vaxx-20220630
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM
10-Q
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
June 30, 2022
-OR-
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
 
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number
 
001-41058
Vaxxinity, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
86-2083865
(State or other jurisdiction of
 
incorporation or organization)
(I.R.S. Employer
Identification No.)
1717 Main St
,
Ste 3388
Dallas
,
TX
75201
(
254
)
244-5739
(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
Symbol(s)
Name of each exchange
on which registered
Class A Common Stock, par value
$0.0001 per share
VAXX
The
Nasdaq
 
Global Market
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
 
No
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
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to
 
use the extended transition period for complying with any
 
new or revised
financial accounting standards provided pursuant to Section 13(a)
 
of the Exchange Act.
 
Indicate by check mark whether the registrant is a shell company
 
(as defined in Rule 12b-2 of the Exchange Act).
As of August 10, 2022, the registrant had
112,149,705
 
shares of $0.0001 par value Class A common stock outstanding
 
and
13,874,132
 
shares of $0.0001 par value
Class B 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5
PART
 
I – FINANCIAL INFORMATION
Item 1. Financial Statements.
VAXXINITY,
 
INC.
CONDENSED CONSOLIDATED
 
BALANCE SHEETS
(in thousands, except share and per share amounts)
June 30,
December 31,
2022
2021
(Unaudited)
Assets
Current assets:
Cash and cash equivalents
$
109,066
$
144,885
Restricted cash
4,708
172
Amounts due from related parties
400
393
Prepaid expenses and other current assets
7,848
8,851
Total current assets
122,022
154,301
Property and equipment, net
12,898
12,372
Long-term deposits
2,076
Total assets
$
136,996
$
166,673
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
$
338
$
3,192
Amounts due to related parties
16,724
19,407
Accrued expenses and other current liabilities
11,844
4,519
Notes payable
384
376
Total current liabilities
29,290
27,494
Other liabilities
Notes payable, net of current portion
10,129
10,323
Other long-term liabilities
236
237
Total liabilities
39,655
38,054
Commitments and contingencies (Note 16)
Preferred stock: $
0.0001
 
par value,
50,000,000
 
shares authorized at June 30, 2022 and December
 
31, 2021
Stockholders’ equity:
Class A common stock, $
0.0001
 
par value;
1,000,000,000
 
shares authorized,
112,129,705
 
and
111,518,094
 
shares issued and
outstanding at June 30, 2022 and December 31, 2021, respectively
278
278
Class B common stock, $
0.0001
 
par value;
100,000,000
 
shares authorized,
13,874,132
 
shares issued and outstanding at June
30, 2022 and December 31, 2021
Additional paid-in capital
362,059
357,822
Accumulated deficit
(264,996)
(229,481)
Total stockholders’ equity
97,341
128,619
Total liabilities and stockholders’ equity
$
136,996
$
166,673
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 June 30,
Six Months Ended June 30,
2022
2021
2022
2021
Revenue
$
$
$
$
17
Cost of revenue
1,927
1,928
Gross profit
(1,927)
(1,911)
Operating expenses:
Research and development
10,664
19,020
22,142
30,709
General and administrative
6,560
5,846
13,246
14,430
Total operating expenses
17,224
24,866
35,388
45,139
Loss from operations
(17,224)
(26,793)
(35,388)
(47,050)
Other (income) expense:
Interest expense
105
109
210
620
Interest income
(75)
(2)
(80)
(2)
Change in fair value of convertible notes
2,667
Change in fair value of simple agreement for future
equity
8,365
Change in fair value of warrant liability
214
(Gain) loss on foreign currency translation, net
(2)
8
(3)
16
Other (income) expense
28
115
127
11,880
Net loss
$
(17,252)
$
(26,908)
$
(35,515)
$
(58,930)
Net loss per share, basic and diluted
$
(0.14)
$
(0.39)
$
(0.28)
$
(0.86)
Weighted average
 
