UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31,June 30, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File No. 000-26770
NOVAVAX, INC.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | |
Delaware | 22-2816046 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| |
21 Firstfield700 Quince Orchard Road,
| Gaithersburg, | MD | 20878 |
(Address of principal executive offices) | (Zip code) |
(240) 268-2000
(Registrant's telephone number, including area code)
21 Firstfield Road, Gaithersburg, MD 20878
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, Par Value $0.01 per share | NVAX | The Nasdaq Global Select Market |
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
Large accelerated filer | x | Accelerated Filer | o |
| | | |
Non-accelerated filer | o | Smaller reporting company | o |
| | | |
Emerging growth company | o | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
The number of shares outstanding of the Registrant's Common Stock, $0.01 par value, was 86,305,08594,404,185 as of April 30,July 31, 2023.
NOVAVAX, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NOVAVAX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share information)
(unaudited)
| | | For the Three Months Ended March 31, | | | For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
| | 2023 | | 2022 | | | 2023 | | 2022 | | 2023 | | 2022 |
Revenue: | Revenue: | | | | | Revenue: | | | | | | | |
Product sales | Product sales | $ | (7,457) | | | $ | 585,628 | | | Product sales | $ | 285,163 | | | $ | 55,455 | | | $ | 277,706 | | | $ | 641,083 | |
Grants | Grants | 87,379 | | | 99,301 | | | Grants | 137,079 | | | 107,774 | | | 224,458 | | | 207,075 | |
Royalties and other | Royalties and other | 1,029 | | | 19,042 | | | Royalties and other | 2,184 | | | 22,696 | | | 3,213 | | | 41,738 | |
Total revenue | Total revenue | 80,951 | | | 703,971 | | | Total revenue | 424,426 | | | 185,925 | | | 505,377 | | | 889,896 | |
| Expenses: | Expenses: | | | Expenses: | |
Cost of sales | Cost of sales | 34,086 | | | 15,204 | | | Cost of sales | 55,777 | | | 271,077 | | | 89,863 | | | 286,281 | |
Research and development | Research and development | 247,101 | | | 383,483 | | | Research and development | 219,475 | | | 289,648 | | | 466,576 | | | 673,131 | |
Selling, general, and administrative | Selling, general, and administrative | 112,532 | | | 95,992 | | | Selling, general, and administrative | 93,717 | | | 108,160 | | | 206,249 | | | 204,152 | |
Total expenses | Total expenses | 393,719 | | | 494,679 | | | Total expenses | 368,969 | | | 668,885 | | | 762,688 | | | 1,163,564 | |
Income (Loss) from operations | Income (Loss) from operations | (312,768) | | | 209,292 | | | Income (Loss) from operations | 55,457 | | | (482,960) | | | (257,311) | | | (273,668) | |
Other income (expense): | Other income (expense): | | | Other income (expense): | |
| Interest expense | Interest expense | (4,316) | | | (4,876) | | | Interest expense | (3,124) | | | (6,234) | | | (7,440) | | | (11,110) | |
Other income | 24,362 | | | 1,654 | | | |
Income (Loss) before income tax expense | (292,722) | | | 206,070 | | | |
Income tax expense | 1,183 | | | 2,662 | | | |
Other income (expense) | | Other income (expense) | 5,532 | | | (19,873) | | | 29,894 | | | (18,219) | |
Income (Loss) before income tax expense (benefit) | | Income (Loss) before income tax expense (benefit) | 57,865 | | | (509,067) | | | (234,857) | | | (302,997) | |
Income tax expense (benefit) | | Income tax expense (benefit) | (143) | | | 1,418 | | | 1,040 | | | 4,080 | |
Net income (loss) | Net income (loss) | $ | (293,905) | | | $ | 203,408 | | | Net income (loss) | $ | 58,008 | | | $ | (510,485) | | | $ | (235,897) | | | $ | (307,077) | |
| Net income (loss) per share: | Net income (loss) per share: | | | Net income (loss) per share: | |
Basic | Basic | $ | (3.41) | | | $ | 2.66 | | | Basic | $ | 0.65 | | | $ | (6.53) | | | $ | (2.69) | | | $ | (3.97) | |
Diluted | Diluted | $ | (3.41) | | | $ | 2.56 | | | Diluted | $ | 0.58 | | | $ | (6.53) | | | $ | (2.69) | | | $ | (3.97) | |
Weighted average number of common shares outstanding | Weighted average number of common shares outstanding | | | | | Weighted average number of common shares outstanding | | | | | | | |
Basic | Basic | 86,158 | | | 76,457 | | | Basic | 89,362 | | | 78,143 | | | 87,769 | | | 77,305 | |
Diluted | Diluted | 86,158 | | | 80,711 | | | Diluted | 104,065 | | | 78,143 | | | 87,769 | | | 77,305 | |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(unaudited)
| | | For the Three Months Ended March 31, | | | For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
| | 2023 | | 2022 | | | 2023 | | 2022 | | 2023 | | 2022 |
Net income (loss) | Net income (loss) | $ | (293,905) | | | $ | 203,408 | | | Net income (loss) | $ | 58,008 | | | $ | (510,485) | | | $ | (235,897) | | | $ | (307,077) | |
Other comprehensive income: | | | |
Other comprehensive income (loss): | | Other comprehensive income (loss): | |
Foreign currency translation adjustment | Foreign currency translation adjustment | 3,211 | | | 41 | | | Foreign currency translation adjustment | (5,011) | | | (9,558) | | | (1,800) | | | (9,517) | |
Other comprehensive income | 3,211 | | | 41 | | | |
Other comprehensive income (loss) | | Other comprehensive income (loss) | (5,011) | | | (9,558) | | | (1,800) | | | (9,517) | |
Comprehensive income (loss) | Comprehensive income (loss) | $ | (290,694) | | | $ | 203,449 | | | Comprehensive income (loss) | $ | 52,997 | | | $ | (520,043) | | | $ | (237,697) | | | $ | (316,594) | |
The accompanying notes are an integral part of these financial statements.
NOVAVAX, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share information)
| | | March 31, 2023 | | December 31, 2022 | | June 30, 2023 | | December 31, 2022 |
| | (unaudited) | | | | (unaudited) | | |
ASSETS | ASSETS | | ASSETS | |
Current assets: | Current assets: | | Current assets: | |
Cash and cash equivalents | Cash and cash equivalents | $ | 624,950 | | | $ | 1,336,883 | | Cash and cash equivalents | $ | 505,912 | | | $ | 1,336,883 | |
| Restricted cash | Restricted cash | 10,330 | | | 10,303 | | Restricted cash | 10,361 | | | 10,303 | |
Accounts receivable | Accounts receivable | 112,849 | | | 82,375 | | Accounts receivable | 394,890 | | | 82,375 | |
Inventory | Inventory | 34,185 | | | 36,683 | | Inventory | 23,488 | | | 36,683 | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | 188,714 | | | 237,147 | | Prepaid expenses and other current assets | 192,903 | | | 237,147 | |
Total current assets | Total current assets | 971,028 | | | 1,703,391 | | Total current assets | 1,127,554 | | | 1,703,391 | |
Property and equipment, net | Property and equipment, net | 307,414 | | | 294,247 | | Property and equipment, net | 299,955 | | | 294,247 | |
Right of use asset, net | Right of use asset, net | 103,923 | | | 106,241 | | Right of use asset, net | 95,739 | | | 106,241 | |
| Goodwill | Goodwill | 129,827 | | | 126,331 | | Goodwill | 128,366 | | | 126,331 | |
Other non-current assets | Other non-current assets | 30,507 | | | 28,469 | | Other non-current assets | 33,434 | | | 28,469 | |
Total assets | Total assets | $ | 1,542,699 | | | $ | 2,258,679 | | Total assets | $ | 1,685,048 | | | $ | 2,258,679 | |
LIABILITIES AND STOCKHOLDERS’ DEFICIT | LIABILITIES AND STOCKHOLDERS’ DEFICIT | | | | LIABILITIES AND STOCKHOLDERS’ DEFICIT | | | |
Current liabilities: | Current liabilities: | | Current liabilities: | |
Accounts payable | Accounts payable | $ | 124,801 | | | $ | 216,517 | | Accounts payable | $ | 87,246 | | | $ | 216,517 | |
Accrued expenses | Accrued expenses | 518,706 | | | 591,158 | | Accrued expenses | 458,397 | | | 591,158 | |
Deferred revenue | Deferred revenue | 415,764 | | | 370,137 | | Deferred revenue | 300,473 | | | 370,137 | |
Current portion of finance lease liabilities | Current portion of finance lease liabilities | 1,205 | | | 27,196 | | Current portion of finance lease liabilities | 953 | | | 27,196 | |
Convertible notes payable | Convertible notes payable | — | | | 324,881 | | Convertible notes payable | — | | | 324,881 | |
Other current liabilities | Other current liabilities | 858,382 | | | 930,055 | | Other current liabilities | 749,186 | | | 930,055 | |
Total current liabilities | Total current liabilities | 1,918,858 | | | 2,459,944 | | Total current liabilities | 1,596,255 | | | 2,459,944 | |
Deferred revenue | Deferred revenue | 274,062 | | | 179,414 | | Deferred revenue | 606,937 | | | 179,414 | |
Convertible notes payable | Convertible notes payable | 166,857 | | | 166,466 | | Convertible notes payable | 167,248 | | | 166,466 | |
Non-current finance lease liabilities | Non-current finance lease liabilities | 30,993 | | | 31,238 | | Non-current finance lease liabilities | 30,744 | | | 31,238 | |
Other non-current liabilities | Other non-current liabilities | 47,511 | | | 55,695 | | Other non-current liabilities | 38,383 | | | 55,695 | |
Total liabilities | Total liabilities | 2,438,281 | | | 2,892,757 | | Total liabilities | 2,439,567 | | | 2,892,757 | |
| Commitments and contingencies (Note 15) | Commitments and contingencies (Note 15) | | Commitments and contingencies (Note 15) | |
| Preferred stock, $0.01 par value, 2,000,000 shares authorized at March 31, 2023 and December 31, 2022; no shares issued and outstanding at March 31, 2023 and December 31, 2022. | — | | | — | | |
Preferred stock, $0.01 par value, 2,000,000 shares authorized at June 30, 2023 and December 31, 2022; no shares issued and outstanding at June 30, 2023 and December 31, 2022. | | Preferred stock, $0.01 par value, 2,000,000 shares authorized at June 30, 2023 and December 31, 2022; no shares issued and outstanding at June 30, 2023 and December 31, 2022. | — | | | — | |
| Stockholders' deficit: | Stockholders' deficit: | | Stockholders' deficit: | |
Common stock, $0.01 par value, 600,000,000 shares authorized at March 31, 2023 and December 31, 2022; 87,139,831 shares issued and 86,291,473 shares outstanding at March 31, 2023 and 86,806,554 shares issued and 86,039,923 shares outstanding at December 31, 2022 | 871 | | | 868 | | |
Common stock, $0.01 par value, 600,000,000 shares authorized at June 30, 2023 and December 31, 2022; 95,183,750 shares issued and 94,308,379 shares outstanding at June 30, 2023 and 86,806,554 shares issued and 86,039,923 shares outstanding at December 31, 2022 | | Common stock, $0.01 par value, 600,000,000 shares authorized at June 30, 2023 and December 31, 2022; 95,183,750 shares issued and 94,308,379 shares outstanding at June 30, 2023 and 86,806,554 shares issued and 86,039,923 shares outstanding at December 31, 2022 | 952 | | | 868 | |
Additional paid-in capital | Additional paid-in capital | 3,767,733 | | | 3,737,979 | | Additional paid-in capital | 3,855,916 | | | 3,737,979 | |
Accumulated deficit | Accumulated deficit | (4,569,794) | | | (4,275,889) | | Accumulated deficit | (4,511,786) | | | (4,275,889) | |
Treasury stock, cost basis, 848,358 shares at March 31, 2023 and 766,631 shares at December 31, 2022 | (91,226) | | | (90,659) | | |
Treasury stock, cost basis, 875,371 shares at June 30, 2023 and 766,631 shares at December 31, 2022 | | Treasury stock, cost basis, 875,371 shares at June 30, 2023 and 766,631 shares at December 31, 2022 | (91,424) | | | (90,659) | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (3,166) | | | (6,377) | | Accumulated other comprehensive loss | (8,177) | | | (6,377) | |
Total stockholders’ deficit | Total stockholders’ deficit | (895,582) | | | (634,078) | | Total stockholders’ deficit | (754,519) | | | (634,078) | |
Total liabilities and stockholders’ deficit | Total liabilities and stockholders’ deficit | $ | 1,542,699 | | | $ | 2,258,679 | | Total liabilities and stockholders’ deficit | $ | 1,685,048 | | | $ | 2,258,679 | |
The accompanying notes are an integral part of these financial statements.
NOVAVAX, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
Three Monthsand Six Ended March 31,June 30, 2023 and 2022
(in thousands, except share information)
(unaudited)
| | | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Treasury Stock | | Accumulated Other Comprehensive Loss | | Total Stockholders' Equity (Deficit) | | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Treasury Stock | | Accumulated Other Comprehensive Loss | | Total Stockholders' Equity (Deficit) |
| | Shares | | Amount | | | Shares | | Amount | |
Balance at December 31, 2022 | 86,806,554 | | | $ | 868 | | | $ | 3,737,979 | | | $ | (4,275,889) | | | $ | (90,659) | | | $ | (6,377) | | | $ | (634,078) | | |
Balance at March 31, 2023 | | Balance at March 31, 2023 | 87,139,831 | | | $ | 871 | | | $ | 3,767,733 | | | $ | (4,569,794) | | | $ | (91,226) | | | $ | (3,166) | | | $ | (895,582) | |
Stock-based compensation | | Stock-based compensation | — | | | — | | | 20,292 | | | — | | | — | | | — | | | 20,292 | |
Stock issued under incentive programs | | Stock issued under incentive programs | 95,965 | | | 1 | | | (1) | | | — | | | (198) | | | — | | | (198) | |
Issuance of common stock, net of issuance costs $861 | | Issuance of common stock, net of issuance costs $861 | 7,947,954 | | | 80 | | | 67,892 | | | — | | | — | | | — | | | 67,972 | |
Foreign currency translation adjustment | | Foreign currency translation adjustment | — | | | — | | | — | | | — | | | — | | | (5,011) | | | (5,011) | |
Net income | | Net income | — | | | — | | | — | | | 58,008 | | | — | | | — | | | 58,008 | |
Balance at June 30, 2023 | | Balance at June 30, 2023 | 95,183,750 | | | $ | 952 | | | $ | 3,855,916 | | | $ | (4,511,786) | | | $ | (91,424) | | | $ | (8,177) | | | $ | (754,519) | |
| Balance at March 31, 2022 | | Balance at March 31, 2022 | 78,722,337 | | | $ | 787 | | | $ | 3,566,292 | | | $ | (3,414,542) | | | $ | (85,901) | | | $ | (1,312) | | | $ | 65,324 | |
Stock-based compensation | Stock-based compensation | — | | | — | | | 28,647 | | | — | | | — | | | — | | | 28,647 | | Stock-based compensation | — | | | — | | | 38,048 | | | — | | | — | | | — | | | 38,048 | |
Stock issued under incentive programs | Stock issued under incentive programs | 333,277 | | | 3 | | | 1,107 | | | — | | | (567) | | | — | | | 543 | | Stock issued under incentive programs | 53,897 | | | 1 | | | 274 | | | — | | | (554) | | | — | | | (279) | |
| | Foreign currency translation adjustment | Foreign currency translation adjustment | — | | | — | | | — | | | — | | | — | | | 3,211 | | | 3,211 | | Foreign currency translation adjustment | — | | | — | | | — | | | — | | | — | | | (9,558) | | | (9,558) | |
Net loss | Net loss | — | | | — | | | — | | | (293,905) | | | — | | | — | | | (293,905) | | Net loss | — | | | — | | | — | | | (510,485) | | | — | | | — | | | (510,485) | |
Balance at March 31, 2023 | 87,139,831 | | | $ | 871 | | | $ | 3,767,733 | | | $ | (4,569,794) | | | $ | (91,226) | | | $ | (3,166) | | | $ | (895,582) | | |
| Balance at December 31, 2021 | 76,433,151 | | | $ | 764 | | | $ | 3,351,967 | | | $ | (3,617,950) | | | $ | (85,101) | | | $ | (1,353) | | | $ | (351,673) | | |
Stock-based compensation | — | | | — | | | 32,933 | | | — | | | — | | | — | | | 32,933 | | |
Stock issued under incentive programs | 91,788 | | | 1 | | | 2,029 | | | — | | | (800) | | | — | | | 1,230 | | |
Issuance of common stock, net of issuance costs of $2,311 | 2,197,398 | | | 22 | | | 179,363 | | | — | | | — | | | — | | | 179,385 | | |
| Foreign currency translation adjustment | — | | | — | | | — | | | — | | | — | | | 41 | | | 41 | | |
Net income | — | | | — | | | — | | | 203,408 | | | — | | | — | | | 203,408 | | |
Balance at March 31, 2022 | 78,722,337 | | | $ | 787 | | | $ | 3,566,292 | | | $ | (3,414,542) | | | $ | (85,901) | | | $ | (1,312) | | | $ | 65,324 | | |
Balance at June 30, 2022 | | Balance at June 30, 2022 | 78,776,234 | | | $ | 788 | | | $ | 3,604,614 | | | $ | (3,925,027) | | | $ | (86,455) | | | $ | (10,870) | | | $ | (416,950) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Treasury Stock | | Accumulated Other Comprehensive Loss | | Total Stockholders' Equity (Deficit) |
| Shares | | Amount | | | | | |
Balance at December 31, 2022 | 86,806,554 | | | $ | 868 | | | $ | 3,737,979 | | | $ | (4,275,889) | | | $ | (90,659) | | | $ | (6,377) | | | $ | (634,078) | |
Stock-based compensation | — | | | — | | | 48,939 | | | — | | | — | | | — | | | 48,939 | |
Stock issued under incentive programs | 429,242 | | | 4 | | | 1,106 | | | — | | | (765) | | | — | | | 345 | |
Issuance of common stock, net of issuance costs of $861 | 7,947,954 | | | 80 | | | 67,892 | | | — | | | — | | | — | | | 67,972 | |
Foreign currency translation adjustment | — | | | — | | | — | | | — | | | — | | | (1,800) | | | (1,800) | |
Net loss | — | | | — | | | — | | | (235,897) | | | — | | | — | | | (235,897) | |
Balance at June 30, 2023 | 95,183,750 | | | $ | 952 | | | $ | 3,855,916 | | | $ | (4,511,786) | | | $ | (91,424) | | | $ | (8,177) | | | $ | (754,519) | |
| | | | | | | | | | | | | |
Balance at December 31, 2021 | 76,433,151 | | | $ | 764 | | | $ | 3,351,967 | | | $ | (3,617,950) | | | $ | (85,101) | | | $ | (1,353) | | | $ | (351,673) | |
Stock-based compensation | — | | | — | | | 70,981 | | | — | | | — | | | — | | | 70,981 | |
Stock issued under incentive programs | 145,685 | | | 2 | | | 2,303 | | | — | | | (1,354) | | | — | | | 951 | |
Issuance of common stock, net of issuance costs of $2,311 | 2,197,398 | | | 22 | | | 179,363 | | | — | | | — | | | — | | | 179,385 | |
Foreign currency translation adjustment | — | | | — | | | — | | | — | | | — | | | (9,517) | | | (9,517) | |
Net loss | — | | | — | | | — | | | (307,077) | | | — | | | — | | | (307,077) | |
Balance at June 30, 2022 | 78,776,234 | | | $ | 788 | | | $ | 3,604,614 | | | $ | (3,925,027) | | | $ | (86,455) | | | $ | (10,870) | | | $ | (416,950) | |
The accompanying notes are an integral part of these financial statements.
NOVAVAX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| | | Three Months Ended March 31, | | Six Months Ended June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
Operating Activities: | Operating Activities: | | | | Operating Activities: | | | |
Net income (loss) | $ | (293,905) | | | $ | 203,408 | | |
Reconciliation of net income (loss) to net cash provided by (used in) operating activities: | | |
Net loss | | Net loss | $ | (235,897) | | | $ | (307,077) | |
Reconciliation of net loss to net cash used in operating activities: | | Reconciliation of net loss to net cash used in operating activities: | |
Depreciation and amortization | Depreciation and amortization | 9,043 | | | 6,765 | | Depreciation and amortization | 19,110 | | | 13,485 | |
| Non-cash stock-based compensation | Non-cash stock-based compensation | 28,647 | | | 32,933 | | Non-cash stock-based compensation | 48,939 | | | 70,981 | |
Provision for excess and obsolete inventory | Provision for excess and obsolete inventory | 12,490 | | | — | | Provision for excess and obsolete inventory | 31,546 | | | 155,662 | |
Impairment of long-lived assets | | Impairment of long-lived assets | 10,081 | | | — | |
Right-of-use assets expensed, net of credits received | Right-of-use assets expensed, net of credits received | — | | | 214 | | Right-of-use assets expensed, net of credits received | — | | | (3,291) | |
Other items, net | Other items, net | (1,252) | | | 634 | | Other items, net | (89) | | | (642) | |
Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | | Changes in operating assets and liabilities: | |
Inventory | Inventory | (9,222) | | | (99,557) | | Inventory | (19,361) | | | (403,725) | |
Accounts receivable, prepaid expenses, and other assets | Accounts receivable, prepaid expenses, and other assets | 18,430 | | | (56,016) | | Accounts receivable, prepaid expenses, and other assets | (266,482) | | | 112,845 | |
Accounts payable, accrued expenses, and other liabilities | Accounts payable, accrued expenses, and other liabilities | (230,099) | | | (115,500) | | Accounts payable, accrued expenses, and other liabilities | (443,238) | | | 179,158 | |
Deferred revenue | Deferred revenue | 140,275 | | | (61,391) | | Deferred revenue | 357,860 | | | (76,809) | |
Net cash used in operating activities | Net cash used in operating activities | (325,593) | | | (88,510) | | Net cash used in operating activities | (497,531) | | | (259,413) | |
| Investing Activities: | Investing Activities: | | Investing Activities: | |
Capital expenditures | Capital expenditures | (19,801) | | | (16,826) | | Capital expenditures | (26,774) | | | (41,402) | |
Internal-use software | Internal-use software | (3,757) | | | — | | Internal-use software | (4,563) | | | — | |
Net cash used in investing activities | Net cash used in investing activities | (23,558) | | | (16,826) | | Net cash used in investing activities | (31,337) | | | (41,402) | |
| Financing Activities: | Financing Activities: | | Financing Activities: | |
Net proceeds from sales of common stock | Net proceeds from sales of common stock | — | | | 179,385 | | Net proceeds from sales of common stock | 61,986 | | | 179,385 | |
Net proceeds from the exercise of stock-based awards | Net proceeds from the exercise of stock-based awards | 543 | | | 1,318 | | Net proceeds from the exercise of stock-based awards | 345 | | | 1,050 | |
Finance lease payments | Finance lease payments | (26,331) | | | (20,838) | | Finance lease payments | (26,784) | | | (15,911) | |
Repayment of 2023 Convertible notes | Repayment of 2023 Convertible notes | (325,000) | | | — | | Repayment of 2023 Convertible notes | (325,000) | | | — | |
Payments of costs related to issuance of 2027 Convertible notes | Payments of costs related to issuance of 2027 Convertible notes | (3,591) | | | — | | Payments of costs related to issuance of 2027 Convertible notes | (3,591) | | | — | |
Net cash provided by (used in) financing activities | Net cash provided by (used in) financing activities | (354,379) | | | 159,865 | | Net cash provided by (used in) financing activities | (293,044) | | | 164,524 | |
Effect of exchange rate on cash, cash equivalents, and restricted cash | Effect of exchange rate on cash, cash equivalents, and restricted cash | (8,372) | | | 1,312 | | Effect of exchange rate on cash, cash equivalents, and restricted cash | (8,992) | | | (4,453) | |
Net increase (decrease) in cash, cash equivalents, and restricted cash | (711,902) | | | 55,841 | | |
Net decrease in cash, cash equivalents, and restricted cash | | Net decrease in cash, cash equivalents, and restricted cash | (830,904) | | | (140,744) | |
Cash, cash equivalents, and restricted cash at beginning of period | Cash, cash equivalents, and restricted cash at beginning of period | 1,348,845 | | | 1,528,259 | | Cash, cash equivalents, and restricted cash at beginning of period | 1,348,845 | | | 1,528,259 | |
Cash, cash equivalents, and restricted cash at end of period | Cash, cash equivalents, and restricted cash at end of period | $ | 636,943 | | | $ | 1,584,100 | | Cash, cash equivalents, and restricted cash at end of period | $ | 517,941 | | | $ | 1,387,515 | |
| Supplemental disclosure of non-cash activities: | Supplemental disclosure of non-cash activities: | | Supplemental disclosure of non-cash activities: | |
| Sales of common stock not settled at end of period | | Sales of common stock not settled at end of period | $ | 5,986 | | | $ | — | |
Right-of-use assets from new lease agreements | Right-of-use assets from new lease agreements | $ | — | | | $ | 58,352 | | Right-of-use assets from new lease agreements | $ | — | | | $ | 69,366 | |
Capital expenditures included in accounts payable and accrued expenses | Capital expenditures included in accounts payable and accrued expenses | $ | 10,847 | | | $ | 15,874 | | Capital expenditures included in accounts payable and accrued expenses | $ | 6,591 | | | $ | 17,890 | |
| Supplemental disclosure of cash flow information: | Supplemental disclosure of cash flow information: | | Supplemental disclosure of cash flow information: | |
Cash interest payments, net of amounts capitalized | Cash interest payments, net of amounts capitalized | $ | 6,566 | | | $ | 6,654 | | Cash interest payments, net of amounts capitalized | $ | 11,294 | | | $ | 8,604 | |
Cash paid for income taxes | Cash paid for income taxes | $ | — | | | $ | 15,451 | | Cash paid for income taxes | $ | 128 | | | $ | 17,778 | |
The accompanying notes are an integral part of these financial statements.
