NOVAVAX, INC. 
Any statements in the discussion below and elsewhere in this Quarterly Report on Form 10-Q (this "Quarterly Report") about expectations, beliefs, plans, objectives, assumptions, or future events or performance ofNovavax, Inc. ("Novavax ," and 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; 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 of our preclinical product candidates; our expectations related to enrollment in our clinical trials; the conduct, timing, and potential results from clinical trials and other preclinical studies; plans for and potential timing of regulatory filings; our expectation of manufacturing capacity, timing, production, distribution, and delivery for our coronavirus vaccine candidate ("NVX-CoV2373") by us and our partners; our estimate of the number of individualswho may potentially be reached by NVX-CoV2373; our expectations with respect to the anticipated ongoing development and commercialization or licensure of NVX-CoV2373 and our seasonal quadrivalent influenza vaccine, previously known as NanoFlu; the expected timing, content, and outcomes of regulatory actions; funding from theU.S. government partnership formerly known as Operation Warp Speed ("OWS"), theU.S. Department of Defense ("DoD"), and theCoalition for Epidemic Preparedness Innovations ("CEPI"), and payments from theBill & Melinda Gates Foundation ("BMGF"); funding under our advance purchase agreements and supply agreements and amendments to, or termination of, 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, challenges satisfying, alone or together with partners, various safety, efficacy, and product characterization requirements, including those related to process qualification and assay validation, necessary to satisfy applicable regulatory authorities, such as theU.S. Food and Drug Administration ("FDA"),World Health Organization ("WHO"),United Kingdom ("UK")Medicines and Healthcare Products Regulatory Agency ("MHRA"), theEuropean Medicines Agency ("EMA"), theRepublic of Korea's Ministry of Food and Drug Safety ("MFDS"), orJapan's Ministry of Health, Labour and Welfare ("MHLW"); unanticipated challenges or delays in conducting clinical trials; difficulty obtaining scarce raw materials and supplies; resource constraints, including human capital and manufacturing capacity, constraints on the ability ofNovavax 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; and other risks and uncertainties identified in Part I, Item 1A "Risk Factors" of the Company's Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 , which may be detailed and modified or updated in other documents filed with theUnited States Securities and Exchange Commission ("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. Information in this Quarterly Report includes a financial measure that was not prepared in accordance withU.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. 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. 18
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Overview
Novavax, Inc. , together with our wholly-owned subsidiaries, is 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 genetically engineered nanostructures of conformationally correct recombinant proteins that mimic those found on natural pathogens. This technology enables the immune system to recognize the right target proteins from different angles 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 other vaccine approaches. Our vaccine candidates also incorporate our proprietary saponin-based Matrix-M™ adjuvant to enhance the immune response and stimulate higher levels of functional antibodies and induce a cellular immune response. We have developed a COVID-19 vaccine ("NVX-CoV2373," "Nuvaxovid™," "Covavax™"), and are developing an influenza vaccine, a COVID-19-Influenza Combination vaccine ("CIC"), and additional vaccine candidates. NVX-CoV2373 has received approval, interim authorization, provisional approval, conditional marketing authorization ("CMA"), and emergency use authorization ("EUA") from multiple regulatory authorities globally. In addition to COVID-19 and seasonal influenza, our other areas of focus include respiratory syncytial virus ("RSV") and malaria.
Technology Overview
We believe our recombinant nanoparticle vaccine technology together with our proprietary Matrix-M™ adjuvant is well-suited for the development of vaccine candidates targeting a broad scope of respiratory and other emerging infectious diseases at scale.
Recombinant Nanoparticle Vaccine Technology
Once a pathogenic threat has been identified, the genetic sequence encoding the
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 ("Sf9/BV") insect cell-expression system,
which enables efficient, large-scale expression of the optimized protein. The
Sf9/BV system produces proteins that are properly folded and modified - which
can be critical for functional, protective immunity - as the vaccine antigen.
