UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
-OR-
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
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(Exact name of registrant as specified in its charter)
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
,
(Address of principal executive offices)
(Zip Code)
(
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(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
__________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
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
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth
company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange
Act:
Large accelerated filer
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Accelerated filer
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Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
☐
No
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As of November 6, 2023, 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 progress, number, scope, cost, results and timing of data from
our development activities, preclinical trials and clinical trials for our product candidates or programs, such as the target
indication(s) for development or approval, the size, design, population, conduct, cost, objective or endpoints of any
clinical trial, or the timing for initiation or completion of or availability of results from any clinical trial, for submission,
review or approval of any regulatory filing, or for meeting with regulatory authorities;
• the potential benefits that may be derived from any of our product candidates;
• the timing of and our ability to obtain and maintain regulatory approval for our existing product candidates, any product
candidates that we may develop, and any related restrictions, limitations, or warnings in the label of any approved
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;
• estimates of our addressable market and market growth, and expectations about market trends;
• our future operations, financial position, revenues, costs, expenses, uses of cash, capital requirements, our needs
for additional financing or the period for which our existing cash resources will be sufficient to meet our operating
requirements;
• our ability to comply with legal and regulatory requirements 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;
• our ability to access capital on acceptable terms in a rising interest rate and tighter credit environment;
• expectations regarding our ability to continue as a going concern;
• 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 and obtain alternative sources of raw materials;
• 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 and our ability to attract additional collaborators with development,
regulatory and commercialization expertise;
• general economic, political, demographic and business conditions in the United States, Taiwan and other jurisdictions
where we conduct business or clinical trials;
• the potential effects of government regulation, including regulatory developments in the United
States and other jurisdictions;
• ability to obtain additional financing in future offerings or otherwise;
• the effects of global conflicts, including Russia-Ukraine and Israel-Hamas, and the COVID-19 pandemic on
business operations and the initiation, development and operation of our clinical trials, including patient enrollment
of our clinical trials; and
• our strategies, prospects, plans, expectations, forecasts or objectives.
We discuss many of these and other factors in greater detail under Item 1A. “Risk Factors” in our Annual Report on Form 10-K
for the year ended December 31, 2022 filed with the Securities and Exchange Commission on March 27, 2023. These risk factors
are not exhaustive. Other sections of this report may include additional factors which could adversely impact our business and
financial performance. New risk factors emerge from time to time, and it is not possible to predict all such risk factors, nor can
we assess the impact of all such risk factors on our business or the extent to which any factor or combination of factors may cause
actual results to differ materially from those contained in any forward-looking statements. Forward-looking statements are not
guarantees of performance. Given these uncertainties, you should not place undue reliance on these forward-looking statements,
which speak only as of the date hereof
.
You should read this Quarterly Report and the documents that we reference in this Quarterly Report and have filed as exhibits
completely and with the understanding that our actual future results may be materially different from what we expect. We qualify
all of the forward-looking statements in this Quarterly Report by these cautionary statements. Except as required by law, we
undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events
or otherwise.
As used in this Quarterly Report on Form 10-Q, unless otherwise specified or the context otherwise requires, the terms “we,”
“our,” “us,” the “Company” refer to Vaxxinity, Inc. and its subsidiaries. All brand names or trademarks appearing in this Quarterly
Report are the property of their respective owners.
4
Table of Contents
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5
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9
21
30
31
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32
33
5
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
VAXXINITY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(Unaudited)
September 30,
December 31,
2023
2022
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
Total assets
$
$
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
$
$
Amounts due to related parties
Accrued expenses and other current liabilities
Note payable, net of debt issuance cost
Note payable to related party
Total current liabilities
Other liabilities:
Note payable, net of debt issuance cost, net of current portion
Note payable to related party, net of current portion
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 14)
(nil)
(nil)
Stockholders’ equity:
Class A common stock, $
outstanding at September 30, 2023 and December 31, 2022, respectively
Class B common stock, $
September 30, 2023 and December 31, 2022
Additional paid-in capital
Accumulated other comprehensive loss
(7 )
(197 )
Accumulated deficit
(350,245 )
(304,703 )
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 AND
OTHER COMPREHENSIVE LOSS (INCOME)
(in thousands, except share and per share amounts)
(Unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023
2022
2023
2022
Operating expenses:
Research and development
$
$
$
$
General and administrative
Total operating expenses
Loss from operations
(13,445 )
(19,768 )
(46,635 )
(55,155 )
Other (income) expense:
Interest and other expense
Interest and other income
(512 )
(545 )
(1,657 )
(625 )
(Gain) loss on foreign currency transactions, net
(25 )
(28 )
Total other (income), net
(300 )
(516 )
(1,093 )
(389 )
Net loss
$
(13,145 )
$
(19,252 )
$
(45,542 )
$
(54,766 )
Net loss per share, basic and diluted
$
(0.10
$
(0.15
$
(0.36
$
(0.43
Weighted average common shares outstanding, basic and
diluted
Other comprehensive (income) loss:
(11 )
(190 )
(11 )
(190 )
Comprehensive loss
$
(13,134 )
$
(19,467 )
$
(45,352 )
$
(54,981 )
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
VAXXINITY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share amounts)
(Unaudited)
Common Stock-Class A
Common Stock-Class B
Shares
Amount
Shares
Amount
Additional Paid-
in Capital
Accumulated
Other
Comprehensive
(Loss)
Accumulated
Deficit
Stockholders’
Equity
Balance at December 31, 2022
$
$
$
$
(197 )
$
(304,703 )
$
Issuance of common stock upon exercise of stock options
—
—
—
—
—
Stock-based compensation expense
—
—
—
—
—
—
Unrealized gain on investments
—
—
—
—
—
—
Net loss
—
—
—
—
—
(18,421 )
(18,421 )
Balance at March 31, 2023
$
$
$
$
(49 )
$
(323,124 )
$
Issuance of common stock upon exercise of stock options
—
—
—
—
Stock-based compensation expense
—
—
—
—
—
—
Unrealized gain on investments
—
—
—
—
—
—
Net loss
—
—
—
—
—
—
(13,977 )
(13,977 )
Balance at June 30, 2023
$
$
$
$
(18 )
$
(337,101 )
$
Issuance of common stock upon exercise of stock options
—
—
—
—
—
Stock-based compensation expense
—
—
—
—
—
—
Unrealized loss on investments
—
—
—
—
—
—
Net loss
—
—
—
—
—
—
(13,145 )
(13,145 )
Balance at September 30, 2023
$
$
$
$
(7 )
$
(350,245 )
$
Common Stock-Class A
Common Stock-Class B
Shares
Amount
Shares
Amount
Additional Paid-
in Capital
Accumulated
Other
Comprehensive
(Loss)
Accumulated
Deficit
Stockholders’
Equity
Balance at December 31, 2021
$
$
$
$
—
$
(229,481 )
$
Issuance of common stock upon exercise of stock options
—
—
—
—
—
Stock-based compensation expense
—
—
—
—
—
—
Net loss
—
—
—
—
—
—
(18,263 )
(18,263 )
Balance at March 31, 2022
$
$
$
$
—
$
(247,744 )
$
Issuance of common stock upon exercise of stock options
—
—
—
—
—
Stock-based compensation expense
—
—
—
—
—
—
Net loss
—
—
—
—
—
—
(17,252 )
(17,252 )
Balance at June 30, 2022
$
$
$
$
—
$
(264,996 )
$
Issuance of common stock upon exercise of stock options
-
-
-
-
-
Stock-based compensation expense
-
-
-
-
-
-
Net loss
-
-
-
-
-
(215 )
(19,251 )
(19,466 )
Balance at September 30, 2022
112,181,870
$
278
13,874,132
$
1
$
$
(215 )
$
(284,247 )
$
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8
VAXXINITY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Nine Months Ended September 30,
2023
2022
Cash flows from operating activities:
Net loss
$
(45,542 )
$
(54,766 )
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
(1,222 )
(422 )
Stock-based compensation expense
Changes in operating assets and liabilities:
Amounts due from related parties
(7 )
Prepaid expenses and other current assets
Long-term deposits
(2,076 )
Accounts payable
(2,321 )
Amounts due to related parties
(260 )
(2,731 )
Accrued expenses and other current liabilities
(6,626 )
Net cash used in operating activities
(45,393 )
(41,451 )
Cash flows from investing activities:
Purchase of short-term investments
(43,587 )
(107,526 )
Proceeds from maturity of short-term investments
Purchases of property and equipment
(389 )
(1,574 )
Net cash provided by (used in) investing activities
(81,600 )
Cash flows from financing activities:
Repayments of note payable
(331 )
(320 )
Repayments of note payable with related party
(949 )
Proceeds from exercise of stock options
Net cash used in financing activities
(827 )
(58 )
Change in cash, cash equivalents and restricted cash
(16,969 )
(123,109 )
Cash, cash equivalents and restricted cash at beginning of period
Cash, cash equivalents and restricted cash at end of period
$
$
Reconciliation of cash, cash equivalents and restricted cash:
Cash, cash equivalents and restricted cash at end of period
$
$
Less restricted cash
(206 )
(3,073 )
Cash and cash equivalents end of period
$
$
Supplemental Disclosure
Cash paid for interest
$
$
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
VAXXINITY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9
1. Nature of the Business
Vaxxinity, Inc., a Delaware corporation (“Vaxxinity ,” and together with its subsidiaries, the “Company”), was formed through the
combination of two separate businesses that originated from United Biomedical, Inc. (“UBI”) in two separate transactions: a spin-out
from UBI in 2014 of operations focused on developing chronic disease product candidates that resulted in United Neuroscience (“UNS”),
and a second spin-out from UBI in 2020 of operations focused on the development of a COVID-19 vaccine that resulted in C19 Corp.