common shares outstanding, basic and
diluted
125,948,595
68,702,833
125,829,764
68,627,943
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
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
$
$
$
62,475
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)
53,502,585
62,475
Conversion of convertible notes to Series A preferred stock,
net of debt issuance costs
3,624,114
27,545
27,545
Conversion of notes payable with related parties to Series A
convertible preferred
423,230
2,205
2,205
Conversion of Simple Agreement for Future Equity to Series A
convertible preferred
4,539,060
35,600
35,600
Conversion of warrant liability to Series A convertible
preferred
134,106
614
614
Issuance of Series B convertible preferred stock, net of
issuance costs of $
81
15,365,574
122,843
122,843
Balance at June 30, 2021
$
$
$
$
$
62,223,095
$
128,439
15,365,574
$
122,843
$
251,282
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
111,518,094
$
278
13,874,132
$
$
$
357,822
$
(229,481)
$
128,619
Issuance of common stock upon exercise of stock options
611,611
233
233
Stock-based compensation expense
4,004
4,004
Net loss
(35,515)
(35,515)
Balance at June 30, 2022
112,129,705
$
278
13,874,132
$
$
$
362,059
$
(264,996)
$
97,341
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
60,360,523
$
272
10,999,149
$
(3,169,093)
$
(23)
$
4,682
$
(92,306)
$
(87,375)
Issuance of common stock upon exercise of stock options
27,855
10
10
Vesting of restricted stock
15,405
Issuance of common stock upon stock grant
485,837
103
103
Reclassification of Class A common stock to Class B common stock
(2,874,984)
2,874,984
Retirement of treasury stock upon reorganization
(3,169,093)
3,169,093
23
(23)
Stock-based compensation expense
4,139
4,139
Net loss
(58,930)
(58,930)
Balance at June 30, 2021
54,845,543
$
272
13,874,133
$
$
$
8,911
$
(151,236)
$
(142,053)
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)
Six Months Ended June 30,
2022
2021
Cash flows from operating activities:
Net loss
$
(35,515)
$
(58,930)
Adjustments to reconcile net loss to net cash used in operating
 
activities:
Depreciation expense
725
565
Amortization of debt issuance costs
27
235
Stock-based compensation expense
4,004
4,242
Non-cash consulting expense
258
Change in fair value of convertible notes
2,667
Change in fair value of warrant liability
214
Change in fair value of simple agreement for future equity
8,365
Changes in operating assets and liabilities:
Accounts receivable
26
Amounts due from related parties
(7)
(11)
Prepaid expenses and other current assets
1,003
(12,089)
Long-term deposits
(2,076)
Deferred offering costs
(532)
Accounts payable
(2,854)
4,865
Amounts due to related parties
(2,683)
5,257
Accrued expenses and other current liabilities
7,326
1,418
Other long-term liabilities
(1)
(2,502)
Net cash used in operating activities
(30,051)
(45,952)
Cash flows from investing activities:
Purchase of property and equipment
(1,252)
Net cash used in investing activities
(1,252)
Cash flows from financing activities:
Proceeds from issuance of notes payable with related parties
2,000
Repayment of convertible notes payable
(2,000)
Repayment of notes payable
(213)
(96)
Proceeds from issuance of simple agreement for future equity
2,900
Proceeds from issuance of Series B convertible preferred stock,
 
net of issuance costs
122,843
Proceeds from exercise of stock options
233
10
Net cash provided by financing activities
20
125,657
Increase (decrease) in cash, cash equivalents, and restricted
 
cash
(31,283)
79,705
Cash, cash equivalents, and restricted cash at beginning of
 
period
145,057
31,198
Cash, cash equivalents, and restricted cash at end of period
$
113,774
$
110,903
Supplemental Disclosure
Cash paid for interest
$
185
$
126
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
$
$
62,475
Conversion of simple agreement for future equity into Series A
 
preferred stock
$
$
2,205
Conversion of convertible notes payable into Series A
 
preferred stock
$
$
27,545
Conversion of notes payable with related parties into Series
 
A preferred stock
$
$
35,600
Conversion of warrant liability into Series A preferred stock
$
$
614
Retirement of treasury stock upon reorganization
$
$
23
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,
pain, cardiovascular diseases 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
 
global 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
3.4233
 
shares of Vaxxinity
 
common
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
4,047,344
 
shares of Vaxxinity’s
 
Series A
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
0.2191
. Each outstanding COVAXX
 
option was exchanged based on a conversion
ratio of
3.4233
.
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-
1.556
 
(the “Stock Split”)
 
of the Company’s
 
Class A and
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
6,000,000
 
shares of Class A common stock at a public offering price of $
13.00
per share. On
 
November 18, 2021
 
the Company held
 
a subsequent closing for
 
the issuance of an
 
additional
537,711
 
shares of Class A
common stock pursuant
 
to a
 
30-day option granted
 
to the
 
underwriters to purchase
 
up to an
 
additional
900,000
 
shares of Class
 
A common
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
 
$
71.1
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-
1.556
) into shares of its Class A common stock.
Liquidity
As of
 
June 30,
 
2022,
 
the Company
 
had
 
$
109.1
 
million
 
of cash
 
and
 
cash equivalents.
 
