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Item 7. Management’s Discussion and Analysis

2023-02-28 compared with 2022-03-01 · 225 added, 243 removed, 141 unchanged (77% of the section changed)

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Any statements in the discussion below and elsewhere in this Annual Report on Form 10-K about expectations, beliefs, plans, objectives, assumptions, or future events or performance of Novavax, Inc.

(“Novavax,” together with its wholly owned subsidiaries Novavax AB and Novavax CZ, the “Company,” “we” or “us”) are not historical facts and are forward-looking statements.

(“Novavax,” together with its wholly owned subsidiaries, the “Company,” “we,” or “us”) are not historical facts and are forward-looking statements.

Such forward-looking statements include, without limitation, statements about our capabilities, goals, expectations regarding future revenue and expense levels, and capital raising activities;

our operating plans and prospects;

our operating plans and prospects, including our ability to continue as a going concern through one year from the date of Novavax’ audited financial statements for the year ended December 31, 2022;

potential market sizes and demand for our product candidates;

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our expectation of manufacturing capacity, timing, production, distribution, and delivery for NVX-CoV2373 by us and our partners;

our expectations with respect to the anticipated ongoing development and commercialization or licensure of NVX-CoV2373 and NanoFlu Program;

our estimate of the number of individuals who may potentially be reached by NVX-CoV2373;

our expectations with respect to the anticipated ongoing development and commercialization or licensure of NVX-CoV2373, ongoing development of COVID-19 variant strain-containing monovalent or bivalent formulation, 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;

government partnership formerly known as Operation Warp Speed under the USG Agreement, the U.S.

Department of Defense (“DoD”), and CEPI;

funding under our APAs and supply agreements and amendments to, termination of, or legal disputes relating to any such agreement;

our available cash resources and usage and the availability of financing generally;

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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.

Food and Drug Administration (“FDA”), World Health Organization (“WHO”), United Kingdom (“UK”) Medicines and Healthcare Products Regulatory Agency (“MHRA”), the European Medicines Agency (“EMA”), the Republic of Korea’s Ministry of Food and Drug Safety (“MFDS”), or Japan’s Ministry of Health, Labour and Welfare (“MHLW”);

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 FDA, the 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;

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 this Annual Report on Form 10-K, 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.

and other risks and uncertainties identified in Part I, Item 1A “Risk Factors” of this Annual Report on Form 10-K, which may be detailed and modified or updated in other documents filed with the SEC from time to time, and are available at www.sec.gov and at www.novavax.com.

You are encouraged to read these filings as they are made.

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In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

Information in this Annual Report on Form 10-K, 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 are a biotechnology company that promotes improved health globally through the discovery, development, and commercialization of innovative vaccines to prevent serious infectious diseases.

The Company's proprietary recombinant technology platform harnesses the power and speed of genetic engineering to efficiently produce highly immunogenic nanoparticles designed to address urgent global health needs.

Our vaccine candidates in our near-term pipeline, including both NVX-CoV2373 and the NanoFlu Program, are genetically engineered, three-dimensional nanostructures of recombinant proteins critical to disease pathogenesis.

At the forefront of our pipeline is our COVID-19 vaccine candidate, NVX-CoV2373.

NVX-CoV2373 has received provisional approval, conditional marketing authorization (“CMA”) and emergency use authorization (“EUA") from multiple regulatory authorities globally.

In January 2022, we also submitted a request to the FDA for emergency use authorization of NVX-CoV2373.

We also advanced our NanoFlu Program vaccine program through a Phase 3 clinical trial, which demonstrated positive top-line results and achieved statistical significance in key secondary endpoints.

Additionally, we are currently evaluating a COVID-influenza combination vaccine in a Phase 1/2 clinical trial, which combines the company's NVX-CoV2373 and our NanoFlu Program vaccine candidates.

We believe that our protein-subunit-based candidates elicit differentiated immune responses that may be more efficacious than naturally occurring immunity or other vaccine approaches.

These vaccine candidates incorporate Novavax' proprietary saponin-based Matrix-M™ adjuvant to enhance the immune response and stimulate high levels of neutralizing antibodies.

We remain focused on the manufacturing and distribution to bring our NVX-CoV2373 vaccine candidate to market following global regulatory authorizations.

Through ongoing booster studies in our clinical trials, as well as the development of COVID-19 variant strain vaccine candidates, we continue to collect data to characterize and optimize vaccine performance.

We expect to leverage these clinical insights to advance the use of our COVID-19 vaccine for both primary vaccination around the globe, to use within a booster setting, and for the pediatric population amidst the ongoing and evolving COVID-19 pandemic.

Although NVX-CoV2373 and the NanoFlu Program are our near-term priorities, we remain optimistic that the additional programs in our pipeline, including our vaccine candidates in our RSV Program, and our partner-led malaria candidates, present strong opportunities for future development.

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 a COVID-19 variant strain-containing monovalent or bivalent formulation.

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.