NOVAVAX, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31,June 30, 2023
(unaudited)
Note 1 – Organization and Business
Novavax, Inc. (“Novavax,” and together with its wholly owned subsidiaries, the “Company”) is a biotechnology company that promotes improved health globally through the discovery, development, and commercialization of innovative vaccines to prevent serious infectious diseases. The Company’s COVID-19vaccines and vaccine (“NVX-CoV2373,” “Nuvaxovid™,” “Covovax™,” “Novavax COVID-19 Vaccine, Adjuvanted”); influenza vaccine candidate; COVID-19-Influenza Combination (“CIC”) vaccine candidate; and additional vaccine candidates including for Omicron subvariants and bivalent formulations with prototype vaccine (“NVX-CoV2373”), are genetically engineered nanostructures of conformationally correct recombinant proteins critical to disease pathogenesis and may elicit differentiated immune responses, which may be more efficacious than naturally occurring immunity or other vaccine approaches. NVX-CoV2373 andNovavax currently has one commercial program, for vaccines to prevent COVID (“Novavax COVID Vaccine, Adjuvanted”), which it markets in various territories where it is allowed to do so, under the Company’s otherbrand name “Nuvaxovid™”. Novavax’s prototype COVID vaccine candidates incorporate the Company's proprietary Matrix-M™ adjuvant to enhance the immune response and stimulate higher levels of functional antibodies and induce a cellular immune response. The Company has announced datawas derived from its ongoing PREVENT-19 study supporting the use of NVX-CoV2373 for homologous boosting in adults and adolescents aged 12 through 17. Additional findings in Phase 3 COVID-19 Omicron (study 311) trial showed utility of the prototype strain of COVID and is variously referred to here and in prior financial statements without branding as “NVX-CoV2373”. Our partners, Serum Institute of India Pvt. Ltd. (“SIIPL”) markets NVX-CoV2373 as “Covovax™.” Novavax is currently developing an updated vaccine which it refers to as a heterologous booster, inducing broad immune responses against contemporary Omicron variants.its “XBB COVID vaccine.”
The
Beginning in 2022, the Company has received approval, interim authorization, provisional approval, conditional marketing authorization, and emergency use authorization (“EUA”) from multiple regulatory authorities globally for NVX-CoV2373 for both adult and adolescent populations as a primary series and for both homologous and heterologous booster indications,indications. Novavax is currently seeking similar approvals from multiple regulatory authorities globally for its XBB COVID vaccine as a single dose booster for the fall 2023 and commenced commercial shipments of NVX-CoV2373 doses undersubsequently. The Company exclusively depends on its supply agreement with SIIPL and its subsidiary, Serum Life Sciences Limited (“SLS”), for co-formulation, filling and finishing (other than in Europe) and on its service agreement with PCI Pharma Services (“PCI”) for finishing in Europe. The Company plans to rely on these arrangements to supply the name “Novavax COVID-19 Vaccine, Adjuvanted” and the brand name “Nuvaxovid™”XBB COVID vaccine, if authorized, during the first quarter 2022.2023 fall vaccination campaign and subsequently (see Note 4).
Novavax is advancing development of other vaccine candidates, including its influenza vaccine candidate, its COVID-Influenza Combination (“CIC”) vaccine candidate and additional vaccine candidates. Novavax COVID Vaccine, Adjuvanted and its other vaccine candidates incorporate the Company’s proprietary Matrix-M™ adjuvant to enhance the immune response and stimulate higher levels of functional antibodies and induce a cellular immune response.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. The consolidated financial statements are unaudited but include all adjustments (consisting of normal recurring adjustments) that the Company considers necessary for a fair presentation of the financial position, operating results, comprehensive loss, changes in stockholders’ equity (deficit), and cash flows for the periods presented. Although the Company believes that the disclosures in these unaudited consolidated financial statements are adequate to make the information presented not misleading, certain information and footnote information normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted as permitted under the rules and regulations of the United States Securities and Exchange Commission (“SEC”).
The unaudited consolidated financial statements include the accounts of Novavax, Inc. and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Accumulated other comprehensive loss included a foreign currency translation loss of $3.2$8.2 million and $6.4 million at March 31,June 30, 2023 and December 31, 2022, respectively. The aggregate foreign currency transaction gains and losses resulting from the conversion of the transaction currency to functional currency were $16.3a $0.2 million loss and a $16.1 million gain, and a $22.2 million and $2.2$21.0 million loss for the three months and six months ended March 31,June 30, 2023 and 2022, respectively, which are reflected in Other income.income (expense).
The accompanying unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022. Results for this or any interim period are not necessarily indicative of results for any future interim period or for the entire year. The Company operates in one business segment.
Liquidity and Going Concern
The accompanying unaudited consolidated financial statements have been prepared assuming that the Company will continue as a going concern within one year after the date that the financial statements are issued. At March 31,In addition, as of June 30, 2023, the Company had $636.9$517.9 million in cash and cash equivalents and restricted cash. In April 2023, the Company repaid $112.5 million relatedPursuant to the refund due under the Amended and Restated SARS-CoV-2 Vaccine Supply Agreement, dated July 1, 2022, as further amended on September 26, 2022, (the “Amended and Restated UK Supply Agreement”) with The Secretary of
State for Business, Energy and Industrial Strategy (as assignedJune 2023 Amendment to the UK Health Security Agency), acting on behalf of the government of the United Kingdom of Great Britain and Northern Ireland, which amended and restated in its entirety the SARS-CoV-2 Vaccine Supply Agreement, dated October 22, 2020, between the parties, and $27.0 million related to a Settlement Agreement and Release of Claimsadvance purchase agreement (“APA”) between the Company and Par Sterile Products, LLCHis Majesty the King in Right of Canada, as represented by the Minister of Public Works and Government Services, as successor in interest to Her Majesty the Queen in Right of Canada, as represented by the Minister of Public Works and Government Services (“Par”Canadian government”), as describedthe Company received $174.8 million from the Canadian government in July 2023 with a second installment of $174.8 million that is contingent and payable upon the Company’s delivery of vaccine doses in the second half of 2023 (see Note 15 below, which was fully accrued as of March 31, 2023.3). During the threesix months ended March 31,June 30, 2023, the Company incurred a net loss of $293.9$235.9 million and had net cash flows used in operating activities of $325.6$497.5 million.
In accordance with Accounting Standards Codification 205-40, Going Concern,, the Company evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year after the date that these unaudited consolidated financial statements are issued. While the Company’s current cash flow forecast for the one-year going concern look forward period estimates that there will be sufficient capital available to fund operations, this forecast is subject to significant uncertainty, including as it relates to revenue for the next 12 months, funding from the U.S. government, and a pending matter subject to arbitration proceedings. The Company’s revenue projections depend on its ability to successfully develop, manufacture, distribute and market an updated monovalent or bivalent formulation of a vaccine candidate for COVID-19 for the Fallfall 2023 COVID vaccine season, which is inherently uncertain and subject to a number of risks, including regulatory approvalauthorization, ability to timely deliver doses and commercial adoption.adoption and market acceptance. Further, failure to meet regulatory milestones, timely obtain supportive recommendations from governmental advisory committees, or achieve product volume or delivery timing obligations under the Company’s advance purchase agreements may require the Company to refund portions of upfront and other payments or result in reduced future payments. For example, if the Company fails to deliver XBB COVID vaccine doses to the Canadian government in the second half of 2023, the second installment payment of $174.8 million will be terminated and not be payable to the Company. Also, if the Company does not timely achieve supportive recommendations from the Joint Committee on Vaccination and Immunisation (the “JCVI”) of the government of the United Kingdom of Great Britain and Northern Ireland with respect to use of NVX-CoV2373 for (a) the general adult population as part of a SARS-CoV-2 vaccine booster campaign in the United Kingdom or (b) the general adolescent population as part of a SARS-CoV-2 vaccine booster campaign in the United Kingdom or as a primary series SARS-CoV-2 vaccination, excluding where that recommendation relates only to one or more population groups comprising less than one million members in the United Kingdom, then the Company would be required to repay up to $112.5 million related to the upfront payment previously received from the Authority under the Original UK Supply Agreement. In February 2023, in connection with the execution of Modification 17 to the USG Agreement (as defined in Note 3), the U.S. government indicated to the Company that the award may not be extended past its current period of performance. If the USG Agreement is not amended, as the Company’s management had previously expected, then the Company may not receive all of the remaining $336.4$250.6 million in funding that was previously anticipated pursuant to the USG Agreement.as of June 30, 2023. On January 24, 2023, Gavi, the Vaccine Alliance (“Gavi”) filed a demand for arbitration with the International Court of Arbitration regarding an alleged material breach by the Company of the Company’s advance purchase agreement with Gavi (the “Gavi APA”). The arbitration hearing is scheduled for July 2024, with a written decision to follow. The outcome of that arbitration is inherently uncertain, and it is possible the Company could be required to refund all or a portion of the remaining advance payments of $697.4$696.4 million as of June 30, 2023 (see Note 3 and Note 15).
Management believes that, given the significance of these uncertainties, substantial doubt exists regarding the Company’s ability to continue as a going concern through one year from the date that these financial statements are issued.
In May 2023, the Company announced a global restructuring and cost reduction plan. This plan (the “Restructuring Plan”) which includes a more focused investment in its NVX-CoV2373 program, reduction to its pipeline spending, the continued rationalization of its manufacturing network, a reduction to the Company’s global workforce, as well as the consolidation of facilities, and infrastructure. The planned workforce reduction includesplan included an approximately 25% reduction in the Company’s global workforce, comprised of an approximately 20% reduction in full-time Novavax employees and the remainder comprised of contractors and consultants. The Company has decided to progress CIC toward late-stage development and, as such, is assessing the impact on its workforce requirements. The Company expects the full annual impact of the cost savings from the Restructuring Plan to be realized in 2024 and approximately half of the annual impact to be realized in 2023 due to timing of implementing the measures, and the applicable laws, regulations, and other factors in the jurisdictions in which the Company operates. TheDuring the three months ended June 30, 2023, the Company expects to recordrecorded a charge of approximately $10 million to $15$4.6 million related to one-time employee severance and benefit costs the majority of which are expected to be incurred in the second quarter of 2023 and is evaluating the anticipated costs$10.1 million related to the consolidation of facilities and infrastructure.infrastructure (see Note 16).
The Company’s ability to fund Company operations is dependent upon revenue related to vaccine sales for its products and product candidates, if such product candidates receive marketing approval and are successfully commercialized;commercialized, and in particular the 2023 fall COVID vaccination campaign, which is inherently uncertain and subject to a number of risks, including regulatory authorization, ability to timely deliver doses and commercial adoption and market acceptance, the resolution of certain matters, including whether, when, and how the dispute with Gavi is resolved;resolved, and management’s plans, which include resolving the dispute with Gavi andincludes cost reductions associated with the Company’s global restructuring and cost reduction plan.Restructuring Plan. Management’s plans may also include raising additional capital through a combination of equity and debt financing, collaborations, strategic alliances, and marketing, distribution, or licensing arrangements. New financings may not be available to the Company on commercially acceptable terms, or at all. Also, any collaborations, strategic alliances, and marketing, distribution, or licensing arrangements may require the Company to give up some or all of its rights to a product or technology, which in some cases may be at less than the full potential value of such rights. In addition, the regulatory and commercial success of NVX-CoV2373 and the Company’s other vaccine candidates, including an influenza vaccine candidate, a CIC vaccine candidate, and a COVID-19 variant strain-containing monovalent or bivalent formulation, remains uncertain. If the Company is unable to obtain additional capital, the Company will assess its capital resources and may be required to delay, reduce the scope of, or eliminate some or all of its operations, or further downsize its organization, any of which may have a material adverse effect on its business, financial condition, results of operations, and ability to operate as a going concern.
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from those estimates.
Revenue Recognition Constraints
The Company constrains the transaction price for customer arrangements until it is probable that a significant reversal in cumulative revenue recognized will not occur. Specifically, if a customer arrangement includes a provision whereby the customer may request a discount, return, or refund for a previously satisfied performance obligation or otherwise could have the effect of decreasing the transaction price, revenue is constrained based on an estimate of the impact to the transaction price recognized until it is probable that a significant reversal in cumulative revenue recognized will not occur.
Restructuring
The Company recognizes restructuring charges when such costs are incurred. The Company's restructuring charges consist of employee severance and other termination benefits related to the reduction of its workforce, the consolidation of facilities, and infrastructure and other costs. Termination benefits are expensed on the date the Company notifies the employee, unless the employee must provide future service, in which case the benefits are expensed ratably over the future service period. Ongoing benefits are expensed when restructuring activities are probable and the benefit estimable.
See Note 16 for additional information on the severance and employee benefit costs for terminated employees and impairment of assets in connection with the Company’s Restructuring Plan.
Recent Accounting Pronouncements
Adopted
In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), with amendments in 2018, 2019, 2020, and 2022. The ASU sets forth a “current expected credit loss” model that requires companies to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. ASU 2016-13 applies to financial instruments that are not measured at fair value, including receivables that result from revenue transactions. The Company adopted ASU 2020-06 on January 1, 2023, using a modified retrospective approach, and it did not have a material impact on the Company’s consolidated financial statements.
Note 3 – Revenue
The Company's accounts receivable included $70.2 million, $53.8 million, $425.9$334.4 million and $419.7$53.8 million related to amounts that were billed to
customers and $42.7 million, $28.6 million, $52.3$60.5 million and $35.3$28.6 million related to amounts which had not yet been billed to customers as of March 31,June 30, 2023 and December 31, 2022, March 31, 2022, and December 31, 2021, respectively. During the threesix months ended March 31,June 30, 2023, and 2022, changes in the Company's accounts receivables, allowance for doubtful accounts, and deferred revenue balances were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Balance, Beginning of Period | | Additions | | Deductions | | Balance, End of Period |
Accounts receivable: | | | | | | | |
Three months ended March 31, 2023 | $ | 96,210 | | | $ | 146,424 | | | $ | (115,950) | | | $ | 126,684 | |
Three months ended March 31, 2022 | 454,993 | | | 625,124 | | | (601,961) | | | 478,156 | |
Allowance for doubtful accounts(1): | | | | | | | |
Three months ended March 31, 2023 | $ | (13,835) | | | $ | — | | | $ | — | | | $ | (13,835) | |
Three months ended March 31, 2022 | — | | | — | | | — | | | — | |
Deferred revenue: | | | | | | | |
Three months ended March 31, 2023 | $ | 549,551 | | | $ | 140,324 | | | $ | (49) | | | $ | 689,826 | |
Three months ended March 31, 2022 | 1,595,472 | | | 49,094 | | | (108,586) | | | 1,535,980 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Balance, Beginning of Period | | Additions | | Deductions | | Balance, End of Period |
Accounts receivable: | | | | | | | |
Six Months Ended June 30, 2023 | $ | 96,210 | | | $ | 793,039 | | | $ | (486,684) | | | $ | 402,565 | |
Six Months Ended June 30, 2022 | 454,993 | | | 808,713 | | | (1,069,173) | | | 194,533 | |
Allowance for doubtful accounts(1): | | | | | | | |
Six Months Ended June 30, 2023 | $ | (13,835) | | | $ | — | | | $ | 6,160 | | | $ | (7,675) | |
Six Months Ended June 30, 2022 | — | | | — | | | — | | | — | |
Deferred revenue:(2) | | | | | | | |
Six Months Ended June 30, 2023 | $ | 549,551 | | | $ | 414,816 | | | $ | (56,957) | | | $ | 907,410 | |
Six Months Ended June 30, 2022 | 1,595,472 | | | 49,107 | | | (128,432) | | | 1,516,147 | |
(1) There was no bad debt expense recorded during the three and six months ended March 31,June 30, 2023 or 2022. There was a $6.2 million reversal of a bad debt allowance during the three months ended June 30, 2023 due to the collection of a previously recognized allowance for doubtful accounts. To estimate the allowance for doubtful accounts, the Company evaluates the credit risk related to its customers based on historical loss experience, economic conditions, the aging of receivables, and customer-specific risks.
(2) Deductions from Deferred revenue generally related to the recognition of revenue once performance obligations on a contract with a customer are met.
As of March 31,June 30, 2023, the aggregate amount of the transaction price allocated to performance obligations that were unsatisfied (or partially unsatisfied), excluding amounts related to sales-based royalties, the Gavi APA, and the reduction in doses related to the Amended and Restated UK Supply Agreement, was approximately $3$2 billion of which $689.8$907.4 million was included in Deferred revenue. Failure to meet regulatory milestones, timely obtain supportive recommendations from governmental advisory committees, or achieve product volume or delivery timing obligations under the Company’s advance purchase agreements (“APAs”) may require the Company to refund portions of upfront and other payments or result in reduced future payments, which could adversely impact the Company’s ability to realize revenue from its unsatisfied performance obligations. The timing to fulfill performance obligations related to grant agreements will depend on the results of the Company's research and development activities, including clinical trials, and delivery of doses. The timing to fulfill performance obligations related to APAs will depend on the timing of product manufacturing, receipt of marketing authorizations for additional indications, delivery of doses based on customer demand, and the ability of the customer to request variant vaccine in place of the prototype
NVX-CoV2373 vaccine under certain of ourthe Company’s APAs. The remaining unfilled performance obligations not related to grant agreements or APAs are expected to be fulfilled in less than 12 months.
Under the terms of the Gavi APA and a separate purchase agreement between Gavi and Serum Institute of India Pvt. Ltd. (“SIIPL”),SIIPL, 1.1 billion doses of NVX-CoV2373 were to be made available to countries participating in the COVAX Facility. The Company expected to manufacture and distribute 350 million doses of NVX-CoV2373 to countries participating under the COVAX Facility. Under a separate purchase agreement with Gavi, SIIPL was expected to manufacture and deliver the balance of the 1.1 billion doses of NVX-CoV2373 for low- and middle-income countries participating in the COVAX Facility. The Company expected to deliver doses with antigen and adjuvant manufactured at facilities directly funded under the Company's funding agreement with Coalition for Epidemic Preparedness Innovations (“CEPI”), with initial doses supplied by SIIPL and Serum Life Sciences Limited (“SLS”)SLS under a supply agreement. The Company expected to supply significant doses that Gavi would allocate to low-, middle- and high-income countries, subject to certain limitations, utilizing a tiered pricing schedule and Gavi could prioritize such doses to low- and middle- income countries, at lower prices. Additionally, the Company could provide additional doses of NVX-CoV2373, to the extent available from CEPI-funded manufacturing facilities, in the event that SIIPL could not materially deliver expected vaccine doses to the COVAX Facility. Under the agreement, the Company received an upfront payment of $350.0 million from Gavi in 2021 and an additional payment of $350 million in 2022 related to the Company’s achieving an emergency use license for NVX-CoV2373 by the WHO (the “Advance Payment Amount”).
On November 18, 2022, the Company delivered written notice to Gavi to terminate the Gavi APA on the basis of Gavi’s failure to procure the purchase of 350 million doses of NVX-CoV2373 from the Company as required by the Gavi APA. As of November 18, 2022, the Company had only received orders under the Gavi APA for approximately 2 million doses. On
December 2, 2022, Gavi issued a written notice purporting to terminate the Gavi APA based on Gavi’s contention that the Company repudiated the agreement and, therefore, materially breached the Gavi APA. Gavi also contends that, based on its purported termination of the Gavi APA, it is entitled to a refund of the Advance Payment Amount less any amounts that have been credited against the purchase price for binding orders placed by a buyer participating in the COVAX Facility. As of MarchSince December 31, 2023,2022, the remaining Gavi Advance Payment Amount, which is $696.4 million as of $697.4 million,June 30, 2023, pending resolution of the dispute with Gavi related to a return of the remaining Advance Payment Amount, was reclassified from Deferred revenue tohas been classified within Other current liabilities in the Company’s consolidated balance sheets.sheet. On January 24, 2023, Gavi filed a demand for arbitration with the International Court of Arbitration based on the claims described above. The Company filed its Answer and Counterclaims on March 2, 2023. On April 5, 2023, Gavi filed its Reply to the Company’s Counterclaims. The arbitration hearing is scheduled for July 2024, with a written decision to follow. Arbitration is inherently uncertain, and while the Company believes that it is entitled to retain the remaining Advance Payment Amount received from Gavi, it is possible that it could be required to refund all or a portion of the remaining Advance Payment Amount from Gavi.
Product Sales
Product sales by the Company’s customer’s geographic location was as follows (in thousands):
| | | Three Months Ended March 31, | | Three Months Ended June 30, | Six Months Ended June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 | 2023 | | 2022 |
North America | North America | $ | — | | | $ | 64,762 | | North America | $ | — | | | $ | — | | $ | — | | | $ | 64,762 | |
Europe | Europe | 57,267 | | | 413,745 | | Europe | 1,518 | | | — | | 58,785 | | | 413,745 | |
Rest of the world | Rest of the world | (64,724) | | | 107,121 | | Rest of the world | 283,645 | | | 55,455 | | 218,921 | | | 162,576 | |
Total product revenue | $ | (7,457) | | | $ | 585,628 | | |
Total product sales revenue | | Total product sales revenue | $ | 285,163 | | | $ | 55,455 | | $ | 277,706 | | | $ | 641,083 | |
In May 2023, the Company extended a credit for certain doses delivered in 2022 that qualified for replacement under the contract with the customer.Australian government. This credit is the result of a single lot sold to the Australian government that upon pre-planned 6-month stability testing was found to have fallen below the defined specifications and the lot therefore was therefore removed from the market. The credit will be applied against the future sale of doses to the customer and, during the threesix months ended March 31,June 30, 2023, the Company recorded a reduction of $64.7 million in product sales, with a corresponding increase to Deferred revenue, non-current.
In April 2023, the Company amended its APA with the Canadian government, for the purchase of doses of NVX-CoV2373 (the “Canada APA”) to forfeit certain doses originally scheduled for delivery in 2022 for a payment of $100.4 million received in the second quarter of 2023. On June 30, 2023, the Company entered into an additional amendment (the “June 2023 Amendment”) to the Canada APA. Pursuant to the June 2023 Amendment, the parties revised the Canadian government’s previous commitment by (i) forfeiting certain doses of the NVX-CoV2373 previously scheduled for delivery, (ii) reducing the amount of doses of NVX-CoV2373 due for delivery, (iii) revising the delivery schedule for the remaining doses of NVX-CoV2373 to be delivered, and (iv) requiring use of the Biologics Manufacturing Centre (“BMC”) Inc. to produce bulk antigen for doses in 2024 and 2025. In connection with the forfeiture of doses of NVX-CoV2373, the Canadian government agreed to pay a total amount of $349.6 million to the Company in two equal installments in 2023, which total amount equals the remaining balance owed by the Canadian government with respect to such forfeited vaccine doses. The first installment was payable upon execution of the June 2023 Amendment and the second installment is contingent and payable upon the Company’s delivery of vaccine doses in the second half of 2023. The first installment of $174.8 million was received from the Canadian government in July 2023. If the Company fails to deliver COVID-19 vaccine doses to the Canadian government in the second half of 2023, the second installment payment of $174.8 million will be terminated and not be payable to the Company. The Canadian Government may terminate the Canada APA, as amended, if the Company fails to achieve regulatory approval for use of BMC for NVX-CoV2373 production on or before December 31, 2024. The June 2023 Amendment maintained the total contract value of the original Canada APA. Pursuant to the June 2023 Amendment, the Company and the Canadian government will endeavor to expand the Company’s previously agreed in-country commitment to Canada and to further partner to provide health, economic, and future pandemic preparedness benefits to Canada, which value may be provided through a number of activities, including without limitation, capital investments, the performance of activities or services, or the provision of technology or intellectual property licenses. Further, the parties will endeavor to enter into a memorandum of understanding (the “MOU”) to illustrate the Company’s ability to deliver such benefits over a 15 year period with an aggregate value of not less than 100% of the amount remaining to be paid under the June 2023 Amendment and ultimately received by the Company. The Company agreed to hold $20 million in escrow for the benefit of the Canadian
government, which amount is the sole recourse available to the Canadian government in the event of non-performance under the MOU.
Grants
The Company’s U.S. government agreement consists of a Project Agreement (the “Project Agreement”) and a Base Agreement with Advanced Technology International, the Consortium Management Firm acting on behalf of the Medical CBRN Defense Consortium in connection with the partnership formerly known as Operation Warp Speed (the Base Agreement
together with the Project Agreement are referred to as the “USG Agreement”). In February 2023, in connection with the execution of Modification 17 to the Project Agreement, the U.S. government indicated to the Company that the award may not be extended past its current period of performance, which is December 31, 2023. Also, Modification 17 included provisions requiring that the payment of $60.0 million of consideration associated with manufacturing work now be contingent upon meeting certain milestones, including the delivery of up to 1.5 million doses of NVX-CoV2373 and development and regulatory milestones related to commercial readiness, expansion of the EUA and development of multiple vial presentations. As of March 31,June 30, 2023, the Company constrained the total transaction price by $48.0 million for consideration associated with milestones that are not fully within the Company’s control. This constraint, in addition to other contract changes included within Modification 17, resulted in an approximately $29 million cumulative reduction to revenue previously recognized under the contract for the threesix months ended March 31,June 30, 2023.
Royalties and Other
During the three and six months ended March 31,June 30, 2023, the Company did not recognize revenue related to milestone payments or sales-based royalties. TheDuring the three and six months ended June 30, 2022, the Company recognized $7.4a $20.0 million milestone payment upon the first sale of NVX-CoV2373 in Japan and $1.7 million and $9.2 million, respectively in revenue related to sales-based royalties during the three months ended March 31, 2022.royalties.
