vaxx-20220930
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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
September 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 November 8, 2022, the registrant had
112,181,870
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 materially from those reflected in
 
forward-looking statements include, among others, the
 
following:
 
the prospects of our product
 
candidates, including the timing
 
of data from our clinical
 
trials for our 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
 
within 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, if approved, on a larger scale for commercial
 
use;
 
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, including 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)
September 30,
December 31,
2022
2021
(Unaudited)
Assets
Current assets:
Cash and cash equivalents
$
18,875
$
144,885
Short-term investments
80,233
Restricted cash
3,073
172
Amounts due from related parties
400
393
Prepaid expenses and other current assets
5,502
8,851
Total current assets
108,083
154,301
Property and equipment, net
12,801
12,372
Long-term deposits
2,076
Total assets
$
122,960
$
166,673
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
$
3,319
$
3,192
Amounts due to related parties
16,676
19,407
Accrued expenses and other current liabilities
12,049
4,519
Notes payable
387
376
Total current liabilities
32,431
27,494
Other liabilities
Notes payable, net of current portion
10,032
10,323
Other long-term liabilities
236
237
Total liabilities
42,699
38,054
Commitments and contingencies (Note 15)
Preferred stock: $
0.0001
 
par value,
50,000,000
 
shares authorized at September 30, 2022 and December
 
31, 2021
Stockholders’ equity:
Class A common stock, $
0.0001
 
par value;
1,000,000,000
 
shares authorized,
112,181,870
 
and
111,518,094
 
shares issued and
outstanding at September 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
September 30, 2022 and December 31, 2021
Additional paid-in capital
364,445
357,822
Accumulated other comprehensive income (loss)
(215)
Accumulated deficit
(284,247)
(229,481)
Total stockholders’ equity
80,261
128,619
Total liabilities and stockholders’ equity
$
122,960
$
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
September 30,
Nine Months Ended
September 30,
2022
2021
2022
2021
Revenue
$
$
50
$
$
67
Cost of revenue
9
1,937
Gross profit
41
(1,870)
Operating expenses:
Research and development
12,468
23,443
34,609
54,324
General and administrative
7,300
6,873
20,546
21,130
Total operating expenses
19,768
30,316
55,155
75,454
Loss from operations
(19,768)
(30,275)
(55,155)
(77,324)
Other (income) expense:
Interest and other expense
54
112
264
732
Interest and other income
(545)
(3)
(625)
(6)
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
(25)
5
(28)
24
Other (income) expense
(516)
114
(389)
11,996
Net loss
$
(19,252)
$
(30,389)
$
(54,766)
$
(89,320)
Net loss per share, basic and diluted
$
(0.15)
$
(0.44)
$
(0.43)
$
(1.30)
Weighted average
 
common shares outstanding, basic and
diluted
126,036,865
68,728,509
125,899,557
68,667,682
Other comprehensive income (loss):
 
Unrealized gain (loss) on investments
(215)
(215)
 
Other comprehensive income (loss)
$
(215)
$
$
(215)
$
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
27,379
27,379
Conversion of notes payable with related parties to Series A
convertible preferred
423,230
2,138
2,138
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 $
131
15,365,574
122,791
122,791
Balance at September 30, 2021
$
$
$
$
$
62,223,095
$
128,206
15,365,574
$
122,791
$
250,997
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
Other
Comprehensive
Income (Loss)
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
663,776
262
262
Stock-based compensation expense
6,361
6,361
Net loss
(215)
(54,766)
(54,981)
Balance at September 30, 2022
112,181,870
$
278
13,874,132
$
$
$
364,445
$
(215)
$
(284,247)
$
80,261
Common Stock-Class A
Common Stock-Class B
Treasury Stock
Shares
Amount
Shares
Amount
Shares
Amount
Additional Paid-
in Capital
Accumulated
Other
Comprehensive
Income (Loss)
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)
$
(87,352)
Issuance of common stock upon exercise of stock options
82,696
70
70
Vesting of restricted stock
15,405
Issuance of common stock upon stock grant
485,836
103
103
Reclassification of Class A common stock to Class B common stock
(2,874,983)
2,874,983
Retirement of treasury stock upon reorganization
(3,169,093)
3,169,093
23
(23)
(23)
Stock-based compensation expense
5,602
5,602
Net loss
(89,320)
(89,320)
Balance at September 30, 2021
54,900,384
$
272
13,874,132
$
$
$
10,434
$
$
(181,626)
$
(170,920)
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)
Nine Months Ended September 30,
2022
2021
Cash flows from operating activities:
Net loss
$
(54,766)
$
(89,320)
Adjustments to reconcile net loss to net cash used in operating
 
