Novavax, Inc. (NVAX) 2005年年度報告「NASDAQ」.pdf

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1、 UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549FORM 10-KFOR ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended December 31,2005Commission File No.0-26770NOVAVAX,INC.(Exact name of Registrant as specified in its charter)D

2、elaware 22-2816046(State or other jurisdiction of incorporation or organization)(I.R.S.Employer Identification No.)508 Lapp Road,Malvern,Pennsylvania 19355(Address of principal executive offices)(Zip code)Registrants telephone number,including area code:(484)913-1200Securities registered pursuant to

3、 Section 12(b)of the Act:NONESecurities registered pursuant to Section 12(g)of the Act:Common Stock($.01 par value)Indicate by check mark if the Registrant is a well-known seasoned issuer,as defined in Rule 405 of the Securities Act.Yes o No Indicate by check mark if the Registrant is not required t

4、o file reports pursuant to Section 13 or 15(d)of the Act.Yes o No Indicate by check mark whether the Registrant:(1)has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934during the preceding 12 months(or for such shorter period that the Registrant was

5、required to file such reports),and(2)has been subject to such filingrequirements for the past 90 days.Yes No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,and will not be contained,to thebest of the Registrants knowledge,in

6、 definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment tothis Form 10-K.o Indicate by check mark whether the Registrant is a large accelerated filer,an accelerated filer,or a non-accelerated filer.See definition of“accelerated filerand la

7、rge accelerated filer”in Rule 12b-2 of the Exchange Act.(Check one):Large Accelerated Filer o Accelerated Filer o Non-Accelerated filer Indicate by check mark whether the Registrant is a shell company(as defined in Rule 12b-2 of the Exchange Act).Yes o No The aggregate market value of 26,974,325 sha

8、res of the Registrants Common Stock,par value$.01 per share,held by non-affiliates of the Registrant atJune 30,2005,as computed by reference to the closing price of such stock on such date,was approximately$35,600,000.The number of shares of the Registrants Common Stock,par value$.01 per share,outst

9、anding at February 28,2006 was 54,734,346 shares.Documents Incorporated By ReferencePortions of the Registrants Definitive Proxy Statement to be filed no later than 120 days after the fiscal year ended December 31,2005 in connection withthe Registrants 2006 Annual Meeting of Stockholders are incorpo

10、rated by reference into Part III of this Form 10-K Table of Contents Page No.Part I About Novavax Item 1.Business 1 Overview 1 Our Strategy 2 Research and Development Activities 3 Manufacturing 6 Competition 7 Patents and Proprietary Information 8 Government Regulations 8 Government Relations 9 Empl

11、oyees 9 Availability of Information 9 Item 1A.Risk Factors 10 Item 1B.Unresolved Staff Comments 17 Item 2.Properties 17 Item 3.Legal Proceedings 18 Item 4.Submission of Matters to a Vote of Security Holders 18 Part II Financial Information Item 5.Market For Registrants Common Equity,Related Stockhol

12、der Matters and Issuer Purchases of Equity Securities 19 Unregistered Sales of Equity Securities;Use of Proceeds from Registered Securities 19 Securities Authorized for Issuance under our Equity Compensation Plans 19 Issuer Purchases of Equity Securities 19 Item 6.Selected Financial Data 20 Summariz

13、ed Quarterly Financial Information for the Fiscal Years ended December 31,2005 and 2004 20 Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations 20 Overview 21 i Table of Contents Page No.Part II Financial Information(Continued)Item 7.Managements Discussion and

14、Analysis of Financial Condition and Results of Operations(continued)Significant Transactions 21 Critical Accounting Policies and Changes to Accounting Policies 23 Guaranty 26 Results of Operations for Fiscal Years 2005,2004 and 2003 26 Liquidity and Capital Resources 30 Item 7A.Quantitative and Qual

15、itative Disclosures about Market Risk 32 Item 8.Financial Statements and Supplementary Data 32 Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 32 Item 9A.Controls and Procedures 32 Evaluation of Disclosure Controls and Procedures 32 Managements Report on I

16、nternal Control over Financial Reporting 32 Changes in Internal Controls over Financial Reporting 32 Item 9B.Other Information 32 PART III Directors and Executive Officers of the Registrant Item 10.Directors and Executive Officers of the Registrant Executive Officers of the Registrant 33 Code of Eth

17、ics 33 Item 11.Executive Compensation 33 Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 33 Item 13.Certain Relationships and Related Transactions 34 Item 14.Independent Registered Public Accounting Firm Fees and Services 34 PART IV Other Inform

18、ation Item 15.Exhibits,Financial Statement Schedules 35 Signatures 39 ii Table of Contents Page No.Index To The Consolidated Financial Statements Reports of Independent Registered Public Accounting Firm F-2 Consolidated Financial Statements:Consolidated Balance Sheets as of December 31,2005 and 2004

19、 F-4 Consolidated Statements of Operations for each of the three years in the period ended December 31,2005 F-5 Consolidated Statements of Stockholders Equity for each of the three years in the period ended December 31,2005 F-6 Consolidated Statements of Cash Flows for each of the three years in the

20、 period ended December 31,2005 F-7 Notes to the Consolidated Financial Statements F-8 iii PART IItem 1.BusinessOverview During 2005,Novavax successfully transitioned from a specialty pharmaceutical company,which included the sales and marketing of products servingthe womens health space,to an innova

21、tive,biopharmaceutical company.We have a unique blend of capabilities consisting of formulation technologies,vaccine technologies and drug development infrastructure,including commercial and clinical production facilities.We are leveraging our capabilities todevelop differentiated,value-added pharma

22、ceutical and vaccine products and licensing them at various stages of development to realize their value.Theportfolio of our technologies and capabilities is summarized in the following table:Technology/Capability Description Product/ExamplesRecombinant vaccines Virus-like particle vaccines produced

23、 in cultured insect cells Pandemic avian influenza&seasonal humaninfluenza,SARS,HIV/AIDS norovirus andother vaccines Novasomes Non-phospholipid vesicles that can be used as adjuvants toenhance vaccine effectiveness;also serve as a vehicle for topicalor oral drug delivery of certain molecules Adjuvan

24、ts for influenza and HIV-1 and othervaccines Micellar Nanoparticles Oil and water nanoemulsion that allows topical systemic deliveryof certain molecules ESTRASORB and ANDROSORB Sterisomes Solvent and oil-free emulsion for depot delivery ANDRO-Ject Recombinant tolerogens Tolerization for prevention o

25、f inflammation leading to stroke andother diseases E-Selectin tolerogen Facilities Manufacturing using current Good Manufacturing Practices Clinical manufacturing for biologics,andclinical and commercial manufacturing forpharmaceuticals With this portfolio of capabilities,we are uniquely positioned

26、to address the public health threat of a pandemic created by the avian influenza virus,andwe are focused to leverage our strengths to develop a vaccine against avian influenza.In addition,we have developed a unique manufacturing process forcreating a virus-like particle(“VLP”)based avian flu vaccine

27、 using Wave Biotechs disposable bag technology that redefines the concept of surge capacity.Our overall solution to the pandemic influenza problem is compelling and we believe it will be competitive for several of the government funds that arebeing allocated for avian influenza pandemic preparedness

28、.In addition to developing a pandemic flu vaccine,we are also engaged in the development of aseasonal influenza vaccine.In addition to investing research funds in vaccines,we continue to expand our products and product candidates based on our unique formulationtechnologies.ESTRASORB,our first intern

29、ally-developed product using our proprietary micellar nanoparticle(“MNP”)technology,is the first topicalemulsion for estrogen therapy approved by the U.S.Food and Drug Administration for the treatment of moderate to severe vasomotor symptoms(hot flashes)associated with menopause.ESTRASORB was licens

30、ed in October 2005 to Esprit Pharma,Inc.for marketing in North America.This licensing arrangementwill provide a minimum cash consideration of$12.5 million within the first year as well as sales-based milestone payments and a double-digit royalty on allsales.We retained rights to manufacture the prod

31、uct for Esprit at set prices and retained marketing rights for all territories outside of North America.Following the success of ESTRASORBs development,we have developed a pipeline of more than ten product candidates using the MNP technology.We arein discussions with several pharmaceutical companies

32、 to co-develop and co-market or license these products.1 Our strength in formulations is synergistic with our vaccine development efforts in two ways.First,as the MNP-based product candidates become licensedand marketed,they have the potential to partly fund the vaccine research and development by g

33、enerating cash in the short term.Second,we benefit from thetechnical know-how in the lipid based formulation area to develop new adjuvants for our vaccine product candidates.Over the past eight months we have also taken steps to strengthen our balance sheet and significantly improve our capital reso

34、urces.From July 2005through February 2006 we completed three equity transactions through the sale of our common stock,with gross proceeds totaling$42.0 million.In addition,the licensing of ESTRASORB,mentioned above,also added$10.0 million of cash in the fourth quarter.We believe the$52.0 million rai

35、sed from thesetransactions provides us the capital to execute our strategic plans.(see Item 7.Management Discussion and Analysis,“Significant Transactions”for furtherdetails).Our Strategy The primary elements of our strategy are:Leveraging our technological leadership in influenza vaccines.Our recom

36、binant VLP technology is well suited to create a vaccine against pandemic influenza.This technology addresses several of the technicaland logistical issues associated with a potential pandemic.It allows rapid creation of new vaccines that have high fidelity to emerging strains ofinfluenza and the ma

37、nufacturing process can be rapidly commissioned and scaled up.We are leveraging our leadership position in this importantpublic health issue to attract top-notch recruits,government funds,international support and high-quality investors.Maximizing the commercial impact of ESTRASORB.After licensing E

38、STRASORB to Esprit Pharma,Inc.for North American rights,we are aggressively looking to license the rights to market thisproduct in other territories.In addition,we continue our efforts to improve the packaging of ESTRASORB to improve our margins on the product.Continuing to expand on our formulation

39、 technologies and our drug development capabilities and infrastructure to generate cash in the shortterm.Our proven MNP technology has resulted in several product candidates that can be licensed to pharmaceutical companies.We have been able todemonstrate benefits of our formulation for several compo

