; 125,294,816 and 110,271,093 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively

  13   11 

Additional paid-in capital

  403,525   272,274 

Accumulated deficit

  (198,587)  (148,881)

Accumulated other comprehensive loss

  (3)   
         

Total stockholders’ equity

  204,948   123,404 
         

Total liabilities and stockholders’ equity

 $241,136  $152,582 

 

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

 

 

 

 

VAXART, INC.

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share amounts)

(Unaudited)

 

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2021

   

2020

   

2021

   

2020

 

Revenue:

                               

Revenue from customer service contracts

  $     $ 2     $ 13     $ 193  

Royalty revenue

                      2,962  

Non-cash royalty revenue related to sale of future royalties

    200       263       805       535  
                                 

Total revenue

    200       265       818       3,690  
                                 

Operating expenses:

                               

Research and development

    12,409       4,616       33,219       11,272  

General and administrative

    5,042       4,190       16,136       10,076  

Restructuring costs

          (952 )           (849 )
                                 

Total operating expenses

    17,451       7,854       49,355       20,499  
                                 

Operating loss

    (17,251 )     (7,589 )     (48,537 )     (16,809 )
                                 

Other income and (expenses):

                               

Interest income

    26       5       58       69  

Non-cash interest expense related to sale of future royalties

    (337 )     (464 )     (1,137 )     (1,401 )

Foreign exchange loss, net

          (11 )     (1 )     (13 )
                                 

Loss before income taxes

    (17,562 )     (8,059 )     (49,617 )     (18,154 )
                                 

Provision for income taxes

    21       26       89       205  
                                 

Net loss

  $ (17,583 )   $ (8,085 )   $ (49,706 )   $ (18,359 )
                                 

Net loss per share - basic and diluted

  $ (0.14 )   $ (0.08 )   $ (0.41 )   $ (0.23 )
                                 

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

    123,984,141       107,718,578       120,110,780       81,121,045  
                                 

Comprehensive loss:

                               

Net loss

  $ (17,583 )   $ (8,085 )   $ (49,706 )   $ (18,359 )

Unrealized gains (losses) on available-for-sale investments

    6             (3 )      

Comprehensive loss

  $ (17,577 )   $ (8,085 )   $ (49,709 )   $ (18,359 )

 

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

 

 

 

VAXART, INC.

 

Condensed Consolidated Statements of Stockholders’ Equity

For the Three and Nine Months Ended September 30, 2021

(In thousands, except share amounts)

(Unaudited)

 

 

                  

Accumulated

     
          

Additional

      

Other

  

Total

 
  

Common Stock

  

Paid-in

  

Accumulated

  

Comprehensive

  

Stockholders’

 
  

Shares

  

Amount

  

Capital

  

Deficit

  

Loss

  

Equity

 
                         

Three Months Ended September 30, 2021

                        
                         

Balances as of June 30, 2021

  122,814,467  $12  $380,783  $(181,004) $(9) $199,782 
                         

Issuance of common stock under October 2020 ATM, net of offering costs of $746

  2,280,931   1   20,295         20,296 
                         

Issuance of common stock upon exercise of stock options

  199,418      348         348 
                         

Stock-based compensation

        2,099         2,099 
                         

Unrealized gains on available-for-sale investments

              6   6 
                         

Net loss

           (17,583)     (17,583)
                         

Balances as of September 30, 2021

  125,294,816  $13  $403,525  $(198,587) $(3) $204,948 
                         
                         

Nine Months Ended September 30, 2021

                        
                         

Balances as of December 31, 2020

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

Issuance of common stock under October 2020 ATM, net of offering costs of $5,752

  13,239,839   2   122,208         122,210 
                         

Issuance of common stock upon exercise of common stock warrants

  1,012,540      1,849         1,849 
                         

Issuance of common stock upon exercise of stock options

  771,344      1,240         1,240 
                         

Stock-based compensation

        5,954         5,954 
                         

Unrealized losses on available-for-sale investments

              (3)  (3)
                         

Net loss

           (49,706)     (49,706)
                         

Balances as of September 30, 2021

  125,294,816  $13  $403,525  $(198,587) $(3) $204,948 

 

 

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

 

 

VAXART, INC.

 

Condensed Consolidated Statements of Stockholders’ Equity

For the Three and Nine Months Ended September 30, 2020

(In thousands, except share amounts)

(Unaudited)

 

 

          

Additional

      

Total

 
  

Common Stock

  

Paid-in

  

Accumulated

  

Stockholders’

 
  

Shares

  

Amount

  

Capital

  

Deficit

  

Equity

 
                     

Three Months Ended September 30, 2020

                    
                     

Balances as of June 30, 2020

  96,140,661  $10  $167,160  $(126,935) $40,235 
                     

Issuance of common stock in July 2020, net of offering costs of $2,966

  12,503,806   1   97,033      97,034 
                     

Issuance of common stock upon exercise of common stock warrants

  697,680      1,293      1,293 
                     

Issuance of common stock upon exercise of stock options

  126,798      286      286 
                     

Stock-based compensation

        915      915 
                     

Net loss

           (8,085)  (8,085)
                     

Balances as of September 30, 2020

  109,468,945  $11  $266,687  $(135,020) $131,678 
                     
                     

Nine Months Ended September 30, 2020

                    
                     