Business Highlights

Fourth Quarter 2022 and Recent Highlights

Achieved Multiple Regulatory Authorizations Globally for COVID-19 Vaccine

• Nuvaxovid ™ was granted authorization (emergency, provisional, interim conditional or emergency use listing) in Great Britain, the European Union, the WHO, Canada, Australia, United Arab Emirates, Singapore, and New Zealand;

received Biologics License Application approval in South Korea with our partner, SK bioscience

• Covovax ™ was granted emergency use authorization in India, Indonesia, Philippines, Bangladesh, and emergency use listing from the WHO with our partner, SIIPL

Completed Multiple Regulatory Submissions Globally for COVID-19 Vaccine

• Completed regulatory submissions for authorization for NVX-CoV2373 in the U.S.

and Switzerland

• SIIPL completed submission to South Africa, for NVX-CoV2373 to be marketed as Covovax TM

• Takeda, our partner, completed submission to Japan for a New Drug Application

C OVID-19 Vaccine Advanced Purchase Agreement

• Executed APA with Israel’s Ministry of Health to supply a minimum of 5 million vaccine doses

◦ Option to purchase an additional 5 million doses

C OVID-19 Vaccine Manufacturing, Supply and Distribution

• Built manufacturing and robust supply network to support over 2 billion annual doses of capacity and initiated distribution of NVX-CoV2373 to begin fulfillment of our commitments

◦ Expanded partnership with SIIPL through new supply agreement

◦ Reserved significant additional manufacturing capacity with SK bioscience to produce antigen, and SK bioscience acquired non-exclusive rights to sell to governments in Thailand and Vietnam

◦ Entered into a contract manufacturing agreement with Mabion for the large-scale manufacturing of NVX-CoV2373 through 2026

COVID-19 Vaccine Clinical Development

• Announced data from extended analysis of our UK Phase 3 study demonstrating ongoing durability of protection against infection and disease

◦ 82.5% vaccine efficacy in protection against all COVID-19 infection, both symptomatic and asymptomatic, as measured by PCR+ or anti-N seroconversion

◦ 82.7% overall vaccine efficacy against disease over a 6-month data collection period (median of 101 days of surveillance)

◦ 100% vaccine efficacy against severe disease

• Announced data from PREVENT-19 Phase 3 pediatric expansion in adolescents aged 12 through 17, achieving primary effectiveness endpoint and comparability to adult population

◦ Adolescent neutralization responses ~1.5-fold higher than adults

◦ 82% clinical efficacy against Delta variant

◦ IgG and functional immune responses against variants were higher than in adults

◦ Generally well-tolerated with no safety signals

◦ Expect to supplement global regulatory filings in the first quarter of 2022

◦ Expect to initiate a pediatric study in younger children in the second quarter of 2022

• Initiated PREVENT-19 Phase 3 booster study to evaluate safety and efficacy of a third dose of NVX-CoV2373

• Heterologous boosting data announced in COV-Boost Phase 2 Study, with NVX-CoV2373 demonstrating its ability to serve as a well-tolerated third dose to boost immune levels

• Announced immunologic cross-reactivity data from vaccine booster and adolescent studies to highlight potential utility of NVX-CoV2373 against Omicron variant (B.1.1.529)

◦ Demonstrated broad IgG antibody cross-reactivity against Omicron and other circulating variants with primary 2-dose regimen

◦ Third dose at 6-months produced increased immune response showing 9.3-fold IgG rise and 19.9-fold functional ACE2 inhibition increase

◦ Ongoing PREVENT-19 Phase 3 pediatric expansion showed robust immune response 2-to-4-fold higher than adults against evaluated variants, including Omicron following primary 2-dose regimen

• Developed Omicron-specific vaccine with GMP manufacturing and lab-based assessments underway

◦ Expect delivery toward the end of the first quarter of 2022

COVID-Influenza Combination Vaccine Clinical Development

• Ongoing Phase 1/2 trial for COVID-influenza combination vaccine

◦ Data is expected in April 2022

◦ Expect to initiate Phase 2 clinical trial for COVID-influenza combination vaccine and NanoFlu standalone in the second half of 2022

Publication Highlights

• Final analysis from PREVENT-19 Phase 3 trial in U.S.

and Mexico published in The New England Journal of Medicine

• Final analysis from UK Phase 3 influenza co-administration sub-study published in The Lancet Respiratory Medicine

• Final analysis of COV-Boost study led by University of Southampton NHS published in The Lancet

Sales of Common Stock

During 2021, we issued and sold 2.6 million of shares of our common stock resulting in net proceeds of approximately $565 million under our various At Market Issuance Sales Agreements.

The most recent At Market Issuance Sales Agreement, which we entered into in June 2021 (the “June 2021 Sales Agreement”) and is currently in effect, allows us to issue and sell up to $500 million in gross proceeds of shares of our common stock.

In January 2022, we sold 0.4 million shares of our common stock resulting in net proceeds of $34.7 million under the June 2021 Sales Agreement, with a remaining balance of $464.9 million available thereafter.

