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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________to_________.

Commission File Number: 001-40655

 

ICOSAVAX, INC.

(Exact name of Registrant as specified in its charter)

 

 

Delaware

 

82-3640549

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

1616 Eastlake Avenue E., Suite 208

Seattle, Washington

 

98102

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (206) 737-0085

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

 

ICVX

 

Nasdaq Global Select Market

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ☑ No

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☑

As of May 9, 2022, the registrant had 39,726,829 shares of common stock ($0.0001 par value) outstanding.

 


 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

 

Item 1

 

Financial Statements

2

 

 

Condensed Balance Sheets

2

 

 

Condensed Statements of Operations and Comprehensive Loss

3

 

 

Condensed Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

4

 

 

Condensed Statements of Cash Flows

5

 

 

Notes to Unaudited Condensed Financial Statements

6

Item 2

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

Item 3

 

Quantitative and Qualitative Disclosures About Market Risk

28

Item 4

 

Controls and Procedures

28

 

PART II. OTHER INFORMATION

 

Item 1

 

Legal Proceedings

29

Item 1A

 

Risk Factors

29

Item 2

 

Unregistered Sales of Equity Securities and Use of Proceeds

79

Item 3

 

Defaults Upon Senior Securities

80

Item 4

 

Mine Safety Disclosures

80

Item 5

 

Other Information

80

Item 6

 

Exhibits

80

 

 

Signatures

82

 

 


 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

ICOSAVAX, INC.

Condensed Balance Sheets

(Unaudited)

(in thousands, except share and par value data)

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash

 

$

261,357

 

 

$

279,082

 

Restricted cash

 

 

1,061

 

 

 

1,642

 

Prepaid expenses and other current assets

 

 

7,681

 

 

 

5,829

 

Total current assets

 

 

270,099

 

 

 

286,553

 

Right-of-use assets – operating leases

 

 

3,309

 

 

 

 

Property and equipment, net

 

 

3,237

 

 

 

1,076

 

Total assets

 

$

276,645

 

 

$

287,629

 

Liabilities and stockholders' equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

6,019

 

 

$

3,899

 

Accrued and other current liabilities

 

 

7,448

 

 

 

4,757

 

Current portion of operating lease liabilities

 

 

530

 

 

 

 

Deferred revenue

 

 

 

 

 

582

 

Total current liabilities

 

 

13,997

 

 

 

9,238

 

Operating lease liabilities, net of current portion

 

 

2,964

 

 

 

 

Other noncurrent liabilities

 

 

144

 

 

 

171

 

Total liabilities

 

 

17,105

 

 

 

9,409

 

Commitments and contingencies (Note 2)

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Common stock, $0.0001 par value; 500,000,000 shares authorized at March 31, 2022 and December 31, 2021; 39,724,867 and 39,429,103 shares issued as of March 31, 2022 and December 31, 2021, respectively; 39,524,526 and 39,175,279 shares outstanding as of March 31, 2022 and December 31, 2021, respectively

 

 

5

 

 

 

5

 

Additional paid-in capital

 

 

377,137

 

 

 

372,284

 

Accumulated deficit

 

 

(117,602

)

 

 

(94,069

)

Total stockholders' equity

 

 

259,540

 

 

 

278,220

 

Total liabilities, convertible preferred stock and stockholders' equity

 

$

276,645

 

 

$

287,629

 

 

See accompanying notes to financial statements

 

 

 

 


 

ICOSAVAX, INC.

Condensed Statements of Operations and Comprehensive Loss

(Unaudited)

(in thousands, except share and per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Grant revenue

 

$

582

 

 

$

2,001

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

 

17,913

 

 

 

5,553

 

General and administrative

 

 

6,322

 

 

 

1,091

 

Total operating expenses

 

 

24,235

 

 

 

6,644

 

Loss from operations

 

 

(23,653

)

 

 

(4,643

)

Other income (expense):

 

 

 

 

 

 

Change in fair value of embedded derivative liability

 

 

 

 

 

(205

)

Loss on extinguishment of convertible promissory note

 

 

 

 

 

(754

)

Interest and other

 

 

120

 

 

 

(249

)

Total other income (expense)

 

 

120

 

 

 

(1,208

)

Net loss and comprehensive loss

 

$

(23,533

)

 

$

(5,851

)

Net loss per share, basic and diluted

 

$

(0.60

)

 

$

(2.11

)

Weighted-average common shares outstanding, basic and diluted

 

 

39,401,805

 

 

 

2,769,962

 

 

See accompanying notes to financial statements

 

 

 

3


 

ICOSAVAX, INC.