Balances as of December 31, 2019

  48,254,994  $5  $129,608  $(116,661) $12,952 
                     

Issuance of common stock and common stock warrants in March 2020, net of offering costs of $1,278

  4,000,000      8,722      8,722 
                     

Issuance of common stock warrants to placement agents’ designees in March 2020

        453      453 
                     

Issuance of common stock in July 2020, net of offering costs of $2,966

  12,503,806   1   97,033      97,034 
                     

Issuance of common stock upon exercise of common stock warrants

  44,404,966   5   25,946      25,951 
                     

Issuance of common stock upon exercise of stock options

  305,179      402      402 
                     

Disgorgement of short-swing profits, net of costs

        652      652 
                     

Stock-based compensation

        3,871      3,871 
                     

Net loss

           (18,359)  (18,359)
                     

Balances as of September 30, 2020

  109,468,945  $11  $266,687  $(135,020) $131,678 

 

 

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

 

 

 

VAXART, INC.

 

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

   

Nine Months Ended September 30,

 
   

2021

   

2020

 
                 

Cash flows from operating activities:

               

Net loss

  $ (49,706 )   $ (18,359 )

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

               

Depreciation and amortization

    3,010       1,846  

Accretion of premium on investments

    55        

Stock-based compensation

    5,954       3,871  

Non-cash interest expense related to sale of future royalties

    1,137       1,401  

Non-cash revenue related to sale of future royalties

    (908 )     (3,027 )

Change in operating assets and liabilities:

               

Accounts receivable

    144       3,369  

Prepaid expenses and other assets

    (3,570 )     (1,384 )

Accounts payable

    1,483       810  

Other accrued liabilities

    (1,617 )     (1,511 )
                 

Net cash used in operating activities

    (44,018 )     (12,984 )
                 

Cash flows from investing activities:

               

Purchase of property and equipment

    (4,142 )     (321 )

Proceeds from sale of equipment

          3  

Purchases of investments

    (41,278 )      

Proceeds from maturities of investments

    4,500        
                 

Net cash used in investing activities

    (40,920 )     (318 )
                 

Cash flows from financing activities:

               

Net proceeds from issuance of securities in registered direct offering

          9,175  

Net proceeds from issuance of common stock through ATM facilities

    122,210       97,034  

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

    1,849       25,951  

Proceeds from issuance of common stock upon exercise of stock options

    1,240       402  

Disgorgement of short-swing profits, net of costs

          652  
                 

Net cash provided by financing activities

    125,299       133,214  
                 

Net increase in cash and cash equivalents

    40,361       119,912  
                 

Cash and cash equivalents at beginning of the period

    126,870       13,526  
                 

Cash and cash equivalents at end of the period

  $ 167,231     $ 133,438  

 

                 

Supplemental disclosure of non-cash financing activity:

               

Issuance of warrants to placement agent’s representatives

  $     $ 453  

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

  $ 6,939     $ 1,022  

Lease-related assets and liabilities derecognized on early termination and modification of leases

  $ 235     $  

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

  $ 289     $ 213  

    

 

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

 

 

VAXART, INC.

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

 

NOTE 1.  Organization and Basis of Presentation

 

General 

 

Vaxart Biosciences, Inc. was originally incorporated in California in March 2004, under the name West Coast Biologicals, Inc. The Company changed its name to Vaxart, Inc. (“Private Vaxart”) in July 2007, and reincorporated in the state of Delaware.

 

On February 13, 2018, Private Vaxart completed a business combination with Aviragen Therapeutics, Inc. (“Aviragen”), pursuant to which Aviragen merged with Private Vaxart, with Private Vaxart surviving as a wholly owned subsidiary of Aviragen (the “Merger”). Pursuant to the terms of the Merger, Aviragen changed its name to Vaxart, Inc. (together with its subsidiaries, the “Company” or “Vaxart”) and Private Vaxart changed its name to Vaxart Biosciences, Inc.

 

On June 8, 2020, the Company’s shareholders approved an amendment to the Company’s certificate of incorporation to change the par value of its common and preferred stock from $0.10 per share to $0.0001 per share and to increase the number of authorized shares of common stock from 100,000,000 to 150,000,000. Except as otherwise noted in these condensed consolidated financial statements, all share, equity security and per share amounts are presented to give retroactive effect to these changes.

 

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

 

In the nine months ended September 30, 2021, the Company sold an additional 13,239,839 shares under the October 2020 ATM for gross proceeds of $127.9 million which, after deducting sales commissions and expenses, resulted in net proceeds under the October 2020 ATM of $122.2 million. As of  September 30, 2021, a total of 13,932,490 shares had been issued and sold under the October 2020 ATM since its inception for gross proceeds of $133.4 million which, after deducting sales commissions and expenses, resulted in net proceeds of $127.1 million.

 

On September 13, 2021, the October 2020 ATM was terminated and on September 15, 2021, the Company entered into a Controlled Equity Offering Sales Agreement (the “September 2021 ATM”), pursuant to which it may offer and sell, from time to time through sales agents, shares of its common stock having an aggregate offering price of up to $100 million. The Company incurred direct expenses of approximately $0.2 million in connection with filing a prospectus supplement with the SEC on September 16, 2021, and will pay sales commissions of up to 3.0% of gross proceeds from the sale of shares. As of  September 30, 2021, no shares had been issued under the September 2021 ATM.

