Part I—FINANCIAL INFORMATION

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

2

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

3

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

4

ALTIMMUNE, INC.

The Company’s ability to continue as a going concern is dependent upon the Company’s ability to raise additional debt and equity capital. There can be no assurance that such capital will be available in sufficient amounts or on terms acceptable to the Company. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability of the recorded assets or the classification of liabilities that may be necessary should the Company be unable to continue as a going concern. As of June 30, 2018, the Company does not have sufficient capital to fund its plan of operations for a twelve-month period from the expected issuance date of its financial statements as of and for the three and six months ended June 30, 2018.

In order to address its capital needs, including its planned clinical trials, the Company must continue to actively pursue additional equity or debt financing. The Company has been in ongoing discussions with institutional investors and investment banks with respect to such financing and filed a public registration statement on July 30, 2018 with the intention to raise capital during 2018 sufficient to finance activities through the next major clinical milestones. However, adequate financing opportunities might not be available to the Company on acceptable terms, or at all. If the Company is unable to obtain additional financing in sufficient amounts or on acceptable terms under such circumstances the Company’s operating results and prospects will be adversely affected.

3. Summary of Significant Accounting Policies

Segment information

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, our Chief Executive Officer, in making decisions regarding resource allocation and assessing performance. We view our operations and manage our business in one operating segment, the research and development of immunotherapies and vaccines.

Recently Issued Accounting Pronouncements

In February 2016, FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 requires a lessee to separate the lease components from the non-lease components in a contract and recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. It also aligns lease accounting for lessors with the revenue recognition guidance in ASU 2014-09. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The standard requires a modified retrospective approach however the FASB recently added a transition option to the leases standard that allows entities to apply the new guidance in the year of transition rather than at the beginning of the earliest period presented. The Company has not elected to early adopt this standard and is currently evaluating the impact the adoption of the standard will have on our financial statements.

In June 2018, FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718)—Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). ASU 2018-07 expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 is effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. We are evaluating what impact, if any, the adoption of ASU 2018-07 may have on our financial statements.

4. Business Combination

Pursuant to the Merger Agreement, the Company closed the Mergers with PharmAthene on May 4, 2017. In accordance with the terms of the Merger Agreement, PharmAthene issued 0.749106 (the “share exchange ratio”) of a share of PharmAthene common stock for each share of Private Altimmune’s common stock (“common stock”) outstanding as of the closing date. In addition, Private Altimmune’s stock options and warrants were also replaced with options and warrants, to purchase PharmAthene’s common stock at the same share exchange ratio of 0.749106. All historical share and per share information including common and preferred stock, restricted stock, common stock warrants, and stock options, has been retroactively adjusted to reflect the effect of the share exchange ratio. Immediately prior to closing, 599,285 shares of Series B convertible preferred stock (“convertible preferred stock”) converted into Private Altimmune common stock on a 1-for-1 basis. In addition, outstanding principal and accrued interest on the convertible notes that were issued in January 2017 (the “Notes”) converted into 316,734 shares of Private Altimmune common stock. Further, 39,758 shares of Private Altimmune common stock were issued pursuant to the accelerated vesting of restricted stock, and 660,715 shares of Private Altimmune common stock were issued as a result of warrant exercises, both in accordance with their original terms. Upon the closing of the Mergers, Private Altimmune common stock totaling 6,883,498 shares were exchanged for 6,883,498 shares of PharmAthene common stock.

Although PharmAthene was the issuer of the shares and considered the legal acquirer in the Mergers, following the closing, shareholders of Private Altimmune held 58.2% of the equity interest of the combined entity and assumed control of the combined entity. As a result, the transaction has been accounted for as a reverse merger, with Private Altimmune considered the accounting acquirer, and the assets and liabilities of PharmAthene have been recorded at their estimated fair value. The unadjusted purchase price

6

allocated to PharmAthene’s assets and liabilities was estimated to be $44,742,737 as of the closing date and consisted of the shares of the combined company retained by PharmAthene shareholders, and the estimated fair value of vested PharmAthene stock options and warrants which remained outstanding as of the closing date. Also at the closing, 7,569 outstanding unvested options of PharmAthene with an estimated fair value of $15,173 remained subject to vesting and service requirements. These unvested options will be recorded as operating expense in future periods as the services are delivered and the options vest.

Headquartered in Annapolis, Maryland, PharmAthene was incorporated in Delaware in April 2005. PharmAthene was a biodefense company engaged in Phase 2 clinical trials in developing a next generation anthrax vaccine. The next generation vaccine is intended to have more rapid time to protection, fewer doses for protection and less stringent requirements for temperature-controlled storage and handling than the currently used vaccine. The Mergers enable the combined company to become a fully integrated, commercially-focused immunotherapeutics company with the ability to create more value than either company could achieve individually. As a publicly listed entity, the Mergers also provide us with additional capital financing alternatives to support the combined entity’s planned research and development activities.

In addition to the operating assets and liabilities of PharmAthene, Private Altimmune also acquired PharmAthene’s tax attributes, which primarily consisted of tax refunds receivable and $965,583 of net operating losses which were limited under Section 382 of the Internal Revenue Code and were fully reserved, which will expire in 2023. The Company recorded a deferred tax liability related to future tax benefits arising from an in-process research and development asset (“IPR&D”) acquired in the Mergers. Goodwill generated from the Mergers is not expected to be deductible for tax purposes.

For accounting purposes, the historical financial statements of Private Altimmune have not been adjusted to reflect the Mergers, other than adjustments to the capital structure of Private Altimmune to reflect the historical capital structure of PharmAthene. Private Altimmune incurred $2,183,671 of transaction costs, which were expensed as incurred.

The following table lists the various securities of PharmAthene which were outstanding as of May 4, 2017 and whose rights and obligations were assumed by the combined entity following the Mergers:

Through December 31, 2017, the Company had recorded adjustments to the allocation of the purchase consideration that included a $44,700 adjustment to increase our tax refund receivable and a $4,535 adjustment to reduce our deferred tax liabilities, with a total adjustment of $49,235 resulting in an increase in goodwill. The adjustments were the result of a change in the tax rate being applied from 34% to 35%. Those purchase price adjustments were reflected in the consolidated balance sheet as of December 31, 2017.