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 has been a key differentiator within our
platform. This adjuvant has demonstrated 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, plasma cells, and high
affinity antibodies, thereby boosting immune response. This potent mechanism of
action enables a lower dose of antigen required to achieve the desired immune
response and we believe thereby contributes to increased vaccine supply and
manufacturing capacity. These immune-boosting and dose-sparing capabilities
contribute to the adjuvant's highly unique profile.
NVX-CoV2373 Regulatory and Licensure
We continue to make progress in advancing NVX-CoV2373 toward regulatory approvals. We have received numerous authorizations globally for primary series, and both homologous and heterologous booster indications, which collectively have the potential to reach over six billion individuals. To date, we have received approval, interim authorization, provisional approval, CMA, and EUA for both adult and adolescent populations, and we expect to initiate additional rolling submissions worldwide. We continue to work closely with governments, regulatory authorities, and non-governmental organizations in our commitment to facilitate equitable global access to our COVID-19 vaccine. For the territories in which our vaccine has gained authorization, NVX-CoV2373 is marketed under the brand names (i) Nuvaxovid™ COVID-19 Vaccine (SARS-CoV-2 rS [Recombinant, adjuvanted]), (ii) Covovax™ (manufacturing and commercialization by theSerum Institute of India Pvt. Ltd. ("SIIPL")), or (iii)Novavax ' COVID-19 Vaccine, Adjuvanted. 19 -------------------------------------------------------------------------------- Table of Contents Through the date of filing this Quarterly Report, the below is a summary of regulatory authorizations for NVX-CoV2373: [[Image Removed: nvax-20220630_g1.jpg]] (1) Regulatory approval received in partnership with SIIPL. (2) Regulatory manufacturing and marketing approval received by partner Takeda Pharmaceutical Company Limited ("Takeda").
During the second quarter of 2022, we completed additional regulatory submissions in major markets for both adult and adolescent populations for primary and booster indications. We are in active discussions with regulatory authorities and remain focused on seeking additional authorizations for NVX-CoV2373.
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Below is a summary and status of our regulatory submissions completed through
the date of filing this Quarterly Report.
[[Image Removed: nvax-20220630_g2.jpg]]
(1) Regulatory filing submitted in partnership with SIIPL.
(2) Regulatory filing submitted by our partner, SK bioscience, Co., Ltd. ("SK
bioscience").
Clinical Pipeline
Our clinical pipeline encompasses vaccine candidates spanning multiple
therapeutic areas including coronavirus, seasonal influenza, RSV, and Matrix-MTM
adjuvant collaborations for the prevention of malaria. Our COVID-19 vaccine
candidate, NVX-CoV2373, is our leading product, having received approval,
interim authorization, provisional approval, CMA, and EUA from multiple
regulatory authorities 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 of concern
("VoC"), while maintaining a favorable safety profile. We also advanced our
influenza vaccine through a Phase 3 clinical trial, which demonstrated positive
top-line results and achieved statistical significance in key secondary
endpoints. We initiated a trial of a CIC consisting of our influenza vaccine and
NVX-CoV2373. In April 2022 , we announced initial results from Phase 1/2 clinical
trial of CIC demonstrating that formulating the combination vaccine is
well-tolerated and immunogenic. Modeling results showed that combined
formulation has the potential to reduce total antigen amount by up to 50%
overall, optimizing production and delivery. Additionally, we remain interested
in further development of our RSV Program for respiratory syncytial virus fusion
(F) protein nanoparticle vaccine candidate ("RSV F Vaccine"). Ongoing Phase 3
trials are being conducted by our partner, Jenner Institute , University of
Oxford , for R21, a malaria candidate currently under development by the
University of Oxford in partnership with SIIPL, which is formulated using our
Matrix-M™ adjuvant.
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We remain focused on bringing our NVX-CoV2373 vaccine candidate to market
following global regulatory authorizations. Through ongoing booster studies in
our clinical trials, as well as the development of COVID-19 variant strain
vaccine candidates, we continue to collect data to characterize and improve
vaccine performance. In April 2022 , we announced the initiation of a Phase 3
COVID-19 vaccine booster study in adolescents ages 12-17 years as part of our
PREVENT-19 trial, and in May 2022 , we announced our participation in University
of Oxford's Com-COV3 booster trial of COVID-19 vaccines in adolescents ages
12-15 years. Additionally, in May 2022 , we announced the initiation of a Phase 3
clinical trial for use of our Omicron variant strain vaccine as a booster. We
remain in close collaboration with regulatory authorities for providing
additional variant data. We expect to leverage these clinical insights to
advance the use and additional regulatory approvals of our COVID-19 vaccine for
primary, booster, and pediatric indications globally, amidst the ongoing and
evolving COVID-19 pandemic.