COVID-19 Vaccine Orders and Plans for the 2023 Fall Vaccination Season

• Delivered over 100 million doses of Nuvaxovid, Novavax’s COVID-19 vaccine, globally to date

• Modified agreement with the U.S.

government for up to 1.5 million additional doses of Novavax’s COVID-19 vaccine for delivery in 2023

◦ Agreement maintains the U.S.

public’s access to Novavax’s COVID-19 vaccine and supports the development of smaller dose vials, strain selection in line with U.S.

Food and Drug Administration (FDA) recommendations and a smooth transition to the commercial market

• Reaffirmed intent to deliver an updated mono- or bivalent strain vaccine for the 2023 fall vaccination season, consistent with public health recommendations

• Secured European Medicines Agency (EMA) and FDA approval of Nuvaxovid five-dose vial variation and EMA approval of the Company’s Czech Republic facility to manufacture antigen and supply Nuvaxovid to the E.U.

COVID-19 Vaccine Clinical Development Program and Expanded Authorizations

• Presented data to the U.S.

FDA Vaccine and Related Biological Products Advisory Committee demonstrating that when used as a booster, Novavax’s COVID-19 vaccine induces broad functional immune responses, including for contemporary variants

• Announced topline results from Phase 3 COVID-19 Omicron BA.1 vaccine candidate, achieving the primary strain-change endpoint

◦ Part 2 to evaluate our prototype vaccine compared to an Omicron BA.5 vaccine, as well as a bivalent containing prototype and Omicron BA.5 vaccine

• Expanded Nuvaxovid label in adult booster and adolescent primary series to enable broader uptake in the long-term commercial market

COVID-19-Influenza Combination (CIC) Vaccine Candidate Clinical Development

• Initiated Phase 2 dose-confirming trial to evaluate safety and immunogenicity of different formulations of CIC and influenza stand-alone vaccine candidates in adults aged 50 to 80 years, with topline results expected by mid-year 2023

• CIC Phase 2 trial includes additional study arms exploring alternate influenza stand-alone formulations

Financing Transactions

In December 2022, we completed a public offering of 7,475,000 shares of our common stock, including 975,000 shares of common stock that were issued upon the exercise in full of the option to purchase additional shares granted to the underwriters, at a price of $10.00 per share, resulting in net proceeds of $69.8 million.

Concurrently with this public offering, we issued $175.3 million aggregate principal amount of 5.00% convertible senior unsecured notes due 2027 (the “2027 Notes”), including $25.3 million that was issued upon the exercise of the full option to purchase additional notes in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended.

The 2027 Notes will mature on December 15, 2027, unless earlier converted, redeemed, or repurchased.

We received $166.4 million in net proceeds from the issuance of the 2027 Notes after deducting the initial purchasers’ fees and our offering expenses.

See Note 11 to our consolidated financial statements in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K for additional information related to the 2027 Notes.

In June 2021, we entered into an At Market Issuance Sales Agreement (the “June 2021 Sales Agreement”), which allows us to issue and sell up to $500 million in gross proceeds of shares of our common stock, and terminated our then-existing At Market Issuance Sales Agreement.

As of December 31, 2022, the remaining balance under the June 2021 Sales Agreement was approximately $318 million.

During the years ended December 31, 2022 and 2021, we sold 2.2 million and 2.6 million, respectively, of shares of our common stock resulting in net proceeds of approximately $179 million and $565 million, respectively, under our various At Market Issuance Sales Agreements.

Critical Accounting Policies and Use of Estimates

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the U.S.

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP.

The preparation of our consolidated financial statements requires us to make estimates, assumptions, and judgments that affect the reported amounts of assets, liabilities, and equity and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.

These estimates, particularly estimates relating to accounting for revenue, lease accounting, pre-launch inventory, and accounting for research and development expenses have a material impact on our consolidated financial statements and are discussed in detail throughout our analysis of the results of operations discussed below.

These estimates, particularly estimates relating to accounting for grant revenue, lease accounting, pre-launch inventory, inventory valuation, and research and development expenses have a material impact on our consolidated financial statements and are discussed in detail throughout our analysis of the results of operations discussed below.

We base our estimates on historical experience and various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets, liabilities, and equity that are not readily apparent from other sources.

Actual results and outcomes could differ from these estimates and assumptions.

Revenue Recognition

We perform research and development under government funding, grant, license and clinical development agreements.

Our revenue primarily consists of funding under U.S.

government contracts and other arrangements to advance the clinical

development and manufacturing of NVX-CoV2373.

government contracts include the DoD Contract and the OWS Agreement.

Other funding arrangements primarily include a grant and forgivable loan funding from CEPI.

At contract inception, we analyze our revenue arrangements to determine the appropriate accounting under generally accepted accounting principles in the United States (“U.S.

Currently, our revenue arrangements represent customer contracts within the scope of Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (Topic 606) (“ASC 606”) or are subject to the contribution guidance in ASC Topic 958-605, Not-for-Profit Entities – Revenue Recognition (“ASC 958-605”), which applies to business entities that receive contributions within the scope of ASC 958-605.

We recognize revenue from arrangements within the scope of ASC 606 following the five-step model:

(i) identify the contract(s) with a customer;

(ii) identify the performance obligation(s) in the contract;

(iii) determine the transaction price;

(iv) allocate the transaction price to the performance obligations in the contract;

and (v) recognize revenue when (or as) we satisfy a performance obligation.