40、unds and are actively seeking to license these product candidates.In addition,we plan toimprove utilization of our research and development capabilities and at our current Good Manufacturing Practices(“cGMP”)manufacturingfacilities in Philadelphia,PA,Pacific Grove,CA,and Rockville,MD.Leveraging our

41、formulation science to develop adjuvants for better vaccines.Adjuvants improve immunogenicity of vaccines and they are becoming central for competitive advantage of new vaccines.Our inherent strengthsin formulations are well suited to develop new adjuvants,such as Novasomes,that can lead to best-in-

42、class vaccines.These adjuvants can also beproducts in themselves and can be licensed to other companies to be used with their antigens.Developing new technologies,evaluating strategic alliances and acquisitions and fortifying our intellectual property.We continue to improve upon our current portfoli

43、o of technologies in formulations and vaccines.We believe these improvements will result in newintellectual property,making us more competitive.Leveraging collaborations and partnerships to advance products and technologies.We are engaged in seeking collaborations and partnerships to develop and com

44、mercialize our products.These include partnerships withgovernmental and academic organizations as well as other industry partners.Our collaboration with Wave Biotech for the production of our fluvaccine is an example of such a partnership.2 Research and Development ActivitiesBiologics We develop and

45、 produce biopharmaceutical proteins for use as vaccines against both infectious diseases and cancer,and as tolerogens to preventinflammatory responses in the initiation and progression of stroke and other illnesses.Our lead vaccine technology platform is based on virus-like particles(“VLPs”),which a

46、re self-assembling protein structures that resemble viruses.These are non-infectious particles that for many viral diseases have been shownin animal and human studies to make effective vaccines.VLPs closely mimic natural virus particles with repeating protein structures that can elicit broad andstro

47、ng antibody and cellular immune responses,but lack genetic material required for replication.We have several ongoing development programs involvingVLP vaccines addressing urgent medical needs including pandemic and seasonal influenza,HIV-1/AIDS,and SARS.We collaborate with governmental,commercial an

48、d leading academic institutions in development,safety testing and clinical trials.It is important to notethat in almost all cases,grants,contracts and other arrangements with the federal government and agencies thereof are subject to termination at any time atthe governments discretion.Influenza VLP

49、 Vaccine.Every year 5 to 20%of the population of the United States suffers infection caused by influenza virus.While the severity of illnessvaries,influenza causes an estimated 36,000 deaths in the U.S.and some 500,000 world-wide.These seasonal outbreaks of illness have in recent years beencaused by

50、 subtypes of influenza virus designated as H3N2 and H1N1.More recently,unexpected subtypes of avian origin have resulted in severe morbidityand mortality in a limited number of people.Highly pathogenic H5N1 influenza viruses are now widespread in poultry in Asia and have spread to someEuropean count

51、ries where it has been associated with cases of human infection.Genetic reassortment between avian and human influenza subtypes,orgenetic mutations may lead to the emergence of a virus capable of causing world-wide illness,a pandemic.All currently available influenza vaccines are produced by growing

52、 virus in hen eggs,from which the virus is extracted and further processed.This 50 yearold method of production requires six to nine month lead times and significant investment in fixed production facilities,which once commissioned cannothave their capacity easily increased.The threatened shortage o

53、f vaccine in the 2004 flu season highlighted the limitations of current production methods,and the importance of increasing vaccine manufacturing capacity.It also further increased concern regarding manufacturers capacity to respond to apandemic,when the number of doses of vaccine required will be h

54、igher than for seasonal flu,and the lead times even shorter.We are applying our expertisein the production of VLPs to develop vaccines for both seasonal and pandemic strains of influenza.We produce VLPs using a baculovirus expression systemin insect cells,with disposable,low cost equipment that can

55、be readily dispersed both nationally and internationally.By not requiring a fixed plant,production capacity can be increased quickly and to whatever extent is required.Lead times for production are expected to be measured in weeks not months.Proof-of-concept of the VLP approach to influenza vaccinat

56、ion has been obtained.In a recent study,co-expression of three genes,hemagglutinin,neuraminidase and matrix derived from the H9N2 influenza in insect cells resulted in the self-assembly of influenza H9N2 VLPs.The H9N2 VLPs exhibitedhemagglutinin and neuraminidase activity and elicited protective imm

57、une responses in BALB/c mice.In view of these encouraging pre-clinical data,wehave accelerated and prioritized the development of the VLP influenza vaccines.A comprehensive pre-clinical program was initiated in 2005 with theobjective of conducting Phase I studies in 2006 with influenza VLP vaccines.

58、HIV-1/AIDS VLP Vaccine.The human toll of AIDS is staggering and now kills more people worldwide than any other infectious disease.Nearly 40 millionpeople are infected with HIV-1,including four to six million people who were newly infected in 2005 according to the World Health Organization(“WHO”).Und

59、er a five-year NIH grant,which was awarded in 2003,we are working with one of the leading scientific teams in the development of a second-generationAIDS vaccine.The HIV-1 vaccine candidates are based on modifications of HIV-1 proteins that are then presented in the form of highly immunogenic VLPsand

60、 rely on our knowledge and experience in manufacturing VLPs using our insect cells technology.Promising HIV-1 VLP vaccine candidates will also beformulated with Novasomes,our proprietary adjuvant technology which is designed to boost the bodys immune responses to vaccines.HIV-1 VLP vaccinecandidates

61、 are currently being evaluated in small animal and non-human primate studies.If the safety and immunogenicity of novel HIV-1 VLP vaccinesmeets certain benchmarks,clinical studies in humans will be run in collaboration with the government.SARS VLP Vaccine.In 2005,the NIH awarded us a$1.1 million,thre

62、e-year grant to develop a vaccine to prevent Severe Acute Respiratory Syndrome.SARS is a severe form of pneumonia,accompanied by a fever and caused by a coronavirus.WHO has reported over 8,000 SARS cases with nearly 800 deathssince the first case of SARS was reported in February 2003.Our SARS VLP va

63、ccine is also based on the production of coronavirus-like VLPs in insect cellsand will be tested first in animal models for safety and ability to protect against disease and death.3 Melanoma Vaccine.Melanoma is a cancer of the melanocytes,the cells that produce pigment in the skin.This type of cance

64、r is most common amongpeople with fair skin,but it can strike people of all races and skin pigmentations.The risk of melanoma increases with overexposure to the sun and withsunburns.For this reason,fair skinned people and those with a family history of melanoma should always use a sunscreen with hig

65、h SPF whenever they areoutdoors.Detected early,melanoma is usually treatable,but undetected or untreated melanomas can spread and are often fatal.We have produced two anti-cancer vaccines for the treatment of melanoma in collaboration with the National Cancer Institute and delivered these fortesting

66、 in human clinical trials.We believe cancer vaccines that are presented to the immune system in an effective manner have great promise in thetreatment of this often deadly form of skin cancer.The first vaccine is in a Phase I clinical trial conducted by the NCI and the National Institutes of Health

67、andthe second is anticipated to begin trials in 2006.Hepatitis E Vaccine.Hepatitis E is the most prevalent form of acute hepatitis in the developing world.Hepatitis E is transmitted through contaminatedwater and is indistinguishable from the disease caused by the Hepatitis A virus.The disease is rar

68、ely fatal,although the risk of death and the intensity of theillness increase with age,with pregnant women being at a particularly high risk.In collaboration with the National Institute of Allergy and Infectious Disease,Walter Reed Army Institute for Research,and GlaxoSmithKlinePharmaceuticals,we ha

69、ve developed vaccines to prevent hepatitis caused by the Hepatitis E virus.The recombinant Hepatitus E vaccine produced by us is inPhase III clinical trials conducted by GlaxoSmithKline.GlaxoSmithKline has commercial rights and we will share royalties with the NIH,if marketed.E-Selectin Tolerogen.In

70、 collaboration with the National Institute of Neurological Disorders and Stroke we have been developing E-selectin-basedmolecularly-derived products for the prevention of strokes.In September 2002,a published report in the professional journal Stroke provided experimentalevidence on prevention of st

71、roke in stroke-prone rats.These results provided supportive evidence that E-selectin tolerization may help in the prevention ofstrokes and other illness where inflammatory and immune responses are involved in the initiation and progression of disease.We were awarded a governmentcontract for the pre-

72、clinical development and manufacture of E-selectin for Phase I clinical trials to be run by the National Institute of Neurological Diseaseand Stroke and the NIH.Novasome Adjuvant Program.Adjuvants are agents that enhance the immune response generated by antigens.As a consequence,smaller amounts ofan

73、tigen can elicit the desired immune response,referred to as an antigen sparing effect.In addition,adjuvants may elicit responses from multiple componentsof the immune system leading to an improved level of immunity and protection.Novasomes,our proprietary adjuvants,are currently being evaluated in b

74、oththe influenza and the HIV-1/AIDS VLP vaccine programs.Preclinical data have demonstrated an encouraging degree of improvement in immune responseswith a variety of antigens.If warranted by future studies,Novasomes will be included in human studies of our VLP vaccines.Formulation Science The formul

75、ations group is committed to the creation and development of innovative and effective technologies for enhancing the performance of ActivePharmaceutical Ingredients(“APIs”)that are approved by the FDA.The key drivers for these research programs are those therapeutic segments and clinicalconditions t

76、hat can not be satisfied by the conventional dosage forms.We have three drug delivery platform technologies:Micellar Nanoparticles:This is a nanotechnology-based,lotion-like formulation that has achieved a significant break-through in transdermaltherapeutics.Upon topical application,an MNP formulati

77、on deposits the API in both a readily-available solution form as well as in a long-actingparticulate depot form onto the skin.The inactive ingredients used in the formulation not only help in forming an occlusive barrier that acts as apseudo-patch,but also drives the drug into the systemic circulati

78、on.Unlike conventional passive transdermal delivery systems such as patches,gels,and creams with chemical permeation enhancers,the MNPs have been shown to accommodate and deliver a wide spectrum of drugs having diverselipophilicities(i.e.,affinities for a hydrophobic or oil phase),molecular weights,

79、melting points,and dosages.Novasomes:These are non-phospholipid-based,proprietary vesicular structures that can be either used for delivery of drugs or as vaccine adjuvants.Typically,Novasomes can be utilized for encapsulation of both hydrophilic and lipophilic drugs.The formulation design enhances

