Item 7. Management’s Discussion and Analysis
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Any statements in the discussion below and elsewhere in this Annual Report about expectations, beliefs, plans, objectives, assumptions or future events or performance of Novavax, Inc. (“Novavax,” together with its wholly owned subsidiaries Novavax AB and Novavax CZ, 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; 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; 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 and delivery for NVX-CoV2373; our expectations with respect to the anticipated ongoing development and potential commercialization or licensure of NVX- CoV2373 and NanoFlu™; the expected timing and content of regulatory actions; funding from the U.S. government partnership formerly known as Operation Warp Speed (“OWS”), the U.S. Department of Defense (“DoD”) and the Coalition for Epidemic Preparedness Innovations (“CEPI”), and payments from the Bill & Melinda Gates Foundation (“BMGF”); our available cash resources and usage and the availability of financing generally; plans regarding partnering activities, 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,” or “assume,” the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words.
Forward-looking statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed or implied in the statements. Any or all of our forward-looking statements in this Annual Report may turn out to be inaccurate or materially different from actual results.
Because the risk factors discussed in this Annual Report and other risk factors of which we are not aware could cause actual results or outcomes to differ materially from those expressed or implied in any forward-looking statements made by or on behalf of us, you should not place undue reliance on any such forward-looking statements. These statements are subject to risks and uncertainties, known and unknown, which could cause actual results and developments to differ materially from those expressed or implied in such statements. We have included important factors that could cause results to differ in the cautionary statements included in this Annual Report, particularly those identified in Part I, Item 1A “Risk Factors” of this Annual Report. These and other risks may also be detailed and modified or updated in our reports and other documents filed with the Securities and Exchange Commission (“SEC”) from time to time. You are encouraged to read these filings as they are made.
We cannot guarantee future results, events, level of activity, performance or achievement. Further, any forward- looking statement speaks only as of the date on which 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.
Overview
We are a biotechnology company promoting improved global health through the discovery, development and commercialization of innovative vaccines to prevent serious infectious diseases and address urgent, global health needs. Our vaccine candidates, including both our coronavirus vaccine candidate, NVX-CoV2373, and our influenza vaccine candidate, NanoFlu, are genetically engineered, three-dimensional nanostructures of recombinant proteins. We believe that our protein-subunit-based candidates elicit differentiated immune responses that may be more efficacious than naturally occurring immunity or other, more traditional vaccine approaches. Our technology may be used to target a variety of infectious diseases. Our unique technology is paired with our proprietary immune-stimulating adjuvants, developed at Novavax AB, our wholly owned Swedish subsidiary. To date, we have formulated many of the vaccine candidates in our pipeline with our lead adjuvant,
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Matrix-M™, including NVX-CoV2373 and NanoFlu. Matrix-M has been shown to enhance functional immune responses and has been well-tolerated in multiple clinical trials. Matrix-M also enables dose-sparing properties.
As the world continues to address the global COVID-19 pandemic, we remain focused today on bringing our NVX-CoV2373 vaccine candidate to market. We have begun rolling reviews with five regulatory authorities worldwide and have initiated submissions to the U.S. Food and Drug Administration (“FDA”) for our open investigational new drug application. In addition, NanoFlu continues to be a priority for our team, and we are exploring the potential for a combined NanoFlu / NVX-CoV2373 vaccine. Our dedicated NanoFlu team continues to seek approval from the FDA under an accelerated approval pathway. Although NVX-CoV2373 and NanoFlu are our near-term priorities, we remain optimistic that the additional programs in our pipeline, including our vaccine candidates for respiratory syncytial virus (“RSV”) and other emerging infectious diseases, present viable opportunities for future development.
Near-term Clinical Development Focus
Our development pipeline encompasses vaccine candidates addressing therapeutic areas including coronavirus, seasonal influenza, RSV and other emerging infectious diseases. At the forefront of our pipeline, we have evaluated our COVID-19 vaccine candidate, NVX-CoV2373, in various preclinical and clinical trials, including two Phase 3 trials, one Phase 2b trial, and one Phase 1/2 trial. Through our clinical development program, we have demonstrated the safety and efficacy of NVX-CoV2373. Additionally, in February 2021, we selected candidates for COVID-19 variant strain vaccines as standalone and bivalent candidates. We plan to initiate clinical testing of these new variant vaccine candidates in mid-2021. Outside of our COVID-19 vaccine candidate, we have advanced our NanoFlu program through a Phase 3 clinical trial, demonstrating positive top-line results and achieving statistical significance across secondary endpoints. We continue to evaluate the viability of certain combination vaccines, including combinations of our NanoFlu, NVX-CoV2373 and respiratory syncytial virus fusion (F) protein nanoparticle vaccine candidate (“RSV F Vaccine”).