activities:
Depreciation expense
1,144
928
Amortization of debt issuance costs
40
234
Amortization of discount on short-term investments
(422)
Stock-based compensation expense
6,361
5,704
Non-cash consulting expense
268
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)
(18)
Prepaid expenses and other current assets
3,349
(10,155)
Long-term deposits
(2,076)
Deferred offering costs
(3,935)
Accounts payable
127
2,888
Amounts due to related parties
(2,731)
13,212
Accrued expenses and other current liabilities
7,530
4,521
Other long-term liabilities
(2,625)
Net cash used in operating activities
(41,451)
(67,026)
Cash flows from investing activities:
Purchase of short-term investments
(107,526)
Redemption of short-term investments
27,500
Purchase of property and equipment
(1,574)
(50)
Net cash used in investing activities
(81,600)
(50)
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
(320)
(96)
Repayment of note payable with related party
(100)
Repayment of Paycheck Protection Program
(257)
Proceeds from issuance of simple agreement for future equity
2,900
Proceeds from issuance of Series B convertible preferred stock,
 
net of issuance costs
122,791
Proceeds from exercise of stock options
262
70
Net cash provided by financing activities
(58)
125,308
Increase (decrease) in cash, cash equivalents, and restricted
 
cash
(123,109)
58,232
Cash, cash equivalents, and restricted cash at beginning of
 
period
145,057
31,217
Cash, cash equivalents, and restricted cash at end of period
$
21,948
$
89,449
Supplemental Disclosure
Cash paid for interest
$
277
$
288
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 Biomedica
 
l, 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 synthetic peptide
 
vaccine technology first
 
developed
by
 
UBI
 
and
 
subsequently
 
refined
 
over
 
the
 
last
 
two
 
decades.
 
The
 
Company
 
is
 
engaged
 
in
 
the
 
development
 
of
 
rationally
 
designed
prophylactic and therapeutic
 
vaccines to
 
combat common chronic
 
diseases with
 
large global unmet
 
medical need. We are
 
also developing
a heterologous booster
 
vaccine for SARS-Cov-2.
 
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
 
or
 
out-license
 
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 September 30, 2022, the
 
Company had $
102.2
 
million of highly liquid assets to fund
 
operations, including $
18.9
 
million of cash
and
 
cash
 
equivalents,
 
$
80.2
 
million
 
of
 
short-term
 
investments,
 
and
 
a
 
$
3.1
 
million
 
restricted
 
cash
 
balance
 
of
 
which
 
$
3.0
 
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 $
54.8
 
million for
the nine
 
months ended
 
September 30, 2022.
 
Net cash
 
used in
 
operating activities
 
for the
 
nine months
 
ended September 30,
 
2022 was
$
41.5
 
million. In addition, as of September 30, 2022, the Company has an accumulated deficit
 
of $
284.2
 
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.
VAXXINITY,
 
INC.
NOTES TO THE CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
 
12
2. Summary of Significant Accounting Policies
Basis of presentation
The
 
accompanying
 
interim
 
unaudited
 
condensed
 
consolidated
 
financial
 
statements
 
have
 
been
 
prepared
 
using
 
generally
 
accepted
accounting principles in the United States of America (GAAP)
 
and pursuant to the rules and regulations of the United
 
States Securities
and Exchange Commission (“SEC”) for interim financial
 
reporting. The unaudited condensed consolidated financial
 
statements for the
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
 
nine
 
months
 
ended
 
September 30,
 
2022
 
and
 
cash
 
flows
 
for
 
the
 
nine
 
months
 
ended
 
September 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
 
non-lease 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.
Short-term investments
The
 
Company
 
determines
 
the
 
appropriate
 
classification
 
of
 
its
 
investments
 
at
 
the
 
time
 
of
 
purchase.
 