During the six months ended June 30, 2018, the Company recorded adjustments to the purchase price allocation resulting in a net decrease in tax refunds receivable, with a corresponding net increase in goodwill, of $490,676. The initial tax receivable was recorded based on an estimate of taxable loss for PharmAthene’s operations from January 1, 2017 to May 4, 2017 prior to the Mergers. During the preparation of its tax return, management revised its taxable loss calculations for warrant expenses and state tax refunds, resulting in the decrease to tax refunds receivable.

The measurement period ended on the one-year anniversary of the Merger, and accordingly the purchase price allocation was considered final. The final adjusted allocation of the purchase consideration is as follows:

7

The Company relied on significant Level 3 unobservable inputs to estimate the fair value of acquired IPR&D assets using management’s estimate of future revenue and expected profitability of the products after taking into account an estimate of future expenses, net of contract revenue and other funding, necessary to bring the products to completion. These projected cash flows were then discounted to their present values using a discount rate of 23%, which was considered commensurate with the risks and stages of development of the products.

From the date of the Mergers through December 31, 2017, the Company experienced a significant decline in the trading price of our common stock which indicated potential impairment. Based on the results of our impairment tests performed during 2017, we had concluded that our goodwill was impaired and its full carrying value, including goodwill generated from the Mergers, was written off as an impairment charge during the year ended December 31, 2017. During the three months ended March 31, 2018, the Company recorded an additional goodwill impairment charge of $490,676 as a result of the purchase price allocation adjustments recorded during the period. There was no goodwill balance outstanding at March 31, 2018.

The operating activities of PharmAthene have been included in the accompanying condensed consolidated financial statements from the date of the Mergers. For the six months ended June 30, 2018, revenues and net income of PharmAthene included in the accompanying condensed consolidated financial statements aggregated $1,240,369 and $20,880, respectively.

The following unaudited pro forma information for the six months ended June 30, 2017 gives effect to the acquisition of PharmAthene as if the Mergers had occurred on January 1, 2017:

Significant nonrecurring pro forma adjustments included (i) the reversal of acquisition costs of $2,341,279; (ii) PharmAthene stock compensation expenses of $66,367 for the six months ended June 30, 2017 that would have been incurred prior to the pro forma acquisition date had the Mergers occurred on January 1, 2017; (iii) exclusion of the change in fair value of derivatives of $90,191, and (iv) reversal of $722,029 of interest expense from notes to be converted.

5. Exchange Agreements

On June 29, 2018 we closed on privately negotiated exchange agreements with certain investors to exchange warrants to purchase 1,593,753 common shares of the Company in exchange for:

The total fair value of the consideration given in exchange for the warrants in the First Exchange was $4,727,000; which exceeded the March 31, 2018 fair value of the warrants by $3,467,935. The warrant fair value at March 31, 2018 was determined assuming an orderly transaction between market participants, using a Monte Carlo simulation valuation model. The Company was compelled to enter into the exchange transaction as Management believes the dilutive features of the common stock warrants prevented the Company from obtaining sufficient financing on acceptable terms. Accordingly, the Company recorded a loss on exchange of warrants of $3,593,082, inclusive of transaction costs of $125,147, which is reported in changes in fair value of warrant liability including loss on exchange. The Company additionally agreed to redeem the First Exchange investors’ remaining shares of Series B Preferred Stock at their face value of $2,364,044. Since the redemption occurred prior to the stated maturity date, $56,792 of the redemption price is considered a deemed dividend.

Subsequent to the First Exchange, the Company negotiated exchange agreements to issue 4,351,136 shares of common stock in exchange for warrants to purchase 675,679 common shares of the Company (the “Second Exchange”). The Second Exchange agreements were signed in July 2018. A portion of the consideration to be issued pursuant to the Second Exchange is subject to shareholder approval which the Company is seeking at its annual shareholder meeting scheduled for August 30, 2018. The consideration offered in this Second Exchange is considered to be substantially similar to the fair value on a per warrant basis of the First Exchange. Accordingly, the Company considers this transaction to be reflective of the fair value of the warrant liability at June 30, 2018 and the remaining 756,332 unexchanged warrants at June 30, 2018 are valued at $2,229,431, or $2.97 per warrant. The Company additionally agreed to convert the Second Exchange investors’ remaining shares of Series B Preferred Stock for 963,711 shares of common stock and $22,241.

The following is a summary of the income statement effect of changes in the Company’s outstanding warrants:

In conjunction with the First Exchange the Company issued convertible notes (the “Exchange Notes”) with an aggregate principal value of $1,500,000, which are initially convertible into up to 2,205,883 shares of our common stock at the holder’s option on the maturity date. The notes are also convertible in the event of default, at which time the balance of the note increases by 112% and is convertible at a share price equal to the lower of $0.68 per share or 75% of the weighted average price of common stock during the twenty consecutive trading day period immediately preceding the event of default. In the event the weighted average price of common stock as defined above is below $0.15 per share, then a supplemental cash payment is due to the note holder.

The Exchange Notes mature on December 29, 2018, when the entire principal and any unpaid interest will be due. These notes earn interest at a stated rate of 1% each month and interest is payable on the last business day of each month.

8

The conversion and redemption options embedded in the Exchange Notes qualify for derivative accounting under ASC 815-15 “Derivatives and Hedging”. The fair value of the derivative liability resulted in a discount to the convertible note of $180,611, making the carrying value of the note $1,319,389. The carrying value of the convertible note will be accreted over the term of the convertible note, beginning in Q3 2018. Additionally, $58,172 in debt issuance costs were capitalized and will be recognized over the term of the note.

