Altimmune, Inc. (ALT) FY 2021 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes appearing elsewhere in this Annual Report. Some of the information contained in this discussion and analysis contains forward-looking statements that involve substantial risks and uncertainties. See “Forward-looking statements” in Part I of this Annual Report and the section entitled “Risk Factors” in Part I, Item 1A of this Annual Report for a discussion of certain factors that could cause actual results or events to differ materially from the forward-looking statements that we make.

Overview

Altimmune, Inc. is a clinical stage biopharmaceutical company focused on developing treatments for obesity and liver diseases. Our lead product candidate, pemvidutide (proposed INN, formerly known as ALT-801), is a GLP-1/glucagon dual receptor agonist that is being developed for the treatment of obesity and non-alcoholic steatohepatitis (“NASH”). In addition, we are developing HepTcell, an immunotherapeutic agent designed to achieve a functional cure for chronic hepatitis B. In June 2021, we announced the discontinuation of further development of our COVID-19 vaccine candidate, AdCOVID following our review of findings from the Phase 1 clinical trial, and in view of the highly competitive COVID-19 landscape. In the study, AdCOVID was generally well tolerated, but the immunogenicity data demonstrated lower than expected immune responses for each of the immune parameters tested.

Our business is the result of a merger between PharmAthene, Inc. (“PharmAthene”) and the business previously known as Altimmune, Inc. (“Private Altimmune”). On May 4, 2017, Private Altimmune merged with PharmAthene in a series of mergers and reorganizations (collectively, the “Mergers”) pursuant to an Agreement and Plan of Merger and Reorganization (the “PharmAthene Merger Agreement”) dated January 18, 2017, among Private Altimmune, PharmAthene, its wholly owned acquisition subsidiaries Mustang Merger Sub Corp I Inc. and Mustang Merger Sub II LLC. Upon closing of the Mergers, all equity instruments of Private Altimmune were exchanged for corresponding equity instruments of PharmAthene. Prior to the Mergers, PharmAthene was a publicly traded biodefense company engaged in Phase 2 clinical trials. Except where the context indicates otherwise, references to “we,” “us,” “our,” “Altimmune” or the “Company” refer, for periods prior to the completion of the Mergers, to Private Altimmune and its subsidiaries, and for periods following the completion of the Mergers to the combined company and its subsidiaries.

Pemvidutide

We completed an acquisition in July 2019 of all of the equity interests of Spitfire Pharma, Inc. (“Spitfire”). Spitfire was a privately held, preclinical pharmaceutical company with the primary asset being a novel peptide-based dual GLP-1/glucagon receptor agonist for the treatment of NASH. We refer to this product candidate as pemvidutide, and it is designed to treat obesity and the metabolic dysfunction that causes NASH.

Obesity is a significant burden to the global healthcare systems and is implicated in two-thirds of the leading causes of death from non-communicable diseases worldwide. Some of the leading co-morbidities of obesity include high blood pressure, high cholesterol, type 2 diabetes, coronary heart disease, stroke, gallbladder disease, osteoarthritis, sleep apnea and breathing problems, certain cancers and NASH. NASH involves multiple metabolic pathways leading to the abnormal accumulation of liver fat, toxic lipid metabolites, and inflammation, leading to fibrosis or eventually liver cancer. Non-alcoholic fatty liver disease (“NAFLD”), the fatty liver precursor to NASH, is present in up to 90% of obese patients, and approximately 20% of NAFLD patients progress to NASH. In addition, up to 40% of NASH patients develop NAFLD recurrence one year after liver transplant, which we believe indicates that the underlying metabolic disease is still present after transplant. We believe the treatment of obesity is the cornerstone of treating NASH and the principal morbidities of NASH.

Pemvidutide’s dual agonist mechanism of action is designed to combine the activity of GLP-1 for the reduction of appetite and inflammation, with the direct activity of glucagon on the liver, including increased energy expenditure, adipose browning, lipolysis and mobilization of the liver fat. Pemvidutide incorporates a proprietary side chain, referred to as the EuPort domain, which is designed to enhance pharmacokinetics for tolerability in the gastrointestinal tract and permit weekly dosing. As observed in a well-established preclinical model of the disease, pemvidutide is capable of inducing significant weight loss with concomitant decreases in liver fat, inflammation and fibrosis, with superior results

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compared to semaglutide. In addition, pemvidutide demonstrated improved metabolic function and exhibited pleiotropic effects in our preclinical testing across multiple metabolic pathways involved in NASH. We also observed in these studies that pemvidutide resulted in more profound suppression of genes associated with steatosis, inflammation and stellate cell fibrosis by RNA sequencing compared to semaglutide.

