# Vaxart, Inc.: Form 10-Q for the period ended Mar 31, 2013

- Company: [Vaxart, Inc.](/companies/vxrt.md) (CIK 72444)
- Form: 10-Q
- Filed: 2013-05-10
- Accepted by EDGAR: May 10, 2013, 17:29 ET
- Period: 2013-03-31
- Accession: 0001437749-13-005823
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/72444/000143774913005823/biota_10q-033113.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/72444/000143774913005823/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2013-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2013-01-01 to 2013-03-31 | $12.5m | us-gaap:Revenues |
| Revenue | 9 months, 2012-07-01 to 2013-03-31 | $24.3m | us-gaap:Revenues |
| Cost of revenue | 9 months, 2012-07-01 to 2013-03-31 | $12.7m | us-gaap:CostOfServices |
| Research and development | 3 months, 2013-01-01 to 2013-03-31 | $4.9m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2012-07-01 to 2013-03-31 | $13.6m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2013-01-01 to 2013-03-31 | $30.0k | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2012-07-01 to 2013-03-31 | −$15.7m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2013-01-01 to 2013-03-31 | −$12.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2012-07-01 to 2013-03-31 | −$116.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2013-01-01 to 2013-03-31 | $215.0k | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2012-07-01 to 2013-03-31 | −$2.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2013-01-01 to 2013-03-31 | $0.01 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2012-07-01 to 2013-03-31 | −$0.08 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2013-01-01 to 2013-03-31 | $0.01 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2012-07-01 to 2013-03-31 | −$0.08 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2013-01-01 to 2013-03-31 | 28,182,697 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2012-07-01 to 2013-03-31 | 28,145,541 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2012-07-01 to 2013-03-31 | −$16.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2012-07-01 to 2013-03-31 | $490.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2013-03-31 | $70.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2013-03-31 | $87.3m | us-gaap:AssetsCurrent |
| Total assets | at 2013-03-31 | $94.8m | us-gaap:Assets |
| Current liabilities | at 2013-03-31 | $14.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2013-03-31 | $14.7m | us-gaap:Liabilities |
| Shareholders' equity | at 2013-03-31 | $80.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 35,491 characters.

### FORWARD LOOKING STATEMENTS

*This Quarterly Report on Form 10-Q contains forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In most cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “forecast,” “potential,” “likely” or “possible”, as well as the negative of such expressions, and similar expressions intended to identify forward-looking statements. These forward-looking statements include, without limitation, statements relating to:*

- *Our plans to continue to advance the clinical development of laninamivir octanoate, including the anticipated initiation of a Phase 2 clinical trial, including the design and size;*
- *the timing and our plans to shift our focus from early-stage research to clinical-stage development programs, rationalize the number of preclinical programs we plan to support and the anticipated therapeutic focus of those remaining programs;*
- *our plans to pursue in-licensing, acquisition, co-development or other similar collaboration opportunities to better balance our pipeline with additional clinical-stage development programs;*
- *the timing and our plans to complete clinical and regulatory evaluations and make a determination as to whether we will independently advance the clinical development of vapendavir;*
- *our plans to conclude our ongoing activities related to our preclinical gram-positive antibiotic and hepatitis C non-nucleoside polymerase inhibitor programs and continue to seek to out-license these programs;*
- *our ability to conserve capital by reducing our current cost structure, the estimated amount of these savings, and our plan to deploy capital resources toward new clinical-stage development opportunities;*
- *our estimated base cash burn from operations, the receipt of a commercial milestone and expected cash on hand;*
- *our anticipation that revenue and the related cost of providing services under our BARDA contract will continue to increase in the near-future, assuming the program continues to advance further into clinical development;*
- *our anticipation that we will generally incur future net losses from operations due to our intention to continue to support the preclinical and clinical development of our product candidates;*
- *our anticipation that we will not qualify for the research and development credit for the current fiscal year;*
- *our future financing requirements, the factors that may influence the timing and amount of these requirements, and our ability to fund them;*
- *the number of months that our current cash, cash equivalents and anticipated future proceeds from existing royalty-bearing licenses, our contract with BARDA, and other existing license and collaboration agreements will allow us to operate; and*
- *our plan to continue to finance our operations with our existing cash, cash equivalents and proceeds from existing or potential future royalty-bearing licenses, government contracts, or collaborative research and development arrangements or through future equity and/or debt financings or other financing vehicles.*