(“COVAXX”). On February 2, 2021, Vaxxinity was incorporated for the purpose of reorganizing and combining UNS and COVAXX
and on March 2, 2021, did so by acquiring all of the outstanding equity interests of UNS and COVAXX pursuant to a contribution and
exchange agreement (the “Contribution and Exchange Agreement”) whereby the existing equity holders of UNS and COVAXX
contributed their equity interests in each of UNS and COVAXX in exchange for equity in Vaxxinity (the “Reorganization”). On
December 31, 2022, COVAXX merged with and into Vaxxinity.
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. The Company is 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 global 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.
Liquidity and Going Concern Assessment
As of September 30, 2023, the Company had $
fund operations. 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 $
million for the nine months ended September 30, 2023. Net cash used in operating activities for the nine months ended September 30,
2023 was $
expects to incur substantial operating losses and negative cash flows from operations for the foreseeable future.
In accordance with ASC 205-40, Presentation of Financial Statements-Going Concern, management is required to evaluate whether
there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a
going concern within one year after the date that the financial statements are issued. When management identifies conditions or events,
considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern, management must
consider whether its plans to mitigate those relevant conditions or events will alleviate the substantial doubt.
Given that the Company has incurred substantial operating losses and negative cash flows from operations since inception and expects
to continue to incur substantial operating losses and negative cash flows from operations for the foreseeable future, management assessed
that there are conditions or events, considered in the aggregate, as of the issue date of these financial statements, which raise substantial
doubt about the Company's ability to continue as a going concern.
Management considered whether its plans to mitigate those relevant conditions or events will alleviate the substantial doubt about the
Company's ability to continue as a going concern. These plans include raising new capital through public or private equity offerings,
VAXXINITY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
10
strategic collaborations, debt financing and other capital sources or combinations thereof, and as needed cost reduction through attrition,
organization restructuring, and curtailment of certain research and development activities.
However, there are significant risks and uncertainties as to whether these plans will be achieved or additional funding will be available
on terms acceptable to the Company, or at all.
Due to the risks and uncertainties, management cannot conclude that substantial doubt about the Company's ability to continue as a
going concern has been alleviated. As such, there is substantial doubt about the entity's ability to continue as a going concern within
one year after the date that the financial statements are issued. However, since liquidation is not imminent, the accompanying unaudited
condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which
contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The unaudited condensed
consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described above.
2. Summary of Significant Accounting Policies
Basis of presentation
The accompanying interim unaudited condensed consolidated financial statements have been prepared using generally accepted
accounting principles in the United States of America (“GAAP”) and pursuant to the rules and regulations of the United States Securities
and Exchange Commission (“SEC”) for interim financial reporting.
These interim condensed consolidated financial statements are unaudited and, in the opinion of management, include all normal and
recurring adjustments necessary to fairly present the results of the interim periods. The condensed consolidated balance sheet at
December 31, 2022, has been derived from the audited financial statements at that date. Operating results for the three and nine months
ended September 30, 2023 and cash flows for the nine months ended September 30, 2023 are not necessarily indicative of the results
that may be expected for the fiscal year ending December 31, 2023 or any other future period. Certain information and note disclosures
normally included in annual consolidated financial statements prepared in accordance with 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 consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended
December 31, 2022 filed with the SEC on March 27, 2023 (the “Annual Report”).
Significant accounting policies
The significant accounting policies used in preparation of these unaudited condensed consolidated financial statements are disclosed in
our annual consolidated financial statements for the year ended December 31, 2022 included in the Annual Report. There have been no
changes to the Company’s significant accounting policies during the three and nine months ended September 30, 2023.
Recently adopted accounting pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard
setting bodies and are adopted by the Company as of the specified effective date.
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial
Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13
significantly changes the impairment model for most financial assets and certain other instruments as it will require immediate
recognition of estimated credit losses expected to occur over the remaining life of many financial assets, which will generally result in
earlier recognition of allowances for credit losses on loans and other financial instruments. On January 1, 2023, the Company adopted
ASU 2016-13. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.
Recently issued accounting pronouncements not yet adopted
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's
Own Equity, which is intended to simplify the accounting for certain financial instruments with characteristics of liabilities and equity,
including convertible instruments and contracts on an entity's own equity. The guidance allows for either full retrospective adoption or
modified retrospective adoption. The guidance is effective for the Company in the first quarter of fiscal year 2024 and early adoption is
permitted. The Company is in the process of evaluating the effect the amendment will have on the consolidated financial statements.
VAXXINITY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
11
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):
September 30, 2023
Level 1
Level 2
Level 3
Total
Assets:
Short-term investments
$
$
$
$
Money market accounts
Total assets
$
$
$
$
December 31, 2022
Level 1
Level 2
Level 3
Total
Assets:
Short-term investments
$
$
$
$
Money market account
Total assets
$
$
$
$
During the three and nine months ended September 30, 2023 and the year ended December 31, 2022, there were
Level 1, Level 2 and Level 3.
4. Short-Term Investments
The Company’s short-term investments consist of the following (in thousands):
As of September 30, 2023
Amortized Cost
Unrealized
Gains (Losses),
Net
Recorded Basis
U.S. Treasury Securities
$
$
(6 )
$
Total
$
$
(6 )
$
As of December 31, 2022
Amortized Cost
Unrealized
Gains (Losses),
Net
Recorded Basis
U.S. Treasury Securities
$
$
(197 )
$
Total
$
$
(197 )
$
These securities mature in less than 1 year.
VAXXINITY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
12
5. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in thousands):
September 30,
December 31,
2023
2022
Clinical prepayments
$
$
Prepaid insurance
Prepaid materials and supplies
Deposits
Other
$
$
Clinical prepayments consist of amounts paid in advance to clinical research organizations (“CROs”) for expenses related to our clinical
trials, primarily UB-612, and included $
expenses. The remaining clinical prepayment amounts are amortized to expense as earned by the CRO and clinical trial sites.
Prepaid insurance consists primarily of $
insurance fee as of September 30, 2023 and December 31, 2022, respectively.
Prepaid materials and supplies consist of amounts paid in advance related to the procurement and/or production of materials for use in
the Company’s clinical trials, primarily UB-612. There were
at December 31, 2022.
6. Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
September 30,
December 31,
2023
2022
Airplane
$
$
Laboratory and computer equipment
Software
Leasehold improvements
Facilities, furniture and fixtures
Vehicles
Construction in progress
Total property and equipment
Less: accumulated depreciation and amortization
(5,401 )
(3,624 )
Property and equipment, net
$
$
Depreciation expense for the three and nine months ended September 30, 2023 was $
Depreciation expense for the three and nine months ended September 30, 2022 was $
VAXXINITY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
13
7. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
September 30,
December 31,
2023
2022
Accrued external research and development
$
$
Accrued compensation
Accrued professional fees and other
Accrued interest
$
$
8. Other Long-Term Liabilities
Other long-term liabilities consisted of the following (in thousands):
September 30,
December 31,
2023
2022
Accrued taxes
$
$
As of September 30, 2023 and December 31, 2022, approximately $
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.
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
. 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,
2023
2022
Principal
$
$
Unamortized debt issuance cost
(92 )
(131 )
Carrying amount
Less: current portion
(402 )
(391 )
Note payable, net of current portion and debt issuance cost
$
$
As of September 30, 2023, the remaining principal payments for the 2025 Note are as follows (in thousands):
Amount
2023 (remaining 3 months)
$
2024
2025
$
Interest expense associated with the 2025 Note was $
2023, respectively. Interest expense associated with the 2025 Note was $
VAXXINITY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
14
ended September 30, 2022, respectively. Accrued interest of less than $
liabilities in the accompanying condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022.
Promissory Note with Related Party
In October 2022, the Company entered into a related party unsecured promissory note (the “2022 Promissory Note”) with UBI for $
million. The 2022 Promissory Note accrues interest at
% per annum and is due
. The 2022 Promissory Note was
issued to satisfy accounts payable to UBI totaling $
The carrying value of the 2022 Promissory Note is as follows (in thousands):
September 30,
December 31,
2023
2022
Principal
$
$
Less: current portion
(929 )
(1,113 )
Note payable with related party, net of current portion
$
$
As of September 30, 2023, the remaining principal payments for the 2022 Promissory Note are as follows (in thousands):
Amount
2023 (remaining 3 months)
$
2024
2025
2026
$
Interest expense associated with the 2022 Promissory Note was $
September 30, 2023, respectively.
10. Common Stock
The Company has reserved shares of Class A common stock for issuance for the following purposes:
September 30,
December 31,
2023
2022
Options and RSUs issued and outstanding
Options available for future grants
Warrants issued and outstanding
11. Stock-Based Compensation
2021 Omnibus Incentive Compensation Plan
In November 2021, the Company established the 2021 Omnibus Incentive Compensation Plan (the “Plan”), which provides for the
Company to grant nonqualified stock options, incentive (qualified) stock options, stock appreciation rights, restricted share awards,
restricted stock units, performance awards, cash incentive awards and other equity-based awards (including fully vested shares).
At inception in November 2021, the maximum number of shares of Class A common stock that could be issued under the Plan was
2023, by the number of shares equal to the lesser of (i)
% of the outstanding shares of our Class A common stock on the immediately
preceding December 31, (ii) the number of shares determined by the compensation committee of the board of directors, 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. On January 1, 2023, in accordance with the automatic “evergreen”
provision of the Plan, the maximum number of shares that can be issued under the plan was increased to
.
VAXXINITY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
15
Stock Options
As of September 30, 2023, there were options to purchase
to purchase
of stock options awards available for future issuance under the Company’s plan is
.
The following table summarizes stock option activity during the nine months ended September 30, 2023:
Number of Stock
Options
Outstanding
Weighted
Average
Exercise Price
Per Share
Weighted
Average
Remaining
Contractual
Term (years)
Aggregate
Intrinsic Value
(in thousands)
Balance at December 31, 2022
$
$
Granted
Exercised
(689,042 )
Forfeited
(1,394,227 )
Balance at September 30, 2023
$
$
Options vested and exercisable at September 30, 2023
$
$
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, 2023.
The intrinsic value of options exercised during the nine months ended September 30, 2023 was $
The weighted-average grant-date fair value per share of options granted during the nine months ended September 30, 2023 was $
.
Restricted Stock Units
The following table summarizes the Company’s restricted stock unit activity for the nine months ended September 30, 2023:
Number of
Shares
Weighted
Average
Grant Date
Fair Value
Per Share
Unvested at December 31, 2022
$
Forfeited
(100,000 )
$
Unvested at September 30, 2023
$
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 and other comprehensive (income) loss (in thousands):
Three Months Ended September
30,
Nine Months Ended September
30,
2023
2022
2023
2022
General and administrative
$
$
$
$
Research and development
Total stock-based compensation expense
$
$
$
$
As of September 30, 2023, total unrecognized compensation cost related to the unvested stock-based awards was $
is expected to be recognized over a weighted average period of
VAXXINITY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
16
12. Income Taxes
The Company computes its expected annual effective income tax rate in accordance with FASB Accounting Standards Codification
(“ASC”) 740 , “Income Taxes” and makes changes on a quarterly basis, as necessary, based on certain factors such as changes in
forecasted annual pre-tax income; changes to actual or forecasted permanent book to tax differences; impacts from tax audits with state,
federal or foreign tax authorities; impacts from tax law changes; or change in judgment as to the realizability of deferred tax assets. The
Company identifies items which are unusual and non-recurring in nature and treats these as discrete events. The tax effect of discrete
items is recorded in the quarter in which the discrete events occur.
The Company’s effective tax rate for the three months ended September 30, 2023 and September 30, 2022 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, 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, 2023, the Company 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 the Company had a change in ownership of more than
% of its capital stock over a
three-year
“Code”). These complex changes of ownership rules generally focus on ownership changes involving stockholders owning directly or
indirectly
% or more of our stock, including certain public “groups” of stockholders as set forth under Section 382 of the 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, the Company considers it more likely than not that it will not have sufficient taxable
income in the future that will allow us to realize these NOL carryforwards.
13. Net Loss Per Share
The Company’s potentially dilutive securities, which include warrants, options and restricted stock units, 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 months ended September 30, 2023 and 2022 because including them would have had an anti-dilutive effect:
September 30,
2023
2022
Options issued and outstanding
Warrants issued and outstanding
Restricted stock units issued and outstanding
14. Commitments and Contingencies
Contractual Obligations
The Company enters into agreements with CROs to conduct clinical trials and preclinical studies and 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, 2023, the Company had remaining prepayments to CROs of $
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
17
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 (“aSyn”) 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
12 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, 2023, there was
September 30, 2023 and 2022, the Company did
t 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 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 in early 2022, 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 18-month period, and the amounts received
in each tranche are expected to be utilized within 12 months, the funds received are reflected within restricted cash with a corresponding
short-term accrued liability. As of September 30, 2023, the Company had
CEPI funding. 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. For the nine months ended September 30, 2023, the Company
reduced research and development expenses by $
Lease Agreements
The Company has
costs under its leases.
In August 2023, the Company entered into a lease for
Florida commencing August 12, 2023. The lease has an initial
one-year
credits. Additionally, the lease requires the Company to provide a security deposit in the amount of less than $
In April 2022, the Company entered into a facility lease agreement for
lease commenced in April 2022 and will expire in March 2029 with no option to renew. This lease and its terms were reviewed using
the guidance found in ASC 842, “Leases”. 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.
Rent expense for the three and nine months ended September 30, 2023 was $
for the three and nine months ended September 30, 2022 was $
License Agreements
In August 2021, the Company 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, the
Company 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
VAXXINITY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
18
designer peptides and proteins utilized in UB-612. 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 license agreement acquired and the issuance of the UBI Warrant. The majority of the voting
interests in UBI and in the Company were held by a group of immediate family members, at the time of the transaction, and as such the
transaction constitutes a common control transaction, which requires the license to be accounted for at the carrying value in the books
of the transferor and the excess of consideration paid over the carrying value as a capital transaction.
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 to, among
other things, 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 indemnification obligations. 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
t accrued any liabilities related to such obligations as of September 30, 2023 and December 31,
2022.
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, 2023 and December 31, 2022, 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, the Company’s COVID-19 vaccine candidate under an Authorization to Proceed (“ATP”)
agreement for $
were received by UBP and paid for with an advance payment from the Company. The Company has recognized $
for these materials purchases authorized under the ATP.