In September 2021, we announced the completion of a 12-week Phase 1 clinical trial of pemvidutide in Australia under a clinical trial application. The trial was a first-in-human, randomized, placebo-controlled, single-ascending and multiple-ascending dose (“MAD”) study in overweight and obese volunteers. The endpoints of the Phase 1 trial were to assess the safety, tolerability and pharmacokinetics of pemvidutide, with primary readouts on safety, pharmacokinetics and weight loss. Additional readouts included metabolic and lipid profile, cardiovascular measures and glucose homeostasis.

An Investigational New Drug application (“IND”) for obesity was submitted to the U.S. Food and Drug Administration (“FDA”) in December 2021 and we announced on January 31, 2022 that we had received FDA clearance for a Phase 2 trial in this indication. We expect to initiate this 48-week Phase 2 obesity trial in the first half of 2022. The readouts of that study will include safety, weight loss and other metabolic measures. The study will include a 24-week interim analysis of safety and weight loss that we expect will read out in the fourth quarter of 2022.

We are currently conducting a 12-week Phase 1b trial of pemvidutide in patients with NAFLD at multiple sites in the United States. This double-blind, randomized, placebo-controlled study will enroll approximately 72 diabetic and non-diabetic overweight and obese adult patients with a liver fat content greater than 10% as measured by MRI-PDFF. The primary efficacy endpoint is the change in liver fat content from baseline, with a secondary endpoint of weight loss. The study is expected to read out topline results in the third quarter of 2022. We expect to initiate a 12-week double-blind, placebo-controlled extension study which, combined with the 12-week Phase 1b NAFLD trial, will allow patients to receive up to a total of 24 weeks of continuous pemvidutide or placebo treatment and provide a read out on weight loss after 24 weeks of treatment, which is expected in the fourth quarter of 2022. Based on the findings of the NAFLD study and evaluation of other priorities, we intend to initiate a 52-week biopsy-driven Phase 2 NASH study in 2022.

HepTcell

HepTcell is an immunotherapeutic product candidate for patients chronically infected with the hepatitis B virus (“HBV”). Approximately 300 million people worldwide live with chronic HBV infection, including approximately 2.2 million in the United States. Chronic HBV infection can lead to serious complications, including cirrhosis and liver cancer. Approximately 780,000 people die per year worldwide due to cirrhosis and liver cancer. Current antivirals prevent disease progression but rarely clear chronic infection. HepTcell is designed to drive CD4+ and CD8+ T-cell responses against all HBV genotypes in patients of all ethnic backgrounds. Stimulating T-cell responses in chronically infected HBV patients has been challenging because chronic infection with HBV strongly suppresses T-cell immunity directed against the virus. HepTcell focuses the T cell response on discrete, highly conserved regions of the HBV proteome. We believe our approach allows HepTcell to break immune tolerance by activating T-cells against critical viral sequences with decreased probability of immune escape due to viral mutation. HepTcell is based on our synthetic peptide technology platform and is given by intramuscular injection. In 2018, we completed a Phase 1 trial in the United Kingdom and South Korea in adult patients with chronic HBV. The HepTcell Phase 1 trial was a double-blinded, placebo-controlled, randomized, dose-escalation study that enrolled 61 subjects with chronic HBV who were HBeAg-negative and well-controlled on licensed antivirals. A total of 41 patients received one of two dose levels of HepTcell, with and without IC31™, a depot-forming TLR9 adjuvant developed by Valneva SE, while 20 control patients received either IC31 alone or placebo. Patients received three injections 28 days apart and were followed for six months after the final dose. All dose combinations were generally well-tolerated and met the primary endpoint of safety. In the two adjuvanted HepTcell arms, T-cell responses against HBV markedly increased over baseline compared to placebo.

We initiated a Phase 2 study during Q4 2020 in the United States, Canada and Europe that is a double-blind, randomized, placebo-controlled study of 80 adult patients with HBeAg-negative inactive CHB and HBsAg ≤ 100 IU/mL. Patients with HBsAg ≤ 100/mL are more likely to mount effective T cell responses against HBV than those with higher levels. The vision is that HepTcell could be used in combination with newer direct acting agents that may be more effective than nucleosides in reducing HBsAg to this level. HepTcell is being administered in 6 doses at the low dose level of HepTcell plus IC31™ at 4-week intervals for 24 weeks, and patients will be followed for one year to evaluate safety and

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durability of response. The primary efficacy endpoint is virological response, defined as a 1-log reduction in HBsAg levels from baseline or HBsAg clearance at 24 weeks. Secondary efficacy endpoints include reactivation of anti-HBV T cell responses, and other assessments of virologic response. We expect data from this study in the first half of 2023. A follow-up phase will assess the safety and durability of response one year after completion of treatment.

