Vaxart, Inc.

Previous wording

In April 2016, Aviragen sold certain royalty rights related to Inavir in the Japanese market for $20.0 million to HealthCare Royalty Partners III, L.P. (“HCRP”). Under the terms of our agreement with HCRP, during the first royalty interest period of April 1, 2016 through March 31, 2025, HCRP is entitled to the first $3.0 million and any cumulative remaining shortfall amount plus 15% of the next $1.0 million in royalties earned in each year commencing on April 1, with any excess revenue being retained by us. Further, during the second royalty interest period beginning April 1, 2025 and ending on December 24, 2029, HCRP is entitled to the first $2.7 million and any cumulative remaining shortfall amount plus 15% of the next $1.0 million in royalties, with any excess revenue being retained by us. A shortfall occurs when, during an annual period ending on March 31 st, for the first royalty interest period of April 1, 2016 through March 31, 2025, the Company’s royalty payments fall below $3.0 million; and $2.7 million for the second royalty interest period of April 1, 2025 and ending on December 24, 2029, excluding the period of April 1, 2028 through December 24, 2029. In the event there is a remaining cumulative remaining shortfall amount as of December 24, 2029, we are not obligated to pay HCRP any royalty payment beyond what the Company is paid from Daiichi Sankyo Company Limited (“Daiichi Sankyo”). The cumulative remaining shortfall amount is the aggregate amount of the shortfall for each annual period, which was $7.0 million and $4.3 million as of December 31, 2023 and 2022, respectively. At the time of the Merger, the estimated future benefit to HCRP was remeasured at fair value and was estimated to be $15.9 million, which we account for as a liability and amortize using the effective interest method over the remaining estimated life of the arrangement. The estimated future benefit was remeasured as of December 31, 2022 and 2021 when the fair value was estimated to be $5.0 million and $10.6 million, respectively, resulting in a revaluation gain of $7.0 million in the year ended December 31, 2022 and $3.8 million in the year ended December 31, 2021. Even though we do not currently retain the related royalties under the transaction, as the amounts are remitted to HCRP, we will continue to record revenue related to these royalties until the amount of the associated liability and related interest is fully amortized.

Current wording

In April 2016, Aviragen sold certain royalty rights related to Inavir in the Japanese market for $20.0 million to HealthCare Royalty Partners III, L.P. (“HCRP”). Under the terms of our agreement with HCRP, during the first royalty interest period of April 1, 2016 through March 31, 2025, HCRP is entitled to the first $3.0 million and any cumulative remaining shortfall amount plus 15% of the next $1.0 million in royalties earned in each year commencing on April 1, with any excess revenue being retained by us. Further, during the second royalty interest period beginning April 1, 2025 and ending on December 24, 2029, HCRP is entitled to the first $2.7 million and any cumulative remaining shortfall amount plus 15% of the next $1.0 million in royalties, with any excess revenue being retained by us. A shortfall occurs when, during an annual period ending on March 31 st, for the first royalty interest period of April 1, 2016 through March 31, 2025, royalty payments fall below $3.0 million; and $2.7 million for the second royalty interest period of April 1, 2025 and ending on December 24, 2029, excluding the period of April 1, 2028 through December 24, 2029. In the event there is a remaining cumulative remaining shortfall amount as of December 24, 2029, then, for so long as the Company continues to receive royalties from Daiichi Sankyo Company Limited (“Daiichi Sankyo”), the sum of those royalties will be paid to HCRP until the cumulative remaining shortfall amount has been paid in full.

Previous wording

In 2022, the Company accepted a grant of $3.5 million to perform research and development work for the Bill & Melinda Gates Foundation (the “BMGF Grant”). The Company recognizes revenue under research contracts only when a contract has been executed and the contract price is fixed or determinable. Revenue from the BMGF Grant is recognized in the period during which the related costs are incurred and the related services are rendered, provided that the applicable conditions under the contract have been met. Costs of contract revenue are recorded as a component of operating expenses in the consolidated statements of operations and comprehensive loss.

Current wording

In November 2022, we accepted a grant (the “BMGF Grant”) of $3.5 million to perform research and development work for the Bill & Melinda Gates Foundation and received $2.0 million in advance that was recorded as restricted cash and deferred revenue. We received an additional $1.5 million in July 2023 upon completion of certain milestones. We recognize revenue under research contracts only when a contract is executed and the contract price is fixed or determinable. Revenue from the BMGF Grant was recognized in the period during which the related costs were incurred and the related services rendered, as the applicable conditions under the contract were met. Costs of contract revenue were recorded as a component of operating expenses in the consolidated statements of operations and comprehensive loss. We fully recognized revenue from the BMGF Grant during the year ended December 31, 2023.

