UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
-OR-
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
,
,
(
)
(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
The
Nasdaq
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes
☒
No
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
☒
☐
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
☐
☒
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
shares of $0.0001 par value Class A common stock outstanding and
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.
4
Table of Contents
Page
5
6
7
9
10
23
34
34
36
36
36
36
38
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
$
$
Short-term investments
—
Restricted cash
Amounts due from related parties
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Long-term deposits
—
Total assets
$
$
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
$
$
Amounts due to related parties
Accrued expenses and other current liabilities
Notes payable
Total current liabilities
Other liabilities
Notes payable, net of current portion
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 15)
Preferred stock: $
Stockholders’ equity:
Class A common stock, $
outstanding at September 30, 2022 and December 31, 2021, respectively
Class B common stock, $
September 30, 2022 and December 31, 2021
Additional paid-in capital
Accumulated other comprehensive income (loss)
(215 )
—
Accumulated deficit
(284,247 )
(229,481 )
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
$
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
VAXXINITY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
(Unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022
2021
2022
2021
Revenue
$
—
$
$
—
$
Cost of revenue
—
—
Gross profit
—
—
(1,870 )
Operating expenses:
Research and development
General and administrative
Total operating expenses
Loss from operations
(19,768 )
(30,275 )
(55,155 )
(77,324 )
Other (income) expense:
Interest and other expense
Interest and other income
(545 )
(3 )
(625 )
(6 )
Change in fair value of convertible notes
—
—
—
Change in fair value of simple agreement for future
equity
—
—
—
Change in fair value of warrant liability
—
—
—
(Gain) loss on foreign currency translation, net
(25 )
(28 )
Other (income) expense
(516 )
(389 )
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
Other comprehensive income (loss):
(215 )
—
(215 )
—
$
(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
$
$
$
$
$
$
$
$
Exchange of Series Seed, Series Seed-1, Series Seed-2, Series
A-1 and Series A-2 for Series A
(7,831,528 )
(10,383 )
(22,876,457 )
(20,903 )
(14,615,399 )
(11,315 )
(1,871,511 )
(4,640 )
(6,307,690 )
(15,234 )
—
—
—
Conversion of convertible notes to Series A preferred stock,
net of debt issuance costs
—
—
—
—
—
—
—
—
—
—
—
—
Conversion of notes payable with related parties to Series A
convertible preferred
—
—
—
—
—
—
—
—
—
—
—
—
Conversion of Simple Agreement for Future Equity to Series A
convertible preferred
—
—
—
—
—
—
—
—
—
—
—
—
Conversion of warrant liability to Series A convertible
preferred
—
—
—
—
—
—
—
—
—
—
—
—
Issuance of Series B convertible preferred stock, net of
issuance costs of $
—
—
—
—
—
—
—
—
—
—
—
—
Balance at September 30, 2021
$
$
$
$
$
$
$
$
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8
VAXXINITY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share amounts)
(Unaudited)
Common Stock-Class A
Common Stock-Class B
Treasury Stock
Shares
Amount
Shares
Amount
Shares
Amount
Additional Paid-
in Capital
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Stockholders’
Equity (Deficit)
Balance at December 31, 2021
$
$
—
—
$
—
$
$
—
$
(229,481 )
$
Issuance of common stock upon exercise of stock options
—
—
—
—
—
—
—
Stock-based compensation expense
—
—
—
—
—
—
—
—
Net loss
—
—
—
—
—
—
—
(215 )
(54,766 )
(54,981 )
Balance at September 30, 2022
$
$
—
—
$
—
$
$
(215 )
$
(284,247 )
$
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
$
$
—
(3,169,093 )
$
(23 )
$
$
—
$
(92,306 )
$
(87,352 )
Issuance of common stock upon exercise of stock options
—
—
—
—
—
—
—
Vesting of restricted stock
—
—
—
—
—
—
—
—
—
Issuance of common stock upon stock grant
—
—
—
—
—
—
—
Reclassification of Class A common stock to Class B common stock
(2,874,983 )
—
—
—
—
—
—
—
—
Retirement of treasury stock upon reorganization
(3,169,093 )
—
—
—
(23 )
—
—
(23 )
Stock-based compensation expense
—
—
—
—
—
—
—
—
Net loss
—
—
—
—
—
—
—
—
(89,320 )
(89,320 )
Balance at September 30, 2021
$
$
—
$
$
$
—
$
(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
Amortization of debt issuance costs
Amortization of discount on short-term investments
(422 )
—
Stock-based compensation expense
Non-cash consulting expense
—
Change in fair value of convertible notes
—
Change in fair value of warrant liability
—
Change in fair value of simple agreement for future equity
—
Changes in operating assets and liabilities:
Accounts receivable
