NOVAVAX INC 10-Q

Item 1. Financial Statements 1 Table of Contents NOVAVAX, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share information) (unaudited) For the Three Months Ended March 31, 2022 2021 Revenue: Product sales $ 585,628 $ — Grants 99,301 446,893 Royalties and other 19,042 336 Total revenue 703,971 447,229 Expenses: Cost of sales 15,204 — Research and development 383,483 592,671 Selling, general, and administrative 95,992 63,190 Total expenses 494,679 655,861 Income (loss) from operations 209,292 ( 208,632 ) Other income (expense): Interest expense ( 4,876 ) ( 4,839 ) Other income (expense) 1,654 ( 6,231 ) Income (loss) before income tax expense 206,070 ( 219,702 ) Income tax expense 2,662 3,017 Net income (loss) $ 203,408 $ ( 222,719 ) Net income (loss) per share: Basic $ 2.66 $ ( 3.05 ) Diluted $ 2.56 $ ( 3.05 ) Weighted average number of common shares outstanding Basic 76,457 73,035 Diluted 80,711 73,035 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) (unaudited) For the Three Months Ended March 31, 2022 2021 Net income (loss) $ 203,408 $ ( 222,719 ) Other comprehensive income (loss): Net unrealized losses on marketable securities available-for-sale, net of reclassifications — ( 9 ) Foreign currency translation adjustment 41 ( 7,372 ) Other comprehensive income (loss) 41 ( 7,381 ) Comprehensive income (loss) $ 203,449 $ ( 230,100 ) The accompanying notes are an integral part of these financial statements. 2 Table of Contents NOVAVAX, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share information) March 31, 2022 December 31, 2021 (unaudited) ASSETS Current assets: Cash and cash equivalents $ 1,570,954 $ 1,515,116 Restricted cash 11,492 11,490 Accounts receivable 478,156 454,993 Inventory 106,648 8,872 Prepaid expenses and other current assets 180,155 164,648 Total current assets 2,347,405 2,155,119 Property and equipment, net 247,213 228,696 Right of use asset, net 86,352 40,123 Intangible assets, net 4,535 4,770 Goodwill 130,756 131,479 Other non-current assets 18,614 16,566 Total assets $ 2,834,875 $ 2,576,753 LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) Current liabilities: Accounts payable $ 135,128 $ 127,050 Accrued expenses 559,876 673,731 Deferred revenue 1,094,232 1,422,944 Current portion of finance lease liabilities 116,684 130,533 Convertible notes payable 323,814 — Other current liabilities 31,271 36,061 Total current liabilities 2,261,005 2,390,319 Deferred revenue 441,748 172,528 Convertible notes payable — 323,458 Other non-current liabilities 66,798 42,121 Total liabilities 2,769,551 2,928,426 Commitments and contingencies (Note 15) Stockholders' equity (deficit): Common stock, $ 0.01 par value, 600,000,000 shares authorized at March 31, 2022 and December 31, 2021; and 78,722,337 shares issued and 78,122,978 shares outstanding at March 31, 2022 and 76,433,151 shares issued and 75,841,171 shares outstanding at December 31, 2021 787 764 Additional paid-in capital 3,566,292 3,351,967 Accumulated deficit ( 3,414,542 ) ( 3,617,950 ) Treasury stock, cost basis, 599,359 shares at March 31, 2022 and 591,980 shares at December 31, 2021 ( 85,901 ) ( 85,101 ) Accumulated other comprehensive loss ( 1,312 ) ( 1,353 ) Total stockholders’ equity (deficit) 65,324 ( 351,673 ) Total liabilities and stockholders’ equity (deficit) $ 2,834,875 $ 2,576,753 The accompanying notes are an integral part of these financial statements. 3 NOVAVAX, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) Three Months Ended March 31, 2022 and 2021 (in thousands, except share information) (unaudited) Common Stock Additional Paid-in Capital Accumulated Deficit Treasury Stock Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity (Deficit) Shares Amount Balance at December 31, 2021 76,433,151 $ 764 $ 3,351,967 $ ( 3,617,950 ) $ ( 85,101 ) $ ( 1,353 ) $ ( 351,673 ) Stock-based compensation — — 32,933 — — — 32,933 Stock issued under incentive programs 91,788 1 2,029 — ( 800 ) — 1,230 Issuance of common stock, net of issuance costs of $ 2,311 2,197,398 22 179,363 — — — 179,385 Foreign currency translation adjustment — — — — — 41 41 Net income — — — 203,408 — 203,408 Balance at March 31, 2022 78,722,337 $ 787 $ 3,566,292 $ ( 3,414,542 ) $ ( 85,901 ) $ ( 1,312 ) $ 65,324 Balance at December 31, 2020 71,350,365 $ 714 $ 2,535,476 $ ( 1,874,199 ) $ ( 41,806 ) $ 7,024 $ 627,209 Stock-based compensation — — 53,060 — — — 53,060 Stock issued under incentive programs 541,251 5 26,745 — ( 2,651 ) — 24,099 Issuance of common stock, net of issuance costs of $ 7,292 2,578,967 26 564,833 — — — 564,859 Unrealized loss on marketable securities — — — — — ( 9 ) ( 9 ) Foreign currency translation adjustment — — — — — ( 7,372 ) ( 7,372 ) Net loss — — — ( 222,719 ) — — ( 222,719 ) Balance at March 31, 2021 74,470,583 $ 745 $ 3,180,114 $ ( 2,096,918 ) $ ( 44,457 ) $ ( 357 ) $ 1,039,127 The accompanying notes are an integral part of these financial statements. 