Condensed Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(Unaudited)

(in thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Total

 

 

 

Convertible Preferred Stock

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

 Balance at December 31, 2021

 

 

-

 

 

$

-

 

 

 

 

39,175,279

 

 

$

5

 

 

$

372,284

 

 

$

(94,069

)

 

$

278,220

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Shares released from restriction upon vesting of
   early-exercised stock options

 

 

 

 

 

 

 

 

 

53,483

 

 

 

 

 

 

27

 

 

 

 

 

 

27

 

 Exercise of common stock options

 

 

 

 

 

 

 

 

 

295,764

 

 

 

 

 

 

276

 

 

 

 

 

 

276

 

 Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,550

 

 

 

 

 

 

4,550

 

 Net loss and comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(23,533

)

 

 

(23,533

)

 Balance at March 31, 2022

 

 

-

 

 

$

-

 

 

 

 

39,524,526

 

 

$

5

 

 

$

377,137

 

 

$

(117,602

)

 

$

259,540

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Total

 

 

 

Convertible Preferred Stock

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

(Deficit)

 

 Balance at December 31, 2020

 

 

32,198,879

 

 

$

30,062

 

 

 

 

2,639,026

 

 

$

2

 

 

$

393

 

 

$

(27,098

)

 

$

(26,703

)

 Issuance of Series A-1 convertible preferred stock
   for cash of $
0.9615 per share net of
   $
0.1 million of issuance costs

 

 

21,944,874

 

 

 

21,005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Issuance of Series B-1 convertible preferred stock
   for cash of $
2.82172 per share net of
   $
0.3 million in issuance costs

 

 

32,958,612

 

 

 

92,654

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Issuance of Series B-2 convertible preferred stock
   from convertible note

 

 

2,805,850

 

 

 

7,917

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Shares released from restriction upon vesting of
   early-exercised stock options

 

 

 

 

 

 

 

 

 

100,238

 

 

 

 

 

 

63

 

 

 

 

 

 

63

 

 Exercise of common stock options

 

 

 

 

 

 

 

 

 

35,143

 

 

 

 

 

 

29

 

 

 

 

 

 

29

 

 Vesting of shares of restricted common stock

 

 

 

 

 

 

 

 

 

117,369

 

 

 

 

 

 

 

 

 

 

 

 

 

 Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

276

 

 

 

 

 

 

276

 

 Net loss and comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,851

)

 

 

(5,851

)

 Balance at March 31, 2021

 

 

89,908,215

 

 

$

151,638

 

 

 

 

2,891,776

 

 

$

2

 

 

$

761

 

 

$

(32,949

)

 

$

(32,186

)

 

See accompanying notes to financial statements

 

 

4


 

ICOSAVAX, INC.

Condensed Statements of Cash Flows

(Unaudited)

(in thousands)

 

 

 

Three Months Ended
March 31,

 

 

 

2022

 

 

2021

 

Operating activities:

 

 

 

 

 

 

Net loss

 

$

(23,533

)

 

$

(5,851

)

Adjustments to reconcile net loss to cash used in operating activities:

 

 

 

 

 

 

Stock-based compensation

 

 

4,550

 

 

 

276

 

Depreciation

 

 

43

 

 

 

1

 

Non-cash lease expense

 

 

185

 

 

 

 

Non-cash interest expense

 

 

 

 

 

264

 

Change in fair value of embedded derivative liability

 

 

 

 

 

205

 

Loss on extinguishment of convertible promissory note

 

 

 

 

 

754

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaids and other current assets

 

 

(1,852

)

 

 

436

 

Accounts payable

 

 

1,038

 

 

 

(205

)

Accrued and other current liabilities

 

 

2,691

 

 

 

(761

)

Deferred revenue

 

 

(582

)

 

 

699

 

Net cash used in operating activities

 

 

(17,460

)

 

 

(4,182

)

Investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,122

)

 

 

(134

)

Net cash used in investing activities

 

 

(1,122

)

 

 

(134

)

Financing activities:

 

 

 

 

 

 

Proceeds from issuance of convertible preferred stock, net of issuance costs

 

 

 

 

 

113,659

 

Proceeds from exercise of stock options, including early exercise

 

 

276

 

 

 

120

 

Net cash provided by financing activities

 

 

276

 

 

 

113,779

 

Net (decrease) increase in cash and restricted cash

 

 

(18,306

)

 

 

109,463

 

Cash and restricted cash at beginning of period

 

 

280,724

 

 

 

15,498

 

Cash and restricted cash at end of period

 

$

262,418

 

 

$

124,961

 

 

 

 

 

 

 

 

Supplemental disclosure of noncash activities

 

 

 

 

 

 

Purchases of property and equipment included in accounts payable and accrued liabilities

 

$

1,224

 

 

$

 

Right-of-use assets and lease liabilities recognized upon commencement of lease

 

$

3,370

 

 

$

 

Conversion of convertible note (including accrued interest) and derivative liability for Series B-2 convertible preferred stock

 

$

 

 

$

7,917

 

Deferred offering costs included in accounts payable and accrued and other current liabilities

 

$

 

 

$

81

 

Issuance costs and amounts payable for convertible preferred stock included in accounts payable and accrued liabilities

 

$

 

 

$

163

 

 

See accompanying notes to financial statements

 

 

5


 

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

1. Description of Business

 

Organization

Icosavax, Inc. (the “Company”) was incorporated in the state of Delaware on November 1, 2017, and is located in Seattle, Washington. The Company is focused on the research and development of vaccines against infectious diseases. The Company was founded on computationally designed virus-like particle technology, exclusively licensed for a variety of infectious disease indications from the Institute for Protein Design at the University of Washington.

 

The Company’s business involves inherent risks. These risks include, among others, dependence on key personnel, licensors and third-party service providers, patentability of the Company’s products and processes, the immunogenicity, efficacy and safety of the Company’s vaccine candidates and the potential of the Company’s novel vaccine technology platform. In addition, any of the Company’s vaccine candidates, and the Company’s vaccine technology platform, could become obsolete or diminished in value by discoveries and developments at other organizations.

