# Vaxart, Inc.: Form 10-Q for the period ended Mar 31, 2015

- Company: [Vaxart, Inc.](/companies/vxrt.md) (CIK 72444)
- Form: 10-Q
- Filed: 2015-05-08
- Accepted by EDGAR: May 8, 2015, 16:36 ET
- Period: 2015-03-31
- Accession: 0001437749-15-009555
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/72444/000143774915009555/bota20150331_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/72444/000143774915009555/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2015-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2015-01-01 to 2015-03-31 | $5.9m | us-gaap:Revenues |
| Revenue | 9 months, 2014-07-01 to 2015-03-31 | $20.5m | us-gaap:Revenues |
| Cost of revenue | 9 months, 2014-07-01 to 2015-03-31 | $3.6m | us-gaap:CostOfServices |
| Research and development | 3 months, 2015-01-01 to 2015-03-31 | $4.8m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2014-07-01 to 2015-03-31 | $14.5m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2015-01-01 to 2015-03-31 | $1.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2014-07-01 to 2015-03-31 | $500.0k | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2015-01-01 to 2015-03-31 | $1.2m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2014-07-01 to 2015-03-31 | $800.0k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2015-01-01 to 2015-03-31 | $0.03 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2014-07-01 to 2015-03-31 | $0.02 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2015-01-01 to 2015-03-31 | $0.03 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2014-07-01 to 2015-03-31 | $0.02 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2015-01-01 to 2015-03-31 | 35,143,178 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2014-07-01 to 2015-03-31 | 35,127,013 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2014-07-01 to 2015-03-31 | −$9.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2014-07-01 to 2015-03-31 | $100.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2015-03-31 | $61.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2015-03-31 | $87.4m | us-gaap:AssetsCurrent |
| Total assets | at 2015-03-31 | $88.8m | us-gaap:Assets |
| Current liabilities | at 2015-03-31 | $7.2m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2015-03-31 | $7.3m | us-gaap:Liabilities |
| Shareholders' equity | at 2015-03-31 | $81.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 39,884 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:*

- *the time frame in which we may fully enroll and report top line-data from the Phase 2 SPIRITUS clinical trial of vapendavir;*
- *the amount and timing of proceeds we believe we are entitled to receive under our terminated contract with the Biomedical Advanced Research and Development Authority (“BARDA”);*
- *the anticipated time to file an investigational new drug application (“IND”) for BTA-C585 and initiate a Phase 1 clinical trial;*
- *the timing of the acquisition of Anaconda Pharma and the initiation of a Phase 2b clinical trial for AP611074;*
- *our anticipation that we will generally incur net losses from operations in the future due to our intention to continue to support the preclinical and clinical development of our product candidates;*
- *our future financing requirements, the factors that may influence the timing and amount of those 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 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 forward looking statements are subject to key risks and uncertainties including, without limitation: we, the U.S. Food and Drug Administration (“FDA”) or a similar foreign regulatory agency, a data safety monitoring board, or an institutional review board delaying, limiting, suspending or terminating the clinical development of vapendavir, BTA-C585, laninamivir octanoate, AP611074 or any of our clinical development programs at any time for a lack of safety, tolerability, biologic activity, commercial viability, regulatory or manufacturing issues, or any other reason whatsoever; our ability to successfully negotiate an acceptable final termination settlement with BARDA; and ability to successfully complete and file an IND for BTA-C585; the Argentine National Administration of Drugs, Foods and Medical Devices (“ANMAT”) delaying, imposing additional conditions, requiring additional studies or not approving the current Phase 2 protocol for AP611074; our ability to comply with applicable government regulations in various countries and regions in which we are conducting, or expect to conduct, clinical trials; our ability to manufacture and maintain sufficient quantities of preclinical and clinical trial material on hand to support and complete our preclinical studies or clinical trials on a timely basis; our ability to retain and recruit sufficient staff, including key executive management and employees, to manage our business; our ability to secure, manage and retain qualified third-party clinical research, preclinical research, data management, contract manufacturing and other similar vendors who we outsource many of our activities to and rely on to assist us in the design, development and implementation of the development of our product candidates; our third-party contract research, data management and manufacturing organizations fulfilling their contractual obligations on a timely basis or otherwise performing satisfactorily in the future; GlaxoSmithKline (“GSK”) and Daiichi Sankyo continuing to generate net sales from Relenza® and Inavir®, respectively, and otherwise continuing to fulfill their obligations under our respective royalty-bearing license agreements with them in the future; our ability to maintain, protect or defend our proprietary intellectual property rights from unauthorized use by others, or not infringe on the intellectual property rights of others; our ability to successfully manage our expenses, operating results and financial position in line with our plans and expectations ; the condition of the equity and debt markets and our ability to raise sufficient funding in such markets; changes in general economic business or competitive conditions related to our industry or product candidates; and other statements contained elsewhere in this in this Quarterly Report on Form 10-Q and our 2014 Annual Report on Form 10-K .*