Discontinued Programs

AdCOVID

AdCOVID was an intranasal COVID-19 vaccine candidate designed to guard the respiratory tract from viral invasion and to provide protection against viral spread through stimulation of both mucosal and systemic antibodies (IgA and IgG) as well as cell-mediated immunity. By stimulating mucosal immunity in the nasal cavity, a key point of entry and replication for the SARS-CoV-2 virus, we believed that AdCOVID had the potential to defend against both the infection and spread of the virus to others. We submitted an IND to the FDA in the fourth quarter of 2020 and received clearance from the FDA in February 2021 to initiate a Phase 1 clinical trial of AdCOVID. The Phase 1 clinical trial evaluated the safety and immunogenicity of AdCOVID in 92 healthy adult volunteers between the ages of 18 and 55. In June 2021, we announced the discontinuation of the development program for AdCOVID following our review of findings from the Phase 1 clinical trial and in consideration of the highly competitive COVID-19 landscape. In the study, the tolerability of AdCOVID was similar to placebo, but the immunogenicity data demonstrated lower than expected immune responses for each of the immune parameters tested.

T-COVID

T-COVID was an intranasal immune modulating therapeutic candidate based on the same replication-deficient adenovirus 5 (“RD-Ad5”) vector technology behind our other intranasal vaccine candidates, but it acted through a different mechanism that may have involved the innate immune system. With the support of the U.S. Army Medical Research & Development Command in collaboration with the Medical Technology Enterprise Consortium, during 2020, we initiated a placebo-controlled Phase 1/2 double-blind clinical trial to evaluate the potential of T-COVID to prevent clinical worsening in patients with early COVID-19. The trial was expected to enroll 96 community-based patients who were 18 years and older that present with fever, cough, or shortness of breath, with onset of symptoms within 48 hours, and a diagnosis of COVID-19 within 72 hours. The primary endpoint of the trial was the proportion of patients with clinical worsening, defined as a 4% decrease in pulse oxygen saturation, or the need for hospitalization. Secondary endpoints measured the average decrease in resting pulse oxygen saturation, average increase in resting pulse rate and proportion of patients requiring oxygen supplementation and mechanical ventilation. However, the effective rollout in the U.S. of authorized COVID-19 vaccines and decreasing incidence of disease significantly reduced the number of patients meeting our enrollment criteria, and we had been unable to enroll subjects in the final cohort, the cohort most likely to benefit from T-COVID. As a result of enrollment challenges, we decided to terminate further enrollment and have terminated the development of T-COVID.

NasoShield

NasoShield was an anthrax vaccine product candidate designed to provide rapid and stable protection after a single intranasal administration. It was being developed with the support of the U.S. Biomedical Advanced Research and Development Authority (“BARDA”) for post-exposure prophylaxis against anthrax following exposure to aerosolized B. anthracis spores. We commenced a Phase 1b trial of NasoShield in adults in 2020 which builds on the Phase 1a trial completed in 2018 and evaluated the effect of modified methods of intranasal dosing on NasoShield safety and immunogenicity. The trial enrolled 42 healthy subjects who received intranasally administered NasoShield or saline placebo and were then monitored for 6 months post-dosing. The primary endpoint was the safety and tolerability of NasoShield. The primary immunogenicity readouts included the serum binding antibody to protective antigen and anthrax toxin blocking antibody responses at 28- and 56-days post-dose administration. Stimulation of the mucosal IgA immune response in the nasal cavity was also assessed. In April 2021, we received clinical data from the Phase 1b trial that showed positive immunogenicity results and a NasoShield tolerability profile similar to placebo. On December 31, 2021, the development support from BARDA ended and we have discontinued further development of the program.

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NasoVAX

NasoVAX was a recombinant intranasal vaccine product candidate that was being developed for both seasonal and pandemic use. We believed NasoVAX could simultaneously activate the humoral, mucosal and cellular immune arms which may enable a more comprehensive immune response. The data from our Phase 2a trial with a monovalent NasoVAX vaccine indicated that NasoVAX achieved 100% seroprotection based on serum antibody responses, which was comparable to published results of a licensed injected influenza vaccine. Statistically significant increases in mucosal antibody were noted as well as a robust T cell response directed against influenza. The tolerability profile of NasoVAX was similar to placebo. Approximately half of the subjects from the highest dose were evaluated between 12 and 14 months after initial dosing for additional immunogenicity assessment. The durability data show that the immune response elicited by NasoVAX was stable with no overall change in the antibody titer or level of seroprotection over an average of 13 months. After evaluating the development path of NasoVAX, we have discontinued further development of the program.