 

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

 

 

 

NOTE 2.  Summary of Significant Accounting Policies

 

Basis of Presentation – The Company has prepared the accompanying condensed consolidated financial statements pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to these rules and regulations. These condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and footnotes related thereto for the year ended December 31, 2020, included in the Company’s Annual Report on Form 10-K filed with the SEC on February 25, 2021 (the “Annual Report”). Unless noted below, there have been no material changes to the Company’s significant accounting policies described in Note 2 to the consolidated financial statements included in the Annual Report. In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the Company’s financial position and the results of its operations and cash flows. The results of operations for such interim periods are not necessarily indicative of the results to be expected for the full year or any future periods.

 

 

 

VAXART, INC.

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

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

 

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

 

Investments – Excess cash balances may be invested in marketable debt securities. All investments that are readily convertible to known amounts of cash with stated maturities greater than three months when purchased are classified as investments. 

 

The Company determines the appropriate classification of its investments in marketable securities at the time of purchase and reevaluates such designation at each balance sheet date. Marketable debt securities are classified and accounted for as available-for-sale. After consideration of the Company’s objectives to preserve capital, as well as its liquidity requirements, it may sell these debt securities prior to their stated maturities. These securities are carried at fair value and unrealized gains and losses, net of taxes, are reported as a component of stockholders’ equity, except for unrealized losses determined to be other-than-temporary, which are recorded within other income and (expenses). Any realized gains or losses on the sale of marketable debt securities are determined on a specific identification method, and such gains and losses are recorded as a component of other income and (expenses). Available-for-sale investments are classified as either current or non-current assets based on each instrument’s underlying effective maturity date and whether the Company has the intent and ability to hold the investment for a period of greater than 12 months. Marketable securities with remaining maturities of 12 months or less are classified as current and are reported as short-term investments in the condensed consolidated balance sheets. Marketable securities with remaining maturities of more than 12 months for which the Company has the intent and ability to hold the investment for more than 12 months are classified as non-current and are included in long-term investments in the condensed consolidated balance sheets.

 

Securities are evaluated for impairment at the end of each reporting period. Impairment is evaluated considering numerous factors, including whether a decline in fair value below the amortized cost basis is due to credit-related factors or non-credit-related factors, the financial condition and near-term prospects of the issuer, and intent and ability to hold the investment to allow for an anticipated recovery in fair value. A credit-related impairment is recognized as an allowance on the balance sheet with a corresponding adjustment to earnings. Any impairment that is not credit-related is recognized in other comprehensive loss, net of applicable taxes.

 

Concentration of Credit Risk – Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents and available-for-sale investments. The Company places its cash, cash equivalents and available-for-sale investments at financial institutions that management believes are of high credit quality. The Company is exposed to credit risk in the event of default by the financial institutions holding the cash and cash equivalents to the extent such amounts are in excess of the federally insured limits. The Company has not experienced any losses on its deposits since inception.

 

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

 

Recent Accounting Pronouncements

 

In August 2020, the FASB issued Accounting Standards Update (ASU) 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in an Entity’s Own Equity (Subtopic 815-40). In addition to simplifying the accounting for certain debt and equity instruments, none of which the Company presently has outstanding, this standard update provides guidance on how certain instruments should be treated in the computation of earnings per share. The Company adopted the new guidance effective January 1, 2021, using the modified retrospective method. Its adoption had an immaterial impact on the number of shares used in the computation of year-to-date basic and diluted earnings per share.

 

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

 

 

 

VAXART, INC.

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

 

NOTE 3.  Fair Value of Financial Instruments

 

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

 

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

 

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

 

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

 

Level 2 – Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and

 

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

 

The following table sets forth the fair value of the Company’s financial assets that are measured on a recurring basis as of September 30, 2021 and  December 31, 2020 (in thousands):

 

  

Level 1

  

Level 2

  

Level 3

  

Total

 

September 30, 2021

                

Recurring financial assets:

                

Money market funds

 $73,276  $  $  $73,276 

U.S. Treasury securities

     23,022      23,022 

Commercial paper

     7,192      7,192 

Corporate debt securities

     6,506      6,506 

Total

 $73,276  $36,720  $  $109,996 

 

  

Level 1

  

Level 2

  

Level 3

  

Total

 

December 31, 2020

                

Recurring financial assets:

                

Money market funds

 $60,005  $  $  $60,005 

Total

 $60,005  $  $  $60,005 

 

The Company held no recurring financial liabilities as of  September 30, 2021 or December 31, 2020, or in the nine months ended September 30, 2021 or 2020.

 

 

 

 

VAXART, INC.