 

In July 2021, the Company effected a 1-for-4.1557 reverse stock split of its issued and outstanding shares of common stock and a proportional adjustment to the existing conversion ratios for each series of the Company’s convertible preferred stock. Accordingly, all share and per share amounts for all periods presented in the accompanying condensed financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this reverse stock split and adjustment of the convertible preferred stock conversion ratios.

 

On August 2, 2021, the Company completed its initial public offering (“IPO”) pursuant through which it issued 12,133,333 shares of its common stock at a public offering price of $15.00 per share, and on August 2, 2021, the Company sold an additional 1,819,999 shares pursuant to the exercise by the underwriters of their option to purchase additional shares. The Company received net proceeds from its IPO, inclusive of the exercise by the underwriters of their option to purchase additional shares, of $190.7 million, after deducting underwriting discounts and commissions and offering expenses. Upon the closing of the IPO, all 89,908,215 shares of the then outstanding convertible preferred stock automatically converted into 21,634,898 shares of common stock.

 

Liquidity

 

The Company had an accumulated deficit of $117.6 million, cash of $261.4 million, and restricted cash of $1.1 million at March 31, 2022.

 

Management believes the Company has sufficient capital to execute its strategic plan and fund operations through at least the next twelve months from the date these condensed financial statements are issued.

 

The Company has devoted substantially all its resources to organizing and staffing the Company, business planning, raising capital, in-licensing intellectual property rights, developing vaccine candidates, scaling up manufacturing of vaccine candidates, and preparing for its ongoing and planned preclinical studies and clinical trials. The Company has a limited operating history, and the sales and income potential of its business is unproven. The Company has incurred net losses and negative cash flows from operating activities since its inception and expects to continue to incur net losses into the foreseeable future as it continues the development of its vaccine candidates. From inception to March 31, 2022, the Company has funded its operations primarily through the sale of its convertible preferred stock and common stock.

 

As the Company continues to pursue its business plan, it expects to finance its operations through equity offerings, debt financings or other capital sources, including potential strategic collaborations, licenses, and other similar arrangements. However, there can be no assurance that any additional financing or strategic transactions will be available to the Company on acceptable terms, if at all. If events or circumstances occur such that the Company does not obtain additional funding, it may need to delay, reduce or eliminate its product development or future commercialization efforts, which could have a material adverse effect on the Company’s business, results of operations or financial condition. The accompanying financial statements do not include any adjustments that might be necessary if the Company were unable to continue as a going concern.

 

 

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2. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited condensed financial statements as of March 31, 2022 and for the three months ended March 31, 2022 and 2021 have been prepared in conformity with generally accepted accounting principles (“GAAP”) in the United States of America for interim financial information and pursuant to Article 10 of Regulation S-X of the Securities Act of 1933, as amended (the “Securities Act”). Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. These unaudited condensed financial statements include only normal and recurring adjustments that the Company believes are necessary to fairly state the Company’s financial position and the results of its operations and cash flows. The results for the three months ended March 31, 2022 are not necessarily indicative of the results expected for the full fiscal year or any subsequent interim period. The condensed balance sheet at December 31, 2021 has been derived from the audited financial statements at that date but does not include all disclosures required by GAAP for complete financial statements. Because all of the disclosures required by GAAP for complete financial statements are not included herein, these unaudited condensed financial statements and the notes accompanying them should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2021 included in the Annual Report on Form 10-K (the "Annual Report") that the Company filed with the Securities and Exchange Commission (the “SEC”) on March 30, 2022.

 

Use of Estimates

 

The Company’s significant accounting policies are described in Note 2, “Summary of significant accounting policies,” of the Company’s audited financial statements for the year ended December 31, 2021 included in the Annual Report. There have been no material changes to the significant accounting policies previously disclosed in those audited financial statements.

 

The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition, including expenses, clinical trials and research and development costs, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat COVID-19, as well as the economic impact on local, regional, national and international markets. The Company has considered potential impacts arising from the COVID-19 pandemic and is not presently aware of any events or circumstances that would require the Company to update its estimates, judgments or revise the carrying value of its assets or liabilities.

 

Fair Value of Financial Instruments

 

The accounting guidance defines fair value, establishes a consistent framework for measuring fair value, and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.

 

The carrying amounts of all cash, restricted cash, prepaid expenses and other assets, accounts payable, and accrued and other current liabilities are considered to be representative of their respective fair values due to their short maturities.

 

Derivative Liability, Convertible Notes Discount and Amortization

 

The Company’s convertible note (see Note 7) had conversion and redemption features that met the definition of an embedded derivative and were therefore subject to bifurcation and derivative accounting. The initial recognition of the fair value of the derivative resulted in a discount to the convertible note, with a corresponding derivative liability. The discount to the convertible note was amortized using the effective interest method. The amortization of the discount is included in interest and other income (expense) in the statements of operations and comprehensive loss. The derivative liability related to these features was recorded at estimated fair value and remeasured on a recurring basis. Any changes in fair value were reflected as change in fair value of derivative liability in the statements of operations and comprehensive loss at each reporting date while such instruments were outstanding. The derivative liability was settled in March 2021 upon conversion of the underlying convertible note into Series B convertible preferred stock, resulting in a loss on extinguishment of the convertible promissory note.

