Aviragen Therapeutics, Inc.
Aviragen Therapeutics, Inc. (Form: 424B3, Received: 01/03/2018 06:04:55)

Filed Pursuant to Rule 424(b)(3)

Registration Statement No. 333-222009

 

              

PROPOSED MERGER

 

YOUR VOTE IS VERY IMPORTANT

 


 

To the Stockholders of Aviragen Therapeutics, Inc. and Vaxart, Inc.:

 

Aviragen Therapeutics, Inc., a Delaware corporation, or Aviragen, and Agora Merger Sub, Inc., a Delaware corporation and a wholly -owned subsidiary of Aviragen, or Merger Sub, and Vaxart, Inc., a Delaware corporation, or Vaxart, have entered into an Agreement and Plan of Merger and Reorganization, or the Merger Agreement, pursuant to which Merger Sub will merge with and into Vaxart, with Vaxart surviving the merger as a wholly-owned subsidiary of the combined company. These transactions are referred to herein collectively as the “merger.” Following the merger, Aviragen will be renamed “Vaxart, Inc.” and is sometimes referred to herein as the “combined company.” The merger will result in a clinical-stage pharmaceutical company focused on developing Vaxart’s oral recombinant vaccines, based on its proprietary delivery platform that allows for administration by tablet rather than by injection, and on Aviragen’s direct-acting antivirals to treat infections that have limited therapeutic options.

 

At the closing of the merger, (a) each outstanding share of capital stock of Vaxart, will be converted into the right to receive approximately 0.3198 , or the Exchange Ratio, shares of Aviragen common stock, subject to adjustment for any reverse stock split, and (b) each outstanding Vaxart stock option, whether vested or unvested, and warrant that has not previously been exercised prior to the effective time of merger will be converted into a stock option or warrant, as the case may be, to purchase approximately 0.3198 shares of Aviragen common stock. This Exchange Ratio is an estimate only and the final Exchange Ratio will be determined pursuant to a formula described in more detail in the Merger Agreement and in this proxy statement/prospectus/information statement. Under the Exchange Ratio formula in the Merger Agreement, as of immediately after the merger, the former Vaxart securityholders are expected to own approximately 60% of the aggregate number of shares of the common stock of the combined company issued and outstanding immediately following the closing of the merger, or the Post-Closing Shares, and the securityholders of Aviragen as of immediately prior to the closing of the merger are expected to own approximately 40% of the aggregate number of Post-Closing Shares. These percentages assume that the Exchange Ratio is not adjusted for cash balances, as described in the section titled "The Merger Agreement" below. For a more complete description of the Exchange Ratio please see the section titled “The Merger Agreement—Exchange Ratio” in this proxy statement/prospectus/information statement.

 

Shares of Aviragen common stock are currently listed on the Nasdaq Capital Market under the symbol “AVIR.” Prior to the closing of the merger, Aviragen intends to file an initial listing application for the combined company with the Nasdaq Global Market pursuant to its “reverse merger” rules. After the closing of the merger, the combined company expects to trade on the Nasdaq Global Market under the symbol “VXRT.” On December 29, 2017, the last trading day before the date of this proxy statement/prospectus/information statement, the closing sale price of Aviragen common stock was $0.57 per share.

 

Aviragen is holding a special meeting of stockholders in order to obtain the stockholder approvals necessary to complete the merger and related matters. At the Aviragen special meeting, which will be held on February 6, 2018 at 9:00 a.m., local time, at 2500 Northwinds Parkway, Suite 100, Alpharetta, Georgia 30009, unless postponed or adjourned to a later date, Aviragen will ask its stockholders, among other things, to approve the issuance of shares of Aviragen common stock as consideration in the merger and to approve an amendment to Aviragen’s certificate of incorporation effecting a reverse stock split of Aviragen common stock at a ratio in the range of 10 and 20-for-1, with such specific ratio to be mutually agreed upon by Aviragen and Vaxart or, if the Stock Issuance Proposal is not approved by Aviragen stockholders, determined solely by the Aviragen board of directors following the special meeting, each as described in this proxy statement/prospectus/information statement.

 

 

 

As described in this proxy statement/prospectus/information statement, certain Vaxart stockholders who in t he aggregate own approximately 78.5% of the outstanding shares of Vaxart common stock (on an as converted to common stock basis), and certain Aviragen stockholders who in the aggregate own less than 1% of the outstanding shares of Aviragen common stock, are parties to support agreements with Aviragen and Vaxart, pursuant to which such stockholders have agreed to vote such shares in favor of approving certain of the transactions contemplated by the Merger Agreement, including the merger and the issuance of shares of common stock pursuant to the Merger Agreement, respectively, subject to the terms of the support agreements. No meeting of Vaxart stockholders to adopt the Merger Agreement and approve the merger and related transactions will be held. Instead, all Vaxart stockholders will have the opportunity to vote to adopt the Merger Agreement and approve the merger and related transactions, by signing and returning to Vaxart a written consent following the registration statement on Form S-4, of which this proxy statement/prospectus/information statement is a part, being declared effective by the Securities and Exchange Commission. The holders of a sufficient number of shares of Vaxart capital stock required to adopt the Merger Agreement and approve the merger and related transactions have agreed to adopt the Merger Agreement and approve the merger and related transactions via written consent. Vaxart stockholders, including those who are parties to support agreements, are requested to execute written consents providing such approvals.

 

After careful consideration, the respective Aviragen and Vaxart boards of directors have unanimously approved the Merger Agreement and the transactions contemplated thereby, including the proposals referred to above. The Aviragen board of directors unanimously recommends that its stockholders vote “FOR” each of the Stock Issuance Proposal, the Reverse Stock Split Proposal, the Executive Merger Compensation Proposal and the Adjournment Proposal and “ONCE EVERY YEAR” with respect to Say-on-Pay Frequency Proposal, each as is described in this proxy statement/prospectus/information statement, and the Vaxart board of directors unanimously recommends that its stockholders sign and return to Vaxart the written consent indicating their approval of the merger and adoption of the Merger Agreement and related transactions.

 

More information about Aviragen, Vaxart and the proposed transactions are contained in this proxy statement/prospectus/information statement. Aviragen and Vaxart urge you to read this proxy statement/prospectus/information statement carefully and in its entirety. IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER “ RISK FACTORS ” BEGINNING ON PAGE 24 .

 

Aviragen and Vaxart are excited about the opportunities the merger brings to both Aviragen and Vaxart stockholders, and thank you for your consideration and continued support.

 


 

 

 

Joseph M. Patti, Ph.D.

   

Wouter W. Latour, M.D.

President and Chief Executive Officer

   

President and Chief Executive Officer

Aviragen Therapeutics, Inc.

   

Vaxart, Inc.

 

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this proxy statement/prospectus/information statement. Any representation to the contrary is a criminal offense.

 

This proxy statement/prospectus/information statement is dated January 2 , 2018, and is first being mailed to Aviragen and Vaxart stockholders on or about January 5, 2018.

 

 

 

 

 

AVIRAGEN THERAPEUTICS, INC.

2500 Northwinds Parkway, Suite 100

Alpharetta, Georgia 30009

(678)  221-3343

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

 

To Be Held On February 6 , 2018

Dear Stockholders of Aviragen:

 

On behalf of the board of directors of Aviragen Therapeutics, Inc., a Delaware corporation, or Aviragen, Aviragen is pleased to deliver this proxy statement/prospectus/information statement for the proposed merger between Aviragen and Vaxart, Inc., a Delaware corporation, or Vaxart, pursuant to which Agora Merger Sub, Inc., a wholly -owned subsidiary of Aviragen, will merge with and into Vaxart, with Vaxart surviving the merger as a wholly-owned subsidiary of the combined company. The special meeting of stockholders of Aviragen will be held on February 6, 2018 at 9:00 a.m., local time, at 2500 Northwinds Parkway, Suite 100, Alpharetta, Georgia 30009, for the following purposes:

 

1.

To consider and vote upon a proposal to approve the issuance of shares of Aviragen common stock pursuant to the Agreement and Plan of Merger and Reorganization, dated as of October 27, 2017, by and among Aviragen, Agora Merger Sub, Inc. and Vaxart, a copy of which is attached as Annex A to this proxy statement/prospectus/information statement, or the Stock Issuance Proposal;

 

2.

To consider and vote upon an amendment to the certificate of incorporation of Aviragen to effect a reverse stock split of Aviragen common stock, at a ratio in the range of 10 and 20-for-1, with such specific ratio to be mutually agreed upon by Aviragen and Vaxart or, if the Stock Issuance Proposal is not approved by Aviragen stockholders, determined solely by the Aviragen board of directors following the special meeting, the form of which is attached as Annex B to this proxy statement/prospectus/information statement, or the Reverse Stock Split Proposal;

 

3 .

To consider and vote upon a proposal to approve, on non-binding advisory basis, the compensation that will or may become payable by Aviragen to its named executive officers in connection with the merger, or the Executive Merger Compensation Proposal;

 

4.

To consider and vote, on a non-binding advisory basis, on the frequency of the advisory vote on the compensation of Aviragen’s named executive officers, or the Say-on-Pay Frequency Proposal;

 

5 .

To consider and vote upon an adjournment of the Aviragen special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Stock Issuance Proposal and/or the Reverse Stock Split Proposal, or the Adjournment Proposal.

 

The Aviragen board of directors has fixed January 2, 2018 as the record date for the determination of stockholders entitled to notice of, and to vote at, the Aviragen special meeting and any adjournment or postponement thereof. Only holders of record of shares of Aviragen common stock at the close of business on the record date are entitled to notice of, and to vote at, the Aviragen special meeting. At the close of business on the record date, Aviragen had 38,649,237 shares of common stock outstanding and entitled to vote.

 

Your vote is important. The affirmative vote of the holders of a majority of the shares of Aviragen common stock properly cast at the Aviragen special meeting, presuming a quorum is present, is required for app roval of the Stock Issuance Proposal, the Executive Merger Compensation Proposal  and the Adjournment Proposal . The affirmative vote of the holders of a majority of the Aviragen common stock outstanding on the record date for the Aviragen special meeting is required for the approval of the Reverse Stock Split Proposal .  The option selected by the highest number of votes at the Special Meeting will be the option selected for the Say-on-Pay Frequency Proposal.  No Aviragen Proposal is conditioned upon any other Aviragen Proposal.

 

Even if you plan to attend the Aviragen special meeting in person, Aviragen requests that you sign and return the enclosed proxy or vote by telephone or by Internet to ensure that your shares will be represented at the Aviragen special meeting if you are unable to attend.

 

By Order of the Aviragen Board of Directors,

 

 

Joseph M. Patti, Ph.D.
President and Chief Executive Officer
Alpharetta, Georgia 30009

 

January 2 , 2018

 

THE AVIRAGEN BOARD OF DIRECTORS HAS DETERMINED AND BELIEVES THAT EACH OF THE PROPOSALS OUTLINED ABOVE IS ADVISABLE TO, AND IN THE BEST INTERESTS OF, AVIRAGEN AND ITS STOCKHOLDERS AND HAS APPROVED EACH SUCH PROPOSAL. THE AVIRAGEN BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT AVIRAGEN STOCKHOLDERS VOTE “FOR” EACH O F THE STOCK ISSUANCE PROPOSAL, THE REVERSE STOCK SPLIT PROPOSAL, THE EXECUTIVE MERGER COMPENSATION PROPOSAL AND THE ADJOURNMENT PROPOSAL AND “ONCE EVERY YEAR” FOR THE SAY-ON-PAY FREQUENCY PROPOSAL .

 

 

 

REFERENCES TO ADDITIONAL INFORMATION

 

This proxy statement/prospectus/information statement incorporates important business and financial information about Aviragen that is not included in or delivered with this document. You may obtain this information without charge through the SEC website (www.sec.gov) or upon your written or oral request by contacting the President and Chief Executive Officer of Aviragen Therapeutics, Inc., 2500 Northwinds Parkway, Suite 100, Alpharetta, Georgia 30009 or by calling (678) 221-3343.

 

To ensure timely delivery of these documents, any request should be made no later than January 26, 2018 to receive them before the special meeting.

 

For additional details about where you can find information about Aviragen, please see the section titled "Where You Can Find More Information" in this proxy statement/prospectus/information statement.

 

 

TABLE OF CONTENTS

 

QUESTIONS AND ANSWERS ABOUT THE MERGER

1

   

PROSPECTUS SUMMARY

8

   

The Parties

8

The Merger

8

Reasons for the Merger

9

Opinion of the Financial Advisor to the Aviragen Board of Directors

10

Overview of the Merger Agreement and Agreements Related to the Merger Agreement

10

Management Following the Merger

14

The Aviragen Special Meeting

14

Vaxart Solicitation of Written Consents

15

Interests of Directors and Executive Officers of Aviragen and Vaxart

16

Considerations with Respect to U.S. Federal Income Tax Consequences of the Merger

17

Risk Factors

17

Regulatory Approvals

18

Nasdaq Stock Market Listing

18

Anticipated Accounting Treatment

18

Appraisal Rights and Dissenters ’ Rights

18

Potential Vaxart Financing

18

Comparison of Stockholder Rights

19

   

SELECTED HISTORICAL AND UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION AND DATA

20

   

MARKET PRICE AND DIVIDEND INFORMATION

23

   

Aviragen Common Stock

23

Dividend Policy

23

   

RISK FACTORS

24

   

Risks Related to the Merger

24

Risks Related to Aviragen

27

Aviragen Risks Related to the Merger 27

Risks Related to Aviragen ’s Business

29

Risks Related to Commercial Matters

35

Risks Related to Aviragen ’s Intellectual Property

38

Risks Related to Aviragen Common Stock

41

Risks Related to Other Aspects of Aviragen ’s Business

45

Risks Related to Vaxart

45

Risks Related to Vaxart's Business, Financial Position, and Capital Requirements 45

Risks Related to Clinical Development, Regulatory Approval and Commercialization

52

Risks Related to Vaxart’s Dependence on Third Parties

61

Risks Related to Vaxart’s Intellectual Property

64

Risks Related to the Combined Company

66

   

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

69

   

THE SPECIAL MEETING OF AVIRAGEN STOCKHOLDERS

70

   

Date, Time and Place

70

Purposes of the Aviragen Special Meeting

70

Recommendation of the Aviragen Board of Directors

70

Record Date and Voting Power

71

Voting and Revocation of Proxies

71

Required Vote

72

Solicitation of Proxies

73

Other Matters

73

   

THE MERGER

74

 

 

Background of the Merger

74

Aviragen Reasons for the Merger

81

Vaxart Reasons for the Merger

83

Opinion of the Financial Advisor to the Aviragen Board of Directors

84

Interests of the Aviragen Directors and Executive Officers in the Merger

93

Interests of the Vaxart Directors and Executive Officers in the Merger

94

Limitations of Liability and Indemnification

96

Form of the Merger

97

Merger Consideration

97

Effective Time of the Merger

97

Regulatory Approvals

98

Tax Treatment of the Merger

98

Certain Material U.S. Federal Income Tax Consequences of the Merger

98

Tax Consequences if the Merger Failed to Qualify as a Reorganization 99

Nasdaq Stock Market Listing

100

Anticipated Accounting Treatment

100

Appraisal Rights and Dissenters ’ Rights

100

   

THE MERGER AGREEMENT

103

   

General

103

Merger Consideration

103

Exchange Ratio

103

Treatment of Aviragen Stock Options

105

Treatment of Vaxart Stock Options

105

Treatment of Vaxart Warrant 105

Directors and Executive Officers of the Combined Company Following the Merger

105

Conditions to the Closing of the Merger

105

Representations and Warranties

108

Non-Solicitation

109

Meetings of Stockholders

110

Covenants; Conduct of Business Pending the Merger

110

Other Agreements

112

Termination of the Merger Agreement

113

Termination Fees

114

Amendment

115

   

AGREEMENTS RELATED TO THE MERGER

116

   

MATTERS BEING SUBMITTED TO A VOTE OF AVIRAGEN STOCKHOLDERS

118

   

Aviragen Proposal No.  1 (the Stock Issuance Proposal): Approval of the Issuance of Common Stock in the Merger

118

Aviragen Proposal No.  2 (the Reverse Stock Split Proposal): Approval of the Amendment to the Certificate of Incorporation of Aviragen Effecting the Reverse Stock Split at a Ratio in the Range of 10 and 20-for-1

119

Aviragen Proposal No. 3 (Executive Merger Compensation Proposal): Advisory, Non-Binding Vote on Merger-Related Executive Compensation Arrangements

125

Aviragen Proposal No. 4 (Say-on-Pay Frequency Proposal): Advisory, Non-Binding  Vote on the Frequency of an Advisory Vote on Executive Compensation

126

Aviragen Proposal No.  5 (Adjournment Proposal): Approval of Possible Adjournment of the Aviragen Special Meeting

127

   

AVIRAGEN BUSINESS

128

   

Overview of Aviragen ’s Business and Recent Developments

128

Background

128

Aviragen ’s Pipeline

128

Aviragen ’s Strategy

132

Research and Development

133

Sales and Marketing

133

 

 

Manufacturing

133

Competition

133

Intellectual Property Rights and Patents

134

Licenses and Agreements

136

Regulatory Matters

136

Employees

142

Available Information

142

   

VAXART BUSINESS

143

   

Overview

143

Vaxart Development Programs 143
Additional Objectives 144

Vaxart ’s Pipeline

145

Vaxart ’s Tablet Vaccine Platform

145

Vaxart ’s Norovirus Program

149

Vaxart ’s Seasonal Influenza Program

157

Vaxart’s Respiratory Syncytial Virus (RSV) Program

164

Vaxart’s Human Papillomavirus (HPV) Therapeutic Vaccine Candidate

168

Other Indications

171

Manufacturing

171

Research and Development

172

Competition

172

Intellectual Property

173

Trade Secrets

174

Government Regulation and Product Approval

174

U.S. Product Development Process

174

Employees

180

Advisors

180

Facilities

180

Legal Proceedings

180

   

AVIRAGEN MANAGEMENT ’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

181

   

Overview

181

Financial  Operations Overview

181

Critical Accounting Policies and Estimates

182

Results of Operations

184

Liquidity and Capital Resources

186

Off-Balance Sheet Arrangements

188

   

VAXART MANAGEMENT ’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

189

   

Overview

189

Financial Operations Overview

190

Results of Operations

191

Liquidity and Capital Resources

194

Contractual Obligations and Other Commitments

196

Off-Balance Sheet Arrangements

196

Quantitative and Qualitative Disclosures about Market Risk

196

Critical Accounting Polices and Estimates

197

Income Taxes

198

   

MANAGEMENT FOLLOWING THE MERGER

199

   

Executive Officers and Directors of the Combined Company Following the Merger

199

Family Relationships

201

Board Composition

201

Director Independence

202

Board Committees

202

 

 

Code of Business Conduct and Ethics

203

Compensation Committee Interlocks and Insider Participation

204

Non-Employee Director Compensation

204

   

VAXART EXECUTIVE COMPENSATION

205

   

2016 Summary Compensation Table

205

Outstanding Equity Awards at December 31, 2016

206

Pension Benefits

206

Nonqualified Deferred Compensation

206

Vaxart ’s Employment Arrangements

206

Rule 10b5-1 Sales Plans

207

Employment Benefits Plans

207

401(k) Plan

208

   

CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS

209

   

Aviragen

209

Vaxart

209

Combined Company Related-Party Transaction Policy 211
   

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

212

   

DESCRIPTION OF AVIRAGEN CAPITAL STOCK

219

   

Common Stock

219

Preferred Stock

219

Stock Options

220

Restricted Stock Unit Awards

220

Warrants

220

Anti-Takeover Effects of Provisions of Aviragen Charter Documents and Delaware Law

220

Nasdaq Capital Market Listing

221

Transfer Agent and Registrar

221

   

COMPARISON OF RIGHTS OF HOLDERS OF AVIRAGEN STOCK AND VAXART STOCK

222

   

PRINCIPAL STOCKHOLDERS OF AVIRAGEN

228

   

PRINCIPAL STOCKHOLDERS OF VAXART

230

   

PRINCIPAL STOCKHOLDERS OF THE COMBINED COMPANY

232

   

LEGAL MATTERS

234

   

EXPERTS

234

   

WHERE YOU CAN FIND MORE INFORMATION

234

   

OTHER MATTERS

235

   

Aviragen Therapeutics, Inc. INDEX TO FINANCIAL STATEMENTS

F-A-1

   

VAXART, INC.INDEX TO FINANCIAL STATEMENTS

F-B-1

   

ANNEX A AGREEMENT AND PLAN OF MERGER AND REORGANIZATION

A-1

   

ANNEX B FORM OF CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF AVIRAGEN THERAPEUTICS, INC.

B-1

   

ANNEX C OPINION LETTER OF STIFEL

C-1

   

ANNEX D SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW

D-1

 

 

QUESTIONS AND ANSWERS ABOUT THE MERGER

 

Except where specifically noted, the following information and all other information contained in this proxy statement/prospectus/information statement does not give effect to the proposed reverse stock split of Aviragen common stock described in the Reverse Stock Split Proposal in this proxy statement/prospectus/information statement.

 

The following section provides answers to frequently asked questions about the merger. This section, however, provides only summary information. For a more complete response to these questions and for additional information, please refer to the cross-referenced sections.

 

Q:

What is the merger?

 

A:

Aviragen Therapeutics, Inc., or Aviragen, and Vaxart, Inc., or Vaxart, have entered into an Agreement and Plan of Merger and Reorganization, dated October 27, 2017, or the Merger Agreement. The Merger Agreement contains the terms and conditions of the proposed business combination of Aviragen and Vaxart. Under the Merger Agreement, Agora Merger Sub, Inc., a wholly-owned subsidiary of Aviragen, will merge with and into Vaxart, with Vaxart surviving the merger as a wholly-owned subsidiary of the combined company. Following the merger, Aviragen will be renamed “Vaxart, Inc.” and is referred to herein as the “combined company.”

 

Subject to the terms and conditions of the Merger Agreement, at the effective time of the merger , or the Effective Time, (a) each outstanding share of capital stock of Vaxart (other than any shares held as treasury stock that will be cancelled), will be converted into the right to receive the number of shares of Aviragen common stock equal to the Exchange Ratio described below and (b) each outstanding Vaxart stock option, whether vested or unvested, and warrant that has not previously been exercised prior to the Effective Time will be assumed by Aviragen and converted into an option or warrant, as applicable, to purchase shares of Aviragen common stock as described in the sections titled “Treatment of Vaxart Stock Options” and "Treatment of the Vaxart Warrant" below.

 

Under the Exchange Ratio formula in the Merger Agreement, as of immediately after the merger and assuming no adjustments for cash balances as provided for in the Merger Agreement, the former Vaxart securityholders are expected to own approximately 60% of the aggregate number of shares of common stock of the combined company immediately following the Effective Time, the Post-Closing Shares, and the securityholders of Aviragen as of immediately prior to the merger are expected to own approximately 40% of the aggregate number of Post-Closing Shares. The Exchange Ratio will be fixed prior to closing to reflect Aviragen’s and Vaxart’s capitalization as of immediately prior to such time.

 

Q:

What will happen to Aviragen if, for any reason, the merger does not close?

 

A:

If, for any reason, the merger does not close, the Aviragen board of directors may elect to, among other things, attempt to complete another strategic transaction like the merger, attempt to sell or otherwise dispose of the various assets of Aviragen or continue to operate the business of Aviragen. If the Stock Issuance Proposal is not approved but the Reverse Stock Split Proposal is approved, the Aviragen board may nevertheless authorize a reverse split of its common stock at a ratio in the range of 10 and 20-for-1 in order to satisfy Aviragen’s continued listing requirements on the Nasdaq Capital Market. Aviragen may be unable to identify and complete an alternative strategic transaction or continue to operate the business due to limited cash availability, and it may be required to dissolve and liquidate its assets. In such case, Aviragen would be required to pay all of its debts and contractual obligations, and to set aside certain reserves for potential future claims, and there can be no assurances as to the amount or timing of available cash left to distribute to stockholders after paying the debts and other obligations of Aviragen and setting aside funds for reserves.

 

Q:

Why are the companies proposing to merge?

 

A:

Aviragen and Vaxart believe that the combined company will have several potential advantages, including: (i) a focused pipeline with product candidates that have demonstrated promising efficacy and safety results, (ii) an efficient expected path to potential commercialization, (iii) operational synergies and (iv) an experienced management team.

 

Following the merger, the combined company will focus on developing Vaxart’s oral recombinant vaccines, based on its proprietary delivery platform that allows for administration by tablet rather than by injection, and on Aviragen’s direct-acting antivirals to treat infections that have limited therapeutic options. The Vaxart technology platform has been engineered for the delivery of a wide range of oral vaccines, initially targeting norovirus, human papilloma virus, or HPV, respiratory syncytial virus, and influenza. These programs address large therapeutic categories, with norovirus afflicting about 20 million people each year in the United States. To date, there is no approved vaccine for norovirus. The focus of Aviragen’s pipeline will be BTA074 and its Phase 2 program for the treatment of condyloma caused by HPV, which has completed patient enrollment and to report top-line safety and efficacy data in the second quarter of 2018.

 

 

For a more complete discussion of Aviragen and Vaxart reasons for the merger, please see the sections titled “The Merger—Aviragen Reasons for the Merger” and “The Merger—Vaxart Reasons for the Merger.”

 

Q:

Why am I receiving this proxy statement/prospectus/information statement?

 

A:

You are receiving this proxy statement/prospectus/information statement because you have been identified as a stockholder of Aviragen or Vaxart as of the applicable record date, and you are entitled, as applicable, to vote at the Aviragen stockholder meeting to approve among other things the issuance of shares of Aviragen common stock pursuant to the Merger Agreement and reverse stock split, or sign and return the Vaxart written consent to adopt the Merger Agreement and approve the transactions contemplated thereby. This document serves as:

 

 

a proxy statement of Aviragen used to solicit proxies for its special meeting of stockholders;

 

 

a prospectus of Aviragen used to issue shares of Aviragen common stock in exchange for shares of Vaxart common stock in the merger; and

 

 

an information statement of Vaxart used to solicit the written consent of its stockholders for the adoption of the Merger Agreement and the approval of the merger and related transactions.

 

Q:

What is required to consummate the merger?

 

A:

To consummate the merger, Aviragen stockholders must approve the issuance of shares of Aviragen common stock pursuant to the Merger Agreement. In addition, Vaxart stockholders must adopt the Merger Agreement and approve the merger and the transactions contemplated thereby.

 

The approval of the issuance of Aviragen common stock pursuant to the Merger Agreement by the stockholders of Aviragen requires the affirmative vote of the holders of a majority of the shares of Aviragen common stock properly cast at the Aviragen special meeting, presuming a quorum is present at the meeting. The approval of the reverse stock split is not a condition to the closing of the merger.

 

The adoption of the Merger Agreement and the approval of the merger and related transactions by the stockholders of Vaxart requires the affirmative vote of:

 

 

the holders of a majority of the outstanding shares of Vaxart common stock and preferred stock, voting together as a single clas s;

 

 

the holders of at least a majority of the outstanding shares of Vaxart preferred stock voting together as a single class and not as a separate series; and

 

 

the h olders of at least a majority of the outstanding shares of Vaxart Series B Preferred Stock and Series C Preferred Stock voting together as a single class and not as separate series.

 

In addition to the requirement of obtaining such stockholder approval and appropriate regulatory approval s, each of the other closing conditions set forth in the Merger Agreement must be satisfied or waived.

 

The approval of the reverse stock split is required to avoid the delisting of Aviragen common stock from the Nasdaq Capital Market. However, the approval of reverse stock split is not a condition precedent to the closing of the merger. Therefore, if Aviragen’s stockholders do not approve the Reverse Stock Split Proposal to effect the reverse stock split upon the closing of the merger, Aviragen has been advised that The Nasdaq Stock Market LLC will commence delisting proceedings immediately following the closing of the merger. If Aviragen’s stockholders do not approve the Reverse Stock Split Proposal, the combined company’s board of directors will immediately call for a second special meeting following the closing of the merger and request the stockholders of the combined company to approve a reverse stock split that will allow the combined company to remain in compliance with the listing requirements of The Nasdaq Stock Market LLC. If the Stock Issuance Proposal is not approved but the Reverse Stock Approval is approved, the Aviragen board of directors may nevertheless authorize a reverse split of its common stock at a ratio in the range of 10 and 20-for-1 as determined solely by the Aviragen board of directors in order to satisfy Aviragen’s continued listing requirements on the Nasdaq Capital Market.

 

 

Certain Vaxart stockholders including certain directors and executive officers who in th e aggregate own approximately 78.5% of the outstanding shares of Vaxart common stock (on an as converted basis), and certain Aviragen stockholders including certain directors and executive officers who in the aggregate own less than 1% of the outstanding shares of Aviragen common stock, are parties to support agreements with Aviragen and Vaxart pursuant to which such stockholders have agreed to vote for the adoption of the Merger Agreement and the merger and for the issuance of Aviragen common stock in the merger pursuant to the Merger Agreement and the reverse stock split, respectively, pursuant to the terms of the support agreements. In addition, following the registration statement on Form S-4, of which this proxy statement/prospectus/information statement is a part, being declared effective by the SEC and pursuant to the conditions of the Merger Agreement, Vaxart stockholders who are party to the support agreements will each execute written consents approving the merger and related transactions. The holders of a sufficient number of shares of Vaxart capital stock required to adopt the Merger Agreement have agreed to adopt the Merger Agreement via written consent. Vaxart stockholders, including those who are parties to support agreements, are requested to execute written consents providing such approvals. For a more detailed discussion of the support agreements see the section titled “Agreements Related to the Merger—Support Agreements and Written Consent.”

 

For a more complete description of the closing conditions under the Merger Agreement, please see the section titled “The Merger Agreement .”

 

Q:

What will Vaxart securityholders receive in the merger?

 

A:

As a result of the merger, Vaxart securityholders will become entitled to receive shares of Aviragen common stock equal to approximately 60% of the aggregate number of Post-Closing Shares.

 

For a more complete description of what Vaxart securityholders will receive in the merger, please see the sections titled “Market Price and Dividend Information” and “The Merger Agreement—Merger Consideration.”

 

Q:

What will Aviragen securityholders receive in the merger?