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

 

NOTE 4.  Balance Sheet Components

 

 

(a)

Cash, Cash Equivalents and Investments

 

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

 

  

Amortized

  

Gross Unrealized

  

Estimated

  

Cash and Cash

  

Short-Term

  

Long-Term

 
  

Cost

  

Gains

  

Losses

  

Fair Value

  

Equivalents

  

Investments

  

Investments

 

September 30, 2021

                            

Cash at banks

 $93,955  $  $  $93,955  $93,955  $  $ 

Money market funds

  73,276         73,276   73,276       

U.S. Treasury securities

  23,025      (3)  23,022      9,997   13,025 

Commercial paper

  7,192         7,192      7,192    

Corporate debt securities

  6,506         6,506      3,249   3,257 

Total

 $203,954  $  $(3) $203,951  $167,231  $20,438  $16,282 

 

  

Amortized

  

Gross Unrealized

  

Estimated

  

Cash and Cash

  

Short-Term

  

Long-Term

 
  

Cost

  

Gains

  

Losses

  

Fair Value

  

Equivalents

  

Investments

  

Investments

 

December 31, 2020

                            

Cash at banks

 $66,865  $  $  $66,865  $66,865  $  $ 

Money market funds

  60,005         60,005   60,005       

Total

 $126,870  $  $  $126,870  $126,870  $  $ 

 

 

(b)

Accounts Receivable 

 

Accounts receivable comprises royalties receivable of $190,000 and $334,000 as of September 30, 2021 and December 31, 2020, respectively. The Company has provided no allowance for uncollectible accounts as of  September 30, 2021 and December 31, 2020.

 

 

(c)

Property and Equipment, Net

 

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

 

  

September 30, 2021

  

December 31, 2020

 
    

Laboratory equipment

 $3,389  $1,759 

Office and computer equipment

  382   294 

Leasehold improvements

  1,057    

Construction in progress

  1,578    

Total property and equipment

  6,406   2,053 

Less: accumulated depreciation

  (979)  (573)

Property and equipment, net

 $5,427  $1,480 

 

Depreciation expense was $211,000 and $34,000 for the three months ended September 30, 2021 and 2020, respectively, and $406,000 and $78,000 for the nine months ended September 30, 2021 and 2020, respectively. There were no impairments of the Company’s property and equipment recorded in the nine months ended September 30, 2021 or 2020.

 

 

(d)

Right-of-Use Assets, Net

 

Right-of-use assets, net consists of the following (in thousands):

  

September 30, 2021

  

December 31, 2020

 
    

Facilities

 $12,237  $6,836 

Office equipment

     2 

Right-of-use assets, net

 $12,237  $6,838 

 

 

VAXART, INC.

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

 

(e)

Intangible Assets, Net

 

Intangible assets comprise developed technology and intellectual property. Intangible assets are carried at cost less accumulated amortization. Amortization is computed using the straight-line method over useful lives ranging from 1.3 to 11.75 years for developed technology and 20 years for intellectual property. As of September 30, 2021, developed technology and intellectual property had remaining lives of 8.1 and 6.25 years, respectively. Intangible assets consist of the following (in thousands):

 

  

September 30, 2021

  

December 31, 2020

 
    

Developed technology

 $20,300  $20,300 

Intellectual property

  80   80 

Total cost

  20,380   20,380 

Less: accumulated amortization

  (6,318)  (5,019)

Intangible assets, net

 $14,062  $15,361 

 

Total amortization expense for the three months ended September 30, 2021 and 2020, was $433,000, and for the nine months ended September 30, 2021 and 2020, was $1.3 million. As of September 30, 2021, the estimated future amortization expense by year is as follows (in thousands):

 

Year Ending December 31,

 

Amount

 

2021 (three months remaining)

 $433 

2022

  1,731 

2023

  1,732 

2024

  1,732 

2025

  1,731 

Thereafter

  6,703 

Total

 $14,062 

 

 

(f)

Other Accrued Liabilities

 

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

 

  

September 30, 2021

  

December 31, 2020

 
         

Accrued compensation

 $2,084  $1,618 

Accrued clinical and manufacturing expenses

  725   1,772 

Accrued professional and consulting services

  782   777 

Other liabilities, current portion

  796   632 

Total

 $4,387  $4,799 

 

 

 

NOTE 5.  Revenue

 

Service Contracts with Customers

 

Contract Balances.  As of  September 30, 2021 and December 31, 2020, there were no accounts receivable related to service contracts with customers. Contract assets, representing unbilled receivables where revenue has been recognized in advance of customer billings, as of  September 30, 2021 and December 31, 2020, were nil and $219,000, respectively, which are included in prepaid expenses and other current assets.

 

Remaining Performance Obligations. Remaining Performance Obligations (“RPO”) comprise deferred revenue plus unbilled contract revenue. As of  September 30, 2021 and December 31, 2020, there was no deferred revenue and the aggregate amount of RPO was nil and $13,000, respectively, all of which was unbilled contract revenue which is not recorded on the balance sheet. Unbilled contract revenue represents non-cancelable contracts under which the Company has an obligation to perform, for which revenue has not yet been recognized in the financial statements and the fixed amounts billable have not yet been invoiced.

 

 

VAXART, INC.

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

Royalty Agreements

 

Aviragen entered into a royalty-generating research and license agreement with GlaxoSmithKline, plc (“GSK”) in 1990 for the development and commercialization of zanamivir, a neuraminidase inhibitor marketed by GSK as Relenza, to treat influenza. All of the Company’s Relenza patents have expired, with the last remaining patent expiring in July 2019 in Japan, at which time royalty revenue ceased, although until April 30, 2020, it remained subject to adjustments for sales returns and exchange rate differences. There was no royalty revenue related to Relenza recognized in the nine months ended September 30, 2021, and in the nine months ended September 30, 2020, the Company recognized revenue of $193,000, all in the three months ended June 30, 2020.

