Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Any statements in the discussion below and elsewhere in this Quarterly Report on Form 10-Q (this “Quarterly Report”) about expectations, beliefs, plans, objectives, assumptions, or future events or performance of Novavax, 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 individuals who may potentially be reached by NVX-CoV2373; our expectations with respect to the anticipated ongoing development and commercialization or licensure of NVX-CoV2373, including efforts to expand the NVX-CoV2373 label worldwide as a booster, and to various age groups and geographic locations, and our seasonal quadrivalent influenza vaccine, previously known as NanoFlu; the expected timing, content, and outcomes 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”); 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 the U.S. Food and Drug Administration (“FDA”), World Health Organization (“WHO”), United Kingdom (“UK”) Medicines and Healthcare Products Regulatory Agency, the European Medicines Agency, the Republic of Korea’s Ministry of Food and Drug Safety, or Japan’s Ministry of Health, Labour and Welfare; unanticipated challenges or delays in conducting clinical trials; difficulty obtaining scarce raw materials and supplies; resource constraints, including human capital and manufacturing capacity, constraints on the ability of Novavax to pursue planned regulatory pathways, alone or with partners, in multiple jurisdictions simultaneously, leading to staggering of regulatory filings, and potential regulatory actions; challenges meeting contractual requirements under agreements with multiple commercial, governmental, and other entities; 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 ended December 31, 2021, which may be detailed and modified or updated in other documents filed with the United 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 with U.S. generally accepted accounting principles (“GAAP”), which we refer to as adjusted cost of sales. We are presenting this non-GAAP financial measure to assist an understanding of our business and its performance. Adjusted cost of sales includes an estimate of standard manufacturing costs that were previously expensed to research and development prior to regulatory approvals for NVX-CoV2373 that would otherwise have been capitalized to inventory. Any non-GAAP financial measures presented are not, and should not be viewed as, substitutes for financial measures required by GAAP, have no standardized meaning prescribed by GAAP, and may not be comparable to the calculation of similar measures of other companies.
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.
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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™,” “Covovax™,” “Novavax COVID-19 Vaccine, Adjuvanted”), and are developing an influenza vaccine candidate, a COVID-19-Influenza Combination (“CIC”) vaccine candidate, and additional vaccine candidates, including for Omicron subvariants (NVX-CoV2515 for Omicron BA.1 specific vaccine), and bivalent formulations with prototype vaccine (“NVX-CoV2373”). NVX-CoV2373 has received approval, interim authorization, provisional approval, conditional marketing authorization (“CMA”), and emergency use authorization (“EUA”) from multiple regulatory authorities globally for both adult and adolescent populations as a primary series and for both homologous and heterologous booster indications. 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 and commercialization 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 within the adult population, aged 18 and older, and the adolescent population, aged 12 through 17, for primary series and both homologous and heterologous booster indications. Collectively, these indications 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 are working to expand our label 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.
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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 the Serum Institute of India Pvt. Ltd. (“SIIPL”)), or (iii) Novavax COVID-19 Vaccine, Adjuvanted.
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Through the date of filing this Quarterly Report, the below is a summary of regulatory authorizations for NVX-CoV2373:
(1) Regulatory approval received in partnership with SIIPL.
(2) Regulatory manufacturing and marketing approval received by partner Takeda Pharmaceutical Company Limited (“Takeda”).
During the third 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 expanding our label in multiple countries for NVX-CoV2373.
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Below is a summary and status of our regulatory submissions completed and awaiting authorization decisions, through the date of filing this Quarterly Report.
(1) 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, and RSV, in addition to providing Matrix-M TM adjuvant for collaborations investigating 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, while displaying a favorable safety profile. In October 2022, we announced additional data from the Phase 3 PREVENT-19 trial and new results from a Lot Consistency Study (Study 307). New PREVENT-19 data added support for the use of prototype Novavax vaccine for homologous boosting in adults and adolescents aged 12 through 17. In all adults, boosted responses were long-lived and were demonstrated to be relevant against currently circulating variants such as Omicron. The Lot Consistency trial met its primary endpoint, showing that three lots of COVID-19 vaccine induced comparable immune responses in adults aged 18 through 49, thereby demonstrating the consistency of the commercial manufacturing process. Additional findings showed utility of the prototype vaccine as a heterologous booster, inducing broad immune responses against contemporary Omicron variants.