The value of the shares of the Company’s common stock which were part of the exchange consideration were valued at a 5% discount to the June 29, 2018 closing price. This amount is considered a marketability discount calculated based on an analysis of the leak out provision provided for in the exchange agreements. The key assumptions used in calculating the marketability discount were:

6. Net Loss Per Share

Because we have reported a net loss attributable to common stockholders for all periods presented, basic and diluted net loss per share attributable to common stockholders are the same for all periods presented. For periods presented, all preferred stock, unvested restricted stock, common stock warrants, and stock options have been excluded from the computation of diluted weighted-average shares outstanding because such securities would have an antidilutive impact.

The following table sets forth the computation of basic and diluted net loss per share:

Potential common shares issuable upon conversion, vesting or exercise of preferred stock, unvested restricted stock, common stock warrants, and stock options that are excluded from the computation of diluted weighted-average shares outstanding are as follows:

7. Intangible Assets

Our intangible assets consisted of the following:

9

Changes in the carrying amounts of IPR&D assets for the six months ended June 30, 2018 were:

Amortization expense of intangible assets subject to amortization totaled $14,972 and $13,597 for the three months ended June 30, 2018 and 2017, and $29,446 and $26,152 for the six months ended June 30, 2018 and 2017, respectively. Amortization expense was classified as research and development expenses in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss.

As of June 30, 2018, future estimated amortization expense is as follows:

8. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:

9. Other Long-Term Liabilities

Other long-term liabilities consist of the following:

10

10. Beneficial Conversion Feature

A summary of the periodic changes in beneficial conversion feature embedded in the redeemable preferred stock as of June 30, 2018 is as follows:

11. Embedded Derivatives

A summary of the periodic changes in the fair value of the derivative financial instruments embedded in the redeemable preferred stock and Exchange Notes (see Note 5) as of June 30, 2018 is as follows:

The fair value used to determine the initial carrying value of the derivative financial instruments embedded in the Exchange Notes were measured using Level 3 inputs and were estimated using the Monte Carlo simulation valuation model. The key assumptions used to estimate the fair value of the embedded redemption and conversion derivatives embedded in the Exchange Notes were as follows:

12. Warrants

A summary of warrant activity during the three and six months ended June 30, 2018 and 2017 is as follows:

For warrants classified as a liability, the following is a summary of the periodic changes in their fair value at June 30, 2018:

11

13. Stock-Based Compensation

Stock Options

The Company’s stock option awards generally vest over four years and typically have a contractual life of ten years. At June 30, 2018, there was $1,204,432 of unrecognized compensation cost related to stock options, which is expected to be recognized over a weighted-average period of 2.5 years. During the three and six months ended June 30, 2018, the Company issued 55,120 and 286,218 shares of common stock, respectively, as a result of option exercises.

Information related to stock options outstanding at June 30, 2018 is as follows:

Restricted Stock

At June 30, 2018, we had unvested restricted stock of 19,168 shares with total unrecognized compensation expense of $3,230, which we expect to recognize over a weighted average period of approximately 2.3 years. During the three and six months ended June 30, 2018, the Company released 2,130 and 4,260 shares of common stock from restriction, respectively, as a result of the vesting of restricted stock.

Stock-based compensation expense

Stock-based compensation expense is classified in the unaudited condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2018 and 2017 as follows:

14. Income Taxes

The Company recorded an income tax benefit of $1,497,093 and $2,488,731 for the three and six months ended June 30, 2018, respectively. Income taxes for the six months ended June 30, 2018 included discrete tax benefits of $18,351 related to excess tax benefits associated with share-based compensation, and $271,356 related to a change in estimate. Excluding discrete items, the Company’s annual effective tax rate through June 30, 2018 was 16.81% which includes a $1.5 million benefit due to the Company’s projected 2018 unlimited lived Federal net operating loss (“NOL”) that we have determined to be realizable and a $0.7 million tax benefit due to the ability to carry back Maryland state NOLs generated in 2018. The effective tax rate deviates from the statutory rate primarily due to permanent tax adjustments related to changes in fair value of warrant liability, including loss on exchange described in Note 5.

In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Act (“SAB 118”) which allows the Company to record provisional amounts during a measurement period not to extend beyond one year from the enactment date. Since the Tax Cuts and Jobs Act (“TCJA”) was passed in December 2017, additional regulatory guidance and accounting interpretation are expected to be released over the next year, and significant data and analysis will be required to finalize amounts recorded pursuant to TCJA. The Company considers the accounting for the deferred tax re-measurements and other items to be incomplete due to the forthcoming guidance and its ongoing analysis of final year-end data and tax positions. The Company expects to complete its analysis within the measurement period in accordance with SAB 118. The Company did not change any provisional estimates recognized in 2017 which would impact the statement of operations. Any adjustments to these amounts will be recorded to current tax expense in 2018 when the analysis is complete.

12

15. Contingencies

The Company is a party in various other contractual disputes, litigation, and potential claims arising in the ordinary course of business. We do not believe that the resolution of these matters will have a material adverse effect on our financial position or results of operations.

16. Subsequent events

Refer to Note 5 for a description of the Exchange Agreements entered into on July 11, 2018.

The Company was granted a three-month extension on its secured line of credit agreement that originally matured in April 2018. On July 27, 2018, the Company renewed this agreement for a six-month term with an increase to the borrowing capacity from $250,000 to $1,750,000 subject to a minimum liquidity requirement equal to the outstanding balance of the line.

We are also developing two government funded assets, NasoShield and SparVax-L. NasoShield is an anthrax vaccine designed to provide rapid, stable protection after a single intranasal administration. In a head-to-head comparison with the existing approved anthrax vaccine in a gold-standard animal model, a single dose of NasoShield showed complete protection from inhalation anthrax and was non-inferior to multiple doses of the existing approved anthrax vaccine while providing for a more rapid and stable immune response. We have developed the product candidate with the support of the Biomedical Advanced Research and Development Authority (“BARDA”), and with their continued financial and contractual support, we launched a Phase 1 trial with NasoShield in first quarter of 2018 and are anticipating topline data from this trial in the third quarter of 2018. We anticipate that positive Phase 1 data will trigger additional funding through the exercise of some of the contract options currently in place under our BARDA contract.

