UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
-OR-
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
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(Exact name of registrant as specified in its charter)
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
,
,
(
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(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
__________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
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Name of each exchange
on which registered
The
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
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth
company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange
Act:
Large accelerated filer
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Accelerated filer
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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).
As of May 6, 2022, the registrant had
common stock outstanding.
SPECIAL NOTE REGARDING FORWARD -LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. Forward-looking statements are neither historical facts nor
assurances of future performance. Instead, they are based on our current beliefs, expectations and assumptions regarding the future of
our business, future plans and strategies and other future conditions. In some cases, you can identify forward-looking statements
because they contain words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “predict,” “project,” “target,”
“potential,” “seek,” “will,” “would,” “could,” “should,” “continue,” “contemplate,” “plan,” other words and terms of similar meaning
and the negative of these words or similar terms.
Forward-looking statements are subject to known and unknown risks and uncertainties, many of which may be beyond our control.
We caution you that forward-looking statements are not guarantees of future performance or outcomes and that actual performance
and outcomes may differ materially from those made in or suggested by the forward-looking statements contained in this Quarterly
Report. In addition, even if our results of operations, financial condition and cash flows, and the development of the markets in which
we operate, are consistent with the forward-looking statements contained in this Quarterly Report, those results or developments may
not be indicative of results or developments in subsequent periods. New factors emerge from time to time that may cause our business
not to develop as we expect, and it is not possible for us to predict all of them. Factors that could cause actual results and outcomes
to differ from those reflected in forward-looking statements include, among others, the following:
• the prospects of UB-612 and other product candidates, including the timing of data from our clinical trials for UB-612
and other product candidates and our ability to obtain and maintain regulatory approval for our product candidates;
• our ability to develop and commercialize new products and product candidates;
• our ability to leverage our Vaxxine Platform;
• the rate and degree of market acceptance of our products and product candidates;
• our status as a clinical-stage company and estimates of our addressable market, market growth, future revenue,
expenses, capital requirements and our needs for additional financing;
• our ability to comply with multiple legal and regulatory systems relating to privacy, tax, anti-corruption and
other applicable laws;
• our ability to hire and retain key personnel and to manage our future growth effectively;
• competitive companies and technologies and our industry and our ability to compete;
• our and our collaborators’, including United Biomedical’s (“UBI”), ability and willingness to obtain, maintain, defend
and enforce our intellectual property protection for our proprietary and collaborative product candidates, and the scope
of such protection;
• the performance of third party suppliers and manufacturers and our ability to find additional suppliers and
manufacturers;
• our ability and the potential to successfully manufacture our product candidates for pre-clinical use, for clinical trials
and on a larger scale for commercial use, if approved;
• the ability and willingness of our third-party collaborators, including UBI, to continue research and development
activities relating to our product candidates;
• general economic, political, demographic and business conditions in the United States, Taiwan and other jurisdictions;
• the potential effects of government regulation, including regulatory developments in the United
States and other jurisdictions;
• ability to obtain additional financing in future offerings;
• expectations about market trends; and
• the effects of the Russia-Ukraine conflict and the COVID-19 pandemic on business operations, the initiation,
development and operation of our clinical trials and patient enrollment of our clinical trials.
We discuss many of these factors in greater detail under Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the
year ended December 31, 2021. These risk factors are not exhaustive and other sections of this report may include additional
factors which could adversely impact our business and financial performance. Given these uncertainties, you should not place
undue reliance on these forward-looking statements.
You should read this Quarterly Report and the documents that we reference in this Quarterly Report and have filed as exhibits
completely and with the understanding that our actual future results may be materially different from what we expect. We qualify
all of the forward -looking statements in this Quarterly Report by these cautionary statements. Except as required by law, we
undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events
or otherwise.
As used in this Quarterly Report on Form 10-Q, unless otherwise specified or the context otherwise requires, the terms “we,”
“our,” “us,” the “Company” refer to Vaxxinity, Inc. and its subsidiaries. All brand names or trademarks appearing in this Quarterly
Report are the property of their respective owners.
4
Table of Contents
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5
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
VAXXINITY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
March 31,
December 31,
2022
2021
(Unaudited)
Assets
Current assets:
Cash and cash equivalents
$
$
Amounts due from related parties
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Long-term prepaid fixed assets
Long-term deposits
Restricted cash
Total assets
$
$
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
$
$
Amounts due to related parties
Accrued expenses and other current liabilities
Notes payable
Total current liabilities
Other liabilities
Notes payable, net of current portion
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 16)
Preferred stock: $
Stockholders’ equity:
Class A common stock, $
outstanding at March 31, 2022 and December 31, 2021, respectively
Class B common stock, $
March 31, 2022 and December 31, 2021
Additional paid-in capital
Accumulated deficit
(247,744 )
(229,481 )
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
$
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
VAXXINITY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
(Unaudited)
Three Months Ended March 31,
2022
2021
Revenue
$
—
$
Cost of revenue
—
Gross profit
—
Operating expenses:
Research and development
General and administrative
Total operating expenses
Loss from operations
(18,164 )
(20,256 )
Other (income) expense:
Interest expense
Interest income
(5 )
—
Change in fair value of convertible notes
—
Change in fair value of simple agreement for future equity
—
Change in fair value of warrant liability
—
(Gain) loss on foreign currency translation, net
(1 )
Other (income) expense
Net loss
$
(18,263 )
$
(32,021 )
Net loss per share, basic and diluted
$
(0.15 )
$
(0.47 )
Weighted average common shares outstanding, basic and diluted
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
VAXXINITY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK
(in thousands, except share amounts)
(Unaudited)
Convertible Preferred Stock
Series Seed
Series Seed-1
Series Seed-2
Series A-1
Series A-2
Series A
Series B
Shares
Amount
Shares
Amount
Shares
Amount
Shares
Amount
Shares
Amount
Shares
Amount
Shares
Amount
Total
Balance at December 31, 2020
$
$
$
$
$
$
$
$
Exchange of Series Seed, Series Seed-1, Series Seed-2, Series
A-1 and Series A-2 for Series A
(7,831,528 )
(10,383 )
(22,876,457 )
(20,903 )
(14,615,399 )
(11,315 )
(1,871,511 )
(4,640 )
(6,307,690 )
(15,234 )
—
—
—
Conversion of convertible notes to Series A preferred stock,
net of debt issuance costs
—
—
—
—
—
—
—
—
—
—
—
—
Conversion of notes payable with related parties to Series A
convertible preferred
—
—
—
—
—
—
—
—
—
—
—
—
Conversion of Simple Agreement for Future Equity to Series A
convertible preferred
—
—
—
—
—
—
—
—
—
—
—
—
Conversion of warrant liability to Series A convertible
preferred
—
—
—
—
—
—
—
—
—
—
—
—
Issuance of Series B convertible preferred stock, net of
issuance costs of $
—
—
—
—
—
—
—
—
—
—
—
—
Balance at March 31, 2021
$
$
$
$
$
$
$
$
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8
VAXXINITY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share amounts)
(Unaudited)
Common Stock-Class A
Common Stock-Class B
Treasury Stock
Shares
Amount
Shares
Amount
Shares
Amount
Additional Paid-in
Capital
Accumulated
Deficit
Stockholders’
Equity (Deficit)
Balance at December 31, 2021
$
$
—
—
$
—
$
$
(229,481 )
$
Issuance of common stock upon exercise of stock options
—
—
—
—
—
—
Stock-based compensation expense
—
—
—
—
—
—
—
Net loss
—
—
—
—
—
—
—
(18,263 )
(18,263 )
Balance at March 31, 2022
$
$
—
—
$
—
$
$
(247,744 )
$
Common Stock-Class A
Common Stock-Class B
Treasury Stock
Shares
Amount
Shares
Amount
Shares
Amount
Additional Paid-in
Capital
Accumulated
Deficit
Stockholders’
Equity (Deficit)
Balance at December 31, 2020
$
$
—
(3,169,093 )
$
(23 )
$
$
(92,306 )
$
(87,375 )
Issuance of common stock upon exercise of stock options
—
—
—
—
—
—
Vesting of restricted stock
—
—
—
—
—
—
—
—
Issuance of common stock upon stock grant
—
—
—
—
—
—
Retirement of treasury stock upon reorganization
(3,169,093 )
—
—
—
(23 )
—
—
Stock-based compensation expense
—
—
—
—
—
—
—
Net loss
—
—
—
—
—
—
—
(32,021 )
(32,021 )
Balance at March 31, 2021
$
$
—
$
$
$
(124,327 )
$
(115,849 )
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
9
VAXXINITY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Three Months Ended March 31,
2022
2021
Cash flows from operating activities:
Net loss
$
(18,263 )
$
(32,021 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense
Amortization of debt issuance costs
Stock-based compensation expense
Non-cash interest expense
—
—
Change in fair value of convertible notes
—
Change in fair value of warrant liability
—
Change in fair value of simple agreement for future equity
—
Changes in operating assets and liabilities:
Accounts receivable
—
Amounts due from related parties
(6 )
(5 )
Prepaid expenses and other current assets
(12,752 )
Long-term deposits
(1,351 )
—
Deferred offering costs
—
(862 )
Accounts payable
(1,733 )
Amounts due to related parties
(2,620 )
(1,671 )
Accrued expenses and other current liabilities
Other long-term liabilities
(1 )
(3 )
Net cash used in operating activities
(19,514 )
(28,241 )
Cash flows from investing activities:
Purchase of property and equipment
(713 )
—
Net cash used in investing activities
(713 )
—
Cash flows from financing activities:
Proceeds from issuance of notes payable with related parties
—
Repayment of convertible notes payable
—
(2,000 )
Repayment of notes payable
(107 )
(104 )
Proceeds from issuance of simple agreement for future equity
—
Proceeds from issuance of Series B convertible preferred stock, net of issuance costs
—
Proceeds from exercise of stock options
Net cash provided by financing activities
Increase (decrease) in cash, cash equivalents, and restricted cash
(20,213 )
Cash, cash equivalents, and restricted cash at beginning of period
Cash, cash equivalents, and restricted cash at end of period
$
$
Supplemental Disclosure
Cash paid for interest
$
$
Noncash Financing Activities
Exchange of Series Seed, Series Seed-1, Series Seed-2, Series A-1 and Series A-2 for Series A preferred stock
$
—
$
Conversion of simple agreement for future equity into Series A preferred stock
$
—
$
Conversion of convertible notes payable into Series A preferred stock
$
—
$
Conversion of notes payable with related parties into Series A preferred stock
$
—
$
2,205
Conversion of warrant liability into Series A preferred stock
$
—
$
614
Retirement of treasury stock upon reorganization
$
—
$
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
VAXXINITY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
10
1. Nature of the Business
Vaxxinity, Inc., a Delaware corporation (“Vaxxinity ,” and together with its subsidiaries, the “Company”), was formed through the
combination of two separate businesses that originated from United Biomedical, Inc. (“UBI”) in two separate transactions: a spin-out
from UBI in 2014 of operations focused on developing chronic disease product candidates that resulted in United Neuroscience (“UNS”),
and a second spin-out from UBI in 2020 of operations focused on the development of a COVID-19 vaccine that resulted in C19 Corp.
(“COVAXX”). On February 2, 2021, Vaxxinity was incorporated for the purpose of reorganizing and combining UNS and COVAXX
and on March 2, 2021, did so by acquiring all of the outstanding equity interests of UNS and COVAXX pursuant to a contribution and
exchange agreement (the “Contribution and Exchange Agreement”) whereby the existing equity holders of UNS and COVAXX
contributed their equity interests in each of UNS and COVAXX in exchange for equity in Vaxxinity (the “Reorganization”).
The Company is a biotechnology company currently focused on developing product candidates for human use in the fields of neurology
and coronaviruses utilizing its “Vaxxine Platform”—a peptide vaccine technology first developed by UBI and subsequently refined over
the last two decades. The Company is engaged in the development and commercialization of rationally designed prophylactic and
therapeutic vaccines to combat chronic disorders and infectious diseases with large patient populations and unmet medical need. UBI is
a significant shareholder of the Company and, therefore, considered a related party.
The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry including, but not
limited to, uncertainty of product development and commercialization, lack of marketing and sales history, development by its
competitors of new technological innovations, dependence on key personnel, market acceptance of products, product liability, protection
of proprietary technology, ability to raise additional financing, and compliance with government regulations. If the Company does not
successfully commercialize any of its product candidates, it will be unable to generate recurring product revenue or achieve profitability.
The Company’s product candidates are in development and will require significant additional research and development efforts,
including extensive pre-clinical and clinical testing and regulatory approval prior to commercialization. These efforts require significant
amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. There can be no
assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s
intellectual property will be obtained, that any products developed will obtain necessary government regulatory approval or that any
approved products will be commercially viable. Even if the Company’s product development efforts are successful, it is uncertain when,
if ever, the Company will generate significant revenue from product sales. The Company operates in an environment of rapid change in
technology and is dependent upon the services of its employees and consultants.