Note 4 – Collaboration, License, and Supply Agreements
Serum InstituteSIIPL
The Company previously granted SIIPL exclusive and non-exclusive licenses for the development, co-formulation, filling and finishing, registration, and commercialization of NVX-CoV2373, its proprietary COVID-19 variant antigen candidate(s), its quadrivalent influenza vaccine candidate, and its CIC vaccine candidate. SIIPL agreed to purchase the Company's Matrix-M™ adjuvant and the Company granted SIIPL a non-exclusive license to manufacture the antigen drug substance component of NVX-CoV2373 in SIIPL’s licensed territory solely for use in the manufacture of NVX-CoV2373. The Company and SIIPL equally split the revenue from SIIPL’s sale of NVX-CoV2373 in its licensed territory, net of agreed costs. The Company also has a supply agreement with SIIPL and SLS under which SIIPL and SLS supply the Company with NVX-CoV2373, its proprietary COVID-19 variant antigen candidate(s), its quadrivalent influenza vaccine candidate, and its CIC vaccine candidate for commercialization and sale in certain territories, as well as a contract development manufacture agreement with SLS, under which SLS manufactures and supplies finished vaccine product to the Company using antigen drug substance and Matrix-M™ adjuvant supplied by the Company. In March 2020, the Company granted SIIPL a non-exclusive license for the use of Matrix-M™ adjuvant supplied by the Company to develop, manufacture, and commercialize R21, a malaria candidate developed by the Jenner Institute, University of Oxford (“R21/Malaria”). Under the agreement, SIIPL purchases the Company's Matrix-M™ adjuvant to manufacture R21/Malaria and SIIPL pays a royalty in the single to low double-digit range for a period of 15 years after the first commercial sale of product in each country.
Takeda Pharmaceutical Company Limited
The Company has a collaboration and license agreement with Takeda Pharmaceutical Company Limited (“Takeda”) under which the Company granted Takeda an exclusive license to develop, manufacture, and commercialize NVX-CoV2373 in Japan. Under the agreement, Takeda purchases Matrix-M™ adjuvant from the Company to manufacture doses of NVX-CoV2373, and the Company is entitled to receive payments from Takeda based on the achievement of certain development and commercial milestones, as well as a portion of net profits from the sale of NVX-CoV2373. In September 2021, Takeda finalized an agreement with the Government of Japan’s Ministry of Health, Labour and Welfare ("MHLW") for the purchase of 150 million doses of NVX-CoV2373. In February 2023, MHLW cancelled the remainder of doses under its agreement with Takeda. As a result, it is uncertain whether the Company will receive future payments from Takeda under the terms and conditions of their current collaboration and licensing agreement.
Bill & Melinda Gates Medical Research Institute
In May 2023, we entered into a 3-year agreement with the Bill & Melinda Gates Medical Research Institute to provide our Matrix-M™ adjuvant for use in preclinical vaccine research.
Other Supply Agreements
On September 30, 2022, the Company, FUJIFILM Diosynth Biotechnologies UK Limited (“FDBK”), FUJIFILM Diosynth Biotechnologies Texas, LLC (“FDBT”), and FUJIFILM Diosynth Biotechnologies USA, Inc. (“FDBU” and together with FDBK and FDBT, “Fujifilm”) entered into a Confidential Settlement Agreement and Release (the “Fujifilm Settlement Agreement”) regarding amounts due to Fujifilm in connection with the termination of manufacturing activity at FDBT under the Commercial Supply Agreement (the “CSA”) dated August 20, 2021 and Master Services Agreement dated June 30, 2020 and associated statements of work (the “MSA”) by and between the Company and Fujifilm. The MSA and CSA established the general terms and conditions applicable to Fujifilm’s manufacturing and supply activities related to NVX-CoV2373 under the associated statements of work.
Pursuant to the Fujifilm Settlement Agreement, the Company is responsible for payment of up to $185.0 million (the “Settlement Payment”) to Fujifilm in connection with cancellation of manufacturing activity at FDBT under the CSA, of which (i) $47.8 million, constituting the initial reservation fee under the CSA, was credited against the Settlement Payment on September 30, 2022 and (ii) the remaining balance is to be paid in four equal quarterly installments of $34.3 million each, which began on March 31, 2023. As of March 31,June 30, 2023, the remaining payment of $102.9$68.6 million was reflected in Accrued expenses. Under the Fujifilm Settlement Agreement, Fujifilm is required to use commercially reasonable efforts to mitigate the losses associated with the vacant manufacturing capacity caused by the termination of manufacturing activities at FDBT under the Fujifilm CSA, and the final two quarterly installments will be mitigated by any replacement revenue achieved by Fujifilm between July 1, 2023 and December 31, 2023.
In May 2023, the Company issued a notice to SK bioscience Co., Ltd. (“SK bioscience) to cancel and wind down all drug substance and drug product manufacturing activities for supply by SK bioscience to the Company. The Company recognized $20.4 million of research and development expense associated with a take-or-pay obligation that became due as a result of the cancellation.
The Company continues to assess its manufacturing needs and intends to modify its global manufacturing footprint consistent with its contractual obligations to supply, and anticipated demand for, NVX-CoV2373, and in doing so, recognizes that significant costs may be incurred.
Note 5 – Earnings (Loss) per Share
Basic and diluted net income (loss) per share were calculated as follows (in thousands, except per share data):
| | | Three Months Ended March 31, | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2023 | | 2022 | | | 2023 | | 2022 | | 2023 | | 2022 |
Numerator: | Numerator: | | | | | Numerator: | | | | | | | |
Net income (loss), basic | Net income (loss), basic | $ | (293,905) | | | $ | 203,408 | | | Net income (loss), basic | $ | 58,008 | | | $ | (510,485) | | | $ | (235,897) | | | $ | (307,077) | |
Interest on convertible notes, net | — | | | 3,403 | | | |
Interest on convertible notes | | Interest on convertible notes | 2,582 | | | — | | | — | | | — | |
Net income (loss), dilutive | Net income (loss), dilutive | (293,905) | | | 206,811 | | | Net income (loss), dilutive | 60,590 | | | (510,485) | | | (235,897) | | | (307,077) | |
Denominator: | Denominator: | | | | | Denominator: | | | | | | | |
Weighted average number of common shares outstanding, basic | Weighted average number of common shares outstanding, basic | 86,158 | | | 76,457 | | | Weighted average number of common shares outstanding, basic | 89,362 | | | 78,143 | | | 87,769 | | | 77,305 | |
Effect of dilutive securities | Effect of dilutive securities | — | | | 4,254 | | | Effect of dilutive securities | 14,703 | | | — | | | — | | | — | |
Weighted average number of common shares outstanding, dilutive | Weighted average number of common shares outstanding, dilutive | 86,158 | | | 80,711 | | | Weighted average number of common shares outstanding, dilutive | 104,065 | | | 78,143 | | | 87,769 | | | 77,305 | |
Net income (loss) per share: | Net income (loss) per share: | | | | | Net income (loss) per share: | | | | | | | |
Basic | Basic | $ | (3.41) | | | $ | 2.66 | | | Basic | $ | 0.65 | | | $ | (6.53) | | | $ | (2.69) | | | $ | (3.97) | |
Diluted | Diluted | $ | (3.41) | | | $ | 2.56 | | | Diluted | $ | 0.58 | | | $ | (6.53) | | | $ | (2.69) | | | $ | (3.97) | |
| Anti-dilutive securities excluded from calculations of diluted net income (loss) per share | Anti-dilutive securities excluded from calculations of diluted net income (loss) per share | 23,971 | | | 1,474 | | | Anti-dilutive securities excluded from calculations of diluted net income (loss) per share | 6,791 | | | 8,073 | | | 23,447 | | | 8,073 | |
Note 6 – Cash, Cash Equivalents, and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported in the consolidated balance sheets that sums to the total of such amounts shown in the consolidated statements of cash flows (in thousands):
| | | March 31, 2023 | | December 31, 2022 | | June 30, 2023 | | December 31, 2022 |
Cash and cash equivalents | Cash and cash equivalents | $ | 624,950 | | | $ | 1,336,883 | | Cash and cash equivalents | $ | 505,912 | | | $ | 1,336,883 | |
Restricted cash, current | Restricted cash, current | 10,330 | | | 10,303 | | Restricted cash, current | 10,361 | | | 10,303 | |
Restricted cash, non-current(1) | Restricted cash, non-current(1) | 1,663 | | | 1,659 | | Restricted cash, non-current(1) | 1,668 | | | 1,659 | |
Cash, cash equivalents, and restricted cash | Cash, cash equivalents, and restricted cash | $ | 636,943 | | | $ | 1,348,845 | | Cash, cash equivalents, and restricted cash | $ | 517,941 | | | $ | 1,348,845 | |
(1)Classified as Other non-current assets as of March 31,June 30, 2023 and December 31, 2022, on the consolidated balance sheets.
Note 7 – Fair Value Measurements
The following table represents the Company’s fair value hierarchy for its financial assets and liabilities (in thousands):
| | | Fair Value at March 31, 2023 | | Fair Value at December 31, 2022 | | Fair Value at June 30, 2023 | | Fair Value at December 31, 2022 |
Assets | Assets | Level 1 | | Level 2 | | Level 3 | | Level 1 | | Level 2 | | Level 3 | Assets | Level 1 | | Level 2 | | Level 3 | | Level 1 | | Level 2 | | Level 3 |
Money market funds(1) | Money market funds(1) | $ | 152,786 | | | $ | — | | | $ | — | | | $ | 398,834 | | | $ | — | | | $ | — | | Money market funds(1) | $ | 81,268 | | | $ | — | | | $ | — | | | $ | 398,834 | | | $ | — | | | $ | — | |
Government-backed securities(1) | Government-backed securities(1) | — | | | 296,000 | | | — | | | — | | | 296,000 | | | — | | Government-backed securities(1) | — | | | 180,000 | | | — | | | — | | | 296,000 | | | — | |
| Corporate debt securities(1) | Corporate debt securities(1) | — | | | 4,991 | | | — | | | — | | | — | | | — | | Corporate debt securities(1) | — | | | 28,515 | | | — | | | — | | | — | | | — | |
Agency securities(1) | Agency securities(1) | — | | | — | | | — | | | — | | | 104,536 | | | — | | Agency securities(1) | — | | | 9,971 | | | — | | | — | | | 104,536 | | | — | |
Total cash equivalents | Total cash equivalents | $ | 152,786 | | | $ | 300,991 | | | $ | — | | | $ | 398,834 | | | $ | 400,536 | | | $ | — | | Total cash equivalents | $ | 81,268 | | | $ | 218,486 | | | $ | — | | | $ | 398,834 | | | $ | 400,536 | | | $ | — | |
Liabilities | Liabilities | | | | | | | | | | | | Liabilities | | | | | | | | | | | |
5.00% Convertible notes due 2027 | 5.00% Convertible notes due 2027 | $ | — | | $ | 103,811 | | | $ | — | | $ | — | | $ | 172,789 | | $ | — | 5.00% Convertible notes due 2027 | $ | — | | $ | 130,957 | | | $ | — | | $ | — | | $ | 172,789 | | $ | — |
3.75% Convertible notes due 2023 | 3.75% Convertible notes due 2023 | — | | | — | | | — | | | — | | | 322,111 | | | — | | 3.75% Convertible notes due 2023 | — | | | — | | | — | | | — | | | 322,111 | | | — | |
Total convertible notes payable | Total convertible notes payable | $ | — | | | $ | 103,811 | | | $ | — | | | $ | — | | | $ | 494,900 | | | $ | — | | Total convertible notes payable | $ | — | | | $ | 130,957 | | | $ | — | | | $ | — | | | $ | 494,900 | | | $ | — | |
(1)All investments are classified as Cash and cash equivalents as of March 31,June 30, 2023 and December 31, 2022, on the consolidated balance sheets.
Fixed-income investments categorized as Level 2 are valued at the custodian bank by a third-party pricing vendor’s valuation models that use verifiable observable market data, such as interest rates and yield curves observable at commonly quoted intervals and credit spreads, bids provided by brokers or dealers, or quoted prices of securities with similar characteristics. Pricing of the Company’s convertible notes has been estimated using observable inputs, including the price of the Company’s common stock, implied volatility, interest rates, and credit spreads.
During the threesix months ended March 31,June 30, 2023 and 2022, the Company did not have any transfers between levels.levels.
The amount in the Company’s consolidated balance sheets for accounts payable and accrued expenses approximates its fair value due to its short-term nature.
Note 8 – Inventory
Inventory consisted of the following (in thousands):
| | | March 31, 2023 | | December 31, 2022 | | June 30, 2023 | | December 31, 2022 |
Raw materials | Raw materials | $ | 12,320 | | | $ | 13,912 | | Raw materials | $ | 10,892 | | | $ | 13,912 | |
Semi-finished goods | Semi-finished goods | 13,108 | | | 21,410 | | Semi-finished goods | 12,596 | | | 21,410 | |
Finished goods | Finished goods | 8,757 | | | 1,361 | | Finished goods | — | | | 1,361 | |
Total inventory | Total inventory | $ | 34,185 | | | $ | 36,683 | | Total inventory | $ | 23,488 | | | $ | 36,683 | |
Inventory write-downs as a result of excess, obsolescence, expiry, or other reasons, and losses on firm purchase commitments, offset by recoveries of such commitments, are recorded as a component of cost of sales in our consolidated statements of operations. For the three and six months ended March 31,June 30, 2023, inventory write-downs were $12.5 million. For the three months ended March 31, 2023,$19.1 million and $31.5 million, respectively and losses on firm purchase commitments were $7.7 million. There were no$0.7 million and $8.5 million, respectively. In addition, for the three and six months ended June 30, 2023 the Company recorded recoveries on firm purchase commitments of $17.9 million and $18.8 million, respectively, related primarily to negotiated reductions to previously recognized firm purchase commitments. For the three and six months ended June 30, 2022, inventory write-downs orand losses on firm purchase commitments during the three months ended March 31, 2022.were $155.7 million and $99.6 million, respectively.
Note 9 – Goodwill
The Company has one reporting unit, which has a negative equity value as of ended March 31,June 30, 2023 and December 31, 2022. The
change in the carrying amounts of goodwill for the threesix months ended March 31,June 30, 2023 was as follows (in thousands):
| | | | | |
| Amount |
Balance at December 31, 2022 | $ | 126,331 | |
Currency translation adjustments | 3,4962,035 | |
Balance at March 31,June 30, 2023 | $ | 129,827128,366 | |
Note 10 – Leases
The Company has embedded leases related to supply agreements with contract manufacturing organizations (“CMOs”) and contract manufacturing and development organizations to manufacture NVX-CoV2373, as well as operating leases for its research and development and manufacturing facilities, corporate headquarters and offices, and certain equipment. During the threesix months ended March 31,June 30, 2023, the Company continued to align its global manufacturing footprint as a result of its ongoing assessment of manufacturing needs consistent with its contractual obligations related to the supply, and anticipated demand for, NVX-CoV2373.
During the three and six months ended March 31,June 30, 2023, the Company recognized a short-term lease benefit of $9.2 million and $8.5 million, respectively, related to its embedded leases, primarily as a result of a benefit of $9.5 million related to a settlement executed during the three months ended June 30, 2023. During the three and six months ended June 30, 2022, the Company recognized a short-term lease expense of $0.7$5.8 million and $83.9 million respectively, related to its embedded leases and no expense was recognizedexpensed $9.4 million and $19.8 million respectively, for the write off of right of use (“ROU”) assets that represented assets acquired for research and development activities that did not have an alternative future use at the commencement or modification of the lease. lease ROU written off. There were no ROU assets written off during the three and six months ended June 30, 2023, related to embedded leases.
During the three and six months ended March 31, 2022, the Company recognized a short-term lease expense of $78.1 million, related to its embedded leases and expensed $10.4 million of ROU write off. During the three months ended March 31,June 30, 2023, and 2022, the Company recognized $0.5 million and $1.1$0.9 million respectively, of interest expense, respectively, on its finance lease liabilities. During the three and six months ended June 30, 2022, the Company recognized $2.3 million and $3.4 million of interest expense, respectively, on its finance lease liabilities.
During the three and six months ended June 30, 2023, the Company recorded an impairment charge of $5.9 million related to ROU facility leases used for research and development, manufacturing and offices space that are impacted by the Restructuring Plan (see Note 16).
Note 11 – Long-Term Debt
Total convertible notes payable consisted of the following (in thousands):
| | | March 31, 2023 | | December 31, 2022 | | June 30, 2023 | | December 31, 2022 |
Current portion: | Current portion: | | | | Current portion: | | | |
3.75% Convertible notes due 2023 | 3.75% Convertible notes due 2023 | $ | — | | | $ | 325,000 | | 3.75% Convertible notes due 2023 | $ | — | | | $ | 325,000 | |
Unamortized debt issuance costs | Unamortized debt issuance costs | — | | | (119) | | Unamortized debt issuance costs | — | | | (119) | |
Total current convertible notes payable | Total current convertible notes payable | $ | — | | | $ | 324,881 | | Total current convertible notes payable | $ | — | | | $ | 324,881 | |
Non-current portion: | Non-current portion: | | | | Non-current portion: | | | |
5.00% Convertible notes due 2027 | 5.00% Convertible notes due 2027 | $ | 175,250 | | | $ | 175,250 | | 5.00% Convertible notes due 2027 | $ | 175,250 | | | $ | 175,250 | |
| Unamortized debt issuance costs and discount | Unamortized debt issuance costs and discount | (8,393) | | | (8,784) | | Unamortized debt issuance costs and discount | (8,002) | | | (8,784) | |
Total non-current convertible notes payable | Total non-current convertible notes payable | $ | 166,857 | | | $ | 166,466 | | Total non-current convertible notes payable | $ | 167,248 | | | $ | 166,466 | |
During the three months ended March 31,In February 2023, the Company repaid the outstanding principal amount of $325.0 million on its 3.75% Convertible notes due in 2023, together with accrued but unpaid interest on the maturity date. The repayment was funded by the issuance of the 5.00% Convertible notes due 2027 and the concurrent common stock offering in December 2022, as well as cash on hand. The effective interest rate of the 2027 Convertible notes is 6.2%.
The interest expense incurred in connection with the Notesconvertible notes payable consisted of the following (in thousands):
| | | Three Months Ended March 31, | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2023 | | 2022 | | | 2023 | | 2022 | | 2023 | | 2022 |
Coupon interest | Coupon interest | $ | 3,206 | | | $ | 3,047 | | | Coupon interest | $ | 2,191 | | | $ | 3,047 | | | $ | 5,397 | | | $ | 6,094 | |
Amortization of debt issuance costs | Amortization of debt issuance costs | 510 | | | 356 | | | Amortization of debt issuance costs | 391 | | | 356 | | | 900 | | | 712 | |
Total interest expense on convertible notes payable | Total interest expense on convertible notes payable | $ | 3,716 | | | $ | 3,403 | | | Total interest expense on convertible notes payable | $ | 2,582 | | | $ | 3,403 | | | $ | 6,297 | | | $ | 6,806 | |
Note 12 – Stockholders' Equity (Deficit)
In June 2021, the Company entered into an At Market Issuance Sales Agreement (the "June 2021 Sales Agreement"), which allows it to issue and sell up to $500 million in gross proceeds of shares of its common stock. During the three and six months ended June 30, 2023, the Company sold 7.9 million shares of its common stock under its June 2021 Sales Agreement resulting in net proceeds of approximately $68 million, of which $6 million was included in Prepaid expenses and other current assets as of June 30, 2022 and received in cash in July 2023. As of March 31,June 30, 2023, the remaining balance available under the June 2021 Sales Agreement was approximately $318$249 million. There were no sales recorded under the June 2021 Sales Agreement during the three months ended March 31, 2023.
During the threesix months ended March 31,June 30, 2022, the Company sold 2.2 million shares of its common stock resulting in net proceeds of approximately $179 million, under its June 2021 Sales Agreement.
Note 13 – Stock-Based Compensation
Equity Plans
In January 2023, the Company established the 2023 Inducement Plan (the “2023 Inducement Plan”), which provides for the granting of share-based awards to individuals who were not previously employees, or following a bona fide period of non-employment, as an inducement material to such individuals entering into employment with the Company. The Company reserved 1.0 million shares of common stock for grantgrants under the 2023 Inducement Plan. As of March 31,June 30, 2023, there were 0.3 million shares available for issuance under the 2023 Inducement Plan.
The 2015 Stock Incentive Plan, as amended (“2015 Plan”), was approved at the Company's annual meeting of stockholders in June 2015. Under the 2015 Plan, equity awards may be granted to officers, directors, employees, and consultants of and advisors to the Company and any present or future subsidiary. The 2015 Plan authorizes the issuance of up to 14.8 million shares of common stock under equity awards granted under the 2015 Plan. All such shares authorized for issuance under the 2015 Plan have been reserved. The 2015 Plan will expire on March 4, 2025. As of March 31,June 30, 2023, there were 0.50.9 million shares available for issuance under the 2015 Plan.
The Amended and Restated 2005 Stock Incentive Plan (“2005 Plan”) expired in February 2015 and no new awards may be made under such plan, although awards will continue to be outstanding in accordance with their terms.
The 2023 Inducement Plan and the 2015 Plan permit and the 2005 Plan permitted the grant of stock options (including incentive stock options), restricted stock, stock appreciation rights (“SARs”), and restricted stock units (“RSUs”). In addition, under the 2023 Inducement Plan and the 2015 Plan, unrestricted stock, stock units, and performance awards may be granted. Stock options and SARs generally have a maximum term of ten years and may be or were granted with an exercise price that is no less than 100% of the fair market value of the Company's common stock at the time of grant. Grants of share-based awards are generally subject to vesting over periods ranging from one to four years.
The Company recorded stock-based compensation expense in the consolidated statements of operations as follows (in thousands):
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | |
Cost of sales | $ | 519 | | | $ | — | | | | | |
Research and development | 13,858 | | | 16,887 | | | | | |
Selling, general, and administrative | 14,270 | | | 16,046 | | | | | |
Total stock-based compensation expense | $ | 28,647 | | | $ | 32,933 | | | | | |
thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Cost of sales | $ | 998 | | | $ | — | | | $ | 1,516 | | | $ | — | |
Research and development | 9,946 | | | 19,695 | | | 23,804 | | | 36,582 | |
Selling, general, and administrative | 9,348 | | | 18,353 | | | 23,619 | | | 34,399 | |
Total stock-based compensation expense | $ | 20,292 | | | $ | 38,048 | | | $ | 48,939 | | | $ | 70,981 | |
Total stock-based compensation capitalized and included in inventory as of March 31,June 30, 2023 and December 31, 2022 was $1.7 million.
As of March 31,June 30, 2023, there was approximately $174$122 million of total unrecognized compensation expense related to unvested stock options, SARs, RSUs, and the Company’s Employee Stock Purchase Plan, as amended (“ESPP”). This unrecognized non-cash compensation expense is expected to be recognized over a weighted-average period of approximately one year. This estimate does not include the impact of other possible stock-based awards that may be made during future periods.
The aggregate intrinsic value represents the total intrinsic value (the difference between the Company’s closing stock price on the last trading day of the period and the exercise price, multiplied by the number of in-the-money stock options and SARs) that would have been received by the holders had all stock option and SAR holders exercised their stock options and SARs on March 31,June 30, 2023. This amount is subject to change based on changes to the closing price of the Company's common stock. The aggregate intrinsic value of stock options and SARs exercises and vesting of RSUs for the threesix months ended March 31,June 30, 2023 and 2022 was approximately $1.5$2 million and $5.6$8 million, respectively.
Stock Options and Stock Appreciation Rights
The following is a summary of stock options and SARs activity under the 2023 Inducement Plan, 2015 Plan, and 2005 Plan for the threesix months ended March 31,June 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 Inducement Plan | | 2015 Plan | | 2005 Plan |
| Stock Options | | Weighted-Average Exercise Price | | Stock Options | | Weighted-Average Exercise Price | | Stock Options | | Weighted-Average Exercise Price |
Outstanding at December 31, 2022 | — | | | $ | — | | | 4,053,290 | | | $ | 46.07 | | | 63,725 | | | $ | 112.94 | |
Granted | 358,600 | | | 10.96 | | | 927,742 | | | 7.20 | | | — | | | — | |
Exercised | — | | | — | | | (5,031) | | | 6.81 | | | — | | | — | |
Canceled | — | | | — | | | (15,835) | | | 81.44 | | | (5,250) | | | 36.60 | |
Outstanding at March 31, 2023 | 358,600 | | | $ | 10.96 | | | 4,960,166 | | | $ | 38.73 | | | 58,475 | | | $ | 119.80 | |
Shares exercisable at March 31, 2023 | — | | | $ | — | | | 311,560 | | | $ | 40.60 | | | 58,475 | | | $ | 119.80 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 Inducement Plan | | 2015 Plan | | 2005 Plan |
| Stock Options | | Weighted-Average Exercise Price | | Stock Options | | Weighted-Average Exercise Price | | Stock Options | | Weighted-Average Exercise Price |
Outstanding at December 31, 2022 | — | | | $ | — | | | 4,053,290 | | | $ | 46.07 | | | 63,725 | | | $ | 112.94 | |
Granted | 358,600 | | | 10.96 | | | 860,872 | | | 7.29 | | | — | | | — | |
Exercised | — | | | — | | | (5,031) | | | 6.81 | | | — | | | — | |
Canceled | — | | | — | | | (63,839) | | | 51.41 | | | (5,250) | | | 36.60 | |
Outstanding at June 30, 2023 | 358,600 | | | $ | 10.96 | | | 4,845,292 | | | $ | 39.15 | | | 58,475 | | | $ | 119.80 | |
Shares exercisable at June 30, 2023 | — | | | $ | — | | | 3,295,810 | | | $ | 40.62 | | | 58,475 | | | $ | 119.80 | |
The fair value of stock options granted under the 2023 Inducement Plan and the 2015 Plan was estimated at the date of
grant using the Black-Scholes option-pricing model with the following assumptions:
| | | Three Months Ended March 31, | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2023 | | 2022 | | | 2023 | | 2022 | | 2023 | | 2022 |
Weighted average Black-Scholes fair value of stock options granted | Weighted average Black-Scholes fair value of stock options granted | $7.19 | | $65.78 | | Weighted average Black-Scholes fair value of stock options granted | $6.79 | | $43.21 | | $7.24 | | $62.52 |
Risk-free interest rate | Risk-free interest rate | 3.6%-4.0% | | 1.4%-2.0% | | Risk-free interest rate | 3.5%-3.9% | | 2.7%-3.2% | | 3.5%-4.0% | | 1.4%-3.2% |
Dividend yield | Dividend yield | —% | | —% | | Dividend yield | —% | | —% | | —% | | —% |
Volatility | Volatility | 127.7%-140.3% | | 120.5%-130.6% | | Volatility | 120.4%-131.3% | | 120.5%-136.7% | | 120.4%-140.3% | | 120.5%-136.7% |
Expected term (in years) | Expected term (in years) | 3.9-5.1 | | 4.1-5.3 | | Expected term (in years) | 3.9-6.4 | | 4.0-6.2 | | 3.9-6.4 | | 4.0-6.2 |
The total aggregate intrinsic value and weighted-average remaining contractual term of stock options and SARs outstanding under the 2023 Inducement Plan, 2015 Plan and 2005 Plan as of March 31,June 30, 2023 was approximately $0.9$1.7 million and 7.57.3 years, respectively. The total aggregate intrinsic value and weighted-average remaining contractual term of stock options and SARs exercisable under the 2023 Inducement Plan, 2015 Plan and 2005 Plan as of March 31,June 30, 2023 was approximately $0.7$1.1 million and 6.56.3 years, respectively.