4 NOVAVAX, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Three Months Ended March 31, 2022 2021 Operating Activities: Net income (loss) $ 203,408 $ ( 222,719 ) Reconciliation of net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 6,765 2,317 Non-cash stock-based compensation 32,933 53,060 Right-of-use assets expensed 214 951 Other items, net 634 6,362 Changes in operating assets and liabilities: Inventory ( 99,557 ) — Receivables, prepaid expenses, and other assets ( 56,016 ) 220,205 Accounts payable and accrued expenses ( 115,500 ) 53,325 Deferred revenue ( 61,391 ) 549,584 Net cash provided by (used in) operating activities ( 88,510 ) 663,085 Investing Activities: Capital expenditures ( 16,826 ) ( 13,781 ) Purchases of marketable securities — ( 2,167 ) Proceeds from maturities and sale of marketable securities — 157,557 Net cash provided by (used in) investing activities ( 16,826 ) 141,609 Financing Activities: Net proceeds from sales of common stock 179,385 564,859 Net proceeds from the exercise of stock-based awards 1,318 24,099 Finance lease payments ( 20,838 ) ( 11,971 ) Net cash provided by financing activities 159,865 576,987 Effect of exchange rate on cash, cash equivalents, and restricted cash 1,312 ( 1,349 ) Net increase in cash, cash equivalents, and restricted cash 55,841 1,380,332 Cash, cash equivalents, and restricted cash at beginning of period 1,528,259 648,738 Cash, cash equivalents, and restricted cash at end of period $ 1,584,100 $ 2,029,070 Supplemental disclosure of non-cash activities: Right-of-use assets from new lease agreements $ 58,352 $ 9,770 Capital expenditures included in accounts payable and accrued expenses $ 15,874 $ 9,076 Supplemental disclosure of cash flow information: Cash interest payments $ 6,654 $ 7,530 Cash paid for income taxes $ 15,451 $ 3,017 The accompanying notes are an integral part of these financial statements. 5 NOVAVAX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2022 (unaudited) Note 1 – Organization and Business Novavax, Inc. (“Novavax,” and together with its wholly owned subsidiaries, the “Company”) is a biotechnology company that promotes improved global health through the discovery, development, and commercialization of innovative vaccines to prevent serious infectious diseases. The Company’s coronavirus vaccine, NVX-CoV2373, and its lead influenza vaccine candidate, a quadrivalent influenza vaccine, previously known as NanoFlu, are genetically engineered, three-dimensional nanostructures of recombinant proteins critical to disease pathogenesis and may elicit differentiated immune responses, which may be more efficacious than naturally occurring immunity or traditional vaccines. NVX-CoV2373 and the Company’s influenza vaccine include the use of the Company's proprietary Matrix-M ™ adjuvant. As of March 31, 2022, the Company had received approval, interim authorization, provisional approval, conditional marketing authorization, and emergency use authorization (“EUA”) from multiple regulatory authorities globally for NVX-CoV2373, including by the World Health Organization (“WHO”), as well as the European Medicines Agency's (“EMA”) and the United Kingdom's Medicines and Healthcare products Regulatory Agency (“MHRA”), both of which are considered regulatory authorities that apply stringent standards and meet the WHO standards for quality, safety, and efficacy in their regulatory review process. During the three months ended March 31, 2022, the Company commenced commercial shipments of NVX-CoV2373 doses, under the brand name, Nuvaxovid™. Note 2 – Summary of Significant Accounting Policies Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. The consolidated financial statements are unaudited, but include all adjustments (consisting of normal recurring adjustments) that the Company considers necessary for a fair presentation of the financial position, operating results, comprehensive loss, changes in stockholders’ equity (deficit), and cash flows, respectively, for the periods presented. Although the Company believes that the disclosures in these unaudited consolidated financial statements are adequate to make the information presented not misleading, certain information and footnote information normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted as permitted under the rules and regulations of the United States Securities and Exchange Commission (“SEC”). The unaudited consolidated financial statements include the accounts of Novavax, Inc. and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Accumulated other comprehensive income included a foreign currency translation loss of $ 1.3 million and $ 1.4 million as of March 31, 2022 and December 31, 2021, respectively. The accompanying unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021. Results for this or any interim period are not necessarily indicative of results for any future interim period or for the entire year. The Company operates in one business segment. 