*These statements reflect our current views with respect to future events and are based on assumptions and subject to key risks and uncertainties including, without limitation: BARDA, or we, not terminating or significantly amending our existing contract to develop laninamivir octanoate in the U.S.; GSK or Daiichi Sankyo continuing to generate net sales from Relenza*TM *and Inavir®, respectively, and otherwise continuing to fulfill their obligations under our royalty-bearing license agreements with them in the future; we, BARDA, the FDA or similar foreign regulatory agency, a data safety monitoring board, or an institutional review board, delaying, limiting, suspending or terminating the clinical development of laninamivir octanoate at any time for a lack of safety, tolerability, anti-viral activity, commercial viability, regulatory or manufacturing issues, or any other reason whatsoever; the results of research activities related to our product candidates being unfavorable, delayed or terminated; the safety or efficacy data from ongoing or future preclinical studies of any of our product candidates not supporting further development of that product candidate; our capacity for successfully enrolling and managing clinical trials on a timely basis; our ability to comply with extensive government regulations in various countries and regions that we expect to conduct clinical trials in that are applicable to our business; our ability to satisfactorily manage the integration of the recent merger and our operations in the future; our ability to successfully in-license, acquire, or enter into co-development or other similar collaboration opportunities to better balance our pipeline at appropriate terms:our ability to maintain and or recruit sufficient human resources, including executive management and key employees; our ability to secure manage and retain qualified third-party clinical research, preclinical research, data management and contract manufacturing organizations who we rely on to assist us in the design, development and implementation of the clinical development of our product candidates, third-party contract research, data management and manufacturing organizations not fulfilling their contractual obligations or otherwise performing satisfactorily in the future; our ability to maintain sufficient quantities of preclinical and clinical trial material on hand to complete our preclinical studies or clinical trials on a timely basis; our ability, or that of our clinical research organizations or clinical investigators to enroll a sufficient number of patients in our clinical trials on a timely basis; our failure to obtain regulatory approval to advance the clinical development of or to market our product candidates; our ability to protect and maintain our proprietary intellectual property rights from unauthorized use by others or not infringe on the intellectual property rights of others; the condition of the financial equity and debt markets and our ability to raise sufficient funding in such markets; our ability to manage our current cash reserves as planned; changes in general economic business or competitive conditions related to industry or product candidates; and other statements contained elsewhere in this Quarterly Report on Form 10-Q (including the “Risk Factors” in Part II, Item 1A of this Quarterly Report).*

*There may be events in the future that we are unable to predict accurately, or over which we have no control. You should read this Form 10-Q and the documents that we reference herein and which been filed or incorporated by reference as exhibits completely and with the understanding that our actual future results may be materially different from what we expect. Our business, financial condition, results of operations, and prospects may change. We may not update these forward-looking statements, even though our situation may change in the future, unless we have obligations under the federal securities laws to update and disclose material developments related to previously disclosed information. We qualify all of the information presented in this Form 10-Q, and particularly our forward-looking statements, by these cautionary statements.*

*Biota is a registered trademark of Biota Holdings Limited, Relenza*TM *is a trademark of GlaxoSmithKline plc, and Inavir® is a registered trademark of Daiichi Sankyo Company, Ltd, and TwinCaps® is a registered trademark of Hovione FarmaCiencia SA.*

*The following is a discussion and analysis of the major factors contributing to results of operations for the three and nine months ended March 31, 2013, and our financial condition at that date, and should be read in conjunction with the unaudited financial statements and the notes thereto included in Item 1 of this Quarterly Report on Form 10-Q.*

### Company Overview

Biota Pharmaceuticals, Inc. together with its wholly owned subsidiaries (“Biota”, the “Company”, “us” or “we”) is a biopharmaceutical company focused on the discovery and development of innovative anti-infective products to prevent and treat serious and potentially life-threatening infectious diseases. We have been incorporated in the state of Delaware since 1969 and our corporate headquarters are located in Alpharetta, Georgia. On November 8, 2012, Nabi Biopharmaceuticals (“Nabi”) merged with Biota Holdings Limited and the resulting company was renamed Biota Pharmaceuticals, Inc.