A summary and status of our clinical and preclinical development program follows:
1. Supported by funding from the OWS, DoD, CEPI and BMGF
2. Ongoing PREVENT-19, a Phase 3 clinical trial in U.S. and Mexico; Ongoing Phase 3 in UK; Ongoing Phase 2b in South Africa
COVID-19 Vaccine Funding
Funding for our NVX-CoV2373 clinical development program encompasses over $2 billion from sources including CEPI, the DoD, and OWS.
A summary and status of our key COVID-19 funding developments follows:
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NVX-CoV2373 Manufacturing and Supply
With respect to the global manufacturing and supply of NVX-CoV2373, we have secured manufacturing for our antigen component and Matrix-M adjuvant, as well as secured fill / finish activities for NVX-CoV2373 at several sites globally. Through our various manufacturing partnerships, we expect our projected global manufacturing production rate of NVX-CoV2373 to be over two billion doses annually when we are at full capacity, which we expect to occur in mid-2021. Of this anticipated capacity, approximately one billion doses will be manufactured by Serum Institute of India Private Limited ("SIIPL").
NVX-CoV2373 and its components are being manufactured at the following Novavax (in bold) and partnered sites:
A summary and status of key manufacturing developments follows:
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NVX-CoV2373 Supply Agreements
Through the date of filing this Form 10-K, we have entered into several supply agreements with various countries globally that, if our COVID-19 product candidate is approved, are expected to result in the delivery of approximately 200 million doses of NVX-CoV2373, throughout 2021 and into the first half of 2022. In addition to these supply agreements, we have committed 110 million doses of NVX-CoV2373 to the U.S. government in relation to the funding received from OWS and the DoD.
A summary of our current supply agreements follows:
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Sale of Assets
In July 2019, we closed a transaction under an asset purchase agreement (the “Purchase Agreement”) with Catalent, pursuant to which we sold to Catalent certain assets related to our biomanufacturing and development activities located at the facilities situated at each of 20 Firstfield Road in Gaithersburg, MD 20878 and 9920 Belward Campus Drive in Rockville, MD 20850 for approximately $18 million and recorded a gain on the disposition of such assets of $9.0 million. Pursuant to the transactions contemplated by the Purchase Agreement, approximately 100 Novavax manufacturing and quality employees transferred to Catalent, and we assigned two facility leases to Catalent. We also entered into other ancillary agreements upon the closing of the transaction, including a Non-Commercial GMP Manufacturing Services Agreement pursuant to which we were required to purchase $6.0 million in certain services from Catalent set forth therein, through July 31, 2020. The transaction was treated as an asset disposition for accounting purposes.
Sale of Preferred Stock
In June 2020, we entered into a redeemable Series A Convertible Preferred Stock Subscription Agreement, pursuant to which we sold and issued in a private placement 438,885 shares of our newly designated redeemable Series A Convertible Preferred Stock, par value $0.01 per share (“Preferred Stock”), at a purchase price of $455.70 per share, for total gross proceeds of $200.0 million. During the fourth quarter of 2020, all outstanding shares of the Preferred Stock was converted and we issued 4,388,850 shares of common stock, par value $0.01 per share and reclassified $199.8 million from preferred stock to additional paid in capital. We recognized a beneficial conversion feature of approximately $24.1 million at the time of issuance of the Preferred Stock that was recorded in additional paid-in capital and accumulated deficit as the Preferred Stock issuance was contingently redeemable and convertible at any time at the option of the holder.
Sales of Common Stock
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In January 2021, we entered into an At Market Issuance Sales Agreement ("January 2021 Sales Agreement"), which allows us to issue and sell up to $500 million in gross proceeds of our common stock. From January 22 through February 24, 2021, we sold $1.7 million shares of common stock under the January 2021 Sales Agreement resulting in $452.0 million in net proceeds, leaving $42.2 million remaining.