Restricted Stock Units
The following is a summary of RSU activity for the threesix months ended March 31,June 30, 2023:
| | | 2023 Inducement Plan | | 2015 Plan | | 2023 Inducement Plan | | 2015 Plan |
| | Number of Shares | | Per Share Weighted- Average Fair Value | | Number of Shares | | Per Share Weighted- Average Fair Value | | Number of Shares | | Per Share Weighted- Average Fair Value | | Number of Shares | | Per Share Weighted- Average Fair Value |
Outstanding and unvested at December 31, 2022 | Outstanding and unvested at December 31, 2022 | — | | | $ | — | | | 2,034,574 | | | $ | 61.67 | | Outstanding and unvested at December 31, 2022 | — | | | $ | — | | | 2,034,574 | | | $ | 61.67 | |
Granted | Granted | 308,390 | | | $ | 10.96 | | | 2,531,445 | | | 7.20 | | Granted | 308,390 | | | $ | 10.96 | | | 2,767,475 | | | 7.23 | |
Vested | Vested | — | | | $ | — | | | (211,688) | | | 87.25 | | Vested | — | | | $ | — | | | (307,653) | | | 82.94 | |
Forfeited | Forfeited | — | | | $ | — | | | (88,570) | | | 52.68 | | Forfeited | — | | | $ | — | | | (637,727) | | | 29.46 | |
Outstanding and unvested at March 31, 2023 | 308,390 | | | $ | 10.96 | | | 4,265,761 | | | $ | 28.26 | | |
Outstanding and unvested at June 30, 2023 | | Outstanding and unvested at June 30, 2023 | 308,390 | | | $ | 10.96 | | | 3,856,669 | | | $ | 26.23 | |
Employee Stock Purchase Plan
The ESPP was approved at the Company's annual meeting of stockholders in June 2013. The ESPP currently authorizesauthorized an aggregate of 1.11.2 million shares of common stock to be purchased, and the aggregate amount of shares will continue to increase 5% on each anniversary of its adoption up to a maximum of 1.65 million shares. The ESPP allows employees to purchase shares of common stock of the Company at each purchase date through payroll deductions of up to a maximum of 15% of their compensation, at 85% of the lesser of the market price of the shares at the time of purchase or the market price on the beginning date of an option period (or, if later, the date during the option period when the employee was first eligible to participate). As of March 31,June 30, 2023, there were 0.50.6 million shares available for issuance under the ESPP.
Note 14 – Income Taxes
The Company evaluates the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant piece of objective evidence evaluated was the cumulative loss incurred over the three-year period ended March 31,June 30, 2023 and that the Company has historically generated pretax losses. Such objective evidence limits the ability to consider other subjective evidence, such as projections for future growth. On the basis of this evaluation, as of March 31,June 30, 2023, the Company continued to maintain a full valuation allowance against its deferred tax assets, except to the extent Net Operating Losses (“NOLs”) have been used to reduce taxable income. The Company’s remaining U.S. Federal NOLs are subject to limitation in accordance with the 2017 Tax Cuts and Jobs Act (“TCJA”), which limits allowable NOL deductions to 80% of federal taxable income.
Effective January 1, 2022, a provision of the TCJA has taken effect creating a significant change to the treatment of
research and experimental expenditures under Section 174 of the IRC (“Sec. 174 expenses”). Historically, businesses have had the option of deducting Sec. 174 expenses in the year incurred or capitalizing and amortizing the costs over five years. The new TCJA provision, however, eliminates this option and will require Sec. 174 expenses associated with research conducted in the U.S. to be capitalized and amortized over a five-year period. For expenses associated with research outside of the U.S., Sec. 174 expenses will be capitalized and amortized over a 15-year period.
TheDuring the three months ended June 30, 2023 and 2022, the Company recognized federal, state, and foreign income tax benefit of $0.1 million and income tax expense of $1.2$1.4 million, and $0.6 million, in total, forrespectively. During the threesix months ended March 31,June 30, 2023 and 2022, the Company recognized income tax expense of $1.0 million and $1.9 million, respectively. The Company recognized foreign withholding tax expense on royalties of $2.1$2.2 million for the threesix months ended March 31,June 30, 2022. The Company did not recognize any foreign withholding tax expense on royalties for the three months ended March 31,June 30, 2022 and the three and six months ended June 30, 2023.
Note 15 – Commitments and Contingencies
Legal Matters
On November 12, 2021, Sothinathan Sinnathurai filed a purported securities class action in the U.S. District Court for the District of Maryland (the “Maryland Court”) against the Company and certain members of senior management, captioned Sothinathan Sinnathurai v. Novavax, Inc., et al., No. 8:21-cv-02910-TDC (the “Sinnathurai Action”). On January 26, 2022, the Maryland Court entered an order designating David Truong, Nuggehalli Balmukund Nandkumar, and Jeffrey Gabbert as co-lead plaintiffs in the Sinnathurai Action. The co-lead plaintiffs filed a consolidated amended complaint on March 11, 2022,
alleging that the defendants made certain purportedly false and misleading statements concerning the Company’s ability to manufacture NVX-CoV2373 on a commercial scale and to secure the NVX-CoV2373’s regulatory approval. The amended complaint defines the purported class as those stockholders who purchased the Company’s securities between February 24, 2021 and October 19, 2021. On April 25, 2022, the defendants filed a motion to dismiss the consolidated amended complaint. On December 12, 2022, the Maryland Court issued a ruling granting in part and denying in part defendants’ motion to dismiss. The Maryland Court dismissed all claims against two individual defendants and claims based on certain public statements challenged in the consolidated amended complaint. The Maryland Court denied the motion to dismiss as to the remaining claims and defendants, and directed the Company and other remaining defendants to answer within fourteen days. On December 27, 2022, the Company filed its answer and affirmative defenses.
After the Sinnathurai Action was filed, seveneight derivative lawsuits were filed: (i) Robert E. Meyer v. Stanley C. Erck, et al., No. 8:21-cv-02996-TDC (the “Meyer Action”), (ii) Shui Shing Yung v. Stanley C. Erck, et al., No. 8:21-cv-03248-TDC (the “Yung Action”), (iii) William Kirst, et al. v. Stanley C. Erck, et al., No. 8:22-cv-00024-TDCC-15-CV-21-000618 (the “Kirst Action”), (iv) Amy Snyder v. Stanley C. Erck, et al., No. 8:22-cv-01415-TDC (the “Snyder Action”), (v) Charles R. Blackburn, et al. v. Stanley C. Erck, et al., No. 1:22-cv-01417-TDC (the “Blackburn Action”), (vi) Diego J. Mesa v. Stanley C. Erck, et al., No. 2022-0770-NAC (the “Mesa Action”), and (vii) Sean Acosta v. Stanley C. Erck, et al., No. 2022-1133-NAC (the “Acosta Action”), and (viii) Jared Needelman v. Stanley C. Erck, et al., No. C-15-CV-23-001550 (the “Needelman Action”). The Meyer, Yung, Snyder, and Blackburn Actions were filed in the Maryland Court. The Kirst Action was filed in the Circuit Court for Montgomery County, Maryland, and shortly thereafter removed to the Maryland Court by the defendants. The Needleman Action was also filed in the Circuit Court for Montgomery County, Maryland. The Mesa and Acosta Actions were filed in the Delaware Court of Chancery (the “Delaware Court”). The derivative lawsuits name members of the Company’s board of directors and certain members of senior management as defendants. The Company is deemed a nominal defendant. The plaintiffs assert derivative claims arising out of substantially the same alleged facts and circumstances as the Sinnathurai Action. Collectively, the derivative complaints assert claims for breach of fiduciary duty, insider selling, unjust enrichment, violation of federal securities law, abuse of control, waste, and mismanagement. Plaintiffs seek declaratory and injunctive relief, as well as an award of monetary damages and attorneys’ fees.
On February 7, 2022, the Maryland Court entered an order consolidating the Meyer and Yung Actions (the “First Consolidated Derivative Action”). The plaintiffs in the First Consolidated Derivative Action filed their consolidated derivative complaint on April 25, 2022. On May 10, 2022, the Maryland Court entered an order granting the parties’ request to stay all proceedings and deadlines pending the earlier of dismissal or the filing of an answer in the Sinnathurai Action. On June 10, 2022, the Snyder and Blackburn Actions were filed. On October 5, 2022, the Maryland Court entered an order granting a request by the plaintiffs in the First Consolidated Derivative Action and the Snyder and Blackburn Actions to consolidate all three actions and appoint co-lead plaintiffs and co-lead and liaison counsel (the “Second Consolidated Derivative Action”). The co-lead plaintiffs in the Second Consolidated Derivative Action filed a consolidated amended complaint on November 21, 2022. On February 10, 2023, defendants filed a motion to dismiss the Second Consolidated Derivative Action. Plaintiffs’The plaintiffs filed their opposition to the motion to dismiss on April 11, 2023. Defendant’sDefendants filed their reply brief in further support of their motion to dismiss is due byon May 11, 2023.
On July 21, 2022, the Maryland Court issued a memorandum opinion and order remanding the Kirst Action to state court. On December 6, 2022, the parties to the Kirst Action filed a stipulated schedule pursuant to which the plaintiffs were expected to file an amended complaint on December 22, 2022, and either (i) the parties would file a stipulated stay of the Kirst Action or (ii) the defendants would file a motion to stay the case by January 23, 2023. The plaintiffs filed an amended complaint on December 30, 2022. On January 23, 2023, defendants filed a motion to stay the Kirst action.Action. On February 22, 2023, the parties in the Kirst Action filed for the Court’s approval of a stipulation staying the Kirst Action pending the resolution of defendants’ motion to dismiss in the Second Consolidated Derivative Action. On March 22, 2023, the Court entered an order staying the Kirst Action pending resolution of the Motion to Dismiss in the Second Consolidated Derivative Action.
On August 30, 2022, the Mesa Action was filed. On October 3, 2022, the Delaware Court entered an order granting the parties’ request to stay all proceedings and deadlines in the Mesa Action pending the earlier of dismissal of the Sinnathurai Action or the filing of an answer to the operative complaint in the Sinnathurai Action. On January 9, 2023, following the courtruling on the motion to dismiss the Sinnathurai Action, the Delaware Court entered an order granting the Mesa Action parties’ request to set a briefing schedule in connection with a motion to stay that defendants intended to file. Pursuant to the order, defendants filed a motion to stay on January 18, 2023. The plaintiff filed his opposition on February 8, 2023. Defendants filed their reply on February 22, 2023.by defendants. On February 28, 2023, the court granted Defendants’the defendants’ motion and stayed the Mesa Action pending the entry of a final, non-appealable judgment in the Second Consolidated Derivative Action.
On December 7, 2022, the Acosta Action was filed. On February 6, 2023, defendants accepted service of the complaint and summons in the Acosta action.Action. On March 9, 2023, the court entered an order granting the parties’ request to stay the Acosta Action pending the entry of a final, non-appealable judgment in the Second Consolidated Derivative Action. On June 28, 2023 the Company, along with representatives from its insurance carriers, met with the plaintiffs and the plaintiffs of the Sinnathurai Action in mediation to engage in potential settlement discussions. The parties continue to discuss whether an amicable resolution is possible.
On April 17, 2023, the Needelman Action was filed. On July 12, 2023, the parties filed a stipulation and proposed order to stay the Needelman Action pending the Maryland Court’s decision on the motion to dismiss in the Second Consolidated Derivative Action. The financial impact of this claim, as well as the claims discussed above, is not estimable.
On February 26, 2021, a Company stockholder named Thomas Golubinski filed a derivative complaint against members of the Company’s board of directors and members of senior management in the Delaware Court, captioned Thomas Golubinski v. Richard H. Douglas, et al., No. 2021-0172-JRS. The Company is deemed a nominal defendant. Golubinski challenged equity awards made in April 2020 and in June 2020 on the ground that they were “spring-loaded,” that is, made at a time when such board members or members of senior management allegedly possessed undisclosed positive material information concerning the Company. The complaint asserted claims for breach of fiduciary duty, waste, and unjust enrichment. The plaintiff sought an award of damages to the Company, an order rescinding both awards or requiring disgorgement, and an award of attorneys’ fees incurred in connection with the litigation. On May 10, 2021, the defendants moved to dismiss the complaint in its entirety. On June 17, 2021, the Company’s stockholders voted FOR ratification of the April 2020 awards and ratification of the June 2020 awards. Details of the ratification proposals are set forth in the Company’s Definitive Proxy Statement filed on May 3, 2021. The results of the vote were disclosed in the Company’s Current Report on Form 8-K filed on June 24, 2021. Thereafter, the plaintiff stipulated that, as a result of the outcome of the June 17, 2021 vote, the plaintiff no longer intends to pursue the lawsuit or any claim arising from the April 2020 and June 2020 awards. On August 23, 2021, the plaintiff filed a motion seeking an award of attorneys’ fees and expenses, to which the defendants filed an opposition. On October 18, 2022, the Delaware Court denied the plaintiff’s fee application in its entirety. Under a prior Delaware Court order, the case was automatically dismissed with prejudice upon denial of the plaintiff’s fee application. On November 14, 2022, Golubinski filed a Notice of Appeal in the Supreme Court of the State of Delaware. The plaintiff / appellant filed his opening appellate brief on December 30, 2022. The Company filed its responsive brief on January 30, 2023 and the appellant filed his reply brief on February 14, 2023. On June 8, 2023, the Supreme Court affirmed the Court of Chancery’s denial of the plaintiff’s fee application. The financial impact of this claim, as well as the claims discussed above, is not estimable.case was closed on June 26, 2023.
On March 29, 2022, Par Sterile Products, LLC (“Par”) submitted a demand for arbitration against the Company with the American Arbitration Association, alleging that the Company breached certain provisions of the Manufacturing and Services Agreement (the “Par MSA”) that the Company entered into with Par in September 2020 to provide fill-finish manufacturing services for NVX-CoV2373. On April 4, 2023 the parties entered into a Settlement Agreement and Release of Claims pursuant to which Novavax agreed to pay $27.0 million to Par, which was fully accrued for as of March 31, 2023. Novavax characterized the payment as a $15.0 million termination fee due under the Par MSA and a $12.0 million settlement payment. Because Par and its parent company, Endo International plc, are parties to Chapter 11 bankruptcy proceedings, the Settlement Agreement and Release of Claims and the payment due thereunder required, and subsequently received, approval from the bankruptcy court. The Company has made the payment required by the Settlement Agreement and Release of Claims, and subject to the non-occurrence of certain contingencies, the arbitration will bewas dismissed with prejudice following a joint motion by Par and Novavax on or about July 13,August 1, 2023.
On November 18, 2022, the Company delivered written notice to Gavi to terminate the Gavi APA based on Gavi’s failure to procure the purchase of 350 million doses of NVX-CoV2373 from the Company as required by the Gavi APA. As of November 18, 2022, the Company had only received orders under the Gavi APA for approximately 2 million doses. On December 2, 2022, Gavi issued a written notice purporting to terminate the Gavi APA based on Gavi’s contention that the Company repudiated the agreement and, therefore, materially breached the Gavi APA. Gavi also contends that, based on its purported termination of the Gavi APA, it is entitled to a refund of the Advance Payment Amount less any amounts that have been credited against the purchase price for binding orders placed by a buyer participating in the COVAX Facility. As ofSince December 31, 2022, the remaining Gavi Advance Payment Amount, which is $696.4 million as of $697.4 million,June 30, 2023, pending resolution of the dispute with Gavi related to a return of the remaining Advance Payment Amount, was reclassified from Deferred revenue tohas been classified within Other current liabilities in the Company’s consolidated balance sheet. On January 24, 2023, Gavi filed a demand for arbitration with the International Court of Arbitration based on the claims described above. The Company filed its Answer and Counterclaims on March 2, 2023. On April 5, 2023, Gavi filed its Reply to the Company’s Counterclaims. The arbitration hearing is scheduled for July 2024, with a written decision to follow. Arbitration is inherently uncertain, and while the Company believes that it is entitled to retain the remaining Advance Payment Amount received from Gavi, it is possible that it willcould be required to refund all or a portion of the remaining Advance Payment Amount from Gavi.
The Company is also involved in various other legal proceedings arising in the normal course of business. Although the outcomes of these other legal proceedings are inherently difficult to predict, the Company dodoes not expect the resolution of these other legal proceedings to have a material adverse effect on its financial position, results of operations, or cash flows.
Note 16 – Subsequent EventsRestructuring
In December 2020,During the three and six months ended June 30, 2023, the restructuring charge recorded by the Company entered into an APA with the Commonwealth of Australia for the purchase of doses of NVX-CoV2373 (the “Australia APA”). In April 2023, the Company entered into an amendment to the Australia APA that reduced the number of doses to be delivered under the Australia APA withas a commensurate increase in the per-dose price, such that the total contract valueresult of the Australia APA was maintained, with doses to be delivered through 2024.Restructuring Plan includes (in thousands):
| | | | | |
| Amount |
Severance and employee benefit costs | $ | 4,643 | |
| |
| |
Impairment of assets | 10,081 | |
| |
| |
Total Restructuring charge (1) | $ | 14,724 | |
(1) Restructuring charges of $0.5 million, $2.7 million and $11.5 million are included in Cost of sales, Research and development and Selling, general, and administrative expenses, respectively, in the Consolidated Statements of Operations for the three and six months ended June 30, 2023. These charges reflect substantially all expected restructuring charges under the Restructuring Plan.
Severance and employee benefit costs
Employees affected by the reduction in force under the Restructuring Plan are entitled to receive severance payments and certain termination benefits. The Company recorded a severance and termination benefit cost in full for employees who were notified of their termination in the three months ended June 30, 3023 and had no requirements for future service. The Company paid a total of $3.6 million for the severance and employee benefit costs during the three months ended June 30, 2023, and the remaining liability of $1.0 million is included in Accrued expenses in the Company’s Consolidated Balance Sheet as of June 30, 2023.
Impairment of assets
In January 2021,connection with the Restructuring Plan, the Company entered intoevaluated its long-lived assets for impairment including certain leased laboratory and office spaces located in Gaithersburg, Maryland. The Company performed an APA with Her Majesty the Queen in Right of Canada as represented by the Minister of Public Works and Government Servicesimpairment evaluation for the purchase of doses of NVX-CoV2373 (the “Canada APA”). In Aprilapplicable long-lived assets which is subject to judgment and actual results may vary from the estimates, resulting in potential future adjustments to amounts recorded. During the three and six months ended June 30, 2023, the Company entered intorecorded an amendmentimpairment charge of $10.1 million related to the Canada APA under which it will receive a paymentimpairment of $100.4long-lived assets, including $5.9 million related to ROU assets for the forfeiture of doses originally scheduled for delivery in 2022.facility leases.
In May 2023, the Company announced a global restructuring and cost reduction plan. This plan includes a more focused investment in its NVX-CoV2373 program, reduction to its pipeline spending, the continued rationalization of its manufacturing network, a reduction to the Company’s global workforce, as well as the consolidation of facilities and infrastructure. The planned workforce reduction includes an approximately 25% reduction in the Company’s global workforce, comprised of an approximately 20% reduction in full-time Novavax employees and the remainder comprised of contractors and consultants. The Company expects the full annual impact of the cost savings to be realized in 2024 and approximately half of the annual impact to be realized in 2023 due to timing of implementing the measures, and the applicable laws, regulations, and other factors in the jurisdictions in which the Company operates. The Company expects to record a charge of approximately $10 million to $15 million related to one-time employee severance and benefit costs, the majority of which are expected to be incurred in the second quarter of 2023 and is evaluating the anticipated costs related to the consolidation of facilities and infrastructure.
In May 2023, the Company announced that its CIC, stand-alone influenza and high-dose COVID vaccine candidates all showed a reassuring preliminary safety profile as well as comparable reactogenicity to individual Novavax influenza and COVID vaccine candidates or authorized influenza vaccine comparators. Additionally, all three vaccines demonstrated preliminary robust immune responses. The primary endpoint evaluated the safety of different formulations of the CIC vaccine candidate and the quadrivalent influenza vaccine candidate compared to Fluad® and Fluzone High-Dose Quadrivalent® (Fluzone HD), as well as a high-dose COVID vaccine candidate in adults aged 50 through 80. All three vaccine candidates contained Novavax’s patented Matrix-M adjuvant and showed reassuring preliminary safety profiles and reactogenicity that was comparable to Fluad and Fluzone HD.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Any statements in the discussion below and elsewhere in this Quarterly Report on Form 10-Q (“Quarterly Report”) about expectations, beliefs, plans, objectives, assumptions, or future events or performance of Novavax, Inc. (“Novavax,” together with its wholly owned subsidiaries, the “Company,” “we,” or “us”) are not historical facts and are forward-looking statements. Such forward-looking statements include, without limitation, statements about our capabilities, goals, expectations regarding future revenue and expense levels, and capital raising activities; our operating plans and prospects, including our ability to continue as a going concern through one year from the date of Novavax’our unaudited financial statements for the period ended March 31,June 30, 2023; our global restructuring and cost reduction plan (“Restructuring Plan”), which includes a more focused investment in our NVX-CoV2373 program, reduction to our pipeline spending, the continued rationalization of our manufacturing network, a reduction to our global workforce, as well as the consolidation of facilities, and infrastructure,infrastructure; the size and timing of our workforce reduction; the Company’simpact of our decision to progress our COVID-19-Influenza Combination (“CIC”) vaccine candidate toward late-stage development on our workforce reduction,requirements; the amount and timing of the charges and cash expenditures resulting from theour workforce reduction, and the expected timing and impact of cost savings from our global restructuring and cost reduction plan; potential market sizes and demand for our product candidates; the efficacy, safety, and intended utilization of our product candidates; the development of our clinical-stage product candidates and our recombinant vaccine and adjuvant technologies; the development oftechnologies, including our preclinical product candidates;updated monovalent Omicron XBB.1.5 COVID-19 vaccine, which is referred to as our expectations related to enrollment in our clinical trials;“XBB COVID vaccine”; the conduct, timing, and potential results from clinical trials and other preclinical studies;trials; plans for and potential timing of regulatory filings;filings, including our submission to the U.S. Food and Drug Administration (“FDA”) for the Biologics License Application for the full approval of the Novavax COVID-19 Vaccine, Adjuvanted; our expectation of manufacturing capacity, timing, production, distribution, and delivery for NVX-CoV2373 (as defined below) by us and our partners; our estimate of the number of individuals who may potentially be reached by NVX-CoV2373; our expectations with respect to the anticipated ongoing development and commercialization or licensure of NVX-CoV2373, ongoing development of our influenza vaccine candidate, COVID-19-Influenza Combination (“CIC”) vaccine candidate, high-dose COVID-19 vaccine candidate, and COVID-19 variant strainstrain-containing monovalent formulation, including the Phase 2b/3 Hummingbird™ trial, and the timing of anticipated results from and our efforts for the Fallfall 2023 vaccination season, efforts to expand the NVX-CoV2373 label worldwide as a booster, and to various age groups and geographic locations, and our seasonal quadrivalent influenza vaccine, previously known as NanoFlu;locations; the expected timing, content, and outcomes of regulatory actions; funding from the U.S. government partnership formerly known as Operation Warp Speed under the USG Agreement (as defined below); funding under our advance purchase agreements (“APAs”) and supply agreements and amendments to, termination of, or legal disputes relating to any such agreement; our available cash resources and usage and the availability of financing generally; plans regarding partnering activities and business development initiatives; and other matters referenced herein. Generally, forward-looking statements can be identified through the use of words or phrases such as “believe,” “may,” “could,” “will,” “would,” “possible,” “can,” “estimate,” “continue,” “ongoing,” “consider,” “anticipate,” “intend,” “seek,” “plan,” “project,” “expect,” “should,” “would,” “aim,” or “assume,” the negative of these terms, or other comparable terminology, although not all forward-looking statements contain these words.
Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs and expectations about the future of our business, future plans and strategies, projections, anticipated events and trends, the economy, and other future conditions. Forward-looking statements involve estimates, assumptions, risks, and uncertainties that could cause actual results or outcomes to differ materially from those expressed or implied in any forward-looking statements, and, therefore, you should not place considerable reliance on any such forward-looking statements. Such risks and uncertainties include, without limitation, our ability to successfully develop, manufacture, distribute, or market an XBB COVID vaccine for COVID-19 for the fall 2023 COVID vaccine season, which is inherently uncertain and subject to a number of risks, including regulatory authorization, ability to timely deliver doses and commercial adoption and market acceptance; challenges in obtaining commercial adoption of NVX-CoV2373 or any COVID-19 variant strain containing formulation; challenges satisfying, alone or together with partners, various safety, efficacy, and product characterization requirements, including those related to process qualification, and assay validation, and stability testing, necessary to satisfy applicable regulatory authorities, such as the U.S. Food and Drug Administration (“FDA”),FDA, the World Health Organization (“WHO”), United Kingdom (“UK”) Medicines and Healthcare Products Regulatory Agency (“MHRA”), the European Medicines Agency (“EMA”), the Republic of Korea’s Ministry of Food and Drug Safety, or Japan’s Ministry of Health, Labour and Welfare; unanticipated challenges or delays in conducting clinical trials; or obtaining regulatory authorization for our product candidates, including for our monovalent XBB COVID vaccine in time for the fall 2023 vaccination season, or for future COVID variant strain changes manufacturing distribution or export delays or challenges, including the requirement to obtain approval from the drug licensing body in India for the distribution of our XBB COVID vaccine to timely deliver such vaccine candidate for the fall 2023 vaccination season; our exclusive dependence on SIIPL and SLS for co-formulation and filling, and PCI for finishing NVX-CoV2373 and the impact of any delays or disruptions in these suppliers’ operations on the delivery of customer orders; difficulty obtaining scarce raw materials and supplies; resource constraints, including human capital and manufacturing capacity, constraints on the ability of Novavax to pursue planned regulatory pathways, alone or with partners, in multiple jurisdictions simultaneously, leading to staggering of regulatory filings, and potential regulatory actions; challenges meeting contractual requirements under agreements with multiple commercial, governmental, and other entities; challenges in implementing our global restructuring and cost
reduction plan; challenges in obtaining commercial adoption of NVX-CoV2373 or a COVID-19 variant strain-containing formulation; and other risks and uncertainties identified in Part II, Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, in Part II, Item 1A “Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 and in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022, which may be detailed and modified or updated in other documents filed with the SEC from time to time, and are available at www.sec.gov and at www.novavax.com. You are encouraged to read these filings as they are made.
We cannot guarantee future results, events, level of activity, performance, or achievement. Any or all of our forward-looking statements in this Quarterly Report may turn out to be inaccurate or materially different from actual results. Further, any forward-looking statement speaks only as of the date when it is made, and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, unless required by law. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
Information in this Quarterly Report includes a financial measure that was not prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), which we refer to as adjusted cost of sales. We are presenting this non-GAAP financial measure to assist an understanding of our business and its performance. Adjusted cost of sales includes an estimate of standard manufacturing costs that were previously expensed to research and development prior to regulatory approvals for NVX-CoV2373 that would otherwise have been capitalized to inventory. Any non-GAAP financial measures presented are not, and should not be viewed as, substitutes for financial measures required by GAAP, have no standardized meaning prescribed by GAAP, and may not be comparable to the calculation of similar measures of other companies.
Overview
We are a biotechnology company that promotes improved health globally through the discovery, development, and commercialization of innovative vaccines to prevent serious infectious diseases. Our proprietary recombinant technology platform harnesses the power and speed of genetic engineering to efficiently produce highly immunogenic nanoparticle vaccines designed to address urgent global health needs.
Our vaccine candidates are nanostructures of conformationally correct recombinant proteins that mimic those found on natural pathogens. This technology enables the immune system to recognize target proteins and develop protective antibodies. We believe that our vaccine technology may lead to the induction of a differentiated immune response that may be more efficacious than naturally occurring immunity or some other vaccine approaches. Our vaccine candidates also incorporate our proprietary saponin-based Matrix-M™ adjuvant to enhance the immune response, stimulate higher levels of functional antibodies, and induce a cellular immune response.
We have developed a COVID-19 vaccine, (“NVX-CoV2373 “Nuvaxovid™(“Nuvaxovid™,” “Covovax™,” “Novavax COVID-19 Vaccine, Adjuvanted”), that has received full marketing authorization (“MA”), approval, interim authorization, provisional approval, conditional marketing authorization (“CMA”), and emergency use authorization (“EUA”) from multiple regulatory authorities globally for both adult and adolescent populations as a primary series and for both homologous and heterologous booster indications. Additionally, in partnership with regulators and public health authorities, we have been developing and manufacturing at commercial scale our XBB COVID vaccine that is in line with the FDA, WHO, and EMA recommendations for the 2023 fall season. We intend to deliver our XBB COVID vaccine for the 2023 fall vaccination campaign pending authorization from regulatory authorities. We are also developing ana stand-alone influenza vaccine candidate, a COVID-19-Influenza Combination (“CIC”)high-dose COVID-19 vaccine candidate, as well as COVID-19 variant strain-containing formulation that we intend to provide inand a monovalent or bivalent presentation in alignment with public health recommendations.CIC vaccine candidate. In addition to COVID-19 and seasonal influenza, our other areas of focus include providing Matrix-M™ adjuvant for collaborations investigating the prevention of malaria, including R21/Matrix-M™ adjuvant malaria vaccine, which recently received authorization in several countries.countries, as well as other preclinical vaccine research with our Matrix-M™ adjuvant in partnership with the Bill & Melinda Gates Medical Research Institute.
We intend to focus the organization to align our investments and activities with our top priority of delivering an updated COVID-19our XBB COVID vaccine consistent with public health recommendations for strain composition for the 2023 Fall vaccinationfall season. To maximize our opportunities and mitigate the significant risks and uncertainties of the COVID-19 market, we have taken severalprogressed our cost restructuring measures to reduce spend, extend our cash runway, and operate efficiently to seek to best position the companyCompany to deliver longer-term growth. We discuss these cost restructuring strategies in greater detail in Note 2 to our consolidated financial statements in this Quarterly Report.
Technology Overview
We believe our recombinant nanoparticle vaccine technology, together with our proprietary Matrix-M™ adjuvant, is well suited for the development and commercialization of vaccine candidates targeting a broad scope of respiratory and other
endemic and emerging infectious diseases at scale.diseases.
Recombinant Nanoparticle Vaccine Technology
Once a pathogenic threatpathogen of interest has been identified, the genetic sequence encoding thean antigen is selected for subsequent use in developing the vaccine construct. The genetic sequence may be optimized to enhance protein stability or confer resistance to degradation. This genetic construct is inserted into the baculovirus Spodoptera frugiperda (“Sf-/BV”) insect cell-expression system, which enables efficient, large-scale expression of the optimized protein. The Sf-/BV system produces proteinsprotein-based antigens that are properly folded and modified—which can be critical for functional, protective immunity—as the vaccine antigen.immunity. Protein antigens are purified and organized around a polysorbate-based nanoparticle core in a configuration that resembles their native presentation. This results in a highly immunogenic nanoparticle that is ready to be formulated with Matrix-M™ adjuvant.
Matrix-M™ Adjuvant
Our proprietary Matrix-M™ adjuvant is a key differentiator within our platform. This adjuvant has enabled potent, well tolerated, and durable efficacy by stimulating the entry of antigen presenting cells (“APCs”) into the injection site and
enhancing antigen presentation in local lymph nodes. This in turn activates APCs, T-cell and B-cell populations, and plasma cells, which promotespromote the production of high affinity antibodies, an immune boosting response. This potent mechanism of action enables a lower dose of antigen required to achieve the desired immune response, thereby contributing to increased vaccine supply and manufacturing capacity. These immune-boosting and dose-sparing capabilities contribute to the adjuvant’s highly unique profile.
We continue to evaluate commercial opportunities for the use of our Matrix-M™ adjuvant alongside vaccine antigens produced by other manufacturers. Matrix-M™ adjuvant is being evaluated in combination with several partner-led malaria vaccine candidates, including for R21/Matrix-M™ adjuvant, a malaria vaccine candidate created by the Jenner Institute, University of Oxford. The R21/Matrix-M™ adjuvant vaccine has been licensed to Serum Institute of India Pvt. Ltd. (“SIIPL”) for commercialization. Additionally, in May 2023, we entered into a 3-year agreement with the Bill & Melinda Gates Medical Research Institute to provide our Matrix-M™ adjuvant for use in preclinical vaccine research. Our adjuvant technology is also being investigated in veterinary applications and isused by commercial partners as a key component in veterinary vaccines against equine vaccine to prevent Strangles.influenza and Strangles as well as the manufacture of black-widow anti-venom.
NVX-CoV2373COVID-19 Vaccine Regulatory and Licensure
We are advancing NVX-CoV2373 through multiplecontinue to expand the regulatory approvals.authorizations for our COVID-19 vaccine and remain focused on the planned EUA request for our XBB COVID vaccine for the 2023 fall season. We have received authorizations for NVX-CoV2373 in over 40 countries globally including from major regulatory agencies including the FDA, the WHO, the EMA, and the MHRA. To date, we have received full MA, approval, interim authorization, provisional approval, CMA, and EUA for the adult population, aged 18 and older, the adolescent population, aged 12 to 17 years, and the pediatric population, aged 7 to 11 years in select territories. The regulatory authorizations for NVX-CoV2373 include primary series and both homologous and heterologous booster indications within specific countries. For the territories in which our vaccine has gained authorization,received regulatory authorizations, NVX-CoV2373 is marketed under the brand names (i) Nuvaxovid™ (SARS-CoV-2 rS Recombinant, adjuvanted), (ii) Covovax™ (manufacturing and commercialization by SIIPL), or (iii) Novavax COVID-19 Vaccine, Adjuvanted.
Below we highlight the firstsecond quarter 2023 and subsequent regulatory authorizations receivedprogress made for NVX-CoV2373 through the date of this filing on Form 10-Q.
In JanuaryJuly 2023, we initiated the rolling submission to the U.S. FDA for the Biologics License Application for the full approval of the Novavax COVID-19 Vaccine, Adjuvanted in individuals aged 12 years and older.
In July 2023, the European Commission in the European Union granted our partner SK bioscience received expanded manufacturing and marketing approval from Korean Ministry of Food and Drug Safetyfirst full MA for Nuvaxovid™ for useas primary series in individuals aged 12 and older and as a booster in adults aged 18 and older. This decision followed the positive opinion in May 2023 for full MA from the Committee for Medicinal Products for Human Use of the European Medicines Agency.
In May 2023, the Singapore Health Sciences Authority granted extended interim authorization for Nuvaxovid™ as a non-mRNA option in adolescents aged 12 through 17 years.
Additionally in May 2023, Taiwan’s Food and Drug Administration granted EUA for Nuvaxovid™ as a booster in adolescents aged 12 through 17 years.
We are working to continue to expand our label for heterologous boosting in adults and adolescents, for primary and re-vaccination in younger children, and to achieve supportive policy recommendations enabling broad market access. We continue to work closely with governments, regulatory authorities, and non-governmental organizations in our commitment to facilitate global access to our COVID-19 vaccine.
Clinical Pipeline
Our clinical pipeline is comprised of vaccine candidates for infectious diseases. Our lead product isdiseases, with our COVID-19 vaccine, NVX-CoV2373, whichas our lead product. NVX-CoV2373 has received approval, interim authorization, provisional approval, CMA, or EUAauthorizations for both adult and adolescent populations in over 40 countries.globally. We advanced NVX-CoV2373, through two pivotal Phase 3 clinical trials that demonstrated high efficacy against both the original COVID-19 strain and commonly circulating COVID-19 variants during the conduct of the trials, while maintaining a favorable safety profile. We are in the process of developing our XBB COVID vaccine, which is in line with the FDA, WHO, and EMA recommendations for the 2023 fall season. In June 2023, at the U.S. Vaccines and Related Biological Products Advisory Committee's meeting we shared nonclinical data demonstrating that our XBB COVID vaccine induced functional immune responses for Omicron XBB.1.5, XBB1.16, and XBB.2.3 subvariants indicating broad responses that could be applicable to forward-drift variants. We are finalizing our COVID-19 Phase 3 Strain-Change interim study report and additional nonclinical and manufacturing data summaries to support our XBB COVID vaccine for EUA and other regulatory authorizations. This is in-line with the expectation set by the U.S. Health and Human Services letter to all COVID-19 manufacturers communicating that the FDA will take regulatory action on submissions and the Centers for Disease Control and Prevention will provide vaccination recommendations in the latter part of September 2023. Pending EUA and additional regulatory authorizations, we expect to commercialize our XBB COVID vaccine for the 2023 fall season providing access and accessibility to a protein-based choice within the market. Beyond COVID-19, our clinical pipeline includes seasonal influenza and CIC vaccines, in addition to our Matrix-M™ adjuvant being used for collaborations investigating the prevention of malaria.
We remain focusedThe pipeline chart below summarizes the core clinical development programs that we are focusing on expanding our NVX-CoV2373in the near-term.
(1) Authorized in select geographies under trade names Novavax COVID-19 Vaccine, Adjuvanted; Covovax™; and Nuvaxovid™.
(2) Ongoing Phase 3 strain change trial.
(3) R21/Matrix-M™ adjuvant malaria vaccine label within the booster and adolescent market following global regulatory authorizations. being commercialized by SIIPL.
Coronavirus Vaccine Clinical Development
We continue to evaluate vaccine effectiveness through ongoing and planned booster studies into support our clinical trials,planned requests for authorization to the FDA, WHO, and we continueEMA for our XBB COVID vaccine for the upcoming 2023 fall season. We expect to advance developmentleverage these studies to pursue additional regulatory authorizations of our COVID-19 variant strain containing monovalent or bivalent formulation. vaccine for primary, re-vaccination, and pediatric indications globally.
Phase 3 Strain-Change Trial
In MarchAugust 2023, we initiatedannounced topline results from the Phase 3 COVID-19Strain-Change Trial that achieved all three co-primary
endpoints demonstrating immunologic superiority for the Omicron BA.5 clinical trial evaluatingvariant of a bivalent prototype and Omicron BA.5 vaccine compared to our prototype vaccine (NVX-CoV2373). The study compared our prototype vaccine (NVX-CoV2373), to ana monovalent Omicron BA.5 vaccine as well asand a bivalent containingvaccine (prototype and Omicron BA.5) in 750 adults who had previously received three or more doses of mRNA vaccine. ToplineThis study design was developed in consultation with regulatory agencies to support the upcoming strain-change EUA request to the FDA for our XBB COVID vaccine.
The data also showed that the monovalent Omicron BA.5 vaccine performed better with higher neutralization titers and seroresponse rates than the bivalent vaccine (prototype and Omicron BA.5), supporting the use of our XBB COVID vaccine for the 2023 fall vaccination season. These results are expected mid-year 2023, which we expect will confirm the strain-change approach we anticipate using for futureshow that our protein-based vaccine can be successfully adapted to new variant vaccine candidate approvals.strains.
Further pediatric development is ongoing in the Phase 2b/3 Hummingbird™ Global Clinical Trial which
In August 2023, we announced topline results from our Phase 2b/3 Hummingbird™ trial that met its primary endpoints in children aged 6 through 11 years confirming immunologic effectiveness. This ongoing trial is evaluating the safety, immunogenicity,effectiveness (immunogenicity), and effectivenessefficacy of two doses of NVX-CoV2373, in children.followed by a booster 6 months after the primary vaccination series. The trial includes three age de-escalation cohorts of 1,200 children each. The next cohort aged six to 112 through 5 years has completed enrollment, and enrollment is ongoing in the cohort aged two to five years. Topline results in the cohort aged six to 11 years are expected mid-year 2023.
We expect to leverage these clinical insights to pursue additional regulatory approvals of our COVID-19 vaccine for primary, booster, and pediatric indications globally, amidst the ongoing COVID-19 landscape.
Additionally, we are developing our quadrivalent nanoparticle influenza vaccine (“qNIV”) candidate, which we advanced through a successful Phase 3 study published in September 2021, demonstrating the utility of a stand-alone influenza vaccine or for use in a combination vaccine. We have subsequently updated our qNIV candidate for further development. We continue to progress a Phase 2 dose-confirming trial evaluating our stand-alone influenza vaccine candidate, qNIV and our CIC vaccine candidate, which combines NVX-CoV2373 and our updated qNIV approach in a single formulation. In January 2023, we completed enrollment of 1,575 participants in the Phase 2 CIC clinical trial. The clinical trial will evaluate safety and immunogenicity of different formulations of CIC and influenza stand-alone vaccine candidates in adults aged 50 to 80 years,fully enrolled, with topline results expected by mid-yearin the fourth quarter of 2023.
AlthoughCOVID-Influenza Combination and Stand-alone Influenza Program
In May 2023, we announced preliminary topline data from our Phase 2 trial for CIC, stand-alone influenza and high-dose COVID-19 CIC, and influenza stand-alonevaccine candidates. All three vaccine candidates arecontain our near-term priorities,Matrix-M™ adjuvant, showed preliminary robust immune responses, reassuring safety profiles, and reactogenicity that was comparable to the licensed influenza vaccine comparator arms. We intend to further explore our options to progress select candidates into late-stage development.
R21/Matrix-M™ Adjuvant Malaria Vaccine
Our partner-led malaria candidates present strong opportunities for future development. An ongoing Phase 3 clinical trial is being conducted for R21/Matrix-M™ adjuvant malaria vaccine, developed by our partner, the Jenner Institute, University of Oxford and manufactured by SIIPL, andwhich is formulated with our Matrix-M™ adjuvant. As of the filing of this Quarterly Report,In April 2023, the R21/Matrix-M™ adjuvant malaria vaccine received multiple authorizations including in Ghana and Nigeria.Nigeria as well as in July 2023 received authorization in Burkina Faso. We have an agreement with SIIPL related to its manufacture of R21/Matrix-M™ adjuvant malaria vaccine under which SIIPL purchases Matrix-M™ adjuvant, as well as pays royalties based on its vaccine sales.
The pipeline chart below summarizes the core clinical development programs that we are focusing on in the near-term.
(1) Authorized in select geographies under trade names Novavax COVID-19 Vaccine, Adjuvanted; Covovax™; and Nuvaxovid™.
(2) Ongoing Phase 3 strain change trial.
(3) R21/Matrix-M™ adjuvant malaria vaccine being commercialized by SIIPL.
Business Highlights
FirstSecond Quarter 2023 and Recent Highlights
During the second quarter, we madecontinued to make progress delivering on theour three near-termkey priorities laid out during our fourth quarter 2022 earnings call.for 2023.
Priority #1: Deliver an Updated Competitive COVID Vaccine for the Upcoming 2023 Fall Vaccination Season
We remain focused on
During the second quarter, we continued preparations to deliver our top priority of delivering an updated competitiveXBB COVID vaccine consistent with public health recommendations for the 2023 Fall vaccinationfall season. In most of our key target markets, including the U.S., the Novavax vaccine, if authorized, would be the only non-mRNA protein-based XBB COVID vaccine available.
•Ongoing discussionsContinue to prepare to deliver our updated XBB COVID vaccine for the fall, consistent with global regulators on strain selection guidancerecommendations from the FDA, EMA and advancement of commercial preparedness for Fall 2023WHO
◦InvitedInitiated filing in the U.S., with submissions in the European Union (“EU”) and Canada to joinfollow in the U.S. FDA Technology Working Group to evaluate emerging variants in preparation for strain selection at the June VRBPAC meetingcoming weeks
◦Ongoing development of variant strains “at risk”Manufacturing ongoing at commercial scale to support regulatory and commercial readinesssupply global markets
◦ModifiedFully deployed commercial teams across the U.S. government agreement for up, EU and other select markets, with executed contracts to 1.5 million additional doses of Novavax’s COVID vaccine for delivery in 2023, with initial delivery supplied in five-dose vials in the first quarter of 2023support market access
•Continued expansion of Nuvaxovid label to enable broader uptake in the long-term commercial market
•Completed enrollmentReceived first Full Marketing Authorization in the EU for Nuvaxovid™ as a primary series in individuals aged 12 and on track to receive topline results mid-2023 for Part 2 of Phase 3 strain change study, which isolder and as a regulatory prerequisite for updating our 2023-2024 vaccine compositionbooster in adults aged 18 and older
•Expect to fileInitiated rolling submission of U.S. Biologics License Application in second half(BLA) for full approval of 2023the Novavax COVID-19 Vaccine, Adjuvanted for adults and adolescents aged 12 through 18
Priority #2: Reduce our Rate of Spend, Manage our Cash Flow and Evolve our Scale &and Structure
We are focusedhave made significant progress towards strengthening our financial position. We continued to deliver on significantly reducing our expenses while retainingcommitments to reduce our spend, address our one-time liabilities, and improve our cash flow, with the key capabilities needed to execute our operating plans.goal of building a solid financial foundation for long-term value creation.
•Announced a global restructuringReduced current liabilities by $323 million during the second quarter and cost reduction plan, which is expectedby $864 million in the first half of 2023
•Reduced combined research and development and selling, general and administrative expenses to $313 million in the second quarter of 2023, compared to $398 million in the same period in 2022
•On track with our Restructuring Plan and reiterate target to reduce our annual combined research and development and selling, general and administrative expenses by approximately 20% to 25% in 2023 versus 2022, and by approximately 40% to 50% in 2024 R&D and SG&A expensesversus 2022
◦Includes consolidation of facilities and infrastructure and approximately 25% reduction in global workforce
◦•Executed amended Canada APA in June 2023, R&Doutlining an updated delivery schedule for Nuvaxovid™ and SG&A expense reduction expectednegotiated up to be based on timing of implementation, local laws and regulations and other factors$350 million in 2023 payments
Priority #3: Leverage our Technology Platform, our Capabilities and our Portfolio of Assets to Drive Additional Value Beyond NuvaxovidTM Alone
We continuecontinued to leverage our pipeline and technology platform with the intent of delivering long-term growth and protecting global health.
•Announced positiveBased on the ongoing receipt and analysis of our Phase 2 COVID-Influenza Combination (CIC) vaccine, standalone influenza, and high-dose COVID vaccine data, which evaluated safety and immunogenicity of different formulationsresults for CIC, decision to make strategic stage gate investments in 2023 and 2024 to advance our co-formulated CIC vaccine candidate in preparation for late-stage development
•Continued to advance partnerships with Matrix-MTM adjuvant technology
◦All threeIn partnership with Oxford University and SIIPL, secured authorizations in Ghana, Nigeria and Burkina Faso for R21/Matrix-MTM malaria vaccine candidates were well-tolerated, demonstrated a reassuring preliminary safety profile, and had reactogenicity comparable to authorized comparatorsleveraging our Matrix-MTM adjuvant technology
◦Preliminary topline immune responses for all three vaccine candidates were robust
•SerumAnnounced partnership with Bill & Melinda Gates Medical Research Institute of India has received authorizationsto provide our Matrix-MTM adjuvant for use in Ghana and Nigeria for R21/Matrix-M™ adjuvanted malariapreclinical vaccine
◦Vaccine was developed by Jenner Institute, University of Oxford, and formulated with our proprietary Matrix-M™ adjuvant research
Sales of Common Stock
In June 2021, we entered into an At Market Issuance Sales Agreement (the "June 2021 Sales Agreement"), which allows us to issue and sell up to $500$500.0 million in gross proceeds of shares of its common stock. During the three and six months ended June 30, 2023, we sold 7.9 million shares of our common stock under our June 2021 Sales Agreement resulting in net proceeds of approximately $68 million, of which $6 million was included in prepaid expenses and other current assets as of June 30, 2023 and received in cash in July 2023. As of March 31,June 30, 2023, the remaining balance available under the June 2021 Sales Agreement was approximately $318$249 million. There were no sales recorded under the June 2021 Sales Agreement during the three months ended March 31, 2023.
During the threesix months ended March 31,June 30, 2022, we sold 2.2 million shares of our common stock resulting in net proceeds of approximately $179 million, under the June 2021 Sales Agreement.
Critical Accounting Policies and Use of Estimates
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements (unaudited) and the accompanying notes, which have been prepared in accordance with generally accepted accounting principles in the United States.
The preparation of our consolidated financial statements requires us to make estimates, assumptions, and judgments that affect the reported amounts of assets, liabilities, and equity and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during the reporting period. Our critical accounting policies and estimates are included under Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as filed with the SEC.
Recent Accounting Pronouncements Not Yet Adopted
See “Note 2―Summary of Significant Accounting Policies” included in our Notes to Consolidated Financial Statements (under the caption “Recent Accounting Pronouncements”).
Results of Operations
The following is a discussion of the historical financial condition and results of our operations that should be read in conjunction with the unaudited consolidated financial statements and notes set forth in this Quarterly Report.
Three Months Ended March 31,June 30, 2023 and 2022
Revenue
| | | Three Months Ended March 31, | | Three Months Ended June 30, |
| | 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change |
Revenue (in thousands): | Revenue (in thousands): | | | | | | Revenue (in thousands): | | | | | |
Product sales | Product sales | $ | (7,457) | | | $ | 585,628 | | | $ | (593,085) | | Product sales | $ | 285,163 | | | $ | 55,455 | | | $ | 229,708 | |
Grants | Grants | 87,379 | | | 99,301 | | | (11,922) | | Grants | 137,079 | | | 107,774 | | | 29,305 | |
Royalties and other | Royalties and other | 1,029 | | | 19,042 | | | (18,013) | | Royalties and other | 2,184 | | | 22,696 | | | (20,512) | |
Total revenue | Total revenue | $ | 80,951 | | | $ | 703,971 | | | $ | (623,020) | | Total revenue | $ | 424,426 | | | $ | 185,925 | | | $ | 238,501 | |
Revenue for the three months ended March 31,June 30, 2023 was $81.0$424.4 million as compared to $704.0$185.9 million for the same period in 2022, a decreasean increase of $623.0$238.5 million. Revenue for the three months ended March 31,June 30, 2023 and June 30, 2022 was primarily forcomprised of revenue from product sales of NVX-CoV2373 and services performed under our U.S. government agreement with Advanced Technology International (“USG Agreement”), the Consortium Management Firm acting on behalf of the Medical CBRN Defense Consortium in connection with the partnership formerly known as Operation Warp Speed, net of a credit related to product sales of NVX-CoV2373. Revenue for the three months ended March 31, 2022 was primarily comprised of revenue from product sales of NVX-CoV2373, which commenced in 2022 and, to a lesser extent, revenue for services performed under the USG Agreement.Speed. The reductionincrease in revenue is primarily due to the decrease in productan increased quantity of dose sales of NVX-CoV2373 during the three months ended March 31,June 30, 2023 as compared to the same period in 2022.