Currently,
 
all
 
of
 
the
 
Company’s
investments are
 
classified as
 
available-for-sale in
 
accordance with
 
ASC Topic
 
320. The
 
Company classifies
 
investments available
 
to
fund
 
current
 
operations
 
as
 
current
 
assets
 
on
 
its
 
consolidated
 
balance
 
sheets.
 
Investments
 
are
 
classified
 
as
 
long-term
 
assets
 
on
 
the
consolidated balance sheets if (i) the Company has the intent and ability to hold the investments for a period of at least one year and (ii)
the contractual maturity date of the investments is greater than one year.
Available-for-sale
 
investments are recorded at fair value, with unrealized gains
 
or losses included in accumulated other comprehensive
income
 
or
 
loss.
 
Realized
 
gains
 
and
 
losses,
 
interest
 
income
 
earned
 
on
 
the
 
Company’s
 
cash,
 
cash
 
equivalents
 
and
 
investments,
 
and
amortization or accretion of discounts and premiums on investments are included
 
within other income (expense).
Available-for-sale
 
debt securities are reviewed for possible impairment at least quarterly,
 
or more frequently if circumstances arise that
may indicate impairment.
 
When the fair
 
value of the
 
securities declines below
 
the amortized cost
 
basis, impairment is
 
indicated and it
must be determined whether it is other than temporary. Impairment is considered to be other than temporary if the Company: (i) intends
to sell the security, (ii) will
 
more likely than not
 
be forced to sell
 
the security before recovering its
 
cost, or (iii) does
 
not expect to recover
the security’s amortized cost basis.
 
If the decline in
 
fair value is
 
considered other than temporary, the cost
 
basis of the
 
security is adjusted
to its fair market
 
value and the realized loss
 
is reported in earnings. Subsequent increases or
 
decreases in fair value are
 
reported in equity
as accumulated other comprehensive income.
The Company did not record any such impairments during the period ending
 
September 30, 2022.
VAXXINITY,
 
INC.
NOTES TO THE CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
 
13
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 nine months ended September
 
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
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 and
 
short term investments
 
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):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
VAXXINITY,
 
INC.
NOTES TO THE CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
 
14
September 30, 2022
Level 1
Level 2
Level 3
Total
Assets:
Short-term investments
80,233
80,233
Money market accounts
10,995
10,995
Total assets
$
91,228
$
$
$
91,228
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 nine months
 
ended September 30,
 
2022 and the
 
year ended December
 
31, 2021, there
 
were no transfers
 
between
Level 1, Level 2 and Level 3.
4. Short-Term
 
Investments
As of September 30, 2022, the Company’s
 
short-term investments consist of the following (in thousands):
As of September 30, 2022
Amortized
Cost
Unrealized
Gains (Losses),
Net
Recorded
Basis
U.S. Treasury Securities
$
80,448
$
(215)
$
80,233
Total
$
80,448
$
(215)
$
80,233
These securities mature in less than 1 year.
5. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in thousands):
September 30,
December 31,
2022
2021
Prepaid materials and supplies
$
1,754
$
3,517
Clinical prepayments
2,067
4,379
Deposits
1,323
614
Other
358
341
$
5,502
$
8,851
The Company’s prepaid material and supplies related to enzyme-linked immunosorbent assay (“ELISA”) test
 
production, of which $
1.7
million was paid to a related
 
party and $
0.7
 
million related to materials to be
 
utilized during its Phase 3 COVID-19 vaccine
 
clinical trial.
 
For the three and nine months ended September 30, 2022 the Company recognized an expense of $
1.8
 
million that was prepaid in 2021
to UBP,
 
a related
 
party,
 
for raw
 
materials acquired
 
to produce
 
UB-612.
 