The pipeline chart below summarizes the core clinical and preclinical development programs that we are focusing on in the near-term.
[[Image Removed: nvax-20220630_g3.jpg]] (1) Supported by OWS,DoD , CEPI, and BMGF. (2) Authorized for provisional approval, CMA, or EUA in select geographies under trade names NuvaxovidTM and CovovaxTM. Received EUA from theU.S. FDA. PREVENT-19, a Phase 3 clinical trial in theU.S. andMexico ; Ongoing PREVENT-19 pediatric expansion in theU.S. ; Phase 3 clinical trial in theUK ; Ongoing Phase 2b clinical trial inSouth Africa . We, along with our partners, will have commercial rights in authorized geographies to sell and distribute NVX-CoV2373.
Business Highlights
Second Quarter 2022 and Recent Highlights
Progressed COVID-19 Global Regulatory Strategy
•Received EUA fromU.S. FDA with label expansion underway, marking first protein-based COVID-19 vaccine available for use domestically •Authorized for primary series in adults 18 and older with unanimous recommendation received from U.S Centers for Disease Control and Prevention ("CDC") •Planned submission for boosting data from PREVENT-19 Phase 3 trial in August of 2022 •Nuvaxovid or Covovax authorized in 43 countries for primary series in adults 18 and older, with additional label expansions received and underway in several geographies •Authorized for boosting in adults 18 and older inJapan ,Australia and New Zealand ?Nuvaxovid filings completed in theEuropean Union ("EU"),Great Britain andSwitzerland •Authorized for primary series in adolescents aged 12 through 17 in the EU,India ,Australia ,Japan andThailand ?Nuvaxovid filings completed to theWHO ,Great Britain ,Canada ,Switzerland ,New Zealand andTaiwan 22 -------------------------------------------------------------------------------- Table of Contents •Expect to file for authorization of Omicron-containing vaccine withU.S. FDA in the fourth quarter of 2022
COVID-19 Vaccine Manufacturing and Distribution
•Delivered over 73 million doses of Nuvaxovid and Covovax globally to date, including 23 million doses since the start of the third quarter 2022, reflecting strong momentum for the remainder of 2022
•Secured order from
•Received approval from EMA for SK bioscience to manufacture and supply the active substance in the Nuvaxovid COVID-19 vaccine to the EU
•Expanded partnership with SK bioscience to support manufacturing of Omicron-containing vaccine and to manufacture vaccine in prefilled syringes for commercial supply in 2023
COVID-19 Clinical Development Program
•Ongoing development of Omicron BA.1 specific vaccine ("NVX-CoV2515"), Omicron
BA.5 specific vaccine and bivalent format with prototype vaccine ("NVX-CoV2373")
•Announced positive preclinical boosting data for NVX-CoV2373, NVX-CoV2515, or
bivalent formulation, demonstrating strong antibody levels
•Ongoing Phase 3 strain change trial to assess safety and antibody responses
following primary vaccination with mRNA vaccines; initial results expected near
the end of the third quarter of 2022
•Initiated Phase 2b/3 Hummingbird global clinical trial in younger children aged
six months through 11 years with initial results expected in the first quarter
of 2023
•Expected to enroll total 3,600 participants across nine countries, evaluating
safety, effectiveness (immunogenicity) and efficacy of two doses of NVX-CoV2373,
followed by a booster at least six months after primary vaccination in three age
cohorts
•Advanced multiple studies evaluating homologous and heterologous boosting in
adolescents for NVX-CoV2373
•Completed administration of homologous third-dose booster for select
participants in PREVENT-19 Phase 3 booster study in adolescents aged 12 through
17
•Ongoing participation in University of Oxford's Com-COV3 Booster trial in
adolescents aged 12 through 15 to evaluate heterologous boosting
•Announced initial results of CIC Phase 1/2 trial demonstrating robust immune response with both stand-alone influenza and CIC vaccine candidates •Phase 3 trial to evaluate efficacy on-track to be initiated in 2023
Sales of Common Stock
During the three months endedMarch 31, 2022 , we sold 2.2 million of shares of our common stock resulting in net proceeds of approximately$179 million , under our most recent At Market Issuance Sales agreement entered inJune 2021 (the "June 2021 Sales Agreement"), which allows us to issue and sell up to$500 million in gross proceeds of shares of our common stock. As ofJune 30, 2022 , the remaining balance under ourJune 2021 Sales Agreement was approximately$318 million . During the six months endedJune 30, 2021 , we sold 2.6 million shares of our common stock resulting in net proceeds of approximately$565 million , under our various At Market Issuance Sales agreements then in effect.
