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 March 31, 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 the Registrant: (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.  Yes  x  No
 ̈




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
      filer  x
                              Non-accelerated
      filer   ̈
                              Smaller
      reporting company  ̈(Do not check if a smaller reporting company)





Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yes   ̈  No
x




The
number of shares outstanding of the Registrant’s Common Stock, $0.01 par value,
was 100,488,543 as of April 30, 2010.












NOVAVAX,
INC.


TABLE
OF CONTENTS





Page No.PART
      I. FINANCIAL INFORMATIONItem
      1.
                        Financial
      StatementsConsolidated
      Balance Sheets as of March 31, 2010 (unaudited) and December 31,
      2009
                        1Consolidated
      Statements of Operations for the three months ended March 31, 2010 and
      2009 (unaudited)
                        2Consolidated
      Statements of Cash Flows for the three months ended March 31, 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
                        10Item
      3.
                        Quantitative
      and Qualitative Disclosures about Market Risk
                        15Item
      4.
                        Controls
      and Procedures
                        16PART
      II. OTHER INFORMATIONItem
      1.
                        Legal
      Proceedings
                        16Item
      1A.
                        Risk
      Factors
                        16Item
      6.
                        Exhibits
                        17SIGNATURES
                        18




i




PART
I. FINANCIAL INFORMATION





Item
1. Financial Statements


NOVAVAX,
INC.


CONSOLIDATED
BALANCE SHEETS


(in
thousands, except share and per share information)





March
      31,
                                            
                                            
                                            December 31,2010
                                            
                                            
                                            2009(unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
                                            
                                            $
                                            14,575
                                            
                                            
                                            $
                                            38,757Short-term
      investments available-for-sale
                                            
                                            
                                            18,313
                                            
                                            
                                            
                                            4,193Accounts
      and other receivables
                                            
                                            
                                            231
                                            
                                            
                                            
                                            258Prepaid
      expenses and other current assets
                                            
                                            
                                            698
                                            
                                            
                                            
                                            1,295Total
      current assets
                                            
                                            
                                            33,817
                                            
                                            
                                            
                                            44,503Property
      and equipment, net
                                            
                                            
                                            8,259
                                            
                                            
                                            
                                            7,801Goodwill
                                            
                                            
                                            33,141
                                            
                                            
                                            
                                            33,141Other
      non-current assets
                                            
                                            
                                            160
                                            
                                            
                                            
                                            160Total
      assets
                                            
                                            $
                                            75,377
                                            
                                            
                                            $
                                            85,605LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable
                                            
                                            $
                                            5,474
                                            
                                            
                                            $
                                            2,098Accrued
      expenses and other current liabilities
                                            
                                            
                                            3,326
                                            
                                            
                                            
                                            5,417Current
      portion of notes payable
                                            
                                            
                                            80
                                            
                                            
                                            
                                            80Deferred
      revenue
                                            
                                            
                                            61
                                            
                                            
                                            
                                            150Deferred
      rent
                                            
                                            
                                            292
                                            
                                            
                                            
                                            282Total
      current liabilities
                                            
                                            
                                            9,233
                                            
                                            
                                            
                                            8,027Non-current
      portion of notes payable
                                            
                                            
                                            380
                                            
                                            
                                            
                                            406Deferred
      rent
                                            
                                            
                                            2,625
                                            
                                            
                                            
                                            2,707Total
      liabilities
                                            
                                            
                                            12,238
                                            
                                            
                                            
                                            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 100,753,640
      shares issued and 100,286,543 shares outstanding at March 31, 2010 and
      100,717,890 shares issued and 100,262,460 shares outstanding at December
      31, 2009
                                            
                                            
                                            1,008
                                            
                                            
                                            
                                            1,007Additional
      paid-in capital
                                            
                                            
                                            350,957
                                            
                                            
                                            
                                            350,810Notes
      receivable from former directors
                                            
                                            
                                            (1,572
                                            )
                                            
                                            
                                            (1,572
                                            )Accumulated
      deficit
                                            
                                            
                                            (285,562
                                            )
                                            
                                            
                                            (274,150
                                            )Treasury
      stock, 467,097 and 455,430 shares at March 31, 2010 and December 31, 2009,
      respectively, cost basis
                                            
                                            
                                            (2,450
                                            )
                                            
                                            
                                            (2,450
                                            )Accumulated
      other comprehensive income
                                            