Contribution and Exchange Agreement
On March 2, 2021, in accordance with the Contribution and Exchange Agreement, (i) all outstanding shares of UNS and COVAXX
preferred stock and common stock were contributed to Vaxxinity and exchanged for like shares of stock in Vaxxinity, (ii) the outstanding
options to purchase shares of UNS and COVAXX common stock were terminated and substituted with options to purchase shares of
common stock in Vaxxinity, (iii) the outstanding warrant to purchase shares of COVAXX common stock was cancelled and exchanged
for a warrant to acquire common stock in Vaxxinity and (iv) each outstanding Reorganization Convertible Note (as defined below) was
contributed to Vaxxinity and the holders of such notes received Series A preferred stock in Vaxxinity. In particular:
•
Each UNS common share and convertible preferred share was exchanged for 0.2191 shares of Vaxxinity common stock or
Series A preferred stock, as applicable;
•
Each share of COVAXX common and convertible preferred stock was exchanged for
stock or Series A preferred stock, as applicable (and prior to the closing of the Reorganization, all the holders of outstanding
COVAXX SAFEs agreed to convert such SAFEs into shares of Series A-3 preferred stock of COVAXX, which shares were
then exchanged for shares of Vaxxinity’s Series A preferred stock);
•
The Reorganization Convertible Notes were exchanged for an aggregate of
preferred stock; and
•
Each outstanding option of both UNS and COVAXX to purchase common shares of UNS or COVAXX was terminated and
substituted with an option to purchase shares of Class A common stock of Vaxxinity. Each outstanding UNS option was
exchanged based on a conversion ratio of
. Each outstanding COVAXX option was exchanged based on a conversion
ratio of
.
VAXXINITY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
11
All parties to the Contribution and Exchange Agreement intended that the contribution of outstanding equity interests to Vaxxinity in
exchange for Vaxxinity’s common stock and preferred stock be treated as an integrated transaction for U.S. federal income tax purposes
that is governed by Section 351(a) of the Internal Revenue Code of 1986, as amended.
The Reorganization was determined to be a common control transaction, so the carrying values of all contributed assets and assumed
liabilities remained unchanged and the financial information for all periods in the financial statements presented prior to the
Reorganization are presented on a consolidated basis.
Reverse Stock Split
On October 29, 2021, the Company effectuated a reverse stock split of 1-for-
Class B common stock pursuant to an amendment to the Company’s Amended and Restated Certificate of Incorporation approved by
the Company’s board of directors and stockholders. As a result of the Stock Split, the Company also adjusted the share and per share
amounts associated with its options and warrants to purchase shares of its common stock. These unaudited condensed consolidated
financial statements including the notes have been retroactively adjusted to reflect the Stock Split for all periods presented. Any
fractional shares that would have resulted from the Stock Split have been rounded down to the nearest whole share.
Initial Public Offering
On November 15, 2021, the Company closed its IPO of
per share. On November 18, 2021 the Company held a subsequent closing for the issuance of an additional
common stock pursuant to a 30-day option granted to the underwriters to purchase up to an additional
stock at the IPO price, less underwriting discounts and commissions. The aggregate net proceeds to the Company from the offering,
after deducting underwriting discounts and commissions and other offering expenses payable by the Company, was approximately $
million. Upon the closing of the IPO, all previously outstanding shares of the Company’s redeemable convertible preferred stock were
automatically converted at the same ratio used for the Stock Split (1-for-
) into shares of its Class A common stock.
Liquidity
At three months ended March 31, 2022, the Company had $124.8 million of cash and cash equivalents. To date, the Company has
primarily financed its operations through the sale of convertible preferred stock and common stock and borrowings under promissory
notes (including Convertible Notes), a portion of which has been raised from related party entities. The Company has experienced
significant negative cash flows from operations since inception, and incurred a net loss of $18.3 million for the three months ended
March 31, 2022. Net cash used in operating activities for the three months ended March 31, 2022 was $19.5 million. In addition, as of
March 31, 2022, the Company has an accumulated deficit of $247.7 million. The Company expects to incur substantial operating losses
and negative cash flows from operations for the foreseeable future. As of the date these financial statements were available to be issued,
the Company expects its existing cash and cash equivalents to be sufficient to fund its operating expenses and capital expenditure
requirements for at least the next 12 months.
The Company will need to obtain additional funding beyond the period that is 12 months from the date these financial statements were
available to be issued whether through collaboration agreements, private or public equity or debt offerings or a combination thereof, and
such additional funding may not be available on terms the Company finds acceptable or at all. If the Company is unable to obtain
sufficient capital to continue to advance its programs, the Company would be forced to delay, limit, reduce or terminate its product
development or future commercialization efforts or grant rights to third parties to develop and market product candidates that the
Company would otherwise prefer to develop and market itself.
The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which
contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The unaudited condensed
consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described above.
2. Summary of Significant Accounting Policies
Basis of presentation
The accompanying interim unaudited condensed consolidated financial statements have been prepared using generally accepted
accounting principles in the United States of America (GAAP) and pursuant to the rules and regulations of the United States Securities
and Exchange Commission (“SEC”) for interim financial reporting. The unaudited condensed consolidated financial statements for the
VAXXINITY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
12
periods presented include the accounts of UNS and COVAXX that were parties to the Contribution and Exchange Agreement. All share
and per share amounts, as originally recorded by each entity, have been converted to a number of shares and per share amounts using
the conversion ratios determined under the Contribution and Exchange Agreement and the Stock Split ratio.
These interim condensed consolidated financial statements are unaudited and, in the opinion of management, include all adjustments
(consisting of normal recurring adjustments and accruals) necessary to fairly present the results of the interim periods. The condensed
consolidated balance sheet at December 31, 2021, has been derived from the audited financial statements at that date. Operating results
for the three months ended March 31, 2022 and cash flows for the three months ended March 31, 2022 are not necessarily indicative of
the results that may be expected for the fiscal year ended December 31, 2022 or any other future period. Certain information and footnote
disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in
the United States (“U.S. GAAP”) have been omitted in accordance with the rules and regulations for interim reporting of the SEC. These
interim unaudited condensed financial statements should be read in conjunction with the financial statements and notes thereto included
in our report for the year ended December 31, 2021.
Leases
At inception of a contract, we determine whether an arrangement is or contains a lease. For all leases, we determine the classification as
either operating leases or financing leases. Operating leases are included in Operating lease right-of-use assets and Operating lease
liabilities in our Condensed Consolidated Balance Sheets.
Lease recognition occurs at the commencement date and lease liability amounts are based on the present value of lease payments over
the lease term. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise
that option. If a lease does not provide information to determine an implicit interest rate, we use our incremental borrowing rate in
determining the present value of lease payments. Right-of-use (ROU) assets represent our right to use an underlying asset for the lease
term, and lease liabilities represent our obligation to make lease payments under the lease. ROU assets also include any lease payments
made prior to the commencement date and exclude lease incentives received. Operating lease expense is recognized on a straight-line
basis over the lease term. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there
is a transfer of title or purchase option reasonably certain of exercise. Lease agreements with both lease and nonlease components, are
generally accounted for together as a single lease component.
Related party transactions
The Company has a Related Party policy which defines related parties, and assigns oversight responsibility for related party transactions
to the Company's Audit Committee. The Committee reviews in advance related party transactions, and considers multiple factors,
including the proposed aggregate value of the transaction, or, in the case of indebtedness, the amount of principal that would be involved,
the benefits to the Company of the proposed transaction, the availability of other sources of comparable products or services, and an
assessment of whether the proposed transaction is on terms that are comparable to the terms available to or from, as the case may be,
unrelated third parties. Under the policy, related party transactions are approved only if the Committee determines in good faith that the
transaction is not inconsistent with the interests of the Company and its shareholders.
Significant accounting policies
The significant accounting policies used in preparation of these unaudited condensed consolidated financial statements are disclosed in
our annual financial statements for the year ended December 31, 2021. There have been no changes to the Company’s significant
accounting policies during the three months ended March 31, 2022.
Recently issued accounting pronouncements
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and are adopted by the
Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued
standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.
Recently adopted accounting standards
In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements (“ASU 2018-11”). ASU 2018-11
provided an alternative method in addition to the modified retrospective transition method for ASU No. 2016-02, Leases: Amendments
to the FASB Accounting Standards Codification (“ASU 2016-02”), issued in February 2016. Under ASU 2018-11, an entity may elect
to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of
retained earnings in the period of adoption. Under ASU 2016-02, a lease is required to recognize assets and liabilities with lease terms
VAXXINITY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
13
of more than twelve months. ASU 2016-02 is effective for nonpublic business entities and public entities eligible to be Smaller Reporting
Companies for fiscal years beginning after December 15, 2021.
The Company adopted the new standard on January 1, 2022 using the modified retrospective approach. The Company has elected to
apply the transition method that allows companies to continue applying the guidance under the lease standard in effect at that time in
the comparative periods presented in the condensed financial statements and recognize a cumulative-effect adjustment to the opening
balance of accumulated deficit on the date of adoption. The Company has elected to combine lease components (for example fixed rent
payments) with non-lease components (for example, common-area maintenance costs) on our facility, lab equipment and CRO
embedded lease asset classes. The Company also elected the “package of practical expedients”, which permits the Company not to
reassess under the new standard the Company’s prior conclusions about lease identification, lease classification and initial direct costs.
In addition, the Company also elected the short-term lease practical expedients allowed under the standard. Lastly, the Company did not
elect the practical expedient allowing the use-of-hindsight which would require the Company to reassess the lease term of its leases
based on all facts and circumstances through the effective date.
Results for reporting period beginning after January 1, 2022 are presented under the new standard, while prior period amounts are not
adjusted and continue to be reported under the accounting standards in effect for the prior period. Upon adoption of the new lease
standard, on January 1, 2022, the Company was not entered into any leases subject to ASC 842 and did not capitalize a ROU asset or
lease liability.
3. Fair Value Measurements
The Company's money market accounts are shown at fair value based on unadjusted quoted market prices in active markets for identical
assets.
The following table presents information about the Company’s financial instruments measured at fair value on a recurring basis and
indicate the level of the fair value hierarchy used to determine such fair values (in thousands):
March 31, 2022
Level 1
Level 2
Level 3
Total
Assets:
Money market account
$
$
—
$
—
$
Total assets
$
$
—
$
—
$
December 31, 2021
Level 1
Level 2
Level 3
Total
Assets:
Money market account
$
$
—
$
—
$
Total assets
$
$
—
$
—
$
During the three months ended March 31, 2022 and the year ended December 31, 2021, there were
2 and Level 3.
4. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in thousands):
March 31,
December 31,
2022
2021
Prepaid materials and supplies
$
$
Deposits
Clinical prepayments
Other
$
$
The Company’s prepaid material and supplies related to enzyme-linked immunosorbent assay (“ELISA”) test production, of which $
million was paid to a related party and $
VAXXINITY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
14
5. Property and Equipment
Property and equipment, net consisted of the following (in thousands):
March 31,
December 31,
2022
2021
Airplane
$
$
Laboratory and computer equipment
Software
Facilities, furniture and fixtures
Vehicles
Total property and equipment
Less: accumulated depreciation
(2,314 )
(1,981 )
Property and equipment, net
$
$
Depreciation expense for the three months ended March 31, 2022 and 2021 was $
6. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
March 31,
December 31,
2022
2021
Accrued external research and development
$
$
Accrued bonuses
Accrued professional fees and other
Accrued interest
$
$
7. Other Long-Term Liabilities
Other long-term liabilities consisted of the following (in thousands):
March 31,
December 31,
2022
2021
Accrued tax provision
Accrued rent
—
$
$
As of March 31, 2022 and December 31, 2021, approximately $
the Company may be subject to paying for late filing fees related to a foreign subsidiary. The Company expects these amounts to be
forgiven but has accrued for them until the statute of limitations expires and it is appropriate to write them off.
8. Notes Payable
Notes Payable with Related Parties
In December 2018, the Company entered into related party convertible notes payable (the “2018 Related Notes” and together with the
Convertible Notes, the “Reorganization Convertible Notes”) for $
Related Notes bore simple interest at an annual rate of
% and contain a number of provisions addressing events of default and
prepayment. In accordance with the Contribution and Exchange Agreement, on March 2, 2021, the 2018 Related Notes were converted
into Series A preferred stock.
VAXXINITY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
15
During the three months ended March 31, 2021, the Company recognized interest expense of less than $
Notes.
2019 Executive Note
In November 2019, the Company borrowed $
agreement was executed. The Company has elected to accrue interest at an annual rate of
%, consistent with the terms and conditions
of the Convertible Notes and 2018 Related Notes, which was the closest benchmark the Company could evaluate. The 2019 Executive
Note was repaid in August 2021.
The activity of the 2018 Related Notes and 2019 Executive Note is as follows (in thousands):
2018 Related Notes and 2019 Executive Note
Related Party
Principal
Accrued
Interest
Balance
December 31, 2020
$
$
$
Accrued interest
—
Conversion
(2,000 )
(205 )
(2,205 )
March 31, 2021
$
$
$
Note Payable—Airplane
In connection with the acquisition of an airplane, the Company entered into a note payable agreement (the “2025 Note”) in June 2020
for $
% and a maturity date of June 9, 2025. Principal and interest payments are payable
monthly in the amount of $
of the Company. In addition, the Company incurred debt issuance costs of $
loan. There are no financial covenants associated with the 2025 Note.