6 Reclassifications Certain amounts reported in prior periods have been reclassified to conform to current period financial statement presentation. These reclassifications have no material effect on previously reported financial position, cash flows, or results of operations. Use of Estimates The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from those estimates. Revenue Recognition - Product Sales Product sales are associated with our NVX-CoV2373 supply agreements, sometimes referred to as advance purchase agreements (“APAs”), with various international governments. The Company recognizes revenue from product sales based on the transaction price per dose calculated in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (Topic 606) when control of the product transfers to the customer and customer acceptance has occurred, unless such acceptance provisions are deemed perfunctory. If an APA includes a term that may have the effect of decreasing the price per dose of previously delivered shipments, the Company constrains the price until it is probable that a significant reversal in revenue recognized will not occur. Cost of Sales Cost of sales includes cost of raw materials, production, and manufacturing overhead costs associated with the Company’s product sales during the period. Cost of sales also includes adjustments for excess, obsolete, or expired inventory to the extent management determines that the cost cannot be recovered based on estimates about future demand. Cost of sales does not include certain expenses related to raw materials, production, and manufacturing overhead costs which were expensed as described under the caption “Inventory” below. Inventory Inventory is recorded at the lower of lease-adjusted standard cost or net realizable value under the First In, First Out (“FIFO”) methodology, taking into consideration the expiration of the inventory item. The Company determines cost using a standard cost method, which approximates average cost. Average cost consists primarily of costs associated with the purchase of raw materials, the cost of manufacturing goods, including the services and products of third-party suppliers, and the application of manufacturing overhead. The Company utilizes third-party contract manufacturing organizations (“CMOs”), contract development and manufacturing organizations (“CDMOs”) and other suppliers and service organizations to support the procurement and processing of raw materials, management of inventory, packaging, and the delivery process. Adjustments to reduce the cost of inventory to its net realizable value, if required, are made for estimated excess, obsolete, or expired inventory through cost of goods sold. Prior to initial regulatory authorization for its product candidates, the Company expenses costs relating to raw materials, production, and manufacturing overhead costs as research and development expenses in the consolidated statements of operations, in the period incurred. Subsequent to initial regulatory authorization for a product candidate, the Company capitalizes the costs of production for a particular supply chain as inventory when the Company determines that it has a present right to the economic benefit associated with the product. 7 Recent Accounting Pronouncements Not Yet Adopted In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), with amendments in 2018, 2019, and 2020. The ASU sets forth a “current expected credit loss” (“CECL”) model that requires companies to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. ASU 2016-13 applies to financial instruments that are not measured at fair value, including receivables that result from revenue transactions. The ASU is effective for the Company beginning on January 1, 2023. Management is currently evaluating the effect of the guidance and does expect it to have a material impact on the Company’s consolidated financial statements. Adopted In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplified the accounting for certain financial instruments with characteristics of liabilities and equity, including certain convertible instruments and contracts in an entity’s own equity. Specifically, the new standard removed the separation models required for convertible debt with cash conversion features and convertible instruments with beneficial conversion features. It also removed certain settlement conditions that are currently required for equity contracts to qualify for the derivative scope exception and simplified the diluted earnings per share calculation for convertible instruments. The Company adopted ASU 2020-06 on January 1, 2022 using a modified retrospective approach, which did not have a material impact on the Company’s consolidated financial statements. 8 Note 3 – Revenue The Company's accounts receivable included $ 425.9 million and $ 419.7 million related to amounts that were billed to customers and $ 52.3 million and $ 35.3 million related to amounts which had not yet been billed to customers as of March 31, 2022 and December 31, 2021, respectively. During the three months ended March 31, 2022, changes in the Company's accounts receivables and deferred revenue balances were as follows (in thousands): December 31, 2021 Additions Deductions March 31, 2022 Contract receivables: Accounts receivable $ 454,993 625,124 ( 601,961 ) $ 478,156 Contract liabilities: Deferred revenue (1) $ 1,595,472 49,094 ( 108,586 ) $ 1,535,980 (1) Amount is comprised of $ 1.1 billion and $ 1.4 billion of current Deferred revenue and $ 441.7 million and $ 172.5 