*There may be events in the future that we are unable to predict accurately, or over which we have no control. You should completely read this Form 10-Q and the documents that we reference herein that have been filed or incorporated by reference as exhibits 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 an obligation 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 Pharmaceuticals, Inc., Relenza ® is a registered trademark of GlaxoSmithKline plc, and Inavir ® is a registered trademark of Daiichi Sankyo Company, Ltd.*

*References to “we,” “us,” and “our” refer to Biota Pharmaceuticals, Inc. and its subsidiaries.*

*The following is a discussion and analysis of the major factors contributing to our results of operations for the three and nine months ended March 31, 2015, and our financial condition at that date, and should be read in conjunction with the financial statements and the notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q.*

### Company Overview

We are a biopharmaceutical company focused on the discovery and development of products to prevent and treat serious and potentially life-threatening infectious diseases. We have recently initiated a Phase 2b clinical trial (named SPIRITUS), which is a randomized, double-blind, placebo-controlled dose-ranging study for BTA-798, also known as vapendavir, in moderate –to-severe asthmatic patients at risk of loss of asthma control and exacerbations due to presumptive human rhinovirus (“HRV”) infection. We have successfully completed two other Phase 2 trials of vapendavir to date. In addition we are developing laninamivir octanoate, a long-acting neuraminidase inhibitor (“NI”), for the treatment of influenza A and B. On August 1, 2014, we reported top-line safety and efficacy results from a randomized, double-blind, placebo-controlled, parallel-arm Phase 2 clinical trial (named IGLOO) comparing the safety and efficacy of a 40 mg and an 80 mg dose of laninamivir octanoate to placebo. As compared to placebo, neither the 40 mg nor the 80 mg cohort achieved a statistically significant reduction in the median time to alleviation of all influenza associated symptoms, the primary endpoint, as measured by the Flu-iiQ patient-recorded outcome questionnaire. Certain important secondary endpoints, including quantitative viral shedding, and secondary bacterial infections, as well as the time to alleviation of systemic symptoms, did achieve statistically significant results for laninamivir octanoate treated cohorts compared to placebo.

In addition to these Phase 2 clinical-stage development programs, we are also developing orally bioavailable F and non-F protein compounds for the treatment of respiratory syncytial virus (“RSV”) infections in children, the elderly and immune-compromised patients. We recently completed the requisite preclinical studies needed to support the filing of an IND for BTA-C585, our lead compound from our F-protein inhibitor program.