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
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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, 2021 , as filed with the SEC , and are updated for
inventory valuation below.
Inventory Valuation
We periodically analyze our inventories for excess amounts or obsolescence and
write down obsolete or otherwise unmarketable inventory to its estimated net
realizable value based on assumptions about expected future demand and market
conditions. Our assumptions about expected future demand are inherently
uncertain and if we were to change any of these judgments or estimates, it could
cause a material increase or decrease in the amount of inventory write down that
we report in a particular period. Expense incurred related to excess inventory
and obsolete inventory is recorded as a component of cost of sales in the
consolidated statement of operations.
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
Revenue
Three Months Ended June 30,
2022 2021 Change
Revenue (in thousands):
Product sales $ 55,455 $ - $ 55,455
Grants 107,774 272,489 (164,715)
Royalties and other 22,696 25,528 (2,832)
Total revenue $ 185,925 $ 298,017 $ (112,092)
Revenue for the three months ended June 30, 2022 was $185.9 million as compared
to $298.0 million for the same period in 2021, a decrease of $112.1 million .
Revenue for the three months ended June 30, 2022 was primarily comprised of
revenue for services performed under the agreement with the U.S. government
partnership formerly known as OWS ("OWS Agreement") and revenue from product
sales of NVX-CoV2373. Revenue for the three months ended June 30, 2021 was
primarily comprised of revenue for services performed under the OWS Agreement
and our funding agreements with CEPI. The decrease in revenue was due to
decreased development activities under the OWS Agreement as we began commercial
sales of NVX-CoV2373, partially offset by an increase in revenue due to the
commencement of product sales of NVX-CoV2373.
We expect revenue in 2022 to significantly increase as compared to 2021 due to
product sales of NVX-CoV2373 under various supply agreements, sometimes referred
to as advance purchase agreements ("APAs"), as a result of multiple global
regulatory approvals. Certain revenue from product sales of NVX-CoV2373 that was
originally planned for the three months ended June 30, 2022 is now planned for
the second half of 2022 based on requested and revised customer delivery plans.
Revenue in 2022 is also expected to increase due to royalties from the sale of
NVX-CoV2373 under our supply and license agreements with strategic partners to
supply NVX-CoV2373 in their specified territories where we are entitled to
receive royalties from such sales, and our NVX-CoV2373 program, which we
anticipate will continue to be funded by OWS and other revenue sources.