We are currently focused on developing oral, small molecule compounds to treat a number of viral infections, with our most advanced clinical-stage programs being directed toward respiratory diseases, including those caused by influenza A and B, and human rhinovirus (“HRV”). In addition, we have several preclinical stage programs focused on developing respiratory syncytial virus (“RSV”) as well as novel antibiotics designed to treat a broad spectrum gram negative bacterial infections.

We have developed a neuraminidase inhibitor, zanamivir, which is marketed worldwide by GlaxoSmithKline (“GSK”) as Relenza™ for the prevention and treatment of influenza pursuant to a royalty-bearing research and license agreement we entered into with GSK in 1990. In addition, we have cross-licensed intellectual property related to second-generation long acting neuraminidase inhibitors ("LANI"), including laninamivir octanoate and generate royalty revenue pursuant to a collaboration and license agreement that we entered into with Daiichi Sankyo in 2009. In September 2010, laninamivir octanoate was approved for sale by the Japanese Ministry of Health and Welfare for the treatment of influenza A and B in adults and children. Laninamivir octanoate is marketed in Japan by Daiichi Sankyo as Inavir®. We have filed an Investigational New Drug application (“IND”) with the United States Food and Drug Administration (“FDA”) to develop laninamivir octanoate, and in 2012 we entered into a contract with the U.S. Office of Biomedical Advanced Research and Development Authority (“BARDA”) designed to provide up to $231 million in support of the clinical development and U.S. based manufacturing for laninamivir octanoate for the treatment of influenza A and B infections.

Although our influenza products have been successfully commercialized by other larger pharmaceutical companies under license agreements, we have not received regulatory approval for any product candidates we have developed independently, and we do not have any commercial capabilities. Therefore, it is possible that we may not successfully derive any significant product revenues from any of our existing or future development-stage product candidates.

We plan to continue to finance our operations with our existing cash and cash equivalents; proceeds from existing or potential future royalty-bearing licenses, government contracts, or collaborative research and development arrangements; future equity and/or debt financings; and, other financing vehicles. Our ability to continue our operations is dependent, in the near-term, upon managing our cash resources, our continued receipt of royalty revenues and service revenue from the BARDA contract, entering into future collaboration or partnership agreements, the successful development of our product candidates, executing future financings and ultimately, upon the approval of our products for sale and achieving positive cash flows from operations. There can be no assurance that additional capital will be available on terms acceptable to us in the future, or that we will ever generate significant product revenue and become operationally profitable on a consistent basis.

### Recent Corporate Developments

***Board appointments.*** On May 6, 2013, we announced a number of changes to our Board of Directors, including the resignations of Dr. Raafat Fahim and Mr. Paul Bell, as well as the appointment of Ms. Anne VanLent and Mr. Michael Dougherty as directors.

***Laninamivir Octanoate.*** We have been notified by Daiichi Sankyo Company Ltd., our partner in Japan, that in the three month period ended March 31, 2013, net sales of Inavir® (laninamivir octanoate) surpassed a key threshold that resulted in us earning a $2.9 million commercial milestone payment from Daiichi Sankyo. We recognized the amount as revenue in the three-month period ended March 31, 2013, and anticipate receiving the milestone payment by June 30, 2013.

***Adoption of Revised Corporate Strategy.*** On April 15, 2013, we announced that our Board of Directors had adopted a corporate strategy following the recent completion of management’s strategic and operational review of the organization and its various development programs. The implementation of this strategy will shift our primary strategic and operational focus from early-stage research to clinical-stage development programs. As a result of us adopting this strategy, we rationalized our preclinical programs, re-aligned resources and reduced our work force by approximately 30%. We anticipate recording a charge of approximately $2.0 million in the fourth quarter of 2013 related to the cost of one-time termination benefits.