As of
 
June 30,
 
2022,
 
the Company
 
also had
 
a
Restricted Cash balance
 
of $
4.7
 
million of which
 
$
4.6
 
million is restricted
 
for the reimbursement
 
of certain research
 
and development
expenses related to
 
our UB-612
 
COVID-19 vaccine program.
 
To
 
date, the Company
 
has primarily financed
 
its operations through
 
the
sale of convertible
 
preferred stock and
 
common stock, borrowings
 
under promissory notes
 
(including Convertible
 
Notes), a portion of
which
 
has
 
been
 
raised
 
from
 
related
 
party
 
entities,
 
and
 
grants
 
from
 
foundations
 
such
 
as
 
the
 
Coalition
 
for
 
Epidemic
 
Preparedness
Innovations (CEPI)
 
and the
 
Michael J.
 
Fox Foundation
 
(MJFF). The
 
Company has
 
experienced significant
 
negative cash
 
flows from
operations since inception, and incurred
 
a net loss of $
35.5
 
million for the six months
 
ended June 30, 2022. Net cash
 
used in operating
activities for the six months ended June 30, 2022 was $
30.1
 
million. In addition, as of June 30, 2022, the Company has an accumulated
deficit of
 
$
265.0
 
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.
In order
 
to continue
 
to fund
 
future research
 
and development
 
activities, the
 
Company
 
will need
 
to seek
 
additional capital.
 
This may
occur through
 
strategic alliances,
 
licensing arrangements,
 
grants and/or
 
future public
 
or private
 
debt or
 
equity financings.
 
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
VAXXINITY,
 
INC.
NOTES TO THE CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
 
12
and Exchange Commission (“SEC”) for interim financial
 
reporting. The unaudited condensed consolidated financial
 
statements for the
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 and six
 
months ended June 30, 2022 and
 
cash flows for the six months
 
ended June 30, 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.
 
The Company has elected to apply the short-term expedient to leases
 
with
a lease term of 12 months or less, which does not subject the leases to capitalization.
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 and six months ended June 30, 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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
VAXXINITY,
 
INC.
NOTES TO THE CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
 
13
retained earnings in the
 
period of adoption. Under
 
ASU 2016-02, a lease is required
 
to recognize assets and liabilities
 
with lease terms
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):
June 30, 2022
Level 1
Level 2
Level 3
Total
Assets:
Money market account
$
109,010
$
$
$
109,010
Total assets
$
109,010
$
$
$
109,010
December 31, 2021
Level 1
Level 2
Level 3
Total
Assets:
Money market account
$
139,794
$
$
$
139,794
Total assets
$
139,794
$
$
$
139,794
During the three and six months ended June 30, 2022 and the year
 
ended December 31, 2021, there were
no
 
transfers between Level 1,
Level 2 and Level 3.
4. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in thousands):
June 30,
December 31,
2022
2021
Prepaid materials and supplies
$
3,524
$
3,517
Deposits
2,218
4,379
Clinical prepayments
1,746
614
Other
360
341
$
7,848
$
8,851
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
VAXXINITY,
 
INC.
NOTES TO THE CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
 
14
The Company’s prepaid material and supplies related to enzyme-linked immunosorbent assay (“ELISA”) test
 
production, of which $
1.0
million was paid to a related
 
party and $
2.5
 
million related to materials to be
 
utilized during its Phase 3 COVID-19 vaccine
 
clinical trial.
5. Property and Equipment
Property and equipment, net consisted of the following (in thousands):
June 30,
December 31,
2022
2021
Airplane
$
11,983
$
11,983
Laboratory and computer equipment
2,791
1,831
Fixed assets not yet placed into service
464
199
Software
169
168
Facilities, furniture and fixtures
111
85
Vehicles
87
87
Total property
 
and equipment
15,605
14,353
Less: accumulated depreciation
(2,707)
(1,981)
Property and equipment, net
$
12,898
$
12,372
Depreciation expense
 
for the three
 
and six months
 
ended June 30, 2022
 
was $
0.4
 
million and $
0.7
 
million, respectively.
 
Depreciation
expense for the three and six months ended June 30, 2021 was $
0.3
 
million and $
0.6
 
million, respectively.
 
6. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in
 
thousands):
June 30,
December 31,
2022
2021
Accrued external research and development
$
7,815
$
1,501
Accrued bonuses
2,312
2,294
Accrued professional fees and other
1,687
692
Accrued interest
30
32
$
11,844
$
4,519
Accrued external research and development includes
 
$
4.6
 
million in grant monies received
 
from CEPI during the six
 
months ended June
30, 2022 not yet applied against research and development expense.
7. Other Long-Term
 
Liabilities
Other long-term liabilities consisted of the following (in thousands):
June 30,
December 31,
2022
2021
Accrued tax provision
236
236
Accrued rent
1
$
236
$
237
As of June
 
30, 2022 and
 
December 31, 2021,
 
approximately $
0.2
 
million of
 
the accrued tax
 
provision relates
 
to penalties and
 
interest
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
VAXXINITY,
 
INC.
NOTES TO THE CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
 
15
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 $
2.0
 
million in aggregate proceeds,
 
received in three tranches.
 
The 2018
Related
 
Notes
 
bore
 
simple
 
interest
 
at
 
an
 
annual
 
rate
 
of
5
%
 
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.
 
During each of the three and six months ended June 30, 2021, the Company recognized interest expense of less than $
0.1
 
million on the
2018 Related Notes.
2019 Executive Note
In November 2019, the Company borrowed $
0.1
 
million from its Chief Executive Officer (the “2019 Executive Note”). No formal loan
agreement was executed. The Company
 
has elected to accrue interest at
 
an annual rate of
5
%, 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
$
2,100
$
194
$
2,294
Accrued interest
19
19
Conversion
(2,000)
(205)
(2,205)
June 30, 2021
$
100
$
8
$
108
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 $
11.5
 
million, with an annual interest rate of
3.4
% and a maturity date of June
 
9, 2025. Principal and interest payments
 
are payable
monthly in the amount of $
0.1
 
million with a final payment of $
9.4
 
million at maturity. The 2025 Note is guaranteed by the co-founders
of the Company. In addition, the Company
 
incurred debt issuance costs of $
0.3
 
million, which are being amortized over the term of the
loan. There are no financial covenants associated with the 2025 Note.
 
The carrying value of the 2025 Note is as follows (in thousands):
 
June 30,
December 31,
2022
2021
Principal
$
10,670
$
 
10,883
Unamortized debt issuance cost
(157)
(184)
Carrying amount
10,513
10,699
Less: current portion
(384)
(376)
Note payable, net of current portion and debt issuance cost
$
10,129
$
10,323
 
 
 
 
 
 
 
 
 
 
 
 
VAXXINITY,
 
INC.
NOTES TO THE CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
 
16
As of June 30, 2022, the remaining principal payments for the 2025 Note, are
 
as follows (in thousands):
 
Amount
2022
$
216
2023
444
2024
458
2025
9,552
$
10,670
Interest expense
 
associated with
 
the 2025
 
Note was
 
$
0.1
 
million and
 
$
0.2
 
million for
 
the three
 
and six
 
months ended
 
June 30, 2022,
respectively.
 
Interest
 
expense
 
associated
 
with
 
the 2025
 
Note
 
was
 
$
0.1
 
million
 
and
 
$
0.2
 
million
 
for
 
the
 
three
 
and
 
six
 
months
 
ended
June 30, 2021, respectively.
 
As of June 30, 2022, accrued interest of less than $
0.1
 
million was included in accrued expenses and other
liabilities in the accompanying condensed consolidated balance sheets as of
 
June 30, 2022 (unaudited) and December 31, 2021.
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
 
$
0.3
 
million (the “PPP
 
Loan”), pursuant
 
to the Paycheck
 
Protection
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
June 30, 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
0.2191
 
shares of Vaxxinity
 
preferred
stock and
 
each share of
 
COVAXX
 
convertible preferred
 
stock was exchanged
 
for
3.4233
 
shares of Vaxxinity
 
preferred stock.
 
During
the first
 
and second
 
quarters of
 
2021, the
 
Company raised
 
gross proceeds
 
of $
122.9
 
million in
 
connection with
 
its Series
 
B preferred
stock financing. The
 
Company issued a total
 
of
15,365,574
 
shares at a price
 
of $
8.00
 
per share. All shares
 
of the Company’s
 
Series B
preferred stock converted
 
into shares
 
of the Company’s Class
 
A common stock
 
concurrently with
 
the closing
 
of the
 
initial public offering.
 
As of
 
June 30, 2022
 
and December
 
31, 2021,
 
Vaxxinity’s
 
Amended and
 
Restated Certificate
 
of Incorporation
 
authorized
50,000,000
shares of preferred stock with a par value of $
0.0001
 
per share. There were no shares of preferred stock outstanding as of June 30, 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
60,360,523
 
shares
 
of
Vaxxinity’s
 
Class A common
 
stock and
10,999,149
 
shares of Vaxxinity’s
 
Class B common
 
stock. Each
 
UNS share of
 
common stock
was exchanged
 
for
0.2191
 
shares of Vaxxinity
 
common stock and
 
each share of
 
COVAXX
 
common stock
 
was exchanged for
3.4233
shares of Vaxxinity
 
common stock.
 