 

A:

Aviragen securityholders will not receive any new securities in the merger, but will instead retain ownership of their shares of Aviragen common stock equal to approximately 40% of the aggregate number of Post-Closing Shares.

 

Q:

Who will be the directors of the combined company following the merger?

 

A:

Upon the closing of the merger, the combined company’s board of directors is expected to be composed of seven directors. Three of the directors will be designated by Aviragen, and four of the directors will be designated by Vaxart and will be as follows:

 

Name

 

Current Principal Affiliation

Geoffrey F. Cox, Ph .D. (2)

 

Principal, Beacon Street Advisors

Michael J. Finney, Ph.D. (1)

 

Managing Director, Finney Capital

Wouter W. Latour, M.D. (1)

 

President and Chief Executive Officer, Vaxart

Jan Leschly (1)

 

Chairman and Managing Partner, Care Capital LLC

Richard J. Markham (1)

 

Partner, Care Capital LLC

John P. Richard (2)

 

Co-Founder and Head of Corporate Development, Mereo Biopharma, PLC

Anne M. VanLent (2)

 

President, AMV Advisors

       

 

(1) Vaxart designee

(2) Aviragen designee

 

Q:

Who will be the executive officers of combined company immediately following the merger?

 

A:

Upon the closing of the merger, the executive management team of the combined company is expected to be composed of the following members of the Vaxart executive management team:

 

Name

 

Title

Wouter W. Latour, M.D.

 

President, Chief Executive Officer and Director

Sean N. Tucker, Ph.D

 

Chief Scientific Officer

David Liebowitz, M.D., Ph.D

 

Chief Medical Officer

John M. Harland

 

Chief Financial Officer

 

Q:

What are the intended U.S. federal income tax consequences of the merger to Vaxart United States stockholders?

 

A:

Each of Aviragen and Vaxart intends that the merger qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, or the Code. In general, the material tax consequences to U.S. Holders (as defined herein) of Vaxart capital stock are expected to be as follows:

 

 

Each Vaxart stockholder should not generally recognize gain or loss upon the exchange of Vaxart capital stock for Aviragen common stock pursuant to the merger, except to the extent of cash received in lieu of a fractional share of Aviragen Therapeutics common stock as described below; and

 

 

 

Each Vaxart stockholder should recognize gain or loss to the extent any cash received in lieu of a fractional share of Aviragen Therapeutics common stock exceeds or is less than the basis of such fractional share.

 

However, there are many requirements that must be satisfied in order for the merger to be treated as a reorganization under Section  368(a) of the Code, some of which are based upon factual determinations, and the reorganization treatment could be affected by actions taken after the merger. If the merger failed to qualify as a reorganization under Section 368(a) of the Code, the Vaxart stockholders generally would recognize the full amount of gains and losses realized on the exchange of their Vaxart capital stock in the merger.

 

Tax matters are very complicated, and the tax consequences of the merger to a particular Vaxart stockholder will depend on such stockholder ’s circumstances. Accordingly, you should consult your tax advisor for a full understanding of the tax consequences of the merger to you, including the applicability and effect of federal, state, local and foreign income and other tax laws. For more information, please see the section titled “The Merger—Certain Material U.S. Federal Income Tax Consequences of the Merger.”

 

Q:

Do persons involved in the merger have interests that may conflict with mine as an Aviragen stockholder?

 

A:

Yes. In considering the recommendation of the Aviragen board of directors with respect to issuing shares of Aviragen common stock pursuant to the Merger Agreement and the other matters to be acted upon by Aviragen stockholders at the Aviragen special meeting, Aviragen stockholders should be aware that certain members of the Aviragen board of directors and executive officers of Aviragen have interests in the merger that may be different from, or in addition to, interests they have as Aviragen stockholders.

 

Aviragen has entered into employment agreements and stock option agreements with its executive officers that provide them with cash severance payments and acceleration of certain of their outstanding equity awards in the event their employment is terminated without cause or for good reason in connection with a change in control. Based on the terms of these employment agreements and stock option agreements, Aviragen’s executive officers will be contractually entitled to these severance payments and benefits because their employment with Aviragen will end in connection with the closing of the merger and remain outstanding for up to 18 months depending on the terms of the grant. Additionally, all outstanding equity awards held by Aviragen’s executive officers will accelerate fully and vest in connection with the closing of the merger. As of the date of this proxy statement/prospectus/information statement, Aviragen’s executive officers held stock options to purchase an aggregate of 2,888,304 shares of Aviragen common stock with a weighted average exercise price of $1.76 per share (all of which are out of the money based on the closing price of Aviragen common stock as of December 27, 2017). Based on data available as of the date of this proxy statement/prospectus/information statement, Aviragen’s executive officers will be entitled to receive a total of approximately $1.6 million (collectively, not individually) in cash severance payments in connection with the closing of the merger and the associated termination of their employment from Aviragen. For more information, please see the sections titled “The Merger—Interests of the Aviragen Directors and Executive Officers in the Merger” and “Aviragen Proposal No. 3 (Executive Merger Compensation Proposal).”

 

As of December 7, 2017, Aviragen ’s non-employee directors hold stock options to purchase an aggregate of 1,184,119 shares of Aviragen common stock with a weighted average exercise price of $3.18 per share. These stock options will by their terms vest in full upon the closing of the merger, including stock options for 96,666, 105,000 and 105,000 shares of Aviragen common stock held by Geoffrey F. Cox, Ph.D., John P. Richard and Anne M. VanLent, respectively, each of whom is expected to remain on the combined company’s board of directors. In addition, John P. Richard, as chairman of the transactions committee of the Aviragen board of directors, will receive a one-time payment of $13,000 for his service on such committee, and each of Messrs. Armando Anido and Russell H. Plumb, the other members of the transactions committee, will receive $10,000 for his service on such committee. For more information, please see the section titled “The Merger—Interests of the Aviragen Directors and Executive Officers in the Merger.”

 

Q:

Do persons involved in the merger have interests that may conflict wit h mine as a Vaxart stockholder?

 

A:

Yes. In considering the recommendation of the Vaxart board of directors with respect to approving the merger and related transactions by written consent, Vaxart stockholders should be aware that certain members of the Vaxart board of directors and executive officers of Vaxart have interests in the merger that may be different from, or in addition to, interests they have as Vaxart stockholders. All of Vaxart’s executive officers have options, subject to vesting, to purchase shares of Vaxart common stock which will convert into options to purchase a number of shares of Aviragen common stock determined by the Exchange Ratio, rounding any resulting fractional shares down to the nearest whole share, certain of Vaxart’s directors and all of its executive officers are expected to become directors and executive officers of the combined company upon the closing of the merger and all of Vaxart’s directors and executive officers are entitled to certain indemnification and liability insurance coverage pursuant to the terms of the Merger Agreement. For more information, please see the section titled “The Merger—Interests of the Vaxart Directors and Executive Officers in the Merger.”

 

 

Q:

As an Aviragen stockholder, how does the Aviragen board of directors recommend that I vote?

 

A:

After careful consideration, the Aviragen board of directors unanimously recommends that Aviragen stockholders vote:

 

 

FOR ” the Stock Issuance Proposal to consider and vote upon the issuance of shares of Aviragen common stock pursuant to the Merger Agreement;

 

 

FOR ” the Reverse Stock Split Proposal to consider and vote upon the amendment to the certificate of incorporation of Aviragen to effect a reverse stock split of Aviragen common stock, at a ratio in the range of 10 and 20-for-1, with such specific ratio to be mutually agreed upon by Aviragen and Vaxart or, if the Stock Issuance Proposal is not approved by Aviragen stockholders, determined solely by the Aviragen board of directors following the special meeting;

 

 

FOR ” the Executive Merger Compensation Proposal to consider and vote on a non-binding advisory basis, the compensation that will or may become payable by Aviragen to its named executive officers in connection with the Merger;

 

 

ONCE EVERY YEAR ” for the Say-on-Pay Frequency Proposal to consider and vote on a non-binding advisory basis on the frequency of the advisory vote on the compensation of Aviragen’s named executive officers, and

 

 

FOR ” the Adjournment Proposal to adjourn the special meeting, if necessary, if a quorum is present, to solicit additional proxies if there are not sufficient votes in favor of the Stock Issuance Proposal and/or Reverse Stock Split Proposal.

 

If a quorum is present, and the Stock Issuance Proposal has received sufficient votes for approval, but the Reverse Stock Split Proposal has not received the requisite votes for approval, and votes representing 2% or less of the aggregate number of shares of Aviragen common stock are needed to obtain such approval, then the special meeting will be adjourned with respect to the Reverse Stock Split Proposal for a maximum of five calendar days, during which period Aviragen will use commercially reasonable efforts to obtain such additional votes.

 

No Aviragen Proposal is contingent upon any other Aviragen Proposal. Therefore, assuming all other closing conditions have been either satisfied or waived, the merger will be consummated even if the Reverse Stock Split Proposal is not approved by Aviragen’s stockholders. However, if Aviragen’s stockholders do not approve the Reverse Stock Split Proposal to effect the reverse stock split upon the closing of the merger, Aviragen has been advised that The Nasdaq Stock Market LLC will commence delisting proceedings immediately following the closing of the merger. In such event, then pursuant to the Merger Agreement, the combined company’s board of directors will immediately call for a second special meeting following the closing of the merger and request the stockholders of the combined company to approve a reverse stock split that will allow the combined company to remain in compliance with the listing requirements of The Nasdaq Stock Market LLC. The combined company is obligated to use commercially reasonable efforts to take such steps as necessary to ensure the continued listing of its common stock on the Nasdaq Capital Market following the closing of the merger. If the Stock Issuance Proposal is not approved but the Reverse Stock Split Approval is approved, the Aviragen board of directors may nevertheless authorize a reverse split of its common stock at a ratio in the range of 10 and 20-for-1 as determined solely by the Aviragen board of directors in order to satisfy Aviragen’s continued listing requirements on the Nasdaq Capital Market.

 

Q:

As a Vaxart stockholder, how does the Vaxart board of directors recommend that I vote?

 

A:

After careful consideration, the Vaxart board of directors recommends that the Vaxart stockholders execute the written consent indicating their votes in favor of the adoption of the Merger Agreement and the approval of the merger and the transactions contemplated thereby.

 

Q:

What risks should I consider in deciding whether to vote in favor of the issuance of shares of Aviragen common stock pursuant to the Merger Agreement or to execute and return the written consent approving the Merger Agreement and the transactions contemplated thereby, as applicable?

 

A:

You should carefully review this proxy statement/prospectus/information statement, including the section titled “Risk Factors,” which sets forth certain risks and uncertainties related to the merger, risks and uncertainties to which the combined company’s business will be subject, and risks and uncertainties to which each of Aviragen and Vaxart, as an independent company, is subject.

 

 

Q:

When do you expect the merger to be consummated?

 

A:

The merger is anticipated to close as soon as possible after the Aviragen special meeting is held on February 6, 2018, but Aviragen cannot predict the exact timing. For more information, please see the section titled “The Merger Agreement—Conditions to the Closing of the Merger.”

 

Q:

What do I need to do now?

 

A:

Aviragen and Vaxart urge you to read this proxy statement/prospectus/information statement carefully, including its annexes, and to consider how the merger affects you.

 

If you are an Aviragen stockholder, you may provide your proxy instructions in one of three different ways. 

 

 

By Internet: If you have Internet access, you may submit your proxy by following the Internet voting instructions on the proxy card or voting instruction card sent to you.

 

 

By Telephone: You may submit your proxy by following the telephone voting instructions on the proxy card or voting instruction card sent to you.

 

 

By Mail: You may do this by marking, dating and signing your proxy card or, for shares held in “ street name,” the voting instruction card provided to you by your broker or other nominee, and mailing it in the enclosed, self-addressed, postage prepaid envelope. No postage is required if mailed in the United States.

 

Please provide your proxy instructions only once, unless you are revoking a previously delivered proxy instruction, and as soon as possible so that your shares can be voted at the special meeting of Aviragen stockholders.

 

If you are a Vaxart stockholder, you may execute and return your written consent to Vaxart in accordance with the instructions provided.

 

Q:

What happens if I do not return a proxy card or otherwise provide proxy instructions, as applicable?

 

A:

If you are a stockholder of record and you return a signed proxy card without marking any selections, your shares will be voted “ FOR ” each of the Stock Issuance Proposal, the Reverse Stock Split Proposal, the Executive Merger Compensation Proposal and the Adjournment Proposal and “ ONCE EVERY YEAR ” for the Say-on-Pay Frequency Proposal.

 

If you do not give instruction to your broker, your broker can vote your Aviragen shares with respect to “discretionary” items but not with respect to “non-discretionary” items. It is anticipated that the Stock Issuance Proposal, Executive Merger Compensation Proposal, the Say-on-Pay Frequency Proposal and the Adjournment Proposal will be non-discretionary items. On non-discretionary items for which you do not give your broker instructions, the Aviragen shares will be treated as broker non-votes. Broker non-votes will not be considered to be shares “entitled to vote” at the meeting and will not be counted as having been voted on the applicable proposal. The Reverse Stock Split Proposal is a matter on which a broker or other nominee is generally empowered to vote, and therefore, limited or no broker non-votes are expected with respect to that proposal.

 

Q:

May I vote in person at the special meeting of stockholders of Aviragen?

 

A:

If your shares of Aviragen common stock are registered directly in your name with the Aviragen transfer agent, you are considered to be the stockholder of record with respect to those shares, and the proxy materials and proxy card are being sent directly to you by Aviragen. If you are an Aviragen stockholder of record, you may attend the special meeting of Aviragen stockholders and vote your shares in person. Even if you plan to attend the Aviragen special meeting in person, Aviragen requests that you sign and return the enclosed proxy to ensure that your shares will be represented at the Aviragen special meeting if you are unable to attend. If your shares of Aviragen common stock are held in a brokerage account or by another nominee, you are considered the beneficial owner of shares held in “street name,” and the proxy materials are being forwarded to you by your broker or other nominee together with a voting instruction card. As the beneficial owner, you are also invited to attend the special meeting of Aviragen stockholders. Because a beneficial owner is not the stockholder of record, you may not vote these shares in person at the Aviragen special meeting unless you obtain a proxy from the broker, trustee or nominee that holds your shares, giving you the right to vote the shares at the meeting.

 

Q:

When and where is the special meeting of Aviragen stockholders being held?

 

A:

The special meeting of Aviragen stockholders will be held at 2500 Northwinds Parkway, Suite 100, Alpharetta, Georgia 30009, at 9:00 a.m. local time, on February 6, 2018. Subject to space availability, all Aviragen stockholders as of the record date, or their duly appointed proxies, may attend the meeting. Since seating is limited, admission to the meeting will be on a first-come, first-served basis.

 

Q:

If my Aviragen shares are held in “street name” by my broker, will my broker vote my shares for me?

 

A:

Unless your broker has discretionary authority to vote on certain matters, your broker will not be able to vote your shares of Aviragen common stock on matters requiring discretionary authority without instructions from you. Brokers are not expected to have discretionary authority to vote for the Stock Issuance Proposal, the Executive Merger Compensation Proposal, the Say-on-Pay Frequency Proposal or the Adjournment Proposal. To make sure that your vote is counted, you should instruct your broker to vote your shares, following the procedures provided by your broker. Brokers are expected to have discretionary authority to vote for the Reverse Stock Split Proposal.

 

 

Q:

May I change my vote after I have submitted a proxy or provided proxy instructions?

 

A:

Aviragen stockholders of record, other than those Aviragen stockholders who are parties to support agreements, may change their vote at any time before their proxy is voted at the Aviragen special meeting in one of three ways. First, an Aviragen stockholder of record can send a written notice to the Secretary of Aviragen stating that it would like to revoke its proxy. Second, an Aviragen stockholder of record can submit new proxy instructions either on a new proxy card or via telephone or the Internet. Third, an Aviragen stockholder of record can attend the Aviragen special meeting and vote in person. Attendance alone will not revoke a proxy. If an Aviragen stockholder of record or a stockholder who owns Aviragen shares in “street name” has instructed a broker to vote its shares of Aviragen common stock, the stockholder must follow directions received from its broker to change those instructions.

 

Q:

Who is paying for this proxy solicitation?

 

A:

Aviragen and Vaxart will share equally the costs of printing and filing this proxy statement/prospectus/information statement and proxy card. Arrangements will also be made with brokerage firms and other custodians, nominees and fiduciaries who are record holders of Aviragen common stock for the forwarding of solicitation materials to the beneficial owners of Aviragen common stock. Aviragen and Vaxart will reimburse these brokers, custodians, nominees and fiduciaries for the reasonable out-of-pocket expenses they incur in connection with the forwarding of solicitation materials. Aviragen has engaged D.F. King & Co., Inc. to assist in the solicitation of proxies and provide related advice and informational support, for a service fee, plus customary disbursements, which are not expected to exceed $15,000 in total, which shall be shared equally by Aviragen and Vaxart.

 

Q:

Who can help answer my questions?

 

A:

If you are an Aviragen stockholder and would like additional copies, without charge, of this proxy statement/prospectus/information statement or if you have questions about the merger, including the procedures for voting your shares, you should contact Aviragen’s proxy solicitor:

 

D.F. King & Co., Inc.
(800) 967-5074 (toll free)

(212) 269-5550 (collect)

 

If you are a Vaxart stockholder and would like additional copies, without charge, of this proxy statement/prospectus/information statement or if you have questions about the merger, including the procedures for voting your shares, you should contact:

 

Vaxart, Inc.
395 Oyster Point Blvd., Suite 405
South San Francisco, California 94080
Attention: Chief Executive Officer

 

 

PROSPECTUS SUMMARY

 

This summary highlights selected information from this proxy statement/prospectus/information statement and may not contain all of the information that is important to you. To better understand the merger, the proposals being considered at the Aviragen special meeting and the Vaxart stockholder actions that are the subject of the written consent, you should read this entire proxy statement/prospectus/information statement carefully, including the Merger Agreement and the other annexes to which you are referred to herein. For more information, please see the section titled “Where You Can Find More Information.”

 

The Parties

 

Aviragen Therapeutics, Inc.

 

2500 Northwinds Parkway, Suite 100
Alpharetta, Georgia 30009
(678) 221-3343

 

Aviragen Therapeutics, Inc., or Aviragen , is a biopharmaceutical company that has been focused on the discovery and development of direct-acting antivirals to treat infections that have limited therapeutic options and affect a significant number of patients globally. Aviragen has three Phase 2 clinical stage compounds: BTA074 (teslexivir), an antiviral treatment for condyloma caused by human papillomavirus types 6 & 11; vapendavir, a capsid inhibitor for the prevention or treatment of rhinovirus, or RV, upper respiratory infections; and BTA585 (enzaplatovir), a fusion protein inhibitor in development for the treatment of respiratory syncytial virus infections.

 

Vaxart, Inc.

 

395 Oyster Point Blvd., Suite 405
South San Francisco, California 94080
(650) 550-3500

 

Vaxart is a clinical-stage pharmaceutical company focused on developing oral recombinant protein vaccines based on its proprietary oral vaccine platform. Vaxart believes its platform is suitable to deliver many recombinant protein antigens such as those used in currently marketed influenza, hepatitis B and human papilloma virus, or HPV, vaccines, as well as many other recombinant vaccines currently in Vaxart’s industry pipeline.

 

Agora Merger Sub, Inc.

2500 Northwinds Parkway, Suite 100
Alpharetta, Georgia 30009
(678) 221-3343

 

Agora Merger Sub, Inc., or Merger Sub, is a wholly-owned subsidiary of Aviragen and was formed solely for the purposes of carrying out the merger.

 

The Merger

 

If the merger is consummated, Merger Sub will merge with and into Vaxart, with Vaxart surviving the merger as a wholly -owned subsidiary of the combined company.

 

Subject to the terms and conditions of the Merger Agreement, at the effective time of the merger, or the Effective Time, (a) each outstanding share of capital stock of Vaxart, will be converted into the right to receive approximately 0.3198, or the Exchange Ratio, shares of Aviragen common stock, subject to adjustment for any Aviragen reverse stock split, and (b) each outstanding Vaxart stock option, whether vested or unvested, and warrant that has not previously been exercised prior to the Effective Time will be converted into a stock option or warrant, as the case may be, to purchase approximately 0.3198 shares of Aviragen common stock. The Exchange Ratio is an estimate only and the final Exchange Ratio will be determined pursuant to a formula described in more detail in the Merger Agreement and in this proxy statement/prospectus/information statement.

 

Under the Exchange Ratio formula in the Merger Agreement, as of immediately after the merger and assuming no adjustments for cash balances as provided for in the Merger Agreement, the former Vaxart securityholders are expected to own approximately 60% of the Post-Closing Shares, and the securityholders of Aviragen as of immediately prior to the merger are expected to own approximately 40% of the aggregate number of Post-Closing Shares. This Exchange Ratio will be fixed prior to closing to reflect Aviragen’s and Vaxart’s capitalization as of immediately prior to such time. These percentages assume that the Exchange Ratio is not adjusted, as described in the section titled "The Merger Agreement—Merger Consideration" below. For a more complete description of the Exchange Ratio, please see the section titled "The Merger Agreement—Exchange Ratio" in this proxy statement/prospectus/information statement.

 

 

The closing of the merger will occur no later than the second business day after the last of the conditions to the merger has been satisfied or waived, or at another time as Aviragen and Vaxart agree. Aviragen and Vaxart anticipate that the closing of the merger will occur promptly after the Aviragen special meeting. However, because the merger is subject to a number of conditions, neither Aviragen nor Vaxart can predict exactly when the closing will occur or if it will occur at all. After the closing of the merger, the name of the combined company will be changed from “Aviragen Therapeutics, Inc.” to “Vaxart, Inc.”

 

Reasons for the Merger

 

On April 4, 2017, Aviragen announced that based on a review of the status of its internal programs, resources and capabilities, it planned to explore a wide range of strategic alternatives that include a business combination or strategic merger, in-licensing clinical stage programs, an acquisition, or other transaction that would complement its current pipeline and could maximize both near and long-term value for Aviragen stockholders. Aviragen retained Stifel, Nicolaus & Company, Incorporated, or Stifel, to serve as its financial advisor in certain aspects of the process. After a comprehensive review of strategic alternatives, on October 30, 2017, Aviragen announced the signing of a definitive merger agreement with Vaxart. The addition of Vaxart’s business will complement Aviragen’s focus on infectious diseases and position the combined company to create both near and long-term value for its stockholders. Following the merger, the combined company will focus on developing Vaxart’s oral recombinant vaccines, based on its proprietary delivery platform that allows for administration by tablet rather than by injection, and on Aviragen’s direct-acting antivirals to treat infections that have limited therapeutic options. Vaxart’s technology platform has been engineered for the delivery of a wide range of oral vaccines, initially targeting norovirus, HPV, respiratory syncytial virus, and influenza. These programs address large therapeutic categories, with norovirus afflicting about 20 million people each year in the United States. To date, there is no approved vaccine for norovirus. The focus of Aviragen’s pipeline will be BTA074 and its Phase 2 program for the treatment of condyloma caused by HPV, which has competed patient enrollment and is expected to report top-line safety and efficacy data in the second quarter of 2018.

 

In reaching its unanimous decision to approve the Merger Agreement and the transactions contemplated thereby, the Aviragen board of directors considered a number of factors, including, among others, the following:

 

 

the historical and current information concerning Aviragen ’s business, financial performance, financial condition, operations, management and competitive position, the prospects of Aviragen and its product candidates, the nature of the biotechnology industry generally, including financial projections of Aviragen under various scenarios and its short- and long-term strategic objectives;

 

 

that Vaxart ’s proprietary technology platform, with its broad applicability in the pharmaceutical industry, as well as its product pipeline, which includes clinical stage candidates that address sizeable market opportunities, may provide new medical benefits for patients and returns for investors;

 

 

that the merger would provide existing Aviragen stockholders a significant opportunity to participate in the potential growth of the combined company following the merger;

 

 

that the combined company will be led by an experienced senior management team from Vaxart and a board of directors with representation from each of the current boards of directors of Aviragen and Vaxart;

 

 

the failure of vapendavir to meet the primary endpoint in its Phase 2 SPIRITUS trial and the failure of BTA585 to meet the primary endpoint in its Phase 2 challenge trial; and

 

 

the terms of the Merger Agreement and associated transactions, including the relative percentage ownership of Aviragen securityholders and Vaxart securityholders immediately following the closing of the merger, the reasonableness of the fees and expenses related to the Merger and the likelihood that the merger will be completed.

 

For more information on the Aviragen board of directors ’ reasons for the transaction, see the section titled “The Merger—Aviragen Reasons for the Merger.”

 

In reaching its unanimous decision to approve the Merger Agreement and the related transactions, the Vaxart board of directors considered a number of factors, including, among others, the following:

 

 

the potential increased access to sources of capital than it could otherwise obtain if it continued to operate as a privately held company;

 

 

the potential to provide its current stockholders with greater liquidity by owning stock in a public company;

 

 

 

the Vaxart board of directors’ belief that no alternatives to the merger were reasonably likely to create greater value for the Vaxart stockholders after reviewing the various strategic options to enhance stockholder value that were considered by the Vaxart board of directors;

 

 

the cash resources of the combined company expected to be available at the closing of the merger; and

 

 

the expectation that the merger will be treated as a reorganization for U.S. federal income tax purposes, with the result that the Vaxart stockholders will not recognize taxable gain or loss for U.S. federal income tax purposes upon the exchange of Vaxart common stock for Aviragen common stock pursuant to the merger.

 

For more information on the Vaxart board of directors ’ reasons for the transaction, see the section titled “The Merger—Vaxart Reasons for the Merger.”

 

Opinion of the Financial Advisor to the Aviragen Board of Directors

 

The Aviragen board of directors engaged Stifel to provide financial advisory and investment banking services in connection with the board of directors ’ consideration and evaluation of certain potential strategic alternatives. On October 27, 2017, Stifel delivered its oral opinion to the Aviragen board of directors, which opinion was confirmed in writing on the same date, that, as of the date of such opinion, and based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations of the review set forth in its written opinion, as of October 27, 2017, the merger consideration to be paid by Aviragen  to Vaxart stockholders in the merger pursuant to the Merger Agreement was fair to Aviragen, from a financial point of view.

 

The full text of Stifel ’s written opinion, which sets forth the assumptions made, procedures followed, matters considered, and qualifications and limitations of the review undertaken by Stifel in connection with such opinion, is attached as Annex C to this proxy statement/prospectus/information statement and is incorporated herein by reference. Aviragen urges you to carefully read the Stifel opinion, together with the description of such opinion included elsewhere in this proxy statement/prospectus/information statement, in its entirety. Stifel provided its opinion to the Aviragen board of directors for its information and assistance in connection with its consideration of the financial terms of the merger. Stifel’s opinion addressed solely the fairness, from a financial point of view, of the merger consideration to be paid by Aviragen to Vaxart stockholders in the merger pursuant to the Merger Agreement, to Aviragen. Stifel’s opinion did not address Aviragen’s underlying business decision to proceed with the merger or the relative merits of the merger compared to other alternative transactions or business strategies which may have been available to Aviragen. Stifel’s opinion did not constitute a recommendation to the Aviragen board of directors or any other person, and is not a recommendation to any Aviragen or Vaxart stockholder, as to how to vote or act with respect to the merger or any other matter. For a more complete discussion of Stifel’s opinion, see the section titled “The Merger—Opinion of the Financial Advisor to the Aviragen Board of Directors.”

 

Overview of the Merger Agreement and Agreements Related to the Merger Agreement

 

Merger Consideration

 

A t the closing of the merger:

 

 

each outstanding share of capital stock of Vaxart will be converted into the right to receive approximately 0.3198 shares of Aviragen common stock, subject to adjustment for any reverse stock split; and

 

 

each outstanding Vaxart stock option, whether vested or unvested, and warrant that has not previously been exercised prior to the Effective Time will be converted into a stock option or warrant, as the case may be, to purchase approximately 0.3198 shares of Aviragen common stock.

 

Immediately after the merger, based on the Exchange Ratio, Vaxart securityholders will own approximately 60% of the outstanding capital stock of the combined company, and Aviragen securityholders will own approximately 40% of the outstanding capital stock of the combined company. The Exchange Ratio is an estimate only and the final Exchange Ratio will be determined pursuant to a formula described in more detail in the Merger Agreement and in this proxy statement/prospectus/information statement. Adjustments to the Exchange Ratio are described in more detail in the Merger Agreement and in this proxy statement/prospectus/information statement.

 

The Merger Agreement does not include a price-based termination right, and there will be no adjustment to the total number of shares of Aviragen common stock that Vaxart securityholders will be entitled to receive for changes in the market price of Aviragen common stock.

 

Accordingly, the market value of the shares of Aviragen common stock issued pursuant to the Merger Agreement will depend on the market value of the shares of Aviragen common stock at the time the merger closes and could vary significantly from the market value on the date of this proxy statement/prospectus/information statement. On December 29, 2017, the last trading day before the date of this proxy statement/prospectus/information statement, the closing sale price of Aviragen common stock was $0.57 per share.

 

 

Treatment of Avi ragen Stock Options

 

Each unexpired and unexercised option to purchase shares of Aviragen common stock issued under Aviragen ’s compensatory benefit arrangements, other than the unexpired and unexercised options to purchase 2,125,000 shares of Aviragen common stock in the aggregate granted to executive officers and employees of Aviragen in March and April 2017 (the “Retention Options”), will by its terms vest in full at the Effective Time. Aviragen expects that each Retention Option will accelerate in full by its terms when the optionee separates from employment with Aviragen or the combined company in connection with the merger, with each Retention Option remaining outstanding immediately after the Effective Time in accordance with its terms, including without limitation remaining exercisable until the earlier of 18 months following such termination of the optionee’s employment and the expiration date of the Retention Option. The number of shares of Aviragen common stock underlying such options and the exercise prices for such options will be appropriately adjusted to reflect Aviragen’s proposed reverse stock split, if consummated. The terms governing options to purchase shares of Aviragen common stock will otherwise remain in full force and effect following the closing of the merger.