Impact of COVID-19

We are closely monitoring how the spread of COVID-19, including any resurgences or the emergence of new variants, is affecting our employees, business, preclinical studies and clinical trials. We have reopened our executive office to allow certain employees to return to the office based on a phased approach that is intended to comply with federal and state guidelines, with a focus on employee safety and optimal work environment. We are continuing our regular interactions with the FDA and other regulatory agencies and, based on current information, we do not anticipate COVID-19 to materially affect our regulatory timelines for our ongoing clinical trials. Furthermore, as a government contractor, we are subject to the federal government vaccination mandate, which requires federal contractor employees, except in certain limited circumstances, to be vaccinated against COVID-19 by December 8, 2021. While the vaccination mandate remains subject to the interpretation of various government agencies and other entities, and questions remain regarding the specific application of the vaccination mandate, we are continuing to develop and implement health, safety, employment and operational protocols in order to timely comply with the vaccination mandate. As of December 31, 2021, the vaccination mandate has not had a material impact on our employees or operations.

Although operations have not been materially affected by the ongoing COVID-19 pandemic at this time, there is significant uncertainty relating to the trajectory of the pandemic and the impact of related responses, and disruptions caused by the ongoing COVID-19 pandemic may result in difficulties or delays in initiating, enrolling, conducting or completing our planned and ongoing trials and the incurrence of unforeseen costs as a result of disruptions in clinical supply or preclinical study or clinical trial delays. The impact of the ongoing COVID-19 pandemic on our future results will largely depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the pandemic, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions, the ultimate impact on financial markets and the global economy, and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. In addition, a recurrence of COVID-19 cases, or variants thereof, could cause other widespread or more severe impacts depending on where infection rates are highest. We continue to monitor developments as we deal with the disruptions and uncertainties relating to the ongoing COVID-19 pandemic. See “Risk Factors— A pandemic, epidemic or outbreak of an infectious disease in the United States such as the COVID-19 pandemic may adversely affect our business.” in Part I, Item 1A of this Annual Report on Form 10-K.

U.S. Government Contracts and Grants

In June 2020, we were awarded $4.7 million from the U.S. Army Medical Research & Development Command (“USAMRDC”) to fund our Phase 1/2 clinical trial of T-COVID. The competitive award was granted by USAMRDC in collaboration with the Medical Technology Enterprise Consortium (“MTEC”), a 501(c)(3) biomedical technology consortium working in partnership with the Department of Defense (“DoD”). Under the contract, MTEC paid us a firm fixed fee based upon the achievement of certain milestones for conduct and completion of a Phase 1/2 study and research and development work on the replication-deficient adenovirus 5 (“RD-Ad5”) vector vaccine platform. For the year ended December 31, 2021 and 2020, we have recognized approximately $0.5 million and $4.2 million, respectively, of grant revenue under this contract.

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In July 2016, we signed a five-year contract with Biomedical Advanced Research and Development Authority (“BARDA”). The contract, as amended, has a total value of up to $136.8 million and is used to fund clinical development of NasoShield. Under the contract, BARDA paid us a fixed fee and reimburses certain costs for the research and development of an Ad5-vectored, protective antigen-based intranasal anthrax vaccine through cGMP manufacture and conduct of a Phase 1 clinical trial dose ranging assessment of safety and immunogenicity. The contract consisted of an initial base performance period providing approximately $30.9 million in funding for the period July 2016 through December 2021. BARDA had seven options to extend the contract to fund certain continued development and manufacturing activities for the anthrax vaccine, including Phase 2 clinical trials. Each option, if exercised by BARDA, would have provided additional funding ranging from approximately $1.1 million to $34.4 million for a three-year period beginning January 2021. For the year ended December 31, 2021 and 2020, we have recognized approximately $3.7 million and $3.1 million, respectively, of grant revenue under the current BARDA contract. At December 31, 2021, BARDA had not elected to extend the contract.

Financing

Public Offering

On July 16, 2020, we offered and sold (i) 3,369,564 shares of our common stock, at a price to the public of $23.00 per share, and (ii) pre-funded warrants to purchase 1,630,436 shares of our common stock at an exercise price equal to $0.0001 per share (the “Pre-Funded Warrants”), at a price to the public of $22.9999 per share of common stock underlying the Pre-Funded Warrants (equal to the public offering price per share of Common Stock, minus the exercise price of each Pre-Funded Warrant). The Pre-Funded Warrants are exercisable at any time, provided that each Pre-Funded Warrant holder will be prohibited from exercising such Pre-Funded Warrants into shares of our common stock if, as a result of such exercise, the holder, together with its affiliates, would own more than 4.99% of the total number of shares of our common stock then issued and outstanding, which percentage may change at the holders’ election to any other number less than or equal to 19.99% upon 61 days’ notice to us. The gross proceeds of this offering were approximately $132.2 million, which includes the exercise in full of the underwriters’ option to purchase an additional 750,000 shares of common stock, before deducting underwriting discounts and commissions and offering expenses during the third quarter of 2020. The net proceeds of this offering were approximately $124.0 million, after deducting underwriting discounts and commissions and offering expenses payable by us.