With the support of the National Institutes of Allergy and Infectious Diseases, or NIAID, we are developing, SparVax-L, a recombinant protein-based anthrax vaccine designed to require fewer doses and have a longer shelf life than the only currently licensed anthrax vaccine. We have demonstrated a significant improvement in shelf life (two years at room temperature and six years at refrigerated temperatures) with a lyophilized formulation. Recent preclinical experiments have shown it to be 100% protective with a two-dose regimen (administered on study Days 0 and 14 days) with higher protective (toxin neutralizing) antibodies than the currently licensed vaccine administered under the same schedule. We are seeking additional government funding to continue to move this program forward.

HepTcell, an immunotherapy for patients chronically infected with HBV, has recently completed a Phase 1 trial in the United Kingdom and South Korea. While generally well tolerated, the initial immunogenicity results from this trial in patients with chronic HBV were inconclusive and the Company is awaiting six-month follow up results that will be available in the fourth quarter of 2018, to determine whether to continue with further development of HepTcell, including any further clinical trials.

Merger with PharmAthene

Our business is the result of a merger between PharmAthene, Inc. (“PharmAthene”) and the business previously known as Altimmune, Inc. (“Private Altimmune”). In May 2017, Private Altimmune merged with PharmAthene pursuant to an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”), dated January 18, 2017, by and among Private Altimmune, PharmAthene, its wholly owned acquisition subsidiaries Mustang Merger Sub Corp I Inc. (“Merger Sub Corp”) and Mustang Merger Sub II LLC (“Merger Sub LLC”). Pursuant to the Merger Agreement, Merger Sub LLC agreed to acquire 100% of the outstanding capital stock of Private Altimmune in a reverse triangular merger and reorganization pursuant to section 368(a) of the Internal Revenue Code (the “Mergers”). Prior to the Mergers, PharmAthene was a publicly traded biodefense company engaged in Phase 2 clinical trials in developing a next generation anthrax vaccine.

On May 4, 2017, Private Altimmune and PharmAthene closed the Mergers in accordance with the terms of the Merger Agreement. Upon the closing of the Mergers, (i) Merger Sub Corp merged with and into Private Altimmune, with Private Altimmune remaining as the surviving corporation; (ii) Private Altimmune then merged with and into Merger Sub LLC, with Merger Sub LLC (renamed as “Altimmune LLC”) remaining as the surviving entity; and (iii) PharmAthene was renamed as “Altimmune, Inc.”

In accordance with the terms of the Merger Agreement, PharmAthene issued 0.749106 (the “share exchange ratio”) of a share of PharmAthene common stock for each share of Private Altimmune common stock outstanding as of the closing date. All historical share and per share information — including common stock, convertible preferred stock, redeemable preferred stock, common stock warrants, restricted stock, and stock options — has been retroactively adjusted to reflect the impact of the share exchange ratio. In addition, Private Altimmune stock options and warrants were also replaced with options and warrants to purchase PharmAthene’s common stock at the same exchange ratio of 0.749106. Immediately prior to closing, 599,285 shares of our convertible preferred stock were converted into Private Altimmune common stock on a 1-for-1 basis. In addition, outstanding principal and accrued interest on the Notes were converted into 316,734 shares of Private Altimmune common stock. Further, 39,758 shares of Private Altimmune common stock were issued pursuant to the accelerated vesting of restricted stock, and 660,715 shares of Private Altimmune common stock were issued as a result of warrant exercises, both in accordance with their original terms. Upon the closing of the Mergers, all outstanding shares of Private Altimmune common stock were exchanged for 6,883,498 shares of PharmAthene common stock.

Following the closing, shareholders of Private Altimmune held 58.2% of the equity interest of the combined entity and assumed control of the combined entity. As a result, the transaction has been accounted for as a reverse merger, and the assets and liabilities of PharmAthene have been recorded at their estimated fair value. The unadjusted purchase price to be allocated to PharmAthene’s assets and liabilities was estimated to be $44,742,737 as of the closing date and consisted of the shares of the combined company retained by PharmAthene shareholders, and the estimated fair value of vested PharmAthene stock options and warrants which remained outstanding as of the closing date. Also at the closing, 7,569 shares of PharmAthene outstanding stock options with an estimated fair value of $15,173 remained subject to vesting and service requirements. These unvested options will be recorded as operating expense in future periods as the services are delivered and the options vest.

14

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.

Financing

Prior to and as a condition for the Mergers, in January 2017, Private Altimmune entered into a Convertible Promissory Note Purchase Agreement (the “Note Agreement”) for the private placement of notes (the “Notes”) for $8.6 million at 6% to be issued in two separate closings. The initial closing dated March 9, 2017 resulted in $3,150,630 of gross proceeds. The initial closing also included $196,496 of certain existing outstanding notes payable and $881,044 of certain accrued expenses that were modified and became a component of the Notes on February 28, 2017. The second closing contemplated by the Note Agreement was satisfied by the completion of the offering of Series B redeemable convertible preferred stock (“redeemable preferred stock”) in August 2017. In connection with the offering of the Notes, Private Altimmune issued warrants to purchase 49,776 shares of Private Altimmune common stock to certain noteholders, with an exercise price of $0.01 per share.