 

Treatment of Vaxart Stock Options and Warrant

 

Stock Options

 

At the Effective Time, each option or other right to purchase capital stock issued by Vaxart that is outstanding and unexercised immediately prior to the Effective Time under Vaxart’s Amended and Restated 2007 Equity Incentive Plan, whether or not vested, shall be assumed by Aviragen and converted into an option to purchase shares of Aviragen common stock. Aviragen will assume the Plan and each such option in accordance with the terms of the Plan and the terms of the stock option agreement by which such option is evidenced. From and after the Effective Time, each Vaxart option assumed by Aviragen may be exercised for such number of shares of Aviragen common stock as is determined by multiplying the number of shares of Vaxart common stock that were subject to the Vaxart option by the Exchange Ratio, and rounding the resulting number down to the nearest whole number of shares of Aviragen common stock. The per share exercise price of the converted option will be determined by dividing the existing per share exercise price of the Vaxart option by the Exchange Ratio, and rounding to the resulting exercise price up to the nearest whole cent. Any restrictions on the exercise of any Vaxart option assumed by Aviragen will continue following the conversion, and the term, exercisability, vesting schedule and other provisions of the Vaxart option will generally remain unchanged; provided, that any Vaxart options assumed by Aviragen may be subject to adjustment to reflect changes in Aviragen’s capitalization after the Effective Time and that the Aviragen board of directors or a committee thereof will succeed to the authority and responsibility of the Vaxart board of directors or a committee thereof with respect to each assumed Vaxart option.

 

Warrant

 

S ubject to a letter agreement by and between Oxford Finance LLC, or Oxford, Vaxart’s principal lender, and Vaxart, on the Effective Date, the combined company shall issue to Oxford a replacement warrant in lieu of the warrant to purchase Series C Preferred Stock of Vaxart currently held by Oxford. The replacement warrant shall be exercisable for a number of shares of common stock of the combined company equal to (a) the number of shares of Series C Preferred Stock of Vaxart that the existing warrant is exercisable for multiplied by (b) the Exchange Ratio, at a per share price equal to (i) the exercise price per share of Series C Preferred Stock of Vaxart under the existing warrant divided by (ii) the Exchange Ratio.

 

Conditions to the Closing of the Merger

 

To consummate the merger, a majority of shares of Aviragen common stock present in person or represented by proxy at a stockholder meeting at which a quorum is present must approve the issuance of shares of Aviragen common stock pursuant to the Merger Agreement.

 

The Vaxart stockholders holding the securities set forth below must approve and adopt the Merger Agreement and the transactions contemplated thereby, including the merger:

 

 

the majority of shares of common stock and preferred s tock (voting as a single class);

 

 

the majority of the shares of common stock (voting as a separate class); and

 

 

the majority of the shares of Vaxart ’s Series B Preferred Stock and Series C Preferred Stock (voting as a single class and not as separate series),

 

 

In addition to obtaining such stockholder approvals, each of the other closing conditions set forth in the Merger Agreement must be satisfied or waived.

 

No n-Solicitation

 

Each of Aviragen and Vaxart have agreed that, subject to certain exceptions, neither they nor any of their respective subsidiaries will authorize or permit any of their or their subsidiaries ’ directors, officers, employees, agents, attorneys, accountants, investment bankers, advisors and representatives to, directly or indirectly:

 

 

solicit, initiate or knowingly encourage, induce or facilitate the communication, making, submission or announcemen t of, any “acquisition proposal” or “acquisition inquiry,” each as defined in the Merger Agreement and as defined in the section titled “The Merger Agreement—Non-Solicitation” below;

 

 

furnish any non-public information with respect to it to any person in connection with or in response to an acquisition proposal or an acquisition inquiry;

 

 

engage in discussions or negotiations with any person with respect to any acquisition proposal or acquisition inquiry;

 

 

subject to certain exceptions, approve, endorse or recommend an acquisition proposal;

 

 

execute or enter into any letter of intent or any contract contemplating or otherwise relating to any “acquisition transaction,” as defined in the Merger Agreement and as defined in the section titled “The Merger Agreement —Non-Solicitation” below; or

 

 

publicly propose to do any of the above.

 

However, before obtaining the Aviragen stockholder approval required to consummate the merger, Aviragen may furnish nonpublic information regarding such party to, and may enter into discussions or negotiations with, any person in response to a bona fide written acquisition proposal, which the Aviragen board of directors determines in good faith, after consultation with Aviragen ’s financial advisor and outside legal counsel, constitutes or is reasonably likely to result in a “superior offer,” as defined in the Merger Agreement and as defined in the section titled “The Merger Agreement—Non-Solicitation” below, and is not withdrawn, if:

 

 

neither Aviragen nor any of its directors, officers, employees, agents, attorneys, accountants, investment bankers, advisors and representatives has breached the non-solicitation provisions of the Merger Agreement described above;

 

 

the Aviragen board of directors concludes in good faith based on the advice of outside legal counsel, that the failure to take such action is reasonably likely to be inconsistent with the fiduciary duties of the Aviragen board of directors under applicable law;

 

 

Aviragen receives from the third -party an executed confidentiality agreement containing provisions (including nondisclosure provisions, use restrictions, non-solicitation provisions and no hire provisions) at least as favorable to such party as those contained in the confidentiality agreement between Aviragen and Vaxart; and

 

 

substantially contemporaneously with furnishing of n onpublic information to a third-party, Aviragen furnishes the same information to the other party to the extent not previously furnished.

 

If either Aviragen or Vaxart receives an acquisition proposal or acquisition inquiry at any time during the period between October 27, 2017 and earlier to occur of (a) the Effective Time and (b) termination of the Merger Agreement, then such party must promptly, and in no event later than one business day after becoming aware of such acquisition proposal or acquisition inquiry, advise the other party orally and in writing of such acquisition proposal or acquisition inquiry, including the identity of the person making or submitting the acquisition proposal or acquisition inquiry and the material terms thereof. Each of Aviragen and Vaxart must keep the other reasonably informed with respect to the status and material terms of any such acquisition proposal or acquisition inquiry and any material modification or proposed material modification thereto.

 

Termination of the Merger Agreement

 

Either Aviragen or Vaxart can terminate the Merger Agreement under certain circumstances, which would prevent the merger from being consummated.

 

Termination Fees

 

If the Merger Agreement is terminated under certain circumstances and certain other events occur, Aviragen will be required to pay Vaxart a termination fee of $1.95 million. Moreover, if Aviragen fails to pay any termination fee when due, then it will be required to pay interest on and reasonable fees and expenses incurred in connection with the collection of such overdue amount in addition to the $1.95 million termination fee.

 

 

Support Agreements and Written Consent

 

Vaxart

 

Certain Vaxart stockholders are party to a support agreement with Aviragen, Agora Merger Sub and Vaxart pursuant to which, among other things, each such stockholder agreed, solely in his, her or its capacity as a Vaxart stockholder, to vote all of his, her or its shares of Vaxart capital stock in favor of the adoption and approval of the Merger Agreement and the transactions contemplated thereby and to acknowledge that the adoption and approval of the Merger Agreement is irrevocable. In addition, these Vaxart stockholders agreed not to, directly or indirectly, knowingly take any action that Vaxart is not permitted to take under the non-solicitation provisions of the Merger Agreement. The parties to these support agreements with Aviragen, Agora Merger Sub and Vaxart are:

 

 

Care Capital Investments III, LP

 

Care Capital Offshore Investments III, LP.

 

F rances Chang

 

M ichael J. Finney, Ph.D.

 

J ohn M. Harland

 

W outer W. Latour, M.D.

  Life Science Angel Investors III, LLC
 

D avid Liebowitz, M.D., Ph.D.

 

S ean N. Tucker, Ph.D.

 

The stockholders of Vaxart that are party to a support agreement with Aviragen co nsist of:

 

 

the holders of a majority of the shares of Vaxart common stock and preferred stock each outstanding on the record date and entitled to vote ther eon (voting as a single class);

     
 

the holders of a majority of the shares of Vaxart common stock each outstanding on the record date and entitled to vote thereon (voting as a separate class) ; and

     
 

the holders of a majority of the shares of Vaxart Series B Preferred Stock and Series C Preferred Stock outstanding on the record date and entitled to vote thereon (voting as a single class and not as separate series).

 

Therefore, holders of the number of shares of Vaxart capital stock required to approve and adopt the Me rger Agreement and approve the merger and related transactions are contractually obligated to approve and adopt the Merger Agreement. Following the effectiveness of the registration statement of which this proxy statement/prospectus/information statement is a part and pursuant to the Merger Agreement, stockholders of Vaxart holding a sufficient number of shares to approve and adopt the Merger Agreement and thereby approve the merger and related transactions will execute written consents providing for such adoption and approval.

 

Aviragen

 

Certain Aviragen stockholders are party to a support agreement with Aviragen, Agora Merger Sub and Vaxart pursuant to which, among other things, each of such stockholders agreed, solely in his or her capacity as a stockholder, to vote all of his or her shares of Aviragen common stock in favor of the approval of the issuance of shares of Aviragen common stock pursuant to the Merger Agreement and the reverse stock split of Aviragen common stock. In addition, these Aviragen stockholders agreed not to, directly or indirectly, knowingly take any action that Aviragen is not permitted to take under the non-solicitation provisions of the Merger Agreement. The parties to these support agreements with Aviragen, Agora Merger Sub and Vaxart are:

 

 

Armando Anido

 

Mark P. Colonnese

 

Geoffrey F. Cox, Ph.D.

 

Michael R. Dougherty

 

Michael W. Dunne, M.D.

 

J oseph M. Patti, Ph.D.

 

Russell H. Plumb

 

John P. Richard

 

Anne M. VanLent

 

 

The stockholders of Aviragen that are party to a support agreement with Aviragen, Agora Merger Sub and Vaxart consist of the holders of an aggregate of 371,341 shares of Aviragen common stock, representing less than 1% of the outstanding shares of Aviragen common stock as of January 2, 2018. These stockholders are solely comprised of the executive officers and directors of Aviragen.

 

Lock-up Agreements

 

Vaxart

 

As a condition to the closing of the merger, Vaxart’s directors, executive officers and principal stockholders, who will beneficially hold 53.9% of the combined company’s capital stock immediately following the closing of the merger, have entered into lock-up agreements, pursuant to which such parties have agreed not to, except in limited circumstances, transfer, grant an option with respect to, sell, exchange, pledge or otherwise dispose of, or encumber any shares of Vaxart capital stock prior to the closing of the merger, and the combined company’s common stock thereafter, for 180 days following the Effective Time.

 

Aviragen

 

None of Aviragen ’s stockholders have entered into lock-up agreements.

 

Management Following the Merger

 

Effective as of the closing of the merger, the combined company’s executive officers are expected to be composed of the following current members of the Vaxart management team:

 

Name

 

Position(s)

Wouter W. Latour, M.D.

 

President, Chief Executive Officer and Director

Sean N. Tucker, Ph.D

 

Chief Scientific Officer

David Liebowitz, M.D.

 

Chief Medical Officer

John M. Harland

 

Chief Financial Officer

 

The Aviragen Special Meeting

 

The special meeting of stockholders of Aviragen will be held on February 6, 2018 at 9:00 a.m., local time, at 2500 Northwinds Parkway, Suite 100, Alpharetta, Georgia 30009, for the following purposes:

 

 

to consider and vote upon a proposal to approve the issuance of shares of Aviragen common stock in connection with merger , or the Stock Issuance Proposal;

 

 

to consider and vote upon the amendment to the certificate of incorporation of Aviragen to effect a reverse stock split of Aviragen common stock, at a ratio in the range of 10 and 20-for-1, with such specific ratio to be mutually agreed upon by Aviragen and Vaxart or, if the Stock Issuance Proposal is not approved by Aviragen stockholders, determined solely by the Aviragen board of directors following the special meeting, or the Reverse Stock Split Proposal;

 

 

t o consider and vote upon a proposal to approve, on non-binding advisory basis, the compensation that will or may become payable by Aviragen to its named executive officers, or the Executive Merger Compensation Proposal;

 

 

t o consider and vote, on a non-binding advisory basis, on the frequency of the advisory vote on the compensation of Aviragen’s named executive officers, or the Say-on-Pay Frequency Proposal;

 

 

to consider and vote upon an adjournment of the Aviragen special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of the Stock Issuance Proposal and/or the Reverse Stock Split Proposal, or the Adjournment Proposal; and

 

 

to transact such other business as may properly come before the Aviragen special meeting or any adjournment or postponement thereof.

 

 

Collectively the proposal above are referred to as the Aviragen Proposals. On each matter to be voted upon, stockholders have one vote for each share of Aviragen common stock owned as of  January 2, 2018. Votes will be counted by the inspector of election. The following table summarizes vote requirements and the effect of abstentions and broker non-votes .

 

Proposal Number

 

Proposal Description

 

Vote Required for Approval

 

Effect of Abstentions

 

Effect of

Broker
Non-Votes

1

 

Stock Issuance Proposal

 

FOR  votes from the holders of a majority of shares properly cast at a meeting at which a quorum is present 

 

Against

 

None

2

 

Reverse Stock Split Proposal

 

FOR  votes from the holders of a majority of outstanding shares

 

Against

 

Against

3

 

Executive Merger Compensation Proposal

 

FOR  votes from the holders of a majority of shares properly cast at a meeting at which a quorum is present

 

Against

 

None

4

 

Say-on-Pay Frequency Proposal

 

Highest number of votes at a meeting at which a quorum is present

 

None

 

None

5

 

Adjournment

 

FOR  votes from the holders of a majority of shares properly cast at a meeting at which a quorum is present

 

Against

 

None

 

 

If a quorum is present, and the Stock Issuance Proposal has received sufficient votes for approval, but the Reverse Stock Split Proposal has not received the requisite votes for approval, and votes representing 2% or less of the aggregate number of shares of Aviragen common stock are needed to obtain such approval, then the special meeting will be adjourned with respect to the Reverse Stock Split Proposal for a maximum of five calendar days, during which period Aviragen will use commercially reasonable efforts to obtain such additional votes.

 

No Aviragen Proposal is contingent upon any other Aviragen Proposal. Therefore, assuming all other closing conditions have been either satisfied or waived, the merger will be consummated even if the Reverse Stock Split Proposal is not approved by Aviragen’s stockholders. However, if Aviragen’s stockholders do not approve the Reverse Stock Split Proposal to effect the reverse stock split upon the closing of the merger, Aviragen has been advised that The Nasdaq Stock Market LLC will commence delisting proceedings immediately following the closing of the merger. In such event, then pursuant to the Merger Agreement, the combined company’s board of directors will immediately call for a second special meeting following the closing of the merger and request the stockholders of the combined company to approve a reverse stock split that will allow the combined company to remain in compliance with the listing requirements of The Nasdaq Stock Market LLC. The combined company is obligated to use commercially reasonable efforts to take such steps as necessary to ensure the continued listing of the combined company’s common stock on The Nasdaq Stock Market LLC following the closing of the merger. If the Stock Issuance Proposal is not approved but the Reverse Stock Approval is approved, the Aviragen board of directors may nevertheless authorize a reverse split of its common stock at a ratio in the range of 10 and 20-for-1 as determined solely by the Aviragen board of directors in order to satisfy Aviragen’s continued listing requirements on the Nasdaq Capital Market.

 

Vaxart Solicitation of Written Consents

 

The adoption of the Merger Agreement and the approval of the merger and related transactions by the Vaxart stockholders requires the affirmative votes of:

 

 

the holders of a majority of the outstanding Vaxart common stock (voting as a separate class);

 

 

the holders of a majority of the shares of Vaxart common stock and Vaxart preferred stock (voting as a single class); and

 

 

the holders of a majority of the Vaxart Series B Preferred Stock and Series C Preferred Stock (voting as a single class and not as separate series).

 

Following the registration statement on Form S-4, of which this proxy statement/prospectus/information statement is a part, being declared effective by the SEC and pursuant to the conditions of the Merger Agreement, the Vaxart stockholders who are party to the support agreements have agreed to execute an action by written consent adopting the Merger Agreement, thereby approving the merger and related transactions. These stockholders own a sufficient number of shares of Vaxart capital stock to adopt the Merger Agreement. No meeting of Vaxart stockholders to adopt the Merger Agreement and approve the merger and related transactions will be held; however , all Vaxart stockholders will have the opportunity to elect to adopt the Merger Agreement, thereby approving the merger and related transactions, by signing and returning to Vaxart a written consent.

 

 

In addition to the requirement of obtaining such stockholder approval and appropriate regulatory approvals, each of the other closing conditions set forth in the Merger Agreement must be satisfied or waived.

 

Interests of Directors and Executive Officers of Aviragen and Vaxart

 

Interests of the Aviragen Directors and Executive Officers in the Merger

 

In considering the recommendation of the Aviragen board of directors with respect to issuing shares of Aviragen common stock pursuant to the Merger Agreement and the other matters to be acted upon by Aviragen stockholders at the Aviragen special meeting, Aviragen stockholders should be aware that certain members of the Aviragen board of directors and executive officers of Aviragen have interests in the merger that may be different from, or in addition to, interests they have as Aviragen stockholders.

 

Pursuant to the terms of their respective employment agreements, outstanding equity awards and Aviragen ’s cash incentive program, the Aviragen executive officers will be entitled to receive a total of approximately $1.6 million in cash severance benefits (collectively, not individually) in connection with the closing of the merger and the associated termination of their employment from Aviragen, based on data available as of the date of this proxy/prospectus/information statement.

 

All of Dr. Patti ’s and Mr. Colonnese’s outstanding stock options will vest in full upon the termination of their employment in connection with the closing of the merger, although they are currently out of the money based on the closing price of Aviragen common stock as of December 27, 2017, and will remain outstanding for up to 18 months following such termination, depending of the terms of the specific grants.

 

With respect to Aviragen ’s directors, Aviragen’s non-employee directors hold stock options to purchase an aggregate of 1,184,119 shares of Aviragen common stock with a weighted average exercise price of $3.18 per share. Of these stock options, options to purchase 140,000 shares have an exercise price per share below $0.57 per share (the closing price of Aviragen common stock on December 27, 2017) and, based on a closing price of $0.57 per share as of December 27, 2017, have an aggregate value of $11,200. These stock options will by their terms vest in full at the Effective Time, including stock options for 96,666, 105,000 and 105,000 shares of Aviragen common stock held by Geoffrey F. Cox, Ph.D., John P. Richard and Anne M. VanLent, respectively, who are expected to remain on the combined company’s board of directors. Regardless of a director ’s continued service on the combined company’s board of directors, 604,167 of these options will remain outstanding and exercisable for the contractual term of the option which is ten years from the date of grant. In addition, Mr. Richard, as chairman of the transactions committee of the Aviragen board of directors, will receive $13,000 for his service on such committee, and each of Mr. Anido and Mr. Plumb, the other members of the transactions committee, will receive $10,000 for his service.

 

As of  January 2, 2018, directors and executive officers of Aviragen owned less than 1% of the outstanding shares of Aviragen common stock. All Aviragen executive officers and directors have entered into support agreements in connection with the merger. The support agreements are discussed in greater detail in the section titled "Agreements Related to the Merger—Support Agreements and Written Consent" in this proxy statement/prospectus/information statement.

 

Interests of the Vaxart Directors and Executive Officers in the Merger

 

In considering the recommendation of the Vaxart board of directors with respect to approving the merger and related transactions by written consent, Vaxart stockholders should be aware that certain members of the board of directors and executive officers of Vaxart have interests in the merger that may be different from, or in addition to, interests they have as Vaxart stockholders. For example, some of Vaxart ’s directors and executive officers are expected to become directors and executive officers of the combined company upon the closing of the merger. Specifically, Wouter W. Latour, M.D. and Sean N. Tucker, Ph.D., both of whom are currently executive officers of Vaxart, are expected to become executive officers of the combined company upon the closing of the merger, with Dr. Latour serving as the President and Chief Executive Officer and Dr. Tucker serving as the Chief Scientific Officer of the combined company. Additionally, Dr. Latour, Dr. Finney, Mr. Leschly and Mr. Markham who are current directors of Vaxart, will be designated to serve on the combined company’s board of directors following the closing of the merger.

 

All  Vaxart executive officers, directors and their affiliates have entered into support agreements in connection with the merger. The support agreements are discussed in greater detail in the section titled "Agreements Related to the Merger—Support Agreements and Written Consent" in this proxy statement/prospectus/information statement.

 

C ertain Vaxart executive officers, directors and their affiliates currently hold shares of Vaxart common stock, preferred stock, stock options to purchase shares of common stock and unsecured promissory notes.

 

As of  December 31, 2017, all directors and executive officers of Vaxart, together with their affiliates, owned 78.5% of the outstanding shares of Vaxart common stock (on an as-converted to common stock basis) and such persons held stock options to purchase an aggregate of 7,733,014 shares of common stock with a weighted average exercise price of $0.18 per share.

 

Based on an assumed conversion date of  February 7, 2018, affiliates of certain Vaxart directors and certain executive officers will also convert an aggregate of $33.6 million of unsecured subordinated convertible promissory notes, including accrued interest, into approximately 77.9 million shares of Vaxart common stock immediately prior to the closing of the merger pursuant to a note purchase agreement.

 

 

As of September 30, 2017, Vaxart had $ 13.9 million of cumulative but unpaid accruing dividends to the holders of its Series B and Series C Preferred Stock. Based on an assumed payment date of  February 7, 2018, immediately prior to the closing of the merger, Vaxart expects to issue 22,358,292 shares of common stock in payment of $14.9 million of cumulative accrued dividends on its Series B and Series C Preferred Stock to certain Vaxart directors, executive officers and their affiliates.

 

Pursuant to Vaxart ’s existing amended and restated certificate of incorporation, the holders of Vaxart Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock are entitled to certain adjustments to the effective conversion price of the Series A Preferred Stock, Series B Preferred or Series C Preferred Stock in the event Vaxart issues or sells any shares of Vaxart’s capital stock at a price per share less than the applicable conversion price of the Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock immediately prior to such issuance. As a result of the closing of this merger, and after giving effect to the issuance of the dividends and the conversion of the convertible notes, the conversion price of Vaxart’s Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock will be adjusted such that the shares will be convertible into approximately 1.094, 1.1496 and 1.1496 shares of Vaxart common stock, respectively .

 

The Vaxart board of directors was aware of these interests and considered them, among other matters, in its decision to approve the Merger Agreement. For more information, please see the sections titled "The Merger—Interests of the Vaxart Directors and Executive Officers in the Merger" and “Certain Relationships and Related-Party Transactions—Vaxart.”

 

Considerations with Respect to U.S. Federal Income Tax Consequences of the Merger

 

Each of Aviragen and Vaxart intends that the merger qualify as a reorganization within the meaning of Section  368(a) of the Code. In general and subject to the qualifications and limitations set forth in the section titled “The Merger—Certain Material U.S. Federal Income Tax Consequences of the Merger,” the material tax consequences to U.S. Holders (as defined herein) of Vaxart capital stock are expected to be as follows:

 

 

a Vaxart stockholder should not recognize gain or loss upon the exchange of Vaxart capital stock for Aviragen common stock pursuant to the merger, except to the extent of cash received in lieu of a fractional share of Aviragen common stock as described below;

 

 

a Vaxart stockholder who receives cash in lieu of a fractional share of Aviragen common stock in the merger should recognize capital gain or loss in an amount equal to the difference between the amount of cash received instead of a fractional share and the stockholder ’s tax basis allocable to such fractional share;

 

 

a Vaxart stockholder ’s aggregate tax basis for the shares of Aviragen common stock received in the merger (including any fractional share interest for which cash is received) should equal the stockholder’s aggregate tax basis in the shares of Vaxart capital stock surrendered upon the closing of the merger, decreased by the amount of any tax basis allocable to a fractional share for which cash is received; and

 

 

the holding period of the shares of Aviragen common stock received by a Vaxart stockholder in the merger should include the holding period of the shares of Vaxart captital stock surrendered in exchange therefor provided the surrendered Vaxart capital stock is held as a capital asset (generally, property held for investment) at the time of the merger.

 

Tax matters are very complicated, and the tax consequences of the merger to a particular Vaxart stockholder will depend on such stockholder ’s circumstances. Accordingly, you should consult your tax advisor for a full understanding of the tax consequences of the merger to you, including the applicability and effect of federal, state, local and foreign income and other tax laws. For more information, please see the section titled “The Merger—Certain Material U.S. Federal Income Tax Consequences of the Merger.”

 

Risk Factors

 

Both Aviragen and Vaxart are subject to various risks associated with their businesses and their industries. In addition, the merger, including the possibility that the merger may not be completed, poses a number of risks to each company and its respective stockholders, including the following risks:

 

 

the Exchange Ratio is not adjustable based on the market price of Aviragen common stock so the merger consideration at the closing may have a greater or lesser value than at the time the Merger Agreement was signed;

 

 

failure to complete the merger may result in Aviragen paying a termination fee or expenses to Vaxart and could harm the common stock price of Aviragen and future business and operations of each company;

 

 

if the conditions to the merger are not met, the merger may not occur;

 

 

the merger may be completed even though material adverse changes may result from the announcement of the merger, industry-wide changes and other causes;

 

 

the combined company may need to raise additional capital by issuing securities or debt or through licensing arrangements, which may cause significant dilution to the combined company ’s stockholders or restrict the combined company’s operations or proprietary rights;

 

 

certain Aviragen and Vaxart executive officers and directors have interests in the merger that are different from yours and that may influence them to support or approve the merger without regard to your interests;

 

 

the market price of the combined company ’s common stock may decline as a result of the merger;

 

 

 

Aviragen and Vaxart stockholders may not realize a benefit from the merger commensurate with the ownership dilution they will experience in connection with the merger;

 

 

during the pendency merger, Aviragen and Vaxart may not be able to enter into a business combination with another party at a favorable price because of restrictions in the Merger Agreement, which could adversely affect their respective businesses;

 

 

certain provisions of the Merger Agreement may discourage third parties from submitting alternative takeover proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement;

 

 

the lack of a public market for Vaxart shares makes it difficult to determine the fair market value of the Vaxart shares, and the stockholders of Vaxart may receive consideration in the merger that is less than the fair market value of the Vaxart shares and/or Aviragen may pay more than the fair market value of the Vaxart shares; and

 

 

if the conditions of the merger are not met, the merger will not occur.

 

These risks and other risks are discussed in greater detail under the section titled “Risk Factors.” Aviragen and Vaxart both encourage you to read and consider all of these risks carefully.

 

Regulatory Approvals

 

In the United States, Aviragen must comply with applicable federal and state securities laws an d the rules and regulations of the Nasdaq Capital Market in connection with the issuance of shares of Aviragen common stock pursuant to the Merger Agreement and the filing of this proxy statement/prospectus/information statement with the SEC.

 

N asdaq Stock Market Listing

 

Aviragen intends to file an initial listing application for the combined company with the Nasdaq Global Market pursuant to its “reverse merger” rules. However, if Aviragen’s stockholders do not approve the Reverse Stock Split Proposal, Aviragen has been advised that The Nasdaq Stock Market LLC will commence delisting proceedings immediately following the closing of the merger. In such event, then pursuant to the Merger Agreement, the combined company’s board of directors will immediately call for a second special meeting following the closing of the merger and request the stockholders of the combined company to approve a reverse stock split that will allow the combined company to remain in compliance with the listing requirements of The Nasdaq Stock Market LLC. The combined company is obligated to use commercially reasonable efforts to take such steps as necessary to ensure the continued listing of its common stock on the Nasdaq Capital Market following the closing of the merger. We expect that the combined company’s common stock will trade under the symbol “VXRT.”

 

If the issuance of the shares of Aviragen common stock pursuant to the Merger Agreement is not approved but the reverse stock split proposal is, the Aviragen board of directors may nevertheless authorize a reverse split of its common stock at a ratio in the range of 10 and 20-for-1 as determined solely by the Aviragen board of directors in order to satisfy Aviragen’s continued listing requirements on the Nasdaq Capital Market.

 

Anticipated Accounting Treatment

 

The merger will be treated by Aviragen as a reverse merger under the acquisition method of accounting in accordance with accounting principles generally accepted in the United States. For accounting purposes, Vaxart is considered to be acquiring Aviragen in the merger.

 

Appraisal Rights and Dissenters ’ Rights

 

Holders of shares of Aviragen capital stock are not entitled to appraisal rights in connection with the merger. Vaxart stockholders are entitled to appraisal rights in connection with the merger under Delaware law. For more information about such rights, see the provisions of Section 262 of the Delaware General Corporation Law, or the DGCL, attached hereto as Annex D , and the section titled “The Merger—Appraisal Rights and Dissenters’ Rights.”

 

Potential Vaxart Financing

 

Although there is no current agreement in place with any potential financing source, nor any requirement to undertake a financing, under the Merger Agreement, Vaxart may pursue a bona fide equity fina ncing with a third-party in which it may sell, prior to the closing of the merger, up to $25 million in the aggregate of capital stock or other securities of Vaxart, which such financing could occur between the date of this proxy statement/prospectus/information statement and the closing of merger. The parties agreed that any such securities issuance would increase the valuation of Vaxart by an amount equal to 60% of the aggregate amount of such financing and the valuation of Aviragen by an amount equal to 40% of the aggregate amount of such equity financing. Any equity financing within 90 days from and after the Effective Time must be approved by the majority of the members of the combined company’s board of directors designated pre-closing by Aviragen.

 

 

Comparison of Stockholder Rights

 

Both Aviragen and Vaxart are incorporated under the laws of the State of Delaware and, accordingly, the rights of the stockholders of each are currently, and will continue to be, governed by the DGCL. If the merger is completed, Vaxart stockholders will become stockholders of Aviragen, and their rights will be governed by the DGCL, the bylaws of Aviragen and, the certificate of incorporation of Aviragen. The rights of Aviragen stockholders contained in the certificate of incorporation and bylaws of Aviragen differ from the rights of Vaxart stockholders under the certificate of incorporation and bylaws of Vaxart, as more fully described under the section titled “Comparison of Rights of Holders of Aviragen Stock and Vaxart Stock.”

 

 

SELECTED HISTORICAL AND UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION AND DATA

 

The following tables present summary historical financial data for Aviragen and Vaxart, summary unaudited pro forma condensed combined financial data for Aviragen and Vaxart, and comparative historical and unaudited pro forma per share data for Aviragen and Vaxart.