Previous wording

We have incurred significant external costs for CROs that conduct clinical trials on our behalf, and for CMOs that manufacture our tablet vaccine candidates, although these costs have decreased in 2022 since we now perform the majority of our manufacturing activities in-house. We have captured these external costs for each vaccine program. We do not allocate external costs incurred on preclinical research or process development to specific programs.

Current wording

We have incurred significant external costs for CROs that conduct clinical trials on our behalf. We have captured these external costs for each vaccine program. We do not allocate external costs incurred on preclinical research or process development to specific programs.

Previous wording

The following table shows our period-over-period research and development expenses, identifying external costs that were incurred in each of our vaccine programs and, separately, on preclinical research and process development (in thousands):

Current wording

The following table shows our period-over-period research and development expenses, identifying external costs that were incurred in each of our vaccine programs and, separately, on preclinical research and process development for years ended December 31 (in thousands):

Previous wording

The following table presents period-over-period changes in selected items in the consolidated statements of operations and comprehensive loss (in thousands, except percentages):

Current wording

The following table presents period-over-period changes in selected items in the consolidated statements of operations and comprehensive loss for years ended December 31 (in thousands, except percentages):

Previous wording

For the year ended December 31, 2023, non-cash royalty revenue related to sale of future royalties from Daiichi Sankyo was $3.9 million, compared to $0.1 million for the year ended December 31, 2022. A flu epidemic in Japan caused the increase in non-cash revenue in 2023. The Company continues to have non-cash royalty revenue as all royalties received in the year ended December 31, 2023 and 2022, were required to be paid to HCRP.

Current wording

For the year ended December 31, 2024, non-cash royalty revenue related to sale of future royalties from Daiichi Sankyo was $3.8 million, compared to $3.9 million for the year ended December 31, 2023. We continue to have non-cash royalty revenue as all royalties received in the years ended December 31, 2024 and 2023 were required to be paid to HCRP.

Previous wording

The Company recognized revenue from the BMGF Grant of $3.5 million and zero for the years ended December 31, 2023 and 2022, respectively.

Current wording

We recognized revenue from the BMGF Grant of zero and $3.5 million for the years ended December 31, 2024 and 2023, respectively.

Previous wording

For the year ended December 31, 2023, research and development expenses were $68.1 million, a decrease of $12.9 million, or 16%, compared to $81.1 million for the year ended December 31, 2022. The decrease was primarily due to decreases in manufacturing costs, personnel related costs and clinical trial expenses related to our COVID-19 vaccine candidates, partially offset by increased facilities and depreciation expense.

Current wording

For the year ended December 31, 2024, research and development expenses were $74.2 million, an increase of $6.1 million, or 9%, compared to $68.1 million for the year ended December 31, 2023. The increase was primarily due to increases in clinical trial expenses related to our COVID-19 vaccine candidate, an increase in manufacturing and preclinical expenses and facilities expenses, offset by a decrease in clinical trial expenses related to our norovirus vaccine candidate and a decrease in stock-based compensation expense and personnel-related costs.

Previous wording

For the year ended December 31, 2023, general and administrative expenses were $22.6 million, a decrease of $6.8 million, or 23%, compared to $29.4 million for the year ended December 31, 2022. The decrease was primarily due to decreases in legal and professional fees, litigation settlement costs and directors' and officers' insurance, partially offset by an increase in personnel stock-based costs.

Current wording

For the year ended December 31, 2024, general and administrative expenses were $20.8 million, a decrease of $1.8 million, or 8% compared to $22.6 million for the year ended December 31, 2023. The decrease was primarily due to a decrease in personnel-related costs, including stock-based compensation expenses, and directors’ and officers’ insurance costs, offset by increases in severance costs, recruiting costs and other professional fees.

Previous wording

The following table summarizes the period-over-period changes in our non-operating income for years ended December 31 (in thousands, except percentages):

Current wording

The following table summarizes the period-over-period changes in our non-operating (expense) income for years ended December 31 (in thousands, except percentages):

Previous wording

Non-cash interest expense related to sale of future royalties representing imputed interest on the unamortized portion of the sale of future royalties liability, increased to $1.4 million in 2023, from the $1.3 million in 2022, due to an increase in non-cash royalty revenue payable to HCRP.

Current wording

Non-cash interest expense related to sale of future royalties representing imputed interest on the unamortized portion of the sale of future royalties liability, increased to $3.0 million for the year ended December 31, 2024, from the $1.4 million in 2023, due to an increase in non-cash royalty revenue payable to HCRP.

