UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549





Form
10-Q




x
              QUARTERLYREPORT PURSUANT TO SECTION 13
      OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
  1934


For
the quarterly period ended September 30, 2010


OR


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


For
the transition period
from          to          .




Commission
File No. 0-26770





NOVAVAX,
INC.


(Exact
name of registrant as specified in its charter)





Delaware
            22-2816046(State
      or other jurisdiction of
              incorporation
      or organization)
            (I.R.S.
      Employer
              Identification
      No.)9920
      Belward Campus Drive, Rockville, MD
            20850(Address
      of principal executive offices)
            (Zip
      code)





(240)
268-2000





Indicate by check mark whether theRegistrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past
90 days.  YesxNo ̈




Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files).  Yes ̈No ̈




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




Large accelerated
      filer ̈
                          Accelerated
      filerx
                          Non-accelerated
      filer   ̈
                          Smaller reporting
      company ̈(Do
      not check if a smaller reporting
  company)





Indicate by check mark whetherthe Registrant is a shell
company (as defined in Rule 12b-2 of the Exchange
Act).  Yes ̈Nox




The
number of shares outstanding of the Registrant’s Common Stock, $0.01 par value,
was 111,101,416as
of October 31, 2010.










NOVAVAX,
INC.


TABLE
OF CONTENTS





Page No.PART
      I. FINANCIAL INFORMATIONItem
      1.
                
                Financial
      StatementsConsolidated
      Balance Sheets as of September 30, 2010 (unaudited) and December 31,
      2009
                
                1Consolidated
      Statements of Operations for the three and nine months ended September 30,
      2010 and 2009 (unaudited)
                
                2Consolidated
      Statements of Cash Flows for the nine months ended September 30, 2010 and
      2009 (unaudited)
                
                3Notes
      to the Consolidated Financial Statements (unaudited)
                
                4Item
      2.
                
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                
                11Item
      3.
                
                Quantitative
      and Qualitative Disclosures about Market Risk
                
                19Item
      4.
                
                Controls
      and Procedures
                
                19PART
      II. OTHER INFORMATIONItem
      1.
                
                Legal
      Proceedings
                
                20Item
      1A.
                
                Risk
      Factors
                
                20Item
      5.
                
                Other
      Information
                
                20Item
      6.
                
                Exhibits
                
                21SIGNATURES
                
                22


i


PART
I. FINANCIAL INFORMATION





Item
1. Financial Statements


NOVAVAX,
INC.


CONSOLIDATED
BALANCE SHEETS


(in
thousands, except share and per share information)





September 30,
                
                
                December 31,2010
                
                
                2009(unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
                
                $
                16,215
                
                
                $
                38,757Short-term
      investments available-for-sale
                
                
                20,648
                
                
                
                4,193Accounts
      and other receivables
                
                
                599
                
                
                
                258Prepaid
      expenses and other current assets
                
                
                348
                
                
                
                1,295Total
      current assets
                
                
                37,810
                
                
                
                44,503Property
      and equipment, net
                
                
                8,203
                
                
                
                7,801Goodwill
                
                
                33,141
                
                
                
                33,141Other
      non-current assets
                
                
                160
                
                
                
                160Total
      assets
                
                $
                79,314
                
                
                $
                85,605LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable
                
                $
                3,350
                
                
                $
                2,098Accrued
      expenses and other current liabilities
                
                
                5,761
                
                
                
                5,417Current
      portion of notes payable
                
                
                80
                
                
                
                80Deferred
      revenue
                
                
                7
                
                
                
                150Deferred
      rent
                
                
                330
                
                
                
                282Total
      current liabilities
                
                
                9,528
                
                
                
                8,027Non-current
      portion of notes payable
                
                
                340
                
                
                
                406Deferred
      rent
                
                
                2,453
                
                
                
                2,707Total
      liabilities
                
                
                12,321
                
                
                
                11,140Commitments
      and contingences
                
                
                —
                
                
                
                —Stockholders’
      equity:Preferred
      stock, $0.01 par value, 2,000,000 shares authorized; no shares issued and
      outstanding
                
                
                —
                
                
                
                —Common
      stock, $0.01 par value, 200,000,000 shares authorized; and 111,111,792
      shares issued and 110,644,695 shares outstanding at September 30, 2010 and
      100,717,890 shares issued and 100,262,460 shares outstanding at December
      31, 2009
                
                
                1,111
                
                
                
                1,007Additional
      paid-in capital
                
                
                374,384
                
                
                
                350,810Notes
      receivable from former directors
                
                
                (1,572
                )
                
                
                (1,572
                )Accumulated
      deficit
                
                
                (305,344
                )
                
                
                (274,150
                )Treasury
      stock, 467,097 and 455,430 shares at September 30, 2010 and December 31,
      2009, respectively, cost basis
                
                
                (2,450
                )
                
                
                (2,450
                )Accumulated
      other comprehensive income
                
                
                864
                
                
                
                820Total
      stockholders’ equity
                
                
                66,993
                
                
                
                74,465Total
      liabilities and stockholders’ equity
                
                $
                79,314
                
                
                $
                85,605




The
accompanying notes are an integral part of these consolidated financial
statements.


1


NOVAVAX,
INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS


(in
thousands, except per share information)


(unaudited)





For the Three Months
                      EndedSeptember30,
                    
                    
                    For the Nine Months
                      Ended September30,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009Revenue
                    
                    $
                    175
                    
                    
                    $
                    201
                    
                    
                    $
                    292
                    
                    
                    $
                    251Operating
      expenses:Research
      and development
                    
                    
                    7,870
                    
                    
                    
                    5,256
                    
                    
                    
                    23,226
                    
                    
                    
                    14,819General
      and administrative
                    
                    
                    2,844
                    
                    
                    
                    3,207
                    
                    
                    
                    8,528
                    
                    
                    
                    8,661Total
      operating expenses
                    
                    
                    10,714
                    
                    
                    
                    8,463
                    
                    
                    
                    31,754
                    
                    
                    
                    23,480Loss
      from operations
                    
                    
                    (10,539
                    )
                    
                    
                    (8,262
                    )
                    
                    
                    (31,462
                    )
                    
                    
                    (23,229
                    )Other
      income (expense):Interest
      income
                    
                    
                    50
                    
                    
                    
                    59
                    
                    
                    
                    138
                    
                    
                    
                    239Interest
      expense
                    
                    
                    (2
                    )
                    
                    
                    (19
                    )
                    
                    
                    (6
                    )
                    
                    
                    (783
                    )Other
      income
                    
                    
                    136
                    
                    
                    
                    —
                    
                    
                    
                    136
                    
                    
                    
                    —Impairment
      of short-term investments
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (1,338
                    )Realized
      gains on short-term investments
                    
                    
                    —
                    
                    
                    
                    692
                    
                    
                    
                    —
                    
                    
                    
                    692Net
      loss
                    
                    $
                    (10,355
                    )
                    
                    $
                    (7,530
                    )
                    
                    $
                    (31,194
                    )
                    
                    $
                    (24,419
                    )Basic
      and diluted net loss per share
                    
                    $
                    (0.10
                    )
                    
                    $
                    (0.08
                    )
                    
                    $
                    (0.30
                    )
                    
                    $
                    (0.30
                    )Basic
      and diluted weighted average number of common shares
      outstanding
                    
                    
                    107,092
                    
                    
                    
                    92,297
                    
                    
                    
                    102,683
                    
                    
                    
                    82,027




The
accompanying notes are an integral part of these consolidated financial
statements.