80、deposition andretention of the active ingredients within the superficial skin layers(epidermis)but limits their passage into the systemic circulation.Novasomes,when formulated as vaccine adjuvants for co-administration with a vaccine preparation,have demonstrated a significantly improvedimmunogenici

81、ty profile.4 Sterisomes:These represent a depot-forming sterile dosage form that can effectively prolong the delivery of the drugs over time periods of up to afew weeks.The proof-of-concept has been demonstrated with testosterone in our ANDRO-Ject product candidate.The focus of our product developme

82、nt is transdermal delivery both from a traditional and a non-traditional perspective.Traditionally,this route ofadministration is known to offer therapeutic benefits like avoiding hepatic first pass metabolism,overcoming stability and toxicity issues related to oraladministration,and has been viewed

83、 as a non-invasive pathway to achieve drug transport into the systemic circulation through topical application.It isgenerally accepted that the best drug candidates for transdermal delivery are non-ionic,lipophilic and potent and have a low molecular weight and a lowmelting point.Our first set of pr

84、oduct candidates falls in this category,which includes testosterone,nicotine,fentanyl,clonidine,loratadine and oxybutynin.ESTRASORB,our topical estradiol replacement lotion validates the MNP-based transdermal technology.This product is unique in that it is the firstcommercial nanoparticle-based tran

85、sdermal pharmaceutical product.ESTRASORB has undergone the complete product development-to-commercializationcycle and was licensed to Esprit Pharma,Inc.in October 2005.ANDROSORB,a topical testosterone replacement lotion,is the second product in our pipelineand is poised for evaluation in Phase II cl

86、inical trials.Our belief in the MNP technology as a unique transdermal delivery vehicle has prompted us to expand the scope of this technology by using non-traditional,but logical,choices of APIs,such as cetirizine,naltrexone,raloxifene,and alendronate which create a more technically challengingdeve

87、lopmental program with a potentially higher value.As we are expanding our pipeline,we have proven our capabilities to not only deliver a variety of APIs across the skin but also to modulate theirpositioning within different layers of the skin and hence tailor the rate and extent of bioavailability w

88、hether systemic or local.Our efforts to designimproved topical formulations using MNP technology have resulted in a novel preparation of acyclovir designed to attain significantly higher skinconcentrations and higher flux of the drug compared to the commercial product.The next development level of t

89、he MNP technology comes from such other routes of administration,as oral,rectal,nasal and vaginal.We are exploring theoral route using water-insoluble drugs that show poor bioavailability like fenofibrate,sirolimus and cyclosporine.The pre-clinical results obtained for oneof the candidates have been

90、 very promising as a proof-of-principle and generating more data on this high-value product line is our priority for 2006.The MNP platform addresses several issues related to product development:Ability to formulate APIs with a wider range of physicochemical parameters compared to traditional transd

91、ermal drug delivery technologies.Rapid and reliable product development,optimization,and screening.Simplified,quick,and cost-effective regulatory approval route via 505(b)2 approval.Our in-house manufacturing capabilities,which include batch sizes up to one metric ton,inexpensive costs of raw materi

92、als and manufacturing processesincrease the value of the MNP-based technology as a route for extending the product life cycle for a number of drugs.The following table includes drug candidates that we are currently formulating using MNP technology:5 Research and Development Funding Total externally

93、contracted research and development costs were$1.8 million in 2005,$1.7 million in 2004 and$1.3 million in 2003.Total internally-sponsored research and development costs were$3.3 million in 2005,$5.6 million in 2004 and$8.8 million in 2003.Our manufacturing start-up costs relatedto preparing our man

94、ufacturing facility for commercial production of ESTRASORB were included in research and development until April 2004,at whichtime the manufacturing costs have been included in cost of sales and inventory.Total manufacturing start-up costs related to ESTRASORB included inresearch and development wer

95、e$1.7 million in 2004 and$5.4 million in 2003.Further development costs of$0.2 million for ESTRASORB were included in2005 internally-sponsored research and development costs.Manufacturing We have three cGMP manufacturing sites.The descriptions of the three sites are as follows:We have a state-of-the

96、-art,24,000 square foot manufacturing facility situated within a Cardinal Health,Inc.facility in Philadelphia,Pennsylvania.Itis staffed by our employees and operates under our quality system.ESTRASORB,our commercial product,is being manufactured at this facility.There have been no adverse 483 observ

97、ations from FDA inspections associated with the production of ESTRASORB.A portion of this facility isbeing renovated in order to accommodate the manufacture of multiple clinical trial materials for both client and internal projects.We are in theprocess of obtaining a Drug Enforcement Administration

98、license to allow us to manufacture controlled substances.We have a manufacturing facility located in Rockville,Maryland with our biological group.This facility is dedicated to our vaccine business and iscapable of manufacturing both pre-clinical and clinical trial materials.The facility is nearing c

99、ompletion on a renovation of cGMP suites which willincorporate Wave Biotechs disposable cell culture technology to support the manufacturing of our pandemic avian influenza virus vaccine andother biological products.Our manufacturing facility in Pacific Grove,California is part of our drug delivery

100、research group and is capable of producing Phase I and II clinicaltrial materials.It has a DEA license in place to permit the manufacture of controlled substances.We have the quality infrastructure to support release testing and stability evaluation of cGMP materials.We also have the regulatory supp

101、ort to ensure fullcompliance with FDA and other regulatory authorities.6 CompetitionTechnologies The biopharmaceutical industry is intensely competitive and is characterized by rapid technological progress.We compete in two primary technologyareas vaccines and novel transdermal pharmaceutical delive

102、ry.We compete in a competitive and capital intensive vaccine arena.Our technology is based upon utilizing the baculovirus expression system in insect cellsto make VLPs.We believe this system offers many advantages when compared to other technologies and is uniquely well suited for developing pandemi

103、cand seasonal influenza vaccines.The table below provides a list of key competitors and corresponding influenza vaccine technologies.Company Competing Technology DescriptionSanofi Pasteur,Inc.Inactivated sub-unit egg basedMedimmune Vaccines,Inc.Nasal,live attenuated cell basedGlaxoSmithKline Biologi

104、cals Inactivated egg basedChiron Corporation Inactivated sub-unit egg basedProtein Sciences Corporation Recombinant hemagglutininPowdermed ltd.DNA vaccineMerck&Co.,Inc.Novel vaccines The transdermal drug delivery arena is highly competitive with a broad array of passive and active transdermal drug d

105、elivery technologies.Ourtechnologies include MNPs,Novasomes and Sterisomes.The MNP technology which is the basis for our FDA-approved product ESTRASORB competeswith a number of companies and technologies.The following table highlights several competitors and their corresponding technologies.Company

106、Competing Technology DescriptionNoven Pharmaceuticals Passive transdermal patchesAntares Pharma,Inc.Passive topical gelsAcrux Limited Passive metered dose transdermal spraySolvay Group Passive topical gelsAlza Corporation Active transdermal microprojection enhanced permeation,electrotransportTransph

107、arma Medical Ltd.Active transdermal radio-frequency enhanced permeationAltea TherapeuticsCorporation Active transdermal thermally enhanced permeationNew and Existing Products We are currently completing the development of a prenatal vitamin product platform that we intend to outsource for commercial

108、ization.The prenatalvitamin market is very fragmented with many competitors.A number of larger companies with greater resources sell prenatal vitamins,including KVPharmaceuticals,First Horizon Pharmaceuticals,Mission Pharmacal Company and several other branded and generic manufacturers.The competiti

109、on todevelop new prenatal vitamins is also intense.There is no guarantee that we will successfully complete the development of the prenatal vitamin productplatform or successfully outsource the product for commercialization.We compete with specialty biopharmaceutical firms and large pharmaceutical c

110、ompanies in the United States,Europe and elsewhere that are engaged inthe discovery,development and marketing of hormone therapies,and other products that do or could compete with our currently marketed products andproduct candidates.These companies,as well as academic institutions,governmental agen

111、cies and private research organizations,also compete with us inrecruiting and retaining highly qualified scientific personnel and consultants.7 In 2005,we licensed ESTRASORB to Esprit Pharma,Inc.In addition to up-front payments,the agreement allows us to obtain milestone payments androyalties for fu

112、ture sales of ESTRASORB in the North American market.The estrogen therapy market is highly competitive,well-established and includesmany products marketed by major pharmaceutical companies.The oral segment,which accounts for over 75%of the estrogen therapy market,is dominatedby Wyeths Premarin,an or

113、al estrogen tablet.Wyeth commits significant resources to promoting its portfolio of estrogen products and has a dominantpresence with healthcare professionals that utilize oral estrogen therapy products.Further,we compete with Wyeth and numerous other companies marketingoral products,including manu

114、facturers of generic 17-estradiol.Gynodiol,our marketed oral estrogen therapy product also competes in the crowded,competitive oral estrogen therapy market.Transdermal estrogen therapy products(patches)currently account for approximately 15%of the estrogen therapymarket.Patch products are well accep

115、ted and many,such as Vivelle DOT,have been marketed for several years.Solvay Pharmaceuticals,a largeinternational pharmaceutical company,recently introduced an ethanol-based gel product,Estrogel,that is directly competing with ESTRASORB.In additionto the currently approved and marketed products,seve

116、ral estrogen therapy products are in development.In general,competition among pharmaceutical products will be based in part on product efficacy,safety,reliability,availability,price and patent position.An important factor will be the relative timing of the market introduction of our products and our

117、 competitors products.Accordingly,the speed with whichwe can develop products,complete the clinical trials and approval processes and supply commercial quantities of the products to the market is expected to bean important competitive factor.Our competitive position will also depend upon our ability

118、 to attract and retain qualified personnel,obtain patent protectionor otherwise develop proprietary products or processes,and secure sufficient capital resources for the often substantial period between technologicalconception and commercial sale.Prior to the sale of our prenatal vitamin product lin

119、e to Pharmelle,LLC this line generated$0.9 million of sales in 2005,$2.3 million of sales in 2004 and$5.7 million in 2003.Prior to the sale of AVC Cream to Pharmelle,LLC this product generated$0.7 million of sales in 2005,$0.9 million in 2004 and$1.8 million in 2003.ESTRASORB generated$2.0 million o