 

The Company also generates royalty revenue from the sale of Inavir in Japan, pursuant to a collaboration and license agreement that Aviragen entered into with Daiichi Sankyo Company, Limited (“Daiichi Sankyo”) in 2009. In September 2010, laninamivir octanoate was approved for sale by the Japanese Ministry of Health and Welfare for the treatment of influenza in adults and children, which Daiichi Sankyo markets as Inavir. Under the agreement, the Company currently receives a 4% royalty on net sales of Inavir in Japan. The last patent related to Inavir is set to expire in December 2029, at which time royalty revenue will cease. The royalty revenue related to Inavir recognized in the nine months ended September 30, 2021 and 2020, was nil and $2.8 million, respectively. In addition, the Company recognized non-cash royalty revenue related to the sale of future royalties (see Note 6) of $200,000 and $263,000 in the three months ended September 30, 2021 and 2020, respectively, and $805,000 and $535,000 in the nine months ended September 30, 2021 and 2020, respectively. Both the royalty revenue and the non-cash royalty revenue related to sale of future royalties have been subjected to a 5% withholding tax in Japan, for which $10,000 and $13,000 was included in income tax expense in the three months ended September 30, 2021 and 2020, respectively, and $40,000 and $165,000 was included in income tax expense in the nine months ended September 30, 2021 and 2020, respectively.

 

The Company’s royalty revenue is seasonal, in line with the flu season, so the majority of the Company’s royalty revenue is earned in the first and fourth fiscal quarters.

 

 

 

NOTE 6. Liabilities Related to Sale of Future Royalties

 

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

 

Under the relevant accounting guidance, due to a limit on the amount of royalties that HCRP can earn under the RIAA, this transaction is accounted for as a liability that is being amortized using the interest method over the life of the arrangement. The Company has no obligation to pay any amounts to HCRP other than to pass through to HCRP its share of royalties as they are received from Daiichi Sankyo. In order to record the amortization of the liability, the Company is required to estimate the total amount of future royalty payments to be received under the License Agreement and the payments that will be passed through to HCRP over the life of this agreement. Consequently, the Company imputes interest on the unamortized portion of the liability and records non-cash interest expense using an estimated effective interest rate. The royalties earned in each period that will be passed through to HCRP are recorded as non-cash royalty revenue related to sale of future royalties, with any excess not subject to pass-through being recorded as royalty revenue. When the pass-through royalties are paid to HCRP in the following quarter, the imputed liability related to sale of future royalties is commensurately reduced. The Company periodically assesses the expected royalty payments, and to the extent such payments are greater or less than the initial estimate, the Company adjusts the amortization of the liability and interest rate. As a result of this accounting, even though the Company does not retain HCRP’s share of the royalties, it will continue to record non-cash revenue related to those royalties until the amount of the associated liability, including the related interest, is fully amortized.

 

The following table shows the activity within the liability account during the nine months ended September 30, 2021 (in thousands):

 

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

 $14,929 

Non-cash royalty revenue paid to HCRP

  (908)

Non-cash interest expense recognized

  1,137 

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

  15,158 

Current portion

  (3,118)

Long-term portion

 $12,040 

 

 

 

VAXART, INC.

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

 

NOTE 7.  Leases

 

The Company has the right of use for office and manufacturing facilities under five operating lease agreements with initial terms exceeding one year, and has two operating lease agreements for manufacturing facilities and one for manufacturing equipment with initial terms of one year or less.

 

The Company obtained the right of use of real estate located in South San Francisco, California, in November 2020 under a lease that was scheduled to terminate on September 30, 2025, which has been extended until March 31, 2029, with no extension option. The Company also obtained the right of use of real estate located in South San Francisco, California, in June 2015 that was scheduled to terminate on April 30, 2020, with a five-year extension option that the Company exercised in July 2019, extending the lease until April 30, 2025, which has been extended until March 31, 2029, with an option to extend for an additional eight years. Further, the Company obtained, via the Merger in February 2018, the right of use of facilities located in Alpharetta, Georgia, that terminated on  February 28, 2021, with no extension option. These facilities were subleased for the remainder of the lease term effective November 30, 2018. In addition, the Company has the right of use of a facility located in South San Francisco, California, under a lease that, following a one-year extension, now terminates on July 31, 2022, with no extension option. Further, the Company has the right of use of a facility located in South San Francisco, California, under a lease that terminates on March 30, 2029, with a five-year renewal option. The Company has also identified an embedded lease for the rental of facilities in Burlingame, California, within a Statement of Work for the manufacture of bulk vaccine product that is expected to be completed in 2022, and short-term embedded leases for the rental of facilities in South San Francisco, California and Lodi, Wisconsin.

 

As of September 30, 2021, the weighted average discount rate for operating leases with initial terms of more than one year was 9.26% and the weighted average remaining term of these leases was 7.17 years. Discount rates were determined using the Company’s marginal rate of borrowing at the time each lease commenced or was extended.

 

The following table summarizes the Company’s undiscounted cash payment obligations for its operating lease liabilities with initial terms of more than twelve months as of  September 30, 2021 (in thousands):

 

Year Ending December 31,

    

2021 (three months remaining)

 $556 

2022

  2,256 

2023

  1,773 

2024

  1,835 

2025

  2,145 

Thereafter

  9,622 

Undiscounted total

  18,187 

Less: imputed interest

  (5,445)

Present value of future minimum payments

  12,742 

Current portion of operating lease liability

  (1,345)

Operating lease liability, net of current portion

 $11,397 

 

The Company presently has no finance leases and future obligations of $16,000 under an operating lease for equipment with an initial term of one year or less.