 

Selected Historical Consolidated Financial Data of Aviragen

 

The selected consolidated statements of operations data for the fiscal years ended June 30, 2017 and 2016 and the selected consolidated balance sheet data as of June 30, 2017 and 2016 are derived from Aviragen’s audited consolidated financial statements included elsewhere in this proxy statement/prospectus/information statement. The selected consolidated statements of operations data for the three months ended September 30, 2017 and 2016 and the selected consolidated balance sheet data as of September 30, 2017 and 2016 are derived from Aviragen's unaudited consolidated financial statements included elsewhere in this proxy statement/prospectus/information statement. 

 

The selected historical consolidated financial data below should be read in conjunction with the sections titled “Aviragen Management ’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors—Risks Related to Aviragen” and Aviragen’s consolidated financial statements and related notes included elsewhere in this proxy statement/prospectus/information statement. Aviragen’s historical results are not necessarily indicative of the results that may be expected in any future period.  

 

 

   

Three Months Ended September 30,

   

Years Ended June 30,

 
   

2017

   

2016

   

2017

   

2016

 
   

(unaudited)

                 

Selected Consolidated Statements of Operations Data (in millions, except per share amounts):

                               

Revenues

  $ 0.1     $ 0.1     $ 8.9     $ 9.3  

Total operating expenses

  $ 5.1     $ 9.7     $ 36.4     $ 34.5  

Net loss

  $ (5.3

)

  $ (10.0 )   $ (29.4

)

  $ (25.4

)

Basic and diluted loss per common share

  $ (0.14

)

  $ (0.26 )   $ (0.76

)

  $ (0.66

)

Shares used in calculation of net loss per share, basic and diluted

    38,649,237       38,640,487       38,644,395       38,635,452  

 

   

As of September 30,

   

As of June 30,

 
   

2017

   

2017

   

2016

 
   

(unaudited)

                 

Selected Consolidated Balance Sheet Data (in millions):

                       

Cash, cash equivalents and investments

  $ 34.1     $ 38.6     $ 69.0  

Total assets

  $ 34.7     $ 40.1     $ 72.7  

Total liabilities

  $ 20.8     $ 21.4     $ 26.5  

Total stockholders ’ equity

  $ 13.9     $ 18.7     $ 46.2  

 

 

Selected Historical Financial Data of Vaxart, Inc.

 

The selected financial data as of December 31, 201 6 and 2015 and for the years ended December 31, 2016 and 2015 are derived from Vaxart’s financial statements prepared using accounting principles generally accepted in the United States, which have been audited by an independent auditor, and are included in this proxy statement/prospectus/information statement. The statement of operations data for the nine months ended September 30, 2017 and 2016, as well as the balance sheet data as of September 30, 2017, are derived from Vaxart’s unaudited condensed consolidated financial statements included elsewhere in this proxy statement/prospectus/information statement.

 

The selected historical financial data should be read in conjunction with Vaxart’s financial statements, related notes, other financial information, “Vaxart Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Vaxart’s condensed financial statements and related notes appearing elsewhere in this proxy statement/prospectus/information statement. Vaxart’s historical results are not necessarily indicative of results to be expected in any future period.

 

 

   

Nine Months Ended September 30,

   

Years Ended December 31 ,

 
   

201 7

   

201 6

   

201 6

   

201 5

 
   

(unaudited)

   

Selected Statements of Operations Data (in million s, except per share amounts) :

                               

Operating expenses:

                               

Research and development

  $ 10.4     $ 11.5     $ 17.6     $ 12.2  

General and administrative

  $ 2.0     $ 2.5     $ 3.2     $ 4.8  

Total operating expenses

  $ 12.4     $ 14.0     $ 20.8     $ 17.0  

Loss from operations

  $ (7.3 )   $ (9.4 )   $ (12.7 )   $ (16.7 )

Basic and diluted net loss per share

  $ (1.58 )   $ (2.13 )   $ (2.86 )   $ (3.50 )

 

 

   

As of September 30,

   

As of December 31,

 
   

201 7

   

201 6

   

201 5

 
    (unaudited)              

Selected Balance Sheet Data (in millions):

                       

Cash, cash equivalents and investments

  $ 5.3     $ 13.1     $ 20.4  

Total assets

  $ 6.7     $ 15.9     $ 21.8  

Long-term debt

  $ 38.4     $ 37.5     $ 9.9  

Total liabilities

  $ 44.5     $ 45.5     $ 35.6  

Total stockholders ’ (deficit)

  $ (37.8 )   $ (29.6 )   $ (13.8 )

 

Selected Unaudited Pro Forma Condensed Combined Financial Data of Aviragen and Vaxart

 

The following information does not give effect to the proposed reverse stock split of Aviragen common stock described in the Reverse Stock Split Proposal.

 

The following unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting under U.S. GAAP, and gives effect to the transaction between Aviragen and Vaxart to be accounted for as a reverse acquisition, with Vaxart being deemed the acquiring company for accounting purposes.

 

The unaudited pro forma condensed combined balance sheet as of September 30, 2017 assumes that the transaction took place on September 30, 2017 and combines the historical balance sheets of Aviragen and Vaxart as of such date. The unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2017 and the year ended December 31, 2016 assumes that the transaction took place as of January 1, 2016, and combines the historical results of Aviragen and Vaxart for each period. The historical financial statements of Aviragen and Vaxart have been adjusted to give pro forma effect to events that are (i) directly attributable to the transaction, (ii) factually supportable, and (iii) with respect to the unaudited pro forma condensed combined statements of operations, expected to have a continuing impact on the combined results.

 

The unaudited pro forma condensed combined financial information, including the notes thereto, should be read in conjunction with the separate Aviragen and Vaxart historical financial statements, and their respective management ’s discussion and analysis of financial condition and results of operations. Vaxart’s historical audited financial statements for the years ended December 31, 2016 and 2015 and unaudited financial statements for the nine months ended September 30, 2017 and 2016 are included elsewhere in this proxy statement/prospectus/information statement. Aviragen’s historical audited consolidated financial statements for the years ended June 30, 2017 and June 30, 2016 and unaudited consolidated financial statements the three months ended September 30, 2017 and 2016 are included elsewhere in this proxy statement/prospectus/information statement.

 

The unaudited pro forma condensed combined information is presented based upon Vaxart ’s calendar year end; therefore, Aviragen’s historical June 30 fiscal year end statements of operations have been adjusted to conform to the calendar year end presentation.

 

 

   

Nine Months Ended

   

Year Ended

 
   

September 30, 2017

   

December 31, 2016

 
                 

Unaudited Pro Forma Condensed Combined Statements of Operations (in millions, except per share amounts):

               

Revenue

  $ 10.2     $ 17.9  

Total operating expenses

  $ 33.5     $ 63.9  

Net loss

  $ (24.9

)

  $ (47.2

)

Basic and diluted net loss per common share

  $ (0.26

)

  $ (0.49

)

 

 

   

As of
September 30, 2017

 
   

 

 

Unaudited Pro Forma Condensed Combined Balance Sheet  (in millions) :

       

Cash, cash equivalents and investments

  $ 39.4  

Total assets

  $ 65.2  

Total liabilities

  $ 31.7  

Stockholders ’ equity

  $ 33.5  

 

Comparative Historical and Unaudited Pro Forma per Share Data

 

The information below reflects the historical net loss and book value per share of Aviragen common stock and the historical net loss and book value per share of Vaxart common stock in comparison with the unaudited pro forma net loss and book value per share after giving effect to the proposed merger of Aviragen with Vaxart on a pro forma basis. The unaudited pro forma net loss and book value per share does not give effect to the proposed reverse stock split of Aviragen common stock described in the Reverse Stock Split Proposal.

 

You should read the tables below in conjunction with the audited consolidated financial statements of Aviragen for the years ended June 30, 2017 and June 30, 2016 and unaudited consolidated financial statements the three months ended September 30, 2017 and 2016 included in this proxy statement/prospectus/information statement and the audited financial statements of Vaxart for the years ended December 31, 2016 and 2015 and unaudited financial statements for the nine months ended September 30, 2017 and 2016 included in this proxy statement/prospectus/information statement and the related notes and the unaudited pro forma condensed combined financial information and notes related to such financial statements included elsewhere in this proxy statement/prospectus/information statement.

 

    Nine Months Ended
September 30, 2017
   

Year Ended
December 31, 2016

 

Aviragen Historical Per Common Share Data:

               

Basic and diluted net loss per share

  $ (0.40 )   $ (0.81

)

Book value per share

  $ 0.36     $ 0.72  

Vaxart Historical Per Common Share Data:

               

Basic and diluted net loss per share

  $ (1.58 )   $ (2.86

)

Book value per share

  $ (5.61 )   $ (4.40

)

Combined Company Per Common Share Data:

               

Basic and diluted net loss per share

  $ (0.26 )   $ (0.49 )

Book value per share

  $ 0.35       N/A  

 

 

MARKET PRICE AND DIVIDEND INFORMATION

 

Avir agen common stock is listed on the Nasdaq Capital Market under the symbol “AVIR.” The following table presents, for the periods indicated, the range of high and low per share sales prices for Aviragen common stock as reported on the Nasdaq Capital Market for each of the periods set forth below. Vaxart is a private company and its common stock and preferred stock are not publicly traded. These per share sales prices do not give effect to the proposed reverse stock split of Aviragen common stock to be implemented, if approved by the Aviragen stockholders, prior to the closing of the merger.

 

Aviragen Common Stock

 

   

High

   

Low

 

Year Ending June 30, 2018

               

First Quarter

  $ 0.77     $ 0.51  

Second Quarter (through December 29 , 2017)

    1.08       0.52  
                 

Year Ended June 30, 2017

               

First quarter

  $ 2.00     $ 1.29  

Second quarter

    1.90       1.14  

Third quarter

    1.50       0.56  

Fourth quarter

    0.79       0.43  
                 

Year Ended June 30, 2016

               

First quarter

  $ 2.66     $ 1.70  

Second quarter

    2.31       1.73  

Third quarter

    2.27       1.23  

Fourth quarter

    1.99       1.32  

 

 

On December 29, 201 7, the last reported sale price of Aviragen common stock on the Nasdaq Capital Market was $0.57 per share.

 

Because the market price of Aviragen common stock is subject to fluctuation, the market value of the shares of Aviragen common stock that Vaxart stockholders will be entitled to receive in the Merger may increase or decrease.

 

Assuming the successful application for initial listing with the Nasdaq Global Market, following the closing of the merger, Aviragen expects the combined company’s common stock will be listed on the Nasdaq Global Market and will trade under Aviragen’s new name, “Vaxart, Inc.” and trading symbol “VXRT.”

 

As of January 2, 2018 , there were approximately 6,717 stockholders of record.

 

Dividend Policy

 

Aviragen has never paid or declared, and does not anticipate declaring, or paying in the foreseeable future, any cash dividends on its common stock. Future determination as to the declaration and payment of di vidends, if any, will be at the discretion of the Aviragen board of directors and will depend on then existing conditions, including its operating results, financial conditions, contractual restrictions, capital requirements, business prospects and other factors its board of directors may deem relevant.

 

Vaxart has never paid or declared any cash dividends on its common stock or preferred stock. If the merger does not occur, Vaxart does not anticipate paying any cash dividends on its common stock in the foreseeable future, and Vaxart intends to retain all available funds and any future earnings to fund the development and expansion of its business. Any future determination to pay dividends will be at the discretion of the Vaxart board of directors and will depend upon a number of factors, including its results of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors the Vaxart board of directors deems relevant.

 

As of September 30, 2017, Vaxart had approximately $13.9 million of cumulative but unpaid accruing dividends to the holders of its Series B Preferred Stock and Series C Preferred Stock. Based on an assumed payment date of February 7, 2018, immediately prior to the closing of the merger, Vaxart expects to issue 22,358,292 shares of Vaxart common stock in payment of approximately $14.9 million of cumulative accrued dividends on its Series B Preferred Stock and Series C Preferred Stock.

 

 

RISK FACTORS

 

The combined company will be faced with a market environment that cannot be predicted and that involves significant risks, many of which will be beyond its control. In addition to the other information contained in this proxy statement/prospectus/information statement, you should carefully consider the material risks described below before deciding how to vote your shares of stock. In addition, you should read and consider the risks associated with the business of Aviragen because these risks may also affect the combined company. These risks can be found in Aviragen ’s Annual Report on Form 10-K, as updated by subsequent Quarterly Reports on Form 10-Q, all of which are filed with the SEC. You should also read and consider the other information in this proxy statement/prospectus/information statement and the other documents incorporated by reference into this proxy statement/prospectus/information statement. Please see the section titled “Where You Can Find More Information.”

 

Risks Related to the Merger

 

The Exchange Ratio is not adjustable based on the market price of Aviragen common stock so the merger consideration at the closing may have a greater or lesser value than at the time the Merger Agreement was signed.

 

The Merger Agreement has set the Exchange Ratio for the Vaxart common stock, and the Exchange Ratio is only adjustable upward or downward based on increases or decreases in the number of shares of Vaxart ’s issued and outstanding capital stock and the number of shares of Vaxart capital stock issuable upon the exercise of all issued and outstanding equity awards, increases or decreases the number of Aviragen’s issued and outstanding common stock, if the cash balances at closing of either Aviragen or Vaxart fall outside a pre-determined range, and the proposed reverse stock split, prior to the closing of the merger as described in the section titled “The Merger—Merger Consideration.” The pre-reverse stock split Exchange Ratio is 0.3198, and the post-split Exchange Ratio will depend on the exact reverse stock split ratio that is ultimately mutually determined by Aviragen and Vaxart and certain changes in the capitalization of the two companies. Any changes in the market price of Aviragen common stock before the closing of the merger will not affect the number of shares Vaxart securityholders will be entitled to receive pursuant to the Merger Agreement. Therefore, if before the closing of the merger the market price of Aviragen common stock declines from the market price on the date of the Merger Agreement, then Vaxart stockholders could receive merger consideration with substantially lower value. Similarly, if before the closing of the merger the market price of Aviragen common stock increases from the market price on the date of the Merger Agreement, then Vaxart stockholders could receive merger consideration with substantially more value for their shares of Vaxart capital stock than the parties had negotiated for in the establishment of the Exchange Ratio. Because the Exchange Ratio does not adjust as a result of changes in the value of Aviragen common stock, for each one percentage point that the market value of Aviragen common stock rises or declines, there is a corresponding one percentage point rise or decline, respectively, in the value of the total merger consideration issued to Vaxart stockholders.

 

Failure to complete the merger may result in Aviragen paying a termination fee or expenses to Vaxart and could harm the common stock price of Aviragen and future business and operations of each company.

 

If the merger is not completed, Aviragen and Vaxart are subject to the following risks:

 

 

if the Merger Agreement is terminated under certain circumstances and certain events occur, Aviragen will be required to pay Vaxart a termination fee of $1.95 million;

 

 

the price of Aviragen stock may decline and remain volatile; and

 

 

costs related to the merger, such as legal , accounting and investment banking fees which Aviragen and Vaxart estimate will total approximately $3.5 million, of which $1.2 million must be paid even if the merger is not completed, and $0.9 million, respectively.

 

In addition, if the Merger Agreement is terminated and the Aviragen board of directors determines to seek another business combination, there can be no assurance that Aviragen or Vaxart will be able to find a partner willing to provide equivalent or more attractive consideration than the consideration to be provided by each party in the merger.

 

If the conditions to the merger are not met, the merger may not occur.

 

Even if the proposals referred to herein are approved by the stockholders of Aviragen and Vaxart, specified other conditions must be satisfied or waived to complete the merger. These conditions are set forth in the Merger Agreement and described in the section titled “The Merger Agreement —Conditions to the Closing of the Merger.” Aviragen and Vaxart cannot assure you that all of the conditions will be satisfied or waived. If the conditions are not satisfied or waived, the merger may not occur or will be delayed, and Aviragen and Vaxart each may lose some or all of the intended benefits of the merger.

 

 

The merger may be completed even though material adverse changes may result from the announcement of the merger, industry-wide changes and other causes.

 

In general, either Aviragen or Vaxart can refuse to complete the Merger if there is a material adverse change affecting the other party between October 27, 2017, the date of the Merger Agreement, and the closing. However, certain types of changes do not permit either party to refuse to complete the Merger, even if such change could be said to have a material adverse effect on Aviragen or Vaxart, including:

 

 

any effect, change, event, circumstance or development in general economic or political conditions generally affecting the industries in which Vaxart or Aviragen operate;

 

 

any act or threat of terrorism or war anywhere in the world, any armed hostilities or terrorist activities anywhere in the world, any threat or escalation of armed hostilities or terrorist activities anywhere in the world or any governmental or other response or reaction to any of the foregoing;

 

 

any changes in accounting requirements or principles or any change in applicable laws, rules or regulations or the interpretation thereof;

 

 

any effect resulting from the announcement or pendency of the merger or any related transactions;

 

 

with respect to Aviragen, any change in the stock price or trading volume of Aviragen common stock;

 

 

with respect to Aviragen, the existence of actual litigation itself arising from allegations of a breach of a fiduciary duty relating to the Merger Agreement;

 

 

with respect to Aviragen, the termination, sublease or assignment of Aviragen ’s facility lease, or failure to do the foregoing; or

 

 

with respect to Vaxart, any rejection by a governmental body of a registration or filing by Vaxart relating to certain Vaxart intellectual property rights.

 

If adverse changes occur and Aviragen and Vaxart still complete the merger, the combined company stock price may suffer. This in turn may reduce the value of the merger to the stockholders o f Aviragen and Vaxart.

 

The combined company will need to raise additional capital by issuing securities or debt or through licensing arrangements, which may cause dilution to the combined company ’s stockholders or restrict the combined company’s operations or proprietary rights.

 

The combined company may be required to raise additional funds sooner than currently planned. Additional financing may not be available to the combined company when it needs it or may not be available on favorable terms. To the extent that the combined company raises additional capital by issuing equity securities, such an issuance may cause significant dilution to the combined company ’s stockholders’ ownership and the terms of any new equity securities may have preferences over the combined company’s common stock. Any debt financing the combined company enters into may involve covenants that restrict its operations. These restrictive covenants may include limitations on additional borrowing and specific restrictions on the use of the combined company’s assets, as well as prohibitions on its ability to create liens, pay dividends, redeem its stock or make investments. In addition, if the combined company raises additional funds through licensing arrangements, it may be necessary to grant licenses on terms that are not favorable to the combined company.

 

Certain Aviragen and Vaxart executive officers and directors have interests in the merger that are different from yours and that may influence them to support or approve the merger without regard to your interests.

 

Certain officers and directors of Aviragen and Vaxart participate in arrangements that provide them with interests in the merger that are different from yours, including, among others, the continued service as directors, in the case of Aviragen, or directors and officers, in the case of Vaxart, of the combined company, severance and retention benefits, the acceleration of stock options and continued indemnification.

 

For example, Joseph M. Patti, Ph.D., Aviragen ’s President and Chief Executive Officer, is expected to cease to serve as President and Chief Executive Officer, at which point Mr. Patti’s employment with Aviragen will end. Consistent with the terms of Dr. Patti’s existing employment agreement, upon the termination of Dr. Patti’s employment, assuming such termination occurrs on February 7, 2018, and in accordance with Dr. Patti’s employment agreement, Dr. Patti is expected to receive an aggregate of approximately $1,077,196 in cash severance benefits.

 

In addition, Mark P. Colonnese , Aviragen’s Executive Vice President and Chief Financial Officer, is expected to cease to serve as Executive Vice President and Chief Financial Officer upon the closing of the merger, at which point Mr. Colonnese’s employment with Aviragen will end. Consistent with the terms of Mr. Colonnese’s existing employment agreement, upon the termination of Mr. Colonnese’s employment, assuming such termination occurs on February 7, 2018, and in accordance with Mr. Colonnese’s employment agreement, Mr. Colonnese is expected to receive an aggregate of approximately $556,439 in cash severance benefits.

 

 

In addition, all of Dr. Patti ’s and Mr. Colonnese’s outstanding stock options will vest in full in connection with their separation from employment with the combined company in the merger, although they are currently out of the money based on the closing price of Aviragen common stock as of December 27, 2017. For more information, please see the section titled “The Merger—Interests of the Aviragen Directors and Executive Officers in the Merger.” Furthermore, in connection with the closing of the merger, any unvested equity awards held by the Aviragen board members will vest in full, including stock options for 96,666, 105,000 and 105,000 shares of Aviragen common stock held by Geoffrey F. Cox, Ph.D., John P. Richard and Anne M. VanLent, respectively, who are expected to remain on the combined company’s board of directors. The exercise price of all unvested stock option awards held by the Aviragen board members was above the trading price of Aviragen common stock as of December 27, 2017, other than options to purchase 140,000 shares of Aviragen common stock granted to non-employee directors in May 2017.

 

Additionally, certain of Vaxart ’s directors and executive officers are expected to become directors and executive officers of the combined company upon the closing of the merger. Specifically, Wouter W. Latour, M.D. and Sean N. Tucker, Ph.D., both of whom are currently executive officers of Vaxart, are expected to become executive officers of the combined company upon the closing of the merger, with Dr. Latour serving as the President and Chief Executive Officer and Dr. Tucker serving as the Chief Scientific Officer of the combined company. Additionally, Dr. Latour who is a current director of Vaxart, will be designated to serve on the combined company’s board of directors following the closing of the merger.

 

In addition, certain of Vaxart's executive officers and directors and affiliates of Vaxart's directors currently hold shares of Vaxart common stock and preferred stock. Affiliates of certain Vaxart directors and certain executive officers of Vaxart will convert their unsecured subordinated convertible promissory notes into shares of Vaxart common stock prior to the closing of the merger pursuant to the note purchase agreement. For more information, please see the section titled "The Merger—Interests of the Vaxart Directors and Executive Officers in the Merger."

 

The market price of the combined company ’s common stock following the merger may decline as a result of the merger.

 

The market price of the combined company ’s common stock may decline as a result of the merger for a number of reasons including if:

 

 

investors react negatively to the prospects of the combined company ’s business and prospects from the merger;

 

 

the effect of the merger on the combined company ’s business and prospects is not consistent with the expectations of financial or industry analysts; or

 

 

the combined company does not achieve the perceived benefits of the merger as rapidly or to the extent anticipated by financial or industry analysts.

 

Aviragen and Vaxart stockholders may not realize a benefit from the merger commensurate with the ownership dilution they will experience in connection with the merger.

 

If the combined company is unable to realize the full strategic and financial benefits currently anticipated from the merger, Aviragen and Vaxart securityholders will have experienced substantial dilution of their ownership interests in their respective companies without receiving any commensurate benefit, or only receiving part of the commensurate benefit to the extent the combined company is able to realize only part of the strategic and financial benefits currently anticipated from the merger.

 

During the pendency of the merger, Aviragen and Vaxart may not be able to enter into a business combination with another party at a favorable price because of restrictions in the Merger Agreement, which could adversely affect their respective businesses.

 

Covenants in the Merger Agreement impede the ability of Aviragen and Vaxart to make acquisitions, subject, in the case of Aviragen, to certain exceptions relating to fiduciary duties, or complete other transactions that are not in the ordinary course of business pending the closing of the merger. As a result, if the merger is not completed, the parties may be at a disadvantage to their competitors during that period. In addition, while the Merger Agreement is in effect, each party is generally prohibited from soliciting, initiating, encouraging or entering into certain extraordinary transactions, such as a merger, sale of assets or other business combination outside the ordinary course of business, with any third-party, subject to, in the case of Aviragen, certain exceptions. Any such transactions could be favorable to such party’s stockholders.

 

 

Certain provisions of the Merger Agreement may discourage third parties from submitting alternative takeover proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement.

 

The terms of the Merger Agreement prohibit each of Aviragen and Vaxart from soliciting alternative takeover proposals or cooperating with persons making unsolicited takeover proposals, except, with respect to Aviragen, in certain circumstances where the Aviragen board of directors determines in good faith, after consultation with its financial advisor and outside legal counsel, that an unsolicited alternative takeover proposal constitutes or is reasonably likely to result in a superior takeover proposal. In addition, if Aviragen or Vaxart terminate the Merger Agreement under certain circumstances, including terminating because of a decision of a board of directors to recommend an alternative proposal, Aviragen would be required to pay a termination fee of $1.95 million to the other party. These termination fees and reimbursement obligations may Merger Agreement described above may discourage third parties from submitting alternative takeover proposals to Aviragen and its stockholders, and may cause the Aviragen board of directors to be less inclined to recommend an alternative proposal.

 

The lack of a public market for Vaxart shares makes it difficult to determine the fair market value of the Vaxart shares, and Vaxart stockholders may receive consideration in the merger that is less than the fair market value of the Vaxart shares and/or Aviragen may pay more than the fair market value of the Vaxart shares.

 

Vaxart is privately held and its capital stock is not traded in any public market. The lack of a public market makes it extremely difficult to determine Vaxart’s fair market value. Because the percentage of Aviragen equity to be issued to Vaxart stockholders was determined based on negotiations between the parties, it is possible that the value of the Aviragen common stock to be received by Vaxart stockholders will be less than the fair market value of Vaxart, or Aviragen may pay more than the aggregate fair market value for Vaxart.

 

Risks Related to Aviragen

 

Investing in Aviragen common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information contained in this proxy statement/prospectus/information statement and in the other periodic and current reports and other documents it files with the SEC, before deciding to invest in its common stock. If any of the following risks materialize, Aviragen ’s business, financial condition, results of operation and future prospects will likely be materially and adversely affected. In that event, the market price of its common stock could decline and you could lose all or part of your investment.

 

Aviragen Risks Related to the Merge r

 

If the merger is not completed, Aviragen may be unsuccessful in completing an alternative transaction on terms that are as favorable as the terms of the proposed transaction with Vaxart, or at all, and Aviragen may be unable to reestablish an operating business. The Aviragen board of directors may decide to pursue a dissolution and liquidation of Aviragen. In such an event, the amount of cash available for distribution to Aviragen’s stockholders will depend heavily on the timing of such liquidation as well as the amount of cash that will need to be reserved for commitments and contingent liabilities.

 

To date, Aviragen ’s current assets consist primarily of cash, cash equivalents and marketable securities, Aviragen’s clinical assets, potential royalty streams from Relenza ® and Inavir ® , Aviragen’s listing on the Nasdaq Capital Market and the Merger Agreement with Vaxart. While Aviragen has entered into the Merger Agreement with Vaxart, the closing of the merger with Vaxart may be delayed or may not occur at all and there can be no assurance that the merger will deliver the anticipated benefits Aviragen expects or enhance shareholder value. If Aviragen is unable to consummate the merger with Vaxart, the Aviragen board of directors may elect to pursue an alternative strategy, one of which may be a strategic transaction similar to the proposed merger with Vaxart. Attempting to complete an alternative transaction will be costly and time consuming, and Aviragen can make no assurances that such an alternative transaction would occur at all. Alternatively, the Aviragen board of directors may elect to continue operations to complete Aviragen’s Phase 2 clinical trial of BTA074 or decide to pursue a dissolution and liquidation of the company. In such an event, the amount of cash available for distribution to Aviragen’s stockholders will depend heavily on the timing of such decision, as with the passage of time the amount of cash available for distribution will be reduced as Aviragen continues to fund its operations. In addition, if the Aviragen board of directors was to approve and recommend, and Aviragen’s stockholders were to approve, a dissolution and liquidation of the company, Aviragen would be required under Delaware corporate law to pay its outstanding obligations, as well as to make reasonable provision for contingent and unknown obligations, prior to making any distributions in liquidation to Aviragen’s stockholders. Aviragen’s commitments and contingent liabilities may include severance obligations, regulatory and clinical obligations remaining under Aviragen’s clinical trials and fees and expenses related to the merger. As a result of this requirement, a portion of Aviragen’s assets may need to be reserved pending the resolution of such obligations. In addition, Aviragen may be subject to litigation or other claims related to a dissolution and liquidation. If a dissolution and liquidation were pursued, the Aviragen board of directors, in consultation with its advisors, would need to evaluate these matters and make a determination about a reasonable amount to reserve. Accordingly, holders of Aviragen common stock could lose all or a significant portion of their investment in the event of a liquidation, dissolution or winding up of the company.

 

 

Failure to obtain stockholder approval for the proposed reverse stock split may result in the combined company being unable to obtain compliance with minimum bid price requirements for an initial listing on the Nasdaq Global Market and may result in Aviragen common stock being delisted from the Nasdaq Capital Market.

 

Aviragen is required pursuant to the terms of the Merger Agreement to submit to its stockholders a proposal to approve an amendment to its certificate of incorporation to authorize the Aviragen board of directors to effect a reverse stock split of all outstanding shares of its common stock. If the Reverse Stock Split Proposal is not approved by Aviragen’s stockholders, the combined company will likely not be able to obtain compliance with the minimum bid price requirement for an initial listing on Nasdaq Global Market and, as a consequence, Nasdaq will immediately provide the combined company with written notification that the combined company’s common stock will be delisted.

 

Upon receipt of such delisting letter, the combined company will appeal the determination to the Nasdaq hearings panel, or the Hearing Panel. In addition, the board of directors of the combined company will immediately call for a second special meeting of the stockholders following the closing of the merger and request the stockholders of the combined company to approve a reverse stock split that will allow the combined company to remain in compliance with Nasdaq listing requirements. If the second special meeting has not been held before the occurrence of a hearing before the Hearing Panel, the combined company will be required to provide a plan to attain compliance. If the combined company has not regained compliance with Nasdaq listing requirements prior to such hearing, and the Hearing Panel decides to continue with delisting of the combined company, the Hearing Panel’s decision may be appealed to the Nasdaq Listing and Hearing Review Council but such appeal would not stay the delisting process.

 

The issuance of shares of Aviragen common stock to Vaxart stockholders in the merger will dilute substantially the voting power of Aviragen’s current stockholders.

 

If the merger is completed, each outstanding share of Vaxart common stock will be converted into the right to receive a number of shares of Aviragen common stock equal to the Exchange Ratio determined pursuant to the Merger Agreement. Immediately following the merger, Aviragen securityholders are expected to own approximately 40% of the outstanding capital stock of the combined company on a fully diluted basis, and Vaxart securityholders are expected to own approximately 60% of the outstanding capital stock of the combined company on a fully diluted basis. Accordingly, the issuance of shares of Aviragen common stock to Vaxart stockholders in the merger will reduce significantly the relative voting power of each share of Aviragen common stock held by Aviragen’s current securityholders. Consequently, Aviragen securityholders as a group will have significantly less influence over the management and policies of the combined company after the merger than prior to the merger.