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Expenses
Three Months Ended June 30,
2022 2021 Change
Expenses (in thousands):
Cost of sales $ 271,077 - $ 271,077
Research and development 289,648 570,685 (281,037)
Selling, general, and administrative 108,160 73,161 34,999
Total expenses $ 668,885 $ 643,846 $ 25,039
Cost of Sales
Cost of sales was $271.1 million , or 489% of product sales, for the three 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 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 June 30,
2022 we had approximately $0.3 billion of commercial inventory that was expensed
prior to approval. We expect to utilize all of our reduced-cost inventory during
2022. If inventory sold for the three months ended June 30, 2022 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
$279.5 million , or 504% of product sales, an adjustment of $8.4 million as
compared to cost of sales recognized. The cost of sales to high income countries
is expected to be between 15% and 30% of product sales based on our standard
cost. 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 $289.6 million for the three
months ended June 30, 2022 as compared to $570.7 million for the three months
ended June 30, 2021 , a decrease of $281.0 million primarily due to research and
development of NVX-CoV2373, as summarized in the table below (in thousands):
Three Months Ended June 30,
2022 2021
NVX-CoV2373 $ 201,015 $ 497,196
Influenza vaccine 2,274 3,168
Other vaccine development programs 224 210
Total direct external research and development expense 203,513 500,574
Employee expenses 43,177 24,556
Stock-based compensation expense 19,695 24,779
Facility expenses 10,863 3,410
Other expenses 12,400 17,366
Total research and development expenses $
289,648
Research and development expenses for NVX-CoV2373 for the three months endedJune 30, 2022 and 2021, included a benefit of$87.2 million related to previously accelerated manufacturing costs and an expense of$20.0 million related to the acceleration of manufacturing costs, respectively, for leases that we determined were embedded in multiple manufacturing supply agreements with Contract Manufacturing Organizations ("CMOs") and contract manufacturing and development organizations ("CDMOs"). For 2022, we expect total research and development expenses to decrease as compared to 2021. The decline in 2022 is anticipated to result from expected capitalization of manufacturing costs during 2022 that were previously recognized as research and development expenses in prior periods, partially offset by research and development expenses related to increased clinical activities as we continue to develop our NVX-CoV2373 and other programs. 25 -------------------------------------------------------------------------------- Table of Contents Selling, General, and Administrative Expenses Selling, general, and administrative expenses increased to$108.2 million for the three months endedJune 30, 2022 from$73.2 million for the same period in 2021, an increase of$35.0 million . The increase in selling, general, and administrative expenses is primarily due to an increase in professional fees in support of our NVX-CoV2373 program. For 2022, we expect selling, general, and administrative expenses to increase significantly as compared to 2021 due to increased activities related to supporting our NVX-CoV2373 program and increases in employee-related costs and professional fees. Other Income (Expense) Three Months Ended June 30, 2022 2021 Change Other Income (Expense) (in thousands): Interest expense$ (6,234) $ (5,968) $ (266) Other income (expense) (19,873) 3,028 (22,901) Total other expense, net$ (26,107) $ (2,940) $ (23,167) We had total other expense, net, of$26.1 million for the three months endedJune 30, 2022 as compared to$2.9 million for the same period in 2021. During the three months endedJune 30, 2022 and 2021, other income (expense) included a loss of$20.1 million and$2.7 million , respectively, incurred by our foreign subsidiaries, primarily related to the impact of foreign exchange rate differences on an intercompany loan with Novavax CZ.
Income Tax Expense
During the three months endedJune 30, 2022 and 2021, we recognized$1.4 million and$3.5 million , respectively, of income tax expense related to federal and state income taxes and foreign withholding tax on royalties. Net Loss Three Months Ended June 30, 2022 2021 Change
Net Loss (in thousands, except per share information): Net loss
$ (510,485) $ (352,317) $ (158,168) Net loss per share, basic$ (6.53)
Weighted average shares outstanding, basic 78,143 74,118 4,025 Net loss for the three months endedJune 30, 2022 was$510.5 million , or$6.53 per share, basic, as compared to a net loss of$352.3 million , or$4.75 per share, basic, for the same period in 2021. The change in net loss during the three months endedJune 30, 2022 , was primarily due to decreased revenue under the OWS Agreement and the write-down of excess, obsolete, or expired inventory and losses on firm purchase commitments, partially offset by revenue from commercial sales of NVX-CoV2373 and a decrease in research and development expense. The increase in weighted average shares outstanding for the three months endedJune 30, 2022 is primarily a result of sales of our common stock and exercises of stock-based awards in 2022 and 2021. 26
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Six Months Ended
Revenue
Six Months Ended June 30,
2022 2021 Change
Revenue (in thousands):
Product sales $ 641,083 $ - $ 641,083
Grants 207,075 719,382 (512,307)
Royalties and other 41,738 25,864 15,874
Total revenue $ 889,896 $ 745,246 $ 144,650
Revenue for the six months ended June 30, 2022 was $889.9 million as compared to
$745.2 million for the same period in 2021, an increase of $144.7 million .