As of June 30, 2022 and December 31, 2021, Vaxxinity’s
 
Amended and Restated Certificate of Incorporation authorized
1,100,000,000
shares of common stock with a
 
par value of $
0.0001
 
per share, of which
1,000,000,000
 
shares have been designated as Class
 
A common
stock and
100,000,000
 
shares have been designated as 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 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
VAXXINITY,
 
INC.
NOTES TO THE CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
 
17
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 Company has reserved shares of common stock for issuance for the following
 
purposes:
 
June 30,
December 31,
2022
2021
Options and RSUs issued and outstanding
20,639,861
21,387,909
Options available for future grants
6,328,932
7,209,538
Warrants issued and
 
outstanding
1,928,020
1,928,020
28,896,813
30,525,467
11.
 
Stock-Based Compensation
2021 Omnibus Incentive Compensation Plan
In
 
November
 
2021,
 
the
 
Company
 
established
 
the
 
2021 Omnibus
 
Incentive
 
Compensation
 
Plan
 
(the
 
“Plan”),
 
which
 
provides
 
for
 
the
Company
 
to
 
grant
 
nonqualified
 
stock
 
options,
 
incentive
 
(qualified)
 
stock
 
options,
 
stock
 
appreciation
 
rights,
 
restricted
 
share
 
awards,
restricted stock units, performance awards, cash incentive awards and other
 
equity-based awards (including fully vested shares).
 
The maximum number of shares of common stock that can be issued under the Plan is
8,700,000
 
Class A shares. This number increases
automatically
 
on January
 
1 of
 
each year,
 
commencing
 
January 1,
 
2023, by
 
the number
 
of shares
 
equal to
 
the lesser
 
of (i)
4
% of
 
the
outstanding
 
shares
 
of
 
our
 
common
 
stock
 
on
 
the
 
immediately
 
preceding
 
December
 
31,
 
(ii)
 
the
 
number
 
of
 
shares
 
determined
 
by
 
the
Compensation Committee, if any
 
such determination is made, and
 
(iii) the number of shares underlying
 
any awards granted during
 
the
preceding calendar year, net of the shares
 
underlying awards canceled or forfeited under the Plan.
Stock Options
As of June 30, 2022 there were options for
13,977,406
 
shares of Class A stock outstanding and options for
6,362,455
 
shares of Class B
stock outstanding,
 
of which
8,748,337
 
Class A and
4,921,089
 
Class B shares
 
were exercisable,
 
respectively.
 
As of June 30,
 
2022, the
maximum number of stock options awards available for future issuance
 
under the Company’s plans is
6,328,932
.
The following table summarizes stock option activity during the six months
 
ended June 30, 2022:
 
Number of Stock
Options
Outstanding
Weighted Price
Per Share
Weighted
Contractual
Term
 
(years)
Aggregate
Intrinsic Value
(in thousands)
Balance at December 31, 2021
21,387,909
$
5.25
7.4
$
49,684
Granted
1,024,221
3.26
Exercised
(1,013,541)
(3.40)
Forfeited
(1,058,728)
(7.36)
Balance at June 30, 2022
20,339,861
$
5.12
7.3
$
8,648
Options vested and exercisable at June 30, 2022
13,669,426
$
4.50
6.9
$
7,879
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 June 30, 2022.
The intrinsic value of options exercised during the six months ended
 
June 30, 2022 was $
4.4
 
million.
The weighted-average grant-date fair value per share of options granted
 
during the six months ended June 30, 2022 was $
2.42
.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
VAXXINITY,
 
INC.
NOTES TO THE CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
 
18
Restricted Stock
The following table summarizes the Company’s
 
restricted stock activity for the six months ended June 30, 2022:
 
Number of
Shares
Weighted
Average
Grant Date
Fair Value
Per Share
Unvested at December 31, 2021
$
Issued
300,000
3.76
Unvested at June 30, 2022
300,000
$
3.76
Stock-based compensation expense recognized on restricted stock was
 
less than $
0.1
 
million for the six months ended June 30, 2022.
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 June 30,
Six Months Ended June 30,
2022
2021
2022
2021
General and administrative
$
1,008
$
597
$
2,379
$
3,867
Research and development
818
205
1,625
375
Total stock-based
 
compensation expense
$
1,826
$
802
$
4,004
$
4,242
As of
 
June 30,
 
2022,
 
total
 
unrecognized
 
compensation
 
cost
 
related
 
to
 
the
 
unvested
 
stock-based
 
awards
 
was $
21.1
 
million,
 
which
 
is
expected to be recognized over a weighted average period of
2.7
 
years.
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
 
six months
 
ended June
 
30, 2022
 
and 2021
 
was
0.00
%, 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 June 30, 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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
VAXXINITY,
 
INC.
NOTES TO THE CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
 
19
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.
 