We remain focused on expanding our NVX-CoV2373 vaccine label within the booster and adolescent market following global regulatory authorizations. In August 2022, we initiated the Phase 2b/3 Hummingbird global clinical trial. The trial will evaluate the safety, effectiveness (immunogenicity), and efficacy of two primary doses of NVX-CoV2373 given 21 days apart in younger children (aged six to 11 years), followed by a booster dose at six months after the primary vaccination series. We enrolled the sentinel cohort in the first age group (aged six to 11 years) in the United States. Based on initial supportive safety and tolerability data analyzed by an independent Safety Monitoring Committee, we have progressed to recruiting the full age cohort. Furthermore, through ongoing booster studies in our clinical trials and continued development of our COVID-19 variant strain vaccine candidates, we continue to evaluate vaccine performance. We remain confident in the utility of our prototype vaccine against emerging variants, as we continue to respond to the evolving COVID landscape. We are currently analyzing preliminary clinical data from our ongoing Omicron BA.1 monovalent and bivalent strain change trial (study 311). Study 311 achieved its strain-change endpoint using BA.1 as the model omicron subvariant vaccine. However, the magnitude and breadth of the immune responses following boosting with the prototype vaccine reinforces our belief that a strain change may not be required for our technology. No significant benefit was observed for the bivalent formatted vaccine. When evaluating the response to the forward drifted BA.5 omicron subvariant, neither the BA.1 vaccine nor the prototype/BA.1 bivalent vaccine offered any advantage. We expect to leverage these clinical insights to advance additional regulatory approvals of our COVID-19 vaccine for primary, booster, and pediatric indications globally, amidst the ongoing and evolving COVID-19 pandemic.
Additionally, we are developing our quadrivalent nanoparticle influenza vaccine (qNIV) candidate, previously known as NanoFlu, which we previously advanced through a successful Phase 3 study announced in September 2021, demonstrating the utility for a stand-alone influenza vaccine or used in a combination vaccine. We continue to progress our CIC vaccine candidate, which combines NVX-CoV2373 and our qNIV approach. In October 2022, we announced positive results from the Phase 1/2 CIC clinical trial demonstrating the CIC vaccine’s ability to generate both antibody and polyfunctional CD4+ T-cell (lymphocytes that help coordinate the immune response) responses against severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) and homologous and heterologous influenza strains. We intend to continue the clinical development of CIC with a follow-up trial to begin in late 2022.
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Furthermore, we remain interested in continuing the development of both our RSV Program for respiratory syncytial virus fusion (F) protein nanoparticle vaccine candidate (“RSV F Vaccine”) and Matrix-M TM adjuvant collaborations for malaria. There is an ongoing Phase 3 trial being conducted by our partner, Jenner Institute, University of Oxford, for R21, a malaria candidate which is formulated using our Matrix-M ™ adjuvant. In September 2022, positive results from an ongoing Phase 1/2b study were published in The Lancet Infectious Diseases reporting safety, immunogenicity, and efficacy results at 12 months following administration of a booster vaccination. A booster dose of R21 formulated with our Matrix-M ™ adjuvant at one year following the primary three-dose regimen maintained high efficacy against first and multiple episodes of clinical malaria. The booster vaccine induced antibody concentrations that is related to vaccine efficacy. The trial is ongoing to assess long-term follow-up of the participants and the value of further booster vaccinations.
The pipeline chart below summarizes the core clinical and preclinical development programs that we are focusing on in the near-term.
(1) Supported by OWS, DoD, CEPI, and BMGF.
(2) Authorized for provisional approval, CMA, or EUA in select geographies under trade names Nuvaxovid TM and Covovax TM . Received EUA from the U.S. FDA. PREVENT-19, a Phase 3 clinical trial in the U.S. and Mexico; Ongoing PREVENT-19 pediatric expansion in the U.S.; Phase 3 clinical trial in the UK; Ongoing Phase 2b clinical trial in South Africa. We, along with our partners, will have commercial rights in authorized geographies to sell and distribute NVX-CoV2373.
(3) Ongoing Phase 3 strain change trial.