On August 16, 2017, we issued 15,656 shares of $0.0001 par value, redeemable preferred stock and warrants to purchase up to 2,345,427 shares of our common stock for total gross proceeds of $14,716,370, and incurred issuance costs totaling $1,697,800. The redeemable preferred stock matures on August 16, 2018. The maturity date may be extended at the option of the holders to ten trading days after the curing of a triggering event (as defined in the Certificate of Designations with respect to the redeemable preferred stock), or ten business days after the consummation of a change of control. In addition, the redeemable preferred stock agreements require that we reserve a sufficient number of common shares to cover at least 150% of the common shares expected to be issued upon the conversion of the redeemable preferred stock at the then current conversion price, and the exercises of common stock warrants issued in connection with the redeemable preferred stock. The redeemable preferred stock will be redeemed in nine specified installments. On each of the nine monthly specified installment dates beginning in December 2017 through maturity, we are required to convert, redeem, or a combination, one-ninth of the originally issued number of redeemable preferred stock at their stated value of $1,000 per share, for an aggregate value of $1,739,524 for each installment. If we elect to convert the installment shares, the conversion price is determined based on the lowest of (i) the then applicable conversion price (initially $2.67 per share), (ii) 85% of the average of the three lowest weighted-average prices of the common stock during the ten trading days up to the installment date, and (iii) 85% of the weighted average price of common stock on the trading day immediately before the installment date. If we elect cash redemption, the redemption amount is $1,000 per share, plus any accrued but unpaid dividends and any accrued but unpaid late charges. Through March 31, 2018, we had issued an aggregate of 6,387,898 shares of common stock in connection with the redemption of 8,698 shares of redeemable preferred stock. As of March 31, 2018, there were 6,958 shares of redeemable preferred stock still outstanding.

On June 29, 2018 we entered into exchange agreements with certain holders of our Series B Redeemable Convertible Preferred Stock (“Series B Preferred Stock”) and warrants (“Existing Warrants”) pursuant to which, we (i) issued an aggregate of 5,030,991 shares of common stock, (ii) issued convertible notes (the “Exchange Notes”) with an aggregate principal value of $1,500,000, which are initially convertible into up to 2,205,883 shares of our common stock upon the default by the Company or at the holder’s option on the maturity date and is subject to adjustment under certain circumstances in accordance with the terms of the Exchange Notes and (iii) paid $1,100,000 in aggregate cash consideration, all in exchange for Existing Warrants to purchase 1,593,753 shares of common stock. We refer to these transactions as the “First Exchange”. In addition, the Company agreed to redeem all these holders remaining shares of Series B Preferred Stock, in cash, at the face value of $2,364,044.

On July 11, 2018, we entered into exchange agreements with certain other holders of our Series B Preferred Stock and Existing Warrants pursuant to which we (i) issued an aggregate of 963,711 shares of common stock and (ii) paid $22,241 in cash, all in exchange for all of the outstanding shares of our Series B Preferred Stock. Subject to receipt of stockholder approval, which we are seeking at our annual meeting of stockholders scheduled for August 30, 2018, we will issue an additional 4,351,136 shares of common stock in exchange for Existing Warrants to purchase 675,679 shares of common stock. We refer to these transactions as the “Second Exchange” and together with the First Exchange as the “Exchanges”.

Current Resources

We have incurred accumulated losses since inception. Our ability to continue as a going concern is dependent upon our ability to raise additional debt and equity capital. There can be no assurance that such capital will be available in sufficient amounts or on terms acceptable to us. These factors raise substantial doubt about our ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments relating to the recoverability of the recorded assets or the classification of liabilities that may be necessary should we be unable to continue as a going concern.

15

As capital resources are consumed to fund our research and development activities, we may not have sufficient capital to fund our plan of operations. In order to address our capital needs, including our planned clinical trials, we must continue to actively pursue additional equity or debt financing. The Company has been in ongoing discussions with institutional investors and investment banks with respect to such financing and filed a public registration statement on July 30, 2018 with the intention to raise capital during 2018 sufficient to finance activities through the next major clinical milestones.

Adequate financing opportunities might not be available to us, when and if needed, on acceptable terms, or at all. If we are unable to obtain additional financing in sufficient amounts or on acceptable terms under such circumstances, our operating results and prospects will be adversely affected. As of June 30, 2018, the Company does not have sufficient capital to fund its plan of operations for a twelve-month period from the expected issuance date of our June 2018 financial statements.

Critical Accounting Policies and Significant Judgment and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. and the rules and regulations of the SEC for interim financial reporting. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and the related disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience, knowledge of current conditions, and expectations of what could occur in the future given available information.

There have been no changes in our critical accounting policies and significant judgment and estimates as disclosed in our annual report on Form 10-K for the year ended December 31, 2017. For more information regarding our critical accounting policies, we encourage you to read the discussion contained in Item 7 under the heading “Critical Accounting Policies and Significant Judgments and Estimates” and Note 4 “Summary of Significant Accounting Policies” included in the notes to the consolidated financial statements contained in our annual report on Form 10-K for the year ended December 31, 2017.

16

Comparison of the six months ended June 30, 2018 and 2017

Revenue and grants and contracts

Revenue and grants and contracts for the three and six months ended June 30, 2018 consisted primarily of research grants from BARDA and NIAID in the United States for our anthrax vaccine product candidates. These contracts are cost reimbursement, with a fixed fee which is either based on costs or milestones. Revenue from BARDA for the three and six months ended June 30, 2018 was $1.9 million and $3.9 million, respectively, as compared to $2.6 million and $2.8 million for the same respective periods of 2017 due directly to changes in spending on clinical trials related to BARDA’s program described below. Revenue from NIAID for the three and six months ended June 30, 2018 was $0.47 million and $1.24 million, respectively, as compared to $0.43 million and $0.43 million for the same respective periods of 2017 due directly to changes in spending on clinical trials related to NIAID’s program described below. The NIAID contract was acquired in the Mergers with PharmAthene in May of 2017.

Research and development expenses

Research and development operating expense decreased by $0.3 million, or 6%, and increased by $2.6 million, or 33%, for the three and six months ended June 30, 2018, respectively, as compared to the same periods in 2017. The changes in research and development expense was the combination of (i) the addition $0.1 million and $0.5 million of research and development costs for the SparVax-L asset acquired in the Mergers with PharmAthene for the three and six months ended June 30, 2018, respectively; (ii) a decrease of $0.5 million and increase of $0.7 million, reflective of a mid-2017 ramp up of and subsequent shift from manufacturing to stability work in the development of the NasoShield product on behalf of BARDA for the three and six months ended June 30, 2018, respectively; (iii) a decrease of $0.2 million and increase of $0.3 million in HepTCell development driven by movement from steady state development of program to increased post trial study costs incurred during the three and six months ended June 30, 2018 respectively; (iv) an increase of $0.1 million and $0.5 million in costs for NasoVax Phase 2 trial during the three and six months ended June 30, 2018, respectively; and (v) an increase of $0.2 million and $0.6 million in non-project specific costs, including the allocation of overhead and stock compensation, as compared to the same respective periods of 2017.