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 June 30, 2022 because including them would have had an anti-
dilutive effect:
 
June 30,
June 30,
2022
2021
Series A preferred stock
39,989,083
Series B preferred stock
9,875,037
Options and RSUs issued and outstanding
20,639,861
20,325,228
Warrants issued and
 
outstanding stock
1,928,020
128,702
22,567,881
70,318,050
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 June 30,
 
2022, the Company had
 
remaining prepayments to
 
CROs of $
2.8
 
million and remaining prepayments
 
to CMOs of $
2.5
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 $
0.8
 
million to be used
 
in a project for
 
the exploration of markers
 
for target engagement
 
in individuals immunized
 
with
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 received in tranches over a two-year
 
period, and the amounts received in each tranche are
 
expected to be utilized within
twelve months, the funds received are recognized as a short-term accrued liability.
 
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.
As of June 30, 2022, the balance of the short-term accrued liability was less than $
0.1
 
million. For the six months ended June 30, 2022,
the Company did not recognize any reduction of research and development
 
expenses for amounts reimbursed through the grant.
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
 
$9.3 million
 
to co-fund
 
a Phase
 
3 clinical
 
trial of
 
Vaxxinity’s
 
next generation
 
UB-612
COVID-19 vaccine candidate
 
as a heterologous
 
– or ‘mix-and-match’
 
– booster dose. The
 
Phase 3 trial, which
 
began 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 potential commercialization.
 
Under
the terms of the
 
agreement with CEPI, 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.
VAXXINITY,
 
INC.
NOTES TO THE CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
 
20
Cash payments received in advance under the CEPI Funding Agreement are restricted as to their use until expenditures contemplated in
the funding agreement are incurred.
 
As funding is expected to be received in tranches over an eighteen month period,
 
and the amounts
received in each tranche are expected to the utilized within twelve months, the funds received are reflected within restricted cash with a
corresponding short-term accrued liability.
 
The Company recognizes payments from
 
CEPI as a reduction of research
 
and development
expenses, in the same period as the expenses that the
 
grant is intended to reimburse are incurred. As of June 30, 2022, the balance
 
of the
restricted
 
cash
 
and
 
short-term
 
accrued
 
liability
 
was
 
$
4.6
 
million.
 
For
 
the
 
three
 
and
 
six
 
months
 
ended
 
June
 
30,
 
2022,
 
the
 
Company
recognized a reduction of $
1.5
 
million of research and development expenses.
Lease Agreements
 
In April 2022, the
 
Company entered into a
 
facility lease agreement for
4,419
 
square feet of office
 
space in New York,
 
New York.
 
The
lease commenced in April 2022
 
and will expire March 2029 with
 
no option to renew.
 
This lease and its terms were
 
reviewed using the
guidance found in ASC 842.
 
Since the lease has a non-cancellable period of one year, and after the first year both the Company and the
landlord have the
 
option to early
 
terminate the lease
 
for any or
 
no reason,
 
the Company has elected
 
to apply the
 
short-term expedient,
which does not subject the New York
 
lease to capitalization.
 
The Company’s
 
short-term leases
 
resulted in
 
$
0.1
 
million short-term
 
lease expense
 
and less
 
than $
0.1
 
million variable
 
lease expense
during the three months ended
 
June 30, 2022 and $
0.2
 
million short-term lease expense and less
 
than $
0.1
 
million variable lease expense
during the six months ended June 30, 2022.
 
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, Vax
 
xinity 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”).
 
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 June
 
30, 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 June 30,
2022 and December 31, 2021, the Company was not a party to any material
 
legal matters or claims.
 
VAXXINITY,
 
INC.
NOTES TO THE CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
 
21
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
4
% of each participant’s annual salary. During both
of the three and six months ended June 30, 2022 and 2021, the Company contributed
 
less than $
0.1
 
million to PRSA accounts.
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 June 30, 2022 UBI owned
44
% 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.
These related parties are governed by various Master Services Agreements
 
(“MSA”) detailed below.
 
UBI MSA - UBI provides research, development and clinical functions to the Company.
 