Previous wording

A significant portion of the provision for income taxes in the years ended December 31, 2023 and 2022, respectively, is foreign taxes payable on intercompany interest and foreign withholding tax on royalty revenue earned on sales of Inavir in Japan. Our foreign withholding tax on royalty revenue earned on sales of Inavir in Japan, which is potentially recoverable as a foreign tax credit but expensed because we record a 100% valuation allowance against our deferred tax assets. The amount of income tax expense recorded is directly proportional to Inavir royalties, including the portion that we pass through to HCRP, and has declined in line with reductions in royalty revenue. In addition, we incurred charges for state income taxes in the United States.

Current wording

The provision for income taxes was $260,000 and $261,000 for the years ended December 31, 2024 and 2023, respectively. The tax charge relates to interest on an intercompany loan from a foreign subsidiary and a 5% withholding tax on royalty revenue earned on sales of Inavir in Japan, which is potentially recoverable as a foreign tax credit but expensed because we record a 100% valuation allowance against our deferred tax assets. The amount of income tax expense recorded is directly proportional to Inavir royalties, including the portion that we pass through to HCRP.

Previous wording

We are a clinical-stage biotechnology company with no product sales. Our primary source of financing is from the sale and issuance of common stock and common stock warrants in public offerings, along with proceeds from the exercise of warrants. In the past, we have also obtained funds from the issuance of secured debt and preferred stock and from collaboration agreements.

Current wording

We are a clinical-stage biotechnology company with no product sales. Our primary source of financing is from the sale and issuance of common stock in public offerings as well as funding from HHS BARDA. In the past, we have also obtained funds from the issuance of common stock warrants, secured debt and preferred stock and from collaboration agreements.

Previous wording

On September 15, 2021, the Company entered into a Controlled Equity Offering Sales Agreement (the “September 2021 ATM”), pursuant to which it may offer and sell, from time to time through sales agents, shares of its common stock having an aggregate offering price of up to $100 million. The Company filed a prospectus supplement with the SEC on September 16, 2021, and will pay sales commissions of up to 3.0% of gross proceeds from the sale of shares. As of December 31, 2023, there was approximately $77.4 million in net proceeds still available to us under the September 2021 ATM. Since December 31, 2023, the Company sold an additional 5,071,472 shares under the September 2021 ATM for gross proceeds net of commissions of $5.7 million through March 12, 2024.

Current wording

In September 2021, we entered into a Controlled Equity Offering Sales Agreement (the “September 2021 ATM”), under which we may offer and sell, from time to time through sales agents, shares of our common stock having an aggregate offering price of up to $100 million. We incurred direct expenses and paid sales commissions of up to 3.0% of gross proceeds from the sale of shares under the September 2021 ATM. In the year ended December 31, 2024, 7,719,641 shares were issued and sold under the September 2021 ATM for gross proceeds of $9.1 million, which, after deducting sales commissions and expenses incurred to date, resulted in net proceeds of $8.8 million. Effective October 18, 2024, the Company terminated the September 2021 ATM and discontinued all offers and sales of common stock thereunder.

Previous wording

Based on management's current plan, the Company expects to have enough cash runway into the fourth quarter of 2024. If the Company is unable to raise additional capital in sufficient amounts or on acceptable terms, management’s plans include further reducing or delaying operating expenses. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the date of the issuance of these consolidated financial statements. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.

Current wording

Based on management’s current plan, we expect to have enough cash runway into the fourth quarter of 2025. If we are unable to raise additional capital in sufficient amounts or on acceptable terms, management’s plans include further reducing or delaying operating expenses. These conditions raise substantial doubt about our ability to continue as a going concern for a period of one year from the date of the issuance of these consolidated financial statements. The accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.

Previous wording

We experienced negative cash flow from operating activities for the years ended December 31, 2023, and 2022, in the amounts of $70.5 million, and $94.8 million, respectively. The cash used in operating activities for the year ended December 31, 2023, was due to cash used to fund a net loss of $82.5 million and an increase in working capital of $10.9 million, partially offset by adjustments for net non-cash income related to depreciation and amortization, stock-based compensation and non-cash interest expense related to sale of future royalties, net of non-cash revenue related to sale of future royalties and amortization of discount on investments, net totaling $22.9 million. The cash used in operating activities for the year ended December 31, 2022, was due to cash used to fund a net loss of $107.8 million and an increase in working capital of $4.7 million, partially offset by adjustments for net non-cash income related to depreciation and amortization, stock-based compensation, impairment of intangible assets and non-cash interest expense related to sale of future royalties, net of gain on remeasurement of future royalty liability, amortization of discount on investments, net and non-cash revenue related to sale of future royalties totaling $17.7 million.