                                            
                                            758
                                            
                                            
                                            
                                            820Total
      stockholders’ equity
                                            
                                            
                                            63,139
                                            
                                            
                                            
                                            74,465Total
      liabilities and stockholders’ equity
                                            
                                            $
                                            75,377
                                            
                                            
                                            $
                                            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
                  Ended March 31,2010
                
                
                2009Revenue
                
                $
                110
                
                
                $
                21Operating
      expenses:Research
      and development
                
                
                9,029
                
                
                
                4,266General
      and administrative
                
                
                2,535
                
                
                
                2,892Total
      operating expenses
                
                
                11,564
                
                
                
                7,158Loss
      from continuing operations
                
                
                (11,454
                )
                
                
                (7,137
                )Other
      income (expense):Interest
      income
                
                
                44
                
                
                
                104Interest
      expense
                
                
                (2
                )
                
                
                (437
                )Impairment
      of short-term investments
                
                
                —
                
                
                
                (879
                )Net
      loss
                
                $
                (11,412
                )
                
                $
                (8,349
                )Basic
      and diluted net loss per share
                
                $
                (0.11
                )
                
                $
                (0.12
                )Basic
      and diluted weighted average number of common shares
      outstanding
                
                
                100,188
                
                
                
                68,692




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 Three Months
                  EndedMarch31,2010
                
                
                2009Operating
      Activities:Net
      loss:
                
                $
                (11,412
                )
                
                $
                (8,349
                )Reconciliation
      of net loss to net cash used in operating activities:Depreciation
      and amortization
                
                
                296
                
                
                
                294Amortization
      of debt discount
                
                
                —
                
                
                
                103Amortization
      of deferred financing costs
                
                
                —
                
                
                
                64Loss
      on disposal of property and equipment
                
                
                —
                
                
                
                29Deferred
      rent
                
                
                (72
                )
                
                
                (66
                )Non-cash
      stock-based compensation
                
                
                84
                
                
                
                497Impairment
      of short-term investments
                
                
                —
                
                
                
                879Changes
      in operating assets and liabilities:Accounts
      and other receivables
                
                
                27
                
                
                
                216Prepaid
      expenses and other current assets
                
                
                597
                
                
                
                (152
                )Accounts
      payable and accrued expenses
                
                
                1,189
                
                
                
                (242
                )Deferred
      revenue
                
                
                (89
                )
                
                
                —Net
      cash used in operating activities
                
                
                (9,380
                )
                
                
                (6,727
                )Investing
      Activities:Capital
      expenditures
                
                
                (658
                )
                
                
                (63
                )Proceeds
      from disposal of property and equipment
                
                
                —
                
                
                
                6Proceeds
      from maturities of short-term investments
                
                
                —
                
                
                
                125Purchases
      of short-term investments
                
                
                (14,182
                )
                
                
                —Net
      cash (used in) provided by investing activities
                
                
                (14,840
                )
                
                
                68Financing
      Activities:Principal
      payments of notes payable
                
                
                (26
                )
                
                
                (807
                )Net
      proceeds from sales of common stock
                
                
                —
                
                
                
                122Proceeds
      from the exercise of stock options
                
                
                64
                
                
                
                35Net
      cash provided by (used in) financing activities
                
                
                38
                
                
                
                (650
                )Net
      decrease in cash and cash equivalents
                
                
                (24,182
                )
                
                
                (7,309
                )Cash
      and cash equivalents at beginning of period
                
                
                38,757
                
                
                
                26,938Cash
      and cash equivalents at end of period
                
                $
                14,575
                
                
                $
                19,629Supplemental
      disclosure of non-cash activities:Equipment
      purchases included in accounts payable
                
                $
                96
                
                
                $
                47Supplemental
      disclosure of cash flow information:Cash
      interest payments
                
                $
                —
                
                
                $
                523




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




3




NOVAVAX,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


March
31, 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 the 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 and H1N1 pandemic strains), seasonal influenza, Respiratory
Syncytial Virus (“RSV”) and Varicella Zoster Virus (“VZV”), which causes
shingles.




In 2009,
the Company formed a joint venture with Cadila Pharmaceuticals Ltd. (“Cadila”),
named CPL Biologicals Private Limited (the “JV”), 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 March 31, 2010, the Company had cash and cash equivalents of
$14.6 million and short-term investments with a fair value of $18.3
million.