During 2020, we entered into various At Market Issuance Sales Agreements, which allowed us to issue and sell up to $1.0 billion in gross proceeds of our common stock. During 2020, we sold a total of 25.2 million shares of common stock under such Sales Agreements resulting in $835.6 million in net proceeds (this amount excludes $3.2 million received in the first quarter of 2021 for shares traded in late December 2020). From January 1, 2021 through January 20, 2021, we sold $0.9 million shares of common stock from our At Market Issuance Sales Agreement entered into in November 2020 (“November 2020 Sales Agreement”) resulting in $113.0 million in net proceeds, leaving $27.2 million remaining under its November 2020 Sales Agreement. We terminated the November 2020 Sales Agreement by mutual agreement upon entering into the January 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, 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 as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. These estimates, particularly estimates relating to accounting for revenue, lease accounting and accounting for research and development expenses have a material impact on our consolidated financial statements and are discussed in detail throughout our analysis of the results of operations discussed below.
We base our estimates on historical experience and various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets, liabilities and equity that are not readily apparent from other sources. Actual results and outcomes could differ from these estimates and assumptions.
Revenue Recognition
We perform research and development under government funding, grant, license and clinical development agreements. Our revenue primarily consists of funding under U.S. government contracts and other arrangements to advance the clinical development and manufacturing of NVX-CoV2373. Our U.S. government contracts include the DoD Contract and the OWS Agreement. Other funding arrangements primarily include a grant and forgivable loan funding from CEPI.
At contract inception, we analyze our revenue arrangements to determine the appropriate accounting under U.S. GAAP. Currently, our revenue arrangements represent customer contracts within the scope of ASC Topic 606, Revenue from Contracts with Customers (Topic 606) (“ASC 606”) or are subject to the contribution guidance in Accounting Standards Codification (ASC) Topic 958-605, Not-for-Profit Entities – Revenue Recognition (“ASC 958-605”) which applies to business entities that receive contributions within the scope of ASC 958-605. We recognize revenue from arrangements within the scope of ASC 606 following the five-step model: (i) identify the contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to our customer. We recognize contribution revenue within the scope of ASC 958-605 when the funder-imposed conditions have been substantially met. Contributions are recorded as deferred revenue until the period in which research and development activities are performed that satisfy the funder-imposed conditions.
Under our U.S government contracts, we are entitled to receive funding, on a reimbursable-cost or reimbursable-cost-plus fixed fee basis to support certain activities related to the development, manufacture and delivery of NVX-CoV2373 to the U.S. Government. We analyzed these contracts and determined that they are within the scope of ASC 606. Our obligations under each of the contracts are not distinct in the context of the contract as they are highly interdependent or interrelated and, as such, they are accounted for as a single performance obligation. The transaction price under these arrangements is the consideration we expect to receive and consists of the funded contract amount and the unfunded variable amount to the extent that it is probable that a significant reversal of revenue will not occur. We recognize revenue for these contracts over time as we transfer control over the goods and services and satisfy our performance obligation. We measure progress toward satisfaction of our performance obligation using an Estimate-at-Completion (“EAC”) process, which is a cost-based input method that reviews and monitors the progress towards the completion of our performance obligation. Under this process, we consider the costs that
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have been incurred to-date, as well as projections to completion using various inputs and assumptions, including, but not limited to, progress towards completion, labor costs and level of effort, material and subcontractor costs, indirect administrative costs, and other identified risks. Estimating the total allowable cost at completion of our performance obligation under a contract is subjective and requires us to make assumptions about future activity and cost drivers. Changes in these estimates can occur for a variety of reasons and, if significant, may impact the timing of revenue and fee recognition on our contracts. Allowable contract costs include direct costs incurred on the contract and indirect costs that are applied in the form of rates to the direct costs. Progress billings under the contracts are initially based on provisional indirect billing rates, agreed upon between us and the U.S. government. These indirect rates are subject to audit on an annual basis. The impact of changes in the indirect billing rates are recorded in the period when such changes are identified and reflect the difference between actual indirect costs incurred compared to the estimated amounts used to determine the provisional indirect billing rates agreed upon with the U.S. government. We recognize revenue on our U.S government contracts based on reimbursable allowable contract costs incurred in the period up to the transaction price. For our reimbursable-cost-plus fixed fee contracts, we recognize the fixed fee based on the proportion of reimbursable contract costs incurred to total estimated allowable contract costs expected to be incurred on completion of the underlying performance obligation as determined under the EAC process. Changes in estimates related to the EAC process are recognized in the period when such changes are made on a cumulative catch-up basis. We include the transaction price comprising both funded and unfunded portions of customer contracts, in this estimate. We have not experienced any material difference as a result of change in estimate arising from the EAC process.