Product sales
Product sales for the three months ended March 31,June 30, 2023 were $(7.5)$285.2 million as compared to $585.6$55.5 million during the three months ended March 31,June 30, 2022. ProductOur product sales in the three months ended March 31, 2023, included a creditrelated to sales of $64.7 million for certain doses delivered in 2022 that qualified for replacement. The credit is the result of a single lot sold to the Australian government that upon pre-planned 6-month stability testing was found to have fallen below the defined specifications and the lot was therefore removed from the market.NVX-CoV2373 under our APA agreements. The geographic distribution of product sales was as follows:
| | | Three Months Ended March 31, | | Three Months Ended March 31, |
| | 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change |
North America | North America | $ | — | | | $ | 64,762 | | | $ | (64,762) | | North America | $ | — | | | $ | — | | | $ | — | |
Europe | Europe | 57,267 | | | 413,745 | | | (356,478) | | Europe | 1,518 | | | — | | | 1,518 | |
Rest of the world | Rest of the world | (64,724) | | | 107,121 | | | (171,845) | | Rest of the world | 283,645 | | | 55,455 | | | 228,190 | |
Total product revenue | $ | (7,457) | | | $ | 585,628 | | | $ | (593,085) | | |
Total product sales revenue | | Total product sales revenue | $ | 285,163 | | | $ | 55,455 | | | $ | 229,708 | |
Grants
Grant revenue during the three months ended March 31,June 30, 2023 was $87.4$137.1 million as compared to $99.3$107.8 million during the same period in 2022, a decreasean increase of $11.9$29.3 million. Grant revenue for 2023 and 2022, comprised revenue for services performed under the Projectour USG Agreement. The decreaseincrease was primarily due to increased support activities under the net effect of a cumulative constraint on revenue as a result of the execution of Modification 17 to the ProjectUSG Agreement during the three months ended March 31,June 30, 2023.
Expenses
| | | Three Months Ended March 31, | | Three Months Ended June 30, |
| | 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change |
Expenses (in thousands): | Expenses (in thousands): | | | | | | Expenses (in thousands): | | | | | |
Cost of sales | Cost of sales | $ | 34,086 | | | 15,204 | | | $ | 18,882 | | Cost of sales | $ | 55,777 | | | 271,077 | | | $ | (215,300) | |
Research and development | Research and development | 247,101 | | | 383,483 | | | (136,382) | | Research and development | 219,475 | | | 289,648 | | | (70,173) | |
Selling, general, and administrative | Selling, general, and administrative | 112,532 | | | 95,992 | | | 16,540 | | Selling, general, and administrative | 93,717 | | | 108,160 | | | (14,443) | |
Total expenses | Total expenses | $ | 393,719 | | | $ | 494,679 | | | $ | (100,960) | | Total expenses | $ | 368,969 | | | $ | 668,885 | | | $ | (299,916) | |
Cost of Sales
Cost of sales was $34.1$55.8 million for the three months ended March 31,June 30, 2023, including expenses of $19.8 million related to excess, obsolete, or expired inventory and losses on certain firm purchase commitments and a credit of $17.9 million related to negotiated certain reductions to previously recognized firm purchase commitments. Cost of sales was $271.1 million for the three months ended June 30, 2022, including expense of $20.2$255.3 million related to excess, obsolete, or expired inventory and losses on firm purchase commitments. Cost of sales was $15.2 million, or 3% of product sales, for the three months ended March 31, 2022, due to the significant write off of pre-launch inventory as research and development expenses. Prior to receiving regulatory approval, we expensed manufacturing costs as research and development expenses. After receiving regulatory approval, we capitalize the costs of production for a particular supply chain when we determine that we have a present right to the economic benefit associated with the product. While we tracked the quantities of our manufactured vaccine product and components, we did not track pre-approval manufacturing costs and therefore the manufacturing cost of our pre-launch inventory produced prior to approval is not reasonably determinable. However, based on our expectations for future manufacturing costs to produce our vaccine product and components inventory, we estimate at March 31,June 30, 2023, we had approximately $6.4$25.9 million of salable commercial inventory that was expensed prior to approval. We expect to utilize the majority of our reduced-cost inventory through 2023. If inventory sold for the three months ended March 31,June 30, 2023 was valued at expected standard cost, including expenses related to excess and obsolete inventory, adjusted cost of sales for the period would have been approximately $49.1$71.7 million, an adjustment of $15.0$15.9 million as compared to cost of sales recognized. If inventory sold for the three months ended March 31,June 30, 2022 was valued at expected standard cost, adjusted cost of sales for the period would have been approximately $160.0$279.5 million, or 27% of product sales, an adjustment of $145.0$8.4 million. The cost of sales as a percentage of product sales may fluctuate in the future as a result of changes to our customer pricing mix or standard costs.
Research and Development Expenses
Research and development expenses decreased to $247.1were $219.5 million for the three months ended March 31,June 30, 2023 as compared to $383.5$289.6 million for the three months ended March 31,June 30, 2022, a decrease of $136.4$70.2 million. The decrease was primarily due to a reduction in overall expenditures relating to development activities on coronavirus vaccines, including NVX-CoV2373 and Omicron variantXBB COVID vaccine, candidates, bivalent formulations, and CIC, as summarized in the table below (in thousands):
| | | Three Months Ended March 31, | | Three Months Ended June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
Coronavirus vaccines | Coronavirus vaccines | $ | 140,014 | | | $ | 288,933 | | Coronavirus vaccines | $ | 139,646 | | | $ | 201,015 | |
Influenza vaccine | Influenza vaccine | 1,476 | | | 1,296 | | Influenza vaccine | — | | | 2,274 | |
Other vaccine development programs | Other vaccine development programs | 481 | | | 803 | | Other vaccine development programs | 285 | | | 224 | |
Total direct external research and development expense | Total direct external research and development expense | 141,971 | | | 291,032 | | Total direct external research and development expense | 139,931 | | | 203,513 | |
Employee expenses | Employee expenses | 53,413 | | | 43,742 | | Employee expenses | 46,132 | | | 43,177 | |
Stock-based compensation expense | Stock-based compensation expense | 13,858 | | | 16,887 | | Stock-based compensation expense | 9,946 | | | 19,695 | |
Facility expenses | Facility expenses | 19,402 | | | 13,208 | | Facility expenses | 14,158 | | | 10,863 | |
Other expenses | Other expenses | 18,457 | | | 18,614 | | Other expenses | 9,308 | | | 12,400 | |
Total research and development expenses | Total research and development expenses | $ | 247,101 | | | $ | 383,483 | | Total research and development expenses | $ | 219,475 | | | $ | 289,648 | |
Research and development expenses for coronavirus vaccines for the three months ended March 31,June 30, 2023 and 2022, includeddecreased from $201.0 million to $139.6 million primarily as a benefitresult of $11.7 million related to previously accelerateda reduction in manufacturing and support costs and an expense of $21.0 million related to the acceleration of manufacturing costs, respectively, for leases that we determined were embedded in multiple
under manufacturing supply agreements with Contract Manufacturing Organizations (“CMOs”) and contract manufacturing and development organizations (“CDMOs”)., a reduction in clinical study costs and the commercialization of internal manufacturing
capabilities, as offset by a benefit of $20.5 million and $87.2 million, respectively, related to previously accelerated manufacturing costs for leases that we determined were embedded in manufacturing supply agreements with CMOs and CDMOs.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses increased to $112.5were $93.7 million for the three months ended March 31,June 30, 2023 from $96.0as compared to $108.2 million for the same period in 2022, an increasea decrease of $16.5$14.4 million. The increasedecrease in selling, general, and administrative expenses is primarily due to an increase in expenses related to the expansion of our commercial sales operations in Europe and other costs in support of our NVX-CoV2373 program, partially offset by certain cost containment measures to reduce our operating spend.spend, partially offset by restructuring expenses of $11.5 million.
For the remainder of 2023, we plan to restructure our global footprint to reduceexpect a reduction in our annual combined research and development, and selling, general, and administrative spend.spend as a result of our Restructuring Plan announced during the three months ended June 30, 2023.
Other ExpenseIncome (Expense)
| | | Three Months Ended March 31, | | Three Months Ended June 30, |
| | 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change |
Other income (expense): | Other income (expense): | | | | | | Other income (expense): | | | | | |
Interest expense | Interest expense | $ | (4,316) | | | $ | (4,876) | | | $ | 560 | | Interest expense | $ | (3,124) | | | $ | (6,234) | | | $ | 3,110 | |
Other income | 24,362 | | | 1,654 | | | 22,708 | | |
Other income (expense) | | Other income (expense) | 5,532 | | | (19,873) | | | 25,405 | |
Total other income (expense), net | Total other income (expense), net | $ | 20,046 | | | $ | (3,222) | | | $ | 23,268 | | Total other income (expense), net | $ | 2,408 | | | $ | (26,107) | | | $ | 28,515 | |
Total other income, net was $20.0$2.4 million for the three months ended March 31,June 30, 2023 as compared to a total other expense, net of $3.2$26.1 million for the same period in 2022. The increase in other income is due to the favorable impact of exchange rates on foreign currency denominated balances, andincluding an increase in investment income due to higher interest rates.intercompany loan with Novavax CZ.
Income Tax Expense
During the three months ended March 31,June 30, 2023 and 2022, we recognized $1.2an income tax benefit of $0.1 million and $2.7income tax expense $1.4 million, respectively, of income tax expense related to federal, state, and foreign income taxes and foreign withholding tax expense on royalties.taxes.
Net LossIncome (Loss)
| | | Three Months Ended March 31, | | Three Months Ended June 30, |
| | 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change |
Net Income (Loss) (in thousands, except per share information): | Net Income (Loss) (in thousands, except per share information): | | | | | | Net Income (Loss) (in thousands, except per share information): | | | | | |
Net income (loss) | Net income (loss) | $ | (293,905) | | | $ | 203,408 | | | $ | (497,313) | | Net income (loss) | $ | 58,008 | | | $ | (510,485) | | | $ | 568,493 | |
Net income (loss) per share, basic | Net income (loss) per share, basic | $ | (3.41) | | | $ | 2.66 | | | $ | (6.07) | | Net income (loss) per share, basic | $ | 0.65 | | | $ | (6.53) | | | $ | 7.18 | |
Net income (loss) per share, dilutive | Net income (loss) per share, dilutive | $ | (3.41) | | | $ | 2.56 | | | $ | (5.97) | | Net income (loss) per share, dilutive | $ | 0.58 | | | $ | (6.53) | | | $ | 7.11 | |
Weighted average shares outstanding, basic | Weighted average shares outstanding, basic | 86,158 | | | 76,457 | | | 9,701 | | Weighted average shares outstanding, basic | 89,362 | | | 78,143 | | | 11,219 | |
Weighted average shares outstanding, dilutive | Weighted average shares outstanding, dilutive | 86,158 | | | 80,711 | | | 5,447 | | Weighted average shares outstanding, dilutive | 104,065 | | | 78,143 | | | 25,922 | |
Net lossincome for the three months ended March 31,June 30, 2023 was $293.9$58.0 million, or $3.41$0.65 per share, basic, as compared to net incomeloss of $203.4$510.5 million, or $2.66$6.53 per share, basic, for the same period in 2022. The decreaseincrease in income during the three months ended March 31,June 30, 2023, was primarily due to the declineincrease in commercial sales of NVX-CoV2373 in the three months ended March 31,June 30, 2023 offsetand by a decrease in excess, obsolete, or expired inventory and losses on firm purchase commitments, research and development, expenses.and selling, general and administrative expenses as a result of the implementation of our Restructuring Plan.
The increase in weighted average shares outstanding for the three months ended March 31,June 30, 2023 was primarily a result of the sale of common stock.
Six Months Ended June 30, 2023 and 2022
Revenue
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2023 | | 2022 | | Change |
Revenue (in thousands): | | | | | |
Product sales | $ | 277,706 | | | $ | 641,083 | | | $ | (363,377) | |
Grants | 224,458 | | | 207,075 | | | 17,383 | |
Royalties and other | 3,213 | | | 41,738 | | | (38,525) | |
Total revenue | $ | 505,377 | | | $ | 889,896 | | | $ | (384,519) | |
Revenue for the six months ended June 30, 2023 was $505.4 million as compared to $889.9 million for the same period in 2022, a decrease of $384.5 million. Revenue for the six months ended June 30, 2023 was primarily comprised of revenue from product sales of NVX-CoV2373 and services performed under our USG Agreement. The decrease in revenue was primarily due to a decrease in quantity of doses sold of NVX-CoV2373 during the six months ended June 30, 2023 as compared to the same period in 2022.
Product sales
Product sales for the six months ended June 30, 2023 were $277.7 million as compared to $641.1 million during the six months ended June 30, 2022. Our product sales related to sales of NVX-CoV2373 under our APA agreements. The geographic distribution of product sales was as follows:
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 31, |
| 2023 | | 2022 | | Change |
North America | $ | — | | | $ | 64,762 | | | $ | (64,762) | |
Europe | 58,785 | | | 413,745 | | | (354,960) | |
Rest of the world | 218,921 | | | 162,576 | | | 56,345 | |
Total product sales revenue | $ | 277,706 | | | $ | 641,083 | | | $ | (363,377) | |
Grants
Grant revenue during the six months ended June 30, 2023 was $224.5 million as compared to $207.1 million during the same period in 2022, an increase of $17.4 million. Grant revenue for 2023 and 2022, comprised revenue for services performed under our USG Agreement. The increase was primarily due to increased clinical and development activities under the USG Agreement during the six months ended June 30, 2023.
Expenses
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2023 | | 2022 | | Change |
Expenses (in thousands): | | | | | |
Cost of sales | $ | 89,863 | | | $ | 286,281 | | | $ | (196,418) | |
Research and development | 466,576 | | | 673,131 | | | (206,555) | |
Selling, general, and administrative | 206,249 | | | 204,152 | | | 2,097 | |
Total expenses | $ | 762,688 | | | $ | 1,163,564 | | | $ | (400,876) | |
Cost of Sales
Cost of sales was $89.9 million for the six months ended June 30, 2023, including expense of $40.0 million related to excess, obsolete, or expired inventory and losses on certain firm purchase commitments and a credit of $18.8 million related to negotiated reductions to certain previously recognized firm purchase commitments. Cost of sales was $286.3 million for the six months ended June 30, 2022, including expense of $255.3 million related to excess, obsolete, or expired inventory and losses on firm purchase commitments. Prior to receiving approval, we expensed manufacturing costs as research and development expenses. After receiving approval, we capitalize the costs of production for a particular supply chain when we determine that we have a present right to the economic benefit associated with the product. While we tracked the quantities of our manufactured vaccine product and components, we did not track pre-approval manufacturing costs and therefore the manufacturing cost of our pre-launch inventory produced prior to approval is not reasonably determinable. However, based on our expectations for future manufacturing costs to produce our vaccine product and components inventory, we estimate at June 30, 2023 we had approximately $25.9 million of commercial inventory that was expensed prior to approval. We expect to utilize the majority of our reduced-cost inventory through 2023. If inventory sold for the six months ended June 30, 2023 was valued at expected standard cost, including expenses related to excess and obsolete inventory, adjusted cost of sales for the period would have been approximately $120.8 million, an adjustment of $30.9 million as compared to cost of sales recognized. If inventory sold for the three months ended June 30, 2022 was valued at expected standard cost, adjusted cost of sales for the period would have been approximately $439.5 million, an adjustment of $153.2 million. The cost of sales as a percentage of product sales may fluctuate in the future as a result of changes to our customer mix or standard costs.
Research and Development Expenses
Research and development expenses decreased to $466.6 million for the six months ended June 30, 2023 from $673.1 million for the same period in 2022, a decrease of $206.6 million. The decrease was primarily due to a reduction in overall expenditures relating to development activities on coronavirus vaccines, including NVX-CoV2373 and XBB COVID vaccine, and CIC, as summarized in the table below (in thousands):
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2023 | | 2022 |
Coronavirus vaccines | $ | 279,869 | | | $ | 489,948 | |
Influenza vaccine | 1,476 | | | 3,570 | |
Other vaccine development programs | 557 | | | 1,027 | |
Total direct external research and development expense | 281,902 | | | 494,545 | |
Employee expenses | 99,545 | | | 86,919 | |
Stock-based compensation expense | 23,804 | | | 36,582 | |
Facility expenses | 33,561 | | | 24,072 | |
Other expenses | 27,764 | | | 31,013 | |
Total research and development expenses | $ | 466,576 | | | $ | 673,131 | |
Research and development expenses for coronavirus vaccines for the six months ended June 30, 2023 and 2022, decreased from $489.9 million to $279.9 million primarily as a result of a reduction in manufacturing and support costs under manufacturing supply agreements with CMO and CDMO, a reduction in clinical study costs and the commercialization of internal manufacturing capabilities, as offset by a benefit of $32.2 million and $67.4 million, respectively, related to previously accelerated manufacturing costs for leases that we determined were embedded in manufacturing supply agreements with CMOs and CDMOs.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses increased to $206.2 million for the six months ended June 30, 2023 from $204.2 million for the same period in 2022, an increase of $2.1 million. The increase in selling, general, and administrative expenses is primarily due to restructuring expenses, partially offset by cost containment measures to reduce our operating spend including a decrease in professional fees and marketing costs in support of our NVX-CoV2373 program.
Other Income (Expense)
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2023 | | 2022 | | Change |
Other income (expense) (in thousands): | | | | | |
| | | | | |
Interest expense | $ | (7,440) | | | $ | (11,110) | | | $ | 3,670 | |
Other income (expense) | 29,894 | | | (18,219) | | | 48,113 | |
Total other income (expense), net | $ | 22,454 | | | $ | (29,329) | | | $ | 51,783 | |
We had total other income, net of $22.5 million for the six months ended June 30, 2023 as compared to total other expense, net of $29.3 million for the same period in 2022. During the six months ended June 30, 2023, other income increased due to the favorable impact of exchange rates on foreign currency denominated balances, including an intercompany loan with Novavax CZ, and an increase in investment income due to higher interest rates. During the six months ended June 30, 2022, Other expense was primarily related to the unfavorable impact of foreign exchange rate differences on the intercompany loan with Novavax CZ.
Income Tax Expense
During the six months ended June 30, 2023 and 2022, we recognized $1.0 million and $4.1 million, respectively, of income tax expense related to federal and state income taxes and foreign withholding tax on royalties.
Net Loss
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2023 | | 2022 | | Change |
Net Loss (in thousands, except per share information): | | | | | |
Net loss | $ | (235,897) | | | $ | (307,077) | | | $ | 71,180 | |
Net loss per share, basic and diluted | $ | (2.69) | | | $ | (3.97) | | | $ | 1.28 | |
| | | | | |
Weighted average shares outstanding, basic and diluted | 87,769 | | | 77,305 | | | 10,464 | |
| | | | | |
Net loss for the six months ended June 30, 2023 was $235.9 million, or $2.69 per share, as compared to $307.1 million, or $3.97 per share, for the same period in 2022. The decrease in net loss during the six months ended June 30, 2023 was primarily due to the decline in research and development expenses associated with NVX-CoV2373 and cost of sales, partially offset by reduced product sales revenue.
The increase in weighted average shares outstanding for the six months ended June 30, 2023 is primarily a result of sales of our common stock in 2023 and exercises of stock-based awards.2022.
Liquidity Matters and Capital Resources
Our future capital requirements depend on numerous factors including, but not limited to, revenue from our product sales and royalties under licensing arrangements with our strategic partners; funding and repayments under our grant
agreements; our projected activities related to the development and commercial support of NVX-CoV2373 and variant candidates, including significant commitments under various contract research organization, CMO, and CDMO agreements; the progress of preclinical studies and clinical trials; the time and costs involved in obtaining regulatory approvals; the costs of filing, prosecuting, defending, and enforcing patent claims and other intellectual property rights; and other manufacturing, sales, and distribution costs. We plan to continue developing other vaccines and product candidates, such as our influenza vaccine candidate and potential combination vaccines candidates, which are in various stages of development.
We have entered into supply agreements, sometimes referred to as APAs, with Gavi, the Vaccine Alliance (“Gavi”); the European Commission (“EC”); and various countries globally. We also have grant and license agreements. As of March 31,June 30, 2023, the aggregate amount of the transaction price allocated to performance obligations that were unsatisfied (or partially unsatisfied), excluding amounts related to sales-based royalties under the license agreements, our advance purchase agreement with Gavi (the “Gavi APA”) and the reduction in doses related to the Amended and Restated UK Supply Agreement (as defined below), was approximately $3$2 billion, of which $689.8$907.4 million is included in Deferred revenue in our Consolidated balance
sheet. Failure to meet regulatory milestones, timely obtain supportive recommendations from governmental advisory committees, or achieve product volume or delivery timing obligations under our APAs may require us to refund portions of upfront or other payments or result in reduced future payments, which could adversely impact our ability to realize revenue from our unsatisfied performance obligations. The timing to fulfill performance obligations related to grant agreements will depend on the results of our research and development activities, including clinical trials, and delivery of doses. The timing to fulfill performance obligations related to supply agreements will depend on timing of product manufacturing, receipt of marketing authorizations for additional indications, delivery of doses based on customer demand, and the ability of the customer to request variant vaccine in place of the prototype NVX-CoV2373 vaccine under certain of our APAs. The supply agreements typically contain terms that include upfront payments intended to assist us in funding investments related to building out and operating our manufacturing and distribution network, among other expenses, in support of our global supply commitment, and are applied to billings upon delivery of NVX-CoV2373. Such upfront payments generally become non-refundable upon our achievement of certain development, regulatory, and commercial milestones.
Pursuant to the Fujifilm Settlement Agreement, we are responsible for a Settlement Payment of up to $185.0 million to Fujifilm in connection with the cancellation of manufacturing activity at FDBT under the Fujifilm CSA, of which (i) $47.8 million, constituting the initial reservation fee under the CSA, was credited against the Settlement Payment on September 30, 2022 and (ii) the remaining balance is to be paid in four equal quarterly installments of $34.3 million each. We paid the first and second installment of $34.3 million during the three and six months ended March 31,June 30, 2023, respectively, and the remaining balance of $102.9$68.6 million is reflected in Accrued expenses (see Note 4 to our consolidated financial statements in this Quarterly Report).
During April 2023, we made a payment of $27.0 million to Par Sterile Products, LLC (“Par”) under the Settlement Agreement and Release of Claims (see Note 15 to our consolidated financial statements in this Quarterly Report).
In addition, we continue to assess our manufacturing needs and modify our global manufacturing footprint consistent with our contractual obligations to supply, and anticipated demand for, NVX-CoV2373, and in doing so recognize that significant costs may be incurred. We currently depend exclusively on SIIPL and SLS for co-formulation and filling, and PCI for finishing NVX-CoV2373 and any delays or disruptions in these suppliers’ operations could prevent or delay the delivery of customer orders.
We have an APA with the Commonwealth of Australia for the purchase of doses of NVX-CoV2373 (the “Australia APA”). In April 2023, we amended the Australia APA to reduce the number of doses to be delivered with a commensurate increase in the per-dose price, such that the total contract value of the Australia APA is maintained with doses to be delivered through 2024. In May 2023, we extended a credit for certain doses delivered in 2022 to Australia that qualified for replacement under the Australia APA. This credit is the result of a single lot sold to the Australian government that upon pre-planned 6-month stability testing was found to have fallen below the defined specifications and the lot therefore was therefore removed from the market. The credit will be applied against the future sale of doses to Australia. In July 2023, we amended the Australia APA to provide for replacement doses and to extend the delivery schedule through 2025.
We have an APA with His Majesty the King in Right of Canada as represented by the Minister of Public Works and Government Services, as successor in interest to Her Majesty the Queen in Right of Canada, as represented by the Minister of Public Works and Government Services (the “Canadian government”), for the purchase of doses of NVX-CoV2373 (the “Canada APA”). In April 2023, we amended the Canada APA to forfeit certain doses originally scheduled for delivery in 2022 for a payment of $100.4 million expected to be received in the second quarter of 2023. In June 2023, we entered into an additional amendment (the “June 2023 Amendment”) to the Canada APA. Pursuant to the June 2023 Amendment, the parties revised the Canadian government’s previous commitment by (i) forfeiting certain doses of the NVX-CoV2373 previously scheduled for delivery, (ii) reducing the amount of doses of NVX-CoV2373 due for delivery, (iii) revising the delivery schedule for the remaining doses of NVX-CoV2373 to be delivered, and (iv) requiring use of the Biologics Manufacturing Centre (“BMC”) Inc. to produce bulk antigen for doses in 2024 and 2025. In connection with the forfeiture of doses of NVX-CoV2373, the Canadian government agreed to pay a total payment amount of $349.6 million to the Company in two equal installments in 2023, which total amount equals the remaining balance owed by the Canadian government with respect to such forfeited vaccine doses. The first installment was payable upon execution of the June 2023 Amendment and the second installment is contingent and payable upon our delivery of vaccine doses in the second half of 2023. The first installment of $174.8 million was received from the Canadian government in July 2023. If the Company fails to deliver COVID-19 vaccine doses to the Canadian government by the second half of 2023, the second installment of $174.8 million will be terminated and not be payable to the Company. The Canadian government may terminate the Canada APA, as amended, if we fail to achieve regulatory approval for use of BMC for NVX-CoV2373 production on or before December 31, 2024. The June 2023 Amendment maintained the total contract value of the original Canada APA.
Pursuant to the June 2023 Amendment, we and the Canadian government will endeavor to expand our previously agreed in-country commitment to Canada and to partner to provide health, economic, and future pandemic preparedness benefits to Canada, which value may be provided through a number of activities, including without limitation, capital investments, the performance of activities or services, or the provision of technology or intellectual property licenses. Further, the parties will endeavor to enter into a memorandum of understanding (the “MOU”) to illustrate our ability to deliver such benefits over a 15 year period with an aggregate value of not less than 100% of the amount remaining to be paid under the June 2023 Amendment and ultimately received by us. We agreed to hold $20.0 million in escrow for the benefit of the Canadian government, which amount is the sole recourse available to the Canadian government in the event of non-performance under the MOU.