million of non-current Deferred revenue as of March 31, 2022 and December 31, 2021, respectively. The aggregate amount of the transaction price allocated to performance obligations that were unsatisfied (or partially unsatisfied), excluding amounts related to sales-based royalties, was approximately $ 7 billion as of March 31, 2022. The timing to fulfill performance obligations related to grant agreements will depend on the results of the Company's research and development activities, including clinical trials. The timing to fulfill performance obligations related to APAs will depend on timing of product manufacturing, delivery, and receipt of marketing authorizations. The remaining unfilled performance obligations are expected to be fulfilled in less than 12 months. Grants The Company recognized grant revenue as follows (in thousands): Three Months Ended March 31, 2022 2021 U.S. government partnership (“OWS”) $ 99,301 $ 363,560 U.S. Department of Defense (“DoD”) — 19,144 Coalition for Epidemic Preparedness Innovations (“CEPI”) — 61,561 Bill & Melinda Gates Foundation (“BMGF”) — 2,628 Total $ 99,301 $ 446,893 Royalties and Other For the three months ended March 31, 2022, the Company recognized $ 7.4 million in revenue related to sales-based royalties. For the three months ended March 31, 2021, the Company did no t recognize any revenue related to sales-based royalties. Note 4 – Collaboration and License Agreements Serum Institute The Company previously granted Serum Institute of India Private Limited (“SIIPL”) exclusive and non-exclusive licenses for the development, co-formulation, filling and finishing, registration, and commercialization of NVX-CoV2373. SIIPL agreed to purchase the Company's Matrix-M TM adjuvant and the Company granted SIIPL a non-exclusive license to manufacture the antigen drug substance component of NVX-CoV2373 in SIIPL’s licensed territory solely for use in the manufacture of NVX-CoV2373. The Company and SIIPL equally split the revenue from SIIPL’s sale of NVX-CoV2373 in its licensed territory, net of agreed costs. The Company also has a supply agreement with SIIPL and Serum Life Sciences Limited (“SLS”) under which SIIPL and SLS supply the Company with NVX-CoV2373 for commercialization and sale in certain territories. 9 Takeda Pharmaceutical Company Limited The Company has a collaboration and license agreement with Takeda Pharmaceutical Company Limited (“Takeda”) under which the Company granted Takeda an exclusive license to develop, manufacture, and commercialize NVX-CoV2373 in Japan. Under the agreement, Takeda purchases the Company's Matrix-M™ adjuvant to manufacture NVX-CoV2373 and the Company is entitled to receive payments from Takeda based on the achievement of certain development and commercial milestones, as well as a portion of net profits from the sale of NVX-CoV2373 in the low to middle double-digit range. The Company is eligible for a future milestone payment of $ 20.0 million upon the first sale in Japan. Regulatory approval in Japan was received in April 2022 (see Note 16). SK bioscience, Co., Ltd. The Company has a collaboration and license agreement with SK bioscience, Co., Ltd. (“SK bioscience”) to manufacture and commercialize NVX-CoV2373 for sale to the governments of Korea, Thailand, and Vietnam. SK bioscience pays a royalty in the low to middle double-digit range. Additionally, the Company has a manufacturing supply arrangement with SK bioscience under which SK bioscience supplies the Company with the antigen component of NVX-CoV2373 for use in the final drug product globally, including product to be distributed by the COVAX Facility, which was established to allocate and distribute vaccines equitably to participating countries and economies. Note 5 – Earnings (Loss) per Share Basic and diluted net income (loss) per share were calculated as follows (in thousands, except per share data): Three Months Ended March 31, 2022 2021 Numerator: Net income (loss), basic $ 203,408 $ ( 222,719 ) Interest on convertible notes, net 3,403 — Net income (loss), dilutive 206,811 ( 222,719 ) Denominator: Weighted average number of common shares outstanding, basic 76,457 73,035 Effect of dilutive securities 4,254 — Weighted average number of common shares outstanding, dilutive 80,711 73,035 Net income (loss) per share: Basic $ 2.66 $ ( 3.05 ) Diluted $ 2.56 $ ( 3.05 ) Anti-dilutive securities excluded from calculations of diluted net income (loss) per share 1,474 8,659 Note 6 – Cash, Cash Equivalents, and Restricted Cash The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported in the consolidated balance sheets that sums to the total of the same such amounts shown in the statement of cash flows (in thousands): March 31, 2022 December 31, 2021 Cash and cash equivalents $ 1,570,954 $ 1,515,116 Restricted cash, current 11,492 11,490 Restricted cash, non-current (1) 1,654 1,653 Cash, cash equivalents, and restricted cash $ 1,584,100 $ 1,528,259 (1) Classified as Other non-current assets as of March 31, 2022 and December 31, 2021, on the consolidated balance sheets. 