2


NOVAVAX,
INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(in
thousands)


(unaudited)





For the Nine Months
                  EndedSeptember30,2010
                
                
                2009Operating
      Activities:Net
      loss:
                
                $
                (31,194
                )
                
                $
                (24,419
                )Reconciliation
      of net loss to net cash used in operating activities:Depreciation
      and amortization
                
                
                991
                
                
                
                899Amortization
      of debt discount
                
                
                —
                
                
                
                147Amortization
      of deferred financing costs
                
                
                —
                
                
                
                222Amortization
      of short-term investments premium (discount)
                
                
                134
                
                
                
                —Loss
      on disposal of property and equipment
                
                
                32
                
                
                
                28Impairment
      of property and equipment
                
                
                127
                
                
                
                21Deferred
      rent
                
                
                (206
                )
                
                
                (207
                )Non-cash
      stock-based compensation
                
                
                1,141
                
                
                
                1,270Impairment
      of short-term investments
                
                
                —
                
                
                
                1,338Realized
      gains on short-term investments
                
                
                —
                
                
                
                (692
                )Changes
      in operating assets and liabilities:Accounts
      and other receivables
                
                
                (341
                )
                
                
                105Prepaid
      expenses and other current assets
                
                
                947
                
                
                
                371Accounts
      payable and accrued expenses
                
                
                1,468
                
                
                
                272Deferred
      revenue
                
                
                (143
                )
                
                
                201Net
      cash used in operating activities
                
                
                (27,044
                )
                
                
                (20,444
                )Investing
      Activities:Capital
      expenditures
                
                
                (1,424
                )
                
                
                (356
                )Proceeds
      from disposal of property and equipment
                
                
                —
                
                
                
                7Proceeds
      from maturities of short-term investments
                
                
                11,000
                
                
                
                2,575Purchases
      of short-term investments
                
                
                (27,545
                )
                
                
                —Net
      cash (used in) provided by investing activities
                
                
                (17,969
                )
                
                
                2,226Financing
      Activities:Principal
      payments of notes payable
                
                
                (66
                )
                
                
                (15,088
                )Net
      proceeds from sales of common stock, net of offering costs of $0.4 million
      and $1.0 million, respectively
                
                
                22,114
                
                
                
                35,560Proceeds
      from the exercise of stock options
                
                
                423
                
                
                
                792Net
      cash provided by financing activities
                
                
                22,471
                
                
                
                21,264Net
      (decrease) increase in cash and cash equivalents
                
                
                (22,542
                )
                
                
                3,046Cash
      and cash equivalents at beginning of period
                
                
                38,757
                
                
                
                26,938Cash
      and cash equivalents at end of period
                
                $
                16,215
                
                
                $
                29,984Supplemental
      disclosure of non-cash activities:Equipment
      purchases included in accounts payable
                
                $
                128
                
                
                $
                5Payment
      of notes payable through issuance of common stock
                
                $
                —
                
                
                $
                7,660Supplemental
      disclosure of cash flow information:Cash
      interest payments
                
                $
                —
                
                
                $
                879




The
accompanying notes are an integral part of these consolidated financial
statements.


3


NOVAVAX,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


September
30, 2010





Note
1 – Organization




Novavax,
Inc. (the “Company”), is a clinical-stage biopharmaceutical company focused on
developing novel, highly potent recombinant vaccines. These vaccines leverage
the Company’s virus-like-particle (“VLP”) platform technology coupled with a
unique disposable production technology. VLPs are genetically engineered
three-dimensional nanostructures, which incorporate immunologically important
lipids and recombinant proteins. The Company’s VLPs resemble a live virus, but
lack the genetic material to replicate the virus, and its proprietary production
technology uses insect cells rather than chicken eggs or mammalian cells. The
Company’s current product targets include vaccines against pandemic influenza
(including H5N1 pandemic strain), seasonal influenza, Respiratory Syncytial
Virus (“RSV”) and Varicella Zoster Virus (“VZV”), which causes
shingles.




In 2009,
the Company formed a joint venture (the “JV”) with Cadila Pharmaceuticals Ltd.
(“Cadila”) named CPL Biologicals Private Limited to develop and manufacture
vaccines, biological therapeutics and diagnostics in India. The Company owns 20%
of the JV, and Cadila owns the remaining 80%.




Note
2 – Liquidity Matters




Since its
inception, the Company has incurred, and continues to incur, significant losses
from operations. At September 30, 2010, the Company had cash and cash
equivalents of $16.2 million and short-term investments with a fair value of
$20.6 million. Since September 30, 2010 through November 5, 2010, the Company
has sold additional shares of common stock under its At Market Issuance Sales
Agreement, discussed below, at an average sales price of $2.20 per share,
resulting in $1.0 million in net proceeds.




The
Company’s vaccine candidates currently under development will require
significant additional research and development efforts, including extensive
pre-clinical and clinical testing, and regulatory approval, prior to commercial
use. The Company’s research and development efforts may not be successful and
any potential vaccine candidates may not prove to be safe and effective in
clinical trials. Even if developed, these vaccine candidates may not receive
regulatory approval or be successfully introduced and marketed at prices that
would permit the Company to operate profitably. The commercial launch of any
vaccine is subject to significant risks including, but not limited to,
manufacturing scale-up and market acceptance.




Based on
the Company’s cash, cash equivalents and short-term investments balances as of
September 30, 2010, anticipated proceeds from sales of the Company’s common
stock under its At Market Issuance Sales Agreement with McNicoll, Lewis &
Vlak LLC (“MLV”) and its current business operations, the Company believes it
will have adequate capital resources available to operate at planned levels for
at least the next twelve months. Additional capital will be required in the
future to develop its vaccine candidates through clinical trials and
commercialization. The Company’s ability to raise funds under its At Market
Issuance Sales Agreement is subject to market conditions. Further, the Company
will seek additional capital through public or private equity offerings, debt
financing, strategic alliance and licensing arrangements, government contracts,
collaborative arrangements, or some combination of these financing alternatives.
Any capital raised by an equity offering, whether public or private, will likely
be substantially dilutive to the existing stockholders and any licensing or
development arrangement may require the Company to give up rights to a product
or technology at less than its full potential value. The Company has not secured
any additional commitments for new financing nor can the Company provide any
assurance the Company’s financing will be available on commercially acceptable
terms, if at all. If the Company is unable to obtain additional capital, it will
assess its capital resources and will likely be required to delay, reduce the
scope of, or eliminate one or more of its research and development programs,
and/or downsize the organization, including its general and administrative
infrastructure.


4


Note
3 – Summary of Significant Accounting Policies




Basis
of Presentation




The
accompanying unaudited consolidated financial statements have been prepared in
accordance with United States Generally Accepted Accounting Principles (“GAAP”)
for interim financial information and the instructions to Form 10-Q and Article
10 of Regulation S-X.  The consolidated balance sheet as of September
30, 2010, consolidated statements of operations for the three and nine months
ended September 30, 2010 and 2009 and the consolidated statements of cash flows
for the nine months ended September 30, 2010 and 2009 are unaudited, but include
all adjustments (consisting of normal recurring adjustments) that the Company
considers necessary for a fair presentation of the financial position, operating
results and cash flows, respectively, for the periods
presented.  Although the Company believes that the disclosures in
these financial statements are adequate to make the information presented not
misleading, certain information and footnote information normally included in
financial statements prepared in accordance with GAAP have been condensed or
omitted pursuant to the rules and regulations of the United States Securities
and Exchange Commission (“SEC”).




The
accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, Fielding Pharmaceutical Company. All
significant intercompany accounts and transactions have been eliminated in
consolidation.




Results
for any interim period are not necessarily indicative of results for any future
interim period or for the entire year.  The accompanying unaudited
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2009.




Use
of Estimates




The
preparation of the consolidated financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
materially from those estimates.




Fair
Value Measurements




ASC 820,
Fair Value Measurements and
Disclosures, discusses valuation techniques, such as the market approach
(comparable market prices), the income approach (present value of future income
or cash flow) and the cost approach (cost to replace the service capacity of an
asset or replacement cost). The statement utilizes a fair value hierarchy that
prioritizes the inputs to valuation techniques used to measure fair value into
three broad levels. The following is a brief description of those three
levels:





·
            Level
      1: Observable inputs such as quoted prices (unadjusted) in active markets
      for identical assets or
liabilities.