We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to our customer.

We recognize contribution revenue within the scope of ASC 958-605 when the funder-imposed conditions have been substantially met.

Contributions are recorded as deferred revenue until the period in which research and development activities are performed that satisfy the funder-imposed conditions.

Under our U.S government contracts, we are entitled to receive funding, on a cost-reimbursable or cost-reimbursable-plus-fixed-fee basis, to support certain activities related to the development, manufacture, and delivery of NVX-CoV2373 to the U.S.

We analyzed these contracts and determined that they are within the scope of ASC 606.

Our obligations under each of the contracts are not distinct in the context of the contract as they are highly interdependent or interrelated and, as such, they are accounted for as a single performance obligation.

The transaction price under these arrangements is the consideration we expect to receive and consists of the funded contract amount and the unfunded variable amount to the extent that it is probable that a significant reversal of revenue will not occur.

We recognize revenue for these contracts over time as we transfer control over the goods and services and satisfy our performance obligation.

We measure progress toward satisfaction of our performance obligation using an Estimate-at-Completion (“EAC”) process, which is a cost-based input method that reviews and monitors the progress towards the completion of our performance obligation.

For an in-depth discussion of each of our significant accounting policies, including our critical accounting policies and further information regarding estimates and assumptions involved in their application, see Note 2 to the accompanying consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

Grant Revenue Recognition

Our grant revenue primarily consists of funding under U.S.

government contracts including the USG Agreement and the DoD Contract and was $382.9 million in 2022.

We measure progress toward satisfaction of our grant performance obligations using an Estimate-at-Completion (“EAC”) process, which is a cost-based input method that reviews and monitors the progress towards the completion of our performance obligation.

Under this process, we consider the costs that have been incurred to-date, as well as projections to completion using various inputs and assumptions, including, but not limited to, progress towards completion, labor costs and level of effort, material and subcontractor costs, indirect administrative costs, and other identified risks.

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Changes in these estimates can occur for a variety of reasons and, if significant, may impact the timing of revenue and fee recognition on our contracts.

Allowable contract costs include direct costs incurred on the contract and indirect costs that are applied in the form of rates to the direct costs.

Progress billings under the contracts are initially based on provisional indirect billing rates, agreed upon between us and the U.S.

These indirect rates are subject to review on an annual basis.

The impact of changes in the indirect billing rates are recorded in the period when such changes are identified and reflect the difference between actual indirect costs incurred compared to the estimated amounts used to determine the provisional indirect billing rates agreed upon with the U.S.

We recognize revenue on our U.S government contracts based on reimbursable allowable contract costs incurred in the period up to the transaction price.

For our cost-reimbursable-plus-fixed-fee contracts, we recognize the fixed fee based on the proportion of reimbursable contract costs incurred to total estimated allowable contract costs expected to be incurred on completion of the underlying performance obligation as determined under the EAC process.

Changes in estimates related to the EAC process are recognized in the period when such changes are made on a cumulative catch-up basis.

We include the transaction price comprising both funded and unfunded portions of customer contracts, in this estimate.

We have not experienced any material difference as a result of change in estimate arising from the EAC process.

Our other funding arrangements primarily include the CEPI Grant Funding and CEPI Forgivable Loan Funding (each as defined in “Note 2―Summary of Significant Accounting Policies” included in our Notes to Consolidated Financial Statements).

The CEPI Forgivable Loan Funding is designated for the prepayment of certain manufacturing activities.

We analyzed these other funding arrangements and determined that they are not within the scope of ASC 606 as they do not provide a direct economic benefit to the grantor.

Payments received under the grant funding arrangements are considered conditional contributions under the scope of ASC 958-605 and are recorded as deferred revenue until the period in which such research and development activities are actually performed that satisfy the funder-imposed conditions.

Payments received under the CEPI Forgivable Loan Funding are only repayable if the proceeds of sales to one or more third parties of NVX-CoV2373 cover our costs of manufacturing such vaccine candidate, not including manufacturing costs funded by CEPI.

As the financial risk remains with CEPI, we have determined that the use of the CEPI Forgivable Loan Funding is outside the scope of ASC Topic 470, Debt.

The research and development risk is considered substantive, such that it was not probable that the development would be successful at the inception of the contract.

Therefore, we have concluded that ASC Topic 730, Research and Development is considered applicable and most appropriate.

Given the financial risk associated with the research and development activities lies with CEPI because repayment of any funds provided by CEPI depends solely on the results of the research and development activities having future economic benefit, we account for our obligation under the CEPI Forgivable

Loan Funding as a contract to perform research and development for others.

We have determined that payments received under these agreements should be recorded as revenue under ASC 958-605 rather than a reduction to research and development expenses.

This is consistent with our policy of presenting such amounts as revenue.

In reaching this determination, we considered a number of factors, including whether we are principal under the arrangement, and whether the arrangement is significant to, and part of, our core operations.

We will record revenue as we perform the contractual research and development services.