 

Certain operating lease agreements for facilities include non-lease costs, such as common area maintenance, which are recorded as variable lease costs. Operating lease expenses for the three and nine months ended September 30, 2021 and 2020, are summarized as follows (in thousands):

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2021

  

2020

  

2021

  

2020

 

Lease cost

                

Operating lease cost

 $651  $235  $1,824  $636 

Short-term lease cost

  101   4   232   10 

Variable lease cost

  313   29   937   53 

Sublease income

     (54)  (36)  (163)

Total lease cost

 $1,065  $214  $2,957  $536 

 

Net cash outflows associated with operating leases totaled $970,000 and $243,000 in the three months ended September 30, 2021 and 2020, respectively, and $2.8 million and $717,000 in the nine months ended September 30, 2021 and 2020, respectively.

 

 

VAXART, INC.

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

 

NOTE 8. Commitments and Contingencies

 

 

(a)

Purchase Commitments

 

As of September 30, 2021, the Company had approximately $18.2 million of non-cancelable purchase commitments, principally for contract manufacturing and clinical services which are expected to be paid within the next year. In addition, the Company has operating lease commitments as detailed in Note 7 and a further commitment for an operating lease with rental payments totaling $14.9 million payable by March 31, 2029, which has been executed but has not yet commenced.

 

 

(b)

Indemnifications

 

In the ordinary course of business, the Company enters into agreements that may include indemnification provisions. Pursuant to such agreements, the Company may indemnify, hold harmless and defend indemnified parties for losses suffered or incurred by the indemnified party. Some of the provisions will limit losses to those arising from third-party actions. In some cases, the indemnification will continue after the termination of the agreement. The maximum potential amount of future payments the Company could be required to make under these provisions is not determinable. The Company has also entered into indemnification agreements with its directors and officers that require the Company to indemnify its directors and officers against liabilities that may arise by reason of their status or service as directors or officers to the fullest extent permitted by Delaware corporate law. The Company currently has directors’ and officers’ insurance.

 

 

(c)

Litigation

 

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

 

On August 4, 2020, a purported shareholder derivative complaint was filed in the Superior Court of California, San Mateo County, entitled Godfrey v. Latour, et al. An amended complaint was filed on September 4, 2020, and the case was re-named Ennis v. Latour, et al. A second amended complaint was filed on November 25, 2020. On March 15, 2021, the court sustained demurrers to the second amended complaint, without prejudice to file a further amended complaint. A third amended complaint was filed on June 11, 2021. The third amended complaint names certain current and former Vaxart directors as defendants, asserting claims against them for breach of fiduciary duty, unjust enrichment, and waste and seeking, among other things, an award of unspecified damages, certain equitable relief, and attorneys’ fees and costs. The complaint also asserts claims for breach of fiduciary duty and aiding and abetting breach of fiduciary duty against Armistice Capital, LLC (“Armistice”). The complaint challenges certain stock options granted to certain of the Company’s officers and directors between March 24, 2020 and June 15, 2020; certain alleged statements and omissions made in the Company’s April 24, 2020 proxy statement; and certain amendments to two warrants held by Armistice, as disclosed on June 8, 2020. The third amended complaint purports to bring the lawsuit derivatively on behalf of and for the benefit of the Company and names the Company as a “nominal defendant” against which no damages are sought. On August 31, 2021, all defendants filed their respective demurrers to the third amended complaint, which remains pending.

 

On September 8, 2020, a purported shareholder derivative complaint was filed in the Court of Chancery of the State of Delaware, entitled Galjour v. Floroiu, et al. On October 20, 2020, a purported shareholder derivative and class action complaint, entitled Jaquith v. Vaxart, Inc., was filed in the Court of Chancery of the State of Delaware. On November 12, 2020, the two actions were consolidated under the caption In re Vaxart, Inc. Stockholder Litigation and the complaint filed in the Jaquith action was deemed the operative pleading. The operative complaint names as defendants certain current and former Vaxart directors, asserting claims against them for breach of fiduciary duty and unjust enrichment and seeking, among other things, an award of unspecified damages, certain equitable relief, and attorneys’ fees and costs. The complaint also asserts claims for unjust enrichment and breach of fiduciary duty or alternatively aiding and abetting breach of fiduciary duty against Armistice. The complaint challenges certain stock options granted to certain of the Company’s officers and directors between March 24, 2020 and June 15, 2020; certain alleged statements and omissions made in the Company’s April 24, 2020 proxy statement; and certain amendments to two warrants held by Armistice, as disclosed on June 8, 2020. The complaint purports to bring all but one of the claims derivatively on behalf of and for the benefit of the Company. It also purports to bring one claim, for breach of fiduciary duty based on alleged statements and omissions in the Company’s April 24, 2020 proxy statement, directly on behalf of a class of Vaxart stockholders. The complaint names the Company as a “nominal defendant” against which no damages are sought. On January 4, 2021, all defendants filed motions to dismiss. These motions are pending.

 

 

VAXART, INC.