Our other funding arrangements primarily include the CEPI Grant Funding and CEPI Forgivable Loan Funding (each as defined in “Note 2―Summary of Significant Accounting Policies” included in our Notes to Consolidated Financial Statements). The CEPI Forgivable Loan Funding is designated for the prepayment of certain manufacturing activities. We analyzed these other funding arrangements and determined that they are not within the scope of ASC 606 as they do not provide a direct economic benefit to the grantor. Payments received under the grant funding arrangements are considered conditional contributions under the scope of ASC 958-605 and are recorded as deferred revenue until the period in which such research and development activities are actually performed that satisfy the funder-imposed conditions. Payments received under the CEPI Forgivable Loan Funding agreements are only repayable if the proceeds of sales to one or more third parties of NVX-CoV2373 cover our costs of manufacturing such vaccine candidate, not including manufacturing costs funded by CEPI. As the financial risk remains with CEPI, we have determined that the use of the CEPI Forgivable Loan Funding is outside the scope of ASC Topic 470, Debt. The research and development risk is considered substantive, such that it is not yet probable that the development will be successful. Therefore, we have concluded that ASC Topic 730, Research and Development is considered applicable and most appropriate. Given the financial risk associated with the research and development activities lies with CEPI because repayment of any funds provided by CEPI depends solely on the results of the research and development activities having future economic benefit, we will account for our obligation under the CEPI Forgivable Loan Funding as a contract to perform research and development for others. We have determined that payments received under these agreements should be recorded as revenue under ASC 958-605 rather than a reduction to research and development expenses. This is consistent with our policy of presenting such amounts as revenue. In reaching this determination, we considered a number of factors, including whether we are principal under the arrangement, and whether the arrangement is significant to, and part of, our core operations. We will record revenue as we perform the contractual research and development services.
We have manufacturing and supply arrangements that include a license to use our intellectual property. The licensing arrangements include sales-based royalties, as well as certain development and commercial milestone payments, and the license is deemed to be the predominant item to which the milestone payments and sales-based royalties relate. The fulfillment of our obligation for the license is subject to a constraint, the achievement of the development and commercial milestone or the royalty-related sales under the arrangement. For milestone payments, the constraint is overcome and we recognize revenue, when the development and commercial milestone is achieved.
Lease Accounting
We determine at the inception or modification of a contract if an arrangement is, or contains, a lease, which exists when the contract conveys the right to control the use of identified property or equipment for a period of time in exchange for consideration. In determining if a contract contains a lease, we evaluate whether the contract, either explicitly or implicitly, is for the use of an identified asset and whether we have the right to direct the use of, and obtain substantially all of the benefit from, the identified asset. Depending on the contract, the lease commencement date, defined as the date on which the lessor makes the underlying asset available for use by the lessee and is the date on which the Company is required to accrue lease expenses, may be different than the inception date of the contract. We evaluate changes to the terms and conditions of a lease contract to determine if they result in a new lease or a modification of an existing lease. For lease modifications, we remeasure and reallocate the remaining consideration in the contract and reassess the lease classification at the effective date of the modification. We classify leases as either operating or finance leases based on the economic substance of the agreement.
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We enter into non-cancelable lease agreements for facilities and certain equipment. We also enter into manufacturing supply agreements with CMOs and CDMOs to manufacture our vaccine candidates. Certain of these manufacturing supply agreements include the use of identified manufacturing facilities and equipment that are controlled by us and for which we obtain substantially all the output, and may qualify as an embedded lease. We treat manufacturing supply agreements that contain a lease as lease arrangements in their entirety.