See Note
 
15, “Commitments
 
and Contingencies”,
 
for more
information about this expense.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
VAXXINITY,
 
INC.
NOTES TO THE CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
 
15
6. Property and Equipment
Property and equipment, net consisted of the following (in thousands):
September 30,
December 31,
2022
2021
Airplane
$
11,983
$
11,983
Laboratory and computer equipment
2,790
1,831
Software
169
168
Facilities, furniture and fixtures
106
85
Vehicles
87
87
Fixed assets not yet placed into service
791
199
Total property
 
and equipment
15,926
14,353
Less: accumulated depreciation
(3,125)
(1,981)
Property and equipment, net
$
12,801
$
12,372
Depreciation
 
expense
 
for
 
the
 
three
 
and
 
nine
 
months
 
ended
 
September 30,
 
2022
 
was
 
$
0.4
 
million
 
and
 
$
1.1
 
million,
 
respectively.
Depreciation expense for the three and nine months ended September
 
30, 2021 was $
0.4
 
million and $
0.9
 
million, respectively.
 
7. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in
 
thousands):
September 30,
December 31,
2022
2021
Accrued external research and development
$
3,842
$
1,501
Accrued bonuses
3,410
2,294
Accrued professional fees and other
4,767
692
Accrued interest
30
32
$
12,049
$
4,519
Accrued external
 
research and
 
development includes
 
$
3.0
 
million in
 
grant monies
 
received from
 
CEPI during
 
the nine
 
months ended
September 30, 2022 not yet applied against research and development expense.
8. Other Long-Term
 
Liabilities
Other long-term liabilities consisted of the following (in thousands):
September 30,
December 31,
2022
2021
Accrued tax provision
236
236
Accrued rent
1
$
236
$
237
As of
 
September 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
 
16
9. Notes Payable
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):
 
September 30,
December 31,
2022
2021
Principal
$
10,564
$
 
10,883
Unamortized debt issuance cost
(145)
(184)
Carrying amount
10,419
10,699
Less: current portion
(387)
(376)
Note payable, net of current portion and debt issuance cost
$
10,032
$
10,323
As of September 30, 2022, the remaining principal payments for the 2025
 
Note, are as follows (in thousands):
 
Amount
2022
$
109
2023
444
2024
458
2025
9,553
$
10,564
Interest expense
 
associated with
 
the 2025
 
Note was $
0.1
 
million and
 
$
0.3
 
million for the
 
three and
 
nine months ended
 
September 30,
2022,
 
respectively.
 
Interest expense
 
associated with
 
the 2025
 
Note was
 
$
0.1
 
million
 
and $
0.3
 
million
 
for the
 
three and
 
nine
 
months
ended September 30, 2021,
 
respectively.
 
As of September 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 September 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.
 
The Company paid off the PPP Loan in full, including all accrued
 
but unpaid interest to the repayment date, in August 2021.
10. 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
 
September 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
September 30, 2022 and December 31, 2021.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
VAXXINITY,
 
INC.
NOTES TO THE CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
 
17
11.
 
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.
 
Vaxxinity’s
 
Amended and Restated Certificate of Incorporation dated November 15, 2021 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.
 
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:
 
September 30,
December 31,
2022
2021
Options and RSUs issued and outstanding
20,593,681
21,387,909
Options available for future grants
6,251,916
7,209,538
Warrants issued and
 
outstanding
1,928,020
1,928,020
28,773,617
30,525,467
12. 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
 
September 30, 2022
 
there were
 
options for
13,931,226
 
shares of Class
 
A stock
 
outstanding and
 
options for
6,362,455
 
shares of
Class B
 
stock outstanding, of
 
which
9,032,635
 
Class A
 
and
4,944,763
 
Class B
 
shares were exercisable,
 
respectively. As of September 30,
2022, the maximum number of stock options awards available for
 
future issuance under the Company’s plans is
6,251,916
.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
VAXXINITY,
 