 

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Leases

 

At the inception of a contractual arrangement, the Company determines whether the contract contains a lease by assessing whether there is an identified asset and whether the contract conveys the right to control the use of the identified asset in exchange for consideration over a period of time. If both criteria are met, the Company records the associated lease liability and corresponding right-of-use ("ROU") asset upon commencement of the lease using the implicit rate or a discount rate based on a credit-adjusted secured borrowing rate commensurate with the term of the lease. The Company additionally evaluates leases at their inception to determine if they are to be accounted for as an operating lease or a finance lease. A lease is accounted for as a finance lease if it meets one of the following five criteria: the lease has a purchase option that is reasonably certain of being exercised, the present value of the future cash flows is substantially all of the fair market value of the underlying asset, the lease term is for a significant portion of the remaining economic life of the underlying asset, the title to the underlying asset transfers at the end of the lease term, or if the underlying asset is of such a specialized nature that it is expected to have no alternative uses to the lessor at the end of the term. Leases that do not meet the finance lease criteria are accounted for as an operating lease. Operating lease assets represent a right to use an underlying asset for the lease term and operating lease liabilities represent an obligation to make lease payments arising from the lease. Operating lease liabilities with a term greater than one year and their corresponding ROU assets are recognized on the balance sheet at the commencement date of the lease based on the present value of lease payments over the expected lease term. Certain adjustments to the ROU asset may be required for items such as initial direct costs paid or incentives received. As the Company’s leases do not typically provide an implicit rate, the Company utilizes the appropriate incremental borrowing rate, determined as the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term and in a similar economic environment. Lease cost is recognized on a straight-line basis over the lease term and variable lease payments are recognized as operating expenses in the period in which the obligation for those payments is incurred. Variable lease payments primarily include common area maintenance, utilities, real estate taxes, insurance, and other operating costs that are passed on from the lessor in proportion to the space leased by the Company. The Company has elected the practical expedient to not separate lease and non-lease components.

 

Liability for Early Exercise of Stock Options

 

Certain individuals were granted the ability to early exercise their stock options. The shares of common stock issued from the early exercise of unvested stock options are restricted and continue to vest in accordance with the original vesting schedule. The Company has the option to repurchase any unvested shares at the original purchase price upon any voluntary or involuntary termination. The shares purchased by the employees and non-employees pursuant to the early exercise of stock options are not deemed, for accounting purposes, to be outstanding until those shares vest. The cash received in exchange for exercised and unvested shares related to stock options granted is recorded as a liability for the early exercise of stock options on the accompanying balance sheets and will be reclassified as common stock and additional paid-in capital as the shares vest. Unvested shares issued under early exercise provisions subject to repurchase by the Company totaled 200,341 and 253,824 shares as of March 31, 2022 and December 31, 2021, respectively. As of March 31, 2022 and December 31, 2021, the Company recorded $0.1 million and $0.2 million respectively, associated with shares issued with repurchase rights as other noncurrent liabilities in the accompanying condensed balance sheets.

 

Commitments and Contingencies

 

The Company recognizes a liability with regard to loss contingencies when it believes it is probable a liability has been incurred, and the amount can be reasonably estimated. If some amount within a range of loss appears at the time to be a better estimate than any other amount within the range, the Company accrues that amount. When no amount within the range is a better estimate than any other amount the Company accrues the minimum amount in the range.

 

In the event the Company becomes subject to claims or suits arising in the ordinary course of business, the Company would accrue a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.

 

The Company has not recorded any such liabilities at either March 31, 2022 or December 31, 2021.

 

Net Loss Per Share

 

 

8


 

Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted- average number of shares of common stock outstanding for the period. Diluted net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock and common stock equivalents outstanding for the period. Common stock equivalents are only included when their effect is dilutive. The Company’s potentially dilutive securities include outstanding stock options under the Company’s equity incentive plan and have been excluded from the computation of diluted net loss per share as they would be anti-dilutive to the net loss per share. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company’s net loss position.

 

The following tables summarize the computation of the basic and diluted net loss per share (in thousands, except share and per share data):

 

 

Three Months Ended
March 31,

 

 

2022

 

 

2021

 

Numerator:

 

 

 

 

 

Net loss

$

(23,533

)

 

$

(5,851

)

Denominator:

 

 

 

 

 

Weighted-average common shares outstanding, basic and
   diluted

 

39,602,146

 

 

 

3,674,126

 

Less: Weighted average unvested common stock

 

(200,341

)

 

 

(904,164

)

Weighted average shares used to compute net loss per
   share, basic and diluted

 

39,401,805

 

 

 

2,769,962

 

Net loss per share, basic and diluted

$

(0.60

)

 

$

(2.11

)

 

The following table sets forth the outstanding potentially dilutive securities that have been excluded in the calculation of diluted net loss per share because their inclusion would be anti-dilutive.