Key components of our adopted strategy include, but are not limited to:

- Continuing to fully support and advance the development of laninamivir octanoate for the treatment of influenza A and B infections in the U.S. market under our existing contract with BARDA;
- Reducing the number of our existing preclinical programs by focusing preclinical activities on developing an oral antiviral for RSV and an oral/IV antibiotic targeting GyrB/ParE with activity against gram-negative and multi-drug resistant bacterial pathogens;
- Concluding preclinical activities related to our hepatitis C non-nucleoside polymerase inhibitors and antibiotics for gram-positive bacterial infections, while continuing to pursue out-licensing opportunities for these programs;
- Completing, over the next several quarters, our evaluation of various clinical and regulatory pathways for vapendavir to determine whether to independently continue its late-stage clinical development for the reduction of exacerbations caused by HRV in patients with moderate to severe asthma or chronic obstructive pulmonary disease (“COPD”);
- Pursuing in-licensing, acquisition, co-development, and other similar collaborative clinical-stage development opportunities to better balance our pipeline; and
- Reduce our cost structure to provide flexibility to deploy additional resources toward clinical-stage development programs.

In connection with the adoption of this strategy we have reduced our workforce by approximately 30%. As a result, we anticipate recording a charge of approximately $2.0 million in the fourth quarter of our 2013 fiscal year (our fiscal year-end is June 30) related to the cost of one-time termination benefits.

***Merger between Nabi Biopharmaceuticals and Biota Holdings Limited.*** On November 8, 2012, we announced that Nabi and Biota Holdings Limited had completed a merger, resulting in Biota Holdings Limited becoming a wholly-owned subsidiary of Nabi, and the Company being renamed Biota Pharmaceuticals, Inc. Former Biota Holdings Limited shareholders retained approximately 83% of the Company’s shares of common stock, while former Nabi shareholders retained approximately 17% as consideration for Nabi’s net assets, which consisted primarily of $27 million in net cash on the date of the merger.

### CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s Discussion and Analysis of Results of Financial Condition and Operations discusses our financial results, which (except to the extent described in the Notes thereto) have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

We base our estimates and judgments on historical experience, current economic and industry conditions, and on various other factors that we believe to be reasonable under the circumstances. This forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies require significant judgment and estimates:

- Use of Estimates
- Revenue Recognition
- Research and Development Expense
- Share-Based Compensation

In February and March 2013, the FASB issued ASU No. issued ASU 2013-02 and 2013-05, we adopted ASU 2013-02 and we do not anticipate the future adoption of ASU 2013-05 will have a material impact on our consolidated financial statements.

### Results of Operations

### Three Months Ended March 31, 2013 and March 31, 2012

***Summary.*** We reported net income of $0.2 million for the three months ended March 31, 2013 as compared to net loss of $2.0 million for the same period in 2012. The $2.2 million improvement from a net loss in 2012 to net income in 2013 was primarily the result of a $5.4 million increase in revenue and a $0.1 million decrease in income tax expense offset, in part by a $2.8 million increase in total operating expenses, a $0.5 million decrease in interest income.

Although we reported net income in the two most recent quarters, we generally expect to incur net losses in the near-term as we intend to continue to support the preclinical and clinical development of our product candidates.