We have manufacturing and supply arrangements that include a license to use our intellectual property.

The licensing arrangements include sales-based royalties, certain development and commercial milestone payments, and the sale of proprietary Matrix-M TM adjuvant.

T he license is deemed to be the predominant item to which the milestone payments and sales-based royalties relate.

Because development milestone payments are contingent on the achievement of milestones that are not within our control or the control of the licensee, such as regulatory approvals, the payments are not considered probable of being achieved and are excluded from the transaction price until the milestone is achieved.

We recognize revenue when the development milestone is achieved.

For arrangements that include sales-based royalties, including milestone payments based upon the achievement of a certain level of product sales, wherein the license is deemed to be the sole or predominant item to which the payments relate, we recognize revenue on the satisfaction (or partial satisfaction) of the performance obligation to which some or all of the payment has been allocated, which is normally when the related sales occur.

We generally allocate the transaction price to each performance obligation based on a relative standalone selling price basis.

We develop assumptions that require judgment to determine the standalone selling price for each performance obligation in consideration of applicable market conditions and relevant entity-specific factors, including factors that were contemplated in negotiating the agreement with the customer.

Lease Accounting

We enter into manufacturing supply agreements with CMOs and CDMOs to manufacture our vaccine candidates.

We enter into manufacturing supply agreements with CMOs and contract development and manufacturing organizations (“CDMOs”) to manufacture our vaccine candidates.

Certain of these manufacturing supply agreements include the use of identified manufacturing facilities and equipment that are controlled by us and for which we obtain substantially all the output and may qualify as an embedded lease.

We treat manufacturing supply agreements that contain a lease as lease arrangements in their entirety.

The evaluation of leases that are embedded in our CMO and CDMO agreements is complex and requires judgment in determining whether the contract, either explicitly or implicitly, is for the use of an identified asset, which generally is the use of a portion of the manufacturing facility, whether we have the right to direct the use of, and obtain substantially all of the benefit from, the identified asset, the term of the lease and the fixed lease payments under the contract.

Depending on the contract, the lease commencement date, defined as the date on which the lessor makes the underlying asset available for use by the lessee and is the date on which the Company is required to accrue lease expenses, may be different than the inception date of the contract.

whether we have the right to direct the use of, and obtain substantially all of the benefit from, the identified asset;

the term of the lease;

and the fixed lease payments under the contract.

Determining the lease commencement date may require judgment because the lease commencement date may be different than the inception date of the contract.

We determine the non-cancellable lease term of our embedded leases based on the impact of certain expected milestones on our option to terminate the lease where we are reasonably certain to not exercise that option.

We evaluate changes to the terms and conditions of a lease contract to determine if they result in a new lease or a modification of an existing lease.

For lease modifications, we remeasure and reallocate the remaining consideration in the contract and reassess the lease classification at the effective date of the modification.

We classify leases as either operating or finance leases based on the economic substance of the agreement.

We also enter into non-cancelable lease agreements for facilities and certain equipment.

For leases that have a lease term of more than 12 months at the lease commencement date, we recognize lease liabilities, which represent our obligation to make lease payments arising from the lease, and corresponding right-of-use (“ROU”) assets, which represent the right to use an underlying asset for the lease term, based on the present value of the fixed future payments over the lease term.

For leases that have a lease term of more than 12 months at the lease commencement date, we recognize lease liabilities and corresponding right-of-use (“ROU”) assets based on the present value of the fixed future payments over the lease term.

We calculate the present value of future payments using the discount rate implicit in the lease, if available, or our incremental borrowing rate.

For all leases that have a lease term of 12 months or less at the commencement date (referred to as “short-term” leases), we have elected to apply the practical expedient in ASC Topic 842, Leases (“ASC 842”) to not recognize a lease liability or ROU asset but instead, recognize lease payments as an expense on a straight-line basis over the lease term and variable lease payments that do not depend on an index or rate, as an expense in the period in which the variable lease costs are incurred based on performance or usage in accordance with contractual agreements.

In determining the lease period, we evaluate facts and circumstances that could affect the period over which we are reasonably certain to use the underlying asset while taking into consideration the non-cancelable period over which we have the right to use the underlying asset and any option period to extend or terminate the lease if we are reasonably certain to exercise the option.

We re-evaluate short-term leases that are modified and if they no longer meet the requirements to be treated as a short-term lease, we recognize and measure the lease liability and ROU asset as if the date of the modification is the lease commencement date (see Note 7 to the accompanying consolidated financial statements).

For short-term leases that are modified and continue to meet the requirements to be treated as a short-term lease, we remeasure the fixed lease payments under the modified lease, and recognize lease payments as an expense on a straight-line basis over the modified lease term.

For operating leases, we recognize lease expense related to fixed payments on a straight-line basis over the lease term and lease expense related to variable payments as incurred based on performance or usage in accordance with the contractual agreements.

For finance leases, we recognize the amortization of the ROU asset over the shorter of the lease term or useful life

of the underlying asset.

We expense ROU assets acquired for research and development activities under ASC Topic 730, Research and Development , if they do not have an alternative future use, in research and development projects or otherwise.