The
Company’s vaccine product 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. There can be no assurance that the Company’s research and development
efforts will be successful or that any potential product candidates will prove
to be safe and effective in clinical trials. Even if developed, there can be no
assurance that these vaccine product candidates would 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 product
candidate is subject to certain risks including, but not limited to,
manufacturing scale-up and market acceptance.




Based on
the Company’s cash, cash equivalents and short-term investment balances as of
March 31, 2010, anticipated proceeds from sales of the Company’s Common Stock
under the At the Market Sales Agreement with McNicoll, Lewis & Vlak LLC 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 product candidates through clinical development, manufacturing and
commercialization. The Company will seek additional capital through further
public or private equity offerings, debt financing, additional strategic
alliance and licensing arrangements, non-dilutive 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. Other than the Company’s At
the Market Sales Agreement, it has not secured any additional commitments for
new financing nor can the Company provide any assurance that new 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 product research and development programs, downsize the organization, or
reduce 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 March 31,
2010, consolidated statements of operations for the three months ended March 31,
2010 and 2009 and the consolidated statements of cash flows for the three months
ended March 31, 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




The
Company adopted ASC 820, Fair
Value Measurements and Disclosures, for financial assets and liabilities
on January 1, 2008. The Company adopted ASC 820 for non-financial assets and
liabilities on January 1, 2009.





ASC 820
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 a fair market value on a recurring basis as of
March 31, 2010 are summarized below (in thousands):





Fair Value Measurement at
                    March 31, 2010 using Fair Value HierarchyAssets
                  
                  Level 1
                  
                  
                  Level 2
                  
                  
                  Level 3
                  
                  
                  Fair ValueCash
      and cash equivalents
                  
                  $
                  14,575
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  14,575Short-term
      investments
                  
                  
                  —
                  
                  
                  
                  18,313
                  
                  
                  
                  —
                  
                  
                  
                  18,313Total
                  
                  $
                  14,575
                  
                  
                  $
                  18,313
                  
                  
                  $
                  —
                  
                  
                  $
                  32,888





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 March 31, 2010 consist of investments in commercial paper,
corporate notes and three auction rate securities. 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 on these securities, if
determined to be temporary, 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 March 31, 2010 were comprised
of (in thousands):




Amortized
                    Cost
                  
                  
                  Gross
                    Unrealized
                    Gains
                  
                  
                  Gross
                    Unrealized
                    Losses
                  
                  
                  Fair ValueAuction
      rate securities
                  
                  $
                  3,373
                  
                  
                  $
                  766
                  
                  
                  $
                  —
                  
                  
                  $
                  4,139Corporate
      debt securities
                  
                  
                  14,182
                  
                  
                  
                  —
                  
                  
                  
                  (8
                  )
                  
                  
                  14,174Total
                  
                  $
                  17,555
                  
                  
                  $
                  766
                  
                  
                  $
                  (8
                  )
                  
                  $
                  18,313





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 9,485,967 shares and 10,132,185 shares at March
31, 2010 and 2009, respectively, are excluded from the computation, as their
effect is anti-dilutive.





Comprehensive
Income (Loss)




The
Company accounts for comprehensive income (loss) as prescribed by ASC 220, Comprehensive Income.
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 was $11.5 million and $8.3
million for the three months ended March 31, 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 for fiscal years beginning on or after
June 15, 2010, with early adoption permitted. The amendment may be applied
retrospectively to all arrangements or prospectively for milestones achieved
after the effective date. 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;
however, 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 March 31, 2010.




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




Three Months Ended
                    March 31,2010
                  
                  
                  2009Research
      and development
                  
                  $
                  (69
                  )
                  
                  $
                  179General
      and administrative
                  
                  
                  153
                  
                  
                  
                  318Total
      stock-based compensation expenses
                  
                  $
                  84
                  
                  
                  $
                  497




7




During
the three months ended March 31, 2010, the stock-based compensation benefit of
($0.1) million is 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 three months ended March 31, 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
                  
                  
                  1,018,250
                  
                  
                  $
                  2.36
                  
                  
                  
                  —
                  
                  
                  $
                  —
                  
                  
                  
                  —
                  
                  
                  $
                  —Exercised
                  
                  
                  (35,750
                  )
                  
                  $
                  1.78
                  
                  
                  
                  —
                  
                  
                  $
                  —
                  
                  
                  
                  —
                  
                  
                  $
                  —Canceled
                  
                  
                  (468,383
                  )
                  