The carrying value of the 2025 Note is as follows (in thousands):
March 31,
December 31,
2022
2021
Principal
$
$
Unamortized debt issuance cost
(170 )
(184 )
Carrying amount
Less: current portion
(380 )
(376 )
Note payable, net of current portion and debt issuance cost
$
$
As of March 31, 2022, the remaining principal payments for the 2025 Note, are as follows (in thousands):
Amount
2022
$
2023
2024
2025
$
Interest expense associated with the 2025 Note was $
March 31, 2022, accrued interest of less than $
condensed consolidated balance sheets as of March 31, 2022 (unaudited) and December 31, 2021.
VAXXINITY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
16
Note Payable—Paycheck Protection Program
The Company applied for and received a loan, which is in the form of a note dated May 5, 2020, from HSBC Bank USA, National
Association (“HSBC”) in the aggregate amount of approximately $
Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides
for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. As of
March 31, 2021, there were no events of default under the PPP Loan.
The Company paid off the PPP Loan in full, including all accrued but unpaid interest to the repayment date, in August 2021.
9. Convertible Preferred Stock
In connection with the Reorganization, each UNS convertible preferred share was exchanged for
stock and each share of COVAXX convertible preferred stock was exchanged for
the first and second quarters of 2021, the Company raised gross proceeds of $
stock financing. The Company issued a total of
preferred stock converted into shares of the Company’s Class A common stock concurrently with the closing of the initial public offering.
As of March 31, 2022 and December 31, 2021, Vaxxinity’s Amended and Restated Certificate of Incorporation authorized
shares of preferred stock with a par value of $
2022 and December 31, 2021.
10. Common Stock
As explained in Note 1, in accordance with the Contribution and Exchange Agreement, on March 2, 2021, all outstanding shares of
common stock of UNS and COVAXX were contributed to Vaxxinity and exchanged for an aggregate of
Vaxxinity’s Class A common stock and
was exchanged for
shares of Vaxxinity common stock.
As of March 31, 2022 and December 31, 2021, Vaxxinity’s Amended and Restated Certificate of Incorporation authorized
Class A common stock and
Holders of Class A common stock and Class B common stock have identical rights, except with respect to voting and conversion. Except
as otherwise expressly provided in Vaxxinity’s Amended and Restated Certificate of Incorporation or Bylaws, or required by applicable
law, holders of Class A common stock will be entitled to one vote per share on all matters submitted to a vote of stockholders and
holders of our Class B common stock will be entitled to ten votes per share on all matters submitted to a vote of stockholders.
Holders of Class A common stock and Class B common stock vote together as a single class on all matters submitted to a vote of
stockholders, except (i) amendments to Vaxxinity’s Amended and Restated Certificate of Incorporation to increase or decrease the par
value of a class of capital stock, in which case the applicable class would be required to vote separately to approve the proposed
amendment and (ii) amendments to Vaxxinity’s Amended and Restated Certificate of Incorporation that alter or change the powers,
preferences or special rights of a class of capital stock in a manner that affects its holders adversely, in which case the applicable class
would be required to vote separately to approve the proposed amendment.
Holders of common stock are entitled to receive, ratably, dividends as may be declared by Vaxxinity’s board of directors out of funds
legally available therefor if the board of directors, in its discretion, determines to issue dividends.
The voting, dividend, and liquidation rights of the holders of common stock are subject to and qualified by the rights, powers, and
preferences of the holders of Vaxxinity’s preferred stock.
VAXXINITY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
17
The Company has reserved shares of common stock for issuance for the following purposes:
March 31,
December 31,
2022
2021
Options issued and outstanding
Options available for future grants
Warrants issued and outstanding
11. Stock-Based Compensation
Stock Options
As of March 31, 2022 there were options for
B stock outstanding, of which
the maximum number of stock options awards available for future issuance under the Company’s plans is
.
The following table summarizes stock option activity during the three months ended March 31, 2022:
Number of Stock
Options
Outstanding
Weighted Price
Per Share
Weighted
Contractual
Term (years)
Aggregate
Intrinsic Value
(in thousands)
Balance at December 31, 2021
$
$
Granted
Exercised
(842,938 )
(3.89 )
Forfeited
(573,980 )
(5.16 )
Balance at March 31, 2022
$
$
Options vested and exercisable at March 31, 2022
$
$
The aggregate intrinsic value of options is calculated as the difference between the exercise price of the options and the fair value of the
common stock for those options that had exercise prices lower than the fair value of the common stock as of March 31, 2022.
The intrinsic value of options exercised during the three months ended March 31, 2022 was $
The weighted-average grant-date fair value per share of options granted during the three months ended March 31, 2022 was $
.
Restricted Stock
The following table summarizes the Company’s restricted stock activity for the three months ended March 31, 2022:
Number of
Shares
Weighted
Average
Grant Date
Fair Value
Per Share
Unvested at December 31, 2021
$
Issued
Unvested at March 31, 2022
$
Stock-based compensation expense recognized on vested restricted stock was immaterial for the three months ended March 31, 2022.
VAXXINITY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
18
Stock-Based Compensation Expense
The Company recorded stock-based compensation expense in the following expense categories in the accompanying unaudited
condensed consolidated statements of operations (in thousands):
Three Months Ended March 31,
2022
2021
General and administrative
$
$
Research and development
Total stock-based compensation expense
$
$
As of March 31, 2022, total unrecognized compensation cost related to the unvested stock-based awards was $
expected to be recognized over a weighted average period of
12. Income Taxes
The Company computes its expected annual effective income tax rate in accordance with ASC 740 and makes changes on a quarterly
basis, as necessary, based on certain factors such as changes in forecasted annual pre-tax income; changes to actual or forecasted
permanent book to tax differences; impacts from tax audits with state, federal or foreign tax authorities; impacts from tax law changes;
or change in judgment as to the realizability of deferred tax assets. The Company identifies items which are unusual and non-recurring
in nature and treats these as discrete events. The tax effect of discrete items is recorded in the quarter in which the discrete events occur.
The Company’s effective tax rate for the three months ended March 31, 2022 and 2021 was
%, due primarily to its uncertainty of
realizing a benefit from net operating losses incurred during the period.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some or all of the
recorded deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent on the generation of future
taxable income in the periods in which those temporary differences become deductible. Management considers the scheduled reversal
of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on these items
and the consecutive years of pretax losses (resulting from impairment), management determined that enough uncertainty exists relative
to the realization of the deferred income tax asset balances to warrant the application of a full valuation allowance for all taxing
jurisdictions.
The Company files income tax returns in the U.S. federal and various state and local jurisdictions. The Company also files returns in
numerous foreign jurisdictions that have varied years remaining open for examination, but generally the statute of limitations is three
to four years from when the return is filed. As of March 31, 2022, the Company currently has no ongoing audits.
The Company has US net operating loss (“NOL”) carryforwards for federal and state income tax purposes. Use of the NOL
carryforwards is limited under Section 382 of the Internal Revenue Code, as we have had a change in ownership of more than 50% of
our capital stock over a three-year period as measured under Section 382 of the Internal Revenue Code. These complex changes of
ownership rules generally focus on ownership changes involving shareholders owning directly or indirectly 5% or more of our stock,
including certain public “groups” of shareholders as set forth under Section 382 of the Internal Revenue Code, including those arising
from new stock issuances and other equity transactions. Some of these NOL carryforwards will expire if they are not used within
certain periods. At this time, we consider it more likely than not that we will not have sufficient taxable income in the future that will
allow us to realize these NOL carryforwards.
13. Net Loss Per Share
The Company’s unvested restricted common shares have been excluded from the computation of basic net loss per share.
VAXXINITY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
19
The Company’s potentially dilutive securities, which include options, unvested restricted stock, convertible notes payable and
convertible preferred stock, have been excluded from the computation of diluted net loss per share as the effect would be to reduce the
net loss per share. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net
loss per share is the same. The Company excluded the following potential common shares, presented based on amounts outstanding at
each period end, from the computation of diluted net loss per share as of March 31, 2022 and March 31, 2021 because including them
would have had an anti-dilutive effect:
March 31,
March 31,
2022
2021
Options and RSUs issued and outstanding
Warrants issued and outstanding stock
14. Commitments and Contingencies
Contractual Obligations
The Company enters into agreements with contract research organizations (“CROs”) to conduct clinical trials and preclinical studies
and contract manufacturing organizations (“CMOs”) to produce vaccines and other potential product candidates. Contracts with CROs
and CMOs are generally cancellable, with notice, at the Company’s option.
As of March 31, 2022, the Company had remaining prepayments to CROs of $
million for activities associated with the conduct of its clinical trials and for the production of the Company’s anticipated vaccine product
candidate.
Michael J. Fox Foundation Grant
On November 3, 2021, the Company was awarded a grant from the Michael J. Fox Foundation for Parkinson’s Research (“MJFF”) in
the amount of $
UB-312, an active
a
-Synuclein immunotherapy. The Company will oversee sample management, sample preparation (IgG fractions)
and distribution, as well as characterize the binding properties of the antibodies against pathological forms of aSyn. As funding is
expected to be utilized over a two-year period, as cash is received, the amount expected to the utilized within twelve months is recognized
to short-term restricted cash/deposits, with a corresponding short-term accrued liability, which is released as the related expenses are
offset. The Company recognizes payments from MJFF as a reduction of research and development expenses, in the same period as the
expenses that the grant is intended to reimburse are incurred. The remaining balance of cash received is recognized to long-term restricted
cash/deposits, with a corresponding long-term accrued liability. As of March 31, 2022, the balance of short-term restricted cash/deposits
and the corresponding short-term accrued liability was $
long-term accrued liability was $
. For the three months ended March 31, 2022, the Company did not recognize any reduction of research
and development expenses for amounts reimbursed through the grant.
Lease Agreements
The Company has short-term leases resulting in $
during the three months ended March 31, 2022. As of March 31, 2022, the Company has not entered into any finance lease agreements
or operating lease agreements resulting in the capitalization of a ROU asset or lease liability.
License Agreements
In August 2021, Vaxxinity entered into a license agreement (the “Platform License Agreement”) with UBI and certain of its affiliates
that expanded intellectual property rights previously licensed under previously issued license agreements with UBI. As part of the
agreement, Vaxxini ty obtained a worldwide, sublicensable (subject to certain conditions), perpetual, fully paid-up, royalty-free license
to research, develop, make, have made, utilize, import, export, market, distribute, offer for sale, sell, have sold, commercialize or
otherwise exploit peptide-based vaccines in the field of all human prophylactic and therapeutic uses, except for such vaccines related to
human immunodeficiency virus (HIV), herpes simplex virus (HSE) and Immunoglobulin E (IgE). The patents and patent applications
licensed under the Platform License Agreement include claims directed to a CpG delivery system, artificial T helper cell epitopes and
certain designer peptides and proteins utilized in UB-612. As described above, in consideration for the Platform License Agreement,
the Company issued to UBI a warrant to purchase Class A common stock (the “UBI Warrant”).
VAXXINITY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
20
The Company considered ASC 805, “Business Combinations” (“ASC 805”) and ASC 730, “Research and Development” (“ASC 730”)
in determining how to account for the issuance of the Class A common stock warrants. The Class A common stock warrants were issued
to a related party in exchange for a license agreement. The majority of the voting interests in the related party and that of the Company
were held by a group of immediate family members, at the time of the transaction, and as such the transaction constitutes a common
control transaction, which requires the license to be accounted for at the carrying value in the books of the transferor. As the related
party did not have any basis in the assets licensed, there was no accounting impact for the Company.
Indemnification Agreements
In the ordinary course of business, the Company may provide indemnification of varying scope and terms to employees, consultants,
vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of
breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered
into indemnification agreements with members of its board of directors and executive officers that will require the Company, among
other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The
maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in
many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnifications. The Company is
not aware of any indemnification arrangements that could have a material effect on its financial position, results of operations, or cash
flows, and it has not accrued any liabilities related to such obligations as of March 31, 2022 and December 31, 2021.
Legal Proceedings
From time to time, the Company may become involved in legal proceedings arising in the ordinary course of business. As of March 31,
2022 and December 31, 2021, the Company was not a party to any material legal matters or claims.
15. Benefit Plans
In March 2018, the Company established a defined contribution savings plan under Section 401(k) of the Code. This plan covers
substantially all U.S. employees who meet minimum age and service requirements and allows participants to defer a portion of their
annual compensation on a pre-tax basis. The Company does not make matching contributions to the Plan.