There is also a purchase arrangement
with UBI for the production and shipment of the Company’s
 
diagnostic test kits.
UBIA MSA - UBI-Asia for manufacturing, quality control, testing, validation,
 
and supply services.
UBP MSA - United BioPharma, Inc provide the Company with manufac
 
turing, testing and validation.
COVID MSA (“COVID
 
MSA”) - COVID
 
MSA provides that UBI
 
acts as COVAXX’s
 
agent with respect
 
to matters relating
the
 
Company’s
 
COVID-19
 
program
 
and
 
provides
 
research,
 
development,
 
manufacturing
 
and
 
back
 
office
 
administrative
services to the Company.
COVID-19
 
Relief
 
MSA
 
-
 
A four
 
-company
 
MSA
 
with
 
UBI,
 
UBI-Asia
 
and
 
UBP.
 
The
 
Company
 
is an
 
exclusive
 
licensee
 
of
technologies related to diagnostics, vaccines, and therapies for
 
COVID-19. The MSA established the terms under which UBI-
Asia
 
provides
 
research,
 
development,
 
testing
 
and
 
manufacturing
 
services
 
to
 
the
 
Company
 
and
 
UBP
 
provides
 
contract
development and manufacturing services to the Company.
Total
 
amounts due
 
to related
 
parties were
 
$
16.7
 
million and
 
$
19.4
 
million as
 
of June
 
30, 2022
 
and December
 
31, 2021,
 
respectively.
Total
 
amounts due
 
from related
 
parties were
 
$
0.4
 
million and
 
$
0.4
 
million as
 
of June 30,
 
2022 and
 
December 31,
 
2021, respectively.
Total service fees incurred
 
were $
0.4
 
million and $
13.9
 
million for the three months ended June 30, 2022 and 2021, respectively.
 
Total
service fees incurred were $
1.2
 
million and $
22.6
 
million for the six months ended June 30, 2022 and 2021, respectively.
 
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
 
22
Total related party
 
operating activity, including
 
the activity described above, are as follows (in thousands):
June 30,
December 31,
2022
2021
Consolidated balance sheet
Assets
Prepaid expenses and other current assets
$
3,513
$
3,517
Amounts due from related parties
400
393
Property and equipment, net
240
337
Liabilities
Amounts due to related parties
16,724
19,407
Three Months Ended June 30,
Six Months Ended June 30,
2022
2021
2022
2021
Operating expenses
Research and development
Services provided by related parties
 
$
407
 
$
20,090
 
$
1,191
 
$
30,723
Taiwan CDC grant reimbursement
 
from related party
(6,575)
(8,992)
General and administrative
Services provided by related parties
$
$
355
$
$
862
17. Subsequent Events
On July 29,
 
2022 the Company
 
agreed to pay
 
$
592,665
 
to settle all
 
outstanding claims
 
related to disputed
 
invoices on a
 
clinical study
that was terminated in 2021.
 
The agreement represents full and final settlement of all claims, rights, and demands that each
 
party or its
Affiliates may
 
have, and each
 
party has released
 
and discharged
 
any future actions
 
related to any
 
services performed on
 
the cancelled
study.
 
The
 
full
 
settlement
 
amount
 
was
 
recorded
 
as
 
a
 
charge
 
to
 
research
 
and
 
development
 
expense
 
in
 
the
 
three
 
months
 
ended
June 30, 2022, and payment was made upon execution of the agreement.
 
 
23
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 read
 
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
 
global
 
unmet
 
medical
 
needs.
 
Vaccines
 
offer
 
significant
 
cost,
 
convenience
 
and
accessibility
 
advantages
 
over
 
other
 
forms
 
of
 
treatment,
 
but
 
have
 
traditionally
 
been
 
unable
 
to
 
effectively
 
and
 
safely
 
combat
 
chronic
diseases. We believe our platform may be able
 
to do so, expanding
 
access to, and reducing
 
costs of, treatments across a
 
potentially broad
spectrum of illnesses. 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
 
far more
costly
 
and
 
cumbersome
 
to
 
administer than
 
vaccines,
 
and
 
thus are
 
generally
 
less accessible.
 
Our pipeline
 
is centered
 
around
 
chronic
disease, pursuing
 
validated targets
 
in neurology,
 
pain and cardiovascular
 
indications. We
 
have also leveraged
 
our Vaxxine
 
Platform’s
applicability to infectious disease and are advancing next-generation
 
booster candidate for 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
 
chronic
 
disease
 
pipeline
 
consists
 
of
 
five
 
programs
 
from
 
early
 
to
 
late-stage
 
development.
 