INC.
NOTES TO THE CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
 
18
The following table summarizes stock option activity during the nine
 
months ended September 30, 2022:
 
Number of Stock
Options
Outstanding
Weighted
Exercise 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
1,104,921
3.19
Exercised
(1,065,706)
3.26
Forfeited
(1,133,443)
7.23
Balance at September 30, 2022
20,293,681
$
5.13
7.1
$
11,940
Options vested and exercisable at September 30, 2022
13,977,398
$
4.52
6.8
$
10,773
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 September 30, 2022.
The intrinsic value of options exercised during the nine months ended
 
September 30, 2022 was $
4.5
 
million.
The weighted-average grant-date fair value per share of options granted
 
during the nine months ended September 30, 2022 was $
2.38
.
Restricted Stock
The following table summarizes the Company’s
 
restricted stock activity for the nine months ended September 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 September 30, 2022
300,000
$
3.76
Stock-based compensation expense
 
recognized on restricted stock
 
was less than $
0.1
 
million for the nine months
 
ended September 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 September
30,
Nine Months Ended September
30,
2022
2021
2022
2021
General and administrative
$
1,509
$
1,100
$
3,888
$
4,864
Research and development
848
364
2,473
738
Total stock-based
 
compensation expense
$
2,357
$
1,464
$
6,361
$
5,602
As of September 30, 2022,
 
total unrecognized compensation cost
 
related to the unvested
 
stock-based awards was $
18.9
 
million, which
is expected to be recognized over a weighted average period of
2.5
 
years.
13. 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
VAXXINITY,
 
INC.
NOTES TO THE CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
 
19
The Company’s effective
 
tax rate for the nine months ended September 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 September 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
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.
14. 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 for
 
the three and
 
nine months
 
ended September 30,
 
2022 because
including them would have had an anti-dilutive effect:
 
September 30,
September 30,
2022
2021
Series A preferred stock
39,989,083
Series B preferred stock
9,875,037
Options and RSUs issued and outstanding
20,593,681
20,714,308
Warrants issued and
 
outstanding stock
1,928,020
2,056,722
22,521,701
72,635,150
15. 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 September 30, 2022, the Company had remaining prepayments to CROs of $
3.1
 
million and remaining prepayments to CMOs of
$
0.7
 
million for activities associated
 
with the conduct of
 
its clinical trials and for
 
the production of the
 
Company’s anticipated
 
vaccine
product candidate.
 
VAXXINITY,
 
INC.
NOTES TO THE CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
 
20
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
 
September
 
30,
 
2022,
 
the
 
balance
 
of
 
the
 
short-term
 
accrued
 
liability
 
was
 
less
 
than
 
$
0.1
 
million.
 
For
 
the
 
nine
 
months
 
ended
September
 
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.
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 September 30, 2022, the balance
of the restricted
 
cash and short-term
 
accrued liability
 
was $
3.0
 
million. For
 
the three and
 
nine months
 
ended September
 
30, 2022,
 
the
Company recognized a reduction of $
1.6
 
million and $
3.1
 
million of research and development expenses, respectively.
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 September 30, 2022
 
and $
0.3
 
million short-term lease expense
 
and less than $
0.1
 
million variable lease
expense during the nine months ended September 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 held under
 
previously issued license
 
agreements with UBI.
 
As part of
 
the agreement, Vaxxinity
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
VAXXINITY,
 
INC.
NOTES TO THE CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
 
21
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 September
 
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
September 30, 2022 and December 31, 2021, the Company was not a party
 
to any material legal matters or claims.
Loss Contingency
In April 2021, the Company engaged United Biopharma, Inc. (UBP) to begin acquiring raw materials for use in the production of GMP
grade recombinant protein for UB-612, our Covid vaccine candidate.
 
Through August 2021, $
7.2
 
million of materials were ordered, $
3
million of
 
materials were
 
received by
 
UBP and
 
paid for
 
with an
 
advance payment
 
from Vaxxinity,
 
and we
 
expensed $
1.2
 
million as
these raw materials were used to produce proteins.
 