                  $
                  2.45
                  
                  
                  
                  (386,469
                  )
                  
                  $
                  7.25
                  
                  
                  
                  (30,000
                  )
                  
                  $
                  5.63Outstanding
      at March 31, 2010
                  
                  
                  5,392,792
                  
                  
                  $
                  2.37
                  
                  
                  
                  699,850
                  
                  
                  $
                  4.90
                  
                  
                  
                  —
                  
                  
                  $
                  —Shares
      exercisable at March 31, 2010
                  
                  
                  2,836,534
                  
                  
                  $
                  2.24
                  
                  
                  
                  699,850
                  
                  
                  $
                  4.90
                  
                  
                  
                  —
                  
                  
                  $
                  —Shares
      available for grant at March 31, 2010
                  
                  
                  2,590,849




The fair
value of the stock options granted for the three months ended March 31, 2010 and
2009 was estimated at the date of grant using the Black-Scholes option-pricing
model with the following assumptions:




Three Months Ended
                              March 31,2010
                            
                            2009Weighted
      average fair value of options granted
                            
                            $1.62
                            
                            $0.39Risk-free
      interest rate
                            
                            1.46%-2.89%
                            
                            1.56%-2.27%Dividend
      yield
                            
                            0%
                            
                            0%Volatility
                            
                            99.53%-107.83%
                            
                            85.68%-95.08%Expected
      life (in years)
                            
                            3.11-6.26
                            
                            4.00-6.29Expected
      forfeiture rate
                            
                            21.07%
                            
                            21.96%




The
aggregate intrinsic value and weighted-average remaining contractual term of
stock options outstanding as of March 31, 2010 was approximately $2.3 million
and 6.6 years, respectively. The aggregate intrinsic value and weighted-average
remaining contractual term of stock options exercisable as of March 31, 2010 was
approximately $1.6 million and 5.0 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
March 31, 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 three months ended March 31, 2010 and 2009 was $0.1 million
and $38,573, respectively.




Restricted
Stock Awards




Under the
2005 Plan, the Company has granted restricted stock awards subject to certain
performance- or 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.




8


The
following is a summary of restricted stock awards activity for the three months
ended March 31, 2010:
  Number of
                      Shares
                    
                    
                    Per Share
                      Weighted-
                      Average
                      Grant-Date
                      Fair ValueOutstanding
      at January 1, 2010
                    
                    
                    90,000
                    
                    
                    $
                    3.04Restricted
      stock granted
                    
                    
                    —
                    
                    
                    $
                    —Restricted
      stock vested
                    
                    
                    (28,333
                    )
                    
                    $
                    2.77Restricted
      stock forfeited
                    
                    
                    (11,667
                    )
                    
                    $
                    2.77Outstanding
      at March 31, 2010
                    
                    
                    50,000
                    
                    
                    $
                    3.26
 
 As of
March 31, 2010, there was approximately $2.8 million 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 1.8 years. This estimate does
not include the impact of other possible stock-based awards that may be made
during future periods.
  Note
5 – At the Market Sales Agreement
  On March
15, 2010, the Company terminated its previous At the Market Sales Agreements
entered into in 2009 with Wm Smith & Co. and entered into a new sales
agreement with McNicoll, Lewis & Vlak LLC, 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.
  Note
6 – Related Party Transactions
  Mr.
Lambert, the Company’s former Executive Chairman of the Board of Directors, had
a consulting agreement with the Company, pursuant to which he assisted the
Company with issues regarding the development and commercialization of its
vaccine product candidates and assisted with business development predominantly
in the international markets. During the three months ended March 31, 2010, the
Company paid Mr. Lambert $41,398 for these services. On March 8, 2010, Mr.
Lambert’s consulting agreement expired by its original terms.
  9
  Item
2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
  Certain
statements contained herein or as may otherwise be incorporated by reference
herein constitute “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements include,
but are not limited to, statements relating to future funding requirements and
capital raising activity, financial or business performance, conditions or
strategies and other financial and business matters, including expectations
regarding operating expenses, use of cash, and clinical developments and
anticipated milestones, including a Department of Health and Human Services
(HHS), Biomedical Advanced Research and Development Authority (BARDA) contract
and seeking approval in Mexico, and include words 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, are based upon management’s
current expectations and beliefs.  Such forward-looking statements are
not guarantees of future performance, involve known and unknown risks,
uncertainties and other factors, which 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.
  Factors
that may cause actual results to differ materially from the results discussed in
the forward-looking statements or historical experience include, among other
things, the following:
  ·
              our
      ability to progress any product 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
      product candidate may not prove to be safe and
  efficacious;
 ·
              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;
 ·
              we
      have not manufactured any of our vaccine candidates at a commercial
      level;
 ·
              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 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
      financing or otherwise;
 ·
              the
      inability to win any government grants, including 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.
  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.
  10
  VLPs are
genetically engineered three-dimensional nanostructures which incorporate
immunologically important lipids and recombinant proteins. Our VLPs resemble the
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 and H1N1 pandemic strains), seasonal influenza, Respiratory
Syncytial Virus (RSV) and Varicella Zoster Virus (VZV), which causes
shingles.
  We are
conducting 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 will 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 primary safety results from the
second stage of the trial are expected later in 2010. All of the results
will be used to pursue possible registration of our 2009 H1N1 influenza VLP
vaccine in the country of Mexico. These data are also 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. The results showed
the vaccine was well-tolerated and immunogenic. In November 2009, we completed
enrollment of a Phase II trial of our trivalent seasonal influenza VLP vaccine
in older adults (60 years or higher in age) in a dose-ranging study comparing
Novavax’s trivalent seasonal influenza VLP vaccine with a commercially available
inactivated trivalent influenza vaccine (TIV). In April 2010, we reported our
vaccine was both safe and immunogenic against the 2009-2010 seasonal influenza
virus strains in adults 60 years or higher in age.
 