Revenue for the six months ended June 30, 2022 was primarily comprised of
revenue from product sales of NVX-CoV2373 and, to a lesser extent, revenue for
services performed under the OWS Agreement. Revenue for the six months ended
June 30, 2021 was primarily comprised of revenue for services performed under
the OWS Agreement and our funding agreements with CEPI. The increase in revenue
was due to the commencement of product sales of NVX-CoV2373 and, to a lesser
extent, royalties under our licensing arrangements, partially offset by
decreased development activities under the OWS Agreement and our funding
agreements with CEPI as we began commercial sales of NVX-CoV2373.
Expenses
Six Months Ended June 30,
2022 2021 Change
Expenses (in thousands):
Cost of sales $ 286,281 $ - $ 286,281
Research and development 673,131 1,163,356 (490,225)Selling, general, and administrative 204,152 136,351
67,801 Total expenses$ 1,163,564 $ 1,299,707 $ (136,143) Cost of Sales Cost of sales was$286.3 million , or 45% of product sales, for the six months endedJune 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 atJune 30, 2022 we had approximately$0.3 billion of commercial inventory that was expensed prior to approval. We expect to utilize all of our reduced-cost inventory during 2022. If inventory sold for the six months endedJune 30, 2022 was valued at expected standard cost, adjusted cost of sales for the period would have been approximately$439.5 million , or 69% of product sales, an adjustment of$153.2 million as compared to cost of sales recognized. The cost of sales to high income countries is expected to be between 15% and 30% of product sales based on our standard cost. 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. 27
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Research and Development Expenses
Research and development expenses decreased to$673.1 million for the six months endedJune 30, 2022 from$1.2 billion for the same period in 2021, a decrease of$490.2 million , primarily due to decreased development activities relating to NVX-CoV2373, as summarized in the table below (in thousands): Six Months Ended June 30, 2022 2021 NVX-CoV2373$ 489,948 $ 1,035,320 Influenza vaccine 3,570 4,294 Other vaccine development programs 1,027 514 Total direct external research and development expense 494,545 1,040,128 Employee expenses 86,919 49,511 Stock-based compensation expense 36,582 48,569 Facility expenses 24,072 6,405 Other expenses 31,013 18,743 Total research and development expenses$ 673,131 $ 1,163,356 Research and development expenses for NVX-CoV2373 for the six months endedJune 30, 2022 and 2021, included a benefit of$67.4 million related to previously accelerated manufacturing costs and an expense of$43.0 million related to the acceleration of manufacturing costs, respectively, for leases that we determined were embedded in multiple manufacturing supply agreements with CMOs and CDMOs.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses increased to$204.2 million for the six months endedJune 30, 2022 from$136.4 million for the same period in 2021, an increase of$67.8 million . The increase in selling, general, and administrative expenses is primarily due to an increase in professional fees in support of our NVX-CoV2373 program. Other Expense Six Months Ended June 30, 2022 2021 Change Other Expense (in thousands): Interest expense$ (11,110) $ (10,807) $ (303) Other income (expense) (18,219) (3,203) (15,016) Total other expense, net$ (29,329) $ (14,010) $ (15,319) We had total other expense, net of$29.3 million for the six months endedJune 30, 2022 as compared to$14.0 million for the same period in 2021. In the six months endedJune 30, 2022 and 2021, we also recorded interest expense of$3.4 million and$4.0 million , respectively, for finance leases. During the six months endedJune 30, 2022 and 2021, other income (expense) included a loss of$21.5 million and$3.9 million , respectively, incurred by our foreign subsidiaries, primarily related to the impact of foreign exchange rate differences on an intercompany loan with Novavax CZ.