These
 
include
 
two
 
primary
 
programs
focused on well-validated targets
 
of chronic disease: UB-313,
 
which targets CGRP to
 
prevent migraines; and
 
VXX-401, which targets
PCSK9 to lower
 
LDL cholesterol
 
and reduce
 
the risk of
 
cardiac events. We
 
consider these
 
to be potential
 
best-in-class based
 
on their
potential enhanced
 
convenience, increased
 
durability,
 
and disruptive
 
accessibility and
 
cost-effectiveness.
 
Moreover,
 
for both
 
of these
programs, there is a known regulatory pathway to approval and either a surrogate marker or experimental provocation that can facilitate
and accelerate development decisions. We
 
are focused on progressing both of these into the clinic over the
 
next two quarters.
We
 
have three
 
programs that
 
comprise our
 
neurodegenerative disease
 
pipeline: 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.
 
These
programs have
 
the unique
 
potential to
 
not only
treat
 
neurodegenerative diseases
 
but also,
 
depending on
 
potential safety,
 
convenience
and
 
accessibility
 
advantages
 
of
 
our
 
vaccine
 
approach,
prevent
 
neurodegenerative
 
diseases.
 
Realizing
 
that
 
these
 
neurodegenerative
disease and
 
disease prevention
 
candidates
 
will require
 
significantly more
 
time and
 
resources in
 
connection with
 
regulatory approval,
we are seeking strategic partnerships and/or dedicated investment in connection
 
with the further advancement of these programs.
We believe in our
 
Vaxxine
 
Platform’s capability to create candidates to
 
address a wide range of other chronic diseases, including those
that are
 
or could
 
potentially be
 
successfully treated
 
by mAbs,
 
which increasingly
 
dominate the
 
treatment paradigm
 
for many
 
chronic
diseases.
 
24
In addition to our chronic
 
disease pipeline, we are advancing
 
an infectious disease product candidate,
 
UB-612, as a heterologous booster
vaccine for
 
SARS-CoV-2.
 
We
 
have reported
 
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 global Phase 3
 
heterologous booster trial of
 
UB-612
that began in the first half of 2022.
We have principally funded our
 
operations through financing
 
transactions. Through June 30, 2022,
 
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
 
.
 
Additionally, we have been
 
awarded grants totaling $10.1 million from the Coalition
 
for
Epidemic Preparedness Innovations and
 
the Michael J. Fox Foundation.
 
The Company will continue to pursue
 
non-dilutive sources of
financing,
 
including
 
grants,
 
collaboration
 
agreements,
 
and revenue
 
from
 
the
 
sale of
 
our
 
products.
 
However,
 
our
 
ability to
 
generate
revenue sufficient to
 
achieve profitability will depend on
 
the eventual regulatory approval, and
 
successful commercialization of one or
more of our product candidates. To
 
date, we have not yet obtained any regulatory approvals for our pipeline product
 
candidates.
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 general and administrative expenses
to incur
 
increased costs
 
as a
 
result of
 
operating as
 
a public
 
company and
 
allocated research
 
and development
 
costs to
 
be in
 
line with
recent levels over
 
the next 12
 
months and to
 
thereafter increase over
 
time as we
 
expand the number
 
of product candidates
 
that we are
advancing,
 
whether
 
exclusively
 
or
 
with
 
partners.
 
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 $17.3
million and
 
$26.9 million
 
for the
 
three months
 
ended June 30,
 
2022 and
 
2021, respectively.
 
Net losses
 
were $35.5
 
million and
 
$58.9
million for the
 
six months ended
 
June 30, 2022 and
 
2021, respectively.
 
As of June 30,
 
2022, we had
 
an accumulated deficit
 
of $265.0
million. Our
expenses and capital requirements may increase over time in connection with our operations,
 
which include:
continuing pre-clinical studies, existing
 
clinical trials, and initiating
 
new clinical trials
 
for product candidates, including clinical
trials of UB-313 and VXX-401;
commercializing UB-612 and meeting post-marketing regulatory
 
commitments;
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;
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
 
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 through
 
debt or equity raises, or non-dilutive sources such as grants,
 
successful product
commercialization and/or 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
 
25
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.”
Components of Our Unaudited Condensed Consolidated Results of Operations
Revenue
 
No revenue
 
was generated
 
during the
 
three months
 
ended June
 
30, 2022
 
and 2021.
 
No revenue
 
was generated
 
during the
 
six months
ended June 30, 2022. Revenue for
 
the six months ended June 30, 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;
employee-related expenses, including salaries and benefits, travel and
 
stock-based compensation expense for employees
engaged in research and development functions;
 
26
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 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. 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
 
six months ended June 30,
2022 and
 
2021, related
 
party expenses
 
were approximately
 
5.4% and
 
73.6% of
 
our research
 
and development
 
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