120、f sales in 2005 and$1.8 million in 2004.Gynodiol generated$0.9 million of sales in 2005,$1.0 million in 2004 and$2.2 million in 2003.Patents and Proprietary Information We currently have 57 U.S.patents and corresponding foreign patents and patent applications relating to vaccines,biologics,and drug

121、delivery systemsand applications for various biological and chemical uses.We have pending U.S.patent applications in both the United States and worldwide covering thecomposition,manufacture and use of our organized lipid structures and related technologies.A current U.S.patent issued in 1997 covers

122、our MNPtechnology and methods of their production.In addition,the company continues to build upon its technology portfolio and file appropriate intellectualproperty disclosures and patent applications.Consistent with statutory guidelines issued under the Federal Technology Transfer Act of 1986 desig

123、ned to encourage the dissemination of science andtechnology innovation and provide sharing of technology that has commercial potential,our collaborative research efforts with the U.S.government andwith other private entities receiving federal funding provide that developments and results will be fre

124、ely published,that information or materials supplied byus will not be treated as confidential and that we will be required to negotiate a license to any such developments and results in order to commercializeproducts.There can be no assurance that we will be able to successfully obtain any such lice

125、nse at a reasonable cost,or that such developments and resultswill not be made available to our competitors on an exclusive or nonexclusive basis.Government Regulations Our research and development activities are subject to regulation for safety,efficacy and quality by numerous governmental authorit

126、ies in the UnitedStates and other countries.In the United States,the development,manufacturing and marketing of human pharmaceuticals and vaccines are subject toregulation for safety and efficacy by the FDA in accordance with the Food,Drug and Cosmetic Act.The steps required before new products for

127、use in humans may be marketed in the United States include(i)preclinical tests,(ii)submission to the FDA ofan Investigational New Drug application,which must be approved before human clinical trials commence,(iii)adequate and well-controlled human clinicaltrials to establish the safety and efficacy

128、of the product,(iv)submission of a New Drug Application for a new drug and(v)FDA approval of the New DrugApplication or Product License Application prior to any commercial sale or shipment of the product.Preclinical tests include laboratory evaluation ofproduct formulation and animal studies(if an a

129、ppropriate animal model is available)to assess the potential safety and efficacy of the product.Formulationsmust be manufactured according to current good manufacturing practices and preclinical safety tests must be conducted by laboratories that comply withFDA regulations regarding good laboratory

130、practices.8 The results of the preclinical tests are submitted to the FDA as part of an Investigational New Drug application and are reviewed by the FDA prior to thecommencement of human clinical trials.There can be no assurance that submission of an Investigational New Drug application will result

131、in FDAauthorization to commence clinical trials.The FDA may deny a New Drug Application or Product License Application if applicable regulatory criteria are notsatisfied or additional testing or information is required.The FDA may also require post-marketing testing and surveillance to monitor the s

132、afety of theapplicable products.In addition to obtaining FDA approval for each Product License Application,an Establishment License Application must be filed and approved by theFDA for the manufacturing facilities of a biologic product before commercial marketing of the biologic product is permitted

133、.This regulatory process maytake many years and requires the expenditure of substantial resources.We are also subject to regulation under the Occupational Safety and Health Act,the Environmental Protection Act,the Toxic Substances Control Act,theResource Conservation and Recovery Act and other prese

134、nt and potential federal,state or local regulations.Our research and development involves thecontrolled use of hazardous materials,chemicals and viruses.Although we believe that our safety procedures for handling and disposing of such materialscomply with the standards prescribed by state and federa

135、l regulations,the risk of accidental contamination or injury from these materials cannot becompletely eliminated.In the event of such an accident,we could be held liable for any damages that result,and any such liability could exceed ourresources.Additionally,for formulations containing controlled s

136、ubstances,we are subject to DEA regulations.There have been a number of federal and state proposals during the last few years to subject the pricing of pharmaceuticals to government control and tomake other changes to the medical care system of the United States.It is uncertain what legislative prop

137、osals will be adopted or what actions federal,state orprivate payors for medical goods and services may take in response to any medical reform proposals or legislation.We cannot predict the effect medical orhealth care reforms may have on our business,and no assurance can be given that any such refo

138、rms will not have a material adverse effect.Government Relations In 2005,we formed a Government Relations Committee,led by former United States Representative from Virginia,John O.Marsh,Jr.,a director of thecompany since 1991.The purpose of the committee is to monitor legislative and regulatory init

139、iatives and guide management of the company in pursuingresearch and development funding specifically relating to vaccines as well as our other current and future products and product development efforts.Thecommittee also will be responsible,among other things,for assisting management of the company

140、in communicating,working with and educating local,regional and national legislators and regulators on the efforts of,and issues of interest to us.In 2005,the Executive Branch of the U.S.federal governmentproposed several billion dollars in funding to address the threat of an avian influenza pandemic

141、.The majority of proposed funding,$6.6 billion,will beallocated to the Department of Health and Human Services which will be used for vaccine,antiviral drugs,surveillance activities,state and localpreparedness,and general research and development.We intend to pursue appropriate government funding op

142、portunities as the company believes that it hasvaccine technologies uniquely suited for addressing specific challenges related to avian influenza.Employees We currently have 47 full-time employees and 5 part time employees for a total of 52,31 of whom are employed in research and development.Of thos

143、e 31employees in research and development,nine have earned Ph.D.degrees and two are medical doctors.We have no collective bargaining agreement with ouremployees and believe that our employee relations are good.Availability of Information Novavax was incorporated in 1987 under the laws of the State o

144、f Delaware.Our principal executive offices are located at 508 Lapp Road,Malvern,Pennsylvania 19355.Our telephone number is(484)913-1200 and our Internet address is .The contents of our website are not part of thisAnnual Report on Form 10-K.We make available,free of charge and through our website,our

145、 annual reports on Form 10-K,quarterly reports on Form 10-Q,current reports on Form 8-K,and any amendments to any such reports filed or furnished pursuant to Section 13(a)or 15(d)of the Securities Exchange Act of 1934,as amended,as soon asreasonably practicable after filed with or furnished to the S

146、EC.9 Item 1A.Risk Factors You should carefully consider the following risk factors in evaluating our business.Some of the risks described relate principally to our business and theindustry in which we operate.Others relate principally to the securities market and ownership of our common stock.The ri

147、sks and uncertainties describedbelow are not the only ones facing us.Additional risks and uncertainties that we are unaware of,or that we currently deem immaterial,also may becomeimportant factors that affect us.If any of the following risks occur,our business,financial condition or results of opera

148、tions could be materially andadversely affected.You should also consider the other information included in this Annual report on Form 10-K for the 2005 fiscal year.We have repositioned ourselves from a specialty biopharmaceutical company to a biopharmaceutical company and face all the risks inherent

149、 in theimplementation of a new business strategy.In conjunction with the sale of our prenatal and related product lines and the grant of an exclusive North American license to our lead productESTRASORB,we have changed the focus of the company from the development and commercialization of specialty p

150、harmaceutical products to the researchand development of new products using our proprietary drug delivery and biological platforms.We cannot predict whether we will be successful inimplementing our new business strategy.We intend to focus our research and development activities on areas in which we

151、have particular strengths and on technologies that appear promising.These technologies often are on the cutting edge of modern science.As a result,the outcome of any research or development program is highly uncertain.Only a very small fraction of these programs ultimately result in commercial produ

152、cts or even product candidates and a number of events could delay ourdevelopment efforts and negatively impact our ability to obtain regulatory approval for,and to market and sell,a product candidate.Product candidates thatinitially appear promising often fail to yield successful products.In many ca

153、ses,preclinical or clinical studies will show that a product candidate is notefficacious,or that it raises safety concerns or has other side effects that outweigh the intended benefit.Success in preclinical or early clinical trials may nottranslate into success in large-scale clinical trials.Further

154、,success in clinical trials will likely lead to increased investment,adversely affecting short-termprofitability,to bring such products to market.Even after a product is approved and launched,general usage or post-marketing studies may identify safety orother previously unknown problems with the pro

155、duct,which may result in regulatory approvals being suspended,limited to narrow indications or revoked,orwhich may otherwise prevent successful commercialization.We must identify products and product candidates for development with our technologies and establish successful government and third-party

156、relationships.Our long-term ability to generate product-related revenue depends in part on our ability to identify products and product candidates that may utilize ourdrug delivery and biological technologies.If internal efforts do not generate sufficient product candidates,we will need to identify

157、third parties that wish tolicense our technologies for development of their products or product candidates.We may be unable to license our technologies to third parties for a numberof reasons,including:an inability to negotiate license terms that would allow us to make an appropriate return from res

158、ulting products;an inability to identify suitable products or product candidates within,or complementary to,our areas of expertise;or an unwillingness on the part of competitors to utilize the technologies of a competing company or disclose the existence or status of new productsor products candidat

159、es under development.Our near and long-term viability will also depend in part on our ability to successfully establish new strategic collaborations with pharmaceutical andbiotechnology companies and government agencies.Establishing strategic collaborations and obtaining government funding are diffi

160、cult and time-consuming.Potential collaborators may reject collaborations based upon their assessment of our financial,regulatory or intellectual property position;government agencies may reject contract or grant applications based on their assessment of public need,the public interest and our produ

161、cts ability toaddress these areas.If we fail to establish a sufficient number of collaborations or government relationships on acceptable terms,we may not generatesufficient revenue.10 Even if we successfully establish new collaborations or obtain government funding,these relationships may never res

162、ult in the successful development orcommercialization of any product candidates or the generation of any sales or royalty revenue.Reliance on such relationships also exposes us to a number ofrisks.We may not have the ability to control the activities of our partners and cannot assure you that they w

163、ill fulfill their obligations to us,including withrespect to the license,development and commercialization of products and product candidates,in a timely manner or at all.We cannot assure you that suchpartners will devote sufficient resources to our products and product candidates or properly mainta

164、in or defend our intellectual property rights;we also cangive no assurances that our partners will not utilize such rights in such a way as to invite or cause litigation.Any failure on the part of our partners to performor satisfy their obligations to us could lead to delays in the development or co

165、mmercialization of products and product candidates,and affect our ability torealize product revenues.Disagreements,including disputes over the ownership of technology developed with such collaborators,could result in litigation,which would be time-consuming and expensive,and may delay or terminate r