Income Tax Expense
During the six months endedJune 30, 2022 and 2021, we recognized$4.1 million and$6.6 million , respectively, of income tax expense related to federal and state income taxes and foreign withholding tax on royalties. 28
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Net Loss
Six Months Ended June 30,
2022 2021 ChangeNet Loss (in thousands, except per share information): Net loss
$ (307,077) $ (575,036) $ 267,959 Net loss per share, basic$ (3.97)
Weighted average shares outstanding, basic 77,305 73,580 3,725 Net loss for the six months endedJune 30, 2022 was$307.1 million , or$3.97 per share, as compared to$575.0 million , or$7.82 per share, for the same period in 2021. The change in net loss during the six months endedJune 30, 2022 was primarily due to the commencement of commercial sales of NVX-CoV2373, partially offset by decreased revenue under the OWS Agreement, and a decrease in research and development expense, partially offset by the write-down of excess, obsolete, or expired inventory and losses on firm purchase commitments. The increase in weighted average shares outstanding for the six months endedJune 30, 2022 is primarily a result of sales of our common stock in 2022 and 2021.
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 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 CRO, 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, theVaccine Alliance ("Gavi"); theEuropean Commission ("EC"); and various countries globally. We also have grant and license agreements. As ofJune 30, 2022 , 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, was approximately$5 billion . 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 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 under our supply agreements generally become non-refundable upon our achievement of certain development, regulatory, and commercial milestones. Failure to meet regulatory milestones, product volume, or delivery timing obligations under our supply agreements may require us to refund portions of upfront payments or result in reduced future payments, which could result in a material and adverse effect on our financial condition. In addition, we continue to assess our manufacturing needs and intend to 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. Under the terms of our contracted supply commitment with Gavi, which includes the supply obligation of our licensed partner, SIIPL, 1.1 billion doses of NVX-CoV2373 are to be made available to countries participating in the COVAX Facility, which was established to allocate and distribute vaccines equitably to participating countries and economies. TheNovavax portion is a supply agreement that contemplates that we will manufacture and distribute 350 million doses. Under that agreement with Gavi, we received an upfront payment of$350 million from Gavi in 2021 and an additional payment of$350 million in the first quarter of 2022 related to our achievingWHO Emergency Use Listing. AlthoughNovavax is prepared to deliver the quantities of NVX-CoV2373 doses to Gavi under the terms of our supply agreement, we were notified by Gavi of its intent to seek to revise the number and timing of doses of NVX-CoV2373 supplied byNovavax under such agreement. Furthermore, Gavi may seek partial or full recovery of the prior nonrefundable payments it has made toNovavax . Our position is that Gavi has no contractual right to recover prior nonrefundable payments. To date,Novavax has not received an order from Gavi and the timing and quantities of future orders to deliver NVX-CoV2373 to the COVAX facility are unclear. 29 -------------------------------------------------------------------------------- Table of Contents InJuly 2022 , we entered into an Amended and Restated SARS-CoV-2 Vaccine Supply Agreement (the "Amended and RestatedUK Supply Agreement") with The Secretary of State for Business, Energy and Industrial Strategy, acting on behalf of the government of theUnited Kingdom ofGreat Britain andNorthern Ireland (the "Authority"), which amended and restated in its entirety the SARS-CoV-2 Vaccine Supply Agreement originally entered into inOctober 2020 (the "OriginalUK Supply Agreement"). Pursuant to the OriginalUK Supply Agreement, the Authority agreed to purchase 60 million doses of NVX-CoV2373. Under the Amended and RestatedUK Supply Agreement, the Authority agreed to purchase a minimum of 1 million doses and up to an additional 15 million doses of NVX-CoV2373, with the number of additional doses contingent on our timely achievement of supportive recommendations from theUnited Kingdom's Joint Committee on Vaccination and Immunisation (the "JCVI"). In the event that we are unable to achieve the JCVI supportive recommendations, we may have to repay up to$225.0 million related to the upfront payment we received from the Authority under the OriginalUK Supply Agreement. Under the Amended and RestatedUK Supply Agreement, the Authority also has the option to purchase up to an additional 44 million doses, in one or more tranches, through 