 

 

As of March 31,

 

 

2022

 

 

2021

 

Series A convertible preferred stock

 

 

 

 

54,143,753

 

Series B convertible preferred stock

 

 

 

 

35,764,462

 

Common stock options and restricted stock units

 

8,525,522

 

 

 

1,717,446

 

Unvested common stock

 

200,341

 

 

 

849,884

 

Total

 

8,725,863

 

 

 

92,475,545

 

 

Segments

 

The Company has determined that it operates and manages one operating segment, which is the business of researching and developing vaccines against infectious diseases. The Company’s chief operating decision maker, its chief executive officer, reviews financial information on an aggregate basis for the purpose of allocating resources. All assets of the Company are located in the United States.

 

Recent Accounting Pronouncements

 

Recently Adopted Accounting Standards

 

In December 2019, the FASB issued ASU 2019-12, Income Taxes—Simplifying the Accounting for Income Taxes (“ASU 2019-12”). The new guidance simplifies the accounting for income taxes by removing several exceptions in the current standard and adding guidance to reduce complexity in certain areas, such as requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The new standard is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022 for all non-public entities, with early adoption permitted, and is effective for fiscal years beginning after December 15, 2020, including interim periods within those annual periods for public entities. Early adoption is permitted. The Company adopted ASU 2019-12 on January 1, 2021 and the standard did not have a material impact on its condensed financial statements and related disclosures.

 

Recently Issued Accounting Standards

 

 

9


 

There were no recently issued accounting standards that the Company believes have had or will have a material impact on its financial position or results of operations.

 

3. Fair Value Measurements

 

The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

 

Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

 

Level 2—Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.

 

Level 3—Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

 

No transfers between levels have occurred during the periods presented.

 

There were no assets or liabilities measured at fair value on a recurring basis as of either March 31, 2022 or December 31, 2021.

 

As further described in Note 7, the Company issued a convertible promissory note in August 2020. The convertible promissory note contained certain features that met the definition of a derivative and were required to be bifurcated. The Company accounted for these as a single derivative comprising all the features requiring bifurcation. The fair value of the derivative liability was estimated using a scenario-based analysis comparing the probability-weighted present value of the convertible promissory note payoff at maturity with and without the bifurcated features. The Company considered possible outcomes available to the noteholders, including various financing dissolution scenarios. In addition, the probabilities applied to various scenarios, the time to liquidity for each scenario, and the discount rate were the key unobservable inputs.

 

The following table summarizes information about the significant unobservable inputs used in the fair value measurements for the derivative liability:

 

 

 

March 19, 2021

 

Probability of financing

 

 

100

%

Probability of dissolution

 

 

 

Time to liquidity (years)

 

 

 

Discount rate

 

 

7.6

%

 

The Company adjusted the carrying value of the derivative liability within the convertible promissory note to the estimated fair value at each reporting date, with any related increases or decreases in the fair value recorded as change in fair value of derivative liability in the statements of operations and comprehensive loss. For the three months ended March 31, 2021, the Company recognized $0.2 million of other income in the statements of operations and comprehensive loss related to increases in the fair value of the embedded derivative liability.

 

On March 19, 2021, in connection with the closing of the Series B convertible preferred stock financing, the convertible promissory note (including accrued interest) and derivative liability converted into 2,805,850 shares of Series B-2 convertible preferred stock. As a result of the conversion, the Company recorded a loss on extinguishment of convertible promissory notes of $0.8 million in other expense in the condensed statements of operations and comprehensive loss for the three months ended March 31, 2021, which included the derecognition of unamortized debt issuance costs.

 

 

10


 

The following table provides a reconciliation of the fair value of the derivative liability using Level 3 significant unobservable inputs (in thousands):

 

 

 

Derivative Liability

 

Fair value at December 31, 2020

 

$

(1,604

)

Change in fair value of embedded derivative liability

 

 

(205

)

Reclassification of derivative liability into convertible preferred stock resulting from conversion of convertible promissory note

 

 

1,809

 

Fair value at March 31, 2021

 

$

 

 

4. Grant Agreement

 

Bill & Melinda Gates Foundation Grant Agreement

 

In support of the Company’s development of its IVX-411 COVID-19 vaccine for pandemic use, in September 2020, the Company entered into the grant agreement (the “Grant Agreement”) with the Bill & Melinda Gates Foundation (“BMGF”), under which it was awarded a grant totaling up to $10.0 million (the “Grant”). The Grant supported development activities, including the Company’s regulatory filing preparations and its Phase 1/2 clinical trial of IVX-411. The Grant terminated in accordance with its terms on March 31, 2022. Concurrent with and in connection with the Grant Agreement, the Company entered into a Global Access Commitments Agreement (“GACA”) with BMGF. Under the terms of the GACA, among other things, the Company agreed to make a certain amount of its IVX-411 COVID-19 vaccine for pandemic use available and accessible at affordable pricing to people in certain low- and middle-income countries, if the vaccine is commercialized.

 

Payments received in advance that were related to future performance were deferred and recognized as revenue when the research and development activities were performed. Cash payments received under the Grant Agreement were restricted as to their use until eligible expenditures were incurred.

 

At March 31, 2022, the Company had no restricted cash and deferred revenue, and at December 31, 2021, had $0.6 million of restricted cash and deferred revenue, representing funds received from BMGF and the Company's estimate of costs to be reimbursed and revenue to be recognized, respectively, in the next twelve months under the Grant Agreement.