 

If the combined company after the merger is unable to realize the strategic and financial benefits currently anticipated from the merger, the Aviragen stockholders and the Vaxart stockholders will have experienced substantial dilution of their ownership interests in their respective companies without receiving the expected commensurate benefit, or receiving only part of the commensurate benefit to the extent the combined company is able to realize only part of the expected strategic and financial benefits currently anticipated from the merger.

 

The pendency of the merger could have an adverse effect on the trading price of Aviragen common stock and Aviragen ’s business, financial condition, results of operations or business prospects.

 

While there have been no significant adverse effects to date, the pendency of the merger could disrupt Aviragen’s businesses in the following ways, including:

 

 

the attention of Aviragen’s management may be directed toward the closing of the merger and related matters and may be diverted from the day-to-day business operations; and

 

 

third parties may seek to terminate or renegotiate their relationships with Aviragen as a result of the merger, whether pursuant to the terms of their existing agreements with Aviragen or otherwise.

 

Should they occur, any of these matters could adversely affect the trading price of Aviragen common stock or harm Aviragen ’s financial condition, results of operations or business prospects.

 

Aviragen is substantially dependent on Aviragen’s remaining employees to facilitate the consummation of a strategic transaction.

 

On October 27, 2017, Aviragen reduced its workforce by six to a total of 10 full-time employees. Aviragen ’s ability to successfully complete a strategic transaction depends in large part on Aviragen’s ability to retain certain of its remaining personnel. Despite Aviragen’s efforts to retain these employees, one or more may terminate their employment with Aviragen on short notice. The loss of the services of any of these employees could potentially harm Aviragen’s ability to consummate the merger, to run Aviragen’s day-to-day operations, as well as fulfill Aviragen’s reporting obligations as a public company.

 

 

There is no assurance that the proposed merger will be completed in a timely manner or at all. If the merger is not consummated, Aviragen ’s business could suffer materially and its stock price could decline.

 

The closing of the proposed merger is subject to a number of closing conditions, including the approval by Aviragen ’s stockholders of the issuance of shares of Aviragen common stock pursuant to the Merger Agreement and other customary closing conditions. If the conditions are not satisfied or waived, the merger will not occur or will be delayed.

 

If the proposed merger is not consummated, Aviragen may be subject to a number of material risks, and Aviragen ’s business and stock price could be adversely affected, as follows:

 

 

Aviragen has incurred and expects to continue to incur significant expenses related to the proposed merger even if the merger is not consummated;

 

 

Aviragen could be obligated to pay Vaxart a termination fee of up to $1.95 million under certain circumstances pursuant to the Merger Agreement;

 

 

the market price of Aviragen common stock may decline to the extent that the current market price reflects a market assumption that the proposed merger will be completed; and

 

 

Aviragen may not be able to pursue an alternate merger transaction if the proposed merger with Vaxart is not completed.

 

Risks Related to Aviragen ’s Business

 

Aviragen ’s success depends largely upon Aviragen’s ability to advance its product candidates through the various stages of drug development. If Aviragen is unable to successfully advance or develop its product candidates, its business will be materially harmed.

 

Even though Aviragen generates royalty revenue from its two commercialized influenza products, all of its remaining product candidates are in early stages of development and their commercial viability remains subject to the successful outcome of future preclinical studies, clinical trials, manufacturing processes, regulatory approvals and the risks generally inherent in the development of pharmaceutical product candidates. Failure to advance the development of one or more of Aviragen’s product candidates may have a material adverse effect on Aviragen’s business. The long-term success of Aviragen’s business ultimately depends upon Aviragen’s ability to advance the development of its product candidates through preclinical studies and clinical trials, appropriately formulate and consistently manufacture them in accordance with strict specifications and regulations, obtain approval of Aviragen’s product candidates for sale by the U.S. Food and Drug Administration, or the FDA, or similar regulatory authorities in other countries, and ultimately have its product candidates successfully commercialized by Aviragen or a strategic partner or licensee. Aviragen cannot assure you that the results of its ongoing or future research, preclinical studies or clinical trials will support or justify the continued development of Aviragen’s product candidates, or that Aviragen will ultimately receive approval from the FDA, or similar regulatory authorities in other countries, to advance the development of its product candidates .

 

Aviragen ’s product candidates must satisfy rigorous regulatory standards of safety, efficacy and manufacturing before Aviragen can advance or complete their development and before they can be approved for sale by the FDA or similar regulatory authorities in other countries. To satisfy these standards, Aviragen must engage in expensive and lengthy studies and clinical trials, develop acceptable and cost effective manufacturing processes, and obtain regulatory approval of Aviragen’s product candidates. Despite these efforts, Aviragen’s product candidates may not:

 

 

demonstrate clinically meaningful therapeutic or other medical benefits as compared to a patient receiving no treatment or over existing drugs or other product candidates in development to treat the same patient population;

 

 

be shown to be safe and effective in future preclinical studies or clinical trials;

 

 

have the desired therapeutic or medical effects;

 

 

be tolerable or free from undesirable or unexpected side effects;

 

 

meet applicable regulatory standards;

 

 

be capable of being appropriately formulated and manufactured in commercially suitable quantities or scale and at an acceptable cost; or

 

 

be successfully commercialized by Aviragen or by its licensees or collaborators.

 

 

Even if Aviragen demonstrates favorable results in preclinical studies and early-stage clinical trials, it cannot assure you that the results of late-stage clinical trials will be sufficient to support the continued development of Aviragen’s product candidates. Many, if not most, companies in the pharmaceutical and biopharmaceutical industries have experienced significant delays, setbacks and failures in all stages of development, including late-stage clinical trials, even after achieving promising results in preclinical testing or early-stage clinical trials. Accordingly, results from completed preclinical studies and early-stage clinical trials of Aviragen’s product candidates may not be predictive of the results Aviragen may obtain in future late-stage trials. Furthermore, even if the data collected from preclinical studies and clinical trials involving any of Aviragen’s product candidates demonstrate a satisfactory safety, tolerability and efficacy profile, such results may not be sufficient to obtain regulatory approval from the FDA in the United States, or other similar regulatory agencies in other jurisdictions, which is required to market and sell the product.

 

Clinical trials are risky, lengthy and expensive. Aviragen incurs substantial expense for, and devotes significant time and resources to, preclinical testing and clinical trials, yet cannot be certain that these tests and trials will demonstrate that a product candidate is effective and well-tolerated, or will ever support its approval and commercial sale. For example, clinical trials require adequate supplies of clinical trial material and sufficient patient enrollment to power the study. Delays in patient enrollment can result in increased costs and longer development times. Even if Aviragen, or a licensee or collaborator, if applicable, successfully complete clinical trials for Aviragen’s product candidates, Aviragen or they might not file the required regulatory submissions in a timely manner and may not receive marketing approval for the product candidate. Aviragen cannot assure you that any of its product candidates will successfully progress further through the drug development process, or ultimately will result in an approved and commercially viable product.

 

If the actual or perceived therapeutic benefits, or the safety or tolerability profile of any of Aviragen ’s product candidates are not equal to or superior to other competing treatments approved for sale or in clinical development, Aviragen may terminate the development of any of its product candidates at any time, and Aviragen’s business prospects and potential profitability could be harmed.

 

Aviragen is aware of a number of companies marketing or developing various classes of anti-infective product candidates or products for the treatment of patients infected with human papillomavirus, or HPV, human rhinovirus, or HRV, and respiratory syncytial virus, or RSV that are either approved for sale or further advanced in clinical development than Aviragen ’s, such that their time to approval and commercialization may be shorter than that for Aviragen’s product candidates.

 

Currently, there no approved HPV-specific direct acting anti-viral drugs to treat genital warts. Treatments for genital warts can be divided broadly into two categories: provider-administered ablative/cytodestructive therapies (including cryotherapy, laser ablation, and trichloroacetic acid) and patient-administered topical therapies such as podophyllotoxin (Condylox ® ; Actavis), sinecatechins (Veregen ® ; Fougera Pharmaceuticals, Inc.), and imiquimod (Zyclara ® , Aldara ® ; Valeant). Aviragen is aware that there are compounds under clinical development to treat genital warts, including Novan’s SB206 and Cassiopea’s CB-06-02. Aviragen anticipates that BTA074, if successfully developed, would directly compete with the patient-applied topical treatments for genital warts. Aviragen believes that key differentiating features of BTA074 could be its mechanism of action, favorable local skin tolerability, efficacy, and lower reoccurrence rate. Three prophylactic vaccines, primarily designed to prevent cervical, vulvar, vaginal, and anal cancers, are currently marketed: a bivalent HPV16/18 vaccine (Cervarix ® ; GSK), quadrivalent HPV16/18/6/11 (Gardasil ® ; Merck) and the 9-valent HPV 6/11/16/18/33/52/58 (Gardasil ® 9; Merck). Gardasil ® 9 is indicated for females aged 9 through 26 and males aged 9 through 15, to prevent various HPV related cancers and genital warts in both sexes. Gardasil ® , Gardasil ® 9, and Cervarix ® are not known to exhibit a therapeutic effect on existing HPV lesions.

 

Currently, there are no approved direct-acting antiviral drugs to treat HRV infections. However, if ever approved, Aviragen’s vapendavir product candidate would indirectly compete with drugs approved to reduce the incidence of exacerbations or improve lung function in patients with asthma and COPD, such as fluticasone propionate (Advair ® ), tiotoprium bromide (Spiriva ® ), fluticasone furoate/vilanterol (Breo Ellipta ® ), and roflumilast (Daliresp ® ). In addition to these approved drugs, there are compounds at the clinical development stage that if successfully developed for the treatment of HRV infections could compete with vapendavir in the future.

 

Effective treatments of RSV infections in pediatrics, the elderly, and the immunocompromised are very limited. Currently, only Virazole ® (ribavirin) is indicated for the treatment of hospitalized infants and young children with severe lower respiratory tract infections due to RSV. Aviragen is aware that the following compounds are under development to treat RSV infections: Gilead’s presatovir, Johnson & Johnson’s JJ-53718678 (ALS-8176), Ablynx’s ALX-0171 and Ark Biosciences’ AK0529. The only approved drug for the prevention of RSV infections in high risk infants is MedImmune’s palivizumab (Synagis ® ), a monoclonal antibody. There are several vaccines and antibody products designed to prevent RSV infections in clinical development. Among the clinical stage product candidates in development are Novavax’s RSV F vaccine, GSK’s GSK3003898A vaccine, GSK’s GSK3389245A vaccine, Bavarian Nordic’s BN ® RSV vaccine, MedImmune’s MEDI ÄM2-2 vaccine and MedImmune’s monoclonal antibody MEDI8897.

 

If at any time Aviragen believes that any of Aviragen’s product candidates may not provide meaningful or differentiated therapeutic benefits, perceived or real, equal to or better than its competitor’s products or product candidates, or Aviragen believes that its product candidates may not have as favorable a safety or tolerability profile as potentially competitive compounds, Aviragen may delay or terminate the future development of any of its product candidates. Aviragen cannot provide any assurance that the future development of any of Aviragen’s product candidates will demonstrate any meaningful therapeutic benefits over potentially competitive compounds currently approved for sale or in development, or an acceptable safety or tolerability profile sufficient to justify its continued development.

 

 

Aviragen ’s product candidates may exhibit undesirable side effects when used alone or in combination with other approved pharmaceutical products, which may delay or preclude their development or regulatory approval, or limit their use if ever approved.

 

Throughout the drug development process, Aviragen must continually demonstrate the activity, safety and tolerability of its product candidates in order to obtain regulatory approval to further advance their clinical development, or to eventually market them. Even if Aviragen ’s product candidates demonstrate adequate biologic activity and clear clinical benefit, any unacceptable side effects or adverse events, when administered alone or in the presence of other pharmaceutical products, may outweigh these potential benefits. Aviragen may observe adverse or serious adverse events or drug-drug interactions in preclinical studies or clinical trials of Aviragen’s product candidates, which could result in the delay or termination of their development, prevent regulatory approval, or limit their market acceptance if they are ultimately approved.

 

If the results from preclinical studies or clinical trials of Aviragen’s product candidates, including those that are subject to existing or future license or collaboration agreements, are unfavorable, Aviragen could be delayed or precluded from the further development or commercialization of its product candidates, which could materially harm Aviragen’s business.

 

In order to further advance the development of, and ultimately receive marketing approval to sell Aviragen’s product candidates, Aviragen must conduct extensive preclinical studies and clinical trials to demonstrate their safety and efficacy to the satisfaction of the FDA or similar regulatory authorities in other countries, as the case may be. Preclinical studies and clinical trials are expensive, complex, can take many years to complete, and have highly uncertain outcomes. Delays, setbacks, or failures can and do occur at any time, and in any phase of preclinical or clinical testing, and can result from concerns about safety, tolerability, toxicity, a lack of demonstrated biologic activity or improved efficacy over similar products that have been approved for sale or are in more advanced stages of development, poor study or trial design, and issues related to the formulation or manufacturing process of the materials used to conduct the trials. The results of prior preclinical studies or early-stage clinical trials are not predictive of the results Aviragen may observe in late-stage clinical trials. In many cases, product candidates in clinical development may fail to show the desired tolerability, safety and efficacy characteristics, despite having favorably demonstrated such characteristics in preclinical studies or early-stage clinical trials.

 

In addition, Aviragen may experience numerous unforeseen events during, or as a result of, preclinical studies and the clinical trial process, which could delay or impede Aviragen’s ability to advance the development of, receive marketing approval for, or commercialize its product candidates, including, but not limited to: 

 

 

communications with the FDA, or similar regulatory authorities in different countries, regarding the scope or design of a trial or trials, or placing the development of a product candidate on clinical hold or delaying the next phase of development until questions or issues are satisfactorily resolved, including performing additional studies to answer their queries;

 

 

regulatory authorities or institutional review boards , or IRBs, not authorizing Aviragen to commence or conduct a clinical trial at a prospective trial site;

 

 

enrollment in Aviragen’s clinical trials being delayed, or proceeding at a slower pace than Aviragen expected, because Aviragen has difficulty recruiting participants or participants drop out of Aviragen’s clinical trials at a higher rate than Aviragen anticipated;

 

 

Aviragen ’s third-party contractors, upon whom Aviragen relies to conduct preclinical studies, clinical trials and the manufacturing of Aviragen’s clinical trial materials, failing to comply with regulatory requirements or meet their contractual obligations to Aviragen in a timely manner;

 

 

having to suspend or ultimately terminate a clinical trial if participants are being exposed to unacceptable health or safety risks;

 

 

regulatory authorities or IRBs requiring that Aviragen hold, suspend or terminate its preclinical studies and clinical trials for various reasons, including non-compliance with regulatory requirements; and

 

 

the supply or quality of material necessary to conduct Aviragen’s preclinical studies or clinical trials being insufficient, inadequate or unavailable.

 

Even if the data collected from preclinical studies or clinical trials involving Aviragen ’s product candidates demonstrate a satisfactory tolerability, safety and efficacy profile, such results may not be sufficient to support the submission of an NDA to obtain regulatory approval from the FDA in the United States, or other similar regulatory authorities in other foreign jurisdictions, which is required for Aviragen to market and sell its product candidates.

 

 

If the FDA does not agree to lift the clinical hold on BTA585, it is unlikely that Aviragen will be able to continue its development.

 

In May 2016, during the conduct of the Phase 2a RSV challenge trial, Aviragen announced a voluntary delay in enrollment due to the receipt of a lab result from one subject showing an increase of a cardiac enzyme level coupled with transient ECG changes, which led to a hospitalization of less than 24 hours for observation and assessment. The subject's ECGs normalized in the clinic prior to hospitalization and the cardiac enzyme levels returned to baseline shortly thereafter. Furthermore, a cardiac MRI was normal with no evidence of functional deficit or ongoing cardiac condition. After a review of the subject ’s data, the Medicines and Healthcare Products Regulatory Agency of the United Kingdom, or the MHRA, agreed to allow enrollment to resume in order to complete the higher dose level cohort. Aviragen also reported that subsequent to the submission of the requisite safety report of this event to the FDA, Aviragen received communication from the FDA that the investigational new drug application, or IND, for BTA585 has been placed on clinical hold for future studies conducted in the United States under the IND. In the first half of 2017, Aviragen completed the requested non-clinical studies requested by the FDA to support a response to the clinical hold, but has subsequently put all activities related to the BTA585 program on hold during the pendency of Aviragen’s review of strategic alternatives. If the FDA does not agree to lift the clinical hold on BTA585, the viability of BTA585 as a commercial product is subject to doubt, and it would be unlikely that Aviragen would continue the development of BTA585.

 

If third-party contract manufacturers, upon whom Aviragen relies to formulate and manufacture Aviragen ’s product candidates, do not perform, fail to manufacture according to Aviragen’s specifications, or fail to comply with strict government regulations, Aviragen’s preclinical studies or clinical trials could be adversely affected and the development of Aviragen’s product candidates could be delayed or terminated, or Aviragen could incur significant additional expenses.

 

Aviragen does not currently own any manufacturing facilities. Aviragen has historically used third-party contract manufacturers and Aviragen intends to continue to rely on third-party contractors for the foreseeable future to formulate, manufacture, fill and package Aviragen ’s product candidates. Aviragen’s reliance on these third-party contract manufacturers, which in some cases are sole sourced, exposes Aviragen to a number of risks, any of which could delay or prevent the completion of Aviragen’s preclinical studies or clinical trials, or the regulatory approval or commercialization of Aviragen’s product candidates, result in higher costs or deprive Aviragen of potential product revenues in the future. Some of these risks include, but are not limited to:

 

 

Aviragen ’s contract manufacturers failing to develop an acceptable formulation to support late-stage clinical trials for, or the commercialization of, Aviragen’s product candidates;

 

 

Aviragen ’s contract manufacturers failing to manufacture its product candidates according to their own standards, Aviragen’s specifications, current good manufacturing practices, or cGMP, or regulatory guidelines, or otherwise manufacturing material that Aviragen or regulatory authorities deem to be unsuitable for Aviragen’s clinical trials or commercial use;

 

 

Aviragen ’s contract manufacturers being unable to increase the scale of or the capacity for, or reformulate the form of Aviragen’s product candidates, which may cause Aviragen to experience a shortage in supply, or cause the cost to manufacture Aviragen’s product candidates to increase. Aviragen cannot assure you that Aviragen’s contract manufacturers will be able to manufacture Aviragen’s product candidates at a suitable commercial scale, or that Aviragen will be able to find alternative manufacturers acceptable to Aviragen that can do so;

 

 

Aviragen ’s contract manufacturers placing a priority on the manufacture of other customers’ or their own products, rather than Aviragen’s products;

 

 

Aviragen ’s contract manufacturers failing to perform as agreed or exiting from the contract manufacturing business; and

 

 

Aviragen ’s contract manufacturers’ plants being closed as a result of regulatory sanctions or a natural disaster.

 

Manufacturers of pharmaceutical drug products are subject to ongoing periodic inspections by the FDA, the U.S. Drug Enforcement Administration , or DEA, and corresponding state and other foreign agencies to ensure strict compliance with FDA-mandated cGMPs, other government regulations and corresponding foreign standards. Aviragen does not have control over Aviragen’s third-party contract manufacturers’ compliance with these regulations and standards and accordingly, failure by Aviragen’s third-party manufacturers, or Aviragen, to comply with applicable regulations could result in sanctions being imposed on Aviragen or the manufacturers, which could significantly and adversely affect Aviragen’s business.

 

In the event that Aviragen needs to change its third-party contract manufacturers, its preclinical studies or its clinical trials, the commercialization of its product candidates could be delayed, adversely affected or terminated, or such a change may result in the need for Aviragen to incur significantly higher costs, which could materially harm Aviragen’s business.

 

Due to various regulatory restrictions in the United States and many other countries, as well as potential capacity constraints on manufacturing that occur from time-to-time in Aviragen’s industry, various steps in the manufacture of Aviragen’s product candidates are sole-sourced to certain contract manufacturers. In accordance with cGMPs, changing manufacturers may require the re-validation of manufacturing processes and procedures, and may require further preclinical studies or clinical trials to show comparability between the materials produced by different manufacturers. Changing Aviragen’s current or future contract manufacturers may be difficult, if not impossible for Aviragen, and could be extremely costly if Aviragen does make such a change, which could result in Aviragen’s inability to manufacture its product candidates for an extended period of time and a delay in the development of its product candidates. Further, in order to maintain its development timelines in the event of a change in a third-party contract manufacturer, Aviragen may incur significantly higher costs to manufacture its product candidates.

 

 

If third-party vendors, upon whom Aviragen relies to conduct its preclinical studies or clinical trials, do not perform or fail to comply with strict regulations, these studies or trials may be delayed, terminated, or fail, or Aviragen could incur significant additional expenses, which could materially harm its business.

 

Aviragen has limited resources dedicated to designing, conducting and managing Aviragen’s preclinical studies and clinical trials. Aviragen has historically relied on, and intends to continue to rely on, third parties, including clinical research organizations, consultants and principal investigators, to assist it in designing, managing, conducting, monitoring and analyzing the data from its preclinical studies and clinical trials. Aviragen relies on these vendors and individuals to perform many facets of the clinical development process on its behalf, including conducting preclinical studies, the recruitment of sites and patients for participation in Aviragen’s clinical trials, maintenance of good relations with the clinical sites, and ensuring that these sites are conducting Aviragen’s trials in compliance with the trial protocol and applicable regulations. If these third parties fail to perform satisfactorily, or do not adequately fulfill their obligations under the terms of Aviragen’s agreements with them, Aviragen may not be able to enter into alternative arrangements without undue delay or additional expenditures, and therefore the preclinical studies and clinical trials of Aviragen’s product candidates may be delayed or prove unsuccessful.

 

Further, the FDA, or similar regulatory authorities in other countries, may inspect some of the clinical sites participating in Aviragen’s clinical trials or Aviragen’s third-party vendors’ sites to determine if Aviragen’s clinical trials are being conducted according to the FDA’s good clinical practices, or GCPs, or similar regulations. If Aviragen or a regulatory authority determine that Aviragen’s third-party vendors are not in compliance with, or have not conducted Aviragen’s clinical trials according to applicable regulations, Aviragen may be forced to exclude certain data from the results of the trial, or delay, repeat or terminate such clinical trials.

 

Aviragen has a limited capacity for managing clinical trials, which could delay or impair Aviragen’s ability to initiate or complete clinical trials of Aviragen’s product candidates on a timely basis and materially harm Aviragen’s business.

 

Aviragen has a limited capacity to recruit and manage all of the clinical trials necessary to obtain approval for Aviragen’s product candidates by the FDA or similar regulatory authorities in other countries. By contrast, larger pharmaceutical and biopharmaceutical companies often have substantial staff or departments with extensive experience in conducting clinical trials with multiple product candidates across multiple indications and obtaining regulatory approval in various countries. In addition, these companies may have greater financial resources to compete for the same clinical investigators, sites and patients that Aviragen is attempting to recruit for its clinical trials. As a result, Aviragen may be at a competitive disadvantage that could delay the initiation, recruitment, timing and completion of Aviragen’s clinical trials and obtaining of marketing approvals, if achieved at all, for Aviragen’s product candidates.

 

If Aviragen is unable to attract or retain key employees, advisors or consultants, Aviragen may be unable to successfully develop its product candidates in a timely manner, if at all, or otherwise manage its business effectively.

 

Aviragen has increasingly adopted an operating model that relies on the outsourcing of a number of key responsibilities and activities to third-party vendors, such as contract research and manufacturing organizations, in order to advance the development of Aviragen ’s product candidates. Therefore, Aviragen’s success depends in part on its ability to retain highly qualified key management, personnel to develop, implement and execute its business strategy and operations, and oversee the activities of its vendors, as well as any academic and corporate advisors or consultants that may assist it in this regard. Aviragen is currently highly dependent upon the efforts of its small management team to accomplish this. In order to advance the development of Aviragen’s product candidates, Aviragen needs to retain and be able to recruit certain key personnel, consultants or advisors with experience in a number of disciplines, including but not limited to, research and development, product development, clinical trials, medical affairs, government regulation approval of pharmaceutical products, quality control and assurance, formulation and manufacturing, business development, accounting, finance, human resources and information systems. Aviragen may not be able to continue to do so in the future on acceptable terms, if at all. If Aviragen loses any key personnel, or is unable to retain qualified key personnel, directors, advisors or consultants, the development of Aviragen’s product candidates could be delayed or terminated and Aviragen’s business may be harmed.

 

Aviragen ’s industry is highly competitive and subject to rapid technological changes. As a result, Aviragen may be unable to compete successfully or develop innovative or differentiated products, which could harm its business.

 

Aviragen ’s industry is highly competitive and characterized by rapid technological change. Key competitive factors in Aviragen’s industry include, among others, the ability to successfully advance the development of a product candidate through preclinical and clinical trials; the efficacy, toxicology, tolerability, safety, resistance or cross-resistance, interaction or dosing profile of a product or product candidate; the timing and scope of marketing approvals, if ever achieved; reimbursement rates for and the average selling price of competing products and pharmaceutical products in general; the availability of raw materials and qualified contract manufacturing and manufacturing capacity to produce Aviragen’s product candidates; relative manufacturing costs; establishing, maintaining and protecting Aviragen’s intellectual property and patent rights; and sales and marketing capabilities.

 

 

Developing pharmaceutical product candidates is a highly competitive, expensive and risky activity with a long business cycle. Many organizations, including the large pharmaceutical and biopharmaceutical companies that have existing products on the market or in clinical development that may compete with Aviragen ’s product candidates, have substantially more resources than Aviragen has, as well as much greater capabilities and experience than Aviragen has in research and discovery, designing and conducting preclinical studies and clinical trials, operating in a highly regulated environment, formulating and manufacturing drug substances, products and devices, and marketing and sales. Aviragen’s competitors may be more successful than Aviragen is in obtaining regulatory approvals for their product candidates and achieving broad market acceptance once they are approved. Aviragen’s competitors’ products or product candidates may be more effective, have fewer adverse effects, be more convenient to administer, have a more favorable resistance profile, or be more effectively marketed and sold than any product Aviragen, or Aviragen’s potential future licensees or collaborators, may develop or commercialize. New drugs or classes of drugs from competitors may render Aviragen’s product candidates obsolete or non-competitive before Aviragen is able to successfully develop them or, if approved, before Aviragen can recover the expenses of developing and commercializing them. Aviragen anticipates that it or its potential future licensees or collaborators will face intense and increasing competition as new drugs and drug classes enter the market and advanced technologies or new drug targets become available. If Aviragen’s product candidates do not demonstrate any meaningful competitive advantages over existing products, or new products or product candidates, Aviragen may terminate the development or commercialization of its product candidates at any time.

 

These competitors, either alone or with their collaborators, may succeed in developing product candidates or products that are more effective, safer, less expensive or easier to administer than Aviragen ’s. Accordingly, Aviragen’s competitors may succeed in obtaining regulatory approval for their product candidates more rapidly than Aviragen can. Companies that can complete clinical trials, obtain required marketing approvals and commercialize their products before their competitors do so may achieve a significant competitive advantage, including certain patent and marketing exclusivity rights that could delay the ability of competitors to market certain products.

 

Aviragen also faces, and expects that it will continue to face, intense competition from other companies in a number of other areas, including (i) attracting larger pharmaceutical and biopharmaceutical companies to enter into collaborative arrangements with Aviragen to acquire, license or co-develop Aviragen’s product candidates, (ii) identifying and obtaining additional clinical-stage development programs to bolster its pipeline, (iii) attracting investigators and clinical sites capable of conducting its clinical trials, and (iv) recruiting patients to participate in its clinical trials. Aviragen cannot assure you that product candidates resulting from Aviragen’s research and development efforts, or from joint efforts with Aviragen’s potential future licensees or collaborators, will be able to compete successfully with Aviragen’s competitors’ existing products or product candidates in development.

 

Aviragen may be unable to successfully develop a product candidate that is the subject of an existing or future license agreement or collaboration if Aviragen’s licensee or collaborator does not perform or fulfill its contractual obligations, delays the development of Aviragen’s product candidate, or terminates the agreement.

 

Aviragen expects to continue to enter into and rely on license and collaboration agreements in the future, or other similar business arrangements with third parties, to further develop and/or commercialize some or all of Aviragen’s existing and future product candidates. Such licensees or collaborators may not perform as agreed upon or anticipated, may fail to comply with strict regulations, or may elect to delay or terminate their efforts in developing or commercializing Aviragen’s product candidates even though Aviragen has not met its obligations under the arrangement.

 

A majority of the potential revenue from existing and any future licenses and collaborations Aviragen may enter into will likely consist of contingent milestone payments, such as payments received for achieving development or regulatory milestones, and royalties payable on the sales of approved products. Milestone and royalty revenues that Aviragen may receive under these licenses and collaborations will depend primarily upon Aviragen ’s licensee’s or collaborator’s ability to successfully develop and commercialize Aviragen’s product candidates. In addition, Aviragen’s licensees or collaborators may decide to enter into arrangements with third parties to commercialize products developed under Aviragen’s existing or future collaborations using Aviragen’s technologies, which could reduce the milestone and royalty revenue that Aviragen may receive, if any. In many cases, Aviragen will not be directly or closely involved in the development or commercialization of Aviragen’s product candidates that are subject to licenses or collaborations and, accordingly, Aviragen will depend largely on its licensees or collaborators to develop or commercialize its product candidates. Aviragen’s licensees may encounter competition from new products entering the market, which could adversely affect Aviragen’s royalty income. Aviragen’s licensees or collaborators may fail to develop or effectively commercialize Aviragen’s product candidates because they:

 

 

 

do not allocate the necessary resources due to internal constraints, such as limited personnel with the requisite scientific expertise, limited capital resources, or the belief that other product candidates or internal programs may have a higher likelihood of obtaining regulatory approval, or may potentially generate a greater return on investment;

 

 

do not have sufficient resources necessary to fully support the product candidate through clinical development, regulatory approval and commercialization;

 

 

are unable to obtain the necessary regulatory approvals; or

 

 

prioritize other programs or otherwise diminish their support for developing and/or marketing Aviragen’s product candidate or product due to a change in management, business operations or strategy.