In July 2022, we entered into an Amended and Restated SARS-CoV-2 Vaccine Supply Agreement (as amended on September 26, 2022, the “Amended and Restated UK Supply Agreement”) with The Secretary of State for Business, Energy and Industrial Strategy (as assigned to the UK Health Security Agency), acting on behalf of the government of the United Kingdom of Great Britain and Northern Ireland (the “Authority”), which amended and restated in its entirety the SARS-CoV-2 Vaccine Supply Agreement, dated October 22, 2020, between the parties (the “Original UK Supply Agreement”). Under the Original UK Supply Agreement, the Authority agreed to purchase 60 million doses of NVX-CoV2373 and made an upfront payment to us. Under the terms of the Amended and Restated UK Supply Agreement, the Authority agreed to purchase a
minimum of 1 million doses and up to an additional 15 million doses (the “Conditional Doses”) of NVX-CoV2373, with the number of Conditional Doses contingent on, and subject to reduction based on, our timely achievement of supportive recommendations from the Joint Committee on Vaccination and Immunisation (the “JCVI”) that is approved by the UK Secretary of State for Health, with respect to use of the vaccine for (a) the general adult population as part of a SARS-CoV-2 vaccine booster campaign in the United Kingdom or (b) the general adolescent population as part of a SARS-CoV-2 vaccine booster campaign in the United Kingdom or as a primary series SARS-CoV-2 vaccination, excluding where that recommendation relates only to one or more population groups comprising less than one million members in the United Kingdom. If the Authority does not purchase the Conditional Doses or the number of such Conditional Doses is reduced below 15 million doses of NVX-CoV2373, we would have to repay up to $225.0 million related to the upfront payment previously received from the Authority under the Original UK Supply Agreement. Under the Amended and Restated UK Supply Agreement, the Authority also has the option to purchase up to an additional 44 million doses, in one or more tranches, through 2024.
As of November 30, 2022, the JCVI had not yet made a supportive recommendation with respect to NVX-CoV2373, thereby triggering, under the terms of the Amended and Restated UK Supply Agreement, (i) a reduction of the number of Conditional Doses from 15 million doses to 7.5 million doses, which reduced number of Conditional Doses are contingent on, and subject to further reduction based on, our timely achievement by November 30, 2023 of a supportive recommendation from JCVI that is approved by the UK Secretary of State for Health as described in the paragraph above, and (ii) an obligation for us to repay $112.5 million related to the upfront payment previously received from the Authority under the Original UK Supply Agreement. In April 2023, we repaid the $112.5 million related to the November 30, 2022 triggering event. If we are unable to timely achieve a supportive recommendation from the JCVI by November 30, 2023, a reduction in the number of Conditional Doses from 7.5 million doses to zero will be triggered and we may be required to repay an additional $112.5 million in 2024.
Under the terms of the Gavi APA, we received an upfront payment of $350.0 million from Gavi in 2021 and an additional payment of $350.0 million in 2022 related to our achieving an emergency use license for NVX-CoV2373 by the WHO (the “Advance Payment Amount”). On November 18, 2022, we delivered written notice to Gavi to terminate the Gavi APA on the basis of Gavi’s failure to procure the purchase of 350 million doses of NVX-CoV2373 from us as required by the Gavi APA. As of November 18, 2022, we had only received orders under the Gavi APA for approximately 2 million doses. On December 2, 2022, Gavi issued a written notice purporting to terminate the Gavi APA based on Gavi’s contention that the Company repudiated the agreement and, therefore, materially breached the Gavi APA. Gavi also contends that, based on its purported termination of the Gavi APA, it is entitled to a refund of the Advance Payment Amount less any amounts that have been credited against the purchase price for binding orders placed by a buyer participating in the COVAX Facility. As ofSince December 31, 2022, the remaining Gavi Advance Payment Amount, which is $696.4 million as of $697.4 million,June 30, 2023, pending resolution of the dispute with Gavi related to a return of the remaining Advance Payment Amount, was reclassified from Deferred revenue tohas been classified within Other current liabilities in our consolidated balance sheet. On January 24, 2023, Gavi filed a demand for arbitration with the International Court of Arbitration based on the claims described above. We filed our Answer and Counterclaims on March 2, 2023. On April 5, 2023, Gavi filed its Reply to our Counterclaims. The arbitration hearing is scheduled for July 2024, with a written decision to follow. Arbitration is inherently uncertain, and while we believe that we are entitled to retain the remaining Advance Payment Amount received from Gavi, it is possible that we will be required to refund all or a portion of the remaining Advance Payment Amount from Gavi.
In February 2023, in connection with the execution of Modification 17 to the USG Agreement, the U.S. government indicated to us that the award may not be extended past its current period of performance. If the USG Agreement is not amended, as we had previously expected, then we may not receive all of the remaining $336.4$250.6 million in funding of June 30,
2023 we had previously anticipated pursuant to the USG Agreement. Modification 17 included provisions requiring that the payment of $60.0 million of consideration associated with manufacturing work now be contingent upon meeting certain milestones, including the delivery of up to 1.5 million doses of NVX-CoV2373 and development and regulatory milestones related to commercial readiness, expansion of the EUA and development of multiple vial presentations. As of June 30, 2023, we constrained $48.0 million of these contingent milestones related that we are eligible to recognize in the 2023 fall vaccination campaign.
Our funding agreements currently include funding from the Coalition for Epidemic Preparedness Innovations (“CEPI”) in the form of one or more forgivable no interest term loans (“CEPI Forgivable Loan Funding”). Payments received under the CEPI Forgivable Loan Funding are only repayable if NVX-CoV2373 manufactured by the CMO network funded by CEPI is sold to one or more third parties (which would have previously included, but is not limited to, any sales under our Gavi APA prior to its termination), and such sales cover our costs of manufacturing such vaccine, not including manufacturing costs funded by CEPI. The timing and amount of any loan repayments is currently uncertain.
As of March 31,June 30, 2023, we had $636.9$517.9 million in cash and cash equivalents and restricted cash as compared to $1.3 billion as of December 31, 2022.
We funded our operations for the threesix months ended March 31,June 30, 2023 primarily with cash and cash equivalents and revenue from product sales, together with revenue under the USG Agreement that support our NVX-CoV2373 vaccine development
activities. In May 2023, we announced our plan to restructure our global footprint to reduce our planned expenditures. We anticipate our future operations to be funded primarily by revenue from product sales, revenue under our USG Agreement, our cash and cash equivalents, and other potential funding sources.
The following table summarizes cash flows for the threesix months ended March 31,June 30, 2023 and 2022 (in thousands):
| | | Three Months Ended March 31, | | Six Months Ended June 30, |
| | 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change |
Net cash provided by (used in): | Net cash provided by (used in): | | | | | | Net cash provided by (used in): | | | | | |
Operating activities | Operating activities | $ | (325,593) | | | $ | (88,510) | | | $ | (237,083) | | Operating activities | $ | (497,531) | | | $ | (259,413) | | | $ | (238,118) | |
Investing activities | Investing activities | (23,558) | | | (16,826) | | | (6,732) | | Investing activities | (31,337) | | | (41,402) | | | 10,065 | |
Financing activities | Financing activities | (354,379) | | | 159,865 | | | (514,244) | | Financing activities | (293,044) | | | 164,524 | | | (457,568) | |
Effect on exchange rate on cash, cash equivalents, and restricted cash | Effect on exchange rate on cash, cash equivalents, and restricted cash | (8,372) | | | 1,312 | | | (9,684) | | Effect on exchange rate on cash, cash equivalents, and restricted cash | (8,992) | | | (4,453) | | | (4,539) | |
Net increase (decrease) in cash, cash equivalents, and restricted cash | Net increase (decrease) in cash, cash equivalents, and restricted cash | (711,902) | | | 55,841 | | | (767,743) | | Net increase (decrease) in cash, cash equivalents, and restricted cash | (830,904) | | | (140,744) | | | (690,160) | |
Cash, cash equivalents, and restricted cash at beginning of period | Cash, cash equivalents, and restricted cash at beginning of period | 1,348,845 | | | 1,528,259 | | | (179,414) | | Cash, cash equivalents, and restricted cash at beginning of period | 1,348,845 | | | 1,528,259 | | | (179,414) | |
Cash, cash equivalents, and restricted cash at end of period | Cash, cash equivalents, and restricted cash at end of period | $ | 636,943 | | | $ | 1,584,100 | | | $ | (947,157) | | Cash, cash equivalents, and restricted cash at end of period | $ | 517,941 | | | $ | 1,387,515 | | | $ | (869,574) | |
Net cash used in operating activities was $325.6$497.5 million for the threesix months ended March 31,June 30, 2023, as compared to $88.5$259.4 million for the same period in 2022. The increase in cash used in operating activities is primarily due to a decrease in upfront payments received under our APAs, partially offset by the timing of payments to vendors.
Net cash used in investing activities was $23.6$31.3 million for the threesix months ended March 31,June 30, 2023, as compared to $16.8$41.4 million for the same period in 2022. The increasedecrease in cash used in investing activities is primarily due to an increase in internal use software expenditure.lower expenditure on equipment and leasehold improvements.
Net cash used in financefinancing activities was $354.4$293.0 million for the threesix months ended March 31,June 30, 2023, as compared to net cash provided by finance activities of $159.9$164.5 million for the same period in 2022. The increase in cash used in financing activities is primarily due to the $325 million repayment of our 3.75% Convertible notes during 2023 and net proceeds of approximately $179 million from the sales of our common stock under our June 2021 Sales Agreement during 2022.
Going Concern
The accompanying unaudited consolidated financial statements in Part I, Item 1, “Consolidated Financial Statements” of this Quarterly Report have been prepared assuming that we will continue as a going concern within one year after the date that the financial statements are issued. At March 31,June 30, 2023, we had $636.9$517.9 million in cash and cash equivalents and restricted cash. During the threesix months ended March 31,June 30, 2023, we incurred a net loss of $293.9$235.9 million and had net cash flows used in operating activities of $325.6$497.5 million.
While our current cash flow forecast for the one-year going concern look forward period estimates that we have sufficient capital available to fund operations, this forecast is subject to significant uncertainty, including as it relates to revenue for the next twelve months, funding from the U.S. government, and a pending matter subject to arbitration proceedings. Our revenue projections depend on our ability to successfully develop, manufacture, distribute, or market an updated monovalent or bivalent formulation of a vaccine candidate for COVID-19 for the Fallfall 2023 COVID vaccine season, which is inherently uncertain and subject to a number of risks, including regulatory approvalauthorization, ability to timely deliver doses and commercial adoption.adoption and market acceptance. Further, failure to meet regulatory milestones, timely obtain supportive recommendations from governmental advisory committees, or achieve product volume or delivery timing obligations under the Company’s advance purchase agreements may require the Company to refund portions of upfront and other payments or result in reduced future payments. In February 2023, in connection with the execution of Modification 17 to the USG Agreement, the U.S. government indicated to us that the award may not be extended past its current period of performance, which may result in us not receiving all of the remaining $336.4$250.6 million in funding as of June 30, 2023 we had previously anticipated. On January 24, 2023, Gavi filed a demand for arbitration with the International Court of Arbitration regarding an alleged material breach by us of the Gavi APA. The outcome of that arbitration is inherently uncertain, and it is possible we could be required to refund all or a portion of the remaining Advance payment Amount of $697.4 million.$696.4 million as of June 30, 2023. See Note 3 and Note 15 to our unaudited consolidated financial statements in Part I, Item 1, “Consolidated Financial Statements” of this Quarterly Report for additional information related to the arbitration with Gavi. Management believes that, given the significance of these uncertainties, substantial doubt exists regarding our ability to continue as a going concern through one year from the date that these financial statements are issued.
In accordance with Accounting Standards Codification 205-40, Going Concern, we evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that these unaudited consolidated financial statements are issued. In May 2023, we announced a
global restructuring and cost reduction plan. This planour Restructuring Plan which includes a more focused investment in our NVX-CoV2373 program, reduction to our pipeline spending, the continued rationalization of our manufacturing network, a reduction to our global workforce, as well as the consolidation of facilities, and infrastructure. The planned workforce reduction includesplan included an approximately 25% reduction in ourthe Company’s global workforce, comprised of an approximately 20% reduction in full-time Novavax employees and the remainder comprised of contractors and consultants. We have decided to progress CIC toward late-stage development and, as such, we are assessing the impact on our workforce requirements and ability to meet our future needs. We incurred one time restructuring expenses of $14.7 million during the three months ended June 30, 2023. See Note 16 to our unaudited consolidated financial statements in Part I for more details on restructuring. We expect the full annual impact of the cost savings to be realized in 2024 and approximately half of the annual impact to be realized in 2023 due to timing of implementing the measures, and the applicable laws, regulations, and other factors in the jurisdictions in which we operate. We expect to record a charge of approximately $10 million to $15 million related to one-time employee severance and benefit costs, the majority of which is expected to be incurred in the second quarter of 2023 and are evaluating the anticipated costs related to the consolidation of facilities and infrastructure.
Our ability to fund our operations is dependent upon revenue related to vaccine sales for our products and product candidates, if such product candidates receive marketing approval and are successfully commercialized;commercialized, and in particular the 2023 Fall vaccination campaign, which is inherently uncertain and subject to a number of risks, including regulatory authorization, ability to timely deliver doses and commercial adoption and market acceptance; the resolution of certain matters, including whether, when, and how the dispute with Gavi is resolved; and management’s plans, which include resolving the dispute with Gavi andcompleting cost reductions associated with our global restructuring and cost reduction plan. Our plans may include raising additional capital through a combination of equity and debt financing,financings, collaborations, strategic alliances, and marketing, distribution, or licensing arrangements. New financings may not be available to us on commercially acceptable terms, or at all. Also, any collaborations, strategic alliances, and marketing, distribution, or licensing arrangements may require us to give up some or all of our rights to a product or technology, which in some cases may be at less than the full potential value of such rights. In addition, the regulatory and commercial success of NVX-CoV2373 and our other vaccine candidates, including an influenza vaccine candidate, CIC vaccine candidate, or a COVID-19 variant strain-containing monovalent or bivalent formulation, remains uncertain. If we are unable to obtain additional capital, we will assess our capital resources and may be required to delay, reduce the scope of, or eliminate some or all of our operations, or further downsize our organization, any of which may have a material adverse effect on our business, financial condition, results of operations, and ability to operate as a going concern.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are subject to certain risks that may affect our results of operations, cash flows, and fair values of assets and liabilities, including volatility in foreign currency exchange rates and interest rate movements.
Foreign Currency Exchange Risk
Although we are headquartered in the U.S. our results of operations, including our foreign subsidiaries’ operations, are subject to foreign currency exchange rate fluctuations, primarily the U.S. dollar against the Euro, Pound Sterling, Swedish Krona, and Czech Koruna. This exchange exposure may have a material effect on our cash and cash equivalents, cash flows, and results of operations, particularly in cases of revenue generated under APAs that include provisions that impact our and our counterparty’s currency exchange exposure. To date, we have not entered into any foreign currency hedging contracts, although
we may do so in the future.
We also face foreign currency exchange exposure that arises from translating the results of our global operations to the U.S. dollar at exchange rates that have fluctuated from the beginning of the period. While the financial results of our global activities are reported in U.S. dollars, the functional currency for our foreign subsidiaries is generally their respective local currency. Fluctuations in the foreign currency exchange rates of the countries in which we do business will affect our operating results, often in ways that are difficult to predict. A 10% decline in the foreign exchange rates (primarily against the U.S. dollar) relating to our foreign subsidiaries would result in a decline of stockholders’ equity (deficit) of approximately $14$20 million as of March 31,June 30, 2023.
Market and Interest Rate Risk
The primary objective of our investment activities is preservation of capital, with the secondary objective of maximizing income.
Our exposure to interest rate risk is primarily confined to our investment portfolio, which historically has been classified as available-for-sale. We do not believe that a change in the market rates of interest would have any significant impact on the realizable value of our investment portfolio. Changes in interest rates may affect the investment income we earn on our marketable securities when they mature and the proceeds are reinvested into new marketable securities and, therefore, could impact our cash flows and results of operations.
Interest and dividend income is recorded when earned and included in investment income. Premiums and discounts, if any, on marketable securities are amortized or accreted to maturity and included in investment income. The specific identification method is used in computing realized gains and losses on the sale of our securities.
Our convertible senior unsecured notes have a fixed interest rate, and we have no additional material debt. As such, we do not believe that we are exposed to any material interest rate risk as a result of our borrowing activities.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the assistance of our chief executive officer and chief financial officer, has reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of March 31,June 30, 2023. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving such control objectives. Based on the evaluation of our disclosure controls and procedures as of March 31,June 30, 2023, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
Our management, including our chief executive officer and chief financial officer, have evaluated changes in our internal control over financial reporting that occurred during the quarter ended March 31,June 30, 2023, and have concluded that there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Stockholder Litigation
On November 12, 2021, Sothinathan Sinnathurai filed a purported securities class action in the U.S. District Court for the District of Maryland (the “Maryland Court”) against the Company and certain members of senior management, captioned Sothinathan Sinnathurai v. Novavax, Inc., et al., No. 8:21-cv-02910-TDC (the “Sinnathurai Action”). On January 26, 2022, the Maryland Court entered an order designating David Truong, Nuggehalli Balmukund Nandkumar, and Jeffrey Gabbert as co-lead plaintiffs in the Sinnathurai Action. The co-lead plaintiffs filed a consolidated amended complaint on March 11, 2022, alleging that the defendants made certain purportedly false and misleading statements concerning the Company’s ability to manufacture NVX-CoV2373 on a commercial scale and to secure the NVX-CoV2373’s regulatory approval. The amended complaint defines the purported class as those stockholders who purchased the Company’s securities between February 24, 2021 and October 19, 2021. On April 25, 2022, the defendants filed a motion to dismiss the consolidated amended complaint. On December 12, 2022, the Maryland Court issued a ruling granting in part and denying in part defendants’ motion to dismiss. The Maryland Court dismissed all claims against two individual defendants and claims based on certain public statements challenged in the consolidated amended complaint. The Maryland Court denied the motion to dismiss as to the remaining claims and defendants, and directed the Company and other remaining defendants to answer within fourteen days. On December 27, 2022, the Company filed its answer and affirmative defenses.
After the Sinnathurai Action was filed, seveneight derivative lawsuits were filed: (i) Robert E. Meyer v. Stanley C. Erck, et al., No. 8:21-cv-02996-TDC (the “Meyer Action”), (ii) Shui Shing Yung v. Stanley C. Erck, et al., No. 8:21-cv-03248-TDC (the “Yung Action”), (iii) William Kirst, et al. v. Stanley C. Erck, et al., No. 8:22-cv-00024-TDCC-15-CV-21-000618 (the “Kirst Action”), (iv) Amy Snyder v. Stanley C. Erck, et al., No. 8:22-cv-01415-TDC (the “Snyder Action”), (v) Charles R. Blackburn, et al. v. Stanley C. Erck, et al., No. 1:22-cv-01417-TDC (the “Blackburn Action”), (vi) Diego J. Mesa v. Stanley C. Erck, et al., No. 2022-0770-NAC (the “Mesa Action”), and (vii) Sean Acosta v. Stanley C. Erck, et al., No. 2022-1133-NAC (the “Acosta Action”), and (viii) Jared Needelman v. Stanley C. Erck, et al., No. C-15-CV-23-001550 (the “Needelman Action”). The Meyer, Yung, Snyder, and Blackburn Actions were filed in the Maryland Court. The Kirst Action was filed in the Circuit Court for Montgomery County, Maryland, and shortly thereafter removed to the Maryland Court by the defendants. The Needleman Action was also filed in the Circuit Court for Montgomery County, Maryland. The Mesa and Acosta Actions were filed in the Delaware Court of Chancery (the “Delaware Court”). The derivative lawsuits name members of the Company’s board of directors and certain members of senior management as defendants. The Company is deemed a nominal defendant. The plaintiffs assert derivative claims arising out of substantially the same alleged facts and circumstances as the Sinnathurai Action. Collectively, the derivative complaints assert claims for breach of fiduciary duty, insider selling, unjust enrichment, violation of federal securities law, abuse of control, waste, and mismanagement. Plaintiffs seek declaratory and injunctive relief, as well as an award of monetary damages and attorneys’ fees.
On February 7, 2022, the Maryland Court entered an order consolidating the Meyer and Yung Actions (the “First Consolidated Derivative Action”). The plaintiffs in the First Consolidated Derivative Action filed their consolidated derivative complaint on April 25, 2022. On May 10, 2022, the Maryland Court entered an order granting the parties’ request to stay all proceedings and deadlines pending the earlier of dismissal or the filing of an answer in the Sinnathurai Action. On June 10, 2022, the Snyder and Blackburn Actions were filed. On October 5, 2022, the Maryland Court entered an order granting a request by the plaintiffs in the First Consolidated Derivative Action and the Snyder and Blackburn Actions to consolidate all three actions and appoint co-lead plaintiffs and co-lead and liaison counsel (the “Second Consolidated Derivative Action”). The co-lead plaintiffs in the Second Consolidated Derivative Action filed a consolidated amended complaint on November 21, 2022. On February 10, 2023, defendants filed a motion to dismiss the Second Consolidated Derivative Action. The plaintiffs filed their opposition to the motion to dismiss on April 11, 2023. Defendant’sDefendants filed their reply brief in further support of their motion to dismiss is due byon May 11, 2023.
On July 21, 2022, the Maryland Court issued a memorandum opinion and order remanding the Kirst Action to state court. On December 6, 2022, the parties to the Kirst Action filed a stipulated schedule pursuant to which the plaintiffs were expected to file an amended complaint on December 22, 2022, and either (i) the parties would file a stipulated stay of the Kirst Action or (ii) the defendants would file a motion to stay the case by January 23, 2023. The plaintiffs filed an amended complaint on December 30, 2022. On January 23, 2023, defendants filed a motion to stay the Kirst action. On February 22, 2023, the parties in the Kirst Action filed for the Court’s approval of a stipulation staying the Kirst Action pending the resolution of defendants’ motion to dismiss in the Second Consolidated Derivative Action. On March 22, 2023, the Court entered an order staying the Kirst Action pending resolution of the Motion to Dismiss in the Second Consolidated Derivative Action.
On August 30, 2022, the Mesa Action was filed. On October 3, 2022, the Delaware Court entered an order granting the parties’ request to stay all proceedings and deadlines in the Mesa Action pending the earlier of dismissal of the Sinnathurai Action or the filing of an answer to the operative complaint in the Sinnathurai Action. On January 9, 2023, following the courtruling on the motion to dismiss the Sinnathurai Action, the Delaware Court entered an order granting the Mesa Action parties’ request to set a briefing schedule in connection with a motion to stay that defendants intended to file. Pursuant to the order, defendants filed a motion to stay on January 18, 2023. The plaintiff filed his opposition on February 8, 2023. Defendants filed their reply on February 22, 2023.by defendants. On February 28, 2023, the court granted Defendants’the defendants’ motion and stayed the Mesa Action pending the entry of a final, non-appealable judgment in the Second Consolidated Derivative Action.
On December 7, 2022, the Acosta Action was filed. On February 6, 2023, defendants accepted service of the complaint and summons in the Acosta action.Action. On March 9, 2023, the court entered an order granting the parties’ request to stay the Acosta Action pending the entry of a final, non-appealable judgment in the Second Consolidated Derivative Action. On June 28, 2023 the Company, along with representatives from its insurance carriers, met with the plaintiffs and the plaintiffs of the Sinnathurai Action in mediation to engage in potential settlement discussions. The parties continue to discuss whether an amicable resolution is possible.
On April 17, 2023, the Needelman Action was filed. On July 12, 2023, the parties filed a stipulation and proposed order to stay the Needelman Action pending the Maryland Court’s decision on the motion to dismiss in the Second Consolidated Derivative Action. The financial impact of this claim, as well as the claims discussed above, is not estimable.
On February 26, 2021, a Company stockholder named Thomas Golubinski filed a derivative complaint against members of the Company’s board of directors and members of senior management in the Delaware Court, captioned Thomas Golubinski v. Richard H. Douglas, et al., No. 2021-0172-JRS. The Company is deemed a nominal defendant. Golubinski challenged equity awards made in April 2020 and in June 2020 on the ground that they were “spring-loaded,” that is, made at a time when such board members or members of senior management allegedly possessed undisclosed positive material information concerning the Company. The complaint asserted claims for breach of fiduciary duty, waste, and unjust enrichment. The plaintiff sought an award of damages to the Company, an order rescinding both awards or requiring disgorgement, and an award of attorneys’ fees incurred in connection with the litigation. On May 10, 2021, the defendants moved to dismiss the complaint in its entirety. On June 17, 2021, the Company’s stockholders voted FOR ratification of the April 2020 awards and ratification of the June 2020 awards. Details of the ratification proposals are set forth in the Company’s Definitive Proxy Statement filed on May 3, 2021. The results of the vote were disclosed in the Company’s Current Report on Form 8-K filed on June 24, 2021. Thereafter, the plaintiff stipulated that, as a result of the outcome of the June 17, 2021 vote, the plaintiff no longer intends to pursue the lawsuit or any claim arising from the April 2020 and June 2020 awards. On August 23, 2021, the plaintiff filed a motion seeking an award of attorneys’ fees and expenses, to which the defendants filed an opposition. On October 18, 2022, the Delaware Court denied the plaintiff’s fee application in its entirety. Under a prior Delaware Court order, the case was automatically dismissed with prejudice upon denial of the plaintiff’s fee application. On November 14, 2022, Golubinski filed a Notice of Appeal in the Supreme Court of the State of Delaware. The plaintiff / appellant filed his opening appellate brief on December 30, 2022. The Company filed its responsive brief on January 30, 2023 and the appellant filed his reply brief on February 14, 2023. On June 8, 2023, the Supreme Court affirmed the Court of Chancery’s denial of the plaintiff’s fee application. The financial impact of this claim, as well as the claims discussed above, is not estimable.
case was closed on June 26, 2023.