·
            Level
      2: Inputs other than quoted prices that are observable for the asset or
      liability, either directly or indirectly. These include quoted prices for
      similar assets or liabilities in active markets and quoted prices for
      identical or similar assets or liabilities in markets that are not
      active.


·
            Level
      3: Unobservable inputs that reflect the reporting entity’s own
      assumptions.


5


Financial
assets and liabilities measured at fair market value on a recurring basis as of
September 30, 2010 are summarized below (in thousands):





Fair Value Measurement at
                    September 30, 2010 using Fair Value HierarchyAssets
                  
                  Level 1
                  
                  
                  Level 2
                  
                  
                  Level 3
                  
                  
                  Fair ValueCash
      and cash equivalents
                  
                  $
                  16,215
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  16,215Short-term
      investments
                  
                  
                  —
                  
                  
                  
                  20,648
                  
                  
                  
                  —
                  
                  
                  
                  20,648Total
                  
                  $
                  16,215
                  
                  
                  $
                  20,648
                  
                  
                  $
                  —
                  
                  
                  $
                  36,863





The
amounts in the Company’s consolidated balance sheet for accounts and other
receivables, accounts payable and notes payable approximate fair value due to
their short-term nature.





Short-Term
Investments




Short-term
investments at September 30, 2010 consist of investments in commercial paper,
corporate notes and three auction rate securities. The auction rate securities
have a par value of $5.1 million. The Company has classified these securities as
available-for-sale since the Company may need to liquidate these securities
within the next year. The available-for-sale securities are carried at fair
value and unrealized gains and losses, if determined to be temporary, on these
securities are included in accumulated other comprehensive income (loss) in
stockholders’ equity. Investments available for sale are evaluated periodically
to determine whether a decline in value is “other-than-temporary.” The term
“other-than-temporary” is not intended to indicate a permanent decline in value.
Rather, it means that the prospects for a near term recovery of value are not
necessarily favorable, or that there is a lack of evidence to support fair
values equal to, or greater than, the carrying value of the security. Management
reviews criteria, such as the magnitude and duration of the decline, as well as
the Company’s ability to hold the securities until market recovery, to predict
whether the loss in value is other-than-temporary. If a decline in value is
determined to be other-than-temporary, the value of the security is reduced and
the impairment is recorded in the consolidated statements of operations. The
specific identification method is used in computing realized gains and losses on
sale of the Company’s securities.




Short-term
investments classified as available-for-sale as of September 30, 2010 were
comprised of (in thousands):




Amortized
                    Cost
                  
                  
                  Gross
                    Unrealized
                    Gains
                  
                  
                  Gross
                    Unrealized
                    Losses
                  
                  
                  Fair ValueAuction
      rate securities
                  
                  $
                  3,373
                  
                  
                  $
                  862
                  
                  
                  $
                  —
                  
                  
                  $
                  4,235Corporate
      debt securities
                  
                  
                  16,411
                  
                  
                  
                  2
                  
                  
                  
                  —
                  
                  
                  
                  16,413Total
                  
                  $
                  19,784
                  
                  
                  $
                  864
                  
                  
                  $
                  —
                  
                  
                  $
                  20,648





Net
Loss per Share




Net loss
per share is computed using the weighted average number of shares of common
stock outstanding. All outstanding warrants, stock options and unvested
restricted stock awards totaling 9,761,587 shares and 9,671,366shares at September 30,
2010 and 2009, respectively, are excluded from the computation, as their effect
is antidilutive.





Comprehensive
Income (Loss)




Comprehensive
income (loss) is the total net income (loss) plus all changes in equity during
the period except those changes resulting from investment by and distribution to
owners. Total comprehensive loss, including unrealized gains (losses) on the
Company’s available-for-sale investments, was $10.2million and $7.4 million
for the three months ended September 30, 2010 and 2009, respectively. Total
comprehensive loss, including unrealized gains (losses) on the Company
available-for-sale investments, was $31.2million and $23.8
million for the nine months ended September 30, 2010 and 2009,
respectively.




6


Recent
Accounting Pronouncements Not Yet Adopted




In
September 2009, ASU 2009-13, Revenue Recognition (Topic
605)—Multiple-Deliverable
Revenue Arrangements, was issued and will change the accounting for
multiple-deliverable arrangements to enable vendors to account for products or
services (deliverables) separately rather than as a combined
unit.  Specifically, this guidance amends the criteria in Subtopic
605-25, Revenue
Recognition—Multiple-Element
Arrangements, for separating consideration in multiple-deliverable
arrangements. This guidance establishes a selling price hierarchy for
determining the selling price of a deliverable, which is based on:
(a) vendor-specific objective evidence; (b) third-party evidence; or
(c) estimates. This guidance also eliminates the residual method of
allocation and requires that arrangement consideration be allocated at the
inception of the arrangement to all deliverables using the relative selling
price method. In addition, this guidance significantly expands required
disclosures related to a vendor’s multiple-deliverable revenue arrangements. ASU
2009-13 is effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010,
with early adoption permitted. The impact of ASU 2009-13 on the Company’s
consolidated financial statements will depend on the nature and terms of its
revenue arrangements entered into or materially modified after the adoption
date. However, based on the Company’s current customer arrangements, the Company
does not believe the adoption of this ASU will have a material impact on its
consolidated financial statements.





In
March 2010, ASU 2010-17, Revenue Recognition—Milestone Method(Topic 605): Milestone
Method of Revenue Recognition—a consensus of the FASB Emerging Issues Task
Force, was issued and will amend the accounting for revenue arrangements
under which a vendor satisfies its performance obligations to a customer over a
period of time, when the deliverable or unit of accounting is not within the
scope of other authoritative literature and when the arrangement consideration
is contingent upon the achievement of a milestone. The amendment defines a
milestone and clarifies whether an entity may recognize consideration earned
from the achievement of a milestone in the period in which the milestone is
achieved. This amendment is effective on a prospective basis for milestones
achieved on or after January 1, 2011, with early adoption permitted. The
amendment may be applied retrospectively to all arrangements or prospectively
for milestones achieved after the effective date. The Company expects to
prospectively apply the amended guidance to milestones achieved on or after
January 1, 2011. The new guidance is consistent with the Company’s current
revenue recognition policies for arrangements with milestones. As a result, the
Company does not believe the adoption of this ASU will have a material impact on
its consolidated financial statements.





Note
4 – Stock-Based Compensation





Under the
Company’s stock-based compensation plan, the 2005 Stock Incentive Plan (the
“2005 Plan”), equity awards may be granted to officers, directors, employees,
consultants and advisors to the Company and any present or future
subsidiary. The 2005 Plan currently authorizes the grant of equity awards
for up to 11,312,192 shares of common stock, which included, at the time of
approval of the 2005 Plan, a maximum 5,746,468 shares of common stock subject to
stock options outstanding under the Company’s 1995 Stock Option Plan (the “1995
Plan”) that may revert to and become issuable under the 2005 Plan if such
options should expire or otherwise terminate unexercised. The term of the
Company’s previous stock-based compensation plan, the 1995 Plan, has expired.
Outstanding stock options remain in existence in accordance with their terms and
no new awards will be made under the 1995 Plan. The Company’s 1995 Director
Stock Option Plan (the “1995 Director Plan”) has expired, and no stock options
under this plan remain outstanding at September 30, 2010.


7


The
Company recorded stock-based compensation expense in the consolidated statements
of operations as follows (in thousands):




Three Months Ended
                  September 30,
                
                
                Nine Months Ended
                  September 30,2010
                
                
                2009
                
                
                2010
                
                
                2009Research
      and development
                
                $
                207
                
                
                $
                165
                
                
                $
                215
                
                
                $
                501General
      and administrative
                
                
                425
                
                
                
                252
                
                
                
                926
                
                
                
                769Total
      stock-based compensation expenses
                
                $
                632
                
                
                $
                417
                
                
                $
                1,141
                
                
                $
                1,270







During
the three months ended March 31, 2010, the Company recorded a stock-based
compensation benefit of ($0.1) million due to the reversal of previously
recognized expense for unvested stock options that were cancelled due to
employees leaving the Company.