 

During the three months ended March 31, 2021, the Company received $2.7 million in funding from BMGF. The Company received no funding from BMGF during the three months ended March 31, 2022.

 

During the three months ended March 31, 2022 and 2021, the Company recognized revenue from the Grant Agreement of $0.6 million and $2.0 million, respectively. The Company had received the full $10.0 million in funding under the Grant Agreement as of December 31, 2021, and through March 31, 2022, the Company has recognized $10.0 million in revenue since the inception of the Grant Agreement.

 

5. Additional Balance Sheet Information

Accrued and other current liabilities consist of the following (in thousands):

 

 

 

As of March 31, 2022

 

 

As of December 31, 2021

 

Taxes payable

 

$

35

 

 

$

 

Accrued paid time off

 

 

480

 

 

 

342

 

Accrued bonus

 

 

729

 

 

 

2,216

 

Other accrued liabilities

 

 

5,759

 

 

 

1,977

 

Accrued 401k

 

 

213

 

 

 

156

 

ESPP liability

 

 

232

 

 

 

66

 

Total accrued and other current liabilities

 

$

7,448

 

 

$

4,757

 

 

 

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6. License Agreements

 

License Agreement with the National Institutes of Health

 

The Company is a party to a non-exclusive patent license agreement (as amended, the “NIH Agreement”) with a U.S. government entity, the National Institutes of Health, represented by National Institute of Allergy and Infectious Disease (“NIAID”), which was originally entered into in June 2018. Under the NIH Agreement, the Company obtained a non-exclusive, worldwide, royalty-bearing, sublicensable license under certain NIAID patent rights, and transfer of know-how and biological materials for use in adjuvanted or non-adjuvanted vaccines for the prevention, cure, or treatment of RSV and metapneumovirus (hMPV) infection in humans.

 

Under the NIH Agreement, the Company is required to use commercially reasonable efforts to meet certain specified development, sales and regulatory milestones related to the licensed products within specified time periods. In consideration of the rights granted to the Company under the NIH Agreement, the Company paid a licensing fee upon execution of the NIH Agreement of $100,000, and will pay annual minimum royalty payments starting in the second year after the initial sale of each licensed product which can be credited against any earned royalties due for sales made in the year. The Company is obligated to pay aggregate potential milestone payments of up to $8.6 million with respect to future development and commercial milestones. Additionally, the Company has agreed to pay a tiered royalty of a low single digit percentage on net sales of all products applicable to the license. Additional royalties would be due in connection with sublicenses. The Company’s royalty obligations continue for each licensed product for so long as licensed patent rights exist and have not expired, been revoked, lapsed, or held unenforceable.

 

The NIH Agreement will terminate upon the last expiration of the patent rights or the Company may terminate the entirety of the agreement upon discontinuation of development or sales of licensed products and provision of written notice thereof to NIH.

 

The Company made no payments associated with the license during the three months ended March 31, 2022, and during the three months ended March 31, 2021, the Company paid a negligible amount in fees associated with the license, which were recorded as research and development expenses.

 

License Agreements with University of Washington

 

License Agreement with respect to RSV and Other Pathogens

 

The Company is a party to an exclusive license agreement with the University of Washington (“UW”), originally entered into in June 2018 (as amended, the “UW 2018 Agreement”). Under the UW 2018 Agreement, UW granted the Company an exclusive, worldwide, royalty-bearing, sublicensable license under certain UW patents to make, use, sell, offer to sell, import, and otherwise exploit any product covered by the licensed patents, or licensed products, for the prophylactic and/or therapeutic treatment of RSV infection and five other infectious diseases. UW also granted the Company a non-exclusive, worldwide license under certain know-how related to the licensed patents. The licensed patents and know-how generally relate to computationally designed nanoparticles and vaccines based upon such designs, and relate to the Company’s proprietary two-component virus-like-particle technology. The Company’s rights and obligations under the UW 2018 Agreement are subject to certain U.S. government rights, certain global access commitment rights for humanitarian purposes to BMGF, certain rights to Howard Hughes Medical Institute ("HHMI"), and certain other limited rights retained by UW.

 

The Company issued 192,276 shares of common stock on August 1, 2018 in exchange for the UW 2018 Agreement’s exclusive license. The shares issued were recorded at their estimated fair value, which is de minimis, with the related expense classified as research and development in 2018.

 

Under the UW 2018 Agreement, the Company is required to use commercially reasonable efforts to meet certain specified development, sales and regulatory milestones related to the licensed products within specified time periods. In consideration of the rights granted to the Company under the UW 2018 Agreement, the Company is required to pay an annual maintenance fee in the mid four figures starting in 2020. Additionally, the Company is required to pay minimum annual royalties following the first year after commercial sale of each licensed product. There are milestone payments due upon the completion of certain development, regulatory, and commercial milestones for licensed products in the future. The aggregate potential milestone payments for future development, regulatory, and sales-based milestones are $1.35 million per indication, up to a maximum of $8.1 million in total milestone payments. Additionally, the Company has agreed to pay a royalty of a low single digit percentage on net sales of all licensed products. Additional royalties would be due in

 

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connection with sublicenses. The Company’s royalty obligations continue for each licensed product for so long as licensed patent rights exist and have not expired, been revoked, lapsed, or held unenforceable.