Business Highlights
Third Quarter 2022 and Recent Highlights
Expanded COVID-19 Vaccine in Adult Population Aged 18 and Older
• Nuvaxovid™ booster authorized for emergency use in the U.S., European Union (“EU”), Switzerland, United Arab Emirates (UAE) and New Zealand, with submissions completed to WHO, as well as in Great Britain and South Korea
◦ Recommendations provided by U.S. Centers for Disease Control and Prevention (“CDC”), E.U.’s Committee for Medicinal Products for Human Use and Switzerland’s Federal Office of Public Health
• Nuvaxovid™ granted import and use permit in Israel for primary series and as a booster
• Covovax™ granted full product registration in South Africa for primary series
Expanded COVID-19 Vaccine in Adolescent Population Aged 12 Through 17
• Nuvaxovid™ primary series authorized for emergency use in the U.S., EU, Japan, Great Britain, Australia, South Korea, Taiwan, Switzerland, Thailand, UAE and New Zealand, with submissions completed to WHO and in Singapore
◦ Recommendation provided by U.S. CDC
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• Nuvaxovid™ granted import and use permit in Israel for primary series and as a booster
COVID-19 Vaccine Manufacturing and Supply
• Delivered over 94 million doses of NVX-CoV2373 globally to date
• Completed submission to add Novavax CZ as an EU manufacturing site
• Solidified manufacturing and supply network ensuring capacity to support ongoing global demand
COVID-19 Clinical Development Program
• Announced topline results from Phase 3 Boosting Trial for NVX-CoV2515, meeting the primary strain-change endpoint and reaffirming that prototype vaccine induces broadly cross-reactive responses, suggesting utility against current and future variants
• PREVENT-19 Phase 3 NVX-CoV2373 homologous booster data support benefits against variants
◦ Following a single homologous booster dose, adult participants demonstrated increased anti-spike IgG levels and increased functional antibody levels measured by hACE2 receptor inhibition against Omicron BA.1, BA.2 and BA.5 variants, approximating levels observed in our Phase 3 efficacy studies
◦ Robust booster responses were consistent between younger (less than 65 years of age) and older (greater than 65 years of age) adults, and independent of whether the booster dose was administered eight or 11 months after the primary series, offering further evidence of broad utility and duration of response with NVX-CoV2373
◦ Adolescent participants following a single booster dose demonstrated neutralizing titers were 2.7-fold higher than those seen with primary vaccination and a broad antibody response against Omicron BA.1, BA.2 and BA.5 variants
• Demonstrated NVX-CoV2373 induced consistent immune responses when boosted on top of mRNA or AD26 vaccines, and achieved primary endpoint of Lot Consistency study for adults aged 18 through 49, demonstrating a consistent manufacturing process
◦ When used as a heterologous boost (after either 2 or 3 doses of mRNA OR 1 or 2 doses of AD26) NVX-CoV2373 generated antibody levels previously found to be related to efficacy in the PREVENT-19 Phase 3 trial
• Initiated Phase 2b/3 Hummingbird global clinical trial for NVX-CoV2373 in younger children aged six months through 11 years, enrolling the sentinel cohort in the first group aged six through 11 years in the U.S.
◦ Based on initial supportive safety and tolerability data analyzed by an independent Safety and Monitoring Committee, progressed to recruiting the full age cohort
COVID-19-Influenza Combination (CIC) Vaccine Candidate Clinical Development
• Announced positive cellular immunity results of CIC Phase 1/2 trial following initial results announced in April, demonstrating ability to generate immune responses, including both antibody and polyfunctional CD4+ T-cell responses, against SARS-CoV-2 and homologous and heterologous influenza strains
◦ Generated robust antibody responses against both prototype and Omicron BA.1 strains of SARS-CoV-2 and influenza antigens
◦ Safety and tolerability profile was consistent with standalone NVX-CoV2373 prototype vaccine and quadrivalent influenza vaccine candidate
◦ Phase 2 trial expected to begin by the end of 2022
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Sales of Common Stock
During the three months ended March 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 in June 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 of September 30, 2022, the remaining balance under our June 2021 Sales Agreement was approximately $318 million.
During the nine months ended September 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 the United States.