 

Should any of these events occur, Aviragen may not realize the full p otential or intended benefit of its license or collaboration arrangements, and Aviragen’s results of operations may be adversely affected. In addition, a licensee or collaborator may decide to pursue the development of a competitive product candidate developed outside of Aviragen’s agreement with them. Conflicts may also arise if there is a dispute about the progress of, or other activities related to, the clinical development or commercialization of a product candidate, the achievement and payment of a milestone amount, the ownership of intellectual property that is developed during the course of the arrangement, or other license agreement terms. If a licensee or collaborator fails to develop or effectively commercialize Aviragen’s product candidates for any of these reasons, Aviragen may not be able to replace them with another third-party willing to develop and commercialize Aviragen’s product candidates under similar terms, if at all. Similarly, Aviragen may disagree with a licensee or collaborator as to which party owns newly or jointly-developed intellectual property. Should an agreement be revised or terminated as a result of a dispute and before Aviragen has realized the anticipated benefits of the arrangement, Aviragen may not be able to obtain certain development support or revenues that Aviragen anticipated receiving. Aviragen may also be unable to obtain, on terms acceptable to it, a license from such collaboration partner to any of its intellectual property that may be necessary or useful for Aviragen to continue to develop and commercialize the product candidate. Aviragen cannot assure you that any product candidates will emerge from any existing or future license or collaboration agreements Aviragen may enter into for any of its product candidates.

 

Risks Related to Commercial Matters

 

Aviragen has a history of incurring net losses and it may never achieve profitability.

 

Aviragen has a history of incurring net losses, some of which have been significant. Aviragen expects to incur additional net losses in the near-term, and these losses would likely increase as Aviragen’s research and development efforts progress to later stage activities. To become profitable, Aviragen, or its licensees or collaborators if applicable, must successfully manufacture and develop product candidates, receive regulatory approval, successfully commercialize and/or enter into profitable agreements with other parties and maintain existing and/or obtain additional intellectual property rights. It could be several years, if ever, before Aviragen receives significant revenues from any future license agreements or revenues directly from the sale of any of Aviragen’s product candidates.

 

Royalty revenues from Relenza ® and Inavir ® are unpredictable and subject to the seasonal incidence and severity of influenza, which could adversely affect Aviragen’s results of operations and financial condition.

 

Aviragen currently earns royalty revenue from the net sales of Relenza ® and Inavir ® , which are marketed by its licensees. Although the royalty rates paid to Aviragen by its licensees are fixed at a proportion of the licensees’ net sales of these products, Aviragen’s periodic and annual revenues from these royalties have historically been variable and subject to fluctuation based on the seasonal incidence and severity of influenza. In addition, returns of products to Aviragen’s licensees that were sold in prior years are taken into account in the calculation of net sales for purposes of determining the royalty revenue Aviragen receives and the amount of such returns are generally unpredictable. Aviragen’s licensees may encounter competition from new products entering the market, which could adversely affect Aviragen’s royalty income. In addition, most of Aviragen’s Relenza ® patents have expired and the only substantial remaining intellectual property related to the Relenza ® patent portfolio is scheduled to expire in July 2019 in Japan.  Further, Aviragen sold a portion of its Inavir ® royalties to HealthCare Royalty Partners III, L.P., or HCRP, in April 2016.  Aviragen cannot predict with any certainty what its royalty revenues are likely to be in any given year.

 

If safety, tolerability, resistance, drug-drug interactions, or efficacy concerns should arise with Relenza ® or Inavir ® , Aviragen’s future royalty revenue may be reduced, which would adversely affect Aviragen’s financial condition and business.

 

Aviragen curren tly earns royalty revenue from Relenza ® and Inavir ® , which are marketed by its licensees. Data supporting the marketing approvals and forming the basis for the safety warnings in the product labels for these products were obtained in controlled clinical trials of limited duration in limited patient populations and, in some cases, from post-approval use. As these marketed products are used over longer periods of time and by more patients, some with underlying health problems or taking other medicines, new issues such as safety, tolerability, resistance or drug-drug interaction issues could arise, which may require Aviragen’s licensees to provide additional warnings or contraindications on their product labels, or otherwise narrow the approved indications. Further, additional information from ongoing research or clinical trials of these products that raise any doubts or concerns about their efficacy may arise. If serious safety, tolerability, resistance, drug-drug interaction, efficacy, or any other concerns or issues arise with respect to these marketed products, sales of these products could be impaired, limited or abandoned by Aviragen’s licensees or by regulatory authorities, in which case Aviragen’s royalty revenue would decrease.

 

 

If government and third-party payers fail to provide adequate reimbursement or coverage for Aviragen ’s products or those that are developed through licenses or collaborations, Aviragen’s revenues and potential for profitability may be harmed.

 

In the United States and most foreign markets, product revenues or related royalty revenue, and therefore the inherent value of Aviragen ’s products, will depend largely upon the reimbursement rates established by third-party payers for such products. Third-party payers include government health administration authorities, managed-care organizations, private health insurers and other similar organizations. Third-party payers are increasingly examining the cost effectiveness of medical products, services and pharmaceutical drugs and challenging the price of these products and services. In addition, significant uncertainty exists as to the reimbursement status, if any, of newly approved pharmaceutical products. Further, the comparative effectiveness of new products over existing therapies and the assessment of other non-clinical outcomes are increasingly being considered in the decision by payers to establish reimbursement rates. Aviragen, or its licensees or collaborators if applicable, may also be required to conduct post-marketing clinical trials in order to demonstrate the cost-effectiveness of Aviragen’s products. Such studies may require Aviragen to commit a significant amount of management time and financial resources. Aviragen cannot assure you that any products Aviragen or its licensees or collaborators may successfully develop will be reimbursed in part, or at all, by any third-party payers in any country.

 

Many governments continue to propose legislation designed to expand the coverage, yet reduce the cost, of healthcare, including pharmaceutical products. In many foreign markets, governmental agencies control the pricing of prescription drugs. In the United States, significant changes in federal health care policy were approved over the past several years and continue to evolve, and will likely result in reduced reimbursement rates for many pharmaceutical products in the future. Aviragen expects that there will continue to be federal and state proposals to implement increased government control over reimbursement rates of pharmaceutical products. In addition, Aviragen expects that increasing emphasis on managed care and government intervention in the U.S. healthcare system will continue to put downward pressure on the pricing of pharmaceutical products there. Recent events have resulted in increased public and governmental scrutiny of the cost of drugs, especially in connection with price increases following companies ’ acquisitions of the rights to certain drug products. In particular, U.S. federal prosecutors recently issued subpoenas to a pharmaceutical company seeking information about its drug pricing practices, among other issues, and members of the U.S. Congress have sought information from certain pharmaceutical companies relating to post-acquisition drug-price increases. Aviragen’s revenue and future profitability could be negatively affected if these inquiries were to result in legislative or regulatory proposals that limit Aviragen’s ability to increase the prices of Aviragen’s products that may be approved for sale in the future. Legislation and regulations affecting the pricing of pharmaceutical products may change before Aviragen’s product candidates are approved for sale, which could further limit or eliminate their reimbursement rates. Further, social and patient activist groups, whose goal it is to reduce the cost of healthcare, and in particular the price of pharmaceutical products, may also place downward pressure on the price of these products, which could result in decreased prices of Aviragen’s products.

 

If any product candidates that Aviragen develops independently, or through licensees or collaborators if applicable, are approved but do not gain meaningful acceptance in their intended markets, Aviragen is not likely to generate significant revenues.

 

Even if Aviragen’s product candidates are successfully developed and Aviragen or a licensee or collaborator obtains the requisite regulatory approvals to market them in the future, they may not gain market acceptance or broad utilization among physicians, patients or third-party payers. The degree of market acceptance that any of Aviragen’s products may achieve will depend on a number of factors, including:

 

 

the efficacy or perceived clinical benefit of the product, if any, relative to existing therapies;

 

 

the timing of market approval and the existing market for competitive drugs, including the presence of generic drugs;

 

 

the level of reimbursement provided by third-party payers to cover the cost of the product to patients;

 

 

the net cost of the product to the user or third-party payer;

 

 

the convenience and ease of administration of the product;

 

 

the product ’s potential advantages over existing or alternative therapies;

 

 

the actual or perceived safety of similar classes of products;

 

 

the actual or perceived existence, incidence and severity of adverse effects;

 

 

the effectiveness of sales, marketing and distribution capabilities; and

 

 

the scope of the product label approved by the FDA or similar regulatory agencies in other jurisdictions.

 

 

There can be no assurance that physicians will choose to prescribe or administer Aviragen’s products, if approved, to the intended patient population. If Aviragen’s products do not achieve meaningful market acceptance, or if the market for Aviragen’s products proves to be smaller than anticipated, Aviragen may never generate significant revenues.

 

If Aviragen fails to enter into or maintain collaborations or other sales, marketing and distribution arrangements with third parties to commercialize Aviragen’s product candidates, or otherwise fails to establish marketing and sales capabilities in the future, Aviragen may not be able to successfully commercialize Aviragen’s products.

 

Aviragen currently has no infrastructure to support the commercialization of any of its product candidates, and has little, if any, experience in the commercialization of pharmaceutical products. Therefore, if Aviragen successfully develops any product candidate, and it is ultimately approved for sale, Aviragen’s future profitability will depend largely on Aviragen’s ability to access, arrange or develop suitable marketing and sales capabilities. Aviragen anticipates that it will need to establish relationships with other companies, through license, collaboration, commercialization or similar marketing and sales agreements, to successfully commercialize and market Aviragen’s product candidates in the United States and other countries around the world. To the extent that Aviragen enters into these types of agreements with other companies to sell, promote or market Aviragen’s products in the United States or abroad, Aviragen’s product revenues, which may be in the form of indirect revenue, a royalty, or a split of profits, may depend largely on the efforts of the other party, which may not be successful. In the event Aviragen decides to develop its own sales force and marketing capabilities, this may result in Aviragen incurring significant upfront costs to do so before Aviragen may generate any significant product revenues. Aviragen may not be able to attract and retain qualified third parties or marketing or sales personnel, or be able to establish marketing capabilities or an effective sales force.

 

Currency fluctuations and changes in exchange rates could increase Aviragen’s costs or lower Aviragen’s revenues.

 

Aviragen collects and pays a portion of Aviragen’s revenue and expenses in currencies other than the U.S. dollar. Fluctuations in foreign currency exchange rates can affect Aviragen’s operating results. Aviragen retains the majority of Aviragen’s cash and cash equivalents in U.S. dollars and utilizes foreign currency accounts for collection and payment of revenues and expenses. Any significant foreign exchange rate fluctuations could adversely affect Aviragen’s financial position and results of operations.

 

Aviragen ’s employees, representatives or agents may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could expose Aviragen to financial, reputational or other harm.

 

Aviragen ’s employees, representatives or agents may engage in any fraud or other improper activities, including those related to:

 

 

complying with FDA regulations or similar regulations of similar regulatory authorities in other countries;

 

 

providing accurate information to the FDA or similar regulatory authorities in other countries;

 

 

complying with manufacturing standards Aviragen or the FDA has established;

 

 

complying with federal and state healthcare fraud and abuse laws and regulations or similar laws and regulations established and enforced by comparable foreign regulatory authorities;

 

 

complying with the provisions of the Foreign Corrupt Practices Act; or

 

 

reporting financial information or clinical or preclinical data accurately.

 

In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to Aviragen’s reputation. It is not always possible to identify and deter employee misconduct, and the precautions Aviragen takes to detect and prevent these activities may not be effective in controlling unknown or unmanaged risks or losses, or in protecting Aviragen from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against Aviragen, and Aviragen is not successful in defending itself or asserting Aviragen’s rights, those actions could have a significant impact on Aviragen’s business and results of operations, including the imposition of significant fines or other sanctions.

 

 

Laws and regulations governing international operations may preclude Aviragen from developing, manufacturing and selling certain product candidates outside of the United States and require Aviragen to develop and implement costly compliance programs.

 

Because Aviragen has subsidiaries and conducts business outside of the United States, Aviragen must comply with numerous laws and regulations in each jurisdiction in which it operates. The creation and implementation of international business practices compliance programs is costly and such programs are difficult to enforce, particularly where reliance on third parties is required.

 

The Foreign Corrupt Practices Act, or the FCPA, includes provisions that prohibits any U.S. individual or business from paying, offering, authorizing payment or offering anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with certain accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions of the company, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations. The anti-bribery provisions of the FCPA are enforced primarily by the Department of Justice, while the SEC is involved with enforcement of the books and records provisions of the FCPA.

 

Compliance with the FCPA is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, the FCPA presents particular challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government, and doctors and other hospital employees are considered foreign officials. Certain payments to hospitals in connection with the conduct of clinical studies and other work have been deemed to be improper payments to government officials and have led to FCPA enforcement actions.

 

Various laws, regulations and executive orders also restrict the use and d issemination outside of the United States, or the sharing with certain non-U.S. nationals, of information classified for national security purposes, as well as certain products and technical data relating to those products. Aviragen’s operations outside of the United States require Aviragen to dedicate additional resources to comply with these laws, and these laws may preclude Aviragen from developing, manufacturing, or selling certain products and product candidates outside of the United States, which could limit Aviragen’s growth potential and increase its development costs.

 

The failure to comply with laws governing international business practices may result in substantial penalties, including suspension or debarment from government contracting. Violation of the FCPA can result in significant civil and criminal penalties. Indictment alone under the FCPA can lead to suspension of the ri ght to do business with the U.S. Government until the pending claims are resolved. Conviction for a violation of the FCPA can result in long-term disqualification as a government contractor. The termination of a government contract or relationship as a result of Aviragen’s failure to satisfy any of its obligations under laws governing international business practices could have a negative impact on Aviragen’s operations and harm its reputation and ability to procure government contracts. The SEC also may suspend or bar issuers from trading securities on U.S. stock exchanges for violations of the FCPA's accounting provisions.

 

Risks Related to Aviragen’s Intellectual Property

 

If Aviragen is unable to adequately protect or expand Aviragen’s intellectual property related to Aviragen’s products, or current or future product candidates, Aviragen’s business prospects could be materially harmed.

 

Aviragen ’s business success depends in part on Aviragen’s ability to:

 

 

obtain, maintain and protect its intellectual property rights;

 

 

protect its trade secrets; and

 

 

prevent others from infringing on its proprietary rights or patents.

 

Aviragen can protect its proprietary intellectual property rights from unauthorized use by third parties only to the extent that Aviragen’s proprietary rights are covered by valid and enforceable patents or are effectively maintained as trade secrets. The patent position of pharmaceutical and biopharmaceutical companies involves complex legal and factual questions, and, therefore, Aviragen cannot predict with certainty whether Aviragen will be able to ultimately enforce Aviragen’s patents or proprietary rights, or avoid infringing on the patents or proprietary rights of others. Any issued patents that Aviragen owns or otherwise has rights to may be challenged, invalidated or circumvented, and may not provide Aviragen with the protection against competitors that Aviragen anticipates.

 

 

The degree of future protection for Aviragen’s proprietary intellectual property rights is uncertain because issued patents and other legal means of establishing proprietary rights afford only limited protection and may not adequately protect Aviragen’s rights or permit Aviragen to gain or keep Aviragen’s competitive advantage. Aviragen’s future patent position will be influenced by the following factors:

 

 

Aviragen , or its licensors, may not have been the first to discover the inventions covered by each of Aviragen’s or its licensors’ pending patent applications and issued patents, and Aviragen may have to engage in expensive and protracted interference proceedings to determine priority of invention;

 

 

Aviragen ’s, or its licensors’, pending patent applications may be denied and may not result in issued patents;

 

 

Aviragen ’s, or its licensors’, issued patents may not provide a basis for commercially viable products, may not provide Aviragen with any competitive advantages, or may be challenged by third parties; and

 

 

third parties may develop intellectual property that circumvents Aviragen or Aviragen’s licensors’ patent claims or design competitive intellectual property and ultimately product candidates that fall outside the scope of Aviragen’s or its licensors’ patents.

 

Due to the extensive time required for the development, testing and regulatory review and approval of a product candidate, it is possible that before a product candidate of Aviragen’s may be approved for sale and commercialized, Aviragen’s relevant patent rights may expire, or such patent rights may remain in force for only a short period following marketing approval. Aviragen currently relies on certain patents to provide Aviragen and its licensees with exclusive rights for certain of Aviragen’s products. When all patents underlying a license expire, Aviragen’s revenue from that license may cease, and there can be no assurance that Aviragen will be able to replace it with revenue from new or existing licenses.

 

Zanamivir, a neuraminidase inhibitor approved for the treatment and prevention of influenza A and B, is marketed worldwide as Relenza ® by GSK. Most of Aviragen’s Relenza ® patents have expired and the only substantial remaining intellectual property related to the Relenza ® patent portfolio, which is solely owned by Aviragen and exclusively licensed to GSK, is scheduled to expire in July 2019 in Japan.

 

Laninamivi Octanoate, or LANI, a long acting neuraminidase inhibitor, or NI, for the treatment and prevention of influenza A and B, is currently marketed as Inavir ® in Japan by Daiichi-Sankyo. The patent relating to the structure of LANI expires in 2017 in the United States, the European Union and Japan, although the product has received patent term extension in Japan until 2021 for treatment and 2022 for prevention. The patent relating to hydrates and the crystalline form of LANI actually used in the product expires in 2021 (not including extensions) in the United States and the European Union and in 2024 in Japan. In February 2015, a patent containing claims relevant to the manufacture of Inavir ® was issued in Japan and expires in December 2029. The dry-powder inhaler device patent portfolio, which includes TwinCaps ® , is owned by Hovione International Limited, or Hovione, and is exclusively licensed to Aviragen and Daiichi Sankyo worldwide for the prevention and treatment of influenza and other influenza-like viral infections. These patents will expire in 2029 in the United States, and in 2027 in the European Union and Japan.

 

Vapendavir is an oral antiviral picornavirus capsid binder Aviragen is currently developing to treat HRV infections. Aviragen exclusively owns the vapendavir patent portfolio, and issued claims under this portfolio will begin to expire in some countries in December 2021, not including extensions. Claims from patents related to a compound comprising an anhydrous crystalline free base form of vapendavir and the preferred commercialization form of vapendavir have been allowed in the United States and other countries and extend intellectual property to 2034 without extensions.

 

BTA074 is a direct-acting antiviral Aviragen is developing as a topical treatment for genital warts caused by HPV 6 and 11. The patent containing composition of matter claims expires in the United States in 2029 without extensions. A United States patent with claims to method of use have issued and expire in 2033 without extensions.

 

Aviragen also owns a patent portfolio focused on developing oral antivirals for RSV. Issued patent claims covering the BTA585 composition of matter will begin to expire in 2031 without extensions.

 

Patent rights may not provide Aviragen with adequate proprietary protection or competitive advantages against competitors with or developing similar technologies or approaches to Aviragen’s. The laws of certain foreign countries do not protect intellectual property rights to the same extent as do the laws of the United States, and certain countries may lack adequate rules and procedures for defending Aviragen’s intellectual property rights. For example, Aviragen may not be able to prevent a third-party from infringing Aviragen’s patents in a country that does not recognize or enforce patent rights, or that imposes compulsory licenses on or restricts the prices of drugs. Changes in either patent laws or in interpretations of patent laws in the United States and other countries may diminish the value of Aviragen’s intellectual property. Aviragen may need to in-license certain technologies to successfully develop and commercialize its product candidates. Aviragen may not develop or obtain rights to products or processes that are patentable. Even if Aviragen or its licensors do obtain patents, such patents may not adequately protect the products or technologies licensed, or may otherwise be limited in scope. In addition, Aviragen may not have total control over the patent prosecution of subject matter that Aviragen licenses from others. Accordingly, Aviragen may be unable to exercise the same degree of control over this intellectual property as Aviragen would over its own. Others may challenge, seek to invalidate, infringe or circumvent any pending or issued patents Aviragen owns or licenses, and rights it receives under those issued patents may not provide competitive advantages to Aviragen. Aviragen cannot assure you of the degree of protection that will be afforded by any of its issued or pending patents, or those licensed by Aviragen.

 

 

Aviragen cannot be sure that any patents will be issued from the patent applications Aviragen owns or has licensed or, should any patents issue, that Aviragen will be provided with adequate protection against potentially competitive products. Furthermore, Aviragen cannot be sure that patents issued or licensed to Aviragen will be of any commercial value, or that private parties or competitors will not successfully challenge these patents or circumvent its patent position in the United States or abroad. In the absence of adequate patent protection, Aviragen’s business may be adversely affected by competitors who develop comparable technology or products.

 

If a third-party claims Aviragen is infringing on its intellectual property rights, Aviragen could incur significant expenses, or be prevented from further developing or commercializing its product candidates, which could materially harm Aviragen’s business.

 

Aviragen ’s success will also depend on Aviragen’s ability to operate without infringing the patents and other proprietary intellectual property rights of third parties. This is generally referred to as having the “freedom to operate.” The biotechnology and pharmaceutical industries are characterized by extensive litigation regarding patents and other intellectual property rights. The defense and prosecution of intellectual property claims, interference proceedings and related legal and administrative proceedings, both in the United States and internationally, involve complex legal and factual questions. As a result, such proceedings are lengthy, costly and time-consuming, and their outcome is highly uncertain. Aviragen may become involved in protracted and expensive litigation in order to determine the enforceability, scope and validity of the proprietary rights of others, or to determine whether Aviragen has the freedom to operate with respect to the intellectual property rights of others.

 

Patent applications in the United States are, in most cases, maintained in secrecy until approximately 18 months after the patent application is filed. The publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made. Therefore, patent applications relating to product candidates similar to Aviragen’s may have already been filed by others without Aviragen’s knowledge. In the event that a third-party has also filed a patent application covering Aviragen’s product candidate or other claims, Aviragen may have to participate in an adversarial proceeding, known as an interference proceeding, in the U.S. Patent and Trademark Office, or USPTO, or similar proceedings in other countries, to determine the priority of invention. In the event an infringement claim is brought against Aviragen, Aviragen may be required to pay substantial legal fees and other expenses to defend such a claim and, if Aviragen is unsuccessful in defending the claim, Aviragen may be prevented from pursuing the development and commercialization of a product candidate and may be subject to injunctions and/or damage awards.

 

In the future, the USPTO or a foreign patent office may grant patent rights to Aviragen’s product candidates or other claims to third parties. Subject to the issuance of these future patents, the claims of which will be unknown until issued, Aviragen may need to obtain a license or sublicense to these rights in order to have the appropriate freedom to further develop or commercialize them. Any required licenses may not be available to Aviragen on acceptable terms, if at all. If Aviragen needs to obtain such licenses or sublicenses, but is unable to do so, Aviragen could encounter delays in the development of Aviragen’s product candidates, or be prevented from developing, manufacturing and commercializing Aviragen’s product candidates at all. If it is determined that Aviragen has infringed an issued patent and does not have the freedom to operate, Aviragen could be subject to injunctions, and/or compelled to pay significant damages, including punitive damages. In cases where Aviragen has in-licensed intellectual property, Aviragen’s failure to comply with the terms and conditions of such agreements could harm Aviragen’s business.

 

It is becoming common for third parties to challenge patent claims on any successfully developed product candidate or approved drug. If Aviragen or its licensees or collaborators become involved in any patent litigation, interference or other legal proceedings, Aviragen could incur substantial expense, and the efforts and attention of Aviragen’s technical and management personnel could be significantly diverted. A negative outcome of such litigation or proceedings may expose Aviragen to the loss of Aviragen’s proprietary position or to significant liabilities, or require Aviragen to seek licenses that may not be available from third parties on commercially acceptable terms, if at all. Aviragen may be restricted or prevented from developing, manufacturing and selling Aviragen’s product candidates in the event of an adverse determination in a judicial or administrative proceeding, or if Aviragen fails to obtain necessary licenses.

 

Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information and may not adequately protect Aviragen’s intellectual property.

 

Aviragen also relies on trade secrets to protect Aviragen’s technology, especially where Aviragen does not believe patent protection is obtainable, or prior to Aviragen filing patent applications on any inventions Aviragen may make. However, trade secrets are difficult to protect. In order to protect its proprietary technology and processes, Aviragen may also rely in part on confidentiality and intellectual property assignment agreements with Aviragen’s corporate and academic partners, employees, consultants, outside scientific collaborators and sponsored researchers and other advisors. These agreements may not effectively prevent disclosure of confidential information or result in the effective assignment to Aviragen of intellectual property, and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information or other breaches of these agreements. In addition, others may independently discover Aviragen’s trade secrets and proprietary information, and in such case Aviragen may not be able to assert any trade secret rights against such party. Enforcing a claim that a third-party illegally obtained and is using Aviragen’s trade secret is difficult, expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States may be less willing to protect trade secrets. Costly and time-consuming litigation could be necessary to seek to enforce and determine the scope of Aviragen’s proprietary rights, and Aviragen’s failure to obtain or maintain trade secret protection could adversely affect Aviragen’s competitive business position.

 

 

Obtaining and maintaining Aviragen’s patent protection depends on compliance with various procedural, document submissions, fee payment and other requirements imposed by governmental patent agencies, and Aviragen’s patent protection could be reduced or eliminated for non-compliance with these requirements.

 

Periodic maintenance fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary fee payments and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If Aviragen and its licensors fail to maintain the patents and patent applications covering Aviragen’s product candidates, Aviragen’s competitive position would be adversely affected.

 

Aviragen may be subject to claims that Aviragen’s employees have wrongfully used or disclosed alleged trade secrets of their former employers.

 

Many of Aviragen’s employees, including its senior management, were previously employed at other biotechnology or pharmaceutical companies. These employees typically executed proprietary rights, non-disclosure and non-competition agreements in connection with their previous employment. Although Aviragen tries to ensure that Aviragen’s employees do not use the proprietary information or know-how of others in their work for Aviragen, Aviragen may be subject to claims that it or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee's former employer. Aviragen is not aware of any threatened or pending claims related to these matters, but in the future litigation may be necessary to defend against such claims. If Aviragen fails in defending any such claims, in addition to paying monetary damages, Aviragen may lose valuable intellectual property rights or personnel. Even if Aviragen is successful in defending against such claims, litigation could result in substantial costs and be a distraction to management .

 

Risks Related to Aviragen Common Stock

 

Aviragen ’s revenue, expenses and results of operations may be subject to significant fluctuations, which will make it difficult to compare Aviragen’s operating results from period to period.

 

Aviragen ’s revenues have historically been highly variable. Royalty revenues Aviragen earns are derived from the net sales of products used for the treatment and/or prevention of influenza. Influenza as a disease is seasonal and highly unpredictable, and sales of these products to treat influenza fluctuate in line with the nature and extent of the incidence and severity of influenza each season. Payments potentially due to Aviragen under its existing or any future collaborative arrangements, including any milestone and royalty payments, are generally intermittent in nature and are subject to significant fluctuation in both timing and amount, or may never be earned or paid at all. In addition, the returns of products to Aviragen licensees are taken into account in the calculation of net sales for purposes of calculating the royalty revenue Aviragen receives and the amount of such returns are in general unpredictable. Accordingly, Aviragen’s quarterly and annual revenue may be highly variable, and comparisons to previous periods may be difficult to make. Aviragen’s historical and current revenues may not be indicative of Aviragen’s ability to achieve additional payment-generating milestones or royalties in the future, or vice versa. Aviragen expects that its operating results will also vary significantly from quarter-to-quarter and year-to-year as a result of the initiation and success or failure of preclinical studies or clinical trials that it undertakes, the timing of the formulation and manufacture of its product candidates, or other development-related factors and activities, as well as any business or corporate development activities it may undertake. Accordingly, Aviragen’s revenues, expenses and results of operations for any period, particularly over the next several quarters, may not be comparable to the revenues, expenses or results of operations for any other period.

 

 

The reporting requirements of being a company that is publicly traded on the Nasdaq Capital Market increases Aviragen’s overall operating costs and subjects Aviragen to further increased costs and regulatory risk that may negatively impact Aviragen’s business or its ability to raise capital in the future.

 

As a company that is publicly-traded on Nasdaq, Aviragen is subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and the listing requirements of Nasdaq. Further, Section 404 of the Sarbanes-Oxley Act requires that Aviragen maintains effective internal control over financial reporting and disclosure controls and procedures. In particular, management must perform system and process evaluation and testing of Aviragen’s internal control over financial reporting to assess the effectiveness of Aviragen’s internal control over financial reporting. This testing is expensive and requires the attention of Aviragen’s limited management resources. The various financial reporting, legal, corporate governance and other obligations associated with being a company that is publicly traded on Nasdaq require Aviragen to incur significant expenditures and place additional demands and requirements on the Aviragen board of directors, executive officers, and other administrative, operational and financial personnel and resources. If Aviragen is unable to comply with these requirements in a timely and effective manner, Aviragen and/or its executive officers may be subject to sanctions by the SEC. Aviragen expects that it will continue to incur additional expenses as a result of being a company that is publicly traded on Nasdaq.

 

The price of Aviragen common stock price has been highly volatile, and your investment in Aviragen could suffer a decline in value.