The Company offers its Ireland-based employees a Personal Retirement Savings Account (“PRSA”) that allows participants to defer a
portion of their annual compensation. The Company provides contributions equal to
% of each participant’s annual salary. During both
of the three months ended March 31, 2022 and 2021, the Company contributed less than $
16. Related Party Transactions
The Company has related party arrangements with UBI and a number of its affiliated companies listed namely, United Biomedical, Inc.,
Asia (“UBI-Asia”), UBI Pharma, Inc. (“UBI-P”), United BioPharma, Inc (“UBP”) and UBI IP Holding (“UBI-IP”).
As of March 31, 2022 UBI owned
% of the Company’s stock. The majority of the voting interests in both UBI and the Company were
held by a group of immediate family members, and as such the entities are under common control.
Total amounts due to related parties were $
Total amounts due from related parties were $
Total service fees incurred were $
Taiwan Centers for Disease Control Grant (“Taiwan CDC”)
UBI-Asia, which is responsible for applying for and managing grants on our behalf under the COVID-19 program, was awarded a grant
by the Taiwan CDC for COVID-19 vaccine development. The Company contracted with UBI-Asia to conduct a two-phase study of a
COVID-19 vaccine clinical trial in Taiwan. The grant provides that costs incurred to complete the two phases of the clinical trial will
be reimbursed based on the achievement of certain milestones as provided in the agreement.
The Company provides administrative services to UBI-IP. Under the arrangement, the Company issues vendor payments and provides
technical services mostly for legal services on behalf UBI-IP. The Company bills UBI-IP for services based on the costs incurred with
no markup.
VAXXINITY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
21
Total related party operating activity, including the activity described above, are as follows (in thousands):
March 31,
December 31,
2022
2021
Consolidated balance sheet
Assets
Prepaid expenses and other current assets
$
$
Amounts due from related parties
Property and equipment, net
Liabilities
Amounts due to related parties
Accrued expenses
—
Three Months Ended March 31,
2022
2021
Operating expenses
Research and development
Services provided by related parties
Taiwan CDC grant reimbursement from related party
—
(2,417 )
General and administrative
Services provided by related parties
—
17. Subsequent Events
The Company has evaluated subsequent events and has concluded that no events or transactions have occurred that require disclosure
in the accompanying consolidated financial statements, except as follows:
Coalition for Epidemic Preparedness Innovations (“CEPI”) Grant
In April 2022, the Company entered into an agreement with the Coalition for Epidemic Preparedness Innovations (“CEPI”) whereby
CEPI has agreed to provide funding of up to US$
COVID-19 vaccine candidate as a heterologous – or ‘mix-and-match’ – booster dose. The Phase 3 trial, which began in the US earlier
this year, is evaluating the ability of UB-612 to boost COVID-19 immunity against the original strain and multiple variants of concern
including Omicron - in people aged 16 years or older, who have been previously immunized with an authorized COVID-19 vaccine.
The Company will also be performing further manufacturing scale-up work to enable readiness for a pivotal trial and potential
commercialization. If successful, a portion of the released doses of the commercial product will be delivered to the COVID-19 Vaccines
Global Access (“COVAX”) consortium for distribution to developing countries at low cost.
Lease
In April 2022, the Company entered into a facility lease agreement for an additional
The lease is estimated to commence in April 2022 and expire March 2029 with no option to renew. The lease will be recognized and
measured in accordance with ASC 842 guidance.
22
Item 2. Management’s 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 rea d together with our unaudited
condensed consolidated financial statements and related notes and other financial information appearing elsewhere in this Quarterly
Report. We intend for this discussion to provide you with information that will assist you in understanding our unaudited condensed
consolidated financial statements, the changes in key items in those unaudited condensed consolidated financial statements from
period to period and the primary factors that accounted for those changes.
Some of the information contained in this discussion and
analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business
and related financing, includes forward -looking statements that involve risks, uncertainties and assumptions. See the section of this
Quarterly Report titled “Special Note Regarding Forward-Looking Statements” for a discussion of forward-looking statements. As a
result of many factors, including those factors set forth in the “Risk Factors” section of this Quarterly Report, our actual results could
differ materially from management’s expectations and the results described in or implied by the forward-looking statements contained
in the following discussion and analysis.
Overview
Vaxxinity is engaged in the development and commercialization of rationally designed prophylactic and therapeutic vaccines to combat
chronic disorders and infectious diseases with large patient populations and unmet medical needs. While vaccines have traditionally
been unable to effectively and safely combat chronic diseases, we believe our platform could overcome the traditional hurdles facing
vaccines in this area. Our Vaxxine Platform relies on a synthetic peptide vaccine technology first developed by UBI and subsequently
refined over the last two decades. We believe our vaccines have the potential to combat conditions that have not yet been successfully
treated, or which have primarily been addressed with monoclonal antibodies (“mAbs”) which, while generally effective, are extremely
costly and cumbersome to administer, and thus have limited accessibility. Our pipeline primarily consists of five programs focused on
chronic disease, particularly neurodegenerative disorders, in addition to other neurology and cardiovascular indications. Given the global
COVID-19 pandemic and our Vaxxine Platform’s applicability to infectious disease, we are also opportunistically advancing a product
candidate that addresses SARS-CoV-2.
We separated our business from UBI through two transactions: a spin-out from UBI in 2014 of operations focused on developing chronic
disease product candidates that resulted in UNS, and a second spin-out from UBI in 2020 of operations focused on the development of
a COVID-19 vaccine that resulted in COVAXX. On February 2, 2021, Vaxxinity was incorporated for the purpose of reorganizing and
combining UNS and COVAXX and did so on March 2, 2021 through the Reorganization. The Reorganization was determined to be a
common control transaction, so the carrying values of all contributed assets and assumed liabilities remained unchanged and the financial
information for all periods in this section of the financial statements presented prior to the Reorganization are presented on a consolidated
basis. Unless the context requires otherwise, in this section we use the terms “Vaxxinity,” “we,” “us” and “our” to refer to our operations
(including through UNS and COVAXX) both prior to and after the Reorganization.
Since our spin-out transactions from UBI, we have focused on organizing and staffing our business, business planning, raising capital,
developing our Vaxxine Platform and pipeline candidates, identifying and testing potential product candidates and conducting clinical
trials. We have also developed a SARS CoV-2 antibody ELISA test, which received an EUA from the FDA in January 2021.
Our current pipeline consists of six programs from early to late-stage development, including five programs focused on chronic disease.
Our neurodegenerative chronic disease pipeline has three primary programs: UB-311, our leading neurology product candidate, in
development for Alzheimer’s Disease (“AD”); UB-312, in development for Parkinson’s Disease (“PD”) and other synucleinopathies;
and an anti-tau product candidate which has the potential to address multiple neurodegenerative conditions, including AD. Additionally,
we have two other primary programs focused on chronic disease: UB-313, which targets CGRP to prevent migraines; and our anti-
PCSK9 program, which targets hypercholesterolemia to reduce the risk of cardiac events. Through our Vaxxine Platform, we believe
we may be able to address a wide range of other chronic diseases, including chronic diseases that are or could potentially be successfully
treated by mAbs, which increasingly dominate the treatment paradigm for many chronic diseases.
In addition to our chronic disease pipeline, given our Vaxxine Platform’s applicability to infectious disease and the global need for
additional vaccines to address SARS-CoV-2, we are advancing an infectious disease product candidate. We have reported interim results
of our UB-612 Phase 1, Phase 2, and Phase 1 extension clinical trials. An EUA application for UB-612 was denied by the TFDA in
August 2021. We are pursuing accelerated pathways to authorization with regulators in multiple jurisdictions, including high income
countries and LMICs, based on a Phase 3 heterologous booster trial of UB-612 that began in the first half of 2022.
To date, our revenue has been generated from the modest sales of our ELISA test and the sale of an option to negotiate a license with
UNS (which option has expired). As a result, our ability to generate revenue sufficient to achieve profitability will depend on the eventual
regulatory approval, and commercialization of one or more of our product candidates. We have not yet obtained any regulatory approvals
for our pipeline product candidates.
23
We have principally funded our operations through financing transactions. Through March 31, 202 2, we received gross proceeds of
$306.1 million in connection with various financial instruments, including the sale of preferred and common stock, the issuance of
promissory notes (including convertible promissory notes (“Convertible Notes”)), the entry into simple agreements for future equity
(“SAFEs”), and proceeds from our initial public offering.
Costs associated with research and development are the most significant component of our expenses. These costs can vary greatly from
period to period depending on the timing of various trials for our product candidates. We expect our allocated research and development
costs and general and administrative expenses to increase over time as we expand the number of product candidates that we are advancing
and to incur increased costs as a result of operating as a public company. Further, we anticipate incurring greater selling and marketing
expenses if we commercialize any of our product candidates in the future. Our product candidates are in clinical stage or pre-clinical
stage development, and we have generated limited revenue to date and have incurred significant operating losses since inception. Net
losses were $18.3 million and $32.0 million for the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022,
we had an accumulated deficit of $247.7 million. We expec
t our expenses and capital requirements will increase over time in connection
with our planned operations, which include:
•
continuing pre-clinical studies, existing clinical trials, or initiating new clinical trials for product candidates UB-311, UB-312,
UB-313, our COVID-19 product candidate and other product candidates;
•
hiring additional clinical, quality control, medical, scientific and other technical personnel to support clinical and research and
development programs;
•
expanding operational, financial and management systems and infrastructure, expanding our facilities and increasing personnel
to support operations;
•
undertaking actions to meet the requirements and demands of being a public company;
•
maintaining, expanding and protecting our intellectual property portfolio;
•
seeking regulatory approvals for any product candidates that successfully complete clinical trials; and
•
undertaking pre-commercialization activities to establish sales, marketing , pharmacovigilance and distribution capabilities for
any product candidates for which we may receive regulatory approval in regions where we elect to commercialize products
on our own or jointly with third parties.
As of the date of this Report, we expect our existing cash and cash equivalents will be sufficient to fund our operating expenses and
capital expenditure requirements for at least the next 12 months. We also believe that cash and cash equivalents on hand will enable us
to fund our operating expenses and capital requirements into the second half of 2023. Thereafter, our viability will depend on our ability
to raise additional capital to finance operations, to successfully commercialize our product candidates and/or to enter into collaborations
with third parties for the development of our product candidates. If we are unable to do any of the foregoing, we would be forced to
delay, limit, reduce or terminate our product candidate development or future commercialization efforts. Our estimates are based on a
variety of assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than expected. See “—
Liquidity and Capital Resources.”
Business Update Regarding COVID-19 Pandemic
In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The onset of the pandemic led to our
institutional prioritization of COVID-19 vaccine development efforts, which correlated to a decline in research and development
expenditures for our chronic disease product candidates. To date, our operations have not been negatively impacted by the COVID-19
pandemic in a material manner. However, at this time, we cannot predict the specific extent, duration or full impact that the COVID-19
pandemic will have on our financial condition and operations, but the development of clinical supply materials could be delayed and
enrollment of patients in our studies may be delayed or suspended, as hospitals and clinics in areas where we are conducting trials shift
resources to cope with the COVID-19 pandemic and may limit access or close facilities due to the COVID-19 pandemic. Additionally,
if our trial participants are unable to travel to our clinical study sites as a result of quarantines or other restrictions resulting from the
COVID-19 pandemic, we may experience higher drop-out rates or delays in our clinical studies. The impact of the COVID-19 pandemic
on our financial performance will depend on future developments, including the duration and spread of the pandemic and related
governmental advisories and restrictions. These developments and the impact of the COVID-19 pandemic on the financial markets and
the overall economy are highly uncertain and cannot be predicted. If the financial markets and/or the overall economy are impacted for
an extended period, our results may be materially adversely affected. See “Risk Factors—Risks Related to Our Business and Industry
in our Annual Report on Form 10-K for the year ended December 31, 2021—The ongoing coronavirus pandemic has caused
interruptions or delays of our business plan. Delays caused by the coronavirus pandemic may have a significant adverse effect on our
business.”
24
Components of Our Unaudited Condensed Consolidated Results of Operations
Revenue
No revenue was generated during the three months ended March 31, 2022. Revenue for the three months ended March 31, 2021 was
less than $0.1 million and consisted of commercial sales of our ELISA tests. We do not expect to generate any meaningful revenue
unless and until we obtain regulatory approval of and commercialize our product candidates, and we do not know when, or if, this will
occur. If our development efforts for our product candidates are successful and result in commercialization, we may generate additional
revenue in the future from a combination of product sales or payments from collaboration or license agreements that we have entered
into or may enter into with third parties. See “Risk Factors—Risks Related to the Discovery and Development of Product Candidates in
our Annual Report on Form 10-K for the year ended December 31, 2021. We have incurred significant losses since our inception. We
expect to incur losses for the foreseeable future and may never achieve or maintain profitability.”
Cost of Revenue
Cost of revenue consists of kit production costs consisting of materials, labor and overhead expenses directly related to ELISA tests sold
and the costs of expired ELISA tests, which are not available for commercial sale.
If our development efforts in respect of our current pipeline of product candidates are successful and result in regulatory approval, we
expect our cost of revenue will increase in relative proportion to the level of our revenue as we commercialize the applicable product
candidate. We expect that cost of revenue will increase in absolute dollars as and if our revenue grows and will vary from period to
period as a percentage of revenue.