On March 29, 2022, Par Sterile Products, LLC (“Par”) submitted a demand for arbitration against the Company with the American Arbitration Association, alleging that the Company breached certain provisions of the Manufacturing and Services Agreement (the “Par MSA”) that the Company entered into with Par in September 2020 to provide fill-finish manufacturing services for NVX-CoV2373. On April 4, 2023 the parties entered into a Settlement Agreement and Release of Claims pursuant to which Novavax agreed to pay $27.0 million to Par, which was fully accrued for as of March 31, 2023. Novavax characterized the payment as a $15.0 million termination fee and a $12.0 million settlement payment. Because Par and its parent company, Endo International plc, are parties to Chapter 11 bankruptcy proceedings, the Settlement Agreement and Release of Claims and the payment due thereunder required, and subsequently received, approval from the bankruptcy court. The Company has made the payment required by the Settlement Agreement and Release of Claims, and subject to the non-occurrence of certain contingencies, the arbitration will bewas dismissed with prejudice following a joint motion by Par and Novavax on or about July 13,August 1, 2023.
On November 18, 2022, the Company delivered written notice to Gavi to terminate the Gavi APA based on Gavi’s failure to procure the purchase of 350 million doses of NVX-CoV2373 from the Company as required by the Gavi APA. As of November 18, 2022, the Company had only received orders under the Gavi APA for approximately 2 million doses. On December 2, 2022, Gavi issued a written notice purporting to terminate the Gavi APA based on Gavi’s contention that the Company repudiated the agreement and, therefore, materially breached the Gavi APA. Gavi also contends that, based on its purported termination of the Gavi APA, it is entitled to a refund of the Advance Payment Amount less any amounts that have been credited against the purchase price for binding orders placed by a buyer participating in the COVAX Facility. As ofSince December 31, 2022, the remaining Gavi Advance Payment Amount, which is $696.4 million as of $697.4 million,June 30, 2023, pending resolution of the dispute with Gavi related to a return of the remaining Advance Payment Amount, was reclassified from Deferred revenue tohas been classified within Other current liabilities in the Company’s consolidated balance sheet. On January 24, 2023, Gavi filed a demand for arbitration with the International Court of Arbitration based on the claims described above. The Company filed its Answer and Counterclaims on March 2, 2023. On April 5, 2023, Gavi filed its Reply to the Company’s Counterclaims. The arbitration hearing is scheduled for July 2024, with a written decision to follow. Arbitration is inherently uncertain, and while we believe that we are entitled to retain the remaining Advance Payment Amount received from Gavi, it is possible that we could be required to refund all or a portion of the remaining Advance Payment Amount from Gavi.
We are also involved in various other legal proceedings arising in the normal course of business. Although the outcomes of these other legal proceedings are inherently difficult to predict, we do not expect the resolution of these other legal proceedings to have a material adverse effect on our financial position, results of operations, or cash flows.
Item 1A. Risk Factors
Information regarding risk and uncertainties related to our business appears in Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which was filed with the SEC on February 28, 2023, and Part II, Item 1A. “Risk Factors” of our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2023, which was filed with the SEC on May 9, 2023. There have been no material changes from the risk factors previously disclosed in the Annual Report on Form 10-K, for the fiscal year ended December 31, 2022 and the Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2023 other than set forthas described below.
Risks Related to Regulatory and Compliance Matters
Our products might fail to meet their primary endpoints in clinical trials, meaning that we will not have the clinical data required to support regulatory approvals.
The steps generally required by the FDA before our proposed investigational products may be marketed in the U.S. include:
• performance of preclinical (animal and laboratory) tests;
• submission to the FDA of an Investigational New Drug Application, which must become effective before clinical trials may commence;
• performance of adequate and well controlled clinical trials to establish the safety and efficacy of the investigational product in the intended target population;
• performance of a consistent and reproducible manufacturing process at commercial scale capable of passing FDA inspection;
• submission to the FDA of a Biologics License Application (“BLA”) or a New Drug Application; and
• FDA approval of the BLA or NDA before any commercial sale or shipment of the product.
Clinical trials that we undertake in other countries will be subject to similar or equivalent processes and requirements. In Europe, as well as an authorization for the clinical trial itself, it is necessary to obtain the consent of a local ethics committee for each clinical trial site and to provide for publication specific information about the clinical trial and its outcome. If endpoints are not met, this information will be made publicly available and could be damaging to the reputation of the Company.
These processes are expensive and can take many years to complete, and we may not be able to demonstrate the safety, purity, potency and efficacy of our vaccine candidates to the satisfaction of regulatory authorities. The start of clinical trials can be delayed or take longer than anticipated for many and varied reasons, many of which are out of our control. Safety concerns may emerge that could lengthen the ongoing clinical trials or require additional clinical trials to be conducted. Promising results in early clinical trials may not be replicated in subsequent clinical trials. For example, the first batch of top line results from our Phase 2 CIC clinical trial evaluating safety and immunogenicity of different formulations of CIC and influenza stand-alone vaccine candidates, may not be consistent with top line results from subsequent batches in such trial. Regulatory authorities may also require additional testing, and we may be required to demonstrate that our proposed products represent an improved form of treatment over existing therapies, which we may be unable to do without conducting further clinical trials. Moreover, if a regulatory authority grants regulatory approval of a product, the approval may be limited to specific indications or limited with respect to its distribution. Expanded or additional indications for approved products may not be approved, which could limit our revenue. Foreign regulatory authorities may apply similar limitations or may refuse to grant any approval. Consequently, even if we believe that preclinical and clinical data are sufficient to support regulatory approval for our vaccine candidates, the FDA and foreign regulatory authorities ultimately may not grant approval for commercial sale in their applicable jurisdiction, or may impose regulatory requirements that make further pursuit of approval uneconomical in one or more jurisdictions. If our vaccine candidates are not approved, our ability to generate revenue will be limited, and our business will be adversely affected.
Risks Related to our Intellectual Property
Our success depends on our ability to maintain the proprietary nature of our technology.
Our success in large part depends on our ability to maintain the proprietary nature of our technology and other trade secrets. To do so, we must prosecute and maintain existing patents, obtain new patents and pursue trade secret and other intellectual property protection. We also must operate without infringing the proprietary rights of third-parties or allowing third-parties to infringe our rights. We currently have or have rights to over 560 U.S. and foreign patents and patent applications covering our technologies. However, patent issues relating to pharmaceuticals and biologics involve complex legal, scientific and factual questions. To date, no consistent policy has emerged regarding the breadth of biotechnology patent claims that are granted by the U.S. Patent and Trademark Office or enforced by the federal courts. Therefore, we do not know whether any particular patent applications will result in the issuance of patents, or that any patents issued to us will provide us with any competitive advantage. We also cannot be sure that we will develop additional proprietary products that are patentable. Furthermore, there is a risk that others will independently develop or duplicate similar technology or products or circumvent the patents issued to us.
Although our patent filings include claims covering various features of our vaccine candidates, including composition, methods of manufacture and use, our patents do not provide us with complete protection against the development of competing products. Some of our know-how and technology is not patentable. To protect our proprietary rights in unpatentable intellectual property and trade secrets, we require employees, consultants, advisors and collaborators to enter into confidentiality agreements. These agreements may not provide meaningful protection for our trade secrets, know-how or other proprietary information, which risk has been enhanced by the departure of employees in connection with our global restructuring restructuring and cost reduction plan.
Our vaccine candidates could become subject to a product recall which could harm our reputation, business, and financial results.
The FDA and similar foreign governmental authorities have the authority to require the recall of certain vaccine candidates. Manufacturers may, under their own initiative, recall a product if any material deficiency in a product is found. A government-mandated or voluntary recall by us or our strategic collaborators could occur as a result of manufacturing errors, design or labeling defects or other deficiencies and issues. For example, we have extended a credit of $64.7 million under the Australia APA for a single lot of NVX-CoV2373 doses sold to the Australian government that upon pre-planned 6-month stability testing was found to have fallen below the defined specifications and the lot was therefore removed from the market. Recalls of any of our vaccines or vaccine candidates would divert managerial and financial resources and have an adverse effect on our financial condition and results of operations. In addition, a recall announcement could harm our reputation with customers and negatively affect our sales, if any.
Risks Related to Employee Matters, Managing Growth and Information Technology
Given our current cash position and cash flow forecast, and significant uncertainties related to 2023 revenue, funding from the U.S. government, and our pending arbitration with Gavi, substantial doubt exists regarding our ability to continue as a going concern through one year from the date that the financial statements included in this Quarterly Report were issued.
Our management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date the financial statements are issued. At March 31,June 30, 2023, we had $636.9$517.9 million in cash and cash equivalents and restricted cash. During the threesix months ended March 31,June 30, 2023, we incurred a net loss of $293.9$235.9 million and had net cash flows used in operating activities of $325.6$497.5 million.
While our current cash flow forecast for the one-year going concern look forward period estimates that we have sufficient capital available to fund operations, this forecast is subject to significant uncertainty, including as it relates to the following:
• Revenue: Our near-termThe Company’s revenue dependsprojections depend on ourits ability to successfully develop, manufacture, distribute orand market an updated monovalent or bivalent formulation of a vaccine candidate for COVID-19 for the Fallfall 2023 COVID vaccine season, which is inherently uncertain and subject to a number of risks, including regulatory approvalsauthorization, ability to timely deliver doses and commercial adoption. We experienced delaysadoption and market acceptance. Further, failure to meet regulatory milestones, timely obtain supportive recommendations from governmental advisory committees, or achieve product volume or delivery timing obligations under the Company’s advance purchase agreements may require the Company to refund portions of upfront and other payments or result in early 2023 in manufacturing our BA.5 clinical trial materials, which has the potential to delay regulatory approval from the FDA for our vaccine candidate for the Fall 2023 COVID vaccine season. In addition, in January 2023, the U.S. Vaccines and Related Biologics Products Advisory Committee announced its intent to provide the industry with its strain protocol guidance in the second quarter of 2023 for the Fall 2023 COVID vaccine season. To meet potential demand for Fall 2023, we have begun manufacturing an updated COVID-19 variant strain-containing formulation prior to the availability of strain protocol guidance. If such formulation is not consistent with the strain protocol guidance, we will not be able to deliver the appropriate vaccine to our customers in sufficient quantities for the Fall 2023 COVID vaccine season and we will have incurred significant costs for a formulation that we will be unable to sell.reduced future payments.
• Funding from the U.S. Government: Our USG Agreement will expire by its terms in December 2023. We had anticipated that the U.S. government would extend the USG Agreement until the full $1.8 billion authorized amount had been realized. In February 2023, in connection with the execution of Modification 17 to the USG Agreement, the U.S. government indicated to us that the award may not be extended past its current period of performance. If the USG Agreement is not amended, as we had previously expected, then we may not receive all of the remaining $336.4$250.6 million in fundingas of June 30, 2023 we had previously anticipated pursuant to the USG Agreement.
• Pending Arbitration: On January 24, 2023, Gavi filed a demand for arbitration with the International Court of Arbitration regarding an alleged material breach by us of the Gavi APA. The outcome of that arbitration is inherently uncertain, and it is possible we could be required to refund all or a portion of the remaining advance payments of $697.4$696.4 million. See Note 3 and Note 15 to our consolidated financial statements in Part I, Item 1, “Financial Information” of this Quarterly Report on Form 10-Q for additional information related to the arbitration with Gavi.
Management believes that, given the significance of these uncertainties, substantial doubt exists regarding our ability to continue as a going concern through one year from the date that these financial statements are issued.
Our ability to fund Company operations is dependent upon revenue related to vaccine sales for our products and product candidates, if such product candidates receive marketing approvalauthorization and are successfully commercialized; the resolution of certain matters, including whether, when, and how the dispute with Gavi is resolved; and management’s plans, which include resolving the dispute with Gavi and cost reductions associated with the restructuring of our global footprint. Management’s plans may also include raising additional capital through a combination of equity and debt financing, collaborations, strategic alliances, and marketing, distribution, or licensing arrangements. In May 2023, we announced a global restructuring and cost reduction plan. This plan includes a more focused investment in our NVX-CoV2373COVID-19 vaccine program, reduction to our pipeline spending, the continued rationalization of our manufacturing network, a reduction to our global workforce, as well as the consolidation of facilities and infrastructure. New financings may not be available to us on commercially acceptable terms, or at all. Also, any collaborations, strategic alliances, and marketing, distribution, or licensing arrangements may require us to give up some or all of our rights to a product or technology, which in some cases may be at less than the full potential value of such rights. In addition, the regulatory and commercial success of NVX-CoV2373our COVID-19 vaccine and our other vaccine candidates, including an influenza vaccine candidate, CIC vaccine candidate, or a COVID-19 variant strain-containing monovalent or bivalent formulation, remains uncertain. If we are unable to obtain additional capital, we will assess our capital resources and may be required to delay, reduce the scope of, or eliminate some or all of our operations, or downsize our organization, any of which may have a material adverse effect on our business, financial condition, results of operations, and ability to operate as a going concern.
Our announced global restructuringRisks Related to Regulatory and cost reduction plan may not result in anticipated reductions in combined research and development and selling, general, and administrative expenses and may disrupt our business.
In May 2023, we announced a global restructuring and cost reduction plan. This plan includes a more focused investment in our NVX-CoV2373 program, reduction to our pipeline spending, the continued rationalization of our manufacturing network, a reduction to our global workforce, as well as the consolidation of facilities and infrastructure. The planned workforce reduction includes an approximately 25% reduction in our global workforce, comprised of an approximately 20% reduction in full-time Novavax employees and the remainder comprised of contractors and consultants. We expect the full annual impact of the cost savings to be realized in 2024 and approximately half of the annual impact to be realized in 2023 due to timing of implementing the measures, and the applicable laws, regulations, and other factors in the jurisdictions in which we operate. We expect to record a charge of approximately $10 million to $15 million related to one-time employee severance and benefit costs, the majority of which is expected to be incurred in the second quarter of 2023 and are evaluating the anticipated costs related to the consolidation of facilities and infrastructure.We may not realize, in full or in part, the anticipated benefits, savings and improvements in our cost structure from these efforts due to unforeseen difficulties, delays or unexpected costs. If we are unable to realize the potential development progress and cost savings from the global restructuring and cost reduction plan, including the reduction to our global workforce, our business strategy, operating results and financial condition would be adversely affected. Our workforce reductions could yield unanticipated consequences, such as attrition beyond planned workforce reductions or disruptions in our day-to-day operations. Our global restructuring and cost reduction plan, including the reduction to our global workforce, could also harm our ability to attract and retain qualified management and development personnel who are critical to our business. If we are unable to realize the expected benefits from the restructuring and cost reduction plan, we may decide to undertake additional workforce reductions.Compliance Matters
If we are unable to attracteffectively pursue the manufacture, clinical testing, regulatory authorization, and export of our XBB COVID vaccine, or retain key managementCOVID vaccines against future strain changes, we may encounter delays or other personnel,challenges in commercially distributing these vaccines as well as gaining market acceptance for them.
Regulatory authorities globally, including the U.S. FDA, have recommended that manufacturers update their COVID vaccines with a monovalent XBB.1.5 strain for the fall 2023 COVID vaccine season and subsequent vaccination. We continue to pursue the manufacture, clinical testing, regulatory authorization, and distribution of our business, operating resultsXBB COVID vaccine, with a goal of making it commercially available for the fall 2023 COVID vaccine season. We intend to submit applications for authorization of the XBB COVID vaccine to several regulatory authorities. We expect that regulatory authorities will continue to monitor and financial condition couldassess SARS-CoV-2 evolution and recommend that manufacturers make corresponding updates to the composition of their COVID vaccines at least annually.
Inherent to this evolving approach to manufacturing new strains of COVID vaccines, including our development of our XBB COVID vaccine, we may encounter regulatory authorization, manufacturing, and distribution challenges, including export challenges. In doing so, we expect to seek alignment and acceptance by regulatory authorities that would allow us to use manufacturing and analytical testing methods employed in earlier COVID vaccine production and commercialization efforts, that support an accurate characterization profile (including purity, potency, stability and like standards) of the relevant XBB COVID vaccine. For the imminent fall 2023 COVID vaccine campaign, as well as subsequent campaigns in the future, our inability to overcome product development challenges and gaining regulatory authority alignment may adversely affect our ability to obtain licensure of our XBB COVID vaccine or future COVID vaccines at all, or in a timely manner.
Regarding future COVID vaccine development, including with our XBB COVID vaccine, we may fail to receive authorization by regulatory authorities if we are unable to generate sufficient batch analysis data to demonstrate batch-to-batch consistency at commercial scale, if the data generated from our incremental research and development program do not support continued effectiveness of the vaccine to protect individuals against the then-relevant variant of SARS-CoV-2 because the vaccine does not induce an adequate level of neutralization titers against such variant, or if the product otherwise exhibits an unacceptable safety profile, rendering the benefit/risk balance unfavorable. Moreover, the new vaccine lots may not be materially adversely affected.accepted for distribution if required batch-release testing undertaken by officially designated laboratories does not show that such vaccine is of acceptable quality.
We depend on our senior executive officers, as well as key scientific and other personnel. The losswere unable to accomplish the timely validation of these individualsthe single-dose vial presentation we had intended to use with the XBB COVID vaccine in the U.S. As a result, if we obtain EUA from the FDA for this vaccine, we expect to offer the product only in a five dose vial presentation for the fall 2023 vaccination season, which may adversely impact market acceptance, rate of product returns, or our failure to implement an appropriate succession plan could harm our business and significantly delay or preventrequire higher price concessions in the achievement of research, development or business objectives. Turnover in key executive positions resulting in lack of management continuity and long-term history with our Company could result in operational and administrative inefficiencies and added costs. These risks have increased since our global restructuring and cost reduction plan and related workforce reduction implemented in May 2023, which increased the risk that we will lose technical know-how or other trade secrets as experienced personnel depart.
U.S.
Because the finished product is manufactured by SIIPL in India, timely authorization is needed from the Drugs Controller General of India (“DCGI”), the drug licensing body in India, to export the XBB COVID vaccine to the respective markets where regulatory review of the product application is pending.If we are unable to receive this timely DCGI authorization, we may be unable to commercially distribute our XBB COVID vaccine in a timely manner for the fall 2023 season.
If we are unable to effectively manufacture our COVID vaccines in sufficient quantities, at sufficient yields, or are unable to obtain regulatory approvals for a manufacturing facility for our COVID vaccines, we may experience delays or an adverse impact on product development, clinical trials, regulatory approvals, and commercial distribution.
We are continuing to pursue the manufacture, distribution and clinical testing of our COVID vaccine (both our Protoype COVID vaccine and our XBB COVID vaccine) for commercialization. Completion of our clinical trials and commercialization of our COVID vaccine and our other vaccine candidates requires access to, or development of, facilities to effectively manufacture our COVID vaccine and our other vaccine candidates at sufficient yields and at commercial scale. We have limited experience manufacturing any of our vaccine candidates in the volumes necessary to support commercial sales. While we have increased our global manufacturing capacity for our COVID vaccine, our efforts to establish and maintain manufacturing capabilities may not meet expectations as to timing, scale-up, reproducibility, yields, purity, cost, potency or quality. We are highly dependent on third-party organizations to conduct a significant amount of our vaccine manufacturing activities. We do not have sufficient internal manufacturing infrastructure to support global commercialization of our COVID vaccine and we have entered into third-party agreements for the components, as well as for commercial fill-finish manufacturing, for our COVID vaccine. For the fall 2023 manufacturing campaign, the antigen component of our COVID vaccine is being manufactured at SIIPL in India, and the Matrix-M™ adjuvant component of our COVID vaccine is currently being manufactured at Novavax AB and AGC Biologics in Europe. Challenges in manufacturing either the antigen component or the adjuvant, or issues in later manufacturing stages, could compromise production of our COVID vaccine. Additionally, we currently depend exclusively on SIIPL and SLS for co-formulation, filling and finishing (other than in Europe) and PCI for finishing our COVID vaccine in Europe, and any delays or disruptions in these suppliers’ operations could prevent or delay the delivery of customer orders.
Additionally, to ensure adequate inventory supply and manage our operations, we forecast anticipated manufacturing requirements and customer demand to predict inventory needs and place orders with our third-party manufacturers based on such predictions. Our ability to accurately forecast demand for our COVID vaccine could be negatively affected by many factors, including challenges in managing our commercial strategy, unanticipated changes in general market conditions or regulatory matters, and market demand for variant-specific COVID vaccines, among others. If we underestimate our third-party manufacturing requirements, we may not be able to timely meet obligations under our customer supply agreements. Conversely, if we overestimate our third-party manufacturing requirements, we may end up with inventory levels in excess of customer demand that result in a portion of our inventory becoming obsolete or expiring, as well as inventory write-downs or write-offs, or we may need to cancel previously forecasted batches of product from our third-party manufacturers, which may result in material cancellation fees. In September 2022, for example, we entered into a Confidential Settlement Agreement and Release with FUJIFILM under which we are responsible for up to $185 million to FUJIFILM in connection with the termination of manufacturing activity. In December 2022, we agreed to approximately $95 million in fees owed to AGC Biologics in connection with the cancellation of batches in 2022. If we are unable to accurately forecast demand for our COVID vaccine and the required services from third-party manufacturers, our results of operations could be materially harmed.
Manufacturing our COVID vaccine involves a complicated process with which we have limited experience. If we and our third-party manufacturers are unable to manufacture our COVID vaccine in clinical quantities or in commercial quantities and at sufficient yields and at required specifications, then clinical trials and commercialization will be delayed, and we will need to identify and reach supply arrangements with additional third parties. Third-party manufacturers also must receive FDA or equivalent foreign regulatory body approval before they can produce clinical material or commercial product which could cause delays and alter our production schedule. Our COVID vaccines are in competition with other products for access to these third-party facilities and may be subject to delays in manufacture if third parties prioritize other products. We may not be able to attract qualified individuals for key positionsenter into any necessary additional third-party manufacturing arrangements on acceptable terms, acceptableor on a timely basis. In addition, we have to us. Competition for qualified employees is intense among pharmaceuticalenter into technical transfer agreements and biotechnology companies,share our know-how with the third-party manufacturers, which can be time-consuming and may result in delays.
Because of contractual restraints and the losslimited number of qualified employees, or an inabilitythird-party manufacturers with the expertise, required regulatory approvals and facilities to attract, retainmanufacture bulk vaccines at commercial-scale, replacement of a manufacturer may be expensive and motivate additional highly skilled employees could hindertime-consuming and may cause interruptions in the production of our vaccine and negatively impact our ability to complete clinical trials successfullytimely meet obligations under our customer supply agreements. We and otherwise develop marketable products.our third-party manufacturers may also encounter production challenges related to:
•
We also rely from time to time on outside advisors who assist us in formulating our researchcosts, scale up, and development and clinical strategy. We may not be able to attract and retain these individuals on acceptable terms, which could delay our development efforts.
yields;
•shortages of raw materials and supplies;
•shipment delays or other supply chain disruptions
•quality control and assurance;
•contamination, lot consistency, potency, and purity;
•shortages of qualified personnel and other capacity constraints;
•compliance with strictly enforced and evolving federal, state and foreign regulations that vary in each country where products might be sold including nationalization or other territory restrictions placed on our owned and third-party manufacturing sites;
•and capital funding.
Delays or interruptions could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Item 5. Other Information
During the three months ended June 30, 2023, no director or “officer” (as defined in Rule 16a-1(f) under the Securities Exchange Act of 1934, as amended) of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
Item 6. Exhibits
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3.1 | | |
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3.2 | | |
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3.3 | | |
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3.4 | | |
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10.1*± | | |
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10.210.2*± | | EmploymentAmendment No. 1 to Advanced Purchase Agreement, effective as of January 26, 2022, between the Company and John C. Jacobs, datedHis Majesty the King in Right of Canada, as represented by the Minister of January 5, 2023 (IncorporatedPublic Works and Government Services, as successor in interest to Her Majesty the Queen in Right of Canada, as represented by reference to Exhibit 10.18 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed on February 28, 2023 (File No. 000-26770))Minister of Public Works and Government Services |
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10.310.3*± | | Consulting and AdvisoryAmendment No. 2 to Advanced Purchase Agreement, effective as of October 18, 2022, between the Company and Stanley C. Erck, datedHis Majesty the King in Right of Canada, as represented by the Minister of January 5, 2023 (IncorporatedPublic Works and Government Services, as successor in interest to Her Majesty the Queen in Right of Canada, as represented by reference to Exhibit 10.20 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed on February 28, 2023 (File No. 000-26770))Minister of Public Works and Government Services |
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10.4*± | | |
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10.510.5*± | | |
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10.610.6*± | | |
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10.7*± | | |
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10.8*± | | |
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10.9*† | | |
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10.710.10*†
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10.11*† | | |
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10.12*† | | |
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31.1* | | |
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31.2* | | |
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32.1* | | |
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32.2* | | |
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101 | | The following financial information from our Quarterly Report on Form 10-Q for the quarter ended March 31,June 30, 2023, formatted in Inline Extensible Business Reporting Language (Inline XBRL): (i) the Consolidated Statements of Operations for the three-monththree- and six-month periods ended March 31,June 30, 2023 and 2022, (ii) the Consolidated Statements of Comprehensive Income (Loss) for the three-monththree- and six-month periods ended March 31,June 30, 2023 and 2022, (iii) the Consolidated Balance Sheets as of March 31,June 30, 2023 and December 31, 2022, (iv) the Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the three-monththree- and six-month periods ended March 31,June 30, 2023 and 2022, (v) the Consolidated Statements of Cash Flows for the three-monthsix-month periods ended March 31,June 30, 2023 and 2022, and (vi) the Notes to Consolidated Financial Statements. |
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104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
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*Filed or furnished herewith.
± Certain portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K.
†Management contracts, compensatory plans, or arrangements
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| NOVAVAX, INC. |
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Date: May 9,August 8, 2023 | By: | /s/ John C. Jacobs |
| | John C. Jacobs President and Chief Executive Officer (Principal Executive Officer) |
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Date: May 9,August 8, 2023 | By: | /s/ James P. Kelly |
| | James P. Kelly Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) |