Stock
Options Awards




The
following is a summary of option activity under the 2005 Plan, the 1995 Plan and
the 1995 Director Plan for the nine months ended September 30,
2010:




2005 Stock Incentive
                    Plan
                  
                  
                  1995 Stock Option
                    Plan
                  
                  
                  1995 Director Stock
                    Option PlanStock
                    Options
                  
                  
                  Weighted-
                    Average
                    Exercise
                    Price
                  
                  
                  Stock
                    Options
                  
                  
                  Weighted-
                    Average
                    Exercise
                    Price
                  
                  
                  Stock
                    Options
                  
                  
                  Weighted-
                    Average
                    Exercise
                    PriceOutstanding
      at January 1, 2010
                  
                  
                  4,878,675
                  
                  
                  $
                  2.38
                  
                  
                  
                  1,086,319
                  
                  
                  $
                  5.72
                  
                  
                  
                  30,000
                  
                  
                  $
                  5.63Granted
                  
                  
                  1,877,250
                  
                  
                  $
                  2.33
                  
                  
                  
                  —
                  
                  
                  $
                  —
                  
                  
                  
                  —
                  
                  
                  $
                  —Exercised
                  
                  
                  (211,774
                  )
                  
                  $
                  1.53
                  
                  
                  
                  (45,000
                  )
                  
                  $
                  2.21
                  
                  
                  
                  —
                  
                  
                  $
                  —Canceled
                  
                  
                  (830,739
                  )
                  
                  $
                  2.69
                  
                  
                  
                  (461,469
                  )
                  
                  $
                  7.04
                  
                  
                  
                  (30,000
                  )
                  
                  $
                  5.63Outstanding
      at September 30, 2010
                  
                  
                  5,713,412
                  
                  
                  $
                  2.35
                  
                  
                  
                  579,850
                  
                  
                  $
                  4.97
                  
                  
                  
                  —
                  
                  
                  $
                  —Shares
      exercisable at September 30, 2010
                  
                  
                  2,615,399
                  
                  
                  $
                  2.32
                  
                  
                  
                  579,850
                  
                  
                  $
                  4.97
                  
                  
                  
                  —
                  
                  
                  $
                  —Shares
      available for grant at September 30, 2010
                  
                  
                  2,094,205




The fair
value of stock options granted was estimated at the date of grant using the
Black-Scholes option-pricing model with the following assumptions:




Three Months Ended
                            September 30,
                          
                          
                          Nine Months Ended
                            September 30,2010
                          
                          
                          2009
                          
                          
                          2010
                          
                          
                          2009Weighted-average
      fair value of stockoptions
      granted
                          
                          $1.43
                          
                          
                          $2.60
                          
                          
                          $1.47
                          
                          
                          $1.25Risk-free
      interest rate
                          
                          1.11%-1.28%
                          
                          
                          1.57%-2.00%
                          
                          
                          1.11%-2.89%
                          
                          
                          1.56%-3.19%Dividend
      yield
                          
                          0%
                          
                          
                          0%
                          
                          
                          0%
                          
                          
                          0%Volatility
                          
                          97.79%-105.26%
                          
                          
                          90.09%-90.33%
                          
                          
                          97.79%-108.02%
                          
                          
                          85.68%-111.83%Expected
      life (in years)
                          
                          3.34-4.47
                          
                          
                          3.89-4.02
                          
                          
                          3.06-6.26
                          
                          
                          3.89-7.05Expected
      forfeiture rate
                          
                          21.07%
                          
                          
                          21.07%
                          
                          
                          21.07%
                          
                          
                          21.07%-21.96%




The
aggregate intrinsic value and weighted-average remaining contractual term of
stock options outstanding as of September 30, 2010 was approximately $1.9
million and 7.1years, respectively. The
aggregate intrinsic value and weighted-average remaining contractual term of
stock options exercisable as of September 30, 2010 was approximately $1.3million and 5.6 years,
respectively. The aggregate intrinsic value represents the total intrinsic value
(the difference between the Company’s closing stock price on the last trading
day of the period and the exercise price, multiplied by the number of
in-the-money options) that would have been received by the option holders had
all option holders exercised their options on September 30, 2010. This amount is
subject to change based on changes to the fair value of the Company’s common
stock. The aggregate intrinsic value of options exercised for the nine months
ended September 30, 2010 and 2009 was $0.3 million and $0.8 million,
respectively.


8


Restricted
Stock Awards




Under the
2005 Plan, the Company has granted restricted stock awards subject to certain
performance-based and time-based vesting conditions which, if not met, would
result in forfeiture of the shares and reversal of any previously recognized
related stock-based compensation expense.




The
following is a summary of restricted stock awards activity for the nine months
ended September 30, 2010:




Number of
                    Shares
                  
                  
                  Per Share
                    Weighted-Average
                    Grant-Date
                    Fair ValueOutstanding
      at January 1, 2010
                  
                  
                  90,000
                  
                  
                  $
                  3.04Restricted
      stock granted
                  
                  
                  75,000
                  
                  
                  $
                  2.20Restricted
      stock vested
                  
                  
                  (28,333
                  )
                  
                  $
                  2.77Restricted
      stock forfeited
                  
                  
                  (11,667
                  )
                  
                  $
                  2.77Outstanding
      at September 30, 2010
                  
                  
                  125,000
                  
                  
                  $
                  2.62





As of
September 30, 2010, there was approximately $3.0million of total
unrecognized compensation expense (net of estimated forfeitures) related to
unvested options and restricted stock awards. This unrecognized compensation
expense is expected to be recognized over a weighted-average period of 1.6years. This estimate
does not include the impact of other possible stock-based awards that may be
made during future periods.




Note
5 – At Market Issuance Sales Agreement




On March
15, 2010, the Company terminated its previous At Market Issuance Sales
Agreements entered into in 2009 with Wm Smith & Co. and entered into a new
sales agreement with MLV, as sales agent, under which the Company may sell an
aggregate of $50 million in gross proceeds of its common stock. The Company’s
Board of Directors has authorized the sale of up to 25 million shares of the
Company’s common stock pursuant to this agreement. The shares of common stock
are being offered pursuant to a shelf registration statement filed with the SEC.
Through September 30, 2010, the Company sold 10.1 million shares at an average
sales price of $2.24 per share, resulting in $22.1 million in net proceeds.
Since September 30, 2010 through November 5, 2010, the Company has sold an
additional 0.5million shares at an
average sales price of $2.20 per share, resulting in $1.0 million in net
proceeds.




Note
6 – Related Party Transactions




Mr.
Lambert, a current member of the Company’s Board of Directors and its former
Executive Director, had a consulting agreement with the Company, pursuant to
which he assisted the Company with issues regarding the development and
commercialization of its vaccine candidates and assisted with business
development predominantly in the international markets. On March 8, 2010, Mr.
Lambert’s consulting agreement expired by its original terms. During
the three months ended March 31, 2010, the Company incurred an expense of
$41,398 for these services.  In June 2010, the Company entered into a
new consulting agreement with Mr. Lambert, pursuant to which, as of April 1,
2010 and concluding on September 23, 2010, he acted as a Novavax representative
on the board of directors of CPL Biologicals Private Limited. During the nine
months ended September 30, 2010, the Company incurred $17,250 for these
services, which was reimbursed by the JV.


9


The
Company’s activities relating to the JV during the nine months ended September
30, 2010 consisted of the purchase by the Company of laboratory equipment for
$0.2 million and the reimbursement by the JV of travel and administrative costs
and services provided to the JV totaling $0.1 million. The reimbursement of
these costs and services are recorded as a reduction to operating
expenses.




Note
7 – Subsequent Events




The
Company evaluated its September 30, 2010 financial statements for subsequent
events through the date the financial statements were issued. In July 2010, the
Company submitted its applications for qualifying therapeutic discovery project
credits under §48D of the Internal Revenue Code, as amended (the “Code”), as
added to the Code by section 9023(a) of the Patient Protection and Affordable
Care Act of 2010. In October 2010, the Company was awarded grants totaling
$1.0million
related to it applications.