10 Note 7 – Fair Value Measurements The following table represents the Company's fair value hierarchy for its financial assets and liabilities (in thousands): Fair Value at March 31, 2022 Fair Value at December 31, 2021 Assets Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Money market funds (1) $ 500,411 $ — $ — $ 361,822 $ — $ — Government-backed securities (1) — 179,500 — — 266,250 — Treasury securities (1) — 54,009 — — — — Corporate debt securities (1) — 672,208 — — 790,672 — Agency securities (1) — 62,739 — — — — Total cash equivalents $ 500,411 $ 968,456 $ — $ 361,822 $ 1,056,922 $ — Liabilities Convertible notes payable $ — $ 348,098 $ — $ — $ 447,509 $ — (1) All investments are classified as cash and cash equivalents as of March 31, 2022 and December 31, 2021, on the consolidated balance sheets. Cash equivalents are recorded at cost, which approximate fair value due to their short-term nature. Pricing of the Company's Notes (see Note 11) has been estimated using other observable inputs, including the price of the Company's common stock, implied volatility, interest rates, and credit spreads among others. During the three months ended March 31, 2022 and 2021, the Company did not have any transfers between levels . Note 8 – Inventory Inventory consisted of the following (in thousands): March 31, 2022 December 31, 2021 Raw materials $ 34,664 $ 8,872 Semi-finished goods 66,101 — Finished goods 5,883 — Total inventory $ 106,648 $ 8,872 Note 9 – Goodwill and Other Intangible Assets Goodwill The change in the carrying amounts of goodwill for the three months ended March 31, 2022 was as follows (in thousands): Amount Balance at December 31, 2021 $ 131,479 Currency translation adjustments ( 723 ) Balance at March 31, 2022 $ 130,756 11 Identifiable Intangible Assets Purchased intangible assets consisted of the following (in thousands): March 31, 2022 December 31, 2021 Gross Carrying Amount Accumulated Amortization Intangible Assets, Net Gross Carrying Amount Accumulated Amortization Intangible Assets, Net Finite-lived intangible assets: Proprietary adjuvant technology $ 8,004 $ ( 3,469 ) $ 4,535 $ 8,239 $ ( 3,469 ) $ 4,770 Collaboration agreements 3,614 ( 3,614 ) — 3,722 ( 3,722 ) — Total identifiable intangible assets $ 11,618 $ ( 7,083 ) $ 4,535 $ 11,961 $ ( 7,191 ) $ 4,770 Amortization expense was $ 0.1 million for each of the three months ended March 31, 2022 and 2021. Estimated amortization expense for existing intangible assets for the remainder of 2022 and for each of the five succeeding years ending December 31 will be as follows (in thousands): Year Amount 2022 (remainder) $ 300 2023 400 2024 400 2025 400 2026 400 2027 400 Note 10 - Leases During the first quarter of 2022, the Company evaluated the impact of changes in facts and circumstances on its CMOs and CDMOs agreements that had previously been determined to represent embedded lease arrangements. The Company concluded that the impact resulted in the modification of existing leases and, in accordance with its policy, the Company remeasured and reallocated the remaining consideration in the contracts and reassessed the lease classification as of the effective date of the modification. As a result, the Company recognized a Right-Of-Use (“ROU”) asset and a corresponding long-term operating lease liability of $ 10.4 million on the remeasurement of one of its long-term supply agreements using an incremental borrowing rate of 2.4 %. The Company expensed the ROU asset since it relates to research and development activities for the development of NVX-CoV2373 for which the Company does not have an alternative future use. Modifications to leases with a lease term of 12 months or less at the commencement date did not result in a change in lease classification and in accordance with the Company's election, it applied the practical expedient in ASC 842 to recognize lease payments as an expense on a straight-line basis over the modified lease term. During the three months ended March 31, 2022 and 2021, the Company recognized a short-term lease expense of $ 78.1 million and $ 127.6 million, respectively, related to its embedded leases and expensed $ 10.4 million and $ 1.0 million, respectively, of ROU assets that represented assets acquired for research and development activities that did not have an alternative future use at the commencement or modification of the lease. During the three months ended March 31, 2022 and 2021, the Company recognized $ 1.1 million and $ 2.1 million of interest expense, respectively, on its finance lease liabilities. During 2020, the Company entered into a lease agreement for the premises located at 700 Quince Orchard Road, Gaithersburg, Maryland (“700QO”). The lease is for approximately 170,000 square feet of space that the Company intends to use for manufacturing, research and development, and offices. The term of the lease is 15 years with options to extend the lease. The lease provides for an annual base rent of $ 5.8 million that is subject to future rent increases and obligates the Company to pay building operating costs. During the three months ended March 31, 2022, the Company obtained the right to direct the use of, and obtain substantially all of the benefit from, the third floor of the premises and recognized a ROU asset of $ 47.8 million and related lease obligation for the combined third floor and land lease as the lease commencement date for accounting purposes had occurred. 