 

The market price of Aviragen common stock has been and is likely to continue to be highly volatile and could be subject to wide fluctuations in response to various factors and events, including but not limited to:

 

 

Aviragen ’s ability to consummate the transactions contemplated by the Merger Agreement, including the merger;

 

 

Aviragen ’s ability to successfully advance its product candidates through preclinical and clinical development;

 

 

disclosure of any favorable or unfavorable data from Aviragen’s preclinical studies or clinical trials, or other regulatory developments concerning Aviragen’s preclinical studies or clinical trials, the formulation and manufacturing of its product candidates, or those of Aviragen’s competitors;

 

 

Aviragen ’s cash resources and rate of expenditures;

 

 

the approval or commercialization of new products by Aviragen or its competitors, and the disclosure thereof;

 

 

novel scientific innovations by Aviragen or its competitors;

 

 

rumors relating to Aviragen or its competitors;

 

 

public concern about the safety or tolerability of Aviragen’s products, product candidates, or similar classes of compounds;

 

 

litigation to which Aviragen may become subject;

 

 

actual or anticipated variations in Aviragen’s quarterly or annual revenue or operating results;

 

 

changes in general conditions or trends in the biotechnology and pharmaceutical industries;

 

 

changes in drug reimbursement rates or government policies related to such reimbursement;

 

 

significant acquisitions, strategic partnerships, joint ventures or capital commitments by Aviragen or its competitors;

 

 

new regulatory legislation adopted in the United States or abroad;

 

 

changes i n patent legislation in the United States or abroad;

 

 

Aviragen ’s failure to achieve or meet equity research analysts’ expectations or their estimates of Aviragen’s business or prospects, or a change in their recommendations concerning Aviragen, the value of its common stock or its industry in general;

 

 

termination or delay in any of Aviragen’s existing or future license or collaboration arrangements;

 

 

future sales of equity or debt securities, or the perception that such future sales may occur;

 

 

the loss of Aviragen’s eligibility to have shares of Aviragen common stock traded on the Nasdaq Capital Market or other listed markets due to Aviragen’s failure to maintain minimum listing standards;

 

 

changes in accounting principles or a restatement of previously reported financial results;

 

 

failure to comply with the periodic reporting requirements of publicly-owned companies under the Exchange Act and the Sarbanes-Oxley Act; and

 

 

conditions in the economy generally and the capital markets in particular.

 

 

In addition, the stock market in general, and more specifically Nasdaq, on which Aviragen common stock is traded, and the market for smaller biotechnology stocks in particular have historically experienced significant price and volume fluctuations. Volatility in the market price for a particular biotechnology company’s stock has often been unrelated or disproportionate to the operating performance of that company. Market and industry factors may seriously harm the market price of Aviragen common stock, regardless of Aviragen’s operating performance. Due to this volatility, you may be unable to sell your shares of Aviragen common stock at or above the price you paid and you could lose all or part of your investment in Aviragen.

 

In order to develop Aviragen’s product candidates and support Aviragen’s operations beyond 12 months from the date of this registration statement, Aviragen may need to raise additional capital. Such capital may not be available to Aviragen on acceptable terms, if at all, which could materially harm Aviragen’s financial condition, business and business prospects.

 

The timing and extent of Aviragen’s future financing needs are uncertain and will depend on many factors, some of which are very difficult to predict or may be beyond Aviragen’s control, including:  

 

 

the variability of future royalty revenue Aviragen may receive and retain under its existing royalty-bearing license agreements;

 

 

the development timelines and plans for Aviragen’s product candidates, including any changes to those timelines, plans or Aviragen’s strategy;

 

 

the variability, timing and costs associated with conducting clinical trials for Aviragen’s 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 these studies;

 

 

the cost of scaling up, formulating and manufacturing preclinical and clinical trial materials to evaluate Aviragen’s product candidates;

 

 

whether Aviragen receives regulatory approval to advance the clinical development of Aviragen’s product candidates in a timely manner, if at all;

 

 

the cost and time to obtain regulatory approvals required to advance the development of Aviragen’s product candidates;

 

 

the scope and size of its research and development efforts;

 

 

the terms and timing of any collaborative, licensing and other arrangements that Aviragen may establish in the future;

 

 

the timing of the closing of the merger;

 

 

the cost to maintain a corporate infrastructure to support being a company that is publicly traded in the United States on Nasdaq; and

 

 

the cost of filing, prosecuting, and enforcing patent and other intellectual property claims.

 

Future issuances of shares of Aviragen common stock may cause Aviragen’s stock price to decline, even if its business is doing well.

 

The sale and issuance of additional shares of Aviragen common stock, or the perception that such future sales could occur, including any sales by Aviragen’s directors, executive officers, and other insiders or their affiliates, could materially and adversely affect the market price of Aviragen common stock and impair Aviragen’s ability to raise capital through the sale of additional equity securities at a price Aviragen deems appropriate.

 

If Aviragen raises additional capital in the future, your level of ownership in Aviragen could be diluted or Aviragen could be required to relinquish certain rights.

 

Any issuance of securities Aviragen may undertake in the future to raise additional capital could cause the price of Aviragen common stock to decline, or require Aviragen to issue shares at a price that is lower than that paid by holders of Aviragen common stock in the past, which would result in those newly issued shares being dilutive. Further, if Aviragen obtains funds through a debt financing or through the issuance of debt or preferred securities, these securities would likely have rights senior to your rights as a common stockholder, which could impair the value of Aviragen common stock. The terms of any debt financing Aviragen enters into may include covenants that limit Aviragen’s flexibility in conducting its business. Aviragen also could be required to seek funds through arrangements with collaborators or others, which might require Aviragen to relinquish valuable rights to Aviragen’s intellectual property or product candidates that Aviragen would have otherwise retained.

 

 

Aviragen does not anticipate paying cash dividends in the foreseeable future, and accordingly, you must rely on appreciation in the price of Aviragen common stock for any return on your investment in Aviragen.

 

Aviragen anticipates that Aviragen will retain its earnings, if any, for future growth and therefore does not anticipate paying cash dividends in the foreseeable future. As a result, Aviragen common stock will likely only provide a return to stockholders in the event there is appreciation in its price.

 

Aviragen ’s certificate of incorporation, Aviragen’s bylaws, and the laws of Delaware contain provisions that could discourage, delay or prevent a change in control of Aviragen or a change in Aviragen’s management.

 

Certain provisions of Aviragen’s certificate of incorporation, Aviragen’s bylaws and the laws of Delaware, the state in which Aviragen is incorporated, may discourage, delay or prevent a change in control of Aviragen or a change in Aviragen’s directors or management that stockholders may consider favorable. These provisions:

 

 

allow the authorized number of directors to be changed only by resolution of the Aviragen board of directors;

 

 

removal of directors from office at any time, but only by the affirmative vote of the holders of at least seventy-five (75%)  of the voting power of all of then-outstanding shares of capital stock of the corporation entitled to vote generally in the election of directors;

 

 

authorize the Aviragen board of directors to issue without stockholder approval, up to 5,000,000 shares of preferred stock, the rights of which will be determined at the discretion of the Aviragen board of directors that, if issued, could operate as a “poison pill” to dilute the stock ownership of a potential hostile acquirer to prevent an acquisition that is not approved by the Aviragen board of directors;

 

 

establish advance notice requirements for stockholder nominations to the Aviragen board of directors or for stockholder proposals that can be acted on at stockholder meetings;

 

 

limit who may call stockholder meetings; and

 

 

contain a fair price provision.

 

In addition, Aviragen is governed by the provisions of Section 203 of the DGCL, which may, unless certain criteria are met, prohibit large stockholders, in particular those owning 15% or more of the voting rights of Aviragen common stock, from merging or combining with Aviragen for a prescribed period of time. These provisions could discourage proxy contests and make it more difficult for you and other stockholders to remove and elect directors and take other corporate actions. These provisions could also limit the price that investors might be willing to pay in the future for shares of Aviragen common stock.

 

Aviragen may be subject to securities litigation, which is expensive and could divert management attention.

 

The market price of Aviragen common stock has been and may continue to be volatile, and in the past companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. Aviragen may be the target of this type of litigation in the future. Securities litigation against Aviragen could result in substantial costs and divert management's attention from other business concerns, which could seriously harm Aviragen ’s business.

 

If securities or industry analysts do not publish research, or publish inaccurate or unfavorable rating, about Aviragen ’s business, Aviragen’s stock price and trading volume could decline.

 

The trading market for Aviragen common stock is influenced by independent research and reports that securities or industry analysts publish about Aviragen or its business from time to time. There can be no assurance that analysts will continue to cover Aviragen or provide favorable ratings. If any analysts who cover Aviragen downgrade Aviragen ’s stock, change their opinion of Aviragen’s stock or disseminate negative information regarding Aviragen’s business, Aviragen’s share price may decline. If any analysts cease coverage of Aviragen, or fail to regularly publish reports on Aviragen, Aviragen could lose visibility in the financial markets, which could cause Aviragen’s share price or trading volume to decline.

 

 

Risks Related to Other Aspects of Aviragen ’s Business

 

If a product liability claim is successfully brought against Aviragen for uninsured liabilities, or such claim exceeds Aviragen ’s insurance coverage, Aviragen could be forced to pay substantial damage awards that could materially harm Aviragen’s business.

 

The use of any of Aviragen ’s existing or future product candidates in clinical trials and the sale of any approved pharmaceutical products may expose Aviragen to significant product liability claims. Aviragen currently has product liability insurance coverage for its ongoing clinical trials in the amount of $15 million. Further, Aviragen also requires clinical research and manufacturing organizations that assist it in the conduct of its trials or manufacture materials used in these trials to carry product liability insurance against such claims. This insurance coverage may not protect Aviragen against any or all of the product liability claims that may be brought against Aviragen in the future. Aviragen may not be able to acquire or maintain adequate product liability insurance coverage at a commercially reasonable cost or in sufficient amounts or scope to protect Aviragen against potential losses. In the event a product liability claim is brought against Aviragen, Aviragen may be required to pay legal and other expenses to defend the claim, as well as uncovered damage awards resulting from a claim brought successfully against Aviragen. In the event any of Aviragen’s product candidates are approved for sale by the FDA or similar regulatory authorities in other countries and commercialized, Aviragen may need to substantially increase the amount of its product liability coverage. Defending any product liability claim or claims could require Aviragen to expend significant financial and managerial resources, which could have an adverse effect on Aviragen’s business.

 

Aviragen ’s ability to use its net operating loss carry forwards to reduce taxable income generated in the future could be substantially limited or eliminated.

 

Aviragen ’s ability to use its net operating losses in the United States, Australia, France and the United Kingdom is subject to limitations and re-assessment due to ownership changes that have occurred, or that could occur in the future. Depending on the actual amount of any limitation on Aviragen’s ability to use its net operating loss carry forwards, a significant portion of Aviragen’s future taxable income could be taxable.

 

Additionally, tax law limitations may result in Aviragen ’s net operating losses expiring before Aviragen has the ability to use them. In addition, financing and acquisition transactions that Aviragen may enter into in the future could significantly limit or eliminate Aviragen’s ability to realize any value from Aviragen’s net operating losses.

 

Aviragen ’s internal computer systems, or those of Aviragen’s contract research organizations, or CROs, or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of Aviragen’s product development programs.

 

Aviragen ’s internal computer systems and those of Aviragen’s CROs and other contractors or consultants are vulnerable to damage from cyber security breaches, computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While Aviragen does not believe that it has experienced any such material system failure, accident or security breach to date, if such an event were to occur and cause interruptions in Aviragen’s operations, it could result in a material disruption of Aviragen’s development programs and business operations, whether due to a loss of Aviragen’s trade secrets or other proprietary information or other similar disruptions. For example, the loss of clinical trial data for Aviragen’s product candidates from completed or future clinical trials could result in delays in Aviragen’s regulatory approval efforts and significantly increase Aviragen’s costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of, or damage to, Aviragen’s data or applications or other data or applications relating to Aviragen’s technology or product candidates, or inappropriate disclosure of confidential or proprietary information, Aviragen could incur liabilities, Aviragen’s competitive position could be harmed and the further development and commercialization of its product candidates could be delayed. Moreover, breaches of Aviragen’s systems, which may give access to material non-public information about Aviragen’s operations or financial position prior to its public dissemination, could result in people trading in Aviragen’s stock with advance notice of this information, which could adversely affect trading by other stockholders.

 

Risks Related to Vaxart

 

Risks Related to Vaxart ’s Business, Financial Position and Capital Requirements

 

Vaxart has a limited operating history and has never generated any product revenue.

 

Vaxart is a clinical-stage biopharmaceutical company with a limited operating history. Vaxart was founded in March 2004 and its operations to date have been limited to organizing and staffing its company and developing oral recombinant vaccine candidates that are administered in tablet form. Vaxart has not yet successfully completed a large-scale, pivotal clinical trial, obtained marketing approval, manufactured Vaxart tablet vaccine candidates at commercial scale, or conducted sales and marketing activities that will be necessary to successfully commercialize Vaxart ’s tablet vaccine candidates. Consequently, predictions about Vaxart’s future success or viability may not be as accurate as they could be if it had a longer operating history or a history of successfully developing and commercializing tablet vaccine candidates.

 

Vaxart ’s ability to generate revenue and achieve and maintain profitability will depend upon its ability to successfully complete the development of Vaxart’s tablet vaccine candidates for the treatment of norovirus, seasonal influenza, respiratory syncytial virus, or RSV, cervical cancer and dysplasia caused by human papillomavirus, or HPV and other infectious diseases and to obtain the necessary regulatory approvals. Vaxart has never generated any product revenue, and has no tablet vaccine candidates in late-stage clinical development or approved for commercial sale.

 

 

Even if Vaxart receives regulatory approval for the sale of any of its tablet vaccine candidates, it does not know when it will begin to generate revenue, if at all. Vaxart ’s ability to generate revenue depends on a number of factors, including its ability to:

 

 

set an acceptable price for its tablet vaccine candidates and obtain coverage and adequate reimbursement from third-party payors;

 

 

establish sales, marketing, manufacturing and distribution systems;

 

 

add operational, financial and management information systems and personnel, including personnel to support its clinical, manufacturing and planned future clinical development and commercialization efforts and operations as a public company;

 

 

develop manufacturing capabilities for bulk materials and manufacture commercial quantities of its tablet vaccine candidates at acceptable cost levels;

 

 

achieve broad market acceptance of its tablet vaccine candidates in the medical community and with third-party payors and consumers;

 

 

attract and retain an experienced management and advisory team;

 

 

launch commercial sales of Vaxart ’s tablet vaccine candidates, whether alone or in collaboration with others; and

 

 

maintain, expand and protect Vaxart ’s intellectual property portfolio.

 

Because of the numerous risks and uncertainties associated with vaccine development and manufacturing, Vaxart is unable to predict the timing or amount of increased development expenses, or when it will be able to achieve or maintain profitability, if at all. Vaxart ’s expenses could increase beyond expectations if it is required by the U.S. Food and Drug Administration, or the FDA, or comparable non-U.S. regulatory authorities, to perform studies or clinical trials in addition to those it currently anticipates. Even if Vaxart’s tablet vaccine candidates are approved for commercial sale, it anticipates incurring significant costs associated with the commercial launch of and the related commercial-scale manufacturing requirements for its tablet vaccine candidates. If Vaxart cannot successfully execute on any of the factors listed above, Vaxart’s business may not succeed and your investment will be adversely affected.

 

Vaxart has incurred significant losses since its inception and expects to continue to incur significant losses for the foreseeable future and may never achieve or maintain profitability.

 

Vaxart has never generated any product revenues and it expects to continue to incur substantial and increasing losses as it continues to develop its tablet vaccine candidates. Vaxart ’s tablet vaccine candidates have not been approved for marketing in the United States and may never receive such approval. As a result, Vaxart is uncertain when or if it will achieve profitability and, if so, whether it will be able to sustain it. Vaxart’s ability to generate revenue and achieve profitability is dependent on its ability to complete development, obtain necessary regulatory approvals, and have its tablet vaccine candidates manufactured and successfully marketed. Vaxart cannot assure you that it will be profitable even if it successfully commercializes one of its tablet vaccine candidates. If Vaxart does successfully obtain regulatory approval to market its tablet vaccine candidates, its revenues will be dependent, in part, upon, the size of the markets in the territories for which regulatory approval is received, the number of competitors in such markets, the price at which Vaxart can offer its tablet vaccine candidates and whether Vaxart owns the commercial rights for that territory. If the indication approved by regulatory authorities is narrower than Vaxart expects, or the treatment population is narrowed by competition, physician choice or treatment guidelines, Vaxart may not generate significant revenue from sales of its tablet vaccine candidates, even if approved. Even if Vaxart does achieve profitability, Vaxart may not be able to sustain or increase profitability on a quarterly or annual basis. If Vaxart fails to become and remain profitable the market price of its common stock and Vaxart’s ability to raise capital and continue operations will be adversely affected.

 

Vaxart expects research and development expenses to increase significantly for any of its tablet vaccines, including those for the prevention of norovirus, influenza and RSV infection, as well as those for the treatment of HPV related dysplasia and cancer, and any other chronic viral infections and cancer. In addition, even if Vaxart obtains regulatory approval, significant sales and marketing expenses will be required to commercialize the tablet vaccine candidates. As a result, Vaxart expects to continue to incur significant and increasing operating losses and negative cash flows for the foreseeable future. These losses have had and will continue to have an adverse effect on its financial position and working capital. As of September 30, 2017, Vaxart had an accumulated deficit of $78.9 million.

 

 

Vaxart is dependent on the success of its tablet vaccine for the prevention of norovirus infection which is still in early-stage clinical development, and if this tablet vaccine does not receive regulatory approval or is not successfully commercialized, its business may be harmed.

 

None of Vaxart ’s tablet vaccine candidates are in late-stage clinical development or approved for commercial sale and it may never be able to develop marketable tablet vaccine candidates. Vaxart expects that a substantial portion of its efforts and expenditures over the next few years will be devoted to its tablet vaccine candidate for norovirus. Accordingly, Vaxart’s business currently depends heavily on the successful development, regulatory approval and commercialization of Vaxart’s norovirus tablet vaccine. Vaxart’s norovirus tablet vaccine may not receive regulatory approval or be successfully commercialized even if regulatory approval is received. The research, testing, manufacturing, labeling, approval, sale, marketing and distribution of tablet vaccine candidates are and will remain subject to extensive regulation by the FDA and other regulatory authorities in the United States and other countries that each have differing regulations. Vaxart is not permitted to market its norovirus tablet vaccine in the United States until it receives approval of a biologics license application, or BLA, from the FDA, or in any foreign countries until it receives the requisite approval from such countries. To date, Vaxart has only completed Phase 1 clinical trials for one of the two strains necessary for Vaxart’s bivalent tablet vaccine candidate. As a result, Vaxart has not submitted a BLA to the FDA or comparable applications to other regulatory authorities and does not expect to be in a position to do so for the foreseeable future. Obtaining approval of a BLA is an extensive, lengthy, expensive and inherently uncertain process, and the FDA may delay, limit or deny approval of its seasonal influenza tablet vaccine for many reasons, including:

 

 

Vaxart may not be able to demonstrate that its norovirus tablet vaccine is safe and effective to the satisfaction of the FDA;

 

 

the FDA may not agree that the completed Phase 1 clinical trials of the norovirus vaccine satisfy the FDA ’s requirements and may require Vaxart to conduct additional testing;

 

 

the results of Vaxart ’s clinical trials may not meet the level of statistical or clinical significance required by the FDA for marketing approval;

 

 

the FDA may disagree with the number, design, size, conduct or implementation of one or more of its clinical trials;

 

 

the contract research organizations, or CROs, that Vaxart retains to conduct clinical trials may take actions outside of its control that materially and adversely impact its clinical trials;

 

 

the FDA may not find the data from its preclinical studies and clinical trials sufficient to demonstrate that the clinical and other benefits of its tablet vaccines outweigh the safety risks;

 

 

the FDA may disagree with its interpretation of data from Vaxart ’s preclinical studies and clinical trials;

 

 

the FDA may not accept data generated at its clinical trial sites;

 

 

if Vaxart ’s BLA is reviewed by an advisory committee, the FDA may have difficulties scheduling an advisory committee meeting in a timely manner or the advisory committee may recommend against approval of Vaxart’s application or may recommend that the FDA require, as a condition of approval, additional preclinical studies or clinical trials, limitations on approved labeling or distribution and use restrictions;

 

 

the FDA may require development of a risk evaluation and mitigation strategy, or REMS, as a condition of approval;

 

 

the FDA may identify deficiencies in Vaxart ’s manufacturing processes or facilities; or

 

 

the FDA may change its approval policies or adopt new regulations.

 

Vaxart ’s independent auditor has expressed doubt about Vaxart’s ability to continue as a going concern.

 

Based on its cash balances, recurring losses since inception and existing capital resources to fund planned operations for the next twelve months, Vaxart’s independent auditor has included an explanatory paragraph in its report on Vaxart’s financial statements as of and for the year ending December 31, 2016 expressing substantial doubt about Vaxart’s ability to continue as a going concern. If the merger is not consummated Vaxart will, during 2018, require significant additional funding to continue operations. If Vaxart is unable to continue as a going concern, it may be forced to liquidate its assets and the values it receives for its assets in liquidation or dissolution could be significantly lower than the values reflected in its financial statements.

 

Vaxart will require additional capital to fund its operations, and if Vaxart fails to obtain necessary financing, it may not be able to complete the development and commercialization of its tablet vaccine candidates.

 

Vaxart expects to spend substantial amounts to complete the development of, seek regulatory approvals for and commercialize Vaxart ’s tablet vaccine candidates. Even with the expected cash reserves of the combined company, Vaxart will require substantial additional capital to complete the development and potential commercialization of its tablet vaccine candidates for norovirus, seasonal influenza, RSV, HPV, and the development of other tablet vaccine candidates. If Vaxart is unable to raise capital or find appropriate partnering or licensing collaborations, when needed or on acceptable terms, it could be forced to delay, reduce or eliminate one or more of its development programs or any future commercialization efforts. In addition, attempting to secure additional financing may divert the time and attention of its management from day-to-day activities and harm its development efforts.

 

 

Based upon its current operating plan, Vaxart believes that the expected cash reserves of the combined company will enable it to fund its operating expenses and capital expenditure requirements through at least the full year of 2018. Vaxart’s estimate as to what it will be able to accomplish is based on assumptions that may prove to be inaccurate, and it could exhaust its available capital resources sooner than is currently expected. Because the length of time and activities associated with successful development of its tablet vaccine candidates is highly uncertain, Vaxart is unable to estimate the actual funds it will require for development and any approved marketing and commercialization activities. Vaxart’s future funding requirements, both near and long-term, will depend on many factors, including, but not limited to:

 

 

the initiation, progress, timing, costs and results of Vaxart ’s planned clinical trials;

 

 

the outcome, timing and cost of meeting regulatory requirements established by the FDA, the European Medicines Agency, or EMA, and other comparable foreign regulatory authorities;

 

 

the cost of filing, prosecuting, defending and enforcing its patent claims and other intellectual property rights;

 

 

the cost of defending potential intellectual property disputes, including any patent infrin gement actions brought by third parties against Vaxart now or in the future;

 

 

the effect of competing technological and market developments;

 

 

the cost of establishing sales, marketing and distribution capabilities in regions where Vaxart chooses to commercialize Vaxart ’s tablet vaccine candidates on Vaxart’s own; and

 

 

the initiation, progress, timing and results of the commercialization of its tablet vaccine candidates, if approved, for commercial sale.

 

Additional funding may not be available on acceptable terms, or at all. If Vaxart is unable to raise additional capital in sufficient amounts or on terms acceptable to it, Vaxart may have to significantly delay, scale back or discontinue the development or commercialization of its tablet vaccine candidates or potentially discontinue operations.

 

Raising additional funds by issuing securities may cause dilution to existing stockholders, and raising funds through lending and licensing arrangements may restrict Vaxart ’s operations or require it to relinquish proprietary rights.

 

Vaxart expects that significant additional capital will be needed in the future to continue its planned operations. Until such time, if ever, as Vaxart can generate substantial product revenues, Vaxart expects to finance its cash needs through a combination of equity offerings, debt financings, strategic alliances and license and development agreements in connection with any collaborations. Vaxart does not currently have any committed external source of funds. To the extent that Vaxart raises additional capital by issuing equity securities, Vaxart ’s existing stockholders’ ownership may experience substantial dilution, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting Vaxart’s ability to take specific actions, such as incurring additional debt, making capital expenditures, declaring dividends, creating liens, redeeming its stock or making investments.

 

If Vaxart raises additional funds through collaborations, strategic alliances or marketing, distribution or li censing arrangements with third parties, it may have to relinquish valuable rights to its technologies, future revenue streams, research programs or tablet vaccine candidates or grant licenses on terms that may not be favorable to us. If Vaxart is unable to raise additional funds through equity or debt financings when needed, or through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties on acceptable terms, it may be required to delay, limit, reduce or terminate its tablet vaccine development or future commercialization efforts or grant rights to develop and market tablet vaccine candidates that it would otherwise develop and market Vaxart.

 

The terms of Vaxart ’s credit facility place restrictions on Vaxart’s operating and financial flexibility .

 

In December  2016, Vaxart entered into a loan and security agreement, or the Loan Agreement, with Oxford under which Vaxart borrowed $5 million. Vaxart's outstanding debt facility with Oxford is collateralized by substantially all of Vaxart's assets, except for intellectual property, and contains customary financial and operating covenants limiting Vaxart's ability to transfer or dispose of assets, merge with or acquire other companies (including in connection with the merger described herein), make investments, pay dividends, incur additional indebtedness and liens and conduct transactions with affiliates. Vaxart therefore may not be able to engage in any of the foregoing transactions until its current debt obligations are paid in full or Vaxart obtains the consent of Oxford, which Vaxart expects Oxford will unconditionally grant as of the closing date of the merger. Compliance with these covenants may limit Vaxart’s flexibility in operating its business and Vaxart’s ability to take actions that might be advantageous to Vaxart and its stockholders.

 

Under the Loan Agreement, an event of default will occur if, among other things:

 

 

Vaxart fails to make payments under the Loan Agreement;

 

 

 

Vaxart breaches any of its covenants under the Loan Agreement, subject to specified cure periods with respect to certain breaches;

 

 

there occurs an event that has a material adverse effect on:

 

 

Vaxart ’s business, operations, properties, assets or financial condition;

 

 

Vaxart ’s ability to perform or satisfy Vaxart’s obligations under the Loan Agreement as they become due or Oxford’s ability to enforce its rights or remedies with respect to Vaxart’s obligations under the Loan Agreement; or

 

 

the collateral or liens securing Vaxart ’s obligations under the Loan Agreement;

 

 

Vaxart or its assets become subject to certain legal proceedings, such as bankruptcy proceedings;

 

 

Vaxart is unable to pay its debts as they become due; or

 

 

Vaxart defaults on contracts with third parties which would permit Oxford to accelerate the maturity of such indebtedness or that could have a material adverse effect on Vaxart.

 

Vaxart may not have enough available cash or be able to raise additional funds through equity or debt financings to repay such indebtedness at the time any such event of default occurs. In that case, Vaxart may be required to delay, limit, reduce or terminate Vaxart ’s clinical development efforts or grant to others rights to develop and market product candidates that Vaxart would otherwise prefer to develop and market ourselves. Oxford could also exercise its rights as collateral agent to take possession and dispose of the collateral securing the Loan Agreement for its benefit. Vaxart’s business would be harmed as a result of any of these events.

 

If Vaxart fails to obtain or maintain adequate coverage and reimbursement for its tablet vaccine candidates, its ability to generate revenue could be limited.

 

The availability and extent of reimbursement by governmental and private payors is essential for most patients to be able to afford expensive treatments. Sales of any of its tablet vaccine candidates that receive marketing approval will depend substantially, both in the United States and internationally, on the extent to which the costs of Vaxart ’s tablet vaccine candidates will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government health administration authorities, private health coverage insurers and other third-party payors. If reimbursement is not available, or is available only on a limited basis, Vaxart may not be able to successfully commercialize Vaxart’s tablet vaccine candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow Vaxart to establish or maintain adequate pricing that will allow it to realize a sufficient return on Vaxart’s investment.

 

Outside the United States, international operations are generally subject to extensive governmental price controls and other market regulations, and Vaxart believes the increasing emphasis on cost-containment initiatives in Europe, Canada and other countries may cause Vaxart to price Vaxart ’s tablet vaccine candidates on less favorable terms that it currently anticipates. In many countries, particularly the countries of the European Union, the prices of medical products are subject to varying price control mechanisms as part of national health systems. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, Vaxart may be required to conduct a clinical trial that compares the cost-effectiveness of its tablet vaccine candidates to other available therapies. In general, the prices of products under such systems are substantially lower than in the United States. Other countries allow companies to fix their own prices for products, but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that it is able to charge for its tablet vaccine candidates. Accordingly, in markets outside the United States, the reimbursement for its products may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenues and profits.

 

Moreover, increasing efforts by governmental and third-party payors, in the United States and internationally, to cap or reduce healthcare costs may cause such organizations to limit both coverage and level of reimbursement for newly approved products and, as a result, they may not cover or provide adequate payment for its tablet vaccine candidates. Vaxart expects to experience pricing pressures in connection with the sale of any of Vaxart ’s tablet vaccine candidates due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs and surgical procedures and other treatments, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products into the healthcare market.

 

Vaxart ’s future success depends on its ability to retain executive officers and attract, retain and motivate qualified personnel.

 

Vaxart is highly dependent on its executive officers and the other principal members of the executive and scientific teams, particularly its President and Chief Executive Officer, Wouter W. Latour, its Chief Scientific Officer, Sean N. Tucker, its Chief Financial Officer, John M. Harland and its Chief Medical Officer, David Liebowitz. The employment of Vaxart ’s executive officers are at-will and Vaxart’s executive officers may terminate their employment at any time. The loss of the services of any of Vaxart’s senior executive officers could impede the achievement of Vaxart’s research, development and commercialization objectives. Vaxart does not maintain “key person” insurance for any executive officer or employee.

 

 

Recruiting and retaining qualified scientific, clinical, manufacturing and sales and marketing personnel is also critical to Vaxart ’s success. Vaxart may not be able to attract and retain these personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. Vaxart also experiences competition for the hiring of scientific and clinical personnel from universities and research institutions. Vaxart’s industry has experienced an increasing rate of turnover of management and scientific personnel in recent years. In addition, Vaxart relies on consultants and advisors, including scientific and clinical advisors, to assist it in devising Vaxart’s research and development and commercialization strategy. Vaxart’s consultants and advisors may be employed by third parties and have commitments under consulting or advisory contracts with other entities that may limit their availability to advance Vaxart’s strategic objectives. If any of these advisors or consultants can no longer dedicate a sufficient amount of time to the company, Vaxart’s business may be harmed.

 

Vaxart will need to expand its organization, and may experience difficulties in managing this growth, which could disrupt operations.