—
Amounts due from related parties
(7 )
(18 )
Prepaid expenses and other current assets
(10,155 )
Long-term deposits
(2,076 )
—
Deferred offering costs
—
(3,935 )
Accounts payable
Amounts due to related parties
(2,731 )
Accrued expenses and other current liabilities
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
—
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
—
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
—
Proceeds from issuance of Series B convertible preferred stock, net of issuance costs
—
Proceeds from exercise of stock options
Net cash provided by financing activities
(58 )
Increase (decrease) in cash, cash equivalents, and restricted cash
(123,109 )
Cash, cash equivalents, and restricted cash at beginning of period
Cash, cash equivalents, and restricted cash at end of period
$
$
Supplemental Disclosure
Cash paid for interest
$
$
Noncash Financing Activities
Exchange of Series Seed, Series Seed-1, Series Seed-2, Series A-1 and Series A-2 for Series A preferred stock
$
—
$
Conversion of simple agreement for future equity into Series A preferred stock
$
—
$
Conversion of convertible notes payable into Series A preferred stock
$
—
$
Conversion of notes payable with related parties into Series A preferred stock
$
—
$
Conversion of warrant liability into Series A preferred stock
$
—
$
Retirement of treasury stock upon reorganization
$
—
$
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
VAXXINITY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
10
1. Nature of the Business
Vaxxinity, Inc., a Delaware corporation (“Vaxxinity ,” and together with its subsidiaries, the “Company”), was formed through the
combination of two separate businesses that originated from United 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
Series A preferred stock, as applicable;
•
Each share of COVAXX common and convertible preferred stock was exchanged for
stock or Series A preferred stock, as applicable (and prior to the closing of the Reorganization, all the holders of outstanding
COVAXX SAFEs agreed to convert such SAFEs into shares of Series A-3 preferred stock of COVAXX, which shares were
then exchanged for shares of Vaxxinity’s Series A preferred stock);
•
The Reorganization Convertible Notes were exchanged for an aggregate of
preferred stock; and
•
Each outstanding option of both UNS and COVAXX to purchase common shares of UNS or COVAXX was terminated and
substituted with an option to purchase shares of Class A common stock of Vaxxinity. Each outstanding UNS option was
exchanged based on a conversion ratio of
. Each outstanding COVAXX option was exchanged based on a conversion
ratio of
.
VAXXINITY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
11
All parties to the Contribution and Exchange Agreement intended that the contribution of outstanding equity interests to Vaxxinity in
exchange for Vaxxinity’s common stock and preferred stock be treated as an integrated transaction for U.S. federal income tax purposes
that is governed by Section 351(a) of the Internal Revenue Code of 1986, as amended.
The Reorganization was determined to be a common control transaction, so the carrying values of all contributed assets and assumed
liabilities remained unchanged and the financial information for all periods in the financial statements presented prior to the
Reorganization are presented on a consolidated basis.
Reverse Stock Split
On October 29, 2021, the Company effectuated a reverse stock split of 1-for-
Class B common stock pursuant to an amendment to the Company’s Amended and Restated Certificate of Incorporation approved by
the Company’s board of directors and stockholders. As a result of the Stock Split, the Company also adjusted the share and per share
amounts associated with its options and warrants to purchase shares of its common stock. These unaudited condensed consolidated
financial statements including the notes have been retroactively adjusted to reflect the Stock Split for all periods presented. Any
fractional shares that would have resulted from the Stock Split have been rounded down to the nearest whole share.
Initial Public Offering
On November 15, 2021, the Company closed its IPO of
per share. On November 18, 2021 the Company held a subsequent closing for the issuance of an additional
common stock pursuant to a 30-day option granted to the underwriters to purchase up to an additional
stock at the IPO price, less underwriting discounts and commissions. The aggregate net proceeds to the Company from the offering,
after deducting underwriting discounts and commissions and other offering expenses payable by the Company, was approximately $
million. Upon the closing of the IPO, all previously outstanding shares of the Company’s redeemable convertible preferred stock were
automatically converted at the same ratio used for the Stock Split (1-for-
) into shares of its Class A common stock.