When the Company asked to pause further manufacture of protein upon rejection of the Emergency Use Authorization application by
Taiwan in August 2021, UBP requested that its suppliers cancel the remaining $
of the materials. In the fourth quarter of 2022, the Company learned that most of the suppliers refused to cancel the orders, although
some agreed to seek other buyers for the materials. For these orders, management has not yet concluded that a loss for the Company is
probable, or that one amount of loss is a better estimate than any other amount, since they were not originally authorized by the ATP
and UBP’s suppliers may be able to dispose of some amount to other buyers. Hence, an expense has
t been recognized for them.
As of November 8, 2023, there is no claim against the Company by UBP related to these orders, no settlement or other agreement has
been reached between the Company and UBP or, to the Company’s knowledge, between UBP and its suppliers. Therefore, the range of
the potential loss is still $
15. Benefit Plans
In March 2018, the Company established a defined contribution savings plan under Section 401(k) of the Code. This plan covers
substantially all U.S. employees who meet minimum age and service requirements and allows participants to defer a portion of their
annual compensation on a pre-tax basis. The Company matches employee contributions to the Plan at
% up to
% of the employee’s
base salary.
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 the
three and nine months ended September 30, 2023 and 2022, the Company contributed less than $
VAXXINITY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
19
16. Related Party Transactions
The Company has related party arrangements with UBI and a number of its affiliated companies namely, United Biomedical, Inc., Asia
(“UBIA”), UBI Pharma, Inc. (“UBI-P”), United BioPharma, Inc (“UBP”) and UBI IP Holding (“UBI-IP”).
As of September 30, 2023, 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.
UBIA MSA - UBI-Asia for manufacturing, quality control, testing, validation, and supply services.
UBP MSA - UBP provides the Company with manufacturing, testing and validation services.
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.
In August 2021, Vaxxinity entered into a license agreement with UBI and certain of its affiliates (collectively, the “Licensors”) that
expanded intellectual property rights previously licensed under the Original UBI Licenses in exchange for a warrant to purchase
to adjustment pursuant thereto),is not subject to vesting, and has a term of
. See note 14 to the condensed consolidated financial
statements.
The Company also considers Destination Systems, its travel and logistics firm, a related party since its Chief Executive Officer, Landon
Ogilvie, is on the Company’s board of directors.
Total related party operating activity is as follows (in thousands):
September 30,
December 31,
2023
2022
Consolidated balance sheet
Assets
Prepaid expenses and other current assets
$
$
Amounts due from related parties
Liabilities
Amounts due to related parties
Current portion of note payable
Note payable
Accrued interest payable
VAXXINITY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
20
Three Months Ended September
30,
Nine Months Ended September
30,
2023
2022
2023
2022
Operating expenses
Research and development
Services provided by related parties
General and administrative
Services provided by related parties
Other income/expense
Related party interest expense
21
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 on Form 10-Q. 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 under
“Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K
for the year ended December 31, 2022, in Item 1A of Part II of this Quarterly Report on Form 10-Q, or in other filings that we make
with the SEC
, 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. Investors and others should note that we routinely use
the Investors section of our website to announce material information to investors and the marketplace. While not all of the information
that we post on the Investors section of our website is of a material nature, some information could be deemed to be material.
Accordingly, we encourage investors, the media, and others interested in us to review the information that we share on the Investors
section of our website, https://vaxxinity.com/.
Overview
We are engaged in the development of rationally designed prophylactic and therapeutic vaccines for chronic disorders and infectious
diseases with large patient populations and unmet medical needs. While vaccines have traditionally been unable to combat such disorders
effectively and safely, we believe our platform could overcome the traditional hurdles facing vaccines in this area. Our Vaxxine Platform
relies on a synthetic peptide vaccine technology first developed by UBI and subsequently refined over the last two decades. We believe
our vaccines have the potential to combat conditions that have not yet been successfully treated, or which have primarily been addressed
with monoclonal antibodies (“mAbs”) which, while generally effective, are extremely costly and cumbersome, and thus have limited
accessibility. Our pipeline primarily consists of five programs focused on chronic disease, spanning neurodegenerative disorders in
addition to other neurology and cardiovascular indications. Given the ongoing need for booster vaccines to address COVID-19 and our
Vaxxine Platform’s applicability to infectious disease, we are also opportunistically advancing a product candidate that addresses SARS-
CoV-2.
Our current pipeline consists of six programs from early to late-stage development, which fall into 3 major areas: Neurodegeneration,
Next Wave Chronic, and Infectious Disease.
Our Neurodegeneration pipeline consists of UB-311, our leading neurology product candidate, which targets the primary pathological
process of Alzheimer’s disease (“AD”); UB-312, which targets the pathological process of Parkinson’s disease (“PD”) and other so-
called synucleinopathies; and VXX-301, an anti-tau protein product candidate which has the potential to address multiple
neurodegenerative conditions, including AD. Our Next Wave Chronic pipeline consists of UB-313, which targets Calcitonin Gene-
Related Peptide (“CGRP”) to prevent migraines; and VXX-401, which targets proprotein convertase subtilisin/kexin type 9 serine
protease (“PCSK9”) to reduce low-density lipoprotein (“LDL”) cholesterol, a risk factor for atherosclerotic heart disease. Through our
Vaxxine Platform, we believe we may be able to address a wide range of other chronic diseases, including diseases that are or could
potentially be successfully treated by mAbs, which increasingly dominate the treatment paradigm but remain accessible only to a small
proportion of patients who could potentially benefit from them.
In addition to our Neurodegeneration and Next Wave Chronic disease pipelines, given our Vaxxine Platform’s applicability to infectious
disease and the ongoing need for booster vaccines to address SARS-CoV-2, we are advancing an Infectious Disease product candidate,
UB-612, as a heterologous booster against COVID-19. We have reported topline results of a pivotal Phase 3 trial of UB-612 and
completed rolling submissions for conditional/provisional authorization with regulatory authorities in the United Kingdom and Australia
in March 2023.
Our ability to generate revenue sufficient to achieve profitability will depend on the eventual regulatory approval and commercialization
of one or more of our product candidates. We have not yet obtained any regulatory approvals for our product candidates or conducted
sales and marketing activities for our product candidates.
We have principally funded our operations through financing transactions. Through September 30, 2023, we received gross proceeds of
$306.8 million in connection with various financing transactions, including the sale of preferred and common stock, the issuance of
promissory notes (including convertible promissory notes (“Convertible Notes”)), and the entry into simple agreements for future equity
(“SAFEs”).
22
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 number, timing, size, scope and nature of various trials for our product candidates. We anticipate
incurring greater selling and marketing expenses if we commercialize any of our product candidates in the future and prepare for such
commercialization. Our product candidates are in clinical stage or pre-clinical stage development. We have generated limited revenue
to date and have incurred significant operating losses since inception. Net losses were $13.1 million and $19.3 million for the three
months ended September 30, 2023 and 2022, respectively. Net losses were $45.5 million and $54.8 million for the nine months ended
September 30, 2023 and 2022, respectively. As of September 30, 2023, we had an accumulated deficit of $350.2 million.
We have taken several steps to reduce our rate of cash burn for our research and development and general and administrative activities,
including reducing headcount through attrition and organizational restructuring, limiting use of external consultants and other
professional services, and prioritizing research and development activities for certain programs while deferring other activities. As a
result of these efforts, as of the date of this report we expect our existing cash and cash equivalents and short-term investments will be
sufficient to fund our operating expenses and capital expenditure requirements through early Q4 2024. See Note 1 to the condensed
consolidated financial statements.
Thereafter, our viability will depend on our ability to raise additional capital to finance operations, to successfully commercialize our
product candidates, if approved, or to enter into collaborations with third parties for the development and / or commercialization 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.”
Recent Developments
In August 2023, results from the Phase 2a trial of UB-311 in patients with mild Alzheimer’s disease were published in The Lancet’s
eBioMedicine.
In October 2023, Peter Powchik, MD assumed his role as Vaxxinity’s Executive Vice President, Global Scientific Director, with the
departure of Ulo Palm and Sumita Ray, JD, assumed her role as Vaxxinity’s Chief Legal, Compliance, and Administrative Officer, with
the departure of René Paula.