 

Vaxart ’s future financial performance and Vaxart’s ability to commercialize Vaxart’s tablet vaccine candidates and compete effectively will depend, in part, on Vaxart’s ability to effectively manage any future growth. As of September 30, 2017, Vaxart had 21 employees. Vaxart expects to hire additional employees for Vaxart’s managerial, clinical, scientific and engineering, operational, manufacturing, sales and marketing teams. Vaxart may have operational difficulties in connection with identifying, hiring and integrating new personnel. Future growth would impose significant additional responsibilities on its management, including the need to identify, recruit, maintain, motivate and integrate additional employees, consultants and contractors. Also, Vaxart’s management may need to divert a disproportionate amount of its attention away from Vaxart’s day-to-day activities and devote a substantial amount of time to managing these growth activities. Vaxart may not be able to effectively manage the expansion of its operations, which may result in weaknesses in its infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Vaxart’s expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of its tablet vaccine candidates. If Vaxart is unable to effectively manage its growth, its expenses may increase more than expected, its ability to generate and/or grow revenues could be reduced, and Vaxart may not be able to implement its business strategy.

 

Many of the other pharmaceutical companies that Vaxart competes against for qualified personnel and consultants have greater financial and other resources, different risk profiles and a longer history in the industry than Vaxart. They also may provide more diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high-quality candidates and consultants than what it has to offer. If Vaxart is unable to continue to attract and retain high-quality personnel and consultants, the rate and success at which it can select and develop its tablet vaccine candidates and its business will be limited.

 

Vaxart ’s employees, independent contractors, principal investigators, consultants, commercial collaborators, service providers and other vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could have an adverse effect on Vaxart’s results of operations.

 

Vaxart is exposed to the risk that its employees and contractors, including principal investigators, consultants, commercial collaborators, service providers and other vendors may engage in fraudulent or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or other unauthorized activities that violate the laws and regulations of the FDA and other similar regulatory bodies, including those laws that require the reporting of true, complete and accurate information to such regulatory bodies, manufacturing standards, federal and state healthcare fraud and abuse and health regulatory laws and other similar foreign fraudulent misconduct laws, or laws that require the true, complete and accurate reporting of financial information or data. Misconduct by these parties may also involve the improper use or misrepresentation of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to Vaxart ’s reputation. It is not always possible to identify and deter third-party misconduct, and the precautions Vaxart takes to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting it from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against Vaxart, and it is not successful in defending Vaxart or asserting its rights, those actions could have a significant impact on Vaxart’s business and financial results, including the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, reputational harm, diminished profits and future earnings, and curtailment of its operations, any of which could adversely affect Vaxart’s ability to operate its business and Vaxart’s results of operations.

 

 

Vaxart ’s business and operations would suffer in the event of system failures.

 

Vaxart ’s computer systems and those of its service providers, including its CROs, are vulnerable to damage from computer viruses, unauthorized access, natural disasters (including earthquakes), terrorism, war and telecommunication and electrical failures. If such an event were to occur and cause interruptions in Vaxart’s or their operations, it could result in a material disruption of its development programs. For example, the loss of preclinical or clinical trial data from completed, ongoing or planned trials could result in delays in its regulatory approval efforts and significantly increase Vaxart’s costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of or damage to data or applications, or inappropriate disclosure of personal, confidential or proprietary information, Vaxart could incur liability and the further development of its tablet vaccine candidates could be delayed.

 

Vaxart has identified a material weakness in its internal control over financial reporting, and if Vaxart is unable to maintain proper and effective internal controls over financial reporting, the accuracy and timeliness of Vaxart ’s financial repor ting may be adversely affected.

 

In connection with the audit of Vaxart ’s financial statements for the years ended December 31, 2015 and 2016, Vaxart and its independent auditors identified a material weakness in its internal control over financial reporting. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of Vaxart’s annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness related to Vaxart lacking sufficient qualified resources and adequate processes thereby impacting Vaxart’s ability to appropriately segregate duties and perform effective and timely review of account reconciliations and nonroutine transactions.

 

Assuming the closing of the merger, the combined company intends to take steps to remediate this material weakness, including increasing the depth and experience within its accounting and finance organization, as well as designing and implementing improved processes and internal controls. However, its efforts to remediate this material weakness may not be effective or prevent any future material weakness or significant deficiency in the combined company’s internal control over financial reporting. If the combined company’s efforts are not successful or other material weaknesses or control deficiencies occur in the future, the combined company may be unable to report its financial results accurately on a timely basis, which could cause combined company’s reported financial results to be materially misstated and result in the loss of investor confidence and cause the market price of the combined company’s common stock to decline.

 

The combined company will be required, pursuant to Section 404 of the Sarbanes-Oxley Act, to annually furnish a report by management on, among other things, the effectiveness of its internal control over financial reporting. This assessment will need to include disclosure of any material weaknesses identified by the combined company ’s management in its internal control over financial reporting. The combined company’s independent registered public accounting firm may be required to attest to the effectiveness of its internal control over financial reporting depending on the combined company’s public float. The combined company will be required to disclose changes made in its internal control and procedures on a quarterly basis. To comply with the requirements of being a public company, the combined company may need to undertake various actions, such as implementing new internal controls and procedures and hiring accounting or internal audit staff.

 

Vaxart expects to incur significant additional costs as a result of being a public company, which may adversely affect its operating results and financial condition.

 

Vaxart expects to incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act, as well as rules implemented by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, the Securities and Exchange Commission, or the SEC, and Nasdaq. These rules and regulations are expected to increase Vaxart 's accounting, legal and financial compliance costs and make some activities more time-consuming and costly. In addition, Vaxart will incur additional costs associated with its public company reporting requirements and Vaxart expects those costs to increase in the future. Vaxart also expects these rules and regulations to make it more expensive for it to maintain directors' and officers' liability insurance and Vaxart may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for Vaxart to attract and retain qualified persons to serve on its board of directors, its board committees, or as executive officers. Increases in costs incurred as a result of becoming a publicly traded company may adversely affect Vaxart's operating results and financial condition.

 

Comprehensive tax reform bills could adversely affect Vaxart ’s business and financial condition.

 

The U.S. government is in the process of enacting comprehensive tax legislation that includes significant changes to the taxation of business entities. These changes include, among others, (i) a permanent reduction to the corporate income tax rate, (ii) a partial limitation on the deductibility of business interest expense, (iii) a shift of the U.S. taxation of multinational corporations from a tax on worldwide income to a territorial system (along with certain rules designed to prevent erosion of the U.S. income tax base) and (iv) a one-time tax on accumulated offshore earnings held in cash and illiquid assets, with the latter taxed at a lower rate. Notwithstanding the reduction in the corporate income tax rate, the overall impact of this tax reform is uncertain, and Vaxart’s business and financial condition could be adversely affected.  This proxy statement/prospectus/information statement does not discuss any such tax legislation or the manner in which it might affect holders of the Vaxart’s capital stock. Vaxart urges their stockholders to consult with their legal and tax advisors with respect to any such legislation and the potential tax consequences of investing in Vaxart’s capital stock.

 

 

Risks Related to Clinical Development, Regulatory Approval and Commercialization

 

If Vaxart fails to continue to develop and refine the formulations of its tablet vaccine candidates, it may not obtain regulatory approvals, and even if approved, the commercial acceptance of its tablet vaccine candidates would likely be limited.

 

In Vaxart ’s H1N1 influenza Phase 2 trial it used vaccine tablets that contained approximately 1.5 x 10 10 IU of vaccine. Accordingly, subjects in this trial were required to take 7 tablets in a single setting to reach the aggregate dose of 1 x 10 11 IU, the target dose for this trial. Vaxart believes that in order for its seasonal influenza vaccine candidate to be commercially successful it will need to continue to refine its formulation and develop influenza vaccine tablets that contain the desired dose for each vaccine strain in a single tablet, resulting in a vaccination regime of no more than four tablets. In addition, Vaxart intends to develop a seasonal influenza vaccine tablet that contains the optimal effective dose for all four influenza vaccines necessary to create a quadrivalent vaccine, resulting in a vaccination regime of one tablet. Increasing the potency of the vaccine tablets may affect the stability profile of the vaccine and Vaxart may not be able to reduce the vaccination regime for an influenza strain to a single tablet or combine the four influenza strains into one vaccine tablet. In addition, increasing the potency of the vaccine tablets or combining the influenza strains necessary to create a quadrivalent vaccine may adversely affect manufacturing yields and render such tablets too costly to manufacture at commercial scale. Vaxart’s efforts to develop tablet vaccine candidates for norovirus and RSV face similar formulation challenges. If Vaxart’s unable to further develop and refine the formulations of its tablet vaccine candidates, it may not obtain regulatory approval from the FDA or other regulatory authorities, and even if approved, the commercial acceptance of its tablet vaccine candidates would likely be limited.

 

Clinical trials are very expensive, time-consuming, difficult to design and implement and involve an uncertain outcome, and if they fail to demonstrate safety and efficacy to the satisfaction of the FDA, or similar regulatory authorities, Vaxart will be unable to commercialize its tablet vaccine candidates.

 

Vaxart ’s tablet vaccine candidates for norovirus and seasonal influenza are still in early-stage clinical development and will require extensive additional clinical testing before Vaxart is prepared to submit a BLA for regulatory approval for either indication or for any other treatment regime. Vaxart cannot predict with any certainty if or when it might submit a BLA for regulatory approval for any of its tablet vaccine candidates, which are currently in pre-clinical development, or whether any such BLAs will be approved by the FDA. Human clinical trials are very expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. For instance, the FDA may not agree with Vaxart’s proposed endpoints for any clinical trial it proposes, which may delay the commencement of its clinical trials. The clinical trial process is also time-consuming. Vaxart estimates that the clinical trials it needs to conduct to be in a position to submit BLAs for Vaxart’s tablet vaccine candidates for seasonal influenza, norovirus and RSV will take several years to complete. Furthermore, failure can occur at any stage of the trials, and it could encounter problems that cause it to abandon or repeat clinical trials. Tablet vaccine candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials, and the results of early clinical trials of the tablet vaccine candidate for seasonal influenza as well as the pre-clinical results Vaxart has observed for its norovirus and RSV tablet vaccine candidates therefore may not be predictive of the results of its planned Phase 1 and 2 trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials.

 

Moreover, preclinical and clinical data are often susceptible to multiple interpretations and analyses. Many companies that have believed their vaccine candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products. Success in preclinical testing and early clinical trials does not ensure that later clinical trials, which involve many more subjects and, for influenza, all four strains rather than the one strain Vaxart has studied in Phase 1 clinical trials to date and the results of later clinical trials may not replicate the results of prior clinical trials and preclinical testing.

 

Vaxart may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent its ability to receive marketing approval or commercialize its tablet vaccine candidates, including that:

 

 

regulators or institutional review boards may not authorize Vaxart or its investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;

 

 

it may have delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;

 

 

clinical trials of Vaxart ’s tablet vaccine candidates may produce negative or inconclusive results, and Vaxart may decide, or regulators may require it, to conduct additional clinical trials or abandon product development programs;

 

 

the number of subjects required for clinical trials of its tablet vaccine candidates may be larger than Vaxart anticipates; enrollment in these clinical trials may be slower than Vaxart anticipates, or participants may drop out of these clinical trials at a higher rate than Vaxart anticipates;

 

 

Vaxart third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to it in a timely manner, or at all;

 

 

regulators or institutional review boards may require that Vaxart or Vaxart ’s investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks;

 

 

the cost of clinical trials of its tablet vaccine candidates may be greater than it anticipates; and

 

 

the supply or quality of its tablet vaccine candidates or other materials necessary to conduct clinical trials of Vaxart ’s tablet vaccine candidates may be insufficient or inadequate.

 

 

If Vaxart is required to conduct additional clinical trials or other testing of its tablet vaccine candidates beyond those that it currently contemplates, if it is unable to successfully complete clinical trials of its tablet vaccine candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, Vaxart may:

 

 

be delayed in obtaining marketing approval for its tablet vaccine candidates;

 

 

not obtain marketing approval at all;

 

 

obtain approval for indications or patient populations that are not as broad as intended or desired;

 

 

obtain approval with labeling that includes significant use or distribution restrictions or safety warnings, including boxed warnings;

 

 

be subject to additional post-marketing testing requirements; or

 

 

have the product removed from the market after obtaining marketing approval.

 

Product development costs will also increase if Vaxart experiences delays in testing or in receiving marketing approvals. Vaxart does not know whether any clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant clinical trial delays also could shorten any periods during which Vaxart may have the exclusive right to commercialize Vaxart ’s tablet vaccine candidates, could allow its competitors to bring products to market before it does, and could impair its ability to successfully commercialize its tablet vaccine candidates, any of which may harm its business and results of operations.

 

Vaxart ’s platform includes a novel vaccine adjuvant and all current Vaxart tablet vaccine candidates include this novel adjuvant, which may make it difficult for Vaxart to predict the time and cost of tablet vaccine development as well as the requirements the FDA or other regulatory agencies may impose to demonstrate the safety of the tablet vaccine candidates.

 

Novel vaccine adjuvants, included in some of Vaxart ’s tablet vaccine candidates, may pose an increased safety risk to patients. Adjuvants are compounds that are added to vaccine antigens to enhance the activation and improve immune response and efficacy of vaccines. Development of vaccines with novel adjuvants requires evaluation in larger numbers of patients prior to approval than would be typical for therapeutic drugs. Guidelines for evaluation of vaccines with novel adjuvants have been established by the FDA and other regulatory bodies and expert committees. Vaxart’s tablet vaccine candidates, including for norovirus, may include one or more novel vaccine adjuvants. Any vaccine, because of the presence of an adjuvant, may have side effects considered to pose too great a risk to patients to warrant approval of the vaccine. Traditionally, regulatory authorities have required extensive study of novel adjuvants because vaccines typically get administered to healthy populations, in particular infants, children and the elderly, rather than in people with disease. Such extensive study has often included long-term monitoring of safety in large general populations that has at times exceeded 10,000 subjects. This contrasts with the few thousand subjects typically necessary for approval of novel therapeutics. To date, the FDA and other major regulatory agencies have only approved vaccines containing five adjuvants, which makes it difficult to determine how long it will take or how much it will cost to obtain regulatory approvals for Vaxart’s tablet vaccine candidates in the United States or elsewhere.

 

Enrollment and retention of subjects in clinical trials is an expensive and time-consuming process and could be made more difficult or rendered impossible by multiple factors outside Vaxart ’s control.

 

Vaxart may encounter delays in enrolling, or be unable to enroll, a sufficient number of participants to complete any of its clinical trials. Once enrolled, Vaxart may be unable to retain a sufficient number of participants to complete any of its trials. Late-stage clinical trials of its tablet vaccine candidate for norovirus, in particular, will require the enrollment and retention of large numbers of subjects. Subject enrollment and retention in clinical trials depends on many factors, including the size of the subject population, the nature of the trial protocol, the existing body of safety and efficacy data with respect to the study drug, the number and nature of competing treatments and ongoing clinical trials of competing drugs for the same indication, the proximity of subjects to clinical sites and the eligibility criteria for the study. Further, since there are no reliable animal models to norovirus infection, human challenge studies have been used to understand viral activity and possible immune correlates that prevent infection making trials more costly than animal based studies.

 

Furthermore, any negative results Vaxart may report in clinical trials of Vaxart ’s tablet vaccine candidates may make it difficult or impossible to recruit and retain participants in other clinical trials of that same tablet vaccine candidate. Delays or failures in planned subject enrollment or retention may result in increased costs, program delays or both, which could have a harmful effect on its ability to develop its tablet vaccine candidates, or could render further development impossible. In addition, Vaxart expects to rely on CROs and clinical trial sites to ensure proper and timely conduct of its future clinical trials and, while Vaxart intends to enter into agreements governing their services, it will be limited in its ability to compel their actual performance in compliance with applicable regulations. Enforcement actions brought against these third parties may cause further delays and expenses related to its clinical development programs.

 

 

Vaxart faces significant competition from other biotechnology and pharmaceutical companies, and its operating results will suffer if it fails to compete effectively.

 

Vaccine development is highly competitive and subject to rapid and significant technological advancements. In particular, for seasonal influenza vaccine, Vaxart faces competition from various sources, including larger and better funded pharmaceutical, specialty pharmaceutical and biotechnology companies, as well as academic institutions, governmental agencies and public and private research institutions. These competitors are focused on delivering therapeutics for the treatment of influenza with products that are available and have gained market acceptance as the standard treatment protocol. Further, it is likely that additional drugs or other treatments will become available in the future for the treatment of influenza.

 

Many of Vaxart ’s existing or potential competitors have substantially greater financial, technical and human resources than it does and significantly greater experience in the discovery and development of products for the treatment of influenza, as well as in obtaining regulatory approvals of those products in the United States and in foreign countries. Vaxart current and potential future competitors also have significantly more experience commercializing drugs that have been approved for marketing. Mergers and acquisitions in the pharmaceutical and biotechnology industries could result in even more resources being concentrated among a small number of its competitors.

 

Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Vaxart ’s competitors may succeed in developing, acquiring or licensing, on an exclusive basis, drugs that are more effective or less costly than any tablet vaccine candidate that it may develop.

 

Vaxart will face competition from other drugs currently approved or that will be approved in the future for the treatment of the other infectious diseases it is currently targeting. Therefore, its ability to compete successfully will depend largely on its ability to:

 

 

develop and commercialize tablet vaccine candidates that are superior to other vaccines in the market;

 

 

demonstrate through its clinical trials that its tablet vaccine candidates are differentiated from existing and future therapies;

 

 

attract qualified scientific, vaccine development and commercial personnel;

 

 

obtain patent or other proprietary protection for its tablet vaccine candidates;

 

 

obtain required regulatory approvals;

 

 

obtain coverage and adequate reimbursement from, and negotiate competitive pricing with, third-party payors; and

 

 

successfully develop and commercialize, independently or with collaborators, new tablet vaccine candidates.

 

The availability of its competitors ’ vaccines could limit the demand, and the price it is able to charge, for any tablet vaccine candidate it develops. The inability to compete with existing or subsequently introduced vaccines would have an adverse impact on its business, financial condition and prospects.

 

Established pharmaceutical companies may invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make any of its tablet vaccine candidates less competitive. In addition, any new vaccine that competes with an approved vaccine must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome price competition and to be commercially successful. Accordingly, Vaxart ’s competitors may succeed in obtaining patent protection, discovering, developing, receiving the FDA’s approval for or commercializing medicines before Vaxart does, which would have an adverse impact on its business and results of operations.

 

Vaxart ’s tablet vaccine candidates may cause adverse effects or have other properties that could delay or prevent their regulatory approval or limit the scope of any approved label or market acceptance.

 

Adverse events caused by Vaxart ’s tablet vaccine candidates could cause reviewing entities, clinical trial sites or regulatory authorities to interrupt, delay or halt clinical trials and could result in the denial of regulatory approval. If an unacceptable frequency or severity of adverse events are reported in its clinical trials for its tablet vaccine candidates, tis ability to obtain regulatory approval for such tablet vaccine candidates may be negatively impacted.

 

Furthermore, if any of its tablet vaccines are approved and then cause serious or unexpected side effects, a number of potentially significant negative consequences could result, including:

 

 

regulatory authorities may withdraw their approval of the tablet vaccine candidates or impose restrictions on its distribution or other risk management measures;

 

 

regulatory authorities may require the addition of labeling statements, such as warnings or contraindications;

 

 

 

Vaxart may be required to change the way its tablet vaccine candidates are administered or to conduct additional clinical trials;

 

 

Vaxart could be sued and held liable for injuries sustained by patients;

 

 

Vaxart could be subject to the Vaccine Injury Compensation Program;

 

 

Vaxart could elect to discontinue the sale of its tablet vaccine candidates; and

 

 

Vaxart ’s reputation may suffer.

 

Any of these events could prevent Vaxart from achieving or maintaining market acceptance of the affected tablet vaccine candidate and could substantially increase the costs of commercialization.

 

If Vaxart is not able to obtain, or if there are delays in obtaining, required regulatory approvals, it will not be able to commercialize, or will be delayed in commercializing, its tablet vaccine candidates, and its ability to generate revenue will be impaired.

 

Vaxart ’s tablet vaccine candidates and the activities associated with their development and commercialization, including their design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and by comparable authorities in other countries. Failure to obtain marketing approval for a tablet vaccine candidate will prevent Vaxart from commercializing the tablet vaccine candidate. Vaxart has not received approval to market any of its tablet vaccine candidates from regulatory authorities in any jurisdiction. Vaxart has only limited experience in filing and supporting the applications necessary to gain marketing approvals and expect to rely on CROs to assist it in this process. Securing regulatory approval requires the submission of extensive preclinical and clinical data and supporting information to the various regulatory authorities for each therapeutic indication to establish the tablet vaccine candidate’s safety and efficacy. Securing regulatory approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the relevant regulatory authority. Vaxart’s tablet vaccine candidates may not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude it obtaining marketing approval or prevent or limit commercial use.

 

The process of obtaining marketing approvals, both in the United States and elsewhere, is expensive, may take many years and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the tablet vaccine candidates involved. Vaxart cannot assure you that it will ever obtain any marketing approvals in any jurisdiction. Changes in marketing approval policies during the development period, changes in or the enactment of additional statutes or regulations or changes in regulatory review for each submitted product application may cause delays in the approval or rejection of an application. The FDA and comparable authorities in other countries have substantial discretion in the approval process and may refuse to accept any application or may decide that Vaxart ’s data is insufficient for approval and require additional preclinical or other studies, and clinical trials. In addition, varying interpretations of the data obtained from preclinical testing and clinical trials could delay, limit or prevent marketing approval of a tablet vaccine candidate. Additionally, any marketing approval Vaxart ultimately obtains may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable.

 

Even if Vaxart obtains FDA approval in the United States, it may never obtain approval for or commercialize its tablet vaccine candidates in any other jurisdiction, which would limit its ability to realize each product ’s full market potential.

 

In order to market any of Vaxart ’s tablet vaccine candidates in a particular jurisdiction, Vaxart must establish and comply with numerous and varying regulatory requirements on a country-by-country basis regarding safety and efficacy. Approval by the FDA in the United States does not ensure approval by regulatory authorities in other countries or jurisdictions. In addition, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not guarantee regulatory approval in any other country. Approval processes vary among countries and can involve additional tablet vaccine candidate testing and validation and additional administrative review periods. Seeking foreign regulatory approval could result in difficulties and costs for Vaxart and require additional preclinical studies or clinical trials which could be costly and time consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of its tablet vaccine candidates in those countries. Vaxart does not have any tablet vaccine candidates approved for sale in any jurisdiction, including in international markets, and it does not have experience in obtaining regulatory approval in international markets. If Vaxart fails to comply with regulatory requirements in international markets or to obtain and maintain required approvals, or if regulatory approvals in international markets are delayed, Vaxart’s target market will be reduced and Vaxart’s ability to realize the full market potential of any tablet vaccine candidate Vaxart develops will be unrealized.

 

 

Even if Vaxart obtains regulatory approval, it will still face extensive ongoing regulatory requirements and its tablet vaccine candidates may face future development and regulatory difficulties.

 

Any tablet vaccine candidate for which it obtains marketing approval, along with the manufacturing processes, post- approval clinical data, labeling, packaging, distribution, adverse event reporting, storage, recordkeeping, export, import, advertising and promotional activities for such tablet vaccine candidate, among other things, will be subject to extensive and ongoing requirements of and review by the FDA and other regulatory authorities. These requirements include submissions of safety, efficacy and other post-marketing information and reports, establishment registration and drug listing requirements, continued compliance with current Good Manufacturing Practice, or cGMP, requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping and current GCP requirements for any clinical trials that Vaxart conducts post-approval. Even if marketing approval of a tablet vaccine candidate is granted, the approval may be subject to limitations on the indicated uses for which the tablet vaccine candidates may be marketed or to the conditions of approval. If its tablet vaccine candidate receives marketing approval, the accompanying label may limit the approved use of Vaxart ’s tablet vaccine, which could limit sales.

 

The FDA may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety and/or efficacy of its tablet vaccine candidates. The FDA closely regulates the post-approval marketing and promotion of drugs to ensure drugs are marketed only for the approved indications and in accordance with the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers ’ communications regarding off-label use and if Vaxart does not market Vaxart’s tablet vaccine candidates for their approved indications, Vaxart may be subject to enforcement action for off-label marketing. Violations of the Federal Food, Drug, and Cosmetic Act relating to the promotion of prescription drugs may lead to FDA enforcement actions and investigations alleging violations of federal and state health care fraud and abuse laws, as well as state consumer protection laws.

 

In addition, later discovery of previously unknown adverse events or other problems with Vaxart ’s tablet vaccine candidates, manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may yield various results, including:

 

 

restrictions on manufacturing such tablet vaccine candidate;

 

 

restrictions on the labeling or marketing of a tablet vaccine candidate;

 

 

restrictions on tablet vaccine distribution or use;

 

 

requirements to conduct post-marketing studies or clinical trials;

 

 

warning letters;

 

 

withdrawal of the tablet vaccine candidate from the market;

 

 

refusal to approve pending applications or supplements to approved applications that Vaxart submits;

 

 

recall of such tablet vaccine candidate;

 

 

fines, restitution or disgorgement of profits or revenues;

 

 

suspension or withdrawal of marketing approvals;

 

 

refusal to permit the import or export of such tablet vaccine candidate;

 

 

tablet vaccine candidate seizure; or

 

 

injunctions or the imposition of civil or criminal penalties.

 

The FDA ’s policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of any of its tablet vaccine candidates. If Vaxart is slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if Vaxart is not able to maintain regulatory compliance, it may lose any marketing approval that it may have obtained.

 

Even if Vaxart ’s tablet vaccine candidates receive marketing approval, they may fail to achieve market acceptance by physicians, patients, third-party payors or others in the medical community necessary for commercial success.

 

If Vaxart ’s tablet vaccine candidates, including its vaccine for norovirus, receive marketing approval, they may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. If they do not achieve an adequate level of acceptance, Vaxart may not generate significant revenues and become profitable. The degree of market acceptance, if approved for commercial sale, will depend on a number of factors, including but not limited to:

 

 

the efficacy and potential advantages compared to alternative treatments;

 

 

 

effectiveness of sales and marketing efforts;

 

 

the cost of treatment in relation to alternative treatments;

 

 

Vaxart ’s ability to offer its tablet vaccine candidates for sale at competitive prices;

 

 

the convenience and ease of administration compared to alternative treatments;

 

 

the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;

 

 

the willingness of the medical community to offer customers its tablet vaccine candidate option in addition to or in the place of injectable vaccines;

 

 

the strength of marketing and distribution support;

 

 

the availability of third-party coverage and adequate reimbursement;

 

 

the prevalence and severity of any side effects; and

 

 

any restrictions on the use of its tablet vaccine together with other medications.

 

Because Vaxart expects sales of its tablet vaccine candidates for norovirus, if approved, to generate substantially all of its revenues for the foreseeable future, the failure of this tablet vaccine to achieve market acceptance would harm its business and could require it to seek additional financing sooner than it otherwise plans.

 

If Vaxart fails to comply with state and federal healthcare regulatory laws, it could face substantial penalties, damages, fines, disgorgement, exclusion from participation in governmental healthcare programs, and the curtailment of its operations, any of which could harm its business.

 

Although Vaxart does not provide healthcare services, submit claims for third-party reimbursement, it is subject to healthcare fraud and abuse regulation and enforcement by federal and state governments, which could significantly impact its business. The laws that may affect its ability to operate include, but are not limited to:

 

 

the federal anti-kickback statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting, receiving, offering, or paying remuneration, directly or indirectly, in cash or in kind, in exchange for or to induce either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service for which payment may be made, in whole or in part, under federal healthcare programs such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of this statute or specific intent to violate it;

 

 

the civil FCA, which prohibits, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other third-party payors that are false or fraudulent; knowingly making using, or causing to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the government; or knowingly making, using, or causing to be made or used, a false record or statement to avoid, decrease or conceal an obligation to pay money to the federal government;

 

 

the criminal FCA, which imposes criminal fines or imprisonment against individuals or entities who make or present a claim to the government knowing such claim to be false, fictitious or fraudulent;

 

 

HIPAA, which created federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;

 

 

the federal civil monetary penalties statute, which prohibits, among other things, the offering or giving of remuneration to a Medicare or Medicaid beneficiary that the person knows or should know is likely to influence the beneficiary ’s selection of a particular supplier of items or services reimbursable by a Federal or state governmental program;

 

 

the federal physician sunshine requirements under the Affordable Care Act, which require certain manufacturers of drugs, devices, biologics, and medical supplies to report annually to the U.S. Department of Health and Human Services information related to payments and other transfers of value to physicians, other healthcare providers, and teaching hospitals, and ownership and investment interests held by physicians and other healthcare providers and their immediate family members; and

 

 

state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may apply to items or services reimbursed by any third-party payor, including commercial insurers; state laws that require pharmaceutical companies to comply with the device industry ’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; and state laws that require device manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures.

 

 

Further, the Affordable Care Act, among other things, amended the intent requirements of the federal anti-kickback statute and certain criminal statutes governing healthcare fraud. A person or entity can now be found guilty of violating the statute without actual knowledge of the statute or specific intent to violate it. In addition, Affordable Care Act provided that the government may assert that a claim including items or services resulting from a violation of the federal Anti- Kickback Statute constitutes a false or fraudulent claim for purposes of the FCA. Moreover, while it does not submit claims and its customers make the ultimate decision on how to submit claims, from time to time, Vaxart may provide reimbursement guidance to its customers. If a government authority were to conclude that Vaxart provided improper advice to its customers or encouraged the submission of false claims for reimbursement, it could face action against it by government authorities. Any violations of these laws, or any action against Vaxart for violation of these laws, even if Vaxart successfully defends against it, could result in a material adverse effect on its reputation, business, results of operations and financial condition.

 

Vaxart has entered into consulting and scientific advisory board arrangements with physicians and other healthcare providers. Compensation for some of these arrangements includes the provision of stock options. While Vaxart has worked to structure Vaxart ’s arrangements to comply with applicable laws, because of the complex and far-reaching nature of these laws, regulatory agencies may view these transactions as prohibited arrangements that must be restructured, or discontinued, or for which it could be subject to other significant penalties. Vaxart could be adversely affected if regulatory agencies interpret Vaxart’s financial relationships with providers who influence the ordering of and use Vaxart’s products to be in violation of applicable laws.

 

The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in light of the lack of applicable precedent and regulations. Federal and state