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

In August and September 2020, two substantially similar securities class actions were filed in the U.S. District Court for the Northern District of California. The first, entitled Himmelberg v. Vaxart, Inc. et al. was filed on August 24, 2020. The second action, entitled Hovhannisyan v. Vaxart, Inc. et al. was filed on September 1, 2020 (together, the “Putative Class Action”). By Order dated September 17, 2020, the two actions were deemed related; lead plaintiffs and lead plaintiffs’ counsel were subsequently appointed on December 9, 2020. On January 29, 2021, the lead plaintiffs filed their consolidated amended complaint. On July 8, 2021, all defendants moved to dismiss the consolidated amended complaint. On May 14, 2021, the court granted lead plaintiffs’ request to amend the consolidated amended complaint and denied defendants’ motions to dismiss as moot. On June 10, 2021, lead plaintiffs filed a first amended consolidated complaint. The first amended consolidated complaint names as defendants certain of Vaxart’s current and former executive officers and directors, as well as Armistice. It claims three violations of federal civil securities laws; violation of Section 10(b) of the Exchange Act and SEC Rule 10b-5, as against the Company and all individual defendants; violation of Section 20(a) of the Exchange Act, as against Armistice and all individual defendants; and violation of Section 20A of the Exchange Act against Armistice. The first amended consolidated complaint alleges that the defendants violated securities laws by misstating and/or omitting information regarding the Company’s development of a norovirus vaccine, the vaccine manufacturing capabilities of a business counterparty, and the Company’s involvement with Operation Warp Speed (“OWS”); and by engaging in a scheme to inflate Vaxart’s stock price. The first amended consolidated complaint seeks to be certified as a class action for similarly situated shareholders and seeks, among other things, an unspecified amount of damages and attorneys’ fees and costs. On July 8, 2021, all defendants moved to dismiss the first amended consolidated complaint. The motion is pending.

 

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

 

On January 8, 2021, a purported shareholder, Phillip Chan, commenced a pro se lawsuit in the U.S. District Court for the Northern District of California entitled Chan v. Vaxart, Inc. et al. (the “Opt-Out Action”). This complaint is nearly identical to an earlier version of a complaint filed in the Putative Class Actions, naming the same defendants, certain of Vaxart’s current and former executive officers and directors and Armistice, and asserting identical legal claims relating to the same factual allegations. The complaint asserts two violations of federal civil securities laws, violation of Section 10(b) of the Exchange Act and SEC Rule 10b-5 as against all defendants, and violation of Section 20(a) of the Exchange Act as against the individual defendants. The Opt-Out Action alleges that the defendants violated securities laws by misstating and omitting information regarding the Company’s development of a Covid-19 vaccine as well as its OWS involvement to deceive the investing public and inflate Vaxart’s stock price. The Opt-Out Action has been stayed pending resolution of the Putative Class Actions.

 

On February 4, 2021, a purported shareholder, Stephen Barker, commenced a lawsuit in the Delaware Court of Chancery entitled Barker v. Vaxart, Inc. et al. The complaint named as defendants the Company and its then-current board of directors. The complaint asserted a single claim seeking a declaration that one of the Company’s bylaws, which required a supermajority vote to remove a Company director from office, violated Delaware General Corporate Law Section 141(k). On May 14, 2021, the Court entered an Order voluntarily dismissing the action as moot.

 

On March 5, 2021, a purported shareholder, Kathleen Sanetel, served a demand letter on the Company’s board of directors demanding that it investigate and commence appropriate legal action against certain members of the board of directors and/or executive officers, and Armistice to remedy purportedly wrongful conduct beginning in April 2020. On or about June 2, 2021, another purported shareholder, Jerry Besa, served a substantially identical demand letter. The specific allegations and alleged wrongful conduct set forth in the demand letter are, in all material respects, substantially similar to the allegations and claims made in the consolidated amended complaint in the Putative Class Actions. After receipt of the Sanetel demand letter, the Board appointed a committee of the Board (the “Demand Committee”) and delegated to the Demand Committee the authority to investigate the matters referenced in the demand letter and determine action(s), if any, to be taken by the Company in response to the demand.

 

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

 

 

 

NOTE 9.  Stockholders’ Equity

 

 

(a)

Preferred Stock

 

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

 

 

 

VAXART, INC.

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

 

(b)

Common Stock

 

Except as otherwise required by law or as otherwise provided in any certificate of designation for any series of preferred stock, the holders of common stock possess all voting power for the election of the Company’s directors and all other matters requiring stockholder action. Holders of common stock are entitled to one vote per share on matters to be voted on by stockholders. Holders of common stock are entitled to receive such dividends, if any, as may be declared from time to time by the Company’s board of directors in its discretion out of funds legally available therefor. In no event will any stock dividends or stock splits or combinations of stock be declared or made on common stock unless the shares of common stock at the time outstanding are treated equally and identically. As of September 30, 2021, no dividends had been declared by the board of directors.