General and administrative expenses

General and administrative expense increased by $1.1 million, or 63%, and $1.6 million, or 41%, for the three and six months ended June 30, 2018, respectively, as compared to the same periods in 2017. Increases in general and administrative expense are related to the ramping up of both internal and external staff and professional services as a result of the company becoming public. These costs are predominantly associated with both corporate and external accounting services, however, significant expense was also incurred from a number of other public company costs such as corporation fees, Board of Director’s fees, and insurance. Labor costs also increased by $0.6 million for severence related expenses. These costs were partially offset by savings of $0.7 million in reorganization expense associated with the 2017 merger with PharmAthene which did not reoccur in 2018.

Goodwill impairment charges

Goodwill impairment charges reported during the six months ended June 30, 2018 represented an adjustment recorded during the measurement period to reduce tax refund receivable acquired in connection with the Mergers. The adjustment to reduce tax refund receivable resulted in a corresponding increase in goodwill which was determined to be fully impaired during the year ended December 31, 2017.

17

Other income (expense)

The increase in other income (expense), by $5.1 million and $3.2 million during the three and six months ended June 30, 2018, respectively, as compared to the same periods in 2017 was primarily due to $5.2 million and $3.7 million, respectively, of warrant expense realized for the change in value of warrants, including the loss on exchange.

Income tax benefit

We recorded an income tax benefit of $1.5 million and $2.5 million for the three and six months ended June 30, 2018 as compared to an income tax benefit of $1.0 million for both the three and six months ended June 30, 2017. The income tax benefit recorded in 2018 represents unlimited lived Federal net operating losses (NOLs) generated in 2018 that we have determined to be realizable as well as the ability of the Company to carry back Maryland state NOLs generated in 2018. The income tax benefit recorded in 2017 reflects estimated tax refunds we expected to receive from carrying back 2017 NOLs to offset the 2016 federal and state income taxes paid by PharmAthene. The Tax Cuts and Jobs Act of 2017 limited our ability to carryback federal tax losses to prior years to only a one-year lookback.

Liquidity and Capital Resources

Overview

Our primary sources of cash during the three and six months ended June 30, 2018 was the cash on-hand as of January 1, 2018 and the receipt of $4.0 million in a federal tax refund in Q2. Our cash and cash equivalents were $4.8 million at June 30, 2018, inclusive of $0.59 million of restricted cash equal to the Series B redeemable preferred stock outstanding conversion amount. This amount has decreased during the six months commensurate with the redemptions and conversions of preferred stock. We believe, based on the operating cash requirements and capital expenditures expected, our cash on hand at June 30, 2018, expected tax refunds, and revenue from our government sponsored contracts, are adequate to fund operations into Q4 2018. The Company’s ability to continue as a going concern is dependent upon our ability to raise additional debt and equity capital. There can be no assurance that such capital will be available in sufficient amounts or on terms acceptable to us. These factors raise substantial doubt about our ability to continue as a going concern. Our condensed consolidated financial statements do not include any adjustments relating to the recoverability of the recorded assets or the classification of liabilities that may be necessary should the Company be unable to continue as a going concern.

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 consist of revenues under our contract with BARDA and NIAID for the development of NasoShield and SparVax-L, respectively, and to a lesser degree from other licensing arrangements. We have incurred significant losses since we commenced operations. As of June 30, 2018, we had accumulated losses of $90.0 million since our inception. 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 not have sufficient capital to fund our plan of operations. In order to address our capital needs, including our planned clinical trials, we must continue to actively pursue additional equity or debt financing. The Company has been in ongoing discussions with institutional investors and investment banks with respect to such financing and filed a public registration statement on July 30, 2018 with the intention to raise capital during 2018 sufficient to finance activities through the next major clinical milestones.

In July 2016, we signed a five-year contract with BARDA which was amended in March 2017. The contract has a total value of up to $127.5 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 GMP manufacture and conduct of a Phase 2 clinical trial dose ranging assessment of safety and immunogenicity. The contract consists of an initial base performance period providing approximately $21.6 million in funding for the period July 2016 through November 2019. 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 the period July 2018 through July 2021. Through June 30, 2018, we have received an aggregate of approximately $10.7 million under the current BARDA contract.

As part of the Mergers, we assumed a PharmAthene contract with NIAID. The NIAID contract is incrementally funded. Over the base period of the contract, PharmAthene was awarded initial funding of approximately $5.2 million, which includes a cost reimbursement component and a fixed fee component payable upon achievement of certain milestones. NIAID exercised options under this agreement to provide additional funding of approximately $10.1 million and an extension of the period of performance through September 2019. The contract had a maximum total value of up to approximately $28.1 million if all technical milestones are met and all eight contract options were exercised by NIAID. Work under all exercised options will bring total committed and final funding under the NIAID contract to $15.3 million.

18

Operating Activities

Net cash used in operating activities was $3.2 million for the six months ended June 30, 2018 compared to $11.1 million during the six months ended June 30, 2017.

Our sources of cash provided by operations during the six months ended June 30, 2018 was primarily tax refunds and cash receipts of revenue generated by our BARDA and NIAID contracts. 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 other general corporate expenditures.

Cash used in operating activities decreased $7.9 million from the six months ended June 30, 2018 to the six months ended June 30, 2017. The change was driven primarily in by changes in working capital attributable to activity within accounts receivable, taxes receivable, accounts payable and other accrued liabilities.

Investing Activities

During the six months ended June 30, 2018, the net cash used in investing activities of $0.84 million was primarily due to an investment of $0.81 million made in leasehold improvements in our new facility at 910 Clopper Road in Gaithersburg Maryland.

During the six months ended June 30, 2017, net cash provided by investing activities of $13.7 million was primarily the result of cash assumed from the Mergers with PharmAthene that closed in May 2017.