At-the-Market Offering

On February 25, 2021, we entered into an Equity Distribution Agreement (the “2021 Agreement”) with Piper Sandler & Co., Evercore Group L.L.C., and B. Riley Securities, Inc., serving as sales agents (the “Sales Agents”) with respect to an at-the-market offerings program under which we may offer and sell, from time to time at its sole discretion, shares of our common stock, par value $0.0001 per share (the “Common Stock”), having an aggregate offering price of up to $125.0 million (the “Shares”) through the Sale Agents (the “2021 Offering”). As of December 31, 2021, we sold 4,800,454 shares of Common Stock under the 2021 Agreement resulting in approximately $64.8 million in net proceeds, with $58.0 million remaining available to be sold under the 2021 Agreement.

On March 27, 2020, we entered into an Equity Distribution Agreement (the “2020 Agreement”) with JMP Securities LLC, serving as placement agent (the “Placement Agent”) with respect to an at-the-market offerings program under which we may offer and sell, from time to time at our sole discretion, shares of our common stock, par value $0.0001 per share (the “Common Stock”), having an aggregate offering price of up to $50.0 million (the “Shares”) through the Placement Agent (the “2020 Offering”). We offered Shares having an aggregate offering price of $18.9 million pursuant to the prospectus supplement filed with the SEC on March 27, 2020. On June 1, 2020, we filed an amendment to the 2020 Agreement which amended the prospectus supplement dated March 27, 2020 to increase the aggregate offering price to $50.0 million. The 2020 Agreement was fully utilized during the year ended December 31, 2020, and no Shares were sold under the 2020 Agreement during the year ended December 31, 2021.

Current Resources

We have financed our operations to date principally through our equity offerings and proceeds from issuances of our preferred stock, common stock and warrants. At December 31, 2021, we had $190.3 million of cash, cash equivalents

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and restricted cash. Accordingly, management believes that we have sufficient capital to fund our plan of operations for at least a twelve-month period from the issuance date of our December 31, 2021 consolidated financial statements. However, in order to address our capital needs in the long-term, including our planned clinical trials, we must continue to actively pursue additional equity or debt financing, government funding and monetization of our existing programs through partnership arrangements or sales to third parties.

Financial Operations Overview

The consolidated financial information presented below includes the accounts of Altimmune, Inc., Altimmune UK, Ltd, Spitfire Pharma, LLC. and Altimmune AU Pty, Ltd. All intercompany accounts and transactions have been eliminated in consolidation.

Revenue

We have not generated any revenues from the sale of any products to date. Our revenue consists primarily of government and foundation grants and contracts that support our efforts on specific research projects. These grants and contracts generally provide for reimbursement of approved costs as those costs are incurred by us. Research grants and contracts and the related accounts receivable are recognized as earned when reimbursable expenses are incurred and the performance obligation is complete. Payments received in advance of services being provided are recorded as deferred revenue. We anticipate that these government and foundation grants will decline in future periods.

Research and development expenses

Research and development expenses consist primarily of costs incurred for the development of our product candidates, which include:

Research and development costs are expensed as incurred. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors, CROs and clinical sites.

We cannot determine with certainty the duration and completion costs of the current or future clinical trials of our product candidates or if, when or to what extent we will generate sales from the commercialization of any of our product candidates if they receive regulatory approval. The successful development of our product candidates is highly uncertain and may never result in approved products. The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors, including:

A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA, or another regulatory authority were to require us to conduct clinical trials beyond those that we currently

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anticipate will be required for the completion of clinical development of a product candidate, we could be required to expend significant additional financial resources and time on the completion of clinical development.

We plan to increase our research and development expenses for the foreseeable future as we continue the development of clinical and preclinical candidates. Our current planned research and development activities include the following:

To date, a significant portion of our research and development efforts have been related to the development of pemvidutide, HepTcell, as well as for NasoShield, NasoVAX, AdCOVID and T-COVID programs which were discontinued in 2021. We do not allocate personnel-related costs, costs associated with our general research platform improvements, depreciation or other indirect costs to specific programs.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related costs for personnel, including stock-based compensation and travel expenses for our employees in executive, operational, finance and human resource functions. Other general and administrative expenses include facility-related costs and professional fees for directors, accounting and legal services, and expenses associated with obtaining and maintaining our intellectual property.