We previously developed zanamivir, a neuraminidase inhibitor that is marketed worldwide by GSK as Relenza® for the prevention and treatment of influenza A and B. GSK markets Relenza® pursuant to a royalty-bearing research and license agreement we entered into with GSK in 1990. In 2003, we entered into a collaboration and license agreement with Daiichi Sankyo, under which each party cross-licensed its intellectual property related to second-generation, long-acting neuraminidase inhibitors, including laninamivir octanoate. In 2009, we entered into a commercialization agreement with Daiichi Sankyo that provided Daiichi Sankyo with an exclusive license to commercialize laninamivir octanoate in Japan and entitled us to receive a royalty on net sales of laninamivir octanoate in Japan. Laninamivir octanoate, which is marketed in Japan by Daiichi Sankyo as Inavir®, was approved for sale by the Japanese Ministry of Health and Welfare for the treatment of influenza A and B in adults and children in September 2010 and for the prevention of influenza A and B in December 2013. In 2009, we filed an IND with the FDA to develop laninamivir octanoate in the U.S.

In March 2011, we were awarded a contract from BARDA designed to provide up to $231 million in support of the development and submission of a New Drug Application (“NDA”) for laninamivir octanoate for the treatment of influenza A and B infections in the U.S. On May 7, 2014, U.S. Department of Health and Human Services (“HHS”) office of the Assistant Secretary for Preparedness and Response (“ASPR”) and BARDA notified us of its decision to terminate the contract for the convenience of the U.S. Government. We continue to work with BARDA to close out this contract, which involves finalizing invoices and billings and negotiating a final equitable termination settlement.

Although several of our influenza product candidates have been successfully developed and commercialized to-date by other larger pharmaceutical companies under license, collaboration or commercialization agreements with us, we have not independently developed or received regulatory approval for any product candidate, and we do not currently have any sales, marketing or commercial capabilities. Therefore, it is possible that we may not successfully derive any significant product revenues from any product candidates that we are developing now, or may develop in the future. We expect to incur losses for the foreseeable future as we intend to support the clinical and preclinical development of our product candidates. Also, due to the termination of our contract with BARDA in May 2014, we anticipate that our revenue from service and cost of revenue will decline substantially in fiscal 2015 as compared to recent historical levels and will not recur in fiscal 2016.

We plan to continue to finance our operations with (i) our existing cash, cash equivalents and investments, (ii) proceeds from existing or potential future royalty-bearing licenses or collaborative research and development arrangements, (iii) future equity and/or asset/debt financings, or (iv) other financing arrangements. Our ability to continue to support our operations is dependent, in the near-term, upon us managing our cash resources, receipt of royalty revenue under our existing licensees, entering into future collaboration, license or commercialization agreements, successfully developing our product candidates, executing future financings and ultimately, upon obtaining approval of our products for sale and achieving positive cash flows from operations on a consistent basis. There can be no assurance that additional capital or funds will be available on terms acceptable to us, if at all, or we will be able to enter into collaboration, license or commercialization agreements in the future, or that we will ever generate significant product revenue and become operationally profitable on a consistent basis.

### Recent Corporate Developments

***Anaconda Pharma Acquisition Approved by French Ministry of Finance and Economics.***

On May 7, 2015, we reported that we have received approval from the French Ministry of Finance and Economics for our proposed acquisition of Anaconda Pharma, which was one of the closing conditions for this transaction. Anaconda Pharma is a privately-held biotechnology company based in Paris, France, whose lead candidate, AP611074, is a patented, direct-acting antiviral with activity against human papillomavirus (“HPV”) types 6 and 11. AP611074 is in development for the treatment of condyloma, or anogenital warts, as well as recurrent respiratory papillomatosis (“RRP”). Anaconda Pharma has successfully completed a Phase 2a clinical trial of AP611074 (5% gel), which demonstrated a significant reduction in the surface area of condyloma while exhibiting favorable local skin tolerability.