We use significant assumptions and judgment in evaluating our lease contracts and other agreements under ASC 842, including the determination of whether an agreement is or contains a lease, whether a change in the terms and conditions of a lease contract represent a new or modified lease, whether a lease represents an operating or finance lease, the discount rate used to determine the present value of lease obligations and the term of embedded leases in our manufacturing supply agreements.

a lease represents an operating or finance lease, the discount rate used to determine the present value of lease obligations, and the term of embedded leases in our manufacturing supply agreements.

As of December 31, 2022, we had total noncurrent ROU assets of $106.2 million, current lease liabilities of $44.1 million, and noncurrent lease liabilities of $81.3 million.

Pre-Launch Inventory

Prior to an initial regulatory authorization for our product candidates, we expense costs relating to raw materials and inventory production as research and development expenses in our consolidated statements of operations in the period incurred.

We capitalize the costs of production as inventory when we believe regulatory authorization and subsequent commercialization is considered probable and we expect to realize future economic benefit from the sales of the product candidate.

Upon the authorization of distribution and use of NVX-CoV2373 following regulatory authorization by EMA and the WHO in December 2021, we began to capitalize inventory costs associated with the related supply of NVX-CoV2373, as it was determined that inventory costs subsequently incurred had a probable future economic benefit.

We capitalize raw materials and production costs as inventory when we determine that commercialization of a product is probable and have a present right to the economic benefit associated with the product.

Our estimate of when commercialization is probable is based primarily on our experience with obtaining regulatory approval of comparable products.

We began to capitalize inventory in 2022 and, as of December 31, 2022, we had approximately $30.6 million of commercial inventory that was expensed prior to approval.

Inventory Realizability

We periodically analyze our inventories for excess amounts or obsolescence and write down obsolete or otherwise unmarketable inventory to its estimated net realizable value.

We estimate excess or obsolete inventory and losses on firm purchase commitments of inventory quarterly based on multiple factors, including assumptions about expected future demand and market conditions, current sales orders, and product expiry dates.

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.

We began to capitalize inventory in 2022.

Subsequently, we recorded inventory write-downs of $447.6 million and losses on firm purchase commitments of inventory of $155.9 million to the extent the cost cannot be recovered based on estimates about future demand.

Accounting for Research and Development Expenses

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• the cost of developing and manufacturing vaccine components under third-party CMOs and CDMOs agreements, including expenses incurred for the procurement of raw materials, laboratory supplies and equipment.

We base our expenses on our estimates of the services provided and efforts expended pursuant to contracts, statements of work and related change orders with the service provider, as well as discussion with internal personnel and external service providers as to the progress of the services and the agreed-upon fee to be paid for such services.

We base our expenses on our estimates of the services provided and efforts expended pursuant to contracts, statements of work and related change orders with the service provider, and discussion with internal personnel and external service providers as to the progress of the services and the agreed-upon fee to be paid for such services.

The financial terms of these agreements are based on negotiated terms, vary from contract to contract, and may result in an uneven level of activity over time.

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Revenue (in thousands):

Product sales $ 1,554,961 $ — $ 1,554,961

Grants 382,921 948,709 (565,788)

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Total revenue $ 1,981,872 $ 1,146,290 $ 835,582

The Company recognized grant revenue as follows:

Product sales

Product sales for 2022 were $1.6 billion as compared to no product sales for 2021.

Product sales for 2022 related to revenue from commercial sales of NVX-CoV2373, which commenced in 2022.

The geographic distribution of product sales in 2022 was as follows:

North America

Europe 823,542

Rest of the world

Total product revenue $ 1,554,961

We recognized grant revenue as follows:

2022 2021 Change

Grant Revenue (in thousands)

Government Partnership (a)

USG Agreement

$ 380,996 $ 788,953 $ (407,957)

1 unchanged sentence

— 135,445 (135,445)

Other grant revenue

— 2,628 (2,628)

Total grant revenue $ 382,921 $ 948,709 $ (565,788)

government partnership formerly known as Operation Warp Speed

Grant revenue for 2021 was $948.7 million as compared to $453.2 million for 2020, an increase of $495.5 million.

Grant revenue for 2021 and 2020 primarily comprised revenue for services performed under the OWS Agreement and CEPI Funding Agreement.

The increase in revenue was primarily due to increased development activities related to NVX-CoV2373 under the OWS Agreement.

Grant revenue for 2022 was $382.9 million compared to $948.7 million for 2021, a decrease of $565.8 million.

Grant revenue for 2022 primarily comprised revenue for services performed under the USG Agreement and grant revenue for 2021 primarily comprised revenue for services performed under the USG Agreement and the CEPI funding agreement.

The decrease in revenue was primarily due to decreased development activities under the USG Agreement and our funding agreement with CEPI.

Royalties and Other

Royalties and other revenue for 2021 was $197.6 million as compared to $22.4 million for 2020, an increase of $175.2 million.

Royalties and other revenue primarily comprised royalties under our licensing arrangements, and the increase in revenue was due to increased sales-based royalties by our license partners to South Korea and Indonesia.