 

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

 

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

 

  

September 30, 2021

  

December 31, 2020

 
         

Options issued and outstanding

  9,553,758   6,813,033 

Available for future grants of equity awards

  6,562,742   1,230,863 

Common stock warrants

  232,434   1,244,974 

Total

  16,348,934   9,288,870 

 

 

(c)

Warrants

 

The following warrants were outstanding as of September 30, 2021, all of which contain standard anti-dilution protections in the event of subsequent rights offerings, stock splits, stock dividends or other extraordinary dividends, or other similar changes in the Company’s common stock or capital structure, and none of which have any participating rights for any losses:

 

Securities into which warrants are convertible

 

Warrants outstanding

  

Exercise Price

 

Expiration Date

          

Common Stock

  5,000  $0.30 

September 2024

Common Stock

  44,148  $1.10 

April 2024

Common Stock

  26,515  $1.375 

April 2024

Common Stock

  29,150  $2.50 

March 2025

Common Stock

  100,532  $3.125 

February 2025

Common Stock

  16,175  $3.125 

March 2024

Common Stock

  10,914  $22.99 

December 2026

Total

  232,434      

 

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

 

 

 

VAXART, INC.

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

 

NOTE 10.  Equity Incentive Plans

 

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

 

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

 

A summary of stock option transactions in the nine months ended September 30, 2021, is as follows:

          

Weighted

 
  

Shares

  

Number of

  

Average

 
  

Available

  

Options

  

Exercise

 
  

For Grant

  

Outstanding

  

Price

 
             

Balance at January 1, 2021

  1,230,863   6,813,033  $2.70 

2019 Plan Amendment

  8,900,000     $ 

Granted

  (4,122,438)  4,122,438  $7.24 

Exercised

     (771,344) $1.61 

Forfeited

  554,317   (574,054) $2.44 

Canceled

     (36,315) $8.42 
             

Balance at September 30, 2021

  6,562,742   9,553,758  $4.74 

 

As of September 30, 2021, there were 9,553,758 options outstanding with a weighted average exercise price of $4.74, a weighted average remaining term of 8.55 years and an aggregate intrinsic value of $32.1 million. Of these options, 3,665,542 were vested, with a weighted average exercise price of $2.67, a weighted average remaining term of 7.27 years and an aggregate intrinsic value of $20.1 million. The Company received $1.2 million for the 771,344 options exercised during the nine months ended September 30, 2021, which had an intrinsic value of $4.6 million, and received $402,000 for the 305,179 options exercised during the nine months ended September 30, 2020, which had an intrinsic value of $1.6 million.

 

 

VAXART, INC.

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

The weighted average grant date fair value of options awarded in the nine months ended September 30, 2021 and 2020, was $6.67 and $1.98, respectively. Their fair values were estimated using the following assumptions:

 

  

Nine Months Ended September 30,

 
  

2021

  

2020

 
         

Risk-free interest rate

  0.91% - 1.19%   0.40% - 0.88% 

Expected term (in years)

  5.44 - 6.08   5.22 - 10.00 

Expected volatility

  122% - 131%   94% - 108% 

Dividend yield

  %  %

 

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

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2021

  

2020

  

2021

  

2020

 
                 

Research and development

 $1,206  $268  $2,429  $1,405 

General and administrative

  893   647   3,525   2,466 

Total stock-based compensation

 $2,099  $915  $5,954  $3,871 

 

Effective June 16, 2021, the Company modified the terms of outstanding options awarded to its former Chairman of the Board, Wouter W. Latour, such that the vesting of 100,000 options that would otherwise have been forfeited was accelerated. Further, the post-termination exercise period for all his vested and outstanding options as of the termination date was extended from three months to the earlier of the expiry of their ten-year term and June 16, 2023. The Company recorded a charge for the incremental increase in fair value of $1.3 million, which was included in stock-based compensation expense within general and administrative expenses in the three months ended June 30, 2021.

 

As of September 30, 2021, the unrecognized stock-based compensation cost related to outstanding unvested stock options was $25.8 million, which the Company expects to recognize over an estimated weighted average period of 3.08 years.

 

 

 

NOTE 11.  Related Party Transaction

 

In April 2020 the Company recorded a net amount of $652,000 related to the disgorgement of stockholder short-swing profits under Section 16(b) of the Securities Exchange Act of 1934, as amended. The Company recognized these related party proceeds as an increase to contributed capital on the condensed consolidated balance sheet.

 

 

VAXART, INC.

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

 

NOTE 12.  Net Loss Per Share

 

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

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2021

  

2020

  

2021

  

2020

 
                 

Net loss

 $(17,583) $(8,085) $(49,706) $(18,359)
                 

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

  123,984,141   107,718,578   120,110,780   81,121,045 
                 

Net loss per share – basic and diluted

 $(0.14) $(0.08) $(0.41) $(0.23)

 

No adjustment has been made to the net loss in the three and nine months ended September 30, 2021 or 2020, as the effect would be anti-dilutive due to the net loss.

 

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

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2021

  

2020

  

2021

  

2020

 
                 

Options to purchase common stock

  8,464,753   6,335,797   7,683,510   3,596,816 
                 

Performance-based restricted stock units

     411,000      286,500 
                 

Warrants to purchase common stock

  232,434   1,383,026   413,121   19,275,277 
                 

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

  8,697,187   8,129,823   8,096,631   23,158,593 

 

 

 

 

 

 

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

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in our Annual Report on Form 10-K filed with the SEC on February 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 the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

 

Company Overview and Background

 

We are a clinical-stage biotechnology company primarily focused on the development of oral recombinant vaccines based on our Vector-Adjuvant-Antigen Standardized Technology (“VAAST”) proprietary oral vaccine platform. Our oral vaccines are design