Liquidity
As of September 30, 2022, the Company had $
and cash equivalents, $
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 $
the nine months ended September 30, 2022. Net cash used in operating activities for the nine months ended September 30, 2022 was
$
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
—
—
Money market accounts
—
—
Total assets
$
$
—
$
—
$
December 31, 2021
Level 1
Level 2
Level 3
Total
Assets:
Money market account
$
$
—
$
—
$
Total assets
$
$
—
$
—
$
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
$
$
(215 )
$
Total
$
$
(215 )
$
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
$
$
Clinical prepayments
Deposits
Other
$
$
The Company’s prepaid material and supplies related to enzyme-linked immunosorbent assay (“ELISA”) test production, of which $
million was paid to a related party and $
For the three and nine months ended September 30, 2022 the Company recognized an expense of $
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
$
$
Laboratory and computer equipment
Software
Facilities, furniture and fixtures
Vehicles
Fixed assets not yet placed into service
Total property and equipment
Less: accumulated depreciation
(3,125 )
(1,981 )
Property and equipment, net
$
$
Depreciation expense for the three and nine months ended September 30, 2022 was $
Depreciation expense for the three and nine months ended September 30, 2021 was $
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
$
$
Accrued bonuses
Accrued professional fees and other
Accrued interest
$
$
Accrued external research and development includes $
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
Accrued rent
—
$
$
As of September 30, 2022 and December 31, 2021, approximately $
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 $
% and a maturity date of June 9, 2025. Principal and interest payments are payable
monthly in the amount of $
of the Company. In addition, the Company incurred debt issuance costs of $
loan. There are no financial covenants associated with the 2025 Note.
The carrying value of the 2025 Note is as follows (in thousands):
September 30,
December 31,
2022
2021
Principal
$
$
Unamortized debt issuance cost
(145 )
(184 )
Carrying amount
Less: current portion
(387 )
(376 )
Note payable, net of current portion and debt issuance cost
$
$
As of September 30, 2022, the remaining principal payments for the 2025 Note, are as follows (in thousands):
Amount
2022
$
2023
2024
2025
$
Interest expense associated with the 2025 Note was $
2022, respectively. Interest expense associated with the 2025 Note was $
ended September 30, 2021, respectively. As of September 30, 2022, accrued interest of less than $
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 $
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
stock and each share of COVAXX convertible preferred stock was exchanged for
the first and second quarters of 2021, the Company raised gross proceeds of $
stock financing. The Company issued a total of
preferred stock converted into shares of the Company’s Class A common stock concurrently with the closing of the initial public offering.
As of September 30, 2022 and December 31, 2021, Vaxxinity’s Amended and Restated Certificate of Incorporation authorized
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
Vaxxinity’s Class A common stock and
was exchanged for
shares of Vaxxinity common stock.
Vaxxinity’s Amended and Restated Certificate of Incorporation dated November 15, 2021 authorized
stock with a par value of $
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
Options available for future grants
Warrants issued and outstanding
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
automatically on January 1 of each year, commencing January 1, 2023, by the number of shares equal to the lesser of (i)
% 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
Class B stock outstanding, of which
2022, the maximum number of stock options awards available for future issuance under the Company’s plans is
.
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
$
$
Granted
Exercised
(1,065,706 )
Forfeited
(1,133,443 )
Balance at September 30, 2022
$
$
Options vested and exercisable at September 30, 2022
$
$
The aggregate intrinsic value of options is calculated as the difference between the exercise price of the options and the fair value of the
common stock for those options that had exercise prices lower than the fair value of the common stock as of September 30, 2022.
The intrinsic value of options exercised during the nine months ended September 30, 2022 was $
The weighted-average grant-date fair value per share of options granted during the nine months ended September 30, 2022 was $
.
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
Unvested at September 30, 2022
$
3.76
Stock-based compensation expense recognized on restricted stock was less than $
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
$
$
$
$
Research and development
Total stock-based compensation expense
$
$
$
$
As of September 30, 2022, total unrecognized compensation cost related to the unvested stock-based awards was $
is expected to be recognized over a weighted average period of
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
%, 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
—
Series B preferred stock
—
Options and RSUs issued and outstanding
Warrants issued and outstanding stock
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 $
$
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 $
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 $
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 $
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 $
Company recognized a reduction of $
Lease Agreements
In April 2022, the Company entered into a facility lease agreement for
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 $
during the three months ended September 30, 2022 and $
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, $
million of materials were received by UBP and paid for with an advance payment from Vaxxinity, and we expensed $
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, $
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 $
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
% 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 $
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
% 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 $
respectively. Total amounts due from related parties were $
2021, respectively. Total service fees incurred were $
2021, respectively. Total service fees incurred were $
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
$
$
Amounts due from related parties
Property and equipment, net
—
Liabilities
Amounts due to related parties
Accrued expenses
—
Three Months Ended September
30,
Nine Months Ended September
30,
2022
2021
2022
2021
Operating expenses
Research and development
Services provided by related parties
—
Taiwan CDC grant reimbursement from related party
—
—
—
(7,199 )
General and administrative
Services provided by related parties
$
—
$
$
—
$
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
and accessibility advantages of our vaccine approach,
prevent
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 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