Also in October 2023, we have expanded the Phase 1 trial of VXX-401 to test higher dose levels, due to VXX-401’s favorable safety
and tolerability profile to date.
Through the second half of 2023, exploratory target engagement and biomarker assays from the Phase 1 clinical trial of UB-312 have
continued to yield encouraging results. UB-312-induced antibodies slowed alpha-synuclein (“aSyn”) aggregation in PD patient
cerebrospinal fluid (“CSF”), demonstrating BBB crossing and clear target engagement
in vivo
. UB-312 reduced aggregated aSyn in PD
patients over time, as compared to placebo, as measured by fluorescence max in a seed amplification assay. A reduction of aggregated
aSyn over time in the CSF of PD patients immunized with UB-312 was also observed, as compared to those on placebo.
Components of Our Unaudited Condensed Consolidated Results of Operations
Revenue
We recorded no revenue for the three months ended September 30, 2023 and 2022 and the nine months ended September 30, 2023 and
2022. We do not expect to generate any meaningful revenue unless and until we obtain regulatory approval of and commercialize or
out-license at least one of our product candidates, and we do not know when, or if, this will occur. If our development efforts for our
product candidates are successful and result in commercialization, we may generate additional revenue in the future from a combination
of product sales or payments from collaboration or license agreements that we have entered into or may enter into with third parties. We
have incurred significant losses since our inception. We expect to incur losses for the foreseeable future and may never achieve or
maintain profitability.
Cost of Revenue
We recorded no cost of revenue for the three months ended September 30, 2023 and 2022 and the nine months ended September 30,
2023 and 2022. If our development efforts in respect of our current pipeline of product candidates are successful and result in regulatory
approval, we expect our cost of revenue will increase in relative proportion to the level of our revenue as we commercialize the applicable
product candidate. We expect that the cost of revenue will increase in absolute dollars as and if our revenue grows and will vary from
period to period as a percentage of revenue.
23
Research and Development Expenses
The design, initiation and execution of candidate discovery and development programs of our potential future product candidates is key
to our success and involves significant expenses. Prior to initiating these programs, project teams incorporating individuals from the
essential disciplines within the Company scope out the activities, timing, requirements, inclusion and exclusion criteria and the primary
and secondary endpoints. Once we have decided to proceed, our Vaxxine Platform enables the iteration of drug candidates in the
discovery phase through rapid, rational design and formulation. After we have identified drug candidates, the costs of scaling the
formulation from research grade to clinical grade, then to commercial grade, typically consumes significant resources. In addition to
internal research and development, we utilize service providers, including related parties, to complete activities we lack the internal
resources to handle.
Research and development expenses consist primarily of costs incurred for research activities, including drug discovery efforts and the
development of our product candidates. We expense research and development costs as incurred, which include:
•
expenses incurred to conduct the necessary preclinical studies and clinical trials required to obtain regulatory approval;
•
expenses incurred under agreements with CROs that are primarily engaged in the oversight and conduct of our clinical trials,
preclinical studies and drug discovery efforts and contract manufacturers that are primarily engaged to provide preclinical and
clinical drug substance and product for our research and development programs;
•
other costs related to acquiring and manufacturing materials in connection with our drug discovery efforts and preclinical
studies and clinical trial materials, including manufacturing validation batches;
•
costs related to investigative sites and consultants that conduct our clinical trials, preclinical studies and other scientific
development services;
•
employee-related expenses, including salaries and benefits, travel and stock-based compensation expense for employees
engaged in research and development functions;
•
costs related to compliance with regulatory requirements; and
•
facilities-related costs, depreciation and other expenses, which include rent and utilities.
We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information
provided to us by service providers. This process involves reviewing open contracts and purchase orders, communicating with personnel
to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred
for the service when we have not yet been invoiced or otherwise notified of actual costs. Any nonrefundable advance payments that we
make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses.
Such amounts are expensed as the related goods are delivered or the related services are performed, or until it is no longer expected that
the goods will be delivered, or the services rendered, at which point the net remainder is expensed.
We continue to work with related parties for the advancement of our research and development programs, including for manufacturing,
quality control, testing, validation, and supply services. While this related party work has significantly diminished over the last year,
and we expect this trend to continue, we are still reliant on UBIA to provide certain manufacturing-related and prior-conducted clinical
data that will be needed for inclusion in our regulatory applications for UB-612. During the nine months ended September 30, 2023 and
2022, related party expenses were approximately 1.5% and 11.8% of our research and development expenses, respectively.
Where appropriate, we allocate certain external research and development expenses on a program-by-program basis. These expenses
primarily relate to third-party clinical development services (such as those provided by clinical research organizations and research
laboratories), manufacturing expenses, and consulting and other professional services expenses. The Company's major programs are in
the areas of Neurodegenerative Disease, Chronic Disease and Infectious Disease. Other programs include Platform development
activities and preclinical research. We do not allocate our internal research and development expenses and certain external research and
development expenses, such as personnel expenses, facility costs, laboratory materials and equipment costs, and travel and entertainment
expenses related to research and development activities, to specific programs because, for example, our research and development
personnel work across programs, and programs share common facilities, laboratory materials, and equipment, and any such allocation
would necessarily involve significant estimates and judgments and, accordingly, would be imprecise. When we refer to the research and
development expenses associated with a specific program, these refer exclusively to the allocated third-party expenses associated with
that product candidate. All other research and development costs are referred to as unallocated costs.
Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical
development, primarily due to the increased size and duration of later-stage clinical trials. Additionally, greater research and
development overhead is required to support broader and more rapid development of our Vaxxine Platform and new product candidates.
24
As a result, we expect that our research and development expenses could increase if we continue our existing and planned clinical trials
and conduct increased pre-clinical and clinical development activities, including submitting regulatory filings for product candidates,
and focus more generally on the development of our chronic disease product candidates.
At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the
pre-clinical and clinical development of any of our product candidates or when, if ever, material net cash inflows may commence from
any of our product candidates.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and benefits, travel and stock-based compensation expense for
personnel in executive, business development, finance, human resources, legal, information technology, public relations,
communications and administrative functions. General and administrative expenses also include insurance costs and professional fees
for legal, patent, consulting, investor and public relations, accounting and audit services and other general operating expenses not
otherwise classified as research and development expenses.
In the event UB-612 obtains regulatory approval and we subsequently commence commercialization of this product, we expect general
and administrative expenses will increase. We have incurred and expect to continue to incur public company-related expenses, including
services associated with maintaining compliance with Nasdaq listing and SEC requirements, director and officer liability insurance and
investor and public relations costs.
Other Expense (Income)
Interest Expense
Interest expense consists of interest incurred on (i) the note entered into during June 2020 for the acquisition of an airplane (the “2025
Note”) and (ii) the related party promissory note (the “2022 Promissory Note”) entered into during 2022.
Interest Income
Interest income consists of income earned on our cash and cash equivalents, money market holdings, and short-term investments.
(Gain) Loss on Foreign Currency Translation, Net
Our foreign subsidiaries, which are wholly-owned by the Company, use the U.S. dollar as their functional currency and maintain records
in the local currency. Nonmonetary assets and liabilities are remeasured at historical rates and monetary assets and liabilities are
remeasured at exchange rates in effect at the end of the reporting period. Income statement accounts are remeasured at average exchange
rates for the reporting period. The resulting gains or losses are included in foreign currency losses (gains) in the condensed consolidated
financial statements.
Provision for Income Taxes
We have not recorded any significant amounts related to income tax but have reserved $0.7 million of unrecognized tax benefits against
NOLs. We have not recorded any income tax benefits for the majority of our net losses we incurred to date.
We account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in the consolidated financial statements or our tax returns.
Deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and tax basis
of existing assets and liabilities and for loss and credit carryforwards, which are measured using the enacted tax rates and laws in effect
in the years in which the differences are expected to reverse. The realization of our deferred tax assets is dependent upon the generation
of future taxable income, the amount and timing of which are uncertain. Valuation allowances are provided if, based upon the weight of
available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. As of September 30, 2023,
we continue to maintain a full valuation allowance against all of our deferred tax assets based on evaluation of all available evidence.