 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 will be used to support an Investigational New Drug (IND)
application, which we expect to file in 2010. Our VZV vaccine candidate induced
antibody and T-cell responses and we plan on moving forward with further
pre-clinical development in 2010.
 
 HHS has
determined our BARDA proposal to provide recombinant influenza vaccines and
manufacturing capabilities for pandemic preparedness is in the competitive range
for award of an advanced development contract. 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.
  Our
vaccine product 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. There
can be no assurance that our research and development efforts will be successful
or that any potential product candidates will prove to be safe and effective in
clinical trials. Even if developed, these vaccine product 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
product candidate is subject to certain risks including, but not limited to,
manufacturing scale-up and market acceptance. No assurance can be given that we
can generate sufficient product revenue to become profitable or generate
positive cash flow from operations at all or on a sustained basis. We continue
to fund our operations through the sales of our Common Stock. We terminated our
previous At the Market Sales Agreements entered into in 2009 with Wm Smith &
Co. and entered into a new sales agreement with McNicoll, Lewis & Vlak LLC,
as sales agent, under which we may sell an aggregate of $50 million in gross
proceeds of our Common Stock. Our Board of Directors has authorized the sale of
up to 25 million shares of our Common Stock pursuant to this
agreement.
  11
  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.
 
 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 for fiscal years beginning on or after
June 15, 2010, with early adoption permitted. The amendment may be applied
retrospectively to all arrangements or prospectively for milestones achieved
after the effective date. We do not believe the adoption of this ASU will have a
material impact on its consolidated financial statements.
  Results of Operations for the Three
Months Ended March 31, 2010 and 2009(amounts in tables are presented in
thousands, expect per share information)
  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 on Form 10-Q. Additional information
concerning factors that could cause actual results to differ materially from
those in our forward-looking statements is contained from time to time in our
SEC filings.
  Revenue:
  Three Months Ended
                      March 312010
                    
                    
                    2009
                    
                    
                    Change
                      2009 to
                      2010Revenue:Total
      revenue
                    
                    $
                    110
                    
                    
                    $
                    21
                    
                    
                    $
                    89
 
 Revenue
for the three months ended March 31, 2010 was $0.1 million as compared to less
than $0.1 million for the same period in 2009. Revenue is comprised of services
performed under contracts with United States government
agencies.
  12
  Operating
Expenses:
  Three Months Ended
                      March 312010
                    
                    
                    2009
                    
                    
                    Change
                      2009 to
                      2010Operating
      Expenses:Research
      and development
                    
                    $
                    9,029
                    
                    
                    $
                    4,266
                    
                    
                    $
                    4,763General
      and administrative
                    
                    
                    2,535
                    
                    
                    
                    2,892
                    
                    
                    