166、esearch and development efforts,regulatory approvals,and commercializationactivities.If we or our partners fail to maintain our existing agreements or in the event we fail to establish agreements as necessary,we could be required toundertake research,development,manufacturing and commercialization a

167、ctivities solely at our own expense.These activities would significantly increaseour capital requirements and,given our current limited sales,marketing and distribution capabilities,significantly delay the commercialization of productsand product candidates.Our success depends on our ability to main

168、tain the proprietary nature of our technology.Our success in large part depends on our ability to maintain the proprietary nature of our technology and other trade secrets,including our proprietary drugdelivery and biological technologies.To do so,we must prosecute and maintain existing patents,obta

169、in new patents and pursue trade secret and otherintellectual property protection.We also must operate without infringing the proprietary rights of third parties or letting third parties infringe our rights.Wecurrently have 57 U.S.patents and corresponding foreign patents and patent applications cove

170、ring our technologies.However,patent issues relating topharmaceuticals involve complex legal,scientific and factual questions.To date,no consistent policy has emerged regarding the breadth of biotechnologypatent claims that are granted by the U.S.Patent and Trademark Office or enforced by the federa

171、l courts.Therefore,we do not know whether our patentapplications will result in the issuance of patents,or that any patents issued to us will provide us with any competitive advantage.We also cannot be sure thatwe will develop additional proprietary products that are patentable.Furthermore,there is

172、a risk that others will independently develop or duplicate similartechnology or products or circumvent the patents issued to us.There is a risk that third parties may challenge our existing patents or claim that we are infringing their patents or proprietary rights.We could incursubstantial costs in

173、 defending patent infringement suits or in filing suits against others to have their patents declared invalid or claim infringement.It is alsopossible that we may be required to obtain licenses from third parties to avoid infringing third-party patents or other proprietary rights.We cannot be sureth

174、at such third-party licenses would be available to us on acceptable terms,if at all.If we are unable to obtain required third-party licenses,we may bedelayed in or prohibited from developing,manufacturing or selling products requiring such licenses.Although our patents include claims covering variou

175、s features of our products and product candidates,including composition,methods of manufactureand use,our patents do not provide us with complete protection against the development of competing products.Some of our know-how and technology isnot patentable.To protect our proprietary rights in unpaten

176、table intellectual property and trade secrets,we require employees,consultants,advisors andcollaborators to enter into confidentiality agreements.These agreements may not provide meaningful protection for our trade secrets,know-how or otherproprietary information in the event of any unauthorized use

177、 or disclosure.We have limited financial resources and we are not certain that we will be able to obtain financing to maintain our operations or to fund thedevelopment of future products.Over the next few years we may not generate revenues from product sales,licensing fees,royalties,milestones,contr

178、act research and other sources in anamount sufficient to fund our operations,and we will therefore use our cash resources and could require additional funds to maintain our operations,continueour research and development programs,commence future preclinical and clinical trials,seek regulatory approv

179、als and market our products.We will seeksuch additional funds through public or private equity or debt financings,collaborative arrangements and other sources.We cannot be certain that adequateadditional funding will be available to us on acceptable terms,if at all.If we cannot raise the additional

180、funds required for our anticipated operations,we maybe required to delay significantly,reduce the scope of or eliminate one or more of our research or development programs,downsize our general andadministrative infrastructure or programs,or seek alternative measures to avoid insolvency,including arr

181、angements with collaborative partners or others thatmay require us to relinquish rights to certain of our technologies,product candidates or products.If we raise additional funds through future offerings ofshares of our common stock or other securities,such offerings would cause dilution of existing

182、 stockholders percentage ownership in the company.Thesefuture offerings also could have a material and adverse effect on the price of our common stock.11 We have a history of losses and our future profitability is uncertain.Our expenses have exceeded our revenues since our formation in 1987,and our

183、accumulated deficit at December 31,2005 was$141.9 million.Our netrevenues for the last three years were$7.4 million in 2005,$8.3 million in 2004 and$11.8 million in 2003.We have received a limited amount of product-related revenue from research contracts,licenses and agreements to provide vaccine pr

184、oducts,services and adjuvant technologies.We cannot be certain thatwe will be successful in entering into strategic alliances or collaborative arrangements with other companies that will result in other significant revenues tooffset our expenses.Our net losses for the last three years were$11.2 mill

185、ion in 2005,$25.9 million in 2004 and$17.3 million in 2003.Our losses have resulted from research and development expenses,sales and marketing expenses for ESTRASORB,protection of our intellectual propertyand other general operating expenses.Our losses increased due to the launch of ESTRASORB as we

186、expanded our manufacturing capacity and sales andmarketing capabilities,and may increase as and when we conduct additional and larger clinical trials for our product candidates.Therefore,we expect ourcumulative operating loss to increase until such time,if ever,product sales,licensing fees,royalties

187、,milestones,contract research and other sources generatesufficient revenue to fund our continuing operations.We cannot predict when,if ever,we might achieve profitability and cannot be certain that we will beable to sustain profitability,if achieved.Many of our competitors have significantly greater

188、 resources and experience,which may negatively impact our commercial opportunities and those ofour current and future licensees.The biotechnology and pharmaceutical industries are subject to intense competition and rapid and significant technological change.We have manypotential competitors,includin

189、g major drug and chemical companies,specialized biotechnology firms,academic institutions,government agencies andprivate and public research institutions.Many of our competitors have significantly greater financial and technical resources,experience and expertise in:research and development;pre-clin

190、ical testing;clinical trials;regulatory processes and approvals;production and manufacturing;and sales and marketing of approved products.Large and established companies such as Merck&Co.,Inc.,GlaxoSmithKline PLC,Chiron Corp.and MedImmune Inc.,among others,compete in thevaccine market.In particular,

191、these companies have greater experience and expertise in securing government contracts and grants to support their researchand development efforts,conducting testing and trials,obtaining regulatory approvals to market products,and manufacturing such products on a broad scale.Smaller or early-stage c

192、ompanies and research institutions may also prove to be significant competitors,particularly through collaborative arrangementswith large and established pharmaceutical or other companies.We will also face competition from these parties in recruiting and retaining qualified scientificand management

193、personnel,establishing clinical trial sites and patient registration for clinical trials,and in acquiring and in-licensing technologies andproducts complementary to our programs or potentially advantageous to our business.If any of our competitors succeeds in obtaining approval from the FDAor other

194、regulatory authorities for their products sooner than we do or for products that are more effective or less costly than ours,our commercial opportunitycould be significantly reduced.In order to effectively compete,we will have to make substantial investments in sales and marketing or partner with on

195、e or more established companies.There is no assurance that we will be successful in gaining significant market share for any product or product candidate.Our technologies and products alsomay be rendered obsolete or noncompetitive as a result of products introduced by our competitors to the marketpl

196、ace more rapidly and at a lower cost.12 The return on our investment in ESTRASORB depends in large part on the success of our relationship with Esprit and our ability to manufacture theproduct.In October 2005,we entered into a License Agreement and a Supply Agreement with Esprit Pharma for ESTRASORB

197、.Under the License Agreement,wegranted Esprit exclusive rights to market ESTRASORB in North America.In consideration for such rights,Esprit will pay$12.5 million within the first yearas well as sales-based milestone payments,and Novavax also is entitled to receive a royalty on all future net sales o

198、f ESTRASORB.While our License Agreement with Esprit gives us some limited protections with respect to that companys ESTRASORB marketing and sales efforts and,we believe,creates incentives for Esprit consistent with our own,we cannot control the amount and timing of the marketing efforts that Esprit

199、devotes toESTRASORB or make any assurances that Esprits promotion and marketing of ESTRASORB in North America will be successful.We do not have a historyof working together with Esprit and cannot predict the success of the collaboration,nor can we give any assurances that Esprit will not reduce or c

200、urtail itsefforts to market ESTRASORB because of factors affecting its business or operations beyond our control.Any loss of Esprit as a partner in thecommercialization of ESTRASORB,dispute over the terms of or decisions regarding the License and Supply Agreements,or other adverse developments inour

201、 relationship with Esprit may harm our business and might accelerate our need for additional capital.We also can give no assurances that Esprit will bemore successful than Novavax in gaining market acceptance of ESTRASORB.Prescription trends for ESTRASORB have not met our expectations to date andEsp

202、rit will face similar obstacles to gaining market share of the estrogen therapy market,including competition from large and established companies withsimilar estrogen therapy products.Numerous companies worldwide currently produce and sell estrogen products for clinical indications identical to thos

203、e for ESTRASORB.Currently,theoral and patch product segments account for approximately 75%and 15%of the market,respectively,according to 2004 Verispan data.Wyeth commitssignificant resources to the sale and marketing of its product,Premarin,in order to maintain its market leadership position.Several

204、 other companies competein the estrogen category including Berlex Laboratories,Inc.,Novartis Pharma AG and Solvay Pharmaceuticals.In particular,Solvay has introduced analcohol-based gel product,Estrogel,which is directly competitive with ESTRASORB.These and other products sold by our competitors hav

205、e all achieved adegree of market penetration superior to ESTRASORB.In addition,under the Supply Agreement,we are obligated to supply Esprit with ESTRASORB through the manufacture of the product at ourmanufacturing facility in Philadelphia,Pennsylvania.We have only limited experience with the large c

206、apacity manufacturing required for the commercialsale of a product.Although we have validated our manufacturing methods for the product with the FDA,we will remain subject to that agencys rules andregulations regarding good manufacturing practices,which are enforced by the FDA through its facilities

207、 inspection program.Compliance with such rulesand regulations requires us to spend substantial funds and hire and retain qualified personnel.We face the possibility that we may not be able to meet Espritssupply requirements under the agreement in a timely fashion at acceptable quality,quantity and p

208、rices or in compliance with applicable regulations.If ourfacility fails to comply with applicable regulations,we will be forced to utilize a third party contractor to manufacture the product.We may not be able toenter into alternative manufacturing arrangements at commercially acceptable rates,if at

209、 all.Moreover,the manufacturers we use may not provide sufficientquantities of product to meet our specifications or our delivery,cost and other requirements.We must utilize our manufacturing facility for products other than ESTRASORB in order to avoid operating the facility at a loss.Currently we a