Current wording

We experienced negative cash flow from operating activities for the years ended December 31, 2024, and 2023, in the amounts of $44.8 million, and $70.5 million, respectively. The cash used in operating activities for the year ended December 31, 2024, was due to cash used to fund a net loss of $66.9 million and an increase in working capital of $3.3 million, partially offset by adjustments for net non-cash income related to depreciation and amortization, stock-based compensation and non-cash interest expense related to sale of future royalties, net of non-cash revenue related to sale of future royalties and amortization of discount on investments, net totaling $18.9 million. The cash used in operating activities for the year ended December 31, 2023, was due to cash used to fund a net loss of $82.5 million and an increase in working capital of $10.9 million, partially offset by adjustments for net non-cash income related to depreciation and amortization, stock-based compensation and non-cash interest expense related to sale of future royalties, net of non-cash revenue related to sale of future royalties and amortization of discount on investments, net totaling $22.9 million.

Previous wording

In 2023, we received $45.7 million from maturities of investments, net of purchases and used $1.8 million to purchase property and equipment, net of disposals. In 2022, we used $10.8 million to purchase investments, net of maturities and used $9.6 million to purchase property and equipment.

Current wording

In the year ended December 31, 2024, we used $20.8 million of cash to purchase investments, net of maturities, and used $0.6 million of cash to purchase property and equipment. In 2023, we received $45.7 million from maturities of investments, net of purchases and used $1.8 million to purchase property and equipment, net of disposals.

Previous wording

In 2023, we received $13.6 million from the issuance of common stock in a registered direct offering, $1.4 million from the sale of common stock under the September 2021 ATM and $0.6 million from the issuance of common stock under the employee stock purchase plan, partially offset by $0.4 million from common stock acquired to settle employee tax withholding liabilities. In 2022, we received $17.2 million from the sale of common stock under the September 2021 ATM and $0.2 million from the exercise of stock options.

Current wording

In the year ended December 31, 2024, we received net proceeds of $37.5 million from the sale of our common stock under the June 2024 Offering, net proceeds of $8.8 million from the sale of our common stock under the September 2021 ATM, net proceeds of $9.9 million from the sale of our common stock under the 2024 Securities Purchase Agreement and $0.5 million from the issuance of common stock and treasury stock under the employee stock purchase plan, partially offset by $0.2 million from common stock acquired to settle employee tax withholding liabilities. In 2023, we received $13.6 million from the issuance of common stock in a registered direct offering, $1.4 million from the sale of common stock under the September 2021 ATM and $0.6 million from the issuance of common stock under the employee stock purchase plan, partially offset by $0.4 million from common stock acquired to settle employee tax withholding liabilities.

Previous wording

Expected term – This represents the period that our stock-based awards granted are expected to be outstanding and is determined using the simplified method (the arithmetic average of its original contractual term and its average vesting term). We have very limited historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for our stock-based awards. Based on the weighted average applied to options awarded in 2023, a notional 10% decrease in expected term would have reduced the fair value and the related compensation expense by approximately 2.2%.

Current wording

Expected term – This represents the period that our stock-based awards granted are expected to be outstanding and is determined using the simplified method (the arithmetic average of its original contractual term and its average vesting term). We have very limited historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for our stock-based awards. Based on the weighted average applied to options awarded in 2024, a notional 10% decrease in expected term would have reduced the fair value and the related compensation expense by approximately 2.1%.

Previous wording

Expected volatility – This is a measure of the amount by which our common stock price has fluctuated or is expected to fluctuate. Since the beginning of 2020 we have measured volatility based on the historical volatility of our own stock over the retrospective period corresponding to the expected term of the options on the measurement date. Based on the weighted average applied to options awarded in 2023, a notional 10% decrease in expected volatility (from 128% to 115%) would have reduced the fair value and the related compensation expense by approximately 4.2%.

Current wording

Expected volatility – This is a measure of the amount by which our common stock price has fluctuated or is expected to fluctuate. Since the beginning of 2020 we have measured volatility based on the historical volatility of our own stock over the retrospective period corresponding to the expected term of the options on the measurement date. Based on the weighted average applied to options awarded in 2024, a notional 10% decrease in expected volatility (from 129.1% to 116.2%) would have reduced the fair value and the related compensation expense by approximately 4.0%.

Previous wording

See the “Recent Accounting Pronouncements” in Note 2 to the Consolidated Financial Statements in Part II, Item 8 for information related to the issuance of new accounting standards in 2023, none of which have had, or are expected to have, a material impact on our consolidated financial statements.

Current wording

See the “Recent Accounting Pronouncements” in Note 2 to the Consolidated Financial Statements in Part II, Item 8 for information related to the issuance of new accounting standards in 2024, which are either not applicable to its operations or their adoption is not expected to have a material impact on our consolidated financial statements.