                    (357
                    )Total
      operating expenses
                    
                    $
                    11,564
                    
                    
                    $
                    7,158
                    
                    
                    $
                    4,406
 
 Research
and Development Expenses
  Research
and development expenses increased to $9.0 million for three months ended March
31, 2010 from $4.3 million for the same period in 2009, an increase of $4.7
million, or 112%, primarily due to higher research and development spending to
support our clinical trials related to our H1N1 and seasonal influenza product
candidates. The increase is primarily a result of increased outside-testing
costs (including outsourced clinical trial costs, sponsored research
and consulting agreements) of $4.0 million.
  General and
Administrative Expenses
  General
and administrative expenses decreased to $2.5 million for the three months ended
March 31, 2010 from $2.9 million for the same period in 2009, a decrease of $0.4
million, or 12%, primarily due to lower professional service fees.
  Other Income
(Expense):
  Three Months Ended
                        March 312010
                      
                      
                      2009
                      
                      
                      Change
                        2009 to
                        2010Other
      Income (Expense):Interest
      income
                      
                      $
                      44
                      
                      
                      $
                      104
                      
                      
                      $
                      (60
                      )Interest
      expense
                      
                      
                      (2
                      )
                      
                      
                      (437
                      )
                      
                      
                      435Impairment
      of short-term investments
                      
                      
                      —
                      
                      
                      
                      (879
                      )
                      
                      
                      879Total
      other income (expense)
                      
                      $
                      42
                      
                      
                      $
                      (1,212
                      )
                      
                      $
                      1,254
 
 We had
total other income of less than $0.1 million for the three months ended March
31, 2010 compared to total other expense of $1.2 million for the same period in
2009, a change of $1.3 million. Interest expense decreased $0.4 million to less
than $0.1 million for the three months ended March 31, 2010 from $0.4 million
for the same period in 2009 as a result of the payment of our convertible notes
in 2009. In the three months ended March 31, 2009, we recorded an impairment of
$0.9 million relating to our auction rate securities.
  Net
Loss:
  Three Months Ended
                      March 312010
                    
                    
                    2009
                    
                    
                    Change
                      2009 to
                      2010Net
      Loss:Net
      loss
                    
                    $
                    (11,412
                    )
                    
                    $
                    (8,349
                    )
                    
                    $
                    (3,063
                    )Net
      loss per share
                    
                    $
                    (0.11
                    )
                    
                    $
                    (0.12
                    )
                    
                    $
                    0.01Weighted
      shares outstanding
                    
                    
                    100,188
                    
                    
                    
                    68,692
                    
                    
                    
                    31,496
  13
 
 Net loss
for the three months ended March 31, 2010 was $11.4 million, or $0.11 per share,
as compared to $8.3 million, or $0.12 per share, for the same period in 2009, an
increased net loss of $3.1 million. 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 product candidates, partially offset by
reduced total other income (expense) in the three months ended March 31,
2010.
  The
increase in weighted shares outstanding for the three months ended March 31,
2010 is primarily a result of sales of our Common Stock in the aggregate of 27.9
million shares through direct stock offerings, an underwritten public offering
and our previous At the Market Sales Agreement in 2009.
  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 any patent claims and other intellectual property rights
and manufacturing costs. We plan to continue to have multiple vaccine product
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 of certain events, such as
the scope, initiation, rate and progress of our pre-clinical studies and
clinical trials and other research and development activities.
  As of
March 31, 2010, we had $14.6 million in cash and cash equivalents and $18.3
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 three months ended March 31, 2010 and 2009 (in thousands):
  Three Months Ended
                    March 312010
                  
                  
                  2009
                  
                  
                  Change 2009
                    to 2010Summary of Cash
      Flows:Net
      cash (used in) provided by:Operating
      activities
                  
                  $
                  (9,380
                  )
                  
                  $
                  (6,727
                  )
                  
                  $
                  (2,653
                  )Investing
      activities
                  
                  
                  (14,840
                  )
                  
                  
                  68
                  
                  
                  
                  (14,908
                  )Financing
      activities
                  
                  
                  38
                  
                  
                  
                  (650
                  )
                  
                  
                  688Net
      decrease in cash and cash equivalents
                  
                  
                  (24,182
                  )
                  
                  
                  (7,309
                  )
                  
                  
                  (16,873
                  )Cash
      and cash equivalents at beginning of period
                  
                  
                  38,757
                  
                  
                  
                  26,938
                  
                  
                  
                  11,819Cash
      and cash equivalents at end of period
                  
                  $
                  14,575
                  
                  
                  $
                  19,629
                  
                  
                  $
                  (5,054
                  )
 
 Net cash
used in operating activities increased to $9.4 million for the three months
ended March 31, 2010 from $6.7 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 product candidates.
 