10


Item
      2.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations




Certain
statements contained or incorporated by reference herein constitute
forward-looking statements. In some cases, these statements can be identified by
the use of forward-looking terminology such as “expect(s)”, “intends”, “plans”,
“seeks”, “estimates”, “could”, “should”, “feel(s)”, “believe(s)”, “will”,
“would”, “may”, “can”, “anticipate(s)”, “potential” and similar expressions or
the negative of these terms.  Such forward-looking statements are
subject to risks and uncertainties that may cause the actual results,
performance or achievements of the Company, or industry results, to be
materially different from those expressed or implied by such forward-looking
statements. We refer you to Item 1A Risk Factors in this Quarterly Report, as
well as in our Annual Report on Form 10-K for the year ended December 31, 2009,
which we incorporate herein by reference, for identification of important
factors with respect to risks and uncertainties.




Forward-looking
statements in this Quarterly Report include, without limitation, statements
regarding:




·
            our
      expectation that we will have adequate capital resources available to
      operate at planned levels for at least the next twelve
    months;


·
            our
      expectations for future funding requirements and capital raising activity,
      including anticipated proceeds from our At Market Issuance Sales Agreement
      with MLV;


·
            our
      expectations on financial or business performance, conditions or
      strategies and other financial and business matters, including
      expectations regarding operating expenses, use of cash, and the
      fluctuations in expenses and capital requirements associated with
      pre-clinical studies, clinical trials and other research and development
      activities;


·
            our
      expectations on clinical development and anticipated milestones, including
      a Department of Health and Human Services (HHS), Biomedical Advanced
      Research and Development Authority (BARDA)
  contract;


·
            our
      expectations that our trivalent seasonal influenza VLP vaccine could
      potentially address an unmet medical need in older
  adults;


·
            our
      expectations for the use of results from our clinical trial in Mexico to
      support the development of vaccines in other countries, including the
      United States;


·
            our
      expectations for the use of pre-clinical safety and efficacy studies to
      support an RSV Investigational New Drug (IND)
  application;


·
            the
      impact of new accounting pronouncements;
and


·
            our
      expectations concerning payments under existing license
      agreements.





Factors
that may cause actual results to differ materially from the results discussed in
the forward-looking statements or historical experience include, among others,
the following:




·
            our
      ability to progress any vaccine candidates into pre-clinical studies or
      clinical trials;


·
            the
      scope, initiation, rate and progress of our pre-clinical studies and
      clinical trials and other research and development
    activities;


·
            clinical
      trial results;


·
            even
      with positive data from pre-clinical studies or clinical trials, the
      vaccine candidate may not prove to be safe and
  efficacious;


·
            decisions
      by regulatory agencies may delay or prevent our development programs or
      increase the costs of such
programs;


·
            regulatory
      approval is needed before any vaccines can be sold in or outside the
      United States and, to date, no governmental authority has approved any of
      our vaccine candidates for sale;


·
            influenza
      is seasonal in nature, and if approval or commercial launch after approval
      is not timely in relation to the influenza season, we may not be able to
      manufacture or sell our influenza vaccines on terms favorable to us until
      the next influenza season, if at
all;


·
            RSV
      is a difficult disease to prevent and there is significant activity by
      many companies toward the development of a suitable
    vaccine;


·
            we
      have not manufactured any of our vaccine candidates at a commercial
      level;


11


·
            we
      utilize a unique manufacturing process and the scale-up of that process
      may prove difficult and/or costly;


·
            our
      dependence on third parties to manufacture and distribute our
      vaccines;


·
            risks
      associated with conducting business outside of the United
      States;


·
            the
      cost and our ability of filing, prosecuting, defending and enforcing any
      patent claims and other intellectual property
  rights;


·
            competition
      for clinical resources and patient enrollment from drug candidates in
      development by other companies with greater resources and
      visibility;


·
            our
      ability to enter into future collaborations with industry partners and the
      terms, timing and success of any such
  collaboration;


·
            our
      ability to obtain adequate financing in the future through product
      licensing, co-promotional arrangements, public or private equity or debt
      financings or otherwise;


·
            our
      ability to win any government contracts/grants, including from HHS BARDA,
      in a timely manner or at all; and


·
            other
      factors referenced herein.




The
Company assumes no obligation to update any such forward-looking statements,
except as specifically required by law. We caution readers not to place
considerable reliance on the forward-looking statements contained in this
Quarterly Report.




Overview




Novavax,
Inc., a Delaware corporation (“Novavax,” the “Company,” “we,” or “us”), was
incorporated in 1987, and is a clinical-stage biopharmaceutical company focused
on developing novel, highly potent recombinant vaccines. These vaccines leverage
our virus-like-particle (VLP) platform technology coupled with a unique
disposable production technology.




VLPs are
genetically engineered three-dimensional nanostructures, which incorporate
immunologically important lipids and recombinant proteins. Our VLPs resemble a
live virus, but lack the genetic material to replicate the virus and our
proprietary production technology uses insect cells rather than chicken eggs or
mammalian cells. Our current product targets include vaccines against pandemic
influenza (including the H5N1 pandemic strain), seasonal influenza, Respiratory
Syncytial Virus (RSV) and Varicella Zoster Virus (VZV), which causes
shingles.




We have
completed a two-stage clinical trial of our 2009 H1N1 influenza VLP vaccine in
Mexico in collaboration with Laboratorio Avi-mex S.A. de C.V. and GE Healthcare.
The randomized blinded, placebo-controlled clinical trial was designed to
evaluate the safety and immunogenicity of our 2009 H1N1 influenza VLP vaccine in
healthy adults. We completed enrollment of the first stage and reported positive
results on the vaccine’s safety and immunogenicity in the first 1,000 subjects.
Due to the favorable results from the first stage, we initiated the second stage
of the trial to evaluate the safety of the vaccine in a larger cohort and
completed enrollment of more than 3,500 subjects. The 6-month safety evaluation
of the subjects in the second stage of the clinical trial was completed in
September 2010 and no vaccine-related serious adverse events were reported. The
final Clinical Study Report (CSR) is expected to be completed by the end of
2010. These results are expected to support development of our pandemic and
seasonal influenza VLP vaccines in other countries, including the United
States.





In March
2010, we released final results of the Phase II trial in healthy adults
immunized with our trivalent seasonal influenza VLP vaccine, for which we
completed enrollment in May 2009. The results showed the vaccine was
well-tolerated and immunogenic.





In April
2010, we reported the results of the Phase II trial in older adults (60 years or
higher in age) in a dose-ranging study comparing our trivalent seasonal
influenza VLP vaccine with a commercially available inactivated trivalent
influenza vaccine (TIV), for which we completed enrollment in November 2009. Our
report indicated that the vaccine was both safe and immunogenic against the
2009-2010 seasonal influenza virus strains in older adults. The Center for
Disease Control and Prevention (CDC) has indicated that currently approved
seasonal influenza vaccines have shown to be only 30% to 70% effective in
preventing hospitalization for pneumonia and influenza in older adults; however,
we believe that our trivalent seasonal influenza VLP vaccine has the potential
to address this unmet medical need.


12


We have
also developed vaccine candidates for both RSV and VZV. We completed a
pre-clinical safety and efficacy study of our RSV vaccine in cotton rats; the
results of which were used to support an Investigational New Drug application
that we filed with the FDA in September 2010. We received a specific question
from the FDA around our chemistry, manufacturing and controls (CMC) that caused
the agency to put our planned Phase I trial on clinical hold. We expect to
receive the FDA's written communication detailing their concerns by the middle
of November 2010. We plan to work with the FDA to address these questions so
that we can continue to move ahead with our Phase I trial as soon as
possible.