Research and Development Expenses
The design, initiation and execution of candidate discovery and development programs of our future potential product candidates is key
to our success and involves significant expenses. Prior to initiating these programs, project teams incorporating individuals from the
essential disciplines within Vaxxinity scope out the activities, timing, requirements, inclusion and exclusion criteria and the primary and
secondary endpoint. Once we have decided to proceed, our Vaxxine Platform enables the iteration of drug candidates in the discovery
phase through rapid, rational design and formulation. After we have identified drug candidates, the costs of scaling the formulation from
research grade to clinical grade, then to commercial grade, typically consumes significant resources. In addition, to internal research
and development, we utilize service providers, including related parties, to complete activities we do not have the internal resources to
handle.
Research and development expenses consist primarily of costs incurred for research activities, including drug discovery efforts and the
development of our product candidates. We expense research and development costs as incurred, which include:
•
expenses incurred to conduct the necessary preclinical studies and clinical trials required to obtain regulatory approval;
•
expenses incurred under agreements with CROs that are primarily engaged in the oversight and conduct of our clinical trials,
preclinical studies and drug discovery efforts and contract manufacturers that are primarily engaged to provide preclinical
and clinical drug substance and product for our research and development programs;
•
other costs related to acquiring and manufacturing materials in connection with our drug discovery efforts and preclinical
studies and clinical trial materials, including manufacturing validation batches, as well as investigative sites and consultants
that conduct our clinical trials, preclinical studies and other scientific development services;
•
payments made in cash or equity securities under third-party licensing, acquisition and option agreements;
•
employee-related expenses, including salaries and benefits, travel and stock-based compensation expense for employees
engaged in research and development functions;
•
costs related to compliance with regulatory requirements; and
•
facilities-related costs, depreciation and other expenses, which include rent and utilities.
We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information
provided to us by service providers. This process involves reviewing open contracts and purchase orders, communicating with personnel
to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred
for the service when we have not yet been invoiced or otherwise notified of actual costs. Any nonrefundable advance payments that we
make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses.
25
Such amounts are expensed as the related goods are delivered or the related services are performed, or until it is no longer expected that
the goods will be delivered or the services rendered, at which point the net remainder is expensed.
We rely on related parties for certain services to advance our research and development programs, including manufacturing, quality
control, testing, validation, supply services, research support, development and clinical functions. During the three months ended
March 31, 2022 and 2021, related party expenses were approximately 4% and 43% of our operating expenses, respectively. We expect
this reliance on related parties to continue to diminish in the future.
Where appropriate, we allocate our third-party research and development expenses on a program-by-program basis. These expenses
primarily relate to outside consultants, CROs, contract manufacturers and research laboratories in connection with pre-clinical
development, process development, manufacturing and clinical development activities. We do not allocate our internal costs, such as
employee costs, costs associated with our discovery efforts, laboratory supplies and facilities, including depreciation or other indirect
costs, to specific programs because these costs often relate to platform development, to multiple programs simultaneously or to discovery
of new programs, and any such allocation would necessarily involve significant estimates and judgments and, accordingly, would be
imprecise. When we refer to the research and development expenses associated with a specific program, these refer exclusively to the
allocated third-party expenses associated with that product candidate. All other research and development costs are referred to as
unallocated costs.
Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical
development, primarily due to the increased size and duration of later-stage clinical trials. Additionally, greater research and
development overhead is required to support broader and more rapid development of our Vaxxine Platform and new product candidates.
As a result, we expect that our research and development expenses will increase as we continue our existing and planned clinical trials
and conduct increased pre-clinical and clinical development activities, including submitting regulatory filings for product candidates,
and focus more generally on the development of our chronic disease product candidates. A significant driver of such increases would
be the initiation of our Phase 2b trial for UB-311. We currently expect to initiate a Phase 2b early AD efficacy trial in the second half
of 2022. If we decide to advance UB-311 through the clinic without a strategic partner, our costs would increase more significantly than
if we engage a partner to fund the development of UB-311.
At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the
pre-clinical and clinical development of any of our product candidates or when, if ever, material net cash inflows may commence from
any of our product candidates
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and benefits, travel and stock-based compensation expense for
personnel in executive, business development, finance, human resources, legal, information technology and administrative functions.
General and administrative expenses also include facility- related costs as well as insurance costs and professional fees for legal, patent,
consulting, investor and public relations, accounting and audit services and other general operating expenses not otherwise classified as
research and development expenses. We expense general and administrative costs as incurred.
We also anticipate that our general and administrative expenses will increase in the future as a result of increased costs associated with
being a public company. In each case these increases will likely include increased costs related to the hiring of additional personnel and
fees to outside consultants, personnel-related stock-based compensation costs, lawyers and accountants, among other expenses, and, in
the case of public company-related expenses, services associated with maintaining compliance with Nasdaq listing and SEC
requirements, director and officer liability insurance costs and investor and public relations costs.
Other Expense (Income)
Interest Expense
Interest expense consists of (i) interest expense recognized on the note payable entered into during June 2020 for the acquisition of an
airplane (the “2025 Note”), (ii) interest expense recognized on the Convertible Notes and (iii) interest expense recognized on other
promissory notes, including $0.1 million borrowed from our Chief Executive Officer (the “Executive Note”) and a related party
Convertible Note payable for $2.0 million in aggregate proceeds that was received in three tranches (the “2018 Related Notes”). The
Executive Note was repaid in full in August 2021 and the 2018 Related Notes were converted into Series A preferred stock concurrently
with the Reorganization.
Interest Income
Interest income consists of income earned on our cash and cash equivalents.
26
Change in Fair Value of Convertible Notes, SAFEs and Series A-1 Warrant Liability
We issued a series of Convertible Notes during the years 2018 through 2021, a series of SAFEs during 2020 and 2021, and warrants to
purchase shares of our Series A-1 preferred stock (“Series A-1 Warrants”) during 2020, each of which were measured and accounted
for at fair value. We remeasured the fair value of each of the Convertible Notes, SAFEs and Series A-1 Warrants at each reporting date
and recognize changes in the fair value in our unaudited condensed consolidated statements of operations. Inputs to the calculation of
fair value generally included market and acquisition comparable(s) as well as other variables. In connection with the Reorganization, all
outstanding Convertible Notes, SAFEs, and Series A-1 Warrants were exchanged for shares of Series A preferred stock, which were
subsequently exchanged into shares of Class A common stock upon closing of the IPO in November 2021.
Loss on Foreign Currency Translation, Net
Our foreign subsidiaries, which are wholly-owned by Vaxxinity, use the U.S. dollar as their functional currency and maintain records
in the local currency. Nonmonetary assets and liabilities are remeasured at historical rates and monetary assets and liabilities are
remeasured at exchange rates in effect at the end of the reporting period. Income statement accounts are remeasured at average exchange
rates for the reporting period. The resulting gains or losses are included in foreign currency (losses) gains in the unaudited condensed
consolidated financial statements.
Provision for Income Taxes
We have not recorded any significant amounts related to income tax but have reserved $0.6 million of unrecognized tax benefits against
NOLs. We have not recorded any income tax benefits for the majority of our net losses we incurred to date.
We account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in the unaudited condensed consolidated financial statements
or our tax returns.
Deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and tax basis
of existing assets and liabilities and for loss and credit carryforwards, which are measured using the enacted tax rates and laws in effect
in the years in which the differences are expected to reverse. The realization of our deferred tax assets is dependent upon the generation
of future taxable income, the amount and timing of which are uncertain. Valuation allowances are provided, if, based upon the weight
of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. As of March 31, 2022, we
continue to maintain a full valuation allowance against all of our deferred tax assets based on evaluation of all available evidence. We
file income tax returns in the U.S. federal and state jurisdictions and may become subject to income tax audit and adjustments by related
tax authorities. Our tax return periods (for entities then in existence) for U.S. federal income taxes for the tax years since 2017 remain
open to examination under the statute of limitations by the Internal Revenue Service and state jurisdictions. We record reserves for
potential tax payments to various tax authorities related to uncertain tax positions, if any. The nature of uncertain tax positions is subject
to significant judgment by management and subject to change, which may be substantial. These reserves are based on a determination
of whether and how much a tax benefit taken by us in our tax filings or positions is more likely than not to be realized following the
resolution of any potential contingencies related to the tax benefit. We develop our assessment of uncertain tax positions, and the
associated cumulative probabilities, using internal expertise and assistance from third-party experts. As additional information becomes
available, estimates are revised and refined. Differences between estimates and final settlement may occur resulting in additional tax
expense. Potential interest and penalties associated with such uncertain tax positions is recorded as a component of our provision for
income taxes.
Factors Affecting the Comparability of Our Unaudited Condensed Consolidated Results of Operations
Reorganization
On March 2, 2021, Vaxxinity entered into the Contribution and Exchange Agreement, pursuant to which the outstanding equity interests
of UNS and COVAXX were contributed to Vaxxinity in return for equity interests in Vaxxinity, resulting in UNS and COVAXX
becoming wholly owned subsidiaries of Vaxxinity. Accordingly, all share and per share amounts prior to the Reorganization have been
adjusted to reflect the Reorganization. As a result, the historical financial information between January 1, 2021 and March 2, 2021
described in this Quarterly Report refers to the combined historical financial information of UNS and COVAXX. Our operations for the
three months ended March 31, 2022 reflects the operations of Vaxxinity and its subsidiaries. Our operations for the three months ended
March 31, 2021 reflects the operations of UNS and COVAXX businesses on a condensed consolidated basis for the period from January
1, 2021 to March 1, 2021 and of Vaxxinity and its subsidiaries for the remainder of that three-month period. See Note 1 to our unaudited
condensed consolidated financial statements included elsewhere in this Quarterly Report.
27
Condensed Consolidated Results of Operations
Comparison of the Three Months Ended March 31, 2022 and 2021
The following table summarizes our unaudited condensed consolidated results of operations for the three months ended March 31, 2022
and 2021, together with the dollar change in those items from period to period (in thousands):
Three Months Ended March 31,
Change
2022
2021
$
%
Revenue
$
—
$
17
(17)
-100%
Costs of revenue
—
1
(1)
-100%
Gross (loss) profit
—
16
(16)
-100%
Operating expenses:
Research and development
11,478
11,688
(210)
-2%
General and administrative
6,686
8,584
(1,898)
-22%
Total operating expenses
18,164
20,272
(2,108)
-10%
Loss from operations
(18,164)
(20,256)
2,092
-10%
Other (income) expense:
Interest expense
105
511
(406)
-79%
Interest income
(5)
—
(5)
100%
Change in fair value of convertible notes
—
2,667
(2,667)
-100%
Change in fair value of simple agreements for future equity
—
8,365
(8,365)
-100%
Change in fair value of warrant liability
—
214
(214)
-100%
Loss (gain) on foreign currency translation, net
(1)
8
(9)
-113%
Other (income) expense, net
99
11,765
(11,666)
-99%
Net loss
$
(18,263)
$
(32,021)
13,758
-43%
Revenue
Total revenue was $— million and less than $0.1 million for the three months ended March 31, 2022 and 2021, respectively. All revenue
and comparable decreases were due to sales of our ELISA tests. We are not actively pursuing commercialization of our ELISA tests at
this time.
Gross Margin
Gross margin was $— million and less than $0.1 million for the three months ended March 31, 2022 and 2021, respectively. All gross
margin and comparable decreases were due to sales of our ELISA tests. We are not actively pursuing commercialization of our ELISA
tests at this time.
Research and Development Expenses
Research and development expenses were $11.5 million and $11.7 million for the three months ended March 31, 2022 and 2021,
respectively. The $0.2 decrease was comprised of a $3.9 million decrease in allocated costs (i.e., costs that can be directly attributed to
a specific clinical program) , and a $3.7 million increase in unallocated costs. The decrease in allocated costs was primarily due to a
decrease of $6.0 million in costs related to UB-612, partially offset by increases in spend of $0.9 million on our PCSK9 program, $0.8
million on our UB-313 migraine program and $0.7 million on our UB-312 Parkinson’s Disease program. The $3.7 million increase in
unallocated costs was driven by increased salaries and personnel-related costs of $2.6 million, stock-based compensation expense of
$0.5 million and $0.2 million in rent and other overhead associated with laboratory space in Florida.
General and Administrative Expenses
General and administrative expenses were $6.7 million and $8.6 million for the three months ended March 31, 2022 and 2021,
respectively. The $1.9 million decrease was primarily due to decreases in professional services and other expenses of $1.2 million related
to our March 2021 Reorganization, and decreases of $2.0 million in stock-based compensation and recruiting expenses, partially offset
by increased audit fees of $0.4 million and insurance costs of $0.9 million related to being a public company, and increased salaries and
personnel-related costs of $0.1 million.
28
Interest Expense
Interest expense was $0.1 million and $0.5 million for the three months ended March 31, 2022 and 2021, respectively. The $0.4 million
decrease was due to the exchange of Convertible Notes for Series A preferred stock in connection with the Reorganization.