For leases that have a lease term of more than 12 months at the lease commencement date, we recognize lease liabilities, which represent our obligation to make lease payments arising from the lease, and corresponding right-of-use (“ROU”) assets, which represent the right to use an underlying asset for the lease term, based on the present value of the fixed future payments over the lease term. We calculate the present value of future payments using the discount rate implicit in the lease, if available, or our incremental borrowing rate. For all leases that have a lease term of 12 months or less at the commencement date (referred to as “short-term” leases), we have elected to apply the practical expedient in ASC Topic 842, Leases (“ASC 842”) to not recognize a lease liability or ROU asset but instead, recognize lease payments as an expense on a straight-line basis over the lease term and variable lease payments that do not depend on an index or rate, as an expense in the period in which the variable lease costs are incurred based on performance or usage in accordance with contractual agreements. In determining the lease period, we evaluate facts and circumstances that could affect the period over which we are reasonably certain to use the underlying asset while taking into consideration the non-cancelable period over which we have the right to use the underlying asset and any option period to extend or terminate the lease if we are reasonably certain to exercise the option. We re-evaluate short-term leases that are modified and if they no longer meets the requirements to be treated as short-term leases, we recognize and measure the lease liability and ROU asset as if the date of the modification is the lease commencement date (see Note 7 to the accompanying consolidated financial statements).
For operating leases, we recognize lease expense related to fixed payments on a straight-line basis over the lease term and lease expense related to variable payments as incurred based on performance or usage in accordance with the contractual agreements. For finance leases, we recognize the amortization of the ROU asset over the shorter of the lease term or useful life of the underlying asset. We expense ROU assets acquired for research and development activities under ASC Topic 730, Research and Development , if they do not have an alternative future use, in research and development projects or otherwise.
We use significant assumptions and judgment in evaluating our lease contracts and other agreements under ASC 842, including the determination of whether an agreement is or contains a lease, whether a change in the terms and conditions of a lease contract represent a new or modified lease, whether a lease represents an operating or finance lease, the discount rate used to determine the present value of lease obligations and the term of embedded leases in our manufacturing supply agreements.
Accounting for Research and Development Expenses
We estimate our prepaid and accrued expenses related to our research and development activities using a process that involves reviewing contracts and purchase orders, communicating with our project managers and service providers to identify services that have been performed on our behalf, and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or for which we have been invoiced in advance of the service. This estimation process includes a review of:
• expenses incurred under agreements with contract research organizations (“CROs”) that conduct our clinical trials and third party consultants; and
• the cost of developing and manufacturing vaccine components under third-party CMOs and CDMOs agreements, including expenses incurred for the procurement of raw materials, laboratory supplies and equipment.
We base our expenses on our estimates of the services provided and efforts expended pursuant to contracts, statements of work and related change orders with the service provider, as well as discussion with internal personnel and external service providers as to the progress of the services and the agreed-upon fee to be paid for such services. The financial terms of these agreements are based on negotiated terms, vary from contract to contract and may result in an uneven level of activity over time. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. Additionally, invoicing from third-party service providers may not coincide with actual work performed and can result in a prepaid or an accrual position at the end of the period. The estimation process requires us to make significant judgments and estimates in determining the services incurred as of the balance sheet date, which may result in either a prepaid or an accrual balance. As actual costs become known, we adjust our estimates. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed may vary from the related estimates and could result in us reporting amounts that are too high or too low in a particular period. Our prepaid and accrued expenses are dependent, in part, upon the receipt of timely and accurate reporting from CROs, CMOs, CDMOs and third-party service providers. Due to the nature of the estimation process, there may be a difference between estimated costs and actual costs incurred. Historically, we have not experienced any material differences in prior periods.
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Recent Accounting Pronouncements
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 for Fiscal Years 2020 and 2019
The following is a discussion of our historical consolidated financial condition and results of operations, and should be read in conjunction with the consolidated financial statements and notes thereto set forth in this Annual Report. Additional information concerning factors that could cause actual results to differ materially from those in our forward-looking statements is described under Part I, Item 1A, “Risk Factors” of this Annual Report.
For our discussion of the year ended December 31, 2019, compared to the year ended December 31, 2018, please read Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations located in Annual Report on Form 10-K for the year ended December 31, 2019.
Revenue:
2020 2019 Change
Revenue (in thousands):
Government contracts $ 217,246 7,500 $ 209,746
Grants and other 258,352 11,162 250,852
Total revenue $ 475,598 $ 18,662 $ 460,598
Revenue for 2020 was $475.6 million as compared to $18.7 million for 2019, an increase of $460.6 million. The significant increase in revenue in 2020 was a result of our development activities related to NVX-CoV2373 and was primarily comprised of revenue for services performed under the OWS Agreement and the CEPI Funding Agreement. Revenue for the year ended December 31, 2019 was primarily comprised of revenue for services performed under the BMGF Grant Agreement and recovery of costs on the close-out of our contract with HHS BARDA.