12 Note 11 – Debt Convertible Notes The Company incurred approximately $ 10.0 million of debt issuance costs during the first quarter of 2016 relating to the issuance of $ 325 million aggregate principal amount of convertible senior unsecured notes that will mature on February 1, 2023 (the “Notes”), which were recorded as a reduction to the Notes on the consolidated balance sheet. The $ 10.0 million of debt issuance costs is being amortized and recognized as additional interest expense over the seven-year contractual term of the Notes on a straight-line basis, which approximates the effective interest rate method. Total convertible notes payable consisted of the following at (in thousands): March 31, 2022 December 31, 2021 Principal amount of Notes $ 325,000 $ 325,000 Unamortized debt issuance costs ( 1,186 ) ( 1,542 ) Total convertible notes payable (1) $ 323,814 $ 323,458 (1) Convertible notes are classified as current liabilities and as non-current liabilities in the Consolidated Balance Sheet as of March 31, 2022 and December 31, 2021, respectively. The interest expense incurred in connection with the Notes consisted of the following (in thousands): Three Months Ended March 31, 2022 2021 Coupon interest at 3.75 % $ 3,047 $ 3,047 Amortization of debt issuance costs 356 356 Total interest expense on Notes $ 3,403 $ 3,403 Note 12 – Stockholders' Equity (Deficit) During the three months ended March 31, 2022, the Company sold 2.2 million of shares of its common stock resulting in net proceeds of approximately $ 179 million, under its most recent At Market Issuance Sales agreement entered in June 2021 (the “June 2021 Sales Agreement”), which allows it to issue and sell up to $ 500 million in gross proceeds of shares of its common stock. As of March 31, 2022, the remaining balance under the June 2021 Sales Agreement was approximately $ 318 million. During the three months ended March 31, 2021, the Company sold 2.6 million shares of its common stock resulting in net proceeds of approximately $ 565 million, under its various At Market Issuance Sales agreements. Note 13 – Stock-Based Compensation Equity Plans The 2015 Stock Incentive Plan, as amended (“2015 Plan”), was approved at the Company's annual meeting of stockholders in June 2015. Under the 2015 Plan, equity awards may be granted to officers, directors, employees, and consultants of and advisors to the Company and any present or future subsidiary. The 2015 Plan authorizes the issuance of up to 12.4 million shares of common stock under equity awards granted under the 2015 Plan. All such shares authorized for issuance under the 2015 Plan have been reserved. The 2015 Plan will expire on March 4, 2025. The Amended and Restated 2005 Stock Incentive Plan (“2005 Plan”) expired in February 2015 and no new awards may be made under such plan, although awards will continue to be outstanding in accordance with their terms. 13 The 2015 Plan permits and the 2005 Plan permitted the grant of stock options (including incentive stock options), restricted stock, stock appreciation rights, and restricted stock units. In addition, under the 2015 Plan, unrestricted stock, stock units, and performance awards may be granted. Stock options and stock appreciation rights generally have a maximum term of ten years and may be or were granted with an exercise price that is no less than 100 % of the fair market value of the Company's common stock at the time of grant. Grants of stock options are generally subject to vesting over periods ranging from one to four years . The Company recorded all stock-based compensation expense in the consolidated statements of operations as follows (in thousands): Three Months Ended March 31, 2022 2021 Research and development $ 16,887 $ 23,790 General and administrative 16,046 29,270 Total stock-based compensation expense $ 32,933 $ 53,060 As of March 31, 2022, there was approximately $ 239 million of total unrecognized compensation expense related to unvested stock options, SARs, RSUs, and the ESPP. This unrecognized non-cash compensation expense is expected to be recognized over a weighted-average period of approximately one year . This estimate does not include the impact of other possible stock-based awards that may be made during future periods. The aggregate intrinsic value represents the total intrinsic value (the difference between the Company's closing stock price on the last trading day of the period and the exercise price, multiplied by the number of in-the-money stock options and SARs) that would have been received by the holders had all stock option and SAR holders exercised their stock options and SARs on March 31, 2022. This amount is subject to change based on changes to the closing price of the Company's common stock. The aggregate intrinsic value of stock options and SARs exercises and vesting of RSUs for the three months ended March 31, 2022 and 2021 was approximately $ 5.6 million and $ 81.5 