We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research and development activities. We also anticipate increased expenses related to audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and the SEC requirements, director and officer insurance, investor relations costs and other costs associated with being a public company. Additionally, if and when we believe a regulatory approval of the first product candidate appears likely, we anticipate an increase in staffing and related expenses as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of our product candidates.

Critical Accounting Policies and Significant Judgment and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of our consolidated financial statements requires us to make judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent liabilities in our consolidated financial statements. We base our estimates on historical experience, known trends and events, and various other factors that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. On an ongoing basis, we evaluate our judgments and estimates in light of changes in circumstances, facts and experience. The effects of material revisions in estimates, if any, will be reflected in the consolidated financial statements prospectively from the date of change in estimates.

While our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this Annual Report, we believe the following accounting policies used in the preparation of our consolidated financial statements require the most significant judgments and estimates.

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Impairment of long-lived assets

We evaluate our long-lived tangible and intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Impairment of long-lived assets other than indefinite lived intangibles is assessed by comparing the undiscounted cash flows expected to be generated by the asset group to its carrying value.

As of December 31, 2021, we recorded non-cash impairment charges of $11.4 million for assets that were previously capitalized in connection with the construction of the Lonza facility and subsequent discontinuation of AdCOVID (see Note 3). In addition, the Company recorded an impairment loss of $0.6 million on intangible assets associated with the Company’s discontinued development programs (see Note 5).

We have indefinite lived intangible assets associated with in-process research and development (“IPR&D”). Our IPR&D assets are currently non-amortizing. Until such time as the projects are either completed or abandoned, we test those assets for impairment at least annually at year end, or more frequently at interim periods, by evaluating qualitative factors which could be indicative of impairment. Qualitative factors being considered include, but are not limited to, the current project status, forecasted changes in the timing or amounts required to complete the project, forecasted changes in timing or changes in the future cash flows to be generated by the completed products, a probability of success of the ultimate project and changes to other market-based assumptions, such as discount rates. If impairment indicators are present as a result of our qualitative assessment, we test those assets for impairment by comparing the fair value of the assets to their carrying value. Upon completion or abandonment, the value of the IPR&D assets will be amortized to expense over the anticipated useful life of the developed products, if completed, or charged to expense when abandoned if no alternative future use exists. Key assumptions used in our impairment analysis tests include projected cash flows, a probability of success of the ultimate project and the discount rate.

For the year ended December 31, 2021, we have one IPR&D asset, HepTcell, that was acquired in 2015. This candidate is a viral pathogen immunotherapy product for the treatment of chronic HBV. We performed a qualitative assessment for the IPR&D impairment testing for the years ended December 31, 2021 and 2020 and determined that no impairment indicators were present.

Fair Value Measurements

We follow the guidance in Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), which defines fair value and establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities that we can access at the measurement date.

Level 2 — Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term.

Level 3 — Unobservable inputs developed using estimates of assumptions developed by us, which reflect those that a market participant would use.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by us in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, our own assumptions are set to

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reflect those that market participants would use in pricing the asset or liability at the measurement date. We use prices and inputs that are current as of the measurement date, including during periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may change for many instruments. This condition could cause an instrument to be reclassified within levels in the fair value hierarchy. If applicable, we will recognize transfers into and out of Level 3 within the fair value hierarchy at the end of the reporting period in which the actual event or change in circumstance occurs. There were no transfers into or out of Level 3 of the fair value hierarchy during the years ended December 31, 2021 and 2020.

Contingent Consideration

We record contingent consideration associated with development and regulatory milestones that meets the definition of a liability under FASB Accounting Standards Codification Topic 480, Distinguishing Liabilities From Equity (“ASC 480”) at fair value. The fair value model used to calculate this obligation is based on the Monte Carlo simulation that has been risk adjusted based on the probability of achievement of the milestones. The inputs we use for determining the fair value of the contingent consideration associated with development and regulatory milestones are Level 3 fair value measurements. We re-evaluate the fair value on a quarterly basis. Changes in the fair value can result from adjustments to the probability of achievement of the milestones, stock price, volatility and the risk-free interest rate.

The change in our estimates associated with payments which will become due and payable for development and regulatory milestones will change the fair value of contingent consideration, resulting in a charge or contra expense to research and development expense in the period in which the increase or decrease is determined.

Research and Development

Research and development costs are expensed as incurred. Research and development costs consist of payroll and personnel expense, consulting costs, external contract research and development expenses, which includes fees paid to other entities that conduct certain research and development activities on our behalf, such as clinical research organizations (“CROs”) and contract manufacturing organizations (“CMOs”), raw materials, drug product manufacturing costs, laboratory supplies and allocated overhead, including depreciation and amortization, rent and utilities. Material research and development costs that are paid in advance of performance are capitalized as a prepaid expense and amortized over the service period as the services are provided.