210、re manufacturing ESTRASORB at our facility in Philadelphia and will manufacture the product at a loss until production volumes increaseor we enter into additional contract manufacturing arrangements with third parties to more fully utilize the facilitys capacity.The facility is able toaccommodate a

211、much greater production schedule than its currently schedule,and offset the fixed costs related to the manufacturing process and facility.Until we increase production of ESTRASORB or enter into such contract manufacturing arrangements for sufficient quantities,the cost of products soldpercentages wi

212、ll continue to be unusually high and we will continue to manufacture the product at a loss.In addition,while the company was successful innegotiating a substantial reduction in its monthly rent for the facility during 2005,such reductions will expire in the summer of 2006 and the companyexpects leas

213、e costs to increase,potentially by a material amount.Although we are working to design alternative packaging solutions to further streamlineproduction and lower costs of production,there can be no assurances that such efforts will result in meaningful cost savings or otherwise be successful.13 We ha

214、ve not completed the development of products other than ESTRASORB and we may not succeed in obtaining the FDA approval necessary to selladditional products.The development,manufacture and marketing of our pharmaceutical and biological products are subject to government regulation in the United State

215、sand other countries.In the United States and most foreign countries,we must complete rigorous preclinical testing and extensive human clinical trials thatdemonstrate the safety and efficacy of a product in order to apply for regulatory approval to market the product.ESTRASORB is the only product de

216、velopedby the company to have been approved for sale in the United States.Approval outside the U.S.may take longer or may require additional clinical trials.Ourproduct candidate ANDROSORB has completed Phase I human clinical studies.Additional product candidates are in preclinical laboratory or anim

217、al studies.Before applying for FDA approval to market any new drug product candidates,we must first submit an IND that explains to the FDA the results of pre-clinical testing conducted in laboratory animals and what we propose to do for human testing.At this stage,the FDA decides whether it is reaso

218、nably safe tomove forward with testing the drug on humans.We must then conduct Phase I studies and larger-scale Phase II and III human clinical trials that demonstratethe safety and efficacy of our products to the satisfaction of the FDA.Once these trials are complete,an NDA can be filed with the FD

219、A requesting approval ofthe drug for marketing.Vaccine clinical development follows the same general pathway as for drugs and other biologics.A sponsor who wishes to begin clinical trials with avaccine must submit an IND describing the vaccine,its method of manufacture and quality control tests for

220、release.Pre-marketing(pre-licensure)vaccineclinical trials are typically done in three phases.Initial human studies,referred to as Phase I,are safety and immunogenicity studies performed in a smallnumber of closely monitored subjects.Phase II studies are dose-ranging studies and may enroll hundreds

221、of subjects.Finally,Phase III trials typically enrollthousands of individuals and provide the critical documentation of effectiveness and important additional safety data required for licensing.If successful,the completion of all three phases of clinical development can be followed by the submission

222、 of a Biologics License Application.Alsoduring this stage,the proposed manufacturing facility undergoes a pre-approval inspection during which production of the vaccine as it is in progress isexamined in detail.Vaccine approval also requires the provision of adequate product labeling to allow health

223、 care providers to understand the vaccinesproper use,including its potential benefits and risks,to communicate with patients and parents,and to safely deliver the vaccine to the public.Until avaccine is given to the general population,all potential adverse events cannot be anticipated.Thus,many vacc

224、ines undergo Phase IV studies after a BLA hasbeen approved and the vaccine is licensed and on the market.These processes are expensive and can take many years to complete,and we may not be able to demonstrate the safety and efficacy of our products to thesatisfaction of such regulatory authorities.R

225、egulatory authorities may also require additional testing and we may be required to demonstrate that ourproposed products represent an improved form of treatment over existing therapies,which we may be unable to do so without conducting further clinicalstudies.Moreover,if the FDA grants regulatory a

226、pproval of a product,the approval may be limited to specific indications or limited with respect to itsdistribution.Expanded or additional indications for approved drugs may not be approved,which could limit our revenues.Foreign regulatory authoritiesmay apply similar limitations or may refuse to gr

227、ant any approval.Consequently,even if we believe that preclinical and clinical data are sufficient to supportregulatory approval for our product candidates,the FDA and foreign regulatory authorities may not ultimately grant approval for commercial sale in anyjurisdiction.If our drug candidates are n

228、ot approved,our ability to generate revenues may be limited and our business will be adversely affected.We may fail to obtain regulatory approval for our products on a timely basis or comply with our continuing regulatory obligations after approval isobtained.Delays in obtaining regulatory approval

229、can be extremely costly in terms of lost sales opportunities and increased clinical trial costs.The speed withwhich we complete our clinical trials and our applications for marketing approval will depend on several factors,including the following:the rate of patient enrollment and retention,which is

230、 a function of many factors,including the size of the patient population,the proximity ofpatients to clinical sites,the eligibility criteria for the study and the nature of the protocol;Institutional Review Board approval of the protocol and the informed consent form;prior regulatory agency review a

231、nd approval;our ability to manufacture or obtain sufficient quantities of materials for use in clinical trials;14 negative test results or side effects experienced by trial participants;analysis of data obtained from preclinical and clinical activities,which are susceptible to varying interpretation

232、s and which interpretations coulddelay,limit or prevent regulatory approval;changes in the policies of regulatory authorities for drug or vaccine approval during the period of product development;and the availability of skilled and experienced staff to conduct and monitor clinical studies and to pre

233、pare the appropriate regulatory applications.We have limited experience in conducting and managing the preclinical and clinical trials necessary to obtain regulatory marketing approvals.We maynot be able to obtain the approvals necessary to conduct clinical studies.We also face the risk that the res

234、ults of our clinical trials may be inconsistent withthe results obtained in preclinical studies or that the results obtained in later phases of clinical trials may be inconsistent with those obtained in earlierphases.A number of companies in the specialty biopharmaceutical and product development in

235、dustry have suffered significant setbacks in advanced clinicaltrials,even after experiencing promising results in early animal and human testing.If regulatory approval of a drug is granted,such approval is likely to limitthe indicated uses for which it may be marketed.Furthermore,even if a product g

236、ains regulatory approval,the product and the manufacturer of the product will be subject to continuing regulatory review,including adverse event reporting requirements and the FDAs general prohibition against promoting products for unapproved uses.Failure to comply withany post-approval requirements

237、 can,among other things,result in warning letters,product seizures,recalls,fines,injunctions,suspensions or revocations ofmarketing licenses,operating restrictions and criminal prosecutions.Any of these enforcement actions,any unanticipated changes in existing regulatoryrequirements or the adoption

238、of new requirements,or any safety issues that arise with any approved products,could adversely affect our ability to marketproducts and generate revenues and thus adversely affect our ability to continue our business.We also may be restricted or prohibited from marketing or manufacturing a product,e

239、ven after obtaining product approval,if previously unknownproblems with the product or its manufacture are subsequently discovered and we cannot assure you that newly discovered or developed safety issues will notarise following any regulatory approval.With the use of any drug by a wide patient popu

240、lation,serious adverse events may occur from time to time thatinitially do not appear to relate to the drug itself,and only if the specific event occurs with some regularity over a period of time does the drug becomesuspect as having a causal relationship to the adverse event.Any safety issues could

241、 cause us to suspend or cease marketing of our approved products,possibly subject us to substantial liabilities,and adversely affect our ability to generate revenues and our financial condition.Our substantial indebtedness could adversely affect our cash flow and prevent us from fulfilling our oblig

242、ations.As of December 31,2005,we had$30.5 million of outstanding indebtedness.Our substantial amount of outstanding indebtedness could have significantconsequences.For example,it:could increase our vulnerability to general adverse economic and industry conditions;requires us to dedicate a substantia

243、l portion of our cash flow from operations to service payments on our indebtedness,reducing the availability ofour cash flow to fund future capital expenditures,working capital,execution of our growth strategy,research and development costs and othergeneral corporate requirements;could limit our fle

244、xibility in planning for,or reacting to,changes in our business and the industry,which may place us at a competitivedisadvantage compared with competitors that have less indebtedness;and could limit our ability to obtain additional funds,even when necessary to maintain adequate liquidity.We may incu

245、r additional indebtedness for various reasons,which would increase the risks associated with our substantial leverage.15 Health care insurers and other payors may not pay for our products or may impose limits on reimbursement.Our ability and the ability of our licensees to successfully commercialize

246、 ESTRASORB and future products will depend,in part,on the extent to whichreimbursement for such products will be available from third-party payors such as Medicare,Medicaid,health maintenance organizations,health insurers andother public and private payors.If we succeed in bringing products to the m

247、arket,we cannot be assured that third-party payors will pay for such products orestablish and maintain price levels sufficient for realization of an appropriate return on our investment in product development.For example,ESTRASORBcurrently is being sold as an outpatient prescription drug.Medicare do

248、es not cover the costs of most outpatient prescription drugs.We expect that over timeESTRASORB will be treated the same as other estrogen therapy products with respect to government and third-party payor reimbursement,however,additional time is required to increase the number of payors who currently

249、 accept our product for reimbursement.There can be no assurance thatESTRASORB will receive similar reimbursement treatment.Many health maintenance organizations and other third-party payors use formularies,or lists of drugs for which coverage is provided under a health carebenefit plan,to control th

250、e costs of prescription drugs.Each payor that maintains a drug formulary makes its own determination as to whether a new drug willbe added to the formulary and whether particular drugs in a therapeutic class will have preferred status over other drugs in the same class.This determinationoften involv

251、es an assessment of the clinical appropriateness of the drug and,in some cases,the cost of the drug in comparison to alternative products.Therecan be no assurance that ESTRASORB or any of our future products will be added to payors formularies,that our products will have preferred status toalternati

252、ve therapies,or that the formulary decisions will be conducted in a timely manner.We may also decide to enter into discount or formulary feearrangements with payors,which could result in us receiving lower or discounted prices for ESTRASORB or future products.We may have product liability exposure.T

253、he administration of drugs to humans,whether in clinical trials or after marketing clearances are obtained,can result in product liability claims.Wemaintain product liability insurance coverage in the total amount of$10.0 million for claims arising from the use of our currently marketed products and

254、products in clinical trials prior to FDA approval.Coverage is becoming increasingly expensive,however,and we may not be able to maintain insurance at areasonable cost.There can be no assurance that we will be able to maintain our existing insurance coverage or obtain coverage for the use of our othe