Interest Income
Interest income on cash was less than $0.1 million and $— million for the three months ended March 31, 2022 and 2021, respectively.
Change in Fair Value of Convertible Notes, SAFEs and Series A-1 Warrant Liability
In connection with the Reorganization, all outstanding Convertible Notes, SAFEs and Series A-1 Warrants were exchanged into shares
of Series A preferred stock, which were subsequently exchanged into shares of Class A common stock upon the closing of the IPO in
November 2021.
The $2.7 million change in fair value of the Convertible Notes recognized during the three months ended March 31, 2021 related to the
revaluation of the Convertible Notes upon conversion to equity. The $8.4 million change in fair value of SAFEs recognized during the
three months ended March 31, 2021 related to insight into the pricing of Vaxxinity’s next stock issuance at a higher valuation. The $0.2
million change in fair value of Series A-1 Warrants recognized during the three months ended March 31, 2021 related to an increase in
value of the Series A-1 preferred stock.
Loss on Foreign Currency Translation, Net
The net loss of foreign currency translation reflected a de minimis increase in the foreign exchange rate for the three months ended
March 31, 2022 compared to the three months ended March 31, 2021.
Liquidity and Capital Resources
Sources of Liquidity
We have generated limited revenue from sales of our ELISA tests and have not yet commercialized any of our product candidates, which
are in various phases of pre-clinical and clinical development. Prior to going public in late 2021, we financed operations primarily
through the issuance of convertible preferred stock, borrowings under promissory notes (including Convertible Notes) and the execution
of SAFEs. Through December 31, 2020, we received gross proceeds of $99.3 million in connection with the issuance of various financial
instruments, including the sale of preferred stock, the issuance of promissory notes (including Convertible Notes), and the execution of
SAFEs. In addition, we also generated revenue from the sale of an option to negotiate a license with UNS (which option has expired)
and the sales of ELISA tests in 2020 and 2021. During the year ended December 31, 2021, we raised a total of $198.8 million, which
consisted of $71.1 million in net proceeds from the issuance of common stock in connection with the IPO, $122.8 million in net proceeds
from the issuance of Series B preferred shares, $2.0 million in net proceeds from the issuance of convertible debt, and $2.9 million in
net proceeds from the issuance of SAFEs. At March 31, 2022, we had $124.8 million in cash and cash equivalents, compared to $144.9
million as of December 31, 2021. The decrease in cash and cash equivalents balances for the periods reported are primarily due to the
factors described under “Cash Flows” below.
29
Cash Flows
The following table provides information regarding our cash flows for the three months ended March 31, 2022 and 2021 (in thousands):
March 31,
December 31,
2022
2021
Balance Sheet Data:
Cash and cash equivalents
124,766
144,885
Restricted cash
78
172
Total assets
147,528
166,673
Total liabilities
34,873
38,054
Total stockholders' equity (deficit)
112,655
128,619
Three Months Ended March 31,
2022
2021
Statement of Cash Flow Data:
Net cash flows used in operating activities
$
(19,514)
$
(28,241)
Net cash flows used in investing activities
(713)
—
Net cash flows provided by financing activities
14
46,280
Net increase in cash, cash equivalents and restricted cash
$
(20,213)
$
18,039
Operating Activities
Net cash used in operating activities for the three months ended March 31, 2022 was $19.5 million, primarily resulting from a $18.3
million net loss, an unfavorable $3.8 million change in operating assets and liabilities and total non-cash items of $2.5 million. The
changes in net operating assets and liabilities were primarily due to a decrease of $2.6 million in amounts due to related party, a $1.3
million increase in accrued expenses and other current liabilities, a $1.7 million decrease in accounts payable and other liabilities, a $0.7
million decrease in prepaid expenses, and a $1.4 million decrease in long-term deposits. The primary non-cash adjustments to net loss
consisted of $2.2 million of stock-based compensation and $0.3 million in depreciation.
Investing Activities
Net cash used in investing activities totaled $0.7 million for the three months ended March 31, 2022. The cash used in investing activities
consisted primarily of the acquisition of equipment.
Financing Activities
Net cash provided by financing activities was less than $0.1 million for the three months ended March 31, 2022. We repaid $0.1 million
in relation to a note payable and received $0.1 million from the exercise of stock options.
Funding Requirements
We have generated approximately $3.7 million in revenue since inception and have incurred net losses in each reporting period since
inception. We do not expect to generate any meaningful revenue unless and until we obtain regulatory approval of and commercialize
our product candidates. We do not know when, or if, this will occur. If we do not receive regulatory approval for any of our product
candidates, or if we receive approval but our commercialization results fall short of our expectations, we will continue to incur significant
losses for the foreseeable future, and we expect the losses to increase as we continue the development of, and seek regulatory approvals
for, our product candidates and begin to commercialize any approved products.
As of the date of this Quarterly Report, we expect our existing cash and cash equivalents will be sufficient to fund our operating expenses
over the next 12 months. As of March 31, 2022, other than our 2025 Note, we have no material debt obligations.
We have based our projections of operating capital requirements on assumptions that may prove to be incorrect, and we may use all of
our available capital resources sooner than we expect. Our future capital requirements will depend on many factors, which include:
•
the number of discovery and pre-clinical programs that we pursue and the speed with which they are advanced;
•
the number, size, and nature of clinical trials that we conduct;
30
•
the length of time it takes for regulators to review and approve any product candidates that successfully complete clinical
trials;
•
the timing and manner in which we manufacture our pre-clinical and clinical drug material, the terms on which we can have
such manufacturing completed, and the extent to which we undertake commercialization of any drug products, if approved;
•
the extent to which we establish sales, marketing, medical affairs and distribution infrastructure to commercialize any product
candidates;
•
the timing and extent to which we expand our operational, financial and management systems and infrastructure, and
facilities;
•
the timing and extent to which we increase our personnel to support operations, including necessary increases in headcount to
conduct and expand our clinical trials, commercialize any approved products and support our operations as a public
company; and
•
the number of patent applications we must file and claims we must defend in order to maintain, expand and protect our
intellectual property portfolio, and the costs of preparing, filing and prosecuting patent applications, maintaining and
protecting our intellectual property rights.
Until such time, if ever, as we can generate positive cash flows from operations, we expect to finance our cash needs through public or
private equity offerings, strategic collaborations and debt financing. To the extent that we raise additional capital through the sale of our
Class A common stock, convertible securities or other equity securities, shareholders’ ownership interest will be diluted and the terms
of these securities could include liquidation or other preferences and anti-dilution protections. In addition, debt financing, if available,
may result in fixed payment obligations and may involve agreements that include restrictive covenants that limit our ability to take
specific actions, such as incurring additional debt, making capital expenditures, creating liens, redeeming shares or declaring dividends.
If we raise additional funds through strategic collaborations or marketing, distribution or licensing arrangements with third parties, we
may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that
may not be favorable to us. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or
terminate our product candidate development or future commercialization efforts or grant rights to third parties to develop and market
product candidates that we would otherwise prefer to develop and market ourselves.
Contract Research and Manufacturing Organizations
We recorded accrued expenses of $3.5 million and $1.5 million in our balance sheet for expenditures incurred by CROs and contract
manufacturers as of March 31, 2022 and December 31, 2021, respectively.
Tax -Related Obligations
We have reserved $0.6 million of unrecognized tax benefits against NOLs. Additionally, as of three months ended March 31, 2022, we
accrued $0.2 million in interest and penalties related to prior year tax filings.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and do not currently have, any off-balance sheet arrangements, as defined in the rules and
regulations of the SEC.
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect
the amounts reported in our unaudited condensed consolidated financial statements and accompanying notes. Management bases its
estimates on historical experience, market and other conditions, and various other assumptions it believes to be reasonable. Although
these estimates are based on management’s best knowledge of current events and actions that may impact us in the future, the estimation
process is, by its nature, uncertain given that estimates depend on events over which we may not have control. In addition, if our
assumptions change, we may need to revise our estimates, or take other corrective actions, either of which may also have a material
effect on our unaudited condensed consolidated financial statements. Significant estimates contained within these unaudited condensed
consolidated financial statements include, but are not limited to, the estimated fair value of our common stock, stock-based
compensation, income tax valuation allowance and the accruals of research and development expenses. We base our estimates on
historical experience, known trends and other market-specific or other relevant factors that we believe to be reasonable under the
circumstances. On an ongoing basis, management evaluates its estimates, as there are changes in facts and circumstances. If market and
31
other conditions change from those that we anticipate, our unaudited condensed consolidated financial statements may be materially
affected.
While our significant accounting policies are described in more detail in the notes to our unaudited condensed consolidated financial
statements appearing elsewhere in this Quarterly Report, we believe that the following critical accounting policies and estimates have a
higher degree of inherent uncertainty and require our most significant judgments.
Accrued Research and Development Expenses
As part of the process of preparing our unaudited condensed consolidated financial statements, we are required to estimate accrued
research and development expenses. As we advance our programs, we anticipate conducting more complex clinical studies resulting in
greater research and development expenses, which will place even greater emphasis on the accrual. This process involves reviewing
open contracts and purchase orders, communicating with our applicable personnel to identify services that have been performed on our
behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced
or otherwise notified of actual costs. The majority of our service providers invoice in arrears for services performed, on a pre-determined
schedule or when contractual milestones are met; however, some require advance payments. We make estimates of accrued expenses as
of each balance sheet date in the unaudited condensed consolidated financial statements based on facts and circumstances known to us
at that time. We periodically confirm the accuracy of the estimates with the service providers and make adjustments if necessary.
Examples of estimated accrued research and development expenses include fees paid to:
•
vendors, including research laboratories, in connection with pre-clinical development activities;
•
CROs and investigative sites in connection with pre-clinical studies and clinical trials; and
•
contract manufacturers in connection with drug substance and drug product formulation of pre-clinical studies and clinical
trial materials.
We base our expenses related to pre-clinical studies and clinical trials on our estimates of the services received and efforts expended
pursuant to quotes and contracts with multiple research institutions and CROs that supply, conduct and manage pre-clinical studies and
clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may
result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services
provided and result in a prepayment of the expense. Payments under some of these contracts depend on factors such as the successful
enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which
services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or
the level of effort varies from the estimate, we adjust the accrual or the prepaid expense accordingly. Although we do not expect our
estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed
relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low
in any particular period. To date, our estimated accruals have not differed materially from actual costs incurred.
Stock-Based Compensation
We measure all stock-based awards granted to employees, directors and non-employees based on their fair value on the date of the grant
and recognize the corresponding compensation expense of those awards over the requisite service period, which is generally the vesting
period of the respective award. Forfeitures are accounted for as they occur. We grant stock options and restricted stock awards that are
subject to service vesting conditions.
We classify stock-based compensation expense in our unaudited condensed consolidated statements of operations in the same manner
in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified.
We estimate the fair value of each stock option grant using the Black-Scholes option-pricing model, which requires the use of subjective
assumptions that could materially impact the estimation of fair value and related compensation expense to be recognized. These
assumptions include (i) the expected volatility of our stock price, (ii) the periods of time over which recipients are expected to hold their
options prior to exercise (expected lives), (iii) expected dividend yield on our common stock, and (iv) risk-free interest rates, which are
based on quoted U.S. Treasury rates for securities with maturities approximating the options’ expected lives. Developing these
assumptions requires the use of judgment. Both prior to and after the IPO, we lacked company-specific historical and implied volatility
information. Therefore, we estimate our expected stock volatility based on the historical volatility of a publicly traded set of peer
companies. The expected term of the Company’s options has been determined utilizing the “simplified” method for awards that qualify
as “plain-vanilla” options. The expected term of options granted to non-employees is equal to the contractual term of the option award.
The expected dividend yield is zero as we have never paid dividends and do not currently anticipate paying any in the foreseeable future.
32
Simple Agreement for Future Equity
During the three months ended March 31, 2021, we entered into SAFEs. The SAFEs were not mandatorily redeemable, nor did they
require us to repurchase a fixed number of shares. We determined that the SAFEs contained a liquidity event provision that embodied
an obligation indexed to the fair value of the equity shares and could require us to settle the SAFE obligation by transferring assets or
cash. Our SAFEs represented a recurring measurement that is classified within Level 3, disclosed and defined in Note 3 to our unaudited
condensed consolidated financial statements included elsewhere in this Report, of the fair value hierarchy wherein fair value is estimated
using significant unobservable inputs, including an estimate of the number of months to a liquidity event, volatility rates and the
estimation of the most likely conversion feature for converting the SAFE.
The fair value of the SAFEs on the date of issuance was determined to equal the proceeds we received. The value of the SAFEs on the
date of conversion into Series A preferred stock was determined to be equal to the fair value of the Series A preferred stock issued in
connection with the Reorganization.