We file income tax returns in the U.S. federal and state jurisdictions and may become subject to income tax audit and adjustments by
related tax authorities. Our tax return periods (for entities then in existence) for U.S. federal income taxes for the tax years since 2017
remain open to examination under the statute of limitations by the Internal Revenue Service and state jurisdictions. We record reserves
for potential tax payments to various tax authorities related to uncertain tax positions, if any. The nature of uncertain tax positions is
subject to significant judgment by management and subject to change, which may be substantial. These reserves are based on a
determination of whether and how much a tax benefit taken by us in our tax filings or positions is more likely than not to be realized
following the resolution of any potential contingencies related to the tax benefit. We develop our assessment of uncertain tax positions,
and the associated cumulative probabilities, using internal expertise and assistance from third-party experts. As additional information
25
becomes available, estimates are revised and refined. Differences between estimates and final settlement may occur resulting in
additional tax expense. Potential interest and penalties associated with such uncertain tax positions are recorded as a component of our
provision for income taxes.
Condensed Consolidated Results of Operations
The following is a summary of our unaudited condensed consolidated results of operations:
Three Months Ended September 30,
Nine Months Ended September 30,
(In thousands)
2023
2022
Change $
2023
2022
Change $
Operating expenses:
Research and development
$
7,910
$
12,468
(4,558)
$
27,679
$
34,609
$
(6,930)
General and administrative
5,535
7,300
(1,765)
18,956
20,546
(1,590)
Total operating expenses
13,445
19,768
(6,323)
46,635
55,155
(8,520)
Loss from operations
(13,445)
(19,768)
6,323
(46,635)
(55,155)
8,520
Other (income) expense:
Interest expense
176
54
122
514
264
250
Interest income
(512)
(545)
33
(1,657)
(625)
(1,032)
(Gain) loss on foreign currency translation, net
36
(25)
61
50
(28)
78
Total other (income) expense, net
(300)
(516)
216
(1,093)
(389)
(704)
Net loss
$
(13,145)
$
(19,252)
$
6,107
$
(45,542)
$
(54,766)
$
9,224
Research and Development Expenses
Comparison of the Three Months Ended September 30, 2023 and 2022
Allocated external research and development expenses decreased from $6.1 million for the three months ended September 30, 2022 to
$4.0 million for the three months ended September 30, 2023.
Neurodegenerative Disease Program expenses increased from $0.3 million for the three months ended September 30, 2022 to $0.5
million for the three months ended September 30, 2023. This increase primarily resulted from a $0.3 million increase in expenses for
UB-312 primarily attributable to our Phase 1 trial entering the completion phase.
Next Wave Chronic Disease Program expenses increased from $1.6 million for the three months ended September 30, 2022 to $1.8
million for the three months ended September 30, 2023. This increase primarily resulted from a $0.2 million increase in expenses for
VXX-401 primarily attributable to active patient enrollment in the Phase 1 trial during the quarter.
Infectious Disease Program expenses decreased from $4.0 million for the three months ended September 30, 2022 to $1.6 million for
the three months ended September 30, 2023. This decrease primarily resulted from a $2.4 million decrease in expenses for UB-612
primarily attributable to the Phase 3 trial entering the completion phase as all patient visits were completed in Q3 2023.
Unallocated research and development expenses decreased from $6.4 million for the three months ended September 30, 2022 to $3.9
million for the three months ended September 30, 2023. This decrease primarily resulted from a $1.7 million decrease in personnel-
related expenses (including $0.4 million in stock-based compensation) primarily attributable to attrition and internal restructuring, and
a $0.6 million decrease in external consulting services.
Comparison of the Nine Months Ended September 30, 2023 and 2022
Allocated external research and development expenses decreased from $16.7 million for the nine months ended September 30, 2022 to
$12.4 million for the nine months ended September 30, 2023.
Neurodegenerative Disease Program expenses decreased from $2.2 million for the nine months ended September 30, 2022 to $1.3
million for the nine months ended September 30, 2023. This decrease primarily resulted from a $0.6 million decrease in expenses for
UB-312 primarily attributable to our Phase 1 trial entering the completion phase and a $0.2 million decrease in expenses for VXX-301
primarily attributable to reduced pre-clinical activity.
Next Wave Chronic Disease Program expenses increased from $5.0 million for the nine months ended September 30, 2022 to $5.8
million for the nine months ended September 30, 2023. This increase primarily resulted from a $0.9 million increase in expenses for
VXX-401 primarily attributable to active patient enrollment in the Phase 1 trial.
26
Infectious Disease Program expenses decreased from $9.2 million for the nine months ended September 30, 2022 to $5.0 million for the
nine months ended September 30, 2023. This decrease resulted from a $4.2 million decrease in expenses for UB-612 primarily
attributable to the Phase 3 trial entering the completion phase as all patient visits were completed in Q3 2023.
Unallocated research and development expenses decreased from $17.9 million for the nine months ended September 30, 2022 to $15.3
million for the nine months ended September 30, 2023. This decrease primarily resulted from a $2.8 million decrease in personnel-
related expenses (including $0.3 million in stock-based compensation) primarily attributable to attrition and internal restructuring, and
a $1.1 million decrease in external consulting services, partially offset by a $0.8 million increase in facility and laboratory equipment
costs attributable to rental of additional laboratory and office space and increased lab supplies and maintenance costs, and a $0.4 million
increase in other indirect expenses primarily attributable to increased travel and IT services.
General and Administrative Expenses
Comparison of the Three Months Ended September 30, 2023 and 2022
General and administrative expenses decreased from $7.3 million for the three months ended September 30, 2022 to $5.5 million for
the three months ended September 30, 2023.
The decrease was primarily due to a decrease of $0.7 million in personnel-related expenses (including $0.2 million in stock-based
compensation) primarily attributable to attrition and internal restructuring, a decrease in director and officer insurance expense of $0.5
million, and a $0.3 million decrease in external consulting and professional services.
Comparison of the Nine Months Ended September 30, 2023 and 2022
General and administrative expenses decreased from $20.5 million for the nine months ended September 30, 2022 to $19.0 million for
the nine months ended September 30, 2023.
The decrease was due to decreases of $1.5 million in director and officer insurance expense, $0.6 million in payroll-related expenses
primarily attributable to attrition and internal restructuring, and $0.3 million in external consulting services, partially offset by a $0.5
million increase in external professional services and a $0.4 million increase in stock-based compensation due to the increase in board
size in early 2023.
Liquidity and Capital Resources
Sources of Liquidity
We have not yet obtained regulatory approval for or commercialized any of our product candidates, which are in various phases of pre-
clinical and clinical development. We have financed operations primarily through the issuance of common stock, convertible preferred
stock, borrowings under promissory notes (including the Convertible Notes) and the execution of Simple Agreements for Future Equity
(“SAFEs”). Through September 30, 2023, we received gross proceeds of $306.8 million in connection with various financing
transactions, including the sale of preferred and common stock, the issuance of promissory notes (including Convertible Notes), and the
execution of SAFEs. As of September 30, 2023, we had $42.5 million of cash, cash equivalents and short-term investments compared
to $86.8 million as of December 31, 2022. The decrease in cash, cash equivalents and short-term securities for the periods reported are
primarily due to the factors described under “Cash Flows” below.
In August 2023, we entered into an at-the-market offering program pursuant to which we may issue and sell, from time to time, up to
$100,000,000 of our Class A common stock. For the three months ended September 30, 2023, we did not sell any shares under this
program.