***Revenue.*** Revenue increased to $12.5 million for the three months ended March 31, 2013 from $7.1 million in the same period of 2012, primarily as a result of earning a commercial milestone and increased service revenue in 2013. The following table summarizes the key components of our revenue for the three months ended March 31, 2013 and 2012:

*(in millions)*

|  | Three Months Ended March 31, 2013 | 2012 |
| --- | ---: | ---: |
| Royalty revenue – RelenzaTM | $1.7 | $1.7 |
| – Inavir® | 3.2 | 3.6 |
| Commercial milestone – Inavir® | 2.9 | - |
| Service revenue under BARDA contract | 4.5 | 1.7 |
| Revenue under other contracts, grants and collaborations | 0.2 | 0.1 |
| Total revenue | $12.5 | $7.1 |

The net sales of Inavir® (laninamivir octanoate) in Japan surpassed a key threshold in the three month period ended March 31, 2013, resulting in us earning a $2.9 million commercial milestone payment from Daiichi Sankyo. Service revenue under the BARDA contract increased due to the advancement of the laninamivir octanoate program toward Phase 2 clinical development and the expansion of the underlying activities covered under the contract. We anticipate that our revenue under the BARDA contract will continue to increase, assuming the program continues to advance further into clinical development.

***Cost of Revenue.*** Cost of revenue represents expenses incurred by us in performing services and activities pursuant to government contracts or grants for which we record related revenue and expense on the gross basis of accounting. Cost of revenue increased to $4.1 million for the three months ended March 31, 2013 from $1.8 million in the same period in 2012, due principally to the advancement of the laninamivir octanoate program under the BARDA contract and the expansion of the underlying activities covered under that contract. We anticipate that our cost of revenue under the BARDA contract will continue to increase assuming the program continues to advance further into clinical development.

***Research and development expense.*** Research and development expense decreased to $4.9 million in the three months ended March 31, 2013 from $5.7 million in the same period in 2012. The following table summarizes the key components of our research and development expense for the three months ended March 31, 2013 and 2012:

*(in millions)*

|  | Three Months Ended March 31, 2013 | 2012 |
| --- | ---: | ---: |
| Direct preclinical, clinical and product development expense | $1.7 | $2.3 |
| Salaries, benefits and share-based compensation expense | 1.5 | 2.0 |
| Depreciation and facility-related expense | 0.9 | 0.9 |
| Other expenses | 0.8 | 0.5 |
| Total research and development expense | $4.9 | $5.7 |

21

Direct preclinical, clinical and product development expense decreased by $0.6 million largely due to the completion of the vapendavir Phase 2 clinical trial during the quarter ended June 30, 2012. Salaries, benefits and share-based compensation expense decreased by $0.5 million due to more staff being deployed on the laninamivir octanoate program under the BARDA contract, which resulted in their related costs being reflected in Cost of Revenue.

***General and administrative expense.*** General and administrative expense increased to $3.4 million for the three months ended March 31, 2013 from $2.2 million for the same period in 2012. The following table summarizes the components of our general and administrative expense for the three months ended March 31, 2013 and 2012:

*(in millions)*

|  | Three Months Ended March 31, 2013 | 2012 |
| --- | ---: | ---: |
| Salaries, benefits and share-based compensation expense | 1.4 | 0.7 |
| Professional and legal expense | 0.7 | 0.2 |
| Other expenses | 1.3 | 1.3 |
| Total general and administrative expense | $3.4 | $2.2 |

Salaries, benefits and share-based compensation expense increased by $0.7 million primarily related to the addition of executive and administrative staff in the U.S. Professional and legal expense increased by $0.5 million due to the integration and transition of our operations subsequent to the merger in November 2012.

***Non-operating income.*** Non-operating income decreased by $0.6 million for the three months ended March 31, 2013 as compared to the same period in 2012, as a result of a decrease in interest income due to lower available interest rates in 2013 as compared to 2012, as well as lower average cash balances held in 2013 as compared to 2012.

### Nine Months Ended March 31, 2013 and March 31, 2012

***Summary.*** We reported a net loss of $2.2 million for the nine months ended March 31, 2013, as compared to net loss of $13.3 million for the same period in 2012. This $11.1 million improvement in our net loss in 2013 was primarily the result of a $11.1 million increase in revenue, a $7.8 million gain we recorded pursuant to the merger, and the receipt of a $4.4 million in research and development credits, offset in part by a $10.2 million increase in operating expenses, a $1.4 million decrease in interest income and a $0.4 million decrease in income tax benefits.