Convertible Notes
Beginning in 2018, we issued Convertible Notes that bore simple interest at annual rates ranging from 4.8% to 6%. All unpaid principal,
together with the accrued interest thereon, for the Convertible Notes were payable upon the event of default or upon maturity, which
ranged from one to three years. The Convertible Notes contained a number of provisions addressing automatic and optional conversion,
events of default and prepayment provisions. We determined that a portion of the Convertible Notes contained a liquidity event
provision, requiring them to be measured and accounted for at fair value at each reporting date. We determined that Convertible Notes
requiring a measurement to fair value represented a recurring measurement that was classified within Level 3 of the fair value hierarchy
wherein fair value is estimated using significant unobservable inputs, as disclosed and defined in Note 3 in our Annual Report on Form
10-K for the year ended December 31, 2021.
Taiwan Centers for Disease Control Grant
UBIA, which is responsible for applying for and managing grants on our behalf, was awarded a grant by the Taiwan Centers for Disease
Control (“TCDC”) for COVID-19 vaccine development. The grant provides that costs incurred to complete the two phases of the clinical
trial will be reimbursed based on the achievement of certain milestones as defined in the agreement. We are entitled to reimbursement
under the TCDC grant. At each reporting date, we assess the status of all of the activities involved in completing the clinical study in
relation to the milestones. We account for the amounts that have been received from the TCDC to reimburse costs incurred on the
clinical study and not expected to be refunded back to the TCDC as contra research and development expenses in the accompanying
unaudited condensed consolidated statement of operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risk in the ordinary course of our business. These risks primarily relate to foreign currency and changes in
interest rates.
Foreign Currency Exchange Risk
We have limited exposure to foreign currency exchange risk as most of our operating activities are primarily denominated in U.S.
dollars. We believe actual foreign exchange gains and losses did not have a significant impact on our results of operations for any periods
presented herein. The results of the analysis based on our financial position as of March 31, 2022, indicated that a hypothetical 10%
increase or decrease in applicable foreign currency exchange rates would not have a material effect on our financial results.
Interest Rate Risk
We are exposed to market risk related to changes in interest rates. As of March 31, 2022 and December 31, 2021, our cash equivalents
consisted of interest-bearing checking accounts and money market accounts. We issued Convertible Notes, which Convertible Notes
were exchanged for Series A preferred stock in connection with the Reorganization. The Convertible Notes bore simple interest at the
annual rates ranging from 4.8% to 6%, with redemption terms payable at the earlier of one year, or upon the event of default. In addition,
the Convertible Notes contained provisions addressing automatic and optional conversion. Given the redemption of the Convertible
Notes, and the short-term nature and fixed interest rate, we believe there is no material exposure to interest rate risk. Additionally, the
2025 Note we entered into for the year ended December 31, 2020 bears an annual interest rate of 3.4% and matures in June 2025. Given
the fixed interest rate of the 2025 Note, we believe there is no material exposure to interest rate risk. The results of the analysis based
on our financial position as of March 31, 2022, indicated that a hypothetical 100 basis point increase or decrease in risk-free rates would
not have a material effect on our financial results.
Our measurement of interest rate risk involves assumptions that are inherently uncertain and, as a result, cannot precisely estimate the
impact of changes in interest rates on net interest revenues. Actual results may differ from simulated results due to balance growth or
33
decline and the timing, magnitude, and frequency of interest rate changes, as well as changes in market conditions and management
strategies, including changes in asset and liability mix.
Item 4. Controls and Procedures.
Evaluation of disclosure controls and procedures
Our management, with the participation of our principal executive officer and principal accounting officer, evaluated, as of the end of
the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act). In designing and evaluating our disclosure controls and procedures,
management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact
that there are resource constraints, and that management is required to apply judgment in evaluating the benefits of possible controls
and procedures relative to their costs. Based on management’s evaluation and as a result of the material weaknesses described below,
our principal executive officer and principal accounting officer concluded that, as of March 31, 2022, our disclosure controls and
procedures were not effective at the reasonable assurance level.
Report on Internal Control Over Financial Reporting
This Report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation
report of our independent registered public accounting firm due to a transition period established by the rules of the SEC for newly
public companies.
Material Weaknesses in Internal Control over Financial Reporting
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement of a company’s annual and interim financial statements will not be detected or
prevented on a timely basis.
Management identified material weaknesses in the design and operation of our internal controls over financial reporting during the
preparation of our audited consolidated financial statements for the year ended December 31, 2021. These material weaknesses related
to:
• performing our financial close process, including account reconciliation and analysis on a timely basis, accruing for related-party
transactions, recording stock-based compensation expense and aggregating and mapping amounts from trial balances to financial
statements;
• ensuring that formal processes exist for identifying, analyzing and accounting for key contracts and complex, non-routine
transactions; and
• proper segregation of duties and responsibilities within our finance department, including authorization and review of accounting
entries.
Remediation Measures
We are investing resources to remediate the material weaknesses identified in the preparation of our audited consolidated financial
statements for the year ended December 31, 2021 described above through a combination of hiring additional qualified accounting and
financial reporting personnel and further evolving and refining our accounting processes and policies. These remediation activities
involve the following:
• having hired, and continuing to hire, additional accounting personnel with the appropriate level of skill and experience for public
company financial reporting;
• designing and implementing a formal financial close process that includes multiple levels of reviews of accounting entries; and
• supplementing our resources for evaluating and accounting for complex transactions and stock options through the use of third-
party advisors.
While we are working to remediate the identified material weaknesses as timely and efficiently as possible, at this time we cannot
provide an estimate of costs expected to be incurred in connection with our remediation efforts, we cannot provide an estimate of the
time it will take to complete remediation, nor can we provide assurance that our efforts will successfully prevent any errors or omissions
that may result because of these material weaknesses.
34
Changes in Internal Control over Financial Reporting
Other than the measures described in “Remediation Measures” above, there were no changes in our internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2022 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
35
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time we are a party to various litigation matters incidental to the conduct of our business. We are not presently party to
any legal proceedings the resolution of which we believe would have a material adverse effect on our business, prospects, financial
condition, liquidity, results of operation, cash flows or capital levels.
Item 1A. Risk Factors.
As a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act), we are not required to provide the information called
for by this Item 1A. Risk factors describing the major risks to our business can be found under Item 1A., “Risk Factors,” in our Annual
Report on Form 10-K for the year ended December 31, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Unregistered Sales of Equity Securities
There were no unregistered sales of equity securities during the quarterly period ended March 31, 2022.
Use of Proceeds
On November 15, 2021, the Company closed its IPO, as discussed in Note 1 of our consolidated financial statements in the Annual
Report on Form 10-K for the year ended December 31, 2021. The aggregate net proceeds to us from the offering, after deducting
underwriting discounts and commissions and other offering expenses payable by us, was approximately $71.1 million. The proceeds
from our IPO have been invested primarily in money market accounts. There has been no material change in the expected use of the net
proceeds from our IPO as described in our prospectus filed pursuant to Rule 424(b)(4) under the Securities Act with the SEC on
November 12, 2021.
Item 6. Exhibits.
The following exhibits required by Item 601 of Regulation S-K are filed herewith or have been filed previously with the SEC as indicated
below:
Exhibit
No.
Index to Exhibits
3.1
3.2
4.1
4.2
10.1
10.2
10.3
10.4
36
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
31.1
31.2
32.1
101.INS
Inline XBRL Instance Document*
101.SCH
Inline XBRL Taxonomy Extension Schema Document*
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document*
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document*
104
Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document).*
__________________________
* Filed herewith.
** Furnished herewith.
† Indicates management contract or compensatory plan, contract or arrangement.
37
§ Portions of the exhibit, marked by brackets, have been omitted because the omitted information (i) is not material and (ii) would
likely cause competitive harm if publicly disclosed.
38
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 on May 9, 2022.
VAXXINITY, INC.
By:
/s/ Mei Mei Hu
Mei Mei Hu,
President and Chief Executive Officer
(Principal executive officer)
By:
/s/ Jason Pesile
Jason Pesile
Senior Vice President, Finance & Accounting
(Principal financial and accounting officer)
1
Exhibit 4.2
VAXXINITY, INC.
DESCRIPTION OF SECURITIES REGISTERED UNDER SECTION 12 OF THE EXCHANGE ACT
As of December 31, 2021, Vaxxinity, Inc. (the “Company,” “we” or “us”) had one class of securities, our Class A common stock, par
value $0.0001, registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our Class A
common stock is listed on the Nasdaq Global Market under the symbol “VAXX.”
The following summary describes the material terms of our Class A common stock, does not purport to be complete and is qualified in
its entirety by reference to our amended and restated certificate of incorporation (our “Charter”) and our amended and restated bylaws
(our “Bylaws”), each of which is included as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2021
(our “Form 10-K”), and applicable provisions of the Delaware General Corporation Law (the “DGCL”).
Authorized Capital Stock
Our authorized capital stock consists of 1,000,000,000 shares
of Class A common stock, par value $0.0001 per share; 100,000,000
shares of Class B common stock, par value $0.0001 per share; and 50,000,000 shares of preferred stock, par value $0.0001 per share.
Common Stock
We have two classes of common stock: Class A common stock and Class B common stock. Holders of Class A common stock and
Class B common stock have identical rights, except with respect to voting and conversion. Except as otherwise expressly provided in
our Charter or Bylaws or required by applicable law, holders of our Class A common stock are entitled to one vote per share on all
matters submitted to a vote of stockholders and holders of our Class B common stock are entitled to ten votes per share on all matters
submitted to a vote of stockholders. Our common stockholders are not entitled to cumulative voting in the election of directors. Unless
a different vote is required by applicable law or specifically required by our Charter or Bylaws, if a quorum exists at any meeting of
stockholders, stockholders shall have approved any matter (other than as described below) if such matter is approved by the
affirmative vote of the majority of shares present in person or represented by proxy and entitled to vote on such matter. Subject to the
rights of the holders of any series of preferred stock to elect directors under specified circumstances, if a quorum exists at any meeting
of stockholders, stockholders shall have approved the election of a director if such director is elected by a plurality of the votes of the
shares present in person or represented by proxy and entitled to vote on the election.
Holders of Class A common stock and Class B common stock vote together as a single class on all matters submitted to a vote of
stockholders, except (i) if we were to seek to amend our Charter to increase or decrease the par value of a class of our capital stock,
then that class would be required to vote separately to approve the proposed amendment and (ii) if we were to seek to amend our
Charter in a manner that alters or changes the powers, preferences or special rights of a class of our capital stock in a manner that
affected its holders adversely, then that class would be required to vote separately to approve the proposed amendment.
Subject to preferences that may be applicable to any shares of preferred stock outstanding or that we may designate and issue in the
future, holders of our common stock are entitled to receive ratably such dividends as may be declared by our board of directors out of
funds legally available therefor if our board
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1
of directors, in its discretion, determines to issue dividends and only then at the times and in the amounts that our board of directors
may determine.
Upon liquidation, dissolution or winding-up of the Company, holders of our common stock are entitled to receive their ratable share
of the net assets of the Company available after payment of all debts and other liabilities, subject to the prior preferential rights and
payment of liquidation preferences, if any, of any outstanding shares of preferred stock.
Holders of our common stock have no preemptive, subscription or redemption rights. There are no redemption or sinking fund
provisions applicable to our common stock. The rights, preferences and privileges of holders of our common stock are subject to, and
may be adversely affected by, the rights of the holders of shares of any series of preferred stock that we may designate in the future.
Each share of Class B common stock is convertible at any time at the option of the holder into one share of Class A common stock. In
addition, each share of Class B common stock will automatically convert into one share of Class A common stock upon any transfer,
whether or not for value and whether voluntary or involuntary or by operation of law, except for transfers to trusts solely for the
benefit of the stockholder and certain related entities, transfers to partnerships, corporations and other entities exclusively owned by
the stockholder or certain related entities, transfers to family members of the stockholder and transfers between certain stockholders.
Holders of Class A common stock have no conversion rights.
Preferred Stock
Our board of directors has the authority, subject to the limitations imposed by Delaware law or the Nasdaq’s listing rules, without any
further vote or action by our stockholders, to issue preferred stock in one or more series and to fix the designations, powers,
preferences, limitations and rights of the shares of each series, including dividend rates, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of shares constituting each series.
Satisfaction of any dividend preferences of outstanding shares of preferred stock would reduce the amount of funds available for the
payment of dividends on shares of our Class A common stock. Holders of shares of preferred stock may be entitled to receive a
preference payment in the event of our liquidation, dissolution or winding-up before any payment is made to the holders of shares of
our Class A common stock.
Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the
voting power or other rights of the holders of our Class A common stock. The issuance of preferred stock, while providing flexibility
in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of making it more
difficult for a third party to acquire, or could discourage a third party from seeking to acquire, a majority of our outstanding voting
stock, and may adversely affect the market price of our Class A common stock and the voting and other rights of the holders of our
Class A common stock.
Voting Agreement
Our co-founders (Mei Mei Hu and Louis Reese), one of their affiliates and United Biomedical, Inc. (collectively our “principal
stockholders”) entered into a voting agreement on October 1, 2021 (the “Voting Agreement”). We are not a party to the Voting
Agreement. The Voting Agreement provides the proxyholder, Ms. Hu, with the authority (and irrevocable proxies) to direct the vote
and vote the shares of capital stock held by the principal stockholders at her discretion on all matters to be voted upon by
stockholders. The Voting Agreement does not restrict any of the principal stockholders from transferring any shares of our capital
stock and, if any such shares of capital stock are transferred, there is no obligation for the transferee to join the Voting Agreement
(unless the transferee is a controlled affiliate or family member (or an entity or trust whose beneficial owner or primary beneficiary is
a family member) of one of the parties to the Voting Agreement).