We expect revenue in 2021 to significantly increase due to our NVX-CoV2373 program, which we anticipate will continue to be funded by OWS and CEPI and/or other revenue sources. Further, we anticipate bringing our NVXCoV2373 vaccine candidate to market following global regulatory approvals which, if achieved, should significantly impact revenue (also see below under Liquidity and Capital Resources in this Management's Discussion and Analysis). In anticipation, we have entered into various APAs with government customers that are expected to result in the delivery of approximately 200 million doses of NVX-CoV2373 throughout 2021 and into the first half of 2022. We also entered into multiple supply and license agreements with strategic partners to supply NVX-CoV2373 in their specified territories under which we are entitled to receive royalty revenue from the sale of NVX-CoV2373 by such partners.
2020 2019 Change
Expenses (in thousands):
Research and development $ 747,027 $ 113,842 $ 633,185
Gain on sale of assets — (9,016) 9,016
General and administrative 145,290 34,417 110,873
Total expenses $ 892,317 $ 139,243 $ 753,074
Research and Development Expenses
During 2020, our research and development activities were primarily focused on the development of NVX-CoV2373. During 2020, direct external research and development expenses related to NVX-CoV2373 were $609.4 million and comprised of costs related to the following:
• expenses incurred under agreements with CROs that conduct our clinical trials and third party consultants related to the development of NVX-CoV2373;
• developing and manufacturing the antigen drug substance and Matrix-M components of NVX-CoV2373 under agreements that we established with third-party CMOs and CDMOs;
• expenses incurred for the procurement of raw materials, laboratory supplies and equipment; and
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• other costs related to preclinical studies and regulatory consulting, as well as related program management activities to support our growing global operations.
In 2020, we also incurred significant costs related to developing our NVX-CoV2373 manufacturing and supply network, including the immediate expense recognition of $245.9 million of ROU assets associated with such manufacturing supply agreements.
Research and development expenses increased to $747.0 million for 2020 as compared to $113.8 million for 2019, an increase of $633.2 million primarily due to the development of NVX-CoV2373, as shown in the table below.
The following summarizes our research and development expenses for the years ended December 31, 2020 and 2019 (in millions):
2020 2019
NVX-CoV2373 $ 609,401 $ —
NanoFlu 14,802 23,851
Other vaccine development programs 2,651 27,016
Total direct external research and development expense 626,854 50,867
Employee expenses 45,882 33,389
Stock-based compensation expense 55,954 8,436
Facility expenses 7,232 9,243
Other expenses 11,105 11,907
Total research and development expenses $ 747,027 $ 113,842
We do not provide forward-looking estimates of costs and time to complete our research programs due to the many uncertainties associated with vaccine development. As we obtain data from preclinical studies and clinical trials, we may elect to discontinue or delay clinical trials in order to focus our resources on more promising vaccine candidates. Completion of clinical trials may take several years or more, but the length of time can vary substantially depending upon the phase, size of clinical trial, primary and secondary endpoints and the intended use of the vaccine candidate. The cost of clinical trials may vary significantly over the life of a project as a result of a variety of factors, including:
• the number of participants who participate in the clinical trials;
• the number of sites included in the clinical trials;
• if clinical trial locations are domestic, international or both;
• the time to enroll participants;
• the duration of treatment and follow-up;
• the safety and efficacy profile of the vaccine candidate; and
• the cost and timing of, and the ability to secure, regulatory approvals.
As a result of these uncertainties, we are unable to determine the duration and completion costs of our research and development projects or when, and to what extent, we will generate future cash flows from our research projects.
For 2021, we expect research and development expenses to increase significantly over 2020 expenses due to our continued development activities for our NVX-CoV2373 program (see discussion on our NVX-CoV2373 program above) and increases in employee-related costs. Following regulatory approval of NVX-CoV2373, we expect products sales will result in certain types of costs recorded as research and development in 2020 being capitalized as inventory and expensed as cost of goods sold when product is delivered in 2021 and beyond. Cost of goods sold expenses could be significant depending on our commercial shipment levels.