Financing Activities

Net cash used in financing activities during the six months ended June 30, 2018 of $3.4 million was primarily the result of a $2.4 million cash redemption by certain holders of our Series B Redeemable Preferred stock (the “Stockholders”) and a $1.1 million cash payment to extinguish warrants to purchase our common stock held by the Stockholders.

Net cash provided by financing activities during the six months ended June 30, 2017 was primarily the result of $3.0 million net proceeds received from the private placement of convertible note financing that closed in May 2017, offset by repayment of notes payable for $0.2 million.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

In addition, we are subject to currency risk for cash held in British pounds and Euros in our UK and French subsidiaries. Fluctuations in the exchange rates for the British pound since January 2017 have been about 19% comparing the high and low during the period. Transactions of our UK subsidiary predominantly settled in British pounds and transactions of our French subsidiary settled predominantly in Euros; therefore, we believe that we have minimal exposure to foreign currency exchange risks. We do not hedge against foreign currency risks.

We do not believe that inflation and changing prices had a significant impact on our results of operations for any periods presented herein.

commercialization. Even if we obtain regulatory approval to market a product candidate, our future revenues will depend upon the size of any markets in which our product candidates have received approval, our ability to achieve sufficient market acceptance, reimbursement from third-party payers and other factors.

The net losses we incur may fluctuate significantly from quarter to quarter and year to year, such that a period-to-period comparison of our results of operations may not be a good indication of our future performance. In any particular quarter or quarters, our operating results could be below the expectations of securities analysts or investors, which could cause our stock price to decline.

Our ability to continue as a going concern will require us to obtain additional financing to fund our current operations, which may be unavailable on acceptable terms, or at all.

Our recurring operating losses and current operating plans raise substantial doubt about our ability to continue as a going concern. We expect to incur additional losses in the future in connection with our research and development activities. As a result, our independent registered public accounting firms included an explanatory paragraph in their reports on our consolidated financial statements as of and for the years ended December 31, 2017 and 2016 with respect to this uncertainty. Our ability to continue as a going concern will require us to obtain additional financing to fund our current operating plans. There can be no assurance that such capital will be available in sufficient amounts or on terms acceptable to us. Our cash on hand at June 30, 2018, our expected tax refunds, and revenue from our research grants and contracts are insufficient to fund our projected operating requirements for a twelve-month period from the issuance date of our June 30, 2018 financial statements. We have based these estimates, however, on assumptions that may prove to be wrong, and we could spend our available financial resources much faster than we currently expect and need to raise additional funds sooner than we anticipate. If we are unable to raise capital when needed or on acceptable terms, we would be forced to delay, reduce or terminate our research and drug development programs or commercialization efforts.

Our profitability depends on our ability to develop and commercialize our current and future product candidates.

To become and remain profitable, we must succeed in developing and eventually commercializing products that generate significant revenue. This will require us to be successful in a range of challenging activities, including completing preclinical studies and clinical trials of our product candidates, discovering additional product candidates, obtaining regulatory approval for these product candidates, forming strategic partnerships and alliances with third parties and manufacturing, marketing and selling any products for which we may obtain regulatory approval. We are only in the preliminary stages of most of these activities. We may never succeed in these activities and, even if we do, we may never generate revenues that are significant enough to achieve profitability. If some or all of our product candidates do not prove to be safe, pure and efficacious, then we may have to abandon those product candidates altogether and we will be unable to generate revenues from sales of such products.

We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. We anticipate that our expenses will increase significantly if and as we:

21

Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. If we are required by the FDA or other regulatory authorities to perform studies in addition to those currently expected, or if there are any delays in completing our clinical trials or the development of any of our product candidates, our expenses could increase.

Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress the value of our company and could impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our product offerings or even continue our operations.

Future conditions might require us to make substantial write-downs in our assets, which would adversely affect our balance sheet and results of operations.

We review our long-lived tangible and intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. We test our in-process research and development (“IPR&D”) assets, classified as indefinite-lived intangible assets, for impairment at least annually in the fourth quarter, or when events or changes indicate that the carrying value of our IPR&D assets may exceed their fair value. If our clinical trial results for HepTcell are unsuccessful, if we are unable to obtain further funding for SparVax-L, or if we discontinue our research and development efforts for Oncosyn, and we are unable to identify alternative sale or use for the IPR&D assets associated with these product candidates to recover some or all of the related costs, the carrying value of these IPR&D assets may be impaired and the resulting loss could be material. Any significant writedowns of our long-lived assets in the future could adversely affect our financial position and results of operations.

We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed would force us to delay, limit, reduce or terminate our product development or commercialization efforts.

We do not expect to generate revenue from product sales, licensing fees, royalties, milestones, contract research or other sources in an amount sufficient to fully fund our operations for the foreseeable future. Therefore, we will use our existing cash resources, together with funding received from BARDA, and will require additional funds to maintain our operations, continue our research and development programs, commence future preclinical studies and clinical trials, seek regulatory approvals and manufacture and market our products. As of June 30, 2018, our cash balance was $4.8 million. Based on our current operating plan, we believe that our existing cash will be sufficient to fund our projected operating expenses and capital expenditure requirements into Q4 2018. However, we do not expect that these funds will be sufficient to enable us to complete the clinical trials needed to seek marketing approval or commercialize any of our product candidates. Furthermore, our operating plan may change as a result of many factors currently unknown to us, and we may need additional funds sooner than planned.

We believe that we will continue to expend substantial resources for the foreseeable future developing our product candidates. These expenditures will include costs associated with research and development, maintaining our intellectual property estate, potentially acquiring new technologies, obtaining regulatory approvals and manufacturing products, forming partnerships and strategic alliances, as well as marketing and selling products approved for sale, if any. In addition, other unanticipated costs may arise. Because the outcome of our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidates.

Our future capital requirements depend on many factors, including:

22

We may also seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. Additional funds may not be available when we need them on terms that are acceptable to us, or at all. If adequate funds are not available to us when needed, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials or other development activities for one or more of our product candidates or delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary to commercialize our product candidates.