The preparation of our consolidated financial statements requires us to make estimates, assumptions, and judgments that affect the reported amounts of assets, liabilities, and equity and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Our critical accounting policies and estimates are included under Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 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 September 30, 2022 and 2021
Revenue
Three Months Ended September 30,
2022 2021 Change
Revenue (in thousands):
Product sales $ 626,091 $ — $ 626,091
Grants 106,273 135,007 (28,734)
Royalties and other 2,213 43,837 (41,624)
Total revenue $ 734,577 $ 178,844 $ 555,733
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Revenue for the three months ended September 30, 2022 was $734.6 million as compared to $178.8 million for the same period in 2021, an increase of $555.7 million. Revenue for the three months ended September 30, 2022 was primarily comprised of revenue from product sales of NVX-CoV2373 and revenue for services performed under the agreement with the U.S. government partnership formerly known as OWS (“OWS Agreement”). Revenue for the three months ended September 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 commercial sales of NVX-CoV2373 in 2022, partially offset by decreased development activities under our funding agreements with CEPI.
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.
Expenses
Three Months Ended September 30,
2022 2021 Change
Expenses (in thousands):
Cost of sales $ 434,593 — $ 434,593
Research and development 304,297 408,195 (103,898)
Selling, general, and administrative 122,876 77,793 45,083
Total expenses $ 861,766 $ 485,988 $ 375,778
Cost of Sales
Cost of sales was $434.6 million, or 69% of product sales, for the three months ended September 30, 2022, including expense of $249.0 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 September 30, 2022 we had approximately $0.1 billion of commercial inventory that was expensed prior to approval. We expect to utilize the majority of our reduced-cost inventory through 2023. If inventory sold for the three months ended September 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 $444.0 million, or 71% of product sales, an adjustment of $9.4 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.
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Research and Development Expenses
Research and development expenses decreased to $304.3 million for the three months ended September 30, 2022 as compared to $408.2 million for the three months ended September 30, 2021, a decrease of $103.9 million primarily due to research and development of coronavirus vaccines, including NVX-CoV2373, NVX-CoV2515, bivalent formulations, and CIC, as summarized in the table below (in thousands):
Three Months Ended September 30,
2022 2021
Coronavirus vaccines $ 208,004 $ 341,600
Influenza vaccine
3,011 1,656
Other vaccine development programs 843 126
Total direct external research and development expense 211,858 343,382
Employee expenses 45,150 36,574
Stock-based compensation expense 16,107 21,860
Facility expenses 16,770 4,983
Other expenses 14,412 1,396
Total research and development expenses $ 304,297 $ 408,195
Research and development expenses for coronavirus vaccines for the three months ended September 30, 2022 and 2021, included a benefit of $80.5 million related to previously accelerated manufacturing costs and an expense of $35.8 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”). Pursuant to the Fujifilm Se ttlement Agreement (see Note 4 to our consolidated financial statements in this Quarterly Report ), we are responsible for a Settlement Payment of up to $185.0 million to Fujifilm in connection with cancellation of manufacturing activity at FDBT under the CSA, of which $47.8 million, constituting the initial reservation fee under the CSA, was credited against the Settlement Payment on September 30, 2022. The Settlement Payment is less than amounts previously recognized as embedded lease expense and reflected in Research and development expense from FDBT manufacturing activity under the CSA prior to the Fujifilm Settlement Agreement and accordingly, during the three months ended September 30, 2022, we recorded a benefit of $98.3 million as Research and development expense. For 2022, we expect total research and development expenses to decrease as compared to 2021, primarily due to 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 coronavirus vaccines and other programs.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses increased to $122.9 million for the three months ended September 30, 2022 from $77.8 million for the same period in 2021, an increase of $45.1 million. The increase in selling, general, and administrative expenses is primarily due to an increase in professional fees and marketing costs 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 professional fees and marketing costs.
Other Expense
Three Months Ended September 30,
2022 2021 Change
Other Expense (in thousands):
Interest expense $ (4,169) $ (5,182) $ 1,013
Other expense (34,783) (4,064) (30,719)
Total other expense, net $ (38,952) $ (9,246) $ (29,706)
We had total other expense, net, of $39.0 million for the three months ended September 30, 2022 as compared to $9.2 million for the same period in 2021. During the three months ended September 30, 2022 and 2021, other expense was primarily related to losses due to foreign exchange rate activity.