Under the terms of the definitive agreement, which was announced in February 2015, all of Anaconda Pharma's outstanding shares will be acquired for 3.5 million shares of our common stock and $8.0 million in cash, subject to certain closing and post-closing adjustments. We intend to fund the cash portion of the purchase price with cash on hand. The transaction also includes additional contingent financial consideration of (i) up to $30.0 million, which is based on the successful achievement of certain future clinical and regulatory milestones, and (ii) a royalty. The closing of the transaction, which is expected to occur within the quarter, is subject to the finalization of other closing conditions, including approval of the proposed Phase 2 protocol from the Argentine National Administration of Drugs, Foods and Medical Devices (“ANMAT”).

### Vapendavir Phase 2b SPIRITUS Trial Actively Enrolling

On May 7, 2015, we reported that we are actively screening and dosing patients in a Phase 2b SPIRITUS trial of vapendavir at 58 clinical sites in the U.S. and Central Europe. In March 2015, we reported the initiation of this trial, the goal of which is to enroll approximately150 laboratory-confirmed human rhinovirus (“HRV”) infected patients with moderate-to-severe asthma over the next year and to report top-line data in mid-2016. The primary endpoint of this multi-center, randomized, double-blind, placebo-controlled dose-ranging study is the change from baseline to study day 14 in asthma symptoms and lung function as measured by the asthma control questionnaire (“ACQ”)-6 total score. Key secondary endpoints include safety and tolerability, lung function assessments such as forced expiratory volume in one second (“FEV1”), incidence of asthma exacerbations, assessments of the severity and duration of cold symptoms as measured by the Wisconsin Upper Respiratory Symptom Survey-21 (“WURSS-21”) and virological assessments such as changes in viral load.

### BTA-C585 Phase 1 Trial Planned for Q3 2015

On May 7, 2015, we reported that we have successfully completed the good laboratory practice (“GLP”) studies required to support an IND application for our RSV fusion inhibitor, BTA-C585. We intend to file the IND application later this quarter and initiate a Phase 1 single ascending dose trial in the third quarter of 2015.

### Relenza® Related Intellectual Property Status

On May 7, 2015, we reported we have filed a request for rehearing with the U.S. Patent Trial and Appeal Board in relation to the pending patent application No. 08/737,141 related to Relenza®. On March 19, 2015, we reported that the U.S. Patent Trial and Appeal Board had issued a decision affirming the Examiner’s prima facie case of obviousness rejection under 35 United States Code (“U.S.C.”) 103(a).

***Restructuring Plan Completed.*** On May 7, we reported that we had fully completed a previously announced (June 2014) restructuring plan and all activities related to the closure of our Melbourne, Australia operation and facilities.

### Laninamivir Octanoate (LANI)

On May 7, 2015, we reported that we are planning a Type C meeting with the FDA to discuss clinical development strategy for LANI. A detailed briefing document will be prepared to outline the proposed primary endpoints and acceptable patient reported outcome tools for use in prospective registration trials of LANI to treat uncomplicated influenza. We anticipate filing the Type C meeting request later this quarter.

### CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s Discussion and Analysis of Results of Operations discusses our financial results, which (except to the extent described in the Notes thereto) have been presented in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The preparation of 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 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
- Accrued Expenses
- Share-Based Compensation

18

In August 2014, the Financial Accounting Standards Board issued authoritative accounting guidance related to management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. Management’s evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued. In doing so, the amendments should reduce diversity in the timing and content of footnote disclosures. This guidance is effective for public and non-public entities for annual periods ending after December 15, 2016, and interim periods thereafter. Early adoption is permitted. We are currently assessing the expected impact, if any, that this Accounting Standards Update will have on the consolidated financial statements.

In May 2014, the Financial Accounting Standards Board issued authoritative accounting guidance related to revenue from contracts with customers. This guidance is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. This guidance is effective for annual reporting periods beginning after December 15, 2016 and early adoption is not permitted. We will adopt this guidance on July 1, 2017. Companies may use either a full retrospective or a modified retrospective approach to adopt this guidance. We are evaluating which transition approach to use and its impact, if any, on our consolidated financial statements.