We expect to generally incur net losses in the near-term as we intend to continue to support the research and the preclinical and clinical development of our product candidates.

***Revenue.*** Revenue increased to $24.4 million for the nine months ended March 31, 2013 from $13.3 million in the same period of 2012, primarily as a result of a commercial milestone we earned and an increase in service revenue in 2013. The following table summarizes the key components of our revenue for the nine months ended March 31, 2013 and 2012:

*(in millions)*

|  | Nine Months Ended March 31, 2013 | 2012 |
| --- | ---: | ---: |
| Royalty revenue – RelenzaTM | $2.7 | $2.4 |
| – Inavir® | 4.1 | 4.3 |
| Commercial milestone – Inavir® | 2.9 | - |
| Service revenue under BARDA contract | 13.7 | 6.2 |
| Revenue under other contracts, grants and collaborations | 1.0 | 0.4 |
| Total revenue | $24.4 | $13.3 |

The net sales of Inavir® (laninamivir octanoate) in Japan surpassed a key threshold in the nine month period ended March 31, 2013, resulting in us earning a $2.9 million commercial milestone payment from Daiichi Sankyo. Service revenue under the BARDA contract increased due to the advancement of the laninamivir octanoate program and the expansion of the underlying activities covered under the contract. We anticipate that our revenue under the BARDA contract will continue to increase assuming the program continues to advance further into clinical development. Revenue under other contracts, grants and collaborations increased in 2013 due to a new government grant of $0.2 million and an increase in other research collaborations for $0.3 million.

***Cost of revenue.*** Cost of revenue represents expenses incurred by us in performing services and activities pursuant to government contracts or grants for which we record related revenue and expense on the gross basis of accounting. Cost of revenue increased to $12.7 million for the nine months ended March 31, 2013 from $6.0 million in the same period in 2012, due principally to the advancement of the laninamivir octanoate program under the BARDA contract, and the expansion of the underlying activities covered under the contract. We anticipate that our costs of providing services under the BARDA contract will continue to increase, assuming the program continues to advance further into clinical development.

***Research and development expense.*** Research and development expense decreased to $13.6 million in the nine months ended March 31, 2013 from $17.8 million in the same period in 2012. The following table summarizes the components of our research and development expense for the nine months ended March 31, 2013 and 2012:

*(in millions)*

|  | Nine Months Ended March 31, 2013 | 2012 |
| --- | ---: | ---: |
| Direct preclinical, clinical and product development expense | $4.2 | $7.6 |
| Salaries, benefits and share-based compensation expense | 5.8 | 6.6 |
| Depreciation and facility-related expense | 2.7 | 2.7 |
| Other expenses | 0.9 | 0.9 |
| Total research and development expense | $13.6 | $17.8 |

23

Direct preclinical, clinical and product development expense decreased by $3.4 million in 2013 due largely to the completion of the vapendavir Phase 2 clinical trial during the quarter ended June 30, 2012 representing a $2.8 million reduction, as well as a reduction of $1.4 million in preclinical costs associated with our antibacterial and hepatitis C programs. Salaries, benefits and share-based compensation expense decreased by $0.8 million due to more staff being deployed on to the laninamivir octanoate program under the BARDA contract, which resulted in their related costs being reflected in Cost of Revenue.

***General and administrative expense.*** General and administrative expense increased to $13.7 million for the nine months ended March 31, 2013 from $5.9 million for the same period in 2012. The following table summarizes the components of our general and administrative expense for the nine months ended March 31, 2013 and 2012:

*(in millions)*

|  | Nine Months Ended March 31, 2013 | 2012 |
| --- | ---: | ---: |
| Merger-related expense | $4.6 | $- |
| Salaries, benefits and share-based compensation expense | 5.0 | 3.0 |
| Professional and legal expense | 1.4 | 0.7 |
| Other expenses | 2.7 | 2.2 |
| Total general and administrative expense | $13.7 | $5.9 |

Salaries, benefits and share-based compensation expense increased due to a $1.6 million increase related to the addition of executive and administrative staff in the U.S., and an increase in other personnel-related expenses. Professional and legal expense increased by $0.7 million due to the integration and transition of our operations subsequent to the merger in November Other expenses increased due to generally higher insurance, rent and maintenance costs.