million, respectively. Stock Options and Stock Appreciation Rights The following is a summary of stock options and SARs activity under the 2015 Plan and 2005 Plan for the three months ended March 31, 2022: 2015 Plan 2005 Plan Stock Options Weighted-Average Exercise Price Stock Options Weighted-Average Exercise Price Outstanding at December 31, 2021 3,635,837 $ 42.60 68,225 $ 109.52 Granted 433,774 77.98 — — Exercised ( 40,869 ) 16.11 ( 3,000 ) 31.10 Canceled ( 11,368 ) 66.71 ( 1,500 ) 121.00 Outstanding at March 31, 2022 4,017,374 $ 46.62 63,725 $ 112.94 Shares exercisable at March 31, 2022 1,296,368 $ 55.96 63,725 $ 112.94 Shares available for grant at March 31, 2022 2,666,535 14 The fair value of stock options granted under the 2015 Plan was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions: Three Months Ended March 31, 2022 2021 Weighted average Black-Scholes fair value of stock options granted $ 65.78 $ 116.26 Risk-free interest rate 1.4 %- 2.0 % 0.5 %- 0.9 % Dividend yield — % — % Volatility 120.5 %- 130.6 % 124.7 %- 140.3 % Expected term (in years) 4.1 - 5.3 4.1 - 5.3 The total aggregate intrinsic value and weighted-average remaining contractual term of stock options and SARs outstanding under the 2015 Plan and 2005 Plan as of March 31, 2022 was approximately $ 154 million and 7.7 years, respectively. The total aggregate intrinsic value and weighted-average remaining contractual term of stock options and SARs exercisable under the 2015 Plan and 2005 Plan as of March 31, 2022 was approximately $ 47 million and 6.6 years, respectively. Restricted Stock Units The following is a summary of RSU activity for the three months ended March 31, 2022: Number of Shares Per Share Weighted- Average Fair Value Outstanding and unvested at December 31, 2021 819,828 $ 116.70 Restricted stock units granted 659,189 79.97 Restricted stock units vested ( 20,386 ) 174.64 Restricted stock units forfeited ( 31,444 ) 97.85 Outstanding and unvested at March 31, 2022 1,427,187 $ 99.32 Employee Stock Purchase Plan The Employee Stock Purchase Plan, as amended (the “ESPP”), was approved at the Company's annual meeting of stockholders in June 2013. The ESPP currently authorizes an aggregate of 600,000 shares of common stock to be purchased. The ESPP allows employees to purchase shares of common stock of the Company at each purchase date through payroll deductions of up to a maximum of 15 % of their compensation, at 85 % of the lesser of the market price of the shares at the time of purchase or the market price on the beginning date of an option period (or, if later, the date during the option period when the employee was first eligible to participate). As of March 31, 2022, there were 137,139 shares available for issuance under the ESPP. The ESPP is considered compensatory for financial reporting purposes. As such, the fair value of ESPP shares was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions: Three Months Ended March 31, 2022 2021 Range of Black-Scholes fair values of ESPP shares granted $ 44.67 -$ 79.74 $ 128.70 -$ 238.85 Risk-free interest rate 0.6 %- 1.4 % 0.1 % Dividend yield — % — % Volatility 116.2 %- 142.9 % 120.4 %- 159.4 % Expected term (in years) 0.5 - 2.0 0.5 - 2.0 15 Note 14 – Income Taxes The Company evaluates the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant piece of objective evidence evaluated was the cumulative loss incurred over the three-year period ended March 31, 2022 and that the Company has historically generated pretax losses. Such objective evidence limits the ability to consider other subjective evidence, such as projections for future growth. On the basis of this evaluation, as of March 31, 2022, the Company continued to maintain a full valuation allowance against its deferred tax assets, except to the extent Net Operating Losses (“NOLs”) were used to reduce taxable income during the quarter. The Company’s remaining U.S. Federal NOLs are subject to limitation in accordance with the 2017 Tax Cuts and Jobs Act, which limits allowable NOL deductions to 80% of federal taxable income. The Company recognized federal and state income tax expense of $ 0.6 million, in total, for the three months ended March 31, 2022 and did no t recognize federal or state income tax expense for the three months ended March 31, 2021. During the three months ended March 31, 2022 and 2021, the Company recognized $ 2.1 million and $ 3.0 million, respectively, of income tax expense related to foreign withholding tax on royalties. Note 15 – Commitments and Contingencies Legal Matters On November 12, 2021, Sothinathan Sinnathurai filed a purported securities class action in the U.S. District Court for the District of Maryland against the Company and certain members of senior management, captioned Sothinathan Sinnathurai v. Novavax, Inc., et al., No. 8:21-cv-02910-TDC (the “Sinnathurai Action”). On January 26, 2022, the court entered an order designating David Truong, Nuggehalli Balmukund Nandkumar, and Jeffrey Gabbert as co-lead plaintiffs in the Sinnathurai Action. The co-lead plaintiffs filed a consolidated amended complaint on March 11, 2022, alleging that the defendants made