Gain on Sale of Assets
As a result of the sale of assets transaction in 2019, we recorded a gain of $9.0 million.
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General and Administrative Expenses
General and administrative expenses increased to $145.3 million for 2020 from $34.4 million for 2019, a increase of $110.9 million. The increase in general and administrative expenses is primarily due to increased employee-related costs, primarily stock-based compensation expense, and increased professional fees to support our NVX-CoV2373 program and relating to the acquisition and integration of Novavax CZ. As of December 31, 2020, we had 116 employees dedicated to general and administrative functions versus 41 employees as of December 31, 2019.
For 2021, we expect general and administrative expenses to increase significantly over 2020 expenses due to increased activities related to supporting our NVX-CoV2373 program and increases in employee-related costs.
Other Income (Expense):
2020 2019 Change
Other Income (Expense) (in thousands):
Investment income $ 1,014 $ 1,512 $ (498)
Interest expense (15,145) $ (13,612) (1,533)
Other income (expense) 12,591 $ (13) 12,604
Total other income (expense), net $ (1,540) $ (12,113) $ 10,573
We had total other expense, net of $1.5 million for 2020 compared to total other expense, net of $12.1 million for 2019, an increase of $10.6 million. In the year ended December 31, 2020, we recorded a $12.6 million gain on the intercompany loan with Novavax CZ due to changes in the exchange rates, and additional net interest expense of $1.5 million attributable to finance leases.
Net Loss:
2020 2019 Change
Net Loss (in thousands, except per share information):
Net loss $ (418,259) $ (132,694) $ (285,565)
Net loss per share $ (7.27) $ (5.51) $ (1.76)
Weighted average shares outstanding 57,554 24,100 33,454
Net loss for 2020 was $418.3 million, or $7.27 per share, as compared to $132.7 million, or $5.51 per share, for 2019, an increase of $285.6 million. The increase in net loss was primarily due to increased development activities relating to NVX-CoV2373, including the immediate expense recognition of $245.9 million of ROU assets associated with our manufacturing supply agreements for NVX-CoV2373 and increased employee-related costs, primarily stock-based compensation expense, partially offset by increased revenue under the CEPI Funding Agreement and the OWS Agreement.
The increase in weighted average shares outstanding for 2020 is primarily a result of the sale of 32.4 million shares of common stock in 2020 and, to a lesser degree, the conversion of our Series A Convertible Preferred Stock to 4.4 million shares of our common stock in the fourth quarter of 2020, weighted for the period the shares were outstanding during the year.
Liquidity Matters and Capital Resources
Our future capital requirements depend on numerous factors including, but not limited to our projected activities related to the development of NVX-CoV2373, 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 NanoFlu and potential combination vaccines candidates, which are in various stages of development. We believe our operating expenses and capital requirements will fluctuate depending upon the timing of events, such as the progress of our NVX-CoV2373 clinical trials and approval for the use of NVX-CoV2373 in the U.S. and internationally, as well as the scope, initiation and progress of our preclinical studies and clinical trials related to other research and development activities.
We have entered into APAs or supply agreements with various countries globally that, if our product candidate is approved, are expected to result in the delivery of approximately 200 million doses of NVX-CoV2373 throughout 2021 and
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into the first half of 2022. The APAs or 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. Such upfront payments generally become non-refundable upon our achievement of certain development milestones. We expect to sign additional APAs or supply agreements that are currently in active discussions and negotiations.
We have also entered into supply and license agreements with strategic partners to supply NVX-CoV2373 in their specified territories under which we are entitled to receive royalty revenue primarily from the sale of NVX-CoV2373 by our partners.
We funded our operations in 2020 with proceeds from the sale of common stock and preferred stock in equity offerings together with revenue under our CEPI Funding Agreement and the OWS Agreement that support our NVX-CoV2373 vaccine development activities. We anticipate our future operations to be funded by our cash, cash equivalents and marketable securities, revenue under our OWS, CEPI, DoD agreements, upfront payments under our APAs, and following any potential global regulatory approvals, revenue from product sales, royalty arrangements with our strategic partners and/or other potential funding sources.
As of December 31, 2020, we had $806.4 million in cash and cash equivalents, marketable securities and restricted cash as compared to $82.2 million as of December 31, 2019. These amounts consisted of $553.4 million in cash and cash equivalents, $157.6 million in marketable securities and $95.3 million in restricted cash as of December 31, 2020 as compared to $78.8 million in cash and cash equivalents and $3.4 million in restricted cash as of December 31, 2019.