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Income Tax Expense
During the three months ended September 30, 2022 and 2021, we recognized $2.5 million and $6.0 million, respectively, of income tax expense related to federal and state income taxes and foreign withholding tax on royalties.
Net Loss
Three Months Ended September 30,
2022 2021 Change
Net Loss (in thousands, except per share information):
Net loss $ (168,613) $ (322,431) $ 153,818
Net loss per share, basic and diluted $ (2.15) $ (4.31) $ 2.16
Weighted average shares outstanding, basic and diluted 78,274 74,745 3,529
Net loss for the three months ended September 30, 2022 was $168.6 million, or $2.15 per share, basic, as compared to $322.4 million, or $4.31 per share, basic, for the same period in 2021. The decrease in net loss during the three months ended September 30, 2022, was primarily due to the commencement of commercial sales of NVX-CoV2373 in 2022 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 three months ended September 30, 2022 is primarily a result of sales of our common stock and exercises of stock-based awards in 2022 and 2021.
Nine Months Ended September 30, 2022 and 2021
Revenue
Nine Months Ended September 30,
2022 2021 Change
Revenue (in thousands):
Product sales $ 1,267,174 $ — $ 1,267,174
Grants 313,348 854,390 (541,042)
Royalties and other 43,951 69,700 (25,749)
Total revenue $ 1,624,473 $ 924,090 $ 700,383
Revenue for the nine months ended September 30, 2022 was $1.6 billion as compared to $924.1 million for the same period in 2021, an increase of $700.4 million. Revenue for the nine months ended September 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 nine months ended September 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 commercial sales of NVX-CoV2373 in 2022, partially offset by decreased development activities under the OWS Agreement and our funding agreements with CEPI.
Expenses
Nine Months Ended September 30,
2022 2021 Change
Expenses (in thousands):
Cost of sales $ 720,874 $ — $ 720,874
Research and development 977,428 1,571,551 (594,123)
Selling, general, and administrative 327,028 214,144 112,884
Total expenses $ 2,025,330 $ 1,785,695 $ 239,635
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Cost of Sales
Cost of sales was $720.9 million, or 57% of product sales, for the nine months ended September 30, 2022, including expense of $504.3 million related to excess, obsolete, or expired inventory and losses on firm purchase commitments. Prior to receiving approval, we expensed manufacturing costs as research and development expenses. After receiving approval, we capitalize the costs of production for a particular supply chain when we determine that we have a present right to the economic benefit associated with the product. While we tracked the quantities of our manufactured vaccine product and components, we did not track pre-approval manufacturing costs and therefore the manufacturing cost of our pre-launch inventory produced prior to approval is not reasonably determinable. However, based on our expectations for future manufacturing costs to produce our vaccine product and components inventory, we estimate at September 30, 2022 we had approximately $0.1 billion of commercial inventory that was expensed prior to approval. We expect to utilize the majority of our reduced-cost inventory through 2023. If inventory sold for the nine months ended September 30, 2022 was valued at expected standard cost, adjusted cost of sales for the period would have been approximately $883.5 million, or 70% of product sales, an adjustment of $162.6 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 $977.4 million for the nine months ended September 30, 2022 from $1.6 billion for the same period in 2021, a decrease of $594.1 million, primarily due to decreased development activities relating to coronavirus vaccines, including NVX-CoV2373, NVX-CoV2515, bivalent formulations, and CIC, as summarized in the table below (in thousands):
Nine Months Ended September 30,
2022 2021
Coronavirus vaccines $ 697,952 $ 1,376,921
Influenza vaccine
6,581 5,950
Other vaccine development programs 1,156 641
Total direct external research and development expense 705,689 1,383,512
Employee expenses 132,069 86,085
Stock-based compensation expense 52,692 70,429
Facility expenses 40,842 11,387
Other expenses 46,136 20,138
Total research and development expenses $ 977,428 $ 1,571,551
Research and development expenses for coronavirus vaccines for the nine months ended September 30, 2022 and 2021, included a benefit of $147.8 million related to previously accelerated manufacturing costs and an expense of $78.8 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. Pursuant to the Fujifilm Se ttlement Agreement (see Note 4 to our consolidated financial statements in this Quarterly Report ), we are responsible for a Settlement Payment of up to $185.0 million to Fujifilm in connection with cancellation of manufacturing activity at FDBT under the CSA, of which $47.8 million, constituting the initial reservation fee under the CSA, was credited against the Settlement Payment on September 30, 2022. The Settlement Payment is less than amounts previously recognized as embedded lease expense and reflected in Research and development expense from FDBT manufacturing activity under the CSA prior to the Fujifilm Settlement Agreement and accordingly, during the three months ended September 30, 2022, we recorded a benefit of $98.3 million as Research and development expense.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses increased to $327.0 million for the nine months ended September 30, 2022 from $214.1 million for the same period in 2021, an increase of $112.9 million. The increase in selling, general, and administrative expenses is primarily due to an increase in professional fees and marketing costs in support of our NVX-CoV2373 program.