255、rproducts in the future.This insurance coverage and our resources may not be sufficient to satisfy liabilities resulting from product liability claims.Asuccessful claim may prevent us from obtaining adequate product liability insurance in the future on commercially desirable terms,if at all.Even if

256、a claim isnot successful,defending such a claim would be time-consuming and expensive,may damage our reputation in the marketplace,and would likely divertmanagements attention.We have made loans to certain of our directors,and have guaranteed a brokerage margin loan for one of these directors,which

257、could have a negativeimpact on our stock price.In 2002,pursuant to our 1995 Stock Option Plan,we approved the payment of the exercise price of options by two of our directors through the delivery offull-recourse,interest-bearing promissory notes in the aggregate principal amount of approximately$1.5

258、 million,secured by a pledge of the underlyingshares.As of December 31,2005,accrued interest receivable related to the borrowing was$284,000.In addition,in 2002 we executed a conditional guarantyof a brokerage margin account for a director in the amount of$500,000.Due to heightened sensitivity in th

259、e current environment surrounding related-partytransactions,these transactions could be viewed negatively in the market and our stock price could be negatively affected.Our corporate governance policieshave been revised and our 2005 Stock Incentive Plan prohibits any additional loans or guarantees t

260、o directors.The price of our common stock has been and may continue to be volatile.Historically,the market price of our common stock has fluctuated over a wide range.In fiscal year 2005,our common stock traded in a range from$0.70 to$6.01.It is likely that the price of our common stock will fluctuat

261、e in the future.The market prices of securities of small-capitalization,specialtybiopharmaceutical companies,including ours,from time to time experience significant price and volume fluctuations unrelated to the operating performanceof these companies.In particular,the market price of our common sto

262、ck may fluctuate significantly due to a variety of factors,including:our ability to obtain government contracts to develop vaccines and other biological products and technologies;governmental agency actions including the FDAs determination with respect to new drug applications for new products;our a

263、bility to obtain financing;and16 our ability to develop additional products,including biologicals and vaccines.In addition,the occurrence of any of the risks described in Items 1A could have a material and adverse impact on the market price of our common stock.The conversion of our outstanding conve

264、rtible debt,and the issuance of shares of our common stock upon conversion or exercise of preferred stockand/or warrants or in future offerings would cause dilution of existing security holders interests in the company and may cause the price of our commonstock to go down.As of December 31,2005,we h

265、ad outstanding convertible notes in the aggregate principal amount of$29,000,000 that as of such date were convertibleinto an aggregate of 5,215,827 shares of our common stock.The issuance of shares of our common stock upon conversion of such notes,as well as inconnection with future capital raising

266、 activities,would cause immediate and potentially substantial equity dilution for existing stockholders and the price ofour common stock could be subject to significant downward pressure.We have never paid dividends on our capital stock,and we do not anticipate paying any such dividends in the fores

267、eeable future.We have never paid cash dividends on our common stock.We currently anticipate that we will retain all of our earnings for use in the development of ourbusiness and do not anticipate paying any cash dividends in the foreseeable future.In addition,the terms of our existing and any future

268、 debt may preclude usfrom paying dividends.As a result,capital appreciation,if any,of our common stock would be the only source of gain for stockholders until dividends arepermitted and paid.Provisions of our Certificate of Incorporation and By-laws,Delaware law,and our Shareholder Rights Plan could

269、 delay or prevent the acquisition ofthe company,even if such acquisition would be beneficial to stockholders,and could impede changes in our Board.Provisions of Delaware corporate law and our organizational documents could hamper a third partys attempt to acquire,or discourage a third party fromatte

270、mpting to acquire control of,the company.Moreover,our shareholder rights plan empowers our Board to delay or negotiate,and thereby possibly thwart,any tender offer or takeover attempt the Board opposes.Stockholders who wish to participate in these transactions may not have the opportunity to do so.T

271、hese provisions also could limit the price investors are willing to pay in the future for our securities and make it more difficult to change the composition ofour Board in any one year.These provisions include the right of the Board to issue preferred stock with rights senior to those of the common

272、 stock withoutany further vote or action by stockholders,the existence of a staggered Board with three classes of directors serving staggered three-year terms,advancenotice requirements for stockholders to nominate directors and make proposals,and a Delaware statutory provision prohibiting certain t

273、ransactions betweenNovavax and interested stockholders.Item 1B.Unresolved Staff CommentsNot applicable.Item 2.Properties We have current operations in four leased facilities.We lease approximately 32,900 square feet for administrative office space,research and developmentand future product developme

274、nt activities at our corporate headquarters in Malvern,Pennsylvania.We lease approximately 11,700 square feet at our facilityin Rockville,Maryland for contract vaccine research,development and manufacturing of Phase I products and we are currently reviewing alternatives toexpand the Rockville facili

275、ty to accommodate planned requirements for our avian and pandemic flu efforts.We have another approximately 2,800 squarefoot facility in Pacific Grove,California for new product research and development activities.Our manufacturing facility for ESTRASORB and other contractmanufacturing is in Philade

276、lphia,Pennsylvania where we lease approximately 24,000 square feet of manufacturing space.The lease of our formeradministration offices in Columbia,Maryland expires in October 2006.17 A summary of our current facilities is set forth below.Approximate Property Location Square Footage PurposeMalvern,P

277、ennsylvania 32,900 Corporate headquarters and future product development activitiesRockville,Maryland 11,700 Vaccine research and development activities and office spacePacific Grove,California 2,800 Research and development activitiesPhiladelphia,Pennsylvania 24,000 Manufacturing and packaging faci

278、lity with office spaceColumbia,Maryland 12,000 Prior corporate headquarters;lease expires October 2006;currently attempting to subleaseItem 3.Legal Proceedings We are a defendant in a lawsuit filed in December 2003 by a former director alleging that we wrongfully terminated the former directors stoc

279、k options.Webelieve that the termination and cancellation of the options were in accordance with the terms of the option agreements,following his termination for causeby a former parent company,IGI,Inc.,and we believe the lawsuit is without merit and we are vigorously defending the claim.The lawsuit

280、 is currentlyscheduled for trial in April 2006 in Atlantic County,New Jersey.We cannot reasonably estimate the liability,if any,related to this claim,or the likelihood ofan unfavorable settlement.Accordingly,no liability related to this contingency is accrued in the consolidated balance sheet as of

281、December 31,2005.Anunfavorable settlement,however,may have a material adverse impact on future operating results.Item 4.Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31,2005.18 P

282、ART IIItem 5.Market For Registrants Common Equity,Related Stockholder Matters and Issuer Purchases ofEquity Securities Our common stock($.01 par value)is traded on the Nasdaq National Market under the symbol NVAX.The following table sets forth,for the periodspresented,the high and low sales prices f

283、or our common stock.Quarter Ended High Low December 31,2005$6.01$1.67 September 30,2005 2.56 0.70 June 30,2005 1.64 1.13 March 31,2005 3.35 1.35 December 31,2004$4.10$2.98 September 30,2004 5.71 2.88 June 30,2004 6.47 4.11 March 31,2004 6.99 5.15 Our common stock was held by approximately 12,500 sto

284、ckholders of record as of February 28,2006.We have never paid cash dividends on our commonstock.We currently anticipate that we will retain all of our earnings for use in the development of our business and do not intend to pay any cash dividendsin the foreseeable future.Unregistered Sales of Equity

285、 Securities;Use of Proceeds from Registered Securities During the 2005 fiscal year,the Company issued unregistered shares of its common stock to two individuals.In August 2005,the Company issued 50,000shares of restricted common stock to its former Chairman of the Board,Denis M.ODonnell,M.D.,in conn

286、ection with his separation from the Company as anemployee.He agreed to pledge such shares to the broker of his margin account to secure a debt guaranteed by the Company.Also in August 2005,the Company issued 250,000 shares of restricted common stock to Nelson M.Sims,the Companys former President,Chi

287、efExecutive Officer and director,in connection with his separation from the Company.In accordance with his separation agreement,Mr.Sims agreed to thecancellation of all then-outstanding options and other rights to purchase shares of the Company.In exchange,Mr.Sims received his salary through the dat

288、eof resignation and reimbursement of certain expenses.The Company also agreed to pay him severance benefits,part of which included the 250,000 shares ofrestricted common stock.In each case,the Company issued such shares in reliance on an exemption from registration under the Securities Act of 1933,a

289、s amended,predicated onsuch shares being issued in a private placement transaction.Securities Authorized for Issuance under our Equity Compensation Plans See Part III,Item 12.Issuer Purchases of Equity Securities During the fourth quarter of the fiscal year ended December 31,2005,neither the Company

290、 nor any affiliated purchaser of the Company purchased sharesof the Companys common stock.19 Item 6.Selected Financial Data The selected financial data set forth below has been derived from our audited consolidated financial statements.This information should be read inconjunction with the financial

291、 statements and the related notes thereto,“Managements Discussion and Analysis of Financial Condition and Results ofOperations”in Item 7 herein,and in Item 1A“Risk Factors”,and other financial information included elsewhere in this Annual Report on Form 10-K.For the years ended December 31,2001 2002

292、 2003 2004 2005 (amounts in thousands,except share and per share information)Statements of Operations Data:Revenues$24,066$15,005$11,785$8,260$7,388 Loss from operations (9,255)(21,558)(16,054)(24,464)(9,171)Net loss (9,745)(22,697)(17,273)(25,920)(11,174)Basic and diluted per share information:Loss

293、 applicable to common stockholders$(0.43)$(0.93)$(0.58)$(0.70)$(0.26)Weighted average number of sharesoutstanding 22,670,274 24,433,868 29,852,797 36,926,034 42,758,302 As of December 31,2001 2002 2003 2004 2005Balance Sheets Data:Total current assets$25,027$6,242$32,062$23,937$37,611 Working capita

294、l 18,030 378 27,226 15,361 32,735 Total assets 67,115 57,505 84,159 77,993 84,382 Long term obligations 30,000 41,103 41,100 35,970 29,678 Stockholders equity 27,493 8,073 35,944 33,281 49,652 Summarized Quarterly Financial Information for the Fiscal Years ended December 31,2005 and 2004:Quarter End