We expect revenue in 2022 to significantly increase as compared to 2021 due to our NVX-CoV2373 program, which we anticipate will continue to be funded by OWS and/or other revenue sources.

Further, we anticipate bringing our NVX-CoV2373 vaccine candidate to market following receipt of global regulatory authorizations, and potential approvals that should significantly increase revenue (also see below under Liquidity and Capital Resources in this Management's Discussion and Analysis).

In anticipation, we have entered into various APAs, as well as multiple collaboration and license agreements with strategic partners, to supply NVX-CoV2373 in their specified territories under which we are entitled to receive royalty revenue from the sale of NVX-CoV2373 by such partners.

Royalties and other revenue for 2022 was $44.0 million as compared to $197.6 million for 2021, a decrease of $153.6 million.

Royalties and other revenue primarily related to royalties under our licensing arrangements, and the decrease in revenue was due to lower sales-based royalties from our license partners.

2022 2021 Change

Expenses (in thousands):

Cost of sales $ 902,639 $ — $ 902,639

Research and development 1,235,278 2,534,508 (1,299,230)

General and administrative 298,358 145,290 153,068

Selling, general, and administrative 488,691 298,358 190,333

Total expenses $ 2,626,608 $ 2,832,866 $ (206,258)

Cost of Sales

Cost of sales was $902.6 million, or 58% of product sales, for 2022, including expense of $603.5 million related to excess or obsolete 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 December 31, 2022 we had approximately $30.6 million of commercial inventory that was expensed prior to approval.

We expect to utilize the majority of our reduced-cost inventory through 2023.

If inventory and pre-launch inventory sold in 2022 was valued at expected standard cost, including expenses related to excess and obsolete inventory and losses on firm purchase commitments, adjusted cost of sales for the period would have been approximately $1,067.4 million, or 69% of product sales, an adjustment of $164.8 million as compared to cost of sales recognized.

The cost of sales as a percentage of product sales may fluctuate in the future as a result of changes to our customer pricing mix or standard costs.

Research and Development Expenses

Research and development expenses increased to approximately $2.5 billion for 2021 as compared to $747.0 million for 2020, an increase of $1.8 billion, due to increased development activities relating to NVX-CoV2373, as summarized in the table below.

Research and development expenses decreased to approximately $1.2 billion for 2022 as compared to $2.5 billion for 2021, a decrease of $1.3 billion.

The decrease was primarily due to a decrease in development activities relating to coronavirus vaccines, including NVX-CoV2373, an Omicron BA.1 vaccine candidate, bivalent formulations, and CIC, as summarized in the table below (in thousands):

Research and Development Expenses (in thousands):

NVX-CoV2373 $ 2,245,935 $ 609,401

NanoFlu 7,761 14,802

Coronavirus vaccines $ 848,042 $ 2,245,935

Influenza vaccine 7,163 7,761

Other vaccine development programs 2,658 818

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Total research and development expenses $ 1,235,278 $ 2,534,508

Research and development expenses for NVX-CoV2373 for 2021 and 2020 included approximately $239 million and $217 million, respectively, related to the acceleration of manufacturing costs for leases that we determined were embedded in multiple manufacturing supply agreements with CMOs and CDMOs.

During 2021 and 2020, our research and development activities were primarily focused on the development of NVX-CoV2373 and included direct external research and development expenses related to NVX-CoV2373 of $2.2 billion and $609.4 million, respectively, primarily comprised of costs related to the following:

• expenses incurred under agreements with CROs that conduct our clinical trials and third-party consultants related to the development of NVX-CoV2373;

• expenses incurred on developing and manufacturing the antigen drug substance and Matrix-M ™ adjuvant components of NVX-CoV2373 under agreements that we established with third-party CMOs and CDMOs;

• expenses incurred for the procurement of raw materials, laboratory supplies, and equipment;

• other costs related to preclinical studies and regulatory consulting, as well as related program management activities to support our growing global operations.

Research and development expenses for coronavirus vaccines for 2022 and 2021 included a benefit of $201.4 million, inclusive of a $98.3 million benefit pursuant to the Fujifilm Settlement Agreement (see Note 4 to our consolidated financial statements in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K), and an

expense of $239.2 million, respectively, related to previously accelerated manufacturing costs for leases that we determined were embedded in multiple manufacturing supply agreements with CMOs and CDMOs.

We do not provide forward-looking estimates of costs and time to complete our research programs due to the many uncertainties associated with vaccine development.

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As a result of these uncertainties, we are unable to determine the duration and completion costs of our research and development projects or when, and to what extent, we will generate future cash flows from our research projects.

For 2022, we expect total research and development expenses to decrease significantly as compared to 2021.

The decline in 2022 is anticipated to result from expected capitalization of manufacturing costs during 2022 that were previously recognized as research and development expenses in prior periods, partially offset by research and development expenses related to increased clinical activities as we continue to develop our NVX-CoV2373 and other programs.

Our cost of goods sold expenses could be significant depending on our commercial shipment levels and timing of deliveries.