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Other Expense
Nine Months Ended September 30,
2022 2021 Change
Other Expense (in thousands):
Interest expense $ (15,279) $ (15,989) $ 710
Other expense (53,002) (7,267) (45,735)
Total other expense, net $ (68,281) $ (23,256) $ (45,025)
We had total other expense, net of $68.3 million for the nine months ended September 30, 2022 as compared to $23.3 million for the same period in 2021. During the nine months ended September 30, 2022 and 2021, other expense was primarily related to losses due to foreign exchange rate activity.
Income Tax Expense
During the nine months ended September 30, 2022 and 2021, we recognized $6.6 million and $12.6 million, respectively, of income tax expense related to federal and state income taxes and foreign withholding tax on royalties.
Net Loss
Nine Months Ended September 30,
2022 2021 Change
Net Loss (in thousands, except per share information):
Net loss $ (475,690) $ (897,467) $ 421,777
Net loss per share, basic and diluted $ (6.13) $ (12.13) $ 6.00
Weighted average shares outstanding, basic and diluted 77,631 73,972 3,659
Net loss for the nine months ended September 30, 2022 was $475.7 million, or $6.13 per share, as compared to $897.5 million, or $12.13 per share, for the same period in 2021. The decrease in net loss during the nine months ended September 30, 2022 was primarily due to the commencement of commercial sales of NVX-CoV2373 in 2022 and a decrease in research and development expense, partially offset by decreased revenue under the OWS Agreement and the write-down of excess, obsolete, or expired inventory and losses on firm purchase commitments.
The increase in weighted average shares outstanding for the nine months ended September 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.
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We have entered into supply agreements, sometimes referred to as APAs, with Gavi, the Vaccine Alliance (“Gavi”); the European Commission (“EC”); and various countries globally. We also have grant and license agreements. As of September 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 $4 billion. Failure to meet regulatory milestones, timely obtain supportive recommendations from governmental advisory committees, or achieve product volume or delivery timing obligations under our APA agreements may require us to refund portions of upfront payments or result in reduced future payments, which could adversely impact our ability to realize revenue from our unsatisfied performance obligations. The timing to fulfill performance obligations related to grant agreements will depend on the results of our research and development activities, including clinical trials, and delivery of doses. The timing to fulfill performance obligations related to supply agreements will depend on timing of product manufacturing, receipt of marketing authorizations for additional indications, delivery of doses based on customer demand, and the ability of the customer to request variant vaccine in place of the prototype NVX-CoV2373 vaccine under certain of our APAs. The supply agreements typically contain terms that include upfront payments intended to assist us in funding investments related to building out and operating our manufacturing and distribution network, among other expenses, in support of our global supply commitment, and are applied to billings upon delivery of NVX-CoV2373. Such upfront payments under our supply agreements generally become non-refundable upon our achievement of certain development, regulatory, and commercial milestones.
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. Pursuant to the Fujifilm Settlement Agreement (see Note 4 to our consolidated financial statements in this Quarterly Report), we are responsible for a Settlement Payment of up to $185.0 million to Fujifilm in connection with cancellation of manufacturing activity at FDBT under the CSA, of which $47.8 million, constituting the initial reservation fee under the CSA, was credited against the Settlement Payment on September 30, 2022. The Settlement Payment is less than amounts previously recognized as embedded lease expense and reflected in Research and development expense from FDBT manufacturing activity under the CSA prior to the Fujifilm Settlement Agreement and accordingly, during the three months ended September 30, 2022, we recorded a benefit of $98.3 million as Research and development expense.