27
Cash Flows
The following table provides information regarding our cash flows for the nine months ended September 30, 2023 and 2022 (in
thousands):
September 30,
December 31,
2023
2022
Balance Sheet Data:
Cash and cash equivalents
$
17,395
$
33,475
Short-term investments, net
25,124
53,352
Restricted cash
206
1,095
Total assets
57,479
106,399
Total liabilities
33,774
44,222
Total stockholders' equity
$
23,705
$
62,177
Nine Months Ended September 30,
2023
2022
Statement of Cash Flow Data:
Net cash (used in) provided by operating activities
$
(45,393)
$
(41,451)
Net cash (used in) provided by investing activities
29,251
(81,600)
Net cash (used in) provided by financing activities
(827)
(58)
Net (decrease) in cash, cash equivalents and restricted cash
$
(16,969)
$
(123,109)
Operating Activities
Net cash used in operating activities for the nine months ended September 30, 2023 was $45.4 million, primarily resulting from a $45.5
million net loss and an unfavorable $6.9 million change in operating assets and liabilities, partially offset by total non-cash items of $7.0
million. The changes in net operating assets and liabilities were primarily due to a $6.6 million decrease in accrued expenses and other
current liabilities and a $2.3 million decrease in accounts payable, offset by a $2.3 million decrease in prepaid expenses. The non-cash
adjustments to net loss primarily consisted of $6.4 million of stock-based compensation and $1.8 million in depreciation, partially offset
by $1.2 million in amortization of discount on short-term investments.
Net cash used in operating activities for the nine months ended September 30, 2022 was $41.5 million, primarily resulting from a $54.8
million net loss, an unfavorable $6.2 million change in operating assets and liabilities and total non-cash items of $7.1 million. The
changes in net operating assets and liabilities were primarily due to a decrease of $2.7 million in amounts due to related party, a
$7.5
million increase in accrued expenses and other current liabilities
,
a $3.3 million increase in prepaid expenses and a $2.1 million decrease
in long-term deposits. The primary non-cash adjustments to net loss consisted of $6.4 million of stock-based compensation and $1.1
million in depreciation.
Investing Activities
Net cash provided by investing activities totaled $29.3 million for the nine months ended September 30, 2023. The cash provided by
investing activities consisted primarily of the acquisition and redemption of short-term investments, and the acquisition of laboratory
and computer equipment.
Net cash used in investing activities totaled $81.6 million for the nine months ended September 30, 2022. The cash used in investing
activities consisted primarily of the acquisition of short-term investments.
Financing Activities
Net cash used by financing activities was less than $0.8 million for the nine months ended September 30, 2023. We repaid $1.3 million
in notes payable principal and received $0.5 million from the exercise of stock options.
Net cash used in financing activities was $0.1 million for the nine months ended September 30, 2022. We repaid $0.3 million in notes
payable principal and received $0.3 million from the exercise of stock options.
Funding Requirements
We have incurred net losses in each reporting period since inception. We do not expect to generate any revenue unless and until we
obtain regulatory approval of and commercialize our product candidates or enter into collaboration or licensing arrangements with one
28
or more third-party strategic partners. We do not know when, or if, this will occur. We will continue to incur significant losses for the
foreseeable future even if we ultimately receive regulatory approval for one or more of our product candidates and commercialize any
approved products, and we expect the losses to increase as we continue the development of, and seek regulatory approvals for, our
product candidates and begin to commercialize any approved products.
As of the date of this Quarterly Report, we expect our existing cash, cash equivalents and short-term investments, together with expected
savings from cost reduction efforts, will be sufficient to fund our operating expenses through the early Q4 2024. See Note 1 to the
condensed consolidated financial statements. As of September 30, 2023, other than our 2025 Note and the 2022 Promissory Note, we
have no material debt obligations.
We have based our projections of operating capital requirements on assumptions that may prove to be incorrect, and we may use all of
our available capital resources sooner than we expect. Our future capital requirements will depend on many factors, which include:
•
the scope, number, progress, initiation, duration, cost, results and timing of clinical trials, pre-clinical programs and
nonclinical studies of our current or future product candidates;
•
the outcomes and timing of regulatory reviews, approvals or other actions;
•
the timing and manner in which we manufacture our pre-clinical and clinical drug material, the terms on which we can have
such manufacturing completed, and the extent to which we undertake commercialization of any drug products, if approved;
•
the extent to which we establish sales, marketing, medical affairs and distribution infrastructure to commercialize any product
candidates;
•
the timing and extent to which we expand our operational, financial and management systems and infrastructure, and facilities;
•
the timing and extent to which we increase our personnel to support operations, including necessary increases in headcount to
conduct and expand our clinical trials, commercialize any approved products and support our operations as a public company;
•
the number of patent applications we must file and claims we must defend in order to maintain, expand and protect our
intellectual property portfolio, and the costs of preparing, filing and prosecuting patent applications, maintaining and protecting
our intellectual property rights;
•
our ability to obtain marketing approval for our product candidates;
•
our ability to establish and maintain additional licensing, collaboration or similar arrangements on favorable terms and whether
and to what extent we retain development or commercialization responsibilities under any new licensing, collaboration or
similar arrangement;
•
the success of any other business, product or technology that we acquire or in which we invest;
•
our ability to maintain, expand and defend the scope of our intellectual property portfolio;
•
the current and potential impacts of the Russia-Ukraine conflict, inflation and rising interest rates on our business;
•
the costs of acquiring, licensing or investing in businesses, product candidates and technologies;
•
market acceptance of our product candidates, to the extent any are approved for commercial sale; and
•
the effect of competing technological and market developments.
Until such time, if ever, as we can generate positive cash flows from operations, we expect to finance our cash needs through public or
private equity offerings, strategic collaborations and debt financing. To the extent that we raise additional capital through the sale of our
Class A common stock, convertible securities or other equity securities, stockholders’ ownership interest will be diluted and the terms
of these securities could include liquidation or other preferences and anti-dilution protections. In addition, debt financing, if available,
may result in fixed payment obligations and may involve agreements that include restrictive covenants that limit our ability to take
specific actions, such as incurring additional debt, making capital expenditures, creating liens, redeeming shares or declaring dividends.
If we raise additional funds through strategic collaborations or marketing, distribution or licensing arrangements with third parties, we
may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that
may not be favorable to us. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or
29
terminate our product candidate development or future commercialization efforts or grant rights to third parties to develop and market
product candidates that we would otherwise prefer to develop and market ourselves.
Tax-Related Obligations
We have reserved $0.7 million of unrecognized tax benefits against NOLs. Additionally, as of September 30, 2023, we accrued $0.2
million in interest and penalties related to prior year tax filings.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and do not currently have, any off-balance sheet arrangements, as defined in the rules and
regulations of the SEC.
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect
the amounts reported in our unaudited condensed consolidated financial statements and accompanying notes. Management bases its
estimates on historical experience, market and other conditions, and various other assumptions it believes to be reasonable. Although
these estimates are based on management’s best knowledge of current events and actions that may impact us in the future, the estimation
process is, by its nature, uncertain given that estimates depend on events over which we may not have control. In addition, if our
assumptions change, we may need to revise our estimates, or take other corrective actions, either of which may also have a material
effect on our unaudited condensed consolidated financial statements. Significant estimates contained within these unaudited condensed
consolidated financial statements include, but are not limited to, the estimated fair value of our common stock, stock-based
compensation, income tax valuation allowance and the accruals of research and development expenses. We base our estimates on
historical experience, known trends and other market-specific or other relevant factors that we believe to be reasonable under the
circumstances. On an ongoing basis, management evaluates its estimates, as there are changes in facts and circumstances. If market and
other conditions change from those that we anticipate, our unaudited condensed consolidated financial statements may be materially
affected.
While our significant accounting policies are described in detail in our annual consolidated financial statements for the year ended
December 31, 2022 included in our Annual Report on Form 10-K for the year ended December 31, 2022, we believe that the following
critical accounting policies and estimates have a higher degree of inherent uncertainty and require our most significant judgments.
Accrued Research and Development Expenses
As part of the process of preparing our condensed consolidated financial statements, we are required to estimate accrued research and
development expenses. As we advance our programs, we anticipate more complex clinical studies resulting in greater research and
development expenses, which will place even greater emphasis on the accrual. This process involves reviewing open contracts and
purchase orders, communicating with our applicable personnel to identify services that have been performed on our behalf and estimating
the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified
of actual costs. In the past years, UBI and its affiliated companies performed and administered a significant amount of research and
development work on our behalf. Having UBI and its affiliated company act as intermediaries added to the complexity of determining
appropriate accruals, and we have largely moved away from this model. Certain accruals and amounts owed to the UBI entities are still
under review, and these amounts may change as a result of this review.