 During
the three months ended March 31, 2010 and 2009, our investing activities
consisted primarily of purchases of short-term investments and capital
expenditures. Capital expenditures for the three months ended March 31, 2010 and
2009 were $0.7 million and $0.1 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 three
months ended March 31, 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.
 
 The
increase in our financing activities is primarily due to the payment of our
convertible notes in 2009.
  14
 
 We have
entered into agreements with outside clinical research organization providers to
support our clinical development. As of March 31, 2010, $7.9 million 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. Payments under the agreement to Wyeth from 2007
through March 31, 2010 aggregated $5.1 million. Based on the clinical and
commercial milestones, which could possibly occur through early 2011, we would
make a milestone payment to Wyeth of $4 million in the next twelve months.
However, it is difficult to predict at this time whether such milestones will be
achieved through early 2011. 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 March 31, 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 investment balances as of March 31,
2010, anticipated proceeds from the sale of our Common Stock under the At the
Market 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 product candidates through clinical development, manufacturing
and commercialization. We will seek additional capital through further public or
private equity offerings, debt financing, additional strategic alliance and
licensing arrangements, non-dilutive 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. Other than our At the Market Sales Agreement with McNicoll, Lewis &
Vlak LLC, we have not secured any additional commitments for new financing nor
can we provide any assurance that new 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 product research and
development programs, downsize our organization, or reduce our general and
administrative infrastructure.
  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
March 31, 2010, we had cash and cash equivalents of $14.6 million, short-term
investments of $18.3 million and working capital of $24.6 million.
 
 Our
exposure to market risk is confined to our investment portfolio. As of March 31,
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 any 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 March 31, 2010 consist of investments in commercial paper,
corporate notes and three 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 $4.1 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 March 31, 2010, we have $0.8 million in unrealized gains on
the auction rate securities in 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.
  15
  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
our securities.
  We are
headquartered in the United States where we conduct the vast majority of our
business activities. Accordingly, we have not had any material exposure to
foreign currency rate fluctuations.
  We do not
have material debt and, as such, do not believe that we are exposed to any
material interest rate risk as a result of our borrowing
activities.
  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, have 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 March 31, 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 March 31, 2010, our Chief Executive Officer and
Chief Financial Officer concluded that, as of such date, our disclosure controls
and procedures were effective.
 
 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 first quarter of 2010, and has concluded that there was no
change that occurred during the first 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
 
 In March
2010, we instituted 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. Mr. Kelly and
Dr. O’Donnell are former directors of the Company that have outstanding notes
due to the Company in the aggregate principal amount of $1,572,000. Both notes
are currently in default.
 
 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.
  16
  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, there can be no assurance that we will 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 us. 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
anticipated.
 
 Item 6.
Exhibits
  Exhibits
marked with a single asterisk (*) are filed herewith.
  Exhibits
marked with a double plus sign (††) refer to management contracts, compensatory
plans or arrangements.
  10.11††
                Severance
      Agreement of James Robinson dated February 1, 2010 (Incorporated by
      reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K for
      the fiscal year ended December 31, 2009, filed March 16,
    2010)10.19††
                Form
      of Indemnity Agreement, entered into between the Company and its directors
      and officers (Incorporated by reference to Exhibit 10.19 to the Company’s
      Annual Report on Form 10-K for the fiscal year ended December 31, 2009,
      filed March 16, 2010)10.38
                At
      Market Issuance Sales Agreement, dated March 15, 2010, by and between
      Novavax, Inc. and McNicoll, Lewis and Vlak, LLC (Incorporated by reference
      to Exhibit 10.38 to the Company’s Annual Report on Form 10-K for the
      fiscal year ended December 31, 2009, filed March 16,
  2010)10.47*††
                Severance
      Agreement of Raymond J. Hage dated April 7, 201031.1*
                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
  17
  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:
      May 10, 2010
                  By:
                  /s/ Rahul SinghviPresident
      and Chief Executive Officerand
      Director(Principal
      Executive Officer)Date:
      May 10, 2010
                  By:
                  /s/ Frederick W.
DriscollVice
      President, Chief Financial Officerand
      Treasurer(Principal
      Financial and Accounting
Officer)
  18