***Non-operating income.*** Non-operating income increased by $10.8 million for the nine months ended March 31, 2013 as compared to the same period in 2012, due to primarily to a $7.8 million gain we recorded related to the merger (see Note 3 to the consolidated financial statements), as well as the receipt of $4.4 million with respect to an Australian research and development credit (see Note 6 to the consolidated financial statements). Interest income decreased by $1.4 million due to lower available interest rates in 2013 as compared to 2012, as well as lower average cash balances held in 2013 compared to 2012. We do not expect to receive additional research and development credits in 2013 fiscal year as we anticipate our revenue will exceed the qualifying revenue threshold.

### LIQUIDITY AND CAPITAL RESOURCES

For the nine months ended March 31, 2013, cash and cash equivalents increased by $16.5 million, from $53.8 million to $70.3 million. This increase was primarily the result of $32.7 million of cash received as a result of the merger as described in Note 3 to the consolidated financial statements, offset in part by cash used for operating activities and other investing activities during the period.

Net cash used in operating activities was $16.4 million for the nine months ended March 31, 2013, which reflected (i) our net loss for the period of $2.2 million that included a gain of $7.8 million we recorded as a result of the merger, (ii) an increase in net operating assets of $8.7 million, (iii) a net decrease in operating liabilities of $2.4 million, offset in part by non-cash charges for share-based compensation and derpreciation an amortization of $4.7 million. Our net loss resulted largely from our funding of contract services; research and development activities including basic research: conducting preclinical studies; manufacturing and formulation expenses; incurring ongoing general and administrative expenses; as well as expenses associated with the merger, offset to a large degree by contract service, royalty and other revenue from grants and collaborations, a $7.8 million gain we recorded pursuant to the merger, the receipt of a $4.4 million research and development credit, and interest income. The net change in operating assets and liabilities reflects a $8.6 million increase in accounts receivable due to a sales milestone earned and contract revenue billed, a $0.4 million increase in prepaid expenses, a $1.6 million decrease in accounts payable and accrued expenses and a decrease of $1.0 million in accrued severance obligations related to the merger, offset in part by a $0.2 million increase in deferred revenue.

Net cash provided from investing activities during the nine months ended March 31, 2013 was $32.2 million, which was largely due to the cash of $32.7 million we received as pursuant to the merger, offset in part by $0.5 million for the purchase of laboratory and computer equipment.

At March 31, 2013, our cash and cash equivalents totaled $70.3 million. Our cash and cash equivalents are currently held in the form of short-term deposits with large U.S. and Australian banks. Based on our current strategy and operating plan, and considering the potential costs associated with advancing the preclinical and clinical development of our product candidates, we believe that our existing cash, cash equivalents of $70.3 million as of March 31, 2013, along with the anticipated proceeds from existing royalty-bearing licenses, from our contract with BARDA, and from other existing license and collaboration agreements will enable us to operate for a period of at least 12 months from March 31, 2013.

Our future funding requirements beyond 12 months are difficult to determine and will depend on a number of factors, including:

- the variability of future royalty revenue we may receive from existing royalty-bearing license agreements;
- we continue to receive sufficient revenue under our contract with BARDA to advance the development of laninamivir octanoate in the U.S.;
- the development timelines and plans for our product candidates, including any changes to those timelines, plans or our strategy;
- the variability, timing and costs associated with conducting clinical trials for our product candidates, the rate of enrolment in such clinical trials, and the results of these clinical trials:
- the variability, timing and costs associated with conducting preclinical studies, and the results of these studies;
- the cost of scaling up, formulating and manufacturing preclinical and clinical trial materials to evaluate our product candidates;
- whether we receive regulatory approval to advance or begin the clinical development of our product candidates in a timely manner, if at all;
- the cost and time to obtain regulatory approvals required to advance the development of our product candidates;
- the scope and size of our research and development efforts;
- our pursuit, timing and the terms of any in-licensing, acquisition, co-development, and other similar collaborative clinical-stage development opportunities to better balance our pipeline;
- the size and cost of general and administrative function to manage our operations, including the infrastructure to support being a publicly-traded company; and
- the cost of filing, prosecuting, and enforcing patent and other intellectual property claims.