Mr. Reese will replace Ms. Hu as the proxyholder under the Voting Agreement upon the earliest of (i) Ms. Hu’s death, (ii) a
determination by a court that Ms. Hu is permanently and totally disabled (as determined by a court of competent jurisdiction) and (iii)
six months after the later of Ms. Hu ceasing to be (x) Chief Executive Officer and (y) Actively Engaged (as defined below) (the
“Replacement Date”); provided that the Replacement Date will be the date on which Ms. Hu ceases to be Actively Engaged if Ms. Hu
is not then Chief Executive Officer and Ms. Hu ceases to be Actively Engaged pursuant to clause (B) of the definition of Actively
Engaged below. For purposes of the Voting Agreement, “Actively Engaged” means, on the date of determination, Ms. Hu (A) is then
a director of the Company and (B) has not sold, or otherwise disposed for pecuniary gain, shares of Class B common stock in excess
of 65% of the Class B common stock she held on the date of the Voting Agreement.
The Voting Agreement will terminate upon the earliest to occur of the following: (i) the liquidation, dissolution or winding up of the
Company; (ii) the execution by the Company of a general assignment for the benefit of creditors or the appointment of a receiver or
2
trustee to take possession of the property and assets of the Company; (iii) the unilateral decision of the then current proxyholder (in
such person’s sole discretion) to terminate the Voting Agreement, subject to a 30-day notice period; (iv) on the Replacement Date, if
Mr. Reese is then (x) deceased, (y) determined by a court to be permanently and totally disabled or (z) not a director of the Company;
or (v) after the Replacement Date, upon the earliest to occur of Mr. Reese’s death, permanent and total disability (as determined by a
court of competent jurisdiction) or ceasing to be director of the Company. A copy of the Voting Agreement is included as an exhibit to
our Form 10-K.
Certain Anti-Takeover Provisions of our Charter, our Bylaws and Delaware Law
Certain provisions of our Charter, our Bylaws and the DGCL may discourage or make more difficult a takeover attempt that a
stockholder might consider to be in his, her or its best interest. These provisions may also adversely affect the prevailing market price
for shares of our Class A common stock. We believe that the benefits of increased protection give us the potential ability to negotiate
with the proponent of an unsolicited proposal to acquire or restructure us, which may result in an improvement of the terms of any
such proposal in favor of our stockholders, and outweigh any potential disadvantage of discouraging those proposals.
Authorized but Unissued Shares of Capital Stock
Our authorized but unissued shares of common stock and preferred stock are available for future issuance without stockholder
approval, subject to the applicable provisions of the DGCL and rules of the Nasdaq. These additional shares may be used for a variety
of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans.
One of the effects of the existence of authorized but unissued common stock or preferred stock may be to enable our board of
directors to issue shares to persons friendly to current management, which issuance could render more difficult or discourage an
attempt to obtain control of the Company by means of a merger, tender offer, proxy contest or otherwise, and thereby protect the
continuity of our management and possibly deprive our stockholders of opportunities to sell their shares of Class A common stock at a
price higher than the prevailing market price.
Board Vacancies and Board Size
Our Charter provides that any vacancies, including any newly created directorships, on our board of directors will be filled by the
affirmative vote of a majority of the remaining directors then in office, even if such directors constitute less than a quorum, or by a
sole remaining director. In addition, the number of directors constituting our board of directors is permitted to be set only by a
resolution adopted by a majority vote of our entire board of directors
. These provisions prevent a stockholder from increasing the size
of our board of directors and then gaining control of our board of directors by filling the resulting vacancies with its own nominees.
This makes it more difficult to change the composition of our board of directors and promotes continuity of management.
No Cumulative Voting
Under the DGCL, stockholders are not entitled to cumulate votes in the election of directors unless a corporation’s certificate of
incorporation provides otherwise. Our Charter does not provide for cumulative voting.
Stockholder Action by Written Consent and Special Meetings of Stockholders
Our Charter and Bylaws provide that our stockholders may take action by written consent so long as the Voting Agreement is in effect
and our principal stockholders hold a majority of the voting power of then outstanding shares of our capital stock. Our Charter and
Bylaws further provide that special meetings of our stockholders may be called only by a majority of our board of directors, the
chairperson of our board of directors or our Chief Executive Officer or, so long as the Voting Agreement is in effect and our principal
stockholders hold a majority of the voting power of then-outstanding shares of our capital stock, our stockholders. These provisions
may delay the ability of our stockholders to force consideration of a proposal or for stockholders controlling a majority of our capital
stock to take any action, including the removal of directors.
Advance Notice Requirements for Stockholder Proposals and Director Nominations
Our Bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election
as directors at our annual meeting of stockholders, and also specify certain procedural requirements regarding the form, content and
timing of such notice. These provisions might preclude our stockholders from bringing matters before our annual meeting of
stockholders or from making nominations for directors at our annual meeting of stockholders if the proper procedures are not
followed. We expect that these provisions may also discourage or deter a potential acquirer from conducting a solicitation of proxies
to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of the Company.
3
Amendments to our Charter and Bylaws
The DGCL provides generally that the affirmative vote of a majority of the outstanding shares entitled to vote thereon, voting together
as a single class, is required to amend a corporation’s certificate of incorporation or bylaws, unless the corporation’s certificate of
incorporation requires a greater percentage. Our Charter provides that at any time the Voting Agreement is not in effect or our
principal stockholders do not hold a majority of the voting power of then-outstanding shares of our capital stock, certain specified
provisions in our Charter, including provisions relating to the size of the board, classification of the board, removal of directors,
special meetings, actions by written consent and cumulative voting, may be amended, altered, rescinded or repealed only by the
affirmative vote of the holders of at least 66 2/3% in voting power of all the then outstanding shares of our capital stock entitled to
vote thereon, voting together as a single class.
Our Charter provides that our board of directors is expressly authorized to amend, alter, rescind or repeal, in whole or in part, or add
to, our Bylaws without a stockholder vote in any manner not inconsistent with the laws of the State of Delaware or our Charter. Our
Charter provides that at any time the Voting Agreement is not in effect or our principal stockholders do not hold a majority of the
voting power of then-outstanding shares of our capital stock, any amendment, alteration, rescission or repeal, in whole or in part, of,
or addition to, our Bylaws by our stockholders requires the affirmative vote of the holders of at least 66 2/3% in voting power of all
the then outstanding shares of our capital stock entitled to vote thereon, voting together as a single class.
Section 203 of the Delaware General Corporation Law
We are subject to the provisions of Section 203 of the DGCL. In general, Section 203 prohibits a publicly held Delaware corporation
from engaging in a “business combination” with an “interested stockholder” for three years following the date that such stockholder
became an interested stockholder, unless:
●
before such date, the board of directors of the corporation approved either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder;
●
upon closing of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at the time the transaction began, excluding for
purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested
stockholder) those shares owned by (1) persons who are directors and also officers and (2) employee stock plans in which
employee participants do not have the right to determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer; or
●
on or after such date, the business combination is approved by the board of directors and authorized at an annual or special
meeting of the stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock that is not owned by the interested stockholder.
In general, Section 203 defines a “business combination” to include, among other things, mergers, asset and stock sales and other
transactions resulting in a financial benefit to an interested stockholder. An “interested stockholder” is a person who, together with its
affiliates and associates, owns, or did own within three years prior to the determination of interested stockholder status, 15% or more of
the corporation’s outstanding voting stock.
Dissenters’ Rights of Appraisal and Payment
Under the DGCL, with certain exceptions, our stockholders will have appraisal rights in connection with a merger or consolidation in
which we are a constituent entity. Pursuant to the DGCL, stockholders who properly
demand and perfect appraisal rights in connection with such merger or consolidation will have the right to receive payment of the fair
value of their shares as determined by the Delaware Court of Chancery, if any, on the amount determined to be the fair value, from the
effective time of the merger or consolidation through the date of payment of the judgment.
Stockholders’ Derivative Actions
Under the DGCL, any of our stockholders may bring an action in our name to procure a judgment in our favor, also known as a
derivative action, provided that the stockholder bringing the action is a holder of our shares at the time of the transaction to which the
action relates or such stockholder’s stock thereafter devolved by operation of law. To bring such an action, the stockholder must
otherwise comply with Delaware law regarding derivative actions.
4
Exclusive Forum
Our Charter requires, to the fullest extent permitted by law, that (1) any derivative action or proceeding brought on behalf of the
Company, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, other employees or our
stockholders to us or our stockholders, (3) any action asserting a claim against us arising pursuant to any provision of the DGCL, our
Charter or our Bylaws, or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware, (4) any action
to interpret, apply, enforce or determine the validity of our Charter or Bylaws and (5) any action asserting a claim against us that is
governed by the internal affairs doctrine, in each case, may be brought only in specified courts in the State of Delaware. As described
below, this provision will not apply to suits brought to enforce any duty or liability created by the Securities Act of 1933, as amended
(the “Securities Act”) or the Exchange Act, or rules and regulations thereunder.
Our Charter also provides that the federal district courts of the United States of America will be the exclusive forum for the resolution
of any complaint asserting a cause of action against us or any of our directors, officers, employees or agents and arising under the
Securities Act. However, Section 22 of the Securities Act provides that federal and state courts have concurrent jurisdiction over
lawsuits brought pursuant to the Securities Act or the rules and regulations thereunder. To the extent the exclusive forum provision
restricts the courts in which claims arising under the Securities Act may be brought, there is uncertainty as to whether a court would
enforce such a provision. Our Charter also provide s that any person or entity purchasing or otherwise acquiring any interest in shares
of our capital stock will be deemed to have notice of and to have consented to the foregoing provision;
provided
,
however
, that
investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. This provision does not
apply to claims brought under the Exchange Act.
We recognize that the forum selection clause in our Charter may impose additional litigation costs on stockholders in pursuing any
such claims, particularly if the stockholders do not reside in or near the State of Delaware. Additionally, the forum selection clause in
our Charter may limit our stockholders’ ability to bring a claim in a forum that they find favorable for disputes with us or our
directors, officers, employees or agents, which may discourage such lawsuits against us and our directors, officers, employees and
agents even though an action, if successful, might benefit our stockholders. The Court of Chancery of the State of Delaware may also
reach different judgments or results than would other courts, including courts where a stockholder considering an action may be
located or would otherwise choose to bring the action, and such judgments may be more or less favorable to us than our stockholders.
Limitation of Liability and Indemnification of Directors and Officers
Our Charter includes provisions that limit the personal liability of our directors for monetary damages for breach of their fiduciary
duties as directors, except to the extent that such limitation is not permitted under the DGCL. Such limitation shall not apply, except to
the extent permitted by the DGCL, to (1) any breach of a director’s duty of loyalty to us or our stockholders, (2) acts or omissions not
in good faith or that involve intentional misconduct or a knowing violation of law, (3) any unlawful payment of a dividend or
unlawful stock repurchase or redemption, as provided in Section 174 of the DGCL or (4) any transaction from which a director
derived an improper personal benefit. These provisions will have no effect on the availability of equitable remedies such as an
injunction or rescission based on a director’s breach of his or her duty of care. Any amendment to, or repeal of, these provisions will
not eliminate or reduce the effect of these provisions in respect of any act, omission or claim that occurred or arose prior to that
amendment or repeal.
Our Bylaws provide for indemnification, to the fullest extent permitted by the DGCL, of any person made or threatened to be made a
party to any action, suit or proceeding by reason of the fact that such person is or was a director, officer, employee or agent of the
Company, or, at the request of the Company, serves or served as a director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or any other enterprise, against all expenses, judgments, fines and amounts paid in settlement actually
and reasonably incurred in connection with the defense or settlement of such action, suit or proceeding. In addition, we have entered
into indemnification agreements with each of our directors pursuant to which we have agreed to indemnify each such director to the
fullest extent permitted by the DGCL.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, we have been informed that in
the opinion of the SEC such indemnification is against public policy and is therefore unenforceable.
1
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Mei Mei Hu, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Vaxxinity, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for,
the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors
(or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: May 9, 2022 By: /s/ Mei Mei Hu
(Principal Executive Officer)
1
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jason Pesile, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Vaxxinity, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for,
the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors
(or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: May 9, 2022 By: /s/ Jason Pesile
(Principal Financial and Accounting Officer)
1
Exhibit 32.1
CERTIFICATIONS OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Vaxxinity, Inc. (the “Company”) on Form 10-Q for the quarter ended
March 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned
hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that, to the best of their knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
Date: May 9, 2022 By: /s/ Mei Mei Hu
(Principal Executive Officer)
Date: May 9, 2022 By: /s/ Jason Pesile
(Principal Financial and Accounting Officer)