### Three months ended March 31, 2015 and March 31, 2014

*Summary.* For the three months ended March 31, 2015, we reported a net income of $1.2 million, as compared to a net income of $3.2 million in the same period of the prior fiscal year. This $2.0 million decrease in net income was primarily due to a $23.6 million decrease in revenue, a $0.7 million increase in research and development expense, a $0.7 million increase in general and administrative expense and a loss on disposal of assets of $0.2 million, offset in part by a $19.0 million decrease in cost of revenue, a $4.1 million increase in foreign exchange gain and $0.1 increase in interest income. Basic and diluted net income per share was $0.03 for the three month period ended March 31, 2015, as compared to a basic and diluted income per share of $0.09 in the same period of 2014.

*Revenue.* Revenue decreased to $5.9 million for the three months ended March 31, 2015 from $29.5 million for the same period in 2014. The following table summarizes the key components of our revenue for the three months ended March 31, 2015 and 2014:

*(in millions)*

|  | Three Months Ended March 31 2015 | 2014 |
| --- | ---: | ---: |
| Royalty revenue – Relenza® | $3.0 | $4.2 |
| – Inavir® | 2.5 | 3.9 |
| Revenue from services | 0.4 | 21.4 |
| Revenue grants and other | - | - |
| Total revenue | $5.9 | $29.5 |

Royalty revenue decreased primarily due to lower sales of Inavir® in Japan, which is marketed by Daiichi Sankyo, and Relenza®, which is marketed worldwide by GSK. Revenue from services decreased due to a reduction in contract service revenue related to the cancellation of our contract with BARDA in May 2014 for the convenience of the U.S. Government related to the development of laninamivir octanoate, offset in part by revenue related to the finalization of contract activities for the laninamivir octanoate program.

*Cost of Revenue.* Cost of revenue decreased to $0.3 million for the three months ended March 31, 2015 from $19.3 million for the same period in 2014. The following table summarizes the components of our cost of revenue for the three months ended March 31, 2015 and 2014.

*(in millions)*

|  | Three Months Ended March 31 2015 | 2014 |
| --- | ---: | ---: |
| Direct preclinical, clinical and product development expenses | $0.3 | $18.1 |
| Salaries, benefits and share-based compensation expenses | **-** | 1.1 |
| Other expenses | **-** | 0.1 |
| Total cost of revenue expense | $0.3 | $19.3 |

Direct preclinical, clinical and product development expense decreased due to the lower direct third-party clinical costs incurred associated with the development of laninamivir octanoate under the terminated BARDA contract in May 2014. Salaries, benefits and share-based compensation expense decreased primarily as a result of our personnel no longer being allocated to work under the BARDA contract. Other expenses decreased due to reduction in miscellaneous costs as a result of the termination of the BARDA contract.

*Research and Development Expense.* Research and development expense increased to $4.8 million for the three months ended March 31, 2015 from $4.1 million for the same period in 2014. The following table summarizes the components of our research and development expense for the three months ended March 31, 2015 and 2014.

*(in millions)*

|  | Three Months Ended March 31 2015 | 2014 |
| --- | ---: | ---: |
| Direct preclinical, clinical and product development expenses | $2.7 | $1.2 |
| Salaries, benefits and share-based compensation expenses | 1.2 | 1.5 |
| Other expenses | 0.1 | 0.7 |
| Depreciation and facility related expenses | 0.8 | 0.7 |
| Total research and development expense | $4.8 | $4.1 |

Direct preclinical, clinical and product development expense increased largely due to the Phase 2 SPIRITUS clinical trial of vapendavir and the finalizing IND-enabling studies associated with BTA-C585, our lead RSV compound. Salaries, benefits and share-based compensation decreased primarily due to reductions in personnel working on other research activities. Other expenses decreased due to lower research and intellectual patent filing expenses on other product candidates.