The following table summarizes cash flows for 2020 and 2019:
2020 2019 Change
Summary of Cash Flows (in thousands):
Net cash (used in) provided by:
Operating activities $ (42,541) $ (136,623) $ 94,082
Investing activities (377,778) 38,492 (416,270)
Financing activities 984,762 98,384 886,378
Effect on exchange rate on cash, cash equivalents and restricted cash 2,115 (32) 2,147
Net increase in cash, cash equivalents and restricted cash 566,558 221 566,337
Cash, cash equivalents and restricted cash at beginning of year 82,180 81,959 221
Cash, cash equivalents and restricted cash at end of year $ 648,738 $ 82,180 $ 566,558
Net cash used in operating activities decreased to $42.5 million for 2020, as compared to $136.6 million for 2019. The decrease is primarily due to payments received under the CEPI Funding Agreement and OWS Agreement, and the timing of payments to third-parties.
During 2020, our investing activities primarily consisted of capital expenditures, purchases and maturities of marketable securities and our acquisition of Novavax CZ. During 2019, our investing activities primarily consisted of purchases and maturities of marketable securities and proceeds from the sale of assets. Capital expenditures for the year ended December 31, 2020 and 2019 were $54.6 million and $1.9 million, respectively, and the increase was primarily due to the build out of our facilities and related capital expenditures to support NVX-CoV2373. For 2021, we expect an increase in our capital expenditures 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 to accommodate anticipated increases in headcount.
Our financing activities consisted primarily of sales of our common stock under our At Market Issuance Sales Agreements and, to a much lesser extent, stock option exercises and purchases under our employee stock purchase plan. In 2020, we received net proceeds of $874.1 million (this amount excludes $3.2 million received in the first quarter of 2021 for shares traded in late December 2020) from the sale of shares of common stock through our At Market Issuance Sales Agreements and $200.0 million through the issuance of preferred stock in a private placement. In 2019, we received net proceeds of $97.5 million from selling shares of common stock through our At Market Issuance Sales Agreements.
Contractual Obligations
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The following table summarizes our contractual obligations as of December 31, 2020 (in thousands):
Contractual Obligations: Total Less than
One Year 1 – 3
Years 3 – 5
Years More than
5 Years
Operating leases $ 19,135 $ 5,392 $ 6,902 $ 4,762 $ 2,079
Finance leases obligation 153,800 112,625 41,175 — —
Convertible notes (a) 325,000 — 325,000 — —
Contractual obligations recognized as of December 31, 2020 497,935 118,017 373,077 4,762 2,079
Purchase commitments (b) 420,166 383,754 36,412 — —
Facilities lease agreement (c) 103,141 — 12,151 12,263 78,727
Total contractual obligations $ 1,021,242 $ 501,771 $ 421,640 $ 17,025 $ 80,806
(a) See Note 11 to the consolidated financial statements included in this Annual Report regarding our Notes, which will mature on February 1, 2023, and bear cash interest of 3.75%, payable February 1 and August 1 of each year.
(b) This amount represents our non-cancelable fixed payment obligations under certain CMO and CDMO agreements that we are not contractually able to terminate for convenience. Certain agreements provide for termination rights subject to termination fees. Under such agreements, we are contractually obligated to make payments to vendors, mainly to reimburse them for their estimated unrecoverable expenses incurred. As of December 31, 2020, these agreements are active ongoing arrangements and the Company expects to receive value from these arrangements in the future. The exact amount of such obligations is dependent on the timing of termination, and the exact terms of the relevant agreement, and cannot be reasonably estimated.
(c) This relates to the lease of 700 Quince Orchard that did not commence as of December 31, 2020 (see Note 7 to the consolidated financial statements).
In addition to the above obligations, we enter into a variety of agreements and financial commitments in the normal course of business. The terms generally allow us the option to cancel, reschedule, and adjust our requirements based on our business needs, prior to the delivery of goods or performance of services. It is not possible to predict the maximum potential amount of future payments under these agreements due to the conditional nature of our obligations and the unique facts and circumstances involved in each particular agreement.
Off-Balance Sheet Arrangements
We are not involved in any off-balance sheet agreements that have or are reasonably likely to have a material future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.