295、ed (in thousands except per share data)Unaudited March 31 June 30 September 30 December 312005 Revenues$962$2,315$1,867$2,244 Cost of products sold 1,979 2,027 1,068 717 Excess inventory costs over market 1,519 Research and development costs 1,222 1,377 1,161 1,315 Selling and marketing 4,057 1,844

296、930 89 General and administrative 2,121 2,294 1,694 2,005 Facility exit costs (2)107 Gain on sales of product assets (856)(10,109)Net income(loss)(8,886)(5,716)(2,727)6,155 Net income(loss)per share$(.22)$(.14)$(.06)$.13 2004 Revenues$3,220$3,005$(11)$2,046 Cost of products sold 263 1,501 364 1,362

297、Research and development costs 3,047 1,229 1,552 1,541 Selling and marketing 2,774 5,556 8,931 6,327 General and administrative 2,032 2,059 1,901 2,724 Facility exit costs 723 Gain on redemption of debt (11,162)Net loss (5,258)(7,717)(2,657)(10,288)Net loss per share$(.15)$(.22)$(.07)$(.26)Item 7.Ma

298、nagements Discussion and Analysis of Financial Condition and Results of Operations Certain statements contained herein or as may otherwise be incorporated by reference herein constitute“forward-looking statements”within the meaningof the Private Securities Litigation Reform Act of 1995.Forward-looki

299、ng statements include,but are not limited to,statements regarding product sales,futureproduct development and related clinical trials,and future research and development,including Food and Drug Administration approval.Such forward-looking statements involve known and unknown risks,uncertainties and

300、other factors which may cause the actual results,performance or achievements of theCompany,or industry results,to be materially different from those expressed or implied by such forward-looking statements.20 Such factors include,among other things,the following:general economic and business conditio

301、ns;competition;ability to enter into futurecollaborations with industry partners;unexpected changes in technologies and technological advances;ability to obtain rights to technology;ability toobtain and enforce patents;ability to commercialize and manufacture products;ability to maintain commercial-

302、scale manufacturing capabilities;results ofclinical studies;progress of research and development activities;business abilities and judgment of personnel;availability of qualified personnel;changesin,or failure to comply with,governmental regulations;ability to obtain adequate financing in the future

303、 through product licensing,co-promotionalarrangements,public or private equity financing or otherwise;and other factors referenced herein.All forward-looking statements contained in this annual report are based on information available to the Company on the date hereof,and the Companyassumes no obli

304、gation to update any such forward-looking statements,except as specifically required by law.Accordingly,past results and trends should notbe used to anticipate future results or trends.Overview During 2005,Novavax successfully transitioned from a specialty pharmaceutical company,which included the s

305、ales and marketing of products servingthe womens health space,to an innovative,biopharmaceutical company leveraging our proprietary technologies in vaccines,adjuvants,and drug delivery.We are now focused on creating differentiated,value-added pharmaceutical and vaccine products and licensing them at

306、 various stages of development torealize their value.Our drug delivery technologies include our Micellar Nanoparticle(“MNP”)technology,which is the basis for the development of our firstFDA approved product,ESTRASORB.In addition to MNP,our drug delivery technologies include Novasomes(paucillamellar

307、non-phospholipidliposomes)and Sterisomes.Our vaccine technologies include functional virus-like particle(“VLP”)manufacturing utilizing the baculovirus expressionsystem in insect cells as well as novel vaccine adjuvants based on Novasomes and dendrimer technologies.Currently,our main focus is to deve

308、lop a vaccine against a potential avian influenza pandemic,using our VLP vaccine technology.VLPs are genetically-engineered particles that imitate the important three-dimensional structures of viruses but are composed of recombinant proteins and therefore are believedincapable of causing infection a

309、nd disease.Our proprietary production technology employs insect cells rather than eggs.We can more rapidly produce a safe,effective low-cost vaccine as compared with the labor-intensive egg-based process.Key advantages of the technology are the ability to rapidly respond toemerging threats of new st

310、rains and a reduced risk of allergic reaction.A proof-of-concept study,conducted in collaboration with the NIH and CDC,demonstrated that a recombinant VLP vaccine against the H9N2 strain of avian influenza reduced disease morbidity in mice against a live challenge of theH9N2 virus when compared with

311、 unvaccinated animals.This study is the basis for the development of VLP vaccines against the H5N1 strain of avian andhuman seasonal influenza.In addition,the company is studying the applicability of its proprietary adjuvants in conjunction with the VLP vaccines toimprove immunogenicity of the vacci

312、ne.Other projects in development using our proprietary VLP technology include vaccines for HIV,SARS and seasonalinfluenza.We are also developing E-Selectin tolerogen for the prevention of secondary strokes.We will also continue to leverage our drug delivery technologies by developing and licensing n

313、ew products based on our MNP technology.ESTRASORB,our first internally-developed product using MNP technology,is the first topical emulsion for estrogen therapy approved by the FDA for thetreatment of moderate to severe vasomotor symptoms(hot flashes)associated with menopause.ESTRASORB was licensed

314、in October 2005 to Esprit Pharma,Inc.,for marketing in North America(see“Significant Transactions”below).Following the successful development of ESTRASORB,we have developed apipeline of over ten product candidates using the MNP technology and we remain active with several pharmaceutical companies to

315、 co-develop and co-market or license these products.Significant TransactionsLicense Agreement renewal with IGI,Inc.In December 2005,we received a$1,000,000 payment from IGI,Inc.in accordance with an option in a licensing agreement signed between the Companyand IGI in December 1995.This payment gives

316、 IGI a ten year renewal on licensed technologies in specific fields and was recorded as licensing fee income forthe year ended December 31,2005.License and Supply Agreements with Esprit Pharma,Inc.(the“Esprit Transaction”)In October 2005,we entered into License and Supply Agreements for ESTRASORB wi

317、th Esprit Pharma,Inc.Under the License Agreement,Esprit obtainedexclusive rights to market ESTRASORB in North America and we will continue to manufacture ESTRASORB.21 In consideration for the rights granted,Esprit will pay us a minimum cash consideration of$12.5 million:$2.0 million which was paid a

318、t closing,$8.0 million which was paid in December 2005,and the remaining$2.5 million will be paid on the first anniversary date of the License Agreement.We willreceive a royalty on all net sales of ESTRASORB as well as milestone payments based on specific pre-determined net sales levels of ESTRASORB

319、 We alsowrote off$2.2 million,the remaining net balance of its intangible asset for ESTRASORB rights at the date of the transaction.As part of this transaction,Espritpaid us$0.3 million for inventory and sales and promotional materials for which we had a book value of$0.4 million.We incurred$.02 mil

320、lion of feesrelated to this transaction and recorded a gain of$10.1 million.Asset Purchase Agreement with Pharmelle,LLC(the“Pharmelle Transaction”)In September 2005,we entered into an Asset Purchase Agreement with Pharmelle,LLC for the sale of assets related to the AVC Cream and Suppositories,NovaNa

321、tal and NovaStart products,as well as assets relating to certain formerly-marketed products Vitelle,Nestabs,Gerimed,Irospan and Nessentials.Theassets sold included,but were not limited to,intellectual property,the New Drug Application for AVC products,inventory and sales and promotionalmaterials.In

322、connection with the sale,Pharmelle agreed to assume those liabilities and obligations arising after the closing date of the transaction inconnection with the performance by Pharmelle of certain assumed contracts,those liabilities and obligation arising after the closing date in connection withproduc

323、ts sold by Pharmelle after the closing date or the operation of the business relating to such products or the assets after such date(including any productliability claims associated with such products),and all liability and responsibility for returns of the products made after the closing date,regar

324、dless of whensuch products were produced,manufactured or sold.In consideration for the sale of these assets,Pharmelle paid us$2.5 million in cash and assumed the liabilities noted above.In addition,we are entitled toroyalties on AVC for a five-year period if net sales exceed certain levels.We wrote

325、off$1.1 million,the net balance of the intangible assets related to the AVCproduct acquisition and$0.3 million of inventory,recorded a$0.3 million liability for future obligations and recorded a gain on the transaction of$0.8 million.Equity Financing Transactions In February 2006,subsequent to year-

326、end,we completed an offering of 4,597,700 shares of common stock at$4.35 per share for gross proceeds of$20.0 million with a group of institutional investors including Kleiner Perkins Caufield&Byers and Prospect Venture Partners.In November 2005,we completed an additional agent-led offering of 4,186

327、,047 shares of common stock at$4.30 per share for gross proceeds of$18.0 million.The stock was issued pursuant to an existing shelf registration statement with net proceeds of approximately$17.0 million.In July 2005,we completed an agent-led offering of 4,000,000 shares of common stock at$1.00 per s

328、hare,for gross proceeds of$4.0 million.The stockwas issued pursuant to an existing shelf registration statement with net proceeds of approximately$3.6 million.Convertible Notes Conversion In October 2005,certain holders of$6.0 million face amount of our 4.75%senior convertible notes due July 15,2009

329、 exercised their optional conversionright to convert their notes plus accrued interest of$81,000 into 1,070,635 shares of Novavax common stock,at the per share conversion price of$5.68.Thisreduces the aggregate principal amount of such notes outstanding from$35.0 million to$29.0 million.Restructurin

330、g of the Sales Force From March through August 2005,we implemented measures to reduce costs associated with our commercial operations by downsizing our sales force tocorrespond with our strategy of transitioning from a commercial business model to that of one focused on our core competency of new pr

331、oduct development.The March restructuring reduced our sales force numbers significantly while the August restructuring eliminated the remaining sales force.Included in 2005sales and marketing expenses is$0.4 million related to these two restructurings.22 Cancellation of King Pharmaceuticals Agreemen

332、ts In January 2001,we entered into a co-promotion agreement with King Pharmaceuticals,Inc.for our topical estrogen therapy,ESTRASORB,in the UnitedStates and Puerto Rico(the“Territory”).We also entered into a license agreement with King for many countries outside the United States.The co-promotionand

333、 license agreements(the“Agreements”)granted King the right to share equally in the revenues and expenses for manufacturing and marketingESTRASORB in the Territory and exclusive rights to many countries outside the United States.The Agreements also entitled us to up to$5.0 million inmilestone payments from King for achievement of milestones outlined in the Agreements.In June 2001,we amended the Agr