 
Upon rejection of
 
the EUA by
 
Taiwan in August 2021, UBP
 
requested that its
 
suppliers cancel the
 
remaining orders.
 
Through September
30, 2022, $
0.4
 
million orders have been canceled, $
0.8
 
million have been delivered, and $
3.0
 
million are still open.
 
For the open orders,
management
 
has not
 
yet concluded
 
that a
 
loss is
 
probable, since
 
UBP has
 
been able
 
to cancel
 
some orders,
 
and discussions
 
with its
suppliers are still ongoing.
 
Hence, an expense has not been recognized for them.
 
For the $
2.6
 
million of raw materials where UBP has taken possession, management has concluded a loss
 
is probable and recognized an
expense.
 
16. 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 nine months ended September 30, 2022 and 2021, the
 
Company contributed less than $
0.1
 
million to PRSA accounts.
 
17. 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 September 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
VAXXINITY,
 
INC.
NOTES TO THE CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
 
22
UBIA MSA - UBI-Asia for manufacturing, quality control, testing, validation,
 
and supply services.
UBP MSA - United BioPharma, Inc provide the Company with manufacturing,
 
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
 
September
 
30,
 
2022
 
and
 
December
 
31,
 
2021,
respectively.
 
Total
 
amounts due
 
from related
 
parties were
 
$
0.4
 
million and
 
$
0.4
 
million as
 
of September
 
30, 2022
 
and December
 
31,
2021, respectively. Total
 
service fees incurred were $
0.0
 
million and $
13.9
 
million for the three months ended September 30, 2022 and
2021, respectively.
 
Total service
 
fees incurred were $
1.1
 
million and $
32.6
 
million for the nine months ended
 
September 30, 2022 and
2021, respectively.
 
Total related party operating
 
activity, including the activity described
 
above, are as follows (in thousands):
September 30,
December 31,
2022
2021
Consolidated balance sheet
Assets
Prepaid expenses and other current assets
$
1,743
$
3,517
Amounts due from related parties
400
393
Property and equipment, net
337
Liabilities
Amounts due to related parties
16,676
19,407
Accrued expenses
877
Three Months Ended September
30,
Nine Months Ended September
30,
2022
2021
2022
2021
Operating expenses
Research and development
Services provided by related parties
 
$
 
$
13,515
 
$
1,139
 
$
38,667
Taiwan CDC grant reimbursement
 
from related party
(7,199)
General and administrative
Services provided by related parties
$
$
355
$
$
1,173
 
 
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
common 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
 
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
 
common
 
chronic
diseases, 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 for enhanced convenience, increased durability, expanded accessibility and greater
 
cost-effectiveness as compared to biologics
and
 
other available
 
treatments. 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
 
began dosing subjects
 
in a
Phase 1 first-in-human trial of UB-313 in September 2022, and anticipate progressing VXX-401 into the clinic by the first half of 2023.
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 September 30, 2022, we received gross proceeds of
$306.4
 
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
 
$10.0
 
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 allocated research and development
costs to be in line with recent levels over the next 12 months and that
 
they may increase over time as we expand the number of product
candidates that we
 
are advancing, whether
 
exclusively or with partners
 
.
 
Further, if
 
we commercialize any of
 
our product candidates
 
in
the future
 
on our own,
 
we anticipate incurring
 
greater selling
 
and marketing
 
expenses. 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 $19.3 million and $30.4
 
million for the three months ended September 30, 2022 and
 
2021, respectively.
 
Net
losses were $54.8 million and $89.3 million
 
for the nine months ended September 30, 2022
 
and 2021, respectively. As of September 30,
2022,
 
we had
 
an accumulated
 
deficit of
 
$284.2 million.
 
Our
expenses and
 
capital requirements
 
may increase
 
over time
 
in connection
with our operations, which could 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 and highly liquid
 
assets on
hand will enable
 
us to fund our
 
operating expenses and
 
capital requirements beyond
 
the end of 2023,
 
and do not anticipate
 
any equity
capital raising activities in the near-term at or around current
 
public market valuation levels. 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 collaborati