*General and Administrative Expense.* General and administrative expense increased to $3.2 million for the three months ended March 31, 2015 from $2.5 million for the same period in 2014. The following table summarizes the components of our general and administrative expense for the three months ended March 31, 2015 and 2014.

*(in millions)*

|  | Three Months Ended March 31 2015 | 2014 |
| --- | ---: | ---: |
| Salaries, benefits and share-based compensation expenses | $1.6 | $1.4 |
| Professional and legal fees expenses | 0.8 | 0.4 |
| Other expenses | 0.8 | 0.7 |
| Total general and administrative expense | $3.2 | $2.5 |

Salaries, benefits and share-based compensation expenses increased as a result of higher share-based compensation and potential performance-based incentive compensation. Professional and legal fees increased primarily due to higher professional and legal expenses related to our pending acquisition of Anaconda Pharma. Other expenses increased primarily due to higher insurance premiums as compared to the previous year.

*Foreign Exchange Gain, (Loss) net.* Foreign exchange changed from a loss to a gain due to the appreciation of the U.S. dollar as compared to the Australian dollar during the three month period ended March 31, 2015 and the related translation of those foreign currency balances and transactions in our subsidiaries that have a different functional currency than the U.S. reporting currency on our statement of operations. The vast majority of our cash holdings in our foreign subsidiaries are held in the U.S. dollar. We also translate all of the assets and liabilities of our non-U.S. subsidiaries at the period-end exchange rate and the net effect of these translation adjustments is shown on our condensed consolidated balance sheet as a component of stockholders’ equity.

*Interest Income.* Interest income increased due to us having a greater amount of investments this year as compared to last and the related yield earned on those investments.

### Nine months ended March 31, 2015 and March 31, 2014

*Summary.* For the nine months ended March 31, 2015, we reported net income of $0.8 million, as compared to a net loss of $0.8 million in the same period of 2014. The $1.6 million change in net loss to net income in 2015 was primarily due to a $37.8 million decrease in the cost of revenue, a $7.1 million change in foreign exchange from a loss to a gain, and a $0.2 million increase in interest income, offset in part by a $39.8 million decrease in revenue, a $3.2 million increase in research and development expense, a $0.2 million increase in general and administrative expense and a $0.2 million loss on disposal of assets. Basic and diluted net income per share were $0.02 for the nine month period ended March 31, 2015 as compared to a basic and diluted net loss per share of $0.03 in the same period of 2014.

*Revenue.* Revenue substantially decreased to $20.5 million for the nine months ended March 31, 2015 from $60.3 million for the same period in 2014. The following table summarizes the key components of our revenue for the nine months ended March 31, 2015 and 2014:

*(in millions)*

|  | Nine Months Ended December 31 2015 | 2014 |
| --- | ---: | ---: |
| Royalty revenue – Relenza® | $7.3 | $9.7 |
| – Inavir® | 4.7 | 4.4 |
| Revenue from services | 8.5 | 46.1 |
| Revenue grants and other | - | 0.1 |
| Total revenue | $20.5 | $60.3 |

Royalty revenue decreased primarily due to lower sales of Relenza®, which is marketed worldwide by GlaxoSmithKline, offset in part by slightly higher sales of Inavir® in Japan, which is marketed by Daiichi Sankyo. Revenue from services decreased due to a reduction in contract service revenue related to the cancellation of our contract with BARDA in May 2014 for the convenience of the U.S. Government, offset in part by a partial settlement of $4.7 million for costs associated with the Phase 2 IGLOO clinical trial for laninamivir octanoate and revenue related to the finalization of contract activities for the laninamivir octanoate program. Revenue from grants and other decreased due to a decrease in grant-related research activities.

*Cost of Revenue.* Cost of revenue decreased to $3.6 million for the nine months ended March 31, 2015 from $41.4 million for the same period in 2014. The following table summarizes the components of our cost of revenue for the nine months ended March 31, 2015 and 2014.