 

Unless terminated earlier, the UW 2018 Agreement will remain in effect until all licensed patent rights have terminated and all obligations due to UW have been fulfilled. The last-to-expire licensed patent, if issued, is expected to expire in 2041, subject to any adjustment or extension of patent term that may be available. UW can terminate the UW 2018 Agreement if the Company breaches or fails to perform one of its material duties under the UW 2018 Agreement and the Company is unable to remedy the default within an agreed upon time period that can be extended by UW. The Company may terminate the UW 2018 Agreement at will with prior written notice to UW.

 

Option and License Agreement with Respect to COVID-19

 

The Company is also a party to an option and license agreement, originally entered into in July 2020 (as amended, the “UW 2020 Agreement”). Under the UW 2020 Agreement, UW granted the Company a non-exclusive, worldwide (excluding South Korea), sublicensable license under certain UW patents to make, use, sell, offer to sell, import, or otherwise exploit any product covered by the licensed patents for the prophylactic and/or therapeutic treatments of SARS-CoV-2 infection. Under an option exercised by the Company, UW granted the Company an exclusive license under the licensed patents for the United States, Canada, Mexico, and Europe (including Switzerland and the United Kingdom) starting in 2025. UW also granted the Company a non-exclusive, worldwide license under certain know-how related to the licensed patents. The licensed patents and know-how generally relate to computationally designed nanoparticles and vaccines based upon such designs. The Company’s rights and obligations under the UW 2020 Agreement are subject to certain U.S. government rights, certain global access commitment rights for humanitarian purposes to BMGF, certain rights to HHMI, and certain other limited rights retained by UW.

 

Under the UW 2020 Agreement, the Company is required to use commercially reasonable efforts to meet certain specified development, sales and regulatory milestones related to the licensed products within specified time periods. The Company has agreed to pay a royalty of a low single digit percentage on net sales of all products applicable to the license. However, the Company will not be required to pay royalties on net sales of any licensed product under the UW 2020 Agreement if the Company is required to pay royalties on net sales under the UW 2018 Agreement. Additional royalties would be due in connection with sublicenses and milestones. The Company’s royalty obligations continue for each licensed product for so long as licensed patent rights exist and have not expired, been revoked, lapsed, or held unenforceable.

 

Unless terminated earlier, the UW 2020 Agreement will remain in effect until all licensed patent rights have terminated and all obligations due to UW have been fulfilled. The last-to-expire licensed patent, if issued, is expected to expire in 2041, subject to any adjustment or extension of patent term that may be available. UW can terminate the UW 2020 Agreement if the Company breaches or fails to perform one of its material duties under the UW 2020 Agreement and the Company is unable to remedy the default within an agreed upon time period that can be extended by UW. The Company may terminate the UW 2020 Agreement at will with prior written notice to UW.

 

During the three months ended March 31, 2022 and 2021, the Company paid negligible amounts in fees associated with the 2018 and 2020 Agreements.

 

License Agreement with Respect to Influenza

 

The Company is a party to a license agreement with UW ("UW Flu License Agreement") entered into in September 2021. Pursuant to the UW Flu License Agreement, UW granted the Company a non-exclusive, worldwide, royalty-bearing, sublicensable (subject to certain restrictions) license under certain UW patents to make, use, sell, offer to sell, import, and otherwise exploit any product covered by the licensed patents ("Licensed Flu Products"), for the prophylactic and/or therapeutic treatment of influenza. UW also granted the Company a non-exclusive, worldwide license to use certain know-how related to the licensed patents. The licensed patents and know-how generally relate to computationally designed nanoparticles and vaccines based upon such designs, and relate to the Company's proprietary two-component virus-like-particle technology and nanoparticle-based influenza virus vaccines. The United States federal government and HHMI have similar rights under the UW Flu License Agreement and the UW 2018 Agreement described above in “License Agreement with respect to RSV and Other Pathogens".

 

The Company is obligated to use commercially reasonable efforts to commercialize Licensed Flu Products, and to initiate a clinical trial with respect to such Licensed Flu Products by a specified date in 2025. If the Company is unable to

 

13


 

initiate a clinical trial by the specified date and cannot agree with UW to modify such obligation or does not cure by meeting such obligation, then UW may terminate the UW Flu License Agreement.

 

Under the UW Flu License Agreement, the Company paid UW a one-time upfront license fee, and after September 2023 and for the remainder of the term of the UW Flu License Agreement, the Company is required to pay tiered minimum annual fees ranging from the mid four figures to the mid five figures, with such fees creditable against royalty payments. The Company is required to pay UW up to an aggregate of $6.4 million for payments related to development and commercial milestones. The Company is also required to pay UW a fixed, low single-digit percentage royalty on net sales of Licensed Flu Products by the Company and its sublicensees, subject to certain reductions if the Company is required to pay for third-party intellectual property rights in order to commercialize the Licensed Flu Products. The Company is not obligated to pay duplicate royalties on net sales of any Licensed Flu Products if the Company is already required to pay a royalty on such net sales under the UW 2018 Agreement and the UW 2020 Agreement.