Clinical trial costs are a significant component of research and development expenses, and we outsource a significant portion of these costs to third parties. Third party clinical trial expenses include investigator fees, site and patient costs, CRO costs, costs for central laboratory testing, data management and CMO costs. The accrual for site and patient costs includes inputs such as estimates of patient enrollment, patient cycles incurred, clinical site activations, and other pass-through costs. These inputs are required to be estimated due to a lag in receiving the actual clinical information from third parties. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected on the consolidated balance sheets as a prepaid asset or accrued expenses. These third-party agreements are generally cancelable, and related costs are recorded as research and development expenses as incurred. Material advance payments for goods or services that will be used or rendered for future research and development activities are recorded as a prepaid asset and recognized as expense as the related goods are delivered or the related services are performed. When evaluating the adequacy of the accrued expenses, we analyze progress of the studies, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates may be made in determining the accrued balances at the end of any reporting period.

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Results of Operations

Comparison of years ended December 31, 2021 and December 31, 2020:

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Revenue

Revenue from contracts and grants for the years ended December 31, 2021 and 2020 consisted primarily of research grants in the United States from MTEC for our T-COVID product candidate and BARDA for our NasoShield vaccine candidate. These grants consist of firm fixed fee contracts based on milestones and cost reimbursement contracts, with a fixed fee based on either costs incurred or milestones met.

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Revenue decreased by $3.8 million, or 46% for the year ended December 31, 2021 as compared to the year ended December 31, 2020. The decrease was primarily the result of a decrease of $3.7 million in MTEC revenue attributable to the timing of clinical trial and the discontinuation of development work on the T-COVID program.

Research and development expenses

Research and development expenses for the years ended December 31, 2021 and 2020 consisted primarily of expenses related to product candidate development. Research and development expenses for the years ended December 31, 2021 and 2020 are summarized as follows:

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Research and development expenses increased by $24.8 million, or 50%, during the year ended December 31, 2021 as compared to the year ended December 31, 2020. The increased expense was primarily due to:

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General and administrative expenses

The following is a summary of general and administrative expenses for the years ended December 31, 2021 and 2020:

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General and administrative expenses increased by $2.2 million, or 17%, during the year ended December 31, 2021 as compared to the year ended December 31, 2020. The increased expense is primarily due to an increase of $1.9 million in labor-related and other costs, an increase of $1.4 million in stock compensation expense, partially offset by a decrease of $1.1 million in professional fees.

Impairment loss on construction-in-progress

Impairment loss on construction-in-progress of $11.4 million reported during the year ended December 31, 2021 represents non-cash impairment charges recorded for assets that were previously capitalized in connection with the construction of the Lonza facility and subsequent discontinuation of AdCOVID. There were no impairment charges reported during the year ended December 31, 2020.

Total other (expense) income, net

Total other (expense) income, net decreased by $0.5 million during the year ended December 31, 2021 as compared to the year ended December 31, 2020. The net decreases are primarily due to changes in foreign currency conversion and interest income.

Income tax benefit

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Income tax benefit decreased by $5.4 million during the year ended December 31, 2021 as compared to the year ended December 31, 2020. In both 2021 and 2020, we had a valuation allowance against all of our deferred tax assets, but in 2020 a benefit was recognized related to a net operating loss carryback refund claim pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) signed into law on March 27, 2020 which made temporary changes regarding the utilization and carry back of net operating losses.

Liquidity and Capital Resources

Overview

Our primary sources of cash for the year ended December 31, 2021 were from equity transactions, maturities of short-term investments, cash receipts of accounts receivables from research grants and cash receipts of income tax refunds. Our cash, cash equivalents, and restricted cash were $190.3 million at December 31, 2021. We believe, based on the operating cash requirements expected for 2022 and 2023, our cash on hand at December 31, 2021, together with expected cash receipts from our income tax refunds and R&D incentives, are sufficient to fund operations for at least a twelve-month period from issuance date of our December 31, 2021 consolidated financial statements.

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We have not generated any revenues from the sale of any products to date, and there is no assurance of any future revenues from product sales. Our sources of revenue have consisted of grant revenues under our arrangements with BARDA for the development of NasoShield, MTEC for a clinical trial and development work on T-COVID, and to a lesser degree from other licensing arrangements. We anticipate that these government and foundation grants will decline in future periods. We have incurred significant losses since we commenced operations. As of December 31, 2021, we had an accumulated deficit of $293.2 million. In addition, we have not generated positive cash flows from operations. We have had to rely on a variety of financing sources, including the issuance of debt and equity securities. As capital resources are consumed to fund our research and development activities, we may require additional capital beyond our currently anticipated amounts. In order to address our capital needs, including our planned clinical trials, we must continue to actively pursue additional equity or debt financing, government funding, and monetization of our existing programs through partnership arrangements or sales to third parties.