Under the terms of our supply commitment with Gavi, which includes both our APA and 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. The Novavax APA 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 achieving WHO Emergency Use Listing. Although Novavax continues to be prepared to deliver the quantities of NVX-CoV2373 doses to Gavi under the terms of the APA, we were notified by Gavi of its intent to seek to revise the number and timing of doses of NVX-CoV2373 supplied by Novavax under such agreement. Furthermore, Gavi may seek partial or full recovery of the prior nonrefundable payments it has made to Novavax. Our position is that Gavi has no contractual right to recover prior nonrefundable payments if it fails to order the 350 million doses it committed to order. To date, except for an initial order of approximately 2 million doses, 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.
In July 2022, we entered into an Amended and Restated SARS-CoV-2 Vaccine Supply Agreement (the “Amended and Restated UK Supply Agreement”) with The Secretary of State for Business, Energy and Industrial Strategy, acting on behalf of the government of the United Kingdom of Great Britain and Northern Ireland (the “Authority”), which amended and restated in its entirety the SARS-CoV-2 Vaccine Supply Agreement originally entered into in October 2020 (the “Original UK Supply Agreement”). Pursuant to the Original UK Supply Agreement, the Authority agreed to purchase 60 million doses of NVX-CoV2373. Under the Amended and Restated UK Supply Agreement, the Authority agreed to purchase a minimum of 1 million doses and up to an additional 15 million doses of NVX-CoV2373, with the number of additional doses contingent on our timely achievement of supportive recommendations from the United 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 Original UK Supply Agreement. As of September 30, 2022, we will be required to repay a minimum of $40.0 million related to the upfront payment. Under the Amended and Restated UK Supply Agreement, the Authority also has the option to purchase up to an additional 44 million doses, in one or more tranches, through 2024.
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 EC to purchase an additional 100 million doses up to a maximum aggregate of 200 million doses, in one or more tranches, through 2023. In July and August 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. We are in the process of finalizing a revised delivery schedule for the remaining 23 million committed doses under our APA with the EC that were originally scheduled for delivery during the first and second quarters of 2022.
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In July 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 the U.S. government of approximately 3 million doses of NVX-CoV2373 and (ii) any additional manufacture and delivery to the U.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 on U.S. government demand, FDA guidance on strain selection, agreement between the parties on the price of such doses, and available funding. Additionally, in July 2022, we entered into a modification to our existing agreement with the DoD 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 to DoD demand and available funding.
In the nine months ended September 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.
We may from time to time seek to retire or purchase, directly or indirectly, our outstanding debt through cash purchases and/or exchanges for equity or debt, in open market purchases, privately negotiated transactions, or otherwise. Such purchases and/or exchanges, if any, will be on such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions, and other factors. The amounts involved may be material, which could impact our capital structure, the market for our debt securities, and the price of the indebtedness being purchased and/or exchanged, and affect our liquidity.
As of September 30, 2022, we had $1.3 billion in cash and cash equivalents and restricted cash as compared to $1.5 billion as of December 31, 2021.
The following table summarizes cash flows for the nine months ended September 30, 2022 and 2021 (in thousands):
Nine Months Ended September 30,
2022 2021 Change
Net cash provided by (used in):
Operating activities $ (298,121) $ 665,354 $ (963,475)
Investing activities (70,921) 116,518 (187,439)
Financing activities 133,548 522,424 (388,876)
Effect on exchange rate on cash, cash equivalents, and restricted cash 257 (6,208) 6,465
Net increase (decrease) in cash, cash equivalents, and restricted cash (235,237) 1,298,088 (1,533,325)
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 $ 1,293,022 $ 1,946,826 $ (653,804)
Net cash used in operating activities was $298.1 million for the nine months ended September 30, 2022, as compared to net cash provided by operating activities of $665.4 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 nine months ended September 30, 2022 as compared to an increase in cash due to the receipt of upfront payments under APAs during the nine months ended September 30, 2021.
During the nine months ended September 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 nine months ended September 30, 2022 and 2021 were $66.0 million and $41.1 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 nine months ended September 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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