2024. We have an APA with the EC acting on behalf of various EU member states to supply a minimum of 20 million and up to 100 million initial doses of NVX-CoV2373, with the option for the Commission to purchase an additional 100 million doses up to a maximum aggregate of 200 million doses in one or more tranches, through 2023. We are in the process of finalizing a revised delivery schedule for the remaining 42 million doses of the 70 million previously committed doses under our APA with the EC that were originally scheduled for delivery during the first and second quarters of 2022. In July andAugust 2022 , we were notified by the EC that it was cancelling 5 million doses of its prior commitment originally scheduled for delivery in the first and second quarters of 2022, in accordance with the APA, and reducing the order to 65 million doses. InJuly 2022 , we entered into a modification to the OWS Agreement that amended the terms of such agreement to provide for (i) an initial delivery to theU.S. government of approximately 3 million doses of NVX-CoV2373, contingent on the timing of EUA approval by the FDA, as well as the timing of label language and artwork approvals by the FDA and the recommendation of theAdvisory Committee on Immunization Practices within theCDC , and (ii) any additional manufacture and delivery to theU.S. government up to an aggregate of 100 million doses of NVX-CoV2373 contemplated by the original OWS Agreement (inclusive of the initial batch of approximately 3 million doses) dependent onU.S. government demand, FDA guidance on strain selection, agreement between the parties on the price of such doses, and available funding. Additionally, inJuly 2022 , we entered into a modification to our existing agreement with theDoD that amended the terms of such agreement to provide for the initial delivery of 0.2 million doses of NVX-CoV2373 after receipt of EUA approval from the FDA, with delivery of the remaining 9.8 million doses of NVX-CoV2373 contemplated by the original agreement subject toDoD demand and available funding. In the six months endedJune 30, 2022 , we primarily funded our operations with cash and cash equivalents, upfront payments under APAs, revenue from product sales, royalties under licensing arrangements with our strategic partners, and proceeds from the sale of common stock together with revenue under the OWS Agreement that supports our NVX-CoV2373 vaccine development activities. We anticipate our future operations to be funded by revenue from product sales, royalties under licensing arrangements with our strategic partners, revenue under our OWS Agreement, our cash and cash equivalents, and other potential funding sources.
As of
The following table summarizes cash flows for the six months endedJune 30, 2022 and 2021 (in thousands): Six Months Ended June 30, 2022 2021 Change Net cash provided by (used in): Operating activities$ (259,413) 807,497$ (1,066,910) Investing activities (41,402) 128,708 (170,110) Financing activities 164,524 538,144 (373,620)
Effect on exchange rate on cash, cash equivalents, and restricted cash
(4,453) (348) (4,105)
Net increase (decrease) in cash, cash equivalents, and restricted cash
(140,744) 1,474,001 (1,614,745)
Cash, cash equivalents, and restricted cash at
beginning of period 1,528,259 648,738 879,521
Cash, cash equivalents, and restricted cash at end of
period $ 1,387,515 $ 2,122,739 $ (735,224)
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Net cash used in operating activities was$259.4 million for the six months endedJune 30, 2022 , as compared to net cash provided by operating activities of$807.5 million for the same period in 2021. The decrease in cash provided is primarily due to the application of upfront payments under APAs resulting from sales of NVX-CoV2373 during the six months endedJune 30, 2022 as compared to an increase in cash due to the receipt of upfront payments under APAs during the six months endedJune 30, 2021 . During the six months endedJune 30, 2022 and 2021, our investing activities consisted primarily of capital expenditures and maturities and sale of marketable securities, net of purchases. Capital expenditures for the six months endedJune 30, 2022 and 2021 were$41.4 million and$28.9 million , respectively. For 2022, we expect our capital expenditures to continue to increase due to further development activities for our NVX-CoV2373 program, including the additional build-out of research and development and manufacturing facilities and related equipment, and the build-out of our new corporate office facility. Our financing activities consisted primarily of sales of our common stock under our At Market Issuance Sales Agreements, payments of finance lease liabilities, and exercise of stock-based awards. In the six months endedJune 30, 2022 and 2021, we received net proceeds of approximately$179 million and$565 million , respectively, from selling shares of common stock through our At Market Issuance Sales Agreements.
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