*(in millions)*

|  | Nine Months Ended March 31 2015 | 2014 |
| --- | ---: | ---: |
| Direct preclinical, clinical and product development expenses | $3.3 | $37.5 |
| Salaries, benefits and share-based compensation expenses | 0.2 | 3.5 |
| Other expenses | 0.1 | 0.4 |
| Total cost of revenue | $3.6 | $41.4 |

21

Direct preclinical, clinical and product development expense decreased substantially due to the lower direct third-party clinical costs incurred associated with Phase 1 and 2 clinical trials and manufacturing activities for the laninamivir octanoate program under the terminated BARDA contract in May 2014. Salaries, benefits and share-based compensation expense decreased primarily as a result of lower personnel being allocated to work under the BARDA contract. Other expenses decreased due to a reduction in miscellaneous costs as a result of the termination of the BARDA contract.

*Research and Development Expense.* Research and development expense increased to $14.5 million for the nine months ended March 31, 2015 from $11.3 million for the same period in 2014. The following table summarizes the components of our research and development expense for the nine months ended March 31, 2015 and 2014.

*(in millions)*

|  | Nine Months Ended March 31 2015 | 2014 |
| --- | ---: | ---: |
| Direct preclinical, clinical and product development expenses | $7.2 | $2.2 |
| Salaries, benefits and share-based compensation expenses | 4.7 | 5.6 |
| Other expenses | 0.6 | 1.5 |
| Depreciation and facility related expenses | 2.0 | 2.0 |
| Total research and development expense | $14.5 | $11.3 |

Direct preclinical, clinical and product development expense increased due largely to an increase in clinical costs associated with the Phase 2 SPIRITUS clinical trial of vapendavir and preclinical costs related to conducting the IND-enabling studies associated with BTA-C585, our RSV fusion inhibitor. Salaries, benefits and share-based compensation decreased primarily due to reductions in personnel working on other research activities. Other expenses decreased due to lower other research activities and intellectual patent filing expenses on product candidates.

*General and Administrative Expense.* General and administrative expense increased to $8.2 million for the nine months ended March 31, 2015 from $8.0 million for the same period in 2014. The following table summarizes the components of our general and administrative expense for the nine months ended March 31, 2015 and 2014.

*(in millions)*

|  | Nine Months Ended March 31 2015 | 2014 |
| --- | ---: | ---: |
| Salaries, benefits and share-based compensation expenses | $4.4 | $4.3 |
| Professional and legal fees expenses | 1.6 | 1.4 |
| Other expenses | 2.2 | 2.3 |
| Total general and administrative expense | $8.2 | $8.0 |

Salaries, benefits and share-based compensation expenses increased slightly due to higher share-based compensation and potential incentive compensation. Professional and legal fees increased primarily due to higher professional and legal expenses related to general legal matters throughout the year and our pending acquisition of Anaconda Pharma. Other expenses decreased primarily due to lower amortization expenses, offset in part by higher insurance premiums.

*Foreign Exchange (Gain), Loss.* Foreign exchange (gain) loss changed from a loss to a gain due to the appreciation of the U.S. dollar as compared to the Australian dollar during the nine month period ended March 31, 2015 and the related translation of foreign currency balances and transactions in our subsidiaries that have a different functional currency than the reporting currency on our statement of operations. The vast majority of our cash holdings in our foreign subsidiaries are held in the U.S. dollar. We also translate all of the assets and liabilities of our non U.S. subsidiaries at the period-end exchange rate and the net effect of these translation adjustments is shown on our condensed consolidated balance sheet as a component of stockholders’ equity.

*Interest Income.* Interest income increased due to the Company having a greater amount of cash and investments during fiscal 2015 as compared to 2014, and the related yield earned on those investments.