certain purportedly false and misleading statements concerning the Company’s ability to manufacture NVX-CoV2373 on a commercial scale and to secure the vaccine’s regulatory approval. The amended complaint defines the purported class as those stockholders who purchased the Company’s securities between February 24, 2021 and October 19, 2021. On April 25, 2022, defendants filed a motion to dismiss the consolidated amended complaint. After the Sinnathurai Action was filed, three derivative lawsuits were filed and are currently pending in the U.S. District Court for the District of Maryland: Robert E. Meyer v. Stanley C. Erck, et al., No. 8:21-cv-02996-TDC (the “Meyer Action”), Shui Shing Yung v. Stanley C. Erck, et al., No. 8:21-cv-03248-TDC (the “Yung Action”), and William Kirst, et al. v. Stanley C. Erck, et al., No. 8:22-cv-00024-TDC (the “Kirst Action”). The derivative lawsuits name members of the board of directors and certain members of senior management as defendants. The company is deemed a nominal defendant. The plaintiffs assert derivative claims arising out of substantially the same alleged facts and circumstances as the Sinnathurai Action. Collectively, the derivative complaints assert claims for breach of fiduciary duty, insider selling, unjust enrichment, violation of federal securities law, abuse of control, waste, and mismanagement. Plaintiffs seek declaratory and injunctive relief, as well as an award of monetary damages and attorneys’ fees. The Company removed the Kirst Action from the Circuit Court for Montgomery County, Maryland, shortly after the case was filed. On February 7, 2022, the plaintiffs in the Kirst Action filed a motion to remand the case to state court. The Company has opposed the remand motion. The parties finished briefing the remand motion on March 8, 2022, and await the Court’s decision. On February 4, 2022, the Court entered an order consolidating the Meyer and Yung Actions (the “Consolidated Derivative Action”). The plaintiffs in the Consolidated Derivative Action filed their consolidated derivative complaint on April 25, 2022. The parties to the Consolidated Derivative Action intend to file a stipulation and proposed order to temporarily stay all proceedings and deadlines in the Consolidated Derivative Action. On March 29, 2022, Par Sterile Products, LLC (“Par”) submitted a demand for arbitration against the Company with the American Arbitration Association, alleging that the Company breached certain provisions of the Manufacturing and Services Agreement (“MSA”) that the Company entered into with Par in September 2020 to provide fill-finish manufacturing services for NVX-CoV2373. The matter is at a preliminary stage and therefore the potential loss is not reasonably estimable. While the Company maintains that no breach of the MSA has occurred and intends to vigorously defend the matter, if the final resolution of the matter is adverse to the Company, it could have a material impact on the Company's financial position, results of operations, or cash flows. The Company is also involved in various legal proceedings arising in the normal course of business. Although the outcomes of these legal proceedings are inherently difficult to predict, management does not expect the resolution of these legal proceedings to have a material adverse effect on the Company's financial position, results of operations, or cash flows. 16 Note 16 – Subsequent Events In April 2022, the Company was granted conditional marketing authorization for NVX-CoV2373 by Swissmedic, the regulatory authority in Switzerland. In April 2022, Takeda received marketing and manufacturing approval for NVX-CoV2373 from the Japan Ministry of Health, Labour and Welfare. In April 2022, SIIPL was granted EUA by the Thailand Food and Drug Administration for NVX-CoV2373, to be manufactured and marketed by SIIPL under the brand name Covovax™, and EUA by the Drugs Controller General of India for the use of NVX-CoV2373 in adolescents aged 12 to 17 years, to be manufactured and marketed in India as Covovax™. In April 2022, the U.S. government extended the prescribed time to meet its July 2021 instructions related to the Company’s agreement under the U.S. government partnership formerly known as Operation Warp Speed (“OWS”) requiring that the Company align with the U.S. Food and Drug Administration (“FDA”) on analytic methods before conducting additional U.S. manufacturing, to July 2022. In April 2022, the Company announced initial results from the Phase 1/2 clinical trial of its COVID-Influenza Combination Vaccine (“CIC”). The CIC combines NVX-CoV2373 and its quadrivalent influenza vaccine candidate. The CIC trial demonstrated that formulating the combination vaccine is feasible, well-tolerated, and immunogenic. In April 2022, the Company announced that the FDA’s Vaccines and Related Biological Products Advisory Committee (“VRBPAC”) will review NVX-CoV2373 at a meeting scheduled for June 7, 2022. VRBPAC reviews and evaluates data regarding the safety and efficacy of vaccines and related biological products that are intended for use in the prevention, treatment, or diagnosis of human diseases. 17