We
submitted our proposal in September 2009 in response to United States Government
RFP solicitation number HHS BARDA-09-32 for the advanced development of
recombinant influenza vaccines in a U.S.-based manufacturing facility. In April
2010, HHS BARDA determined that our proposal to provide recombinant influenza
vaccines and manufacturing capabilities for pandemic preparedness was in the
competitive range for award of an advanced development contract. In September
2010, in response to a request from HHS BARDA, we submitted our Final Proposal
Revision (FPR) and currently await a determination by HHS BARDA.




Our
vaccine candidates currently under development will require significant
additional research and development efforts, including extensive pre-clinical
and clinical testing, and regulatory approval, prior to commercial use. Our
research and development efforts may not be successful and any potential vaccine
candidates may not prove to be safe and effective in clinical trials. Even if
developed, these vaccine  candidates may not receive regulatory
approval or be successfully introduced and marketed at prices that would permit
us to operate profitably. The commercial launch of any vaccine is subject to
significant risks including, but not limited to, manufacturing scale-up and
market acceptance. We may not generate sufficient product revenue to become
profitable or generate positive cash flow. We continue to fund our operations
through the sales of our common stock. We terminated our previous At Market
Issuance Sales Agreements entered into in 2009 with Wm Smith & Co. and
entered into a new sales agreement with McNicoll, Lewis & Vlak LLC (“MLV”),
as sales agent, under which we may sell an aggregate of $50 million. Our Board
of Directors has authorized the sale of up to 25 million shares of our common
stock pursuant to this agreement. Since entering into the agreement with MLV on
March 15, 2010 and through November 5, 2010, we have sold 10.5million shares of our
common stock for aggregate net proceeds of $23.1million.




Recent
Accounting Pronouncements NotYet
Adopted




In
September 2009, ASU 2009-13, Revenue Recognition (Topic
605)—Multiple-Deliverable
Revenue Arrangements, was issued and will change the accounting for
multiple-deliverable arrangements to enable vendors to account for products or
services (deliverables) separately rather than as a combined unit. Specifically,
this guidance amends the criteria in Subtopic 605-25, Revenue Recognition—Multiple-Element
Arrangements, for separating consideration in multiple-deliverable
arrangements. This guidance establishes a selling price hierarchy for
determining the selling price of a deliverable, which is based on:
(a) vendor-specific objective evidence; (b) third-party evidence; or
(c) estimates. This guidance also eliminates the residual method of
allocation and requires that arrangement consideration be allocated at the
inception of the arrangement to all deliverables using the relative selling
price method. In addition, this guidance significantly expands required
disclosures related to a vendor’s multiple-deliverable revenue arrangements. ASU
2009-13 is effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010,
with early adoption permitted. The impact of ASU 2009-13 on our consolidated
financial statements will depend on the nature and terms of our revenue
arrangements entered into or materially modified after the adoption date.
However, based on our current customer arrangements, we do not believe the
adoption of this ASU will have a material impact on our consolidated financial
statements.


13


In
March 2010, ASU 2010-17, Revenue Recognition—Milestone Method(Topic 605): Milestone
Method of Revenue Recognition—a consensus of the FASB Emerging Issues Task
Force, was issued and will amend the accounting for revenue arrangements
under which a vendor satisfies its performance obligations to a customer over a
period of time, when the deliverable or unit of accounting is not within the
scope of other authoritative literature and when the arrangement consideration
is contingent upon the achievement of a milestone. The amendment defines a
milestone and clarifies whether an entity may recognize consideration earned
from the achievement of a milestone in the period in which the milestone is
achieved. This amendment is effective on a prospective basis for milestones
achieved on or after January 1, 2011, with early adoption permitted. The
amendment may be applied retrospectively to all arrangements or prospectively
for milestones achieved after the effective date. We expect to prospectively
apply the amended guidance to milestones achieved on or after January 1, 2011.
The new guidance is consistent with our current revenue recognition policies for
arrangements with milestones. As a result, we do not believe the adoption of
this ASU will have a material impact on our consolidated financial
statements.




Results
of Operations




The
following is a discussion of the historical consolidated financial condition and
results of operations of the Company and its wholly owned subsidiary and should
be read in conjunction with the consolidated financial statements and notes
thereto set forth in this Quarterly Report.




Three Months Ended September 30, 2010
and 2009(amounts in tables are presented in thousands, except per share
information)




Revenue:




Three Months Ended
                    September 30,2010
                  
                  
                  2009
                  
                  
                  Change
                    2009 to
                    2010Revenue:Total
      revenue
                  
                  $
                  175
                  
                  
                  $
                  201
                  
                  
                  $
                  (26
                  )





Revenue
for the three months ended September 30, 2010 and 2009 was $0.2million. Revenue is
comprised primarily of services performed under contracts with United States
government agencies.




Operating
Expenses:




Three Months Ended
                    September 30,2010
                  
                  
                  2009
                  
                  
                  Change
                    2009 to
                    2010Operating
      Expenses:Research
      and development
                  
                  $
                  7,870
                  
                  
                  $
                  5,256
                  
                  
                  $
                  2,614General
      and administrative
                  
                  
                  2,844
                  
                  
                  
                  3,207
                  
                  
                  
                  (363
                  )Total
      operating expenses
                  
                  $
                  10,714
                  
                  
                  $
                  8,463
                  
                  
                  $
                  2,251





Research
and Development Expenses




Research
and development expenses increased to $7.9million for the three
months ended September 30, 2010 from $5.3 million for the same period in 2009,
an increase of $2.6million, or 50%,primarily due to higher
research and development spending to support our clinical trials related to our
H1N1 and seasonal influenza vaccine candidates. The increase is primarily a
result of increased employee and outside-testing costs (including outsourced
clinical trial costs, sponsored research
and consulting agreements).


14




General and
Administrative Expenses




General
and administrative expenses decreased to $2.8 million for the three months ended
September 30, 2010 from $3.2 million for the same period in 2009, a decrease of
$0.4 million, or 11%, primarily due to lower professional service fees.




Other Income
(Expense):




Three Months Ended
                    September 30,2010
                  
                  
                  2009
                  
                  
                  Change
                    2009 to
                    2010Other
      Income (Expense):Interest
      income
                  
                  $
                  50
                  
                  
                  $
                  59
                  
                  
                  $
                  (9
                  )Interest
      expense
                  
                  
                  (2
                  )
                  
                  
                  (19
                  )
                  
                  
                  17Other income
                  
                  
                  136
                  
                  
                  
                  —
                  
                  
                  
                  136Gains
      on short-term investments
                  
                  
                  —
                  
                  
                  
                  692
                  
                  
                  
                  (692
                  )Total
      other income (expense)
                  
                  $
                  184
                  
                  
                  $
                  732
                  
                  
                  $
                  (548
                  )





We had
total other income of $0.2 million for the three months ended September 30, 2010
compared to total other income of $0.7 million for the same period in 2009, a
change of $0.5 million. In the three months ended September 30, 2009, we
recorded a gain of $0.7 million relating to redemptions of several of our
auction rate securities.




Net
Loss:




Three Months Ended
                    September 30,2010
                  
                  
                  2009
                  
                  
                  Change
                    2009 to
                    2010Net
      Loss:Net
      loss
                  
                  $
                  (10,355
                  )
                  
                  $
                  (7,530
                  )
                  
                  $
                  (2,825
                  )Net
      loss per share
                  
                  $
                  (0.10
                  )
                  
                  $
                  (0.08
                  )
                  
                  $
                  0.02Weighted
      shares outstanding
                  
                  
                  107,092
                  
                  
                  
                  92,297
                  
                  
                  
                  14,795





Net loss
for the three months ended September 30, 2010 was $10.4million, or $0.10per share, as compared
to $7.5 million, or $0.08 per share, for the same period in 2009, an increased
net loss of $2.9million. The increased
net loss was primarily due to higher research and development spending to
support our clinical trials related to our H1N1 and seasonal influenza vaccine
candidates in the three months ended September 30, 2010.