 

Unless terminated earlier, the UW Flu License Agreement will remain in effect until all licensed patent rights have terminated and all obligations due to UW have been fulfilled. The last-to-expire licensed patent, if issued, is expected to expire in 2041, subject to any adjustment or extension of patent term that may be available. UW can terminate the UW Flu License Agreement if the Company breaches or fails to perform one of its material duties under the UW Flu License Agreement and is unable to remedy the default within an agreed upon time period that can be extended by UW. The Company can terminate the UW Flu License Agreement at will with prior written notice to UW.

 

During the three months ended March 31, 2022, the Company paid a negligible amount in fees associated with the UW Flu License Agreement.

 

License Agreement with the University of Texas

 

The Company is a party to an exclusive patent license agreement with the University of Texas at Austin (“UT”) with respect to its hMPV antigen utilized in the IVX-A12 program (the “UT Agreement”). The UT Agreement was entered into in June 2021. Under the UT Agreement, UT granted the Company an exclusive, worldwide, royalty-bearing, sublicensable license under certain patent rights, to use licensed know-how for prevention, cure, amelioration or treatment of respiratory disease caused by metapneumovirus infection in all vaccine fields, excluding up to one mRNA-based vaccine.

 

The Company is obligated to pay aggregate potential milestone payments of up to $4.6 million with respect to future development and commercial milestones.

 

Unless terminated earlier, the UT Agreement will remain in effect until all the licensed patent rights have expired. The Company may terminate the UT Agreement with prior written notice to UT. UT may terminate the UT Agreement in whole or in part, or narrow the vaccine field, reduce the territory, or convert the license from exclusive to non-exclusive if the Company: (i) fails to meet its payment obligations, (ii) commits an uncured breach, (iii) commits three or more cured breaches within a specified time period, (iv) challenges the validity, enforceability, or scope of the licensed patent rights, or (v) undergoes certain insolvency-related events.

 

During the three months ended March 31, 2022, the Company paid a negligible amount in fees associated with the UT Agreement.

 

7. Convertible Promissory Note

 

In August 2020, the Company issued a $6.5 million convertible promissory note (“Convertible Promissory Note”). The Convertible Promissory Note accrued interest at a rate of 6% a year with a maturity date two years from issuance.

 

The Convertible Promissory Note could be converted or redeemed as follows (i) automatically converted in a qualified Series B financing transaction from which the Company would receive total gross proceeds of not less than $5.0 million at a conversion price equal to 85% of the per share price paid by investors for such securities, (ii) automatically converted upon initial public offering at a conversion price equal to 85% of the per share price off common stock in the initial public offering, (iii) optionally converted into Series A-3 convertible preferred stock if a change in control, IPO, or qualified Series B financing had not occurred prior to the maturity date at a price equal to an amount determined by dividing $140 million by the fully diluted capitalization of the Company at the time of conversion, or (iv) repaid upon a change in control for an amount equal to the issue price plus accrued and unpaid interest or an amount as would have been payable if the noteholders had optionally converted into shares of Series A-3 convertible preferred stock. The Convertible Promissory Note was converted in March 2021 in connection with the Series B financing.

 

14


 

 

The Convertible Promissory Note was accounted for in accordance with ASC 470-20, Debt with Conversion and Other Options (“ASC 470-20”) and ASC 815-15, Derivatives and Hedging - Embedded Derivatives (“ASC 815-15”). Under ASC 815-15, an embedded feature is required to be bifurcated if all three conditions are met: (1) economic characteristics and risks of the embedded derivative are not clearly and closely related to the economic characteristics and risks of the host contract, (2) the hybrid instrument is not remeasured at fair value under otherwise applicable GAAP with changes in fair value reported in earnings as they occur, and (3) a separate instrument which the same terms as the embedded derivative would be considered a derivative instrument subject to derivative accounting (the initial net investment for the hybrid instrument should not be considered to be the initial net investment for the embedded derivative). The Company bifurcated certain features that were required to be accounted for separately as a single embedded derivative. The initial fair value of this derivative of $1.8 million was recorded as a liability, and as a reduction to the carrying value of the Convertible Promissory Note. The Company also incurred a negligible amount of issuance costs related to the Convertible Promissory Note, which were also recorded as a reduction to the Convertible Promissory Note on the condensed balance sheet.

 

The debt discount comprised the initial fair value of the derivative liability and the issuance costs, and was amortized using the effective interest method over the two-year contractual term of the Convertible Promissory Note and presented as a direct reduction of the debt liability. The debt discount was being amortized at an effective interest rate of 23.8%.

 

Interest expense incurred in connection with the Convertible Promissory Note consisted of the following (in thousands):

 

 

 

Three Months Ended March 31, 2021

 

Coupon interest at 6%

 

$

86

 

Accretion of discount and amortization of issuance costs

 

 

177

 

Total interest expense on Convertible Promissory Note

 

$

263

 

 

On March 19, 2021, in connection with the closing of the Series B convertible preferred stock financing, the Convertible Promissory Note (including accrued interest) and derivative liability converted into 2,805,850 shares of Series B-2 convertible preferred stock at an issuance price of $2.39846 per share. As a result of the conversion, the Company recorded a loss on extinguishment of convertible promissory notes of $0.8 million in other expense in the condensed statements of operations and comprehensive loss for the three months ended March 31, 2021, which included the unamortized debt issuance costs.