The majority of our service providers invoice in arrears for services performed, on a pre-determined schedule or when contractual
milestones are met; however, some require advance payments. We make estimates of accrued expenses as of each balance sheet date in
the condensed consolidated financial statements based on facts and circumstances known to us at that time. We periodically confirm the
accuracy of the estimates with the service providers and make adjustments if necessary. Examples of estimated accrued research and
development expenses include fees paid to:
•
vendors, including research laboratories, in connection with pre-clinical development activities;
•
CROs and investigative sites in connection with pre-clinical studies and clinical trials; and
•
contract manufacturers in connection with drug substance and drug product formulation of pre-clinical studies and clinical
trial materials.
We base our expenses related to pre-clinical studies and clinical trials on our estimates of the services received and efforts expended
pursuant to quotes and contracts with multiple research institutions and CROs that supply, conduct and manage pre-clinical studies and
clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may
result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services
30
provided and result in a prepayment of the expense. Payments under some of these contracts depend on factors such as the successful
enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which
services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or
the level of effort varies from the estimate, it adjusts the accrual or the prepaid expense accordingly. Although we do not expect our
estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed
relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low
in any particular period. To date, our estimated accruals have not differed materially from actual costs incurred.
Stock-Based Compensation
We measure all stock-based awards granted to employees, directors and non-employees based on their fair value on the date of the grant
and recognize the corresponding compensation expense of those awards over the requisite service period, which is generally the vesting
period of the respective award. Forfeitures are accounted for as they occur. We grant stock options and restricted stock unit awards that
are subject to service vesting conditions.
We classify stock-based compensation expense in our condensed consolidated statements of operations in the same manner in which
the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified.
We estimate the fair value of each stock option grant using the Black-Scholes option-pricing model, which requires the use of subjective
assumptions that could materially impact the estimation of fair value and related compensation expense to be recognized. These
assumptions include (i) the expected volatility of our stock price, (ii) the periods of time over which recipients are expected to hold their
options prior to exercise (expected lives), (iii) expected dividend yield on our common stock, and (iv) risk-free interest rates, which are
based on quoted U.S. Treasury rates for securities with maturities approximating the options’ expected lives. Developing these
assumptions requires the use of judgment. Both prior to and after our initial public offering (“IPO”), we lacked company-specific
historical and implied volatility information. Therefore, we estimate our expected stock volatility based on the historical volatility of a
publicly traded set of peer companies. The expected term of the Company’s options has been determined utilizing the “simplified”
method for awards that qualify as “plain-vanilla” options. The expected term of options granted to non-employees is equal to the
contractual term of the option award. The expected dividend yield is zero as we have never paid dividends and do not currently anticipate
paying any in the foreseeable future.
Coalition for Epidemic Preparedness (“CEPI”) Grant
In April 2022, we entered into an agreement with the Coalition for Epidemic Preparedness Innovations (“CEPI”) whereby CEPI agreed
to provide funding of up to $9.3 million to co-fund a Phase 3 clinical trial of our UB-612 COVID-19 vaccine candidate as a heterologous
– or ‘mix-and-match’ – booster dose. The Phase 3 trial, which began in early 2022, 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.
We 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 allocated for delivery 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 funds are received, they are included within restricted cash offset by a corresponding short-term
accrued liability. We recognize 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risk in the ordinary course of our business. These risks primarily relate to foreign currency and changes in
interest rates.
Foreign Currency Exchange Risk
We have limited exposure to foreign currency exchange risk as most of our operating activities are primarily denominated in U.S.
dollars. We believe actual foreign exchange gains and losses did not have a significant impact on our results of operations for any periods
presented herein. The results of the analysis based on our financial position as of September 30, 2023, indicated that a hypothetical 10%
increase or decrease in applicable foreign currency exchange rates would not have a material effect on our financial results.
31
Interest Rate Risk
We are exposed to market risk related to changes in interest rates. As of September 30, 2023 and December 31, 2022, our cash
equivalents consisted of interest-bearing checking accounts and money market accounts. The 2025 Note we entered into for the year
ended December 31, 2020 bears a fixed annual interest rate of 3.4% and matures in June 2025. Additionally, the 2022 Promissory Note
we entered into for the year ended December 31, 2022 bears a fixed annual interest rate of 7.0% and matures in October 2026. Given
that the 2025 Note and the 2022 Promissory Note bear fixed rates of interest, we believe there is no material exposure to interest rate
risk. The results of the analysis based on our financial position as of September 30, 2023, indicated that a hypothetical 100 basis point
increase or decrease in risk-free rates would not have a material effect on our financial results.
Our measurement of interest rate risk involves assumptions that are inherently uncertain and, as a result, we cannot precisely estimate
the impact of changes in interest rates on net interest revenues. Actual results may differ from simulated results due to changes in the
amount of our cash equivalents and the timing, magnitude, and frequency of interest rate changes, as well as changes in market conditions
and management strategies, including changes in asset and liability mix.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, evaluated, as of the end of the
period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act). In designing and evaluating our disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are
resource constraints, and that management is required to apply judgment in evaluating the benefits of possible controls and procedures
relative to their costs. Based on management’s evaluation, our principal executive officer and principal financial officer concluded that,
as of September 30, 2023, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act) during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including the principal executive officer and principal financial officer, does not expect that our disclosure controls
or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well
designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. The design
of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to
their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance
that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The
design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation
of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in
conditions or deterioration in the degree of compliance with policies or procedures.
32
PART II – OTHER INFORMATION
Item 1A. Risk Factors.
We are providing the following information to supplement the risk factors described in our Annual Report on Form 10-K for the year
ended December 31, 2021, filed with the Securities and Exchange Commission on March 27, 2023.
As of September 30, 2023, we had $17.4 million of cash and cash equivalents and $25.1 million of short-term investments. We have
incurred substantial operating losses and negative cash flows from operations since inception and expect to continue to incur substantial
operating losses and negative cash flows from operations for the foreseeable future. See Note 1 to the accompanying financial statements.
We expect to finance our operations by raising new capital through public or private equity offerings, strategic collaborations and debt
financing and other capital sources or combinations thereof, and as needed reduce our costs through overhead reduction, attrition,
organization restructuring, and curtailment of certain research and development activities.
However, there are significant risks and uncertainties as to whether these plans will be achieved or additional funding will be available
on terms acceptable to the Company, or at all. As such, there is substantial doubt about the entity's ability to continue as a going concern
within one year after the date that the financial statements are issued. A failure to raise additional capital or reduce our expenses could
have a material adverse effect on our ability to operate our company.
Item 6. Exhibits.
The following exhibits required by Item 601 of Regulation S-K are filed herewith or have been filed previously with the SEC as indicated
below:
Exhibit
No.
Index to Exhibits
3.1
3.2
4.1
31.1
31.2
32.1
101.INS
Inline XBRL Instance Document*
101.SCH
Inline XBRL Taxonomy Extension Schema Document*
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document*
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document*
104
Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document).*
__________________________
* Filed herewith.
** Furnished herewith.
33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized on November 8, 2023.
VAXXINITY, INC.
By:
/s/ Mei Mei Hu
Mei Mei Hu,
President and Chief Executive Officer
(Principal executive officer)
By:
/s/ Jason Pesile
Jason Pesile
Senior Vice President, Finance & Accounting
(Principal financial officer and principal accounting
officer)
1
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Mei Mei Hu, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Vaxxinity , Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for,
the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors
(or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: November 8, 2023 By: /s/ Mei Mei Hu
(Principal Executive Officer)
1
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jason Pesile, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Vaxxinity , Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for,
the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors
(or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: November 8, 2023 By: /s/ Jason Pesile
(Principal Financial and Accounting Officer)
1
Exhibit 32.1
CERTIFICATIONS OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Vaxxinity, Inc. (the “Company”) on Form 10-Q for the quarter ended
September 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the
undersigned hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that, to the best of their knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
Date: November 8, 2023 By: /s/ Mei Mei Hu
(Principal Executive Officer)
Date: November 8, 2023 By: /s/ Jason Pesile
(Principal Financial and Accounting Officer)