The
increase in weighted shares outstanding for the three months ended September 30,
2010 is primarily a result of sales of our common stock through an underwritten
public offering and under our At Market Issuance Sales
Agreements.


15




Nine Months Ended September 30, 2010
and 2009(amounts in tables are presented in thousands, except per share
information)




Revenue:




Nine Months Ended
                    September 30,2010
                  
                  
                  2009
                  
                  
                  Change
                    2009 to
                    2010Revenue:Total
      revenue
                  
                  $
                  292
                  
                  
                  $
                  251
                  
                  
                  $
                  41





Revenue
for the nine months ended September 30, 2010 and 2009 was $0.3million. Revenue is
comprised primarily of services performed under contracts with United States
government agencies.




Operating
Expenses:




Nine Months Ended
                    September 30,2010
                  
                  
                  2009
                  
                  
                  Change
                    2009 to
                    2010Operating
      Expenses:Research
      and development
                  
                  $
                  23,226
                  
                  
                  $
                  14,819
                  
                  
                  $
                  8,407General
      and administrative
                  
                  
                  8,528
                  
                  
                  
                  8,661
                  
                  
                  
                  (133
                  )Total
      operating expenses
                  
                  $
                  31,754
                  
                  
                  $
                  23,480
                  
                  
                  $
                  8,274





Research
and Development Expenses




Research
and development expenses increased to $23.2million for nine months
ended September 30, 2010 from $14.8 million for the same period in 2009, an
increase of $8.4million, or 57%,
primarily due to higher research and development spending to support our
clinical trials related to our H1N1 and seasonal influenza vaccine candidates.
The increase is primarily a result of increased employee and outside-testing
costs (including outsourced clinical trial costs, sponsored research
and consulting agreements).




General and
Administrative Expenses




General
and administrative expenses were relatively unchanged at $8.5million for the nine
months ended September 30, 2010 as compared to $8.7 million for the same period
in 2009.




Other Income
(Expense):




Nine Months Ended
                    September 30,2010
                  
                  
                  2009
                  
                  
                  Change
                    2009 to
                    2010Other
      Income (Expense):Interest
      income
                  
                  $
                  138
                  
                  
                  $
                  239
                  
                  
                  $
                  (101
                  )Interest
      expense
                  
                  
                  (6
                  )
                  
                  
                  (783
                  )
                  
                  
                  777Other income
                  
                  
                  136
                  
                  
                  
                  —
                  
                  
                  
                  136Impairment
      of short-term investments
                  
                  
                  —
                  
                  
                  
                  (1,338
                  )
                  
                  
                  1,338Gains
      on short-term investments
                  
                  
                  —
                  
                  
                  
                  692
                  
                  
                  
                  (692
                  )Total
      other income (expense)
                  
                  $
                  268
                  
                  
                  $
                  (1,190
                  )
                  
                  $
                  1,458


16


We had
total other income of $0.3 million for the nine months ended September 30, 2010
compared to total other expense of $1.2 million for the same period in 2009, a
change of $1.5 million. Interest expense decreased $0.8 million to less than
$0.1 million for the nine months ended September 30, 2010 from $0.8 million for
the same period in 2009 as a result of the payment of our convertible notes in
2009. In the nine months ended September 30, 2009, we recorded an impairment of
$1.3 million relating to our auction rate securities, which was partially offset
by realized gains of $0.7 million relating to redemptions of several auction
rate securities.




Net
Loss:




Nine Months Ended
                    September 30,2010
                  
                  
                  2009
                  
                  
                  Change
                    2009 to
                    2010Net
      Loss:Net
      loss
                  
                  $
                  (31,194
                  )
                  
                  $
                  (24,419
                  )
                  
                  $
                  (6,775
                  )Net
      loss per share
                  
                  $
                  (0.30
                  )
                  
                  $
                  (0.30
                  )
                  
                  $
                  —Weighted
      shares outstanding
                  
                  
                  102,683
                  
                  
                  
                  82,027
                  
                  
                  
                  20,656





Net loss
for the nine months ended September 30, 2010 was $31.2million, or $0.30per share, as compared
to $24.4 million, or $0.30 per share, for the same period in 2009, an increased
net loss of $6.8million. The increased
net loss was primarily due to higher research and development spending to
support our clinical trials related to our H1N1 and seasonal influenza vaccine
candidates.




The
increase in weighted shares outstanding for the nine months ended September 30,
2010 is primarily a result of sales of our common stock through direct stock
offerings, in an underwritten public offering and under our At Market Issuance
Sales Agreements.




Liquidity
Matters and Capital Resources




Our
future capital requirements depend on numerous factors including, but not
limited to, the commitments and progress of our research and development
programs, the progress of pre-clinical and clinical testing, the time and costs
involved in obtaining regulatory approvals, the costs of filing, prosecuting,
defending and enforcing patent claims and other intellectual property rights and
manufacturing costs. We plan to continue to have multiple vaccine candidates in
various stages of development, and we believe our research and development, as
well as general and administrative expenses and capital requirements will
fluctuate depending upon the timing, scope and progress of our pre-clinical
studies and clinical trials and other research and development
activities.




As of
September 30, 2010, we had $16.2 million in cash and cash equivalents and $20.6
million in short-term investments as compared to $38.8 million and $4.2 million,
respectively, at December 31, 2009. The following table summarizes cash flows
for the nine months ended September 30, 2010 and 2009 (in
thousands):




Nine Months Ended
                  September 30,2010
                
                
                2009
                
                
                Change 2009
                  to 2010Summary of Cash
      Flows:Net
      cash (used in) provided by:Operating
      activities
                
                $
                (27,044
                )
                
                $
                (20,444
                )
                
                $
                (6,600
                )Investing
      activities
                
                
                (17,969
                )
                
                
                2,226
                
                
                
                (20,195
                )Financing
      activities
                
                
                22,471
                
                
                
                21,264
                
                
                
                1,207Net
      (decrease) increase in cash and cash equivalents
                
                
                (22,542
                )
                
                
                3,046
                
                
                
                (25,588
                )Cash
      and cash equivalents at beginning of period
                
                
                38,757
                
                
                
                26,938
                
                
                
                11,819Cash
      and cash equivalents at end of period
                
                $
                16,215
                
                
                $
                29,984
                
                
                $
                (13,769
                )


17


Net cash
used in operating activities increased to $27.0million for the nine
months ended September 30, 2010 from $20.4 million for the same period in
2009, primarily due to our increased loss, resulting primarily from our higher
research and development spending to support our clinical trials related to our
H1N1 and seasonal influenza vaccine candidates.





During
the nine months ended September 30, 2010 and 2009, our investing activities
consisted primarily of purchases and maturities of short-term investments and
capital expenditures. Capital expenditures for the nine months ended September
30, 2010 and 2009 were $1.4million and $0.4
million, respectively. The increase in capital expenditures was primarily due to
the purchase of laboratory equipment relating to our manufacturing scale-up. We
purchased short-term investments in the nine months ended September 30, 2010 to
increase our rate of return on our funds. For 2010, as compared to 2009, we
expect our level of capital expenditures to increase modestly.





During
the nine months ended September 30, 2010, our financing activity consisted
primarily of $22.1 million in net proceeds from the sale of our common stock
pursuant to our At Market Issuance Sales Agreement with MLV. During the same
period in 2009, our financing activity consisted primarily of $35.6 million in
net proceeds from sale of our common stock pursuant to stock purchase agreements
and our previous At Market Issuance Sales Agreement that was subsequently
terminated, partially offset by payments of our convertible notes. We continue to sell our
common stock under our current At Market Issuance Sales Agreement with MLV and
since September 30, 2010 through November 5, 2010, we have sold an additional
0.5million shares
for $1.0million in
net proceeds.





We have
entered into agreements with outside clinical research organization providers to
support our clinical development. As of September 30, 2010, $4.8million remains unpaid
on certain of these agreements in the event our outside providers complete their
services in 2010. However, under the terms of the agreements, we have the option
to terminate, but we would be obligated to pay the provider(s) for all costs
incurred through the effective date of termination.