We currently do not have any commitments for future funding, nor do we anticipate that we will generate significant revenue, aside from existing revenue from royalty-bearing arrangements, and contract services. Therefore, in order to meet our anticipated liquidity needs beyond 12 months to support the development of our product candidates, or possibly sooner in the event we enter into other transactions or revise our strategy or development plans, we may need to raise or secure additional capital. We would expect to do so primarily through the sale of additional common stock or other equity securities, as well as through proceeds from future licensing agreements, strategic collaborations, forms of debt financing, or any other financing vehicle. Funds from these sources may not be available to us on acceptable terms, if at all, and our failure to raise such funds could have a material adverse impact on our future business strategy and plans, financial condition and results of operations. If adequate funds are not available to us on acceptable terms in the future, we may be required to delay, reduce the scope of, or eliminate one or more of our research and development programs, or delay or curtail our preclinical studies and clinical trials, or reduce our internal cost structure. If additional capital is not available to us on acceptable terms, we may need to obtain funds through license agreements, or collaborative or partner arrangements pursuant to which we will likely relinquish rights to certain product candidates that we might otherwise choose to develop or commercialize independently, or be forced to enter into such arrangements earlier than we would prefer, which would likely result in less favorable transaction terms. Additional equity financings may be dilutive to holders of our common stock, and debt financing, if available, may involve significant payment obligations and restrictive covenants that restrict how we operate our business.

## Market risk

As filed, 386 characters.

There has been no material change in the Company’s assessment of its sensitivity to market risk since its presentation set forth in Item 7A "Quantitive and Qualitative Disclosures about Market Risks" in it's Annual Report on Form 10-K for the years ended December 31, 2011, except as updated and supplemented in its Quarterly Report on Form 10-Q for the quarter ended December 31, 2012.

## Controls and procedures

As filed, 900 characters.

Our Chief Executive Officer currently acts as our Principal Financial Officer.

### Evaluation of Disclosure Controls and Procedures

An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer concluded that these disclosure controls and procedures were effective.

### Changes in Internal Controls over Financial Reporting

There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 2,050 characters.

*An investment in our securities involves a risk of loss. You should carefully consider the risks factors included in our Quarterly Report on Form 10-Q for the quarter ended December 31, 2012, as well as the risk below, together with other information in this Quarterly Report, in evaluating our business, financial condition and our prospects. The risks and uncertainties described therein and herein are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently consider immaterial may also impact our business and prospects.*

***We have adopted a strategy whereby we plan to pursue in-licensing, acquisition, co-development, and other similar collaborative clinical-stage development opportunities to better balance our pipeline. We may be unable to implement this strategy on a timely basis, if at all, which could harm our business.***

The number of clinical-stage development programs available for in-licensing, acquisition or co-development are limited, and there are numerous other large pharmaceutical and biopharmaceutical companies competing for these same opportunities. Many of these companies have greater capital resources, experience and capabilities than we have. We may not be able to successfully identify or execute a transaction for any suitable in-licensing, acquisition or co-development candidates, or be able to do so on terms acceptable to us. Any transactions we may complete in the future or potential future strategic decisions we make may disappoint investors and depress the price of our common stock and the value of your investment in our common stock, it may require us to raise capital to acquire or support the transaction, incur acquisition fees or other non-recurring charges, and may pose significant integration challenges and/or management and business disruptions, any of which could materially and adversely affect our business and financial results. Further we may not be able to successfully integrate a transaction in a suitable time frame or at all.

Filed May 10, 2013.
Source: SEC EDGAR, the filing index for accession 0001437749-13-005823. Last ingested by Listed: Nov 5, 2026, 18:48 ET. No prices; not investment advice.