Raising additional capital may cause dilution to the Company’s stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates on unfavorable terms.

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of public or private equity offerings, debt financings, BARDA funding, and license and development agreements through strategic partnerships with third parties. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. Debt or preferred stock financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring additional debt, issuing additional equity, making capital expenditures or declaring dividends. If we raise additional funds through strategic partnerships with third parties, we may have to relinquish valuable rights to our technologies or product candidates, future revenue streams, research programs or product candidates, or otherwise grant licenses on terms that are not favorable. If we are unable to raise additional capital when needed, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts for our leading product candidates or our preclinical product candidates, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Because our product candidates are in an early stage of development, there is a high risk of failure, and we may never succeed in developing marketable products or generating product revenue.

Our preclinical and clinical results are not necessarily predictive of the final results of our ongoing or future clinical trials. We have completed early, small, proof-of-concept clinical trials with our NasoVAX influenza vaccine, and we are in Phase 1 clinical development with HepTcell and with our NasoShield program. Success in preclinical studies may not be predictive of similar results in humans during clinical trials, and successful results from early or small clinical trials of a vaccine candidate may not be replicated in later and larger clinical trials. Clinical trials are expensive, time consuming and uncertain as to outcome, and we cannot guarantee that any of these activities will be successful. If the results of our ongoing or future clinical trials are inconclusive with respect to the efficacy of our product candidates, if we do not meet our clinical endpoints with statistical significance or if there are safety concerns or adverse events associated with our product candidates, we may be prevented or delayed in obtaining marketing approval for our product candidates, or we may determine to suspend development of or abandon specific product candidates. For example, we suspended the development of a Densigen platform-based product candidate, Flunisyn, which was being developed as a T cell vaccine for the treatment of influenza, in favor of NasoVAX. Clinical trials with this product candidate showed that it was well tolerated and able to induce robust T cell responses against the viral sequences represented, but a comparison of the entire study population in later-stage clinical trials showed no statistical differences between the vaccinated and placebo groups for several measures of protection.

23

In addition, we can offer no assurances that we have correctly estimated the resources or personnel necessary to seek partners, co-developers or acquirers for our biodefense programs or execute under our NIAID contract acquired and assumed in connection with the Mergers. If a larger workforce or one with a different skillset is ultimately required to maintain these operations, we may be unable to maximize our existing anthrax vaccine program.

Our product candidates, all of which are biological drug candidates, are subject to extensive governmental regulations relating to, among other things, research, clinical trials, manufacturing, import, export and commercialization. Furthermore, the timing of the marketing approval for our NasoShield and SparVax-L product candidates is subject to obtaining continued funding and consent from BARDA, which is uncertain. In order to obtain regulatory approval for the commercial sale of any product candidate, we must demonstrate through extensive preclinical studies and clinical trials that the product candidate is safe and effective for use in each target indication. Even if we obtain regulatory approval, that approval may be for indications or patient populations that are not as broad as intended or desired or may require labeling that includes significant use or distribution restrictions or safety warnings. Also, we may gain regulatory approval for our leading product candidates or our other preclinical product candidates in some but not all of the jurisdictions we seek to obtain regulatory approval. For example, failure to obtain regulatory approval of our products in any of the U.S., European or Japanese markets would materially and adversely affect the Company. Failure to obtain regulatory approval of some but not all of the target indications may result in limited commercial opportunity for the approved product. We may never obtain regulatory approval for these product candidates in any jurisdiction. We also may be required to perform additional or unanticipated clinical trials to obtain approval or be subject to additional post-marketing testing requirements to maintain regulatory approval. In addition, regulatory authorities may withdraw their approval of the product or impose restrictions on its distribution in the form of a modified risk evaluation and mitigation strategy.

We are heavily dependent on the success of our leading product candidates, NasoVAX, NasoShield and HepTcell, as well as SparVax-L acquired in connection with the Mergers. If we ultimately are unable to develop, obtain regulatory approval for or commercialize NasoVAX, HepTcell, SparVax-L, or any other product candidate, our business will be substantially harmed.

We currently have no products approved for commercial distribution. Our business strategy is to build a pipeline of product candidates using our proprietary platforms, including our leading product candidates, NasoVAX, NasoShield and HepTcell, and to progress those product candidates through clinical development for the treatment of different types of diseases. We are also focused on SparVax L acquired in connection with the Mergers. We may not be able to develop products that are safe and effective for all or any of the indications that we target. Even if we are successful in building a product pipeline, the potential product candidates that we identify may not be suitable for clinical development for a number of reasons, including causing harmful side effects or demonstrating other characteristics that indicate a low likelihood of receiving marketing approval or achieving market acceptance. If our methods of identifying potential product candidates fail to produce a pipeline of potentially viable product candidates, then our success as a business will be dependent on the success of fewer potential product candidates, which introduces risks to our business model and potential limitations to any success we may achieve.

Because we have limited financial and managerial resources, we must focus on a limited number of research programs and product candidates and on specific indications. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future discovery and preclinical development programs and product candidates for specific indications may not yield any commercially viable products. Furthermore, until such time as we are able to build a broader product candidate pipeline, if ever, any adverse developments with respect to our leading product candidates, NasoVAX, NasoShield and HepTcell, would have a more significant adverse effect on our overall business than if we maintained a broader portfolio of product candidates.

We may encounter substantial delays in our clinical trials, or our clinical trials may fail to demonstrate the safety and efficacy of our product candidates to the satisfaction of applicable regulatory authorities.

Before obtaining marketing approval from regulatory authorities for the sale of our product candidates, we must conduct extensive clinical trials to demonstrate the safety and efficacy of the product candidates in humans. Clinical testing is expensive, time consuming and uncertain as to outcome. We cannot guarantee that clinical trials will be conducted as planned or completed on schedule, if at all. A failure of one or more clinical trials can occur at any stage of testing. Events that may prevent successful or timely completion of clinical development include:

24