We have
licensed certain rights from Wyeth Holdings Corporation (Wyeth) and the
University of Massachusetts Medical School (UMMS). The Wyeth license, which
provides for an upfront payment, annual license fees, milestone payments and
royalties on any product sales, is a non-exclusive, worldwide license to a
family of patent applications covering VLP technology for use in human vaccines
in certain fields of use; the license may be terminated by Wyeth only for cause
and may be terminated by us only after we have provided ninety (90) days notice
that we have absolutely and finally ceased activity, including through any
affiliate or sublicense, related to the manufacturing, development, marketing or
sale of products covered by the license. In May 2010, we amended the license,
effective as of March 17, 2010, under which the parties agreed that we would not
be obligated to make a milestone payment in the event our H1N1 vaccine candidate
received regulatory approval in the country of Mexico, provided that we increase
certain subsequent milestone payments. Payments under the agreement to Wyeth
from 2007 through September 30, 2010 aggregated $5.1 million. We do not
expect to make a milestone payment to Wyeth in the next twelve months. The UMMS
license, which provides for milestone payments and royalties on product sales,
is an exclusive worldwide license of VLP technology to develop VLP vaccines for
the prevention of any viral diseases in humans. As of September 30, 2010, our
payments made to UMMS in the aggregate are not material. Also, we believe that
all payments under the UMMS agreement will not be material in the next twelve
months.




Based on
our cash, cash equivalents and short-term investments balances as of September
30, 2010, anticipated proceeds from the sale of our common stock under our At
Market Issuance Sales Agreement and our current business operations, we believe
we will have adequate capital resources available to operate at planned levels
for at least the next twelve months. Additional capital will be required in the
future to develop our vaccine candidates through clinical trials and
commercialization. Our ability to raise funds under our At Market Issuance Sales
Agreement is subject to market conditions. Further, we will seek additional
capital through public or private equity offerings, debt financing, strategic
alliance and licensing arrangements, government contracts, collaborative
arrangements, or some combination of these financing alternatives. Any capital
raised by an equity offering will likely be substantially dilutive to the
existing stockholders and any licensing or development arrangement may require
us to give up rights to a product or technology at less than its full potential
value. We have not secured any additional commitments for new financing nor can
we provide any assurance our financing will be available on commercially
acceptable terms, if at all. If we are unable to obtain additional capital, we
will assess our capital resources and will likely be required to delay, reduce
the scope of, or eliminate one or more of our research and development programs,
and/or downsize our organization, including our general and administrative
infrastructure.


18


Item
      3.
            Quantitative
      and Qualitative Disclosures About Market
Risk




The
primary objective of our investment activities is to preserve our capital until
it is required to fund operations while at the same time maximizing the income
we receive from our investments without significantly increasing risk. As of
September 30, 2010, we had cash and cash equivalents of $16.2 million,
short-term investments of $20.6 million and working capital of $28.3million.





Our
exposure to market risk is primarily confined to our investment portfolio. As of
September 30, 2010, our short-term investments are classified as
available-for-sale. We do not believe that a change in the market rates of
interest would have significant impact on the realizable value of our investment
portfolio. Changes in interest rates may affect the investment income we earn on
our investments and, therefore, could impact our cash flows and results of
operations.




Short-term
investments at September 30, 2010 consist of investments in commercial paper,
corporate notes and auction rate securities. We had previously invested in
auction rate securities for short periods of time as part of our cash management
program. The auction rate securities have a par value of $5.1 million and a fair
value of $4.2 million. In 2009, we recorded an other-than-temporary impairment
charge of $1.3 million related to these securities, which was partially offset
by realized gains of $0.8 million relating to redemptions of several auction
rate securities. At September 30, 2010, we have $0.9 million in unrealized gains
on the auction rate securities in accumulated other comprehensive income on the
consolidated balance sheet. These investments are classified within current
assets because we may need to liquidate these securities within the next year to
fund our ongoing operations.




Interest
and dividend income is recorded when earned and included in interest income.
Premiums and discounts, if any, on short-term investments are amortized or
accreted to maturity and included in interest income. The specific
identification method is used in computing realized gains and losses on sale of
securities.




Item 4.
            Controls
      and Procedures





Evaluation
of Disclosure Controls and Procedures





Our
management, with the assistance of our Chief Executive Officer and Chief
Financial Officer, has reviewed and evaluated the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended) as of September 30, 2010.
Management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving their
objectives and management necessarily applies its judgment in evaluating the
cost-benefit relationship of possible controls and procedures. Our disclosure
controls and procedures are designed to provide reasonable assurance of
achieving their control objectives. Based on the evaluation of our disclosure
controls and procedures as of September 30, 2010, our Chief Executive Officer
and Chief Financial Officer concluded that, as of such date, our disclosure
controls and procedures were effective.


19


Changes
in Internal Control over Financial Reporting





Our
management, including our Chief Executive Officer and Chief Financial Officer,
has evaluated any changes in our internal control over financial reporting that
occurred during the third quarter of 2010, and has concluded that there was no
change that occurred during the third quarter of 2010 that materially affected,
or is reasonably likely to materially affect, our internal control over
financial reporting.





PART
II. OTHER INFORMATION





Item 1.  
Legal Proceedings





Since
March 2010, when we initiated legal proceedings against Mr. Mitch Kelly in the
state of New York and Dr. Denis O’Donnell in the Commonwealth of Massachusetts
for collection of their respective indebtedness due to the Company, we have been
actively pursuing these lawsuits and attending to pretrial matters. Mr. Kelly
and Dr. O’Donnell are former directors of the Company that have each defaulted
on outstanding notes due to the Company in the aggregate principal amount of
$1,572,000. Preliminary discovery has been conducted on these matters and,
subject to each State court’s schedule, we plan to go to trial on these matters
in 2011.





Item 1A.
Risk Factors





There are
no material changes to the Company’s risk factors as described in Item 1A
of the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2009, as filed with the SEC, other than as mentioned
below.





We
may not be awarded a contract with HHS BARDA.





Although
we have been notified by HHS BARDA that our response to United States Government
RFP solicitation number HHS BARDA-09-32 for a contract award for the advanced
development of recombinant influenza vaccines is within the competitive range
for award consideration, and have submitted a Final Proposal Revision (FPR), we
may not win a contract with HHS BARDA. A contract with HHS BARDA would also be
attractive to our competitors, so we anticipate there to be significant
competition in the competitive range for this contract, potentially from
companies that have more experience, capital and human resources and overall
capabilities than we do. In addition, HHS BARDA may elect to limit a contract or
to not award any contract to us for a number of potential reasons including, but
not limited to, concerns resulting from unsatisfactory on-site inspections or
subsequent technical or business discussions; safety or efficacy issues not seen
to date may be encountered before HHS BARDA makes its decision; we have not yet
manufactured, or relied on third parties to manufacture, any vaccines at a
commercial scale; and HHS BARDA may elect to contract with multiple companies
that may or may not include us, and even if we were included in a contract, the
amount of the contract could be comparatively smaller than we currently
anticipate. Even if we were awarded the contract with HHS BARDA for a
comparatively larger amount, such a contract is unlikely to fully address our
liquidity issues.





Item 5.  
Other Information





None.


20


Item 6.  
Exhibits





Exhibits
marked with a single asterisk (*) are filed herewith.





31.1*
            
            Certification
      of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(e) of the
      Securities Exchange Act31.2*
            
            Certification
      of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(e) of the
      Securities Exchange Act32.1*
            
            Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  200232.2*
            
            Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002


21


SIGNATURES




Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.




NOVAVAX,
      INC.Date:
      November 8, 2010
                                          By:
                                          /s/ Rahul SinghviPresident
      and Chief Executive Officerand
      Director(Principal
      Executive Officer)Date:
      November 8, 2010
                                          By:
                                          /s/ Frederick W.
DriscollVice
      President, Chief Financial Officerand
      Treasurer(Principal
      Financial and Accounting
Officer)


22