However, we anticipate initially recognizing a lower cost of goods sold expense as a result of pre-launch inventory previously recognized as research and development expenses.

General and Administrative Expenses

General and administrative expenses increased to $298.4 million for 2021 from $145.3 million for 2020, an increase of $153.1 million.

The increase in general and administrative expenses is primarily due to increased employee-related costs, including stock-based compensation expense, and an increase in professional fees in support of our NVX-CoV2373 program.

For 2022, we expect general and administrative expenses to increase significantly as compared to 2021 due to increased activities related to supporting our NVX-CoV2373 program and increases in employee-related costs and professional fees.

We also expect to incur selling and marketing expenses following regulatory authorizations, and potential approvals, of NVX-CoV2373.

Other Income (Expense):

For 2023, we expect research and development expenses to decrease as compared to 2022 as we continue to assess our manufacturing needs and modify our global manufacturing footprint consistent with our contractual obligations to supply, and anticipated demand for, NVX-CoV2373 and as additional manufacturing activities that were previously recognized as research and development expenses begin to meet the criteria for capitalization as inventory.

We are gating funding for our potential Phase 3 research and development expenses related to our influenza and CIC vaccine candidates based on the assessment of our Phase 2 clinical trial results anticipated for mid 2023.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses increased to $488.7 million for 2022 from $298.4 million for 2021, an increase of $190.3 million.

The increase in selling, general, and administrative expenses is primarily due to a $149.5 million increase in expenses related to the commencement of our commercial sales operations.

For 2023, our expected selling, general, and administrative expenses levels may vary depending on our ability to successfully develop, manufacture, distribute, or market an updated monovalent or bivalent formulation of a vaccine candidate for COVID-19 for the fall 2023 COVID vaccine season.

Due to this uncertainty, we have announced our intention to reduce and control our operating spend to focus on key priorities and we will continue to evaluate our level of investment as the year progresses.

Other Expense, Net:

2022 2021 Change

Other Income (Expense) (in thousands):

Investment income $ 1,364 $ 1,014 $ 350

Other Expense, Net (in thousands):

Interest expense $ (19,880) $ (21,127) $ 1,247

Other income (expense) 10,969 (6,833) 17,802

Total other income (expense), net $ (27,960) $ (1,540) $ (26,420)

We had total other expense, net of $28.0 million for 2021 compared to total other expense, net of $1.5 million for 2020, an increase of $26.4 million.

In 2021 and 2020, interest expense included $7.2 million and $3.1 million, respectively, related to finance leases.

In 2021 and 2020, other income included a loss of $7.2 million and a gain of $12.6 million, respectively, due to changes in the foreign exchange rates, primarily on an intercompany loan with Novavax CZ.

Total other expense, net $ (8,911) $ (27,960) $ 19,049

We had total net other expense of $8.9 million for 2022 compared to total net other expense of $28.0 million for 2021, a decrease of $19.0 million.

During 2022 and 2021, other income (expense) was primarily related to foreign exchange rate activity.

Income Tax Expense:

During the year ended December 31, 2021, we recognized $29.2 million of income tax expense related to foreign withholding tax on royalties.

We did not recognize any income tax expense for the year ended December 31, 2020.

During the years ended December 31, 2022 and 2021, we recognized $4.3 million and $29.2 million, respectively, of income tax expense related to federal and state income taxes and foreign withholding tax on royalties.

2022 2021 Change

1 unchanged sentence

Net loss $ (657,939) $ (1,743,751) $ 1,085,812

Net loss per share $ (23.44) $ (7.27) $ (16.17)

Weighted average shares outstanding 74,400 57,554 16,846

Net loss for 2021 was $1.7 billion, or $23.44 per share, as compared to $418.3 million, or $7.27 per share, for 2020, an increase of $1.3 billion.

The increase in net loss was primarily due to increased development activities relating to NVX-CoV2373, partially offset by increased revenue under the OWS Agreement and, to a lesser extent, royalties under our licensing arrangements.

The increase in weighted average shares outstanding for 2021 is primarily a result of sales of our common stock in 2021 and 2020.

Net loss per share, basic and diluted $ (8.42) $ (23.44) $ 15.02

Weighted average shares outstanding, basic and diluted 78,183 74,400 3,783

Net loss for 2022 was $0.7 billion, or $8.42 per share, as compared to $1.7 billion, or $23.44 per share, for 2021, a decrease of $1.1 billion.

The decrease in net loss was primarily due 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 or obsolete inventory and losses on firm purchase commitments and decreased revenue under the USG Agreement.

The increase in weighted average shares outstanding for 2022 is primarily a result of sales of our common stock and common stock issued under our incentive programs.

Liquidity Matters and Capital Resources

Our future capital requirements depend on numerous factors including, but not limited to, our projected activities related to the development of NVX-CoV2373, including significant commitments under various CRO, CMO and CDMO agreements, the progress of preclinical studies and clinical trials, the time and costs involved in obtaining regulatory approvals, the costs of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights and other manufacturing, sales and distribution costs.

We plan to continue developing other vaccines and product candidates, such as our NanoFlu vaccine candidate and potential combination