In June 2020, we were awarded $4.7 million from the U.S. Army Medical Research & Development Command (“USAMRDC”) to fund our Phase 1/2 clinical trial of T-COVID. The competitive award was granted by USAMRDC in collaboration with the Medical Technology Enterprise Consortium (“MTEC”), a 501(c)(3) biomedical technology consortium working in partnership with the Department of Defense (“DoD”). Under the contract, MTEC pays us a firm fixed fee based upon the achievement of certain milestones for conduct and completion of a Phase 1/2 study and research and development work on the replication-deficient adenovirus 5 (“RD-Ad5”) vector vaccine platform. Through December 31, 2021, we have collected approximately $4.7 million in cash under the contract.

In July 2016, we signed a five-year contract with BARDA. The contract, as amended, has a total value of up to $136.8 million and is used to fund clinical development of NasoShield. Under the contract, BARDA pays us a fixed fee and reimburses certain costs for the research and development of an Ad5-vectored, protective antigen-based intranasal anthrax vaccine through cGMP manufacture and conduct of a Phase 1 clinical trial dose ranging assessment of safety and immunogenicity. The contract consists of an initial base performance period providing approximately $30.9 million in funding for the period July 2016 through December 2021. BARDA has seven options to extend the contract to fund certain continued development and manufacturing activities for the anthrax vaccine, including Phase 2 clinical studies. Each option, if exercised by BARDA, would provide additional funding ranging from approximately $1.1 million to $34.4 million for a three-year period beginning in 2021. Through December 31, 2021, the end of the contract, we have collected approximately $29.2 million in cash under the current BARDA contract. At December 31, 2021, BARDA had not elected to extend the contract.

Indebtedness

Paycheck Protection Program

On April 7, 2020, we applied for a loan from ServisFirst Bank, as lender, pursuant to the Paycheck Protection Program of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) as administered by the U.S. Small Business Administration (the "SBA"). On April 13, 2020, the Loan was approved and we received the proceeds from a loan in the amount of $632,000 (the “PPP Loan”).

The PPP Loan, which took the form of a promissory note (the “Promissory Note”), was set to mature on April 7, 2022 and bore interest at a rate of 1% per annum. Monthly principal and interest payments, less the amount of any potential forgiveness, was to commence on November 7, 2020.  All or a portion of the Loan may be forgiven by the SBA and lender upon application by us upon documentation of expenditures in accordance with the SBA requirements. In July 2020, we voluntarily extinguished the Promissory Note by paying the outstanding principal and accrued interest in cash. We had no indebtedness during the year ended and as of December 31, 2021.

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Cash Flows

The following table provides information regarding our cash flows for the years ended December 31, 2021 and 2020:

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Operating Activities

Net cash used in operating activities was $78.2 million for the year ended December 31, 2021 compared to $34.3 million during the year ended December 31, 2020. Our sources of cash provided by operations during the year ended December 31, 2021 were primarily revenue generated by our BARDA and MTEC contracts and cash receipts of income tax refunds. The primary uses of cash from our operating activities include payments for labor and labor-related costs, professional fees, research and development costs associated with our clinical trials and Lonza, and other general corporate expenditures. The increase in cash used in operating activities of $43.9 million is due to an increase in net loss as adjusted for noncash items of $48.2 million and changes in working capital accounts of $4.3 million.

Investing Activities

Net cash provided by (used in) investing activities was $87.5 million for the year ended December 31, 2021 compared to $72.2 million during the year ended December 31, 2020. The net cash provided by investing activities during 2021 was primarily due to net proceeds from short-term investment activity, partially offset by purchases of property and equipment. The net cash used in investing activities during the year ended December 31, 2020 was primarily due to purchases of short-term investments, net of maturities.

Financing Activities

Net cash provided by financing activities was $65.1 million for the year ended December 31, 2021 compared to $213.5 million during the year ended December 31, 2020. The net cash provided by financing activities during 2021 was primarily the result of the receipt of $64.8 million in proceeds from the issuance of common stock from our at-the-market offerings program. The net cash provided by financing activities during 2020 was primarily the result of the receipt of $124.0 million in net proceeds from a public offering, $48.2 million in proceeds from the issuance of common stock from our at-the-market offerings program and $41.0 million in proceeds from the exercise of warrants.