### LIQUIDITY AND CAPITAL RESOURCES

For the nine months ended March 31, 2015, cash and cash equivalents decreased by $12.5 million and for $7.7 million for the effects of exchange rate movements on cash and cash equivalents. This decrease was primarily the result of the use of cash for operating activities during the period and the purchase of additional liquid short-term and long-term investments.

Net cash used in operating activities was $9.8 million for the nine months ended March 31, 2015, which reflected a net decrease in operating liabilities of $19.1 million, offset in part by our net income during the period of $0.8 million, a decrease in net operating assets of $5.6 million, non-cash charges for share-based compensation and depreciation of $2.7 million and loss on disposal of assets of $0.2 million.

Our net income resulted largely from our royalty revenues, foreign exchange gain, contract service income and interest income, offset largely by our funding of research and development activities including basic research, conducting clinical and preclinical studies, manufacturing and formulation of our product candidates, and ongoing general and administrative expenses. The net changes in operating assets and liabilities reflects a $17.4 million decrease in accounts payable and accrued expenses and a decrease of $1.7 million in accrued severance obligations and a $0.2 million increase in prepaid expenses, offset in part by a $5.8 million decrease in accounts receivable.

Net cash used in investing activities during the nine months ended March 31, 2015 consisted of $9.9 million for purchases of short-term and long-term investments and $0.4 million of proceeds received from the sale of assets, offset in part by the call redemption of long-term investments of $6.9 million and purchases of property and equipment of $0.1 million.

At March 31, 2015, our cash and cash equivalents totaled $61.5 million, not including our short and long-term investments of $12.9 million. Our cash and cash equivalents are currently held in the form of short-term deposits with large U.S. and Australian banks. Our short-term and long-term investments consist primarily of U.S. treasury securities, U.S. government agency securities and corporate securities.

Our future funding requirements 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;
- whether or not we finalize an appropriate final equitable termination settlement with BARDA and the timing of receiving those payments;
- 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 enrollment 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 those 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 we may pursue in the future to better balance our pipeline;
- the size and cost of our general and administrative function we may need to manage our operations, including the infrastructure to support being a publicly-traded company;
- the timing of the acquisition of Anaconda and our plans for the Phase 2 trial for AP611074; and
- the cost of filing, prosecuting, and enforcing patent and other intellectual property claims.

Based on our current strategy and operating plan, and considering the potential costs associated with advancing the clinical development and preclinical development of our product candidates, we believe that our existing cash and cash equivalents of $61.5 million, plus our liquid investments of $12.9 million as of March 31, 2015, along with the anticipated proceeds from existing royalty-bearing licenses and final proceeds from the close-out of our contract with BARDA, will enable us to operate for a period of at least 12 months from March 31, 2015.

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. Therefore, in order to meet our anticipated liquidity needs beyond 12 months to support the development of our product candidates and operations, 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 asset and 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 covenants that restrict how we operate our business.

### Contractual and Commercial Commitments

There have been no material changes from the information included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2014.

### Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, as defined in Item 303(a)(4) (ii) of Regulation S-K under the Securities Exchange Act of 1934, as amended.

## Market risk

As filed, 278 characters.

There has been no material change in our assessment of sensitivity to market risk since our presentation set forth in Item 7A “Quantitative and Qualitative Disclosures about Market Risk” in the Company’s Annual Report filed on Form 10-K for the fiscal year ended June 30, 2014 .

## Controls and procedures

As filed, 862 characters.

### Evaluation of Disclosure Controls and Procedures

Our management, including our Chief Executive Officer and principal financial officer, evaluated 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, our Chief Executive Officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

### Changes in Internal Controls over Financial Reporting

There has been no change in our internal control over financial reporting during the quarter ended March 31, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 172 characters.

There have been no material changes from the risk factors disclosed in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended June 30, 2014.

Filed May 8, 2015.
Source: SEC EDGAR, the filing index for accession 0001437749-15-009555. Last ingested by Listed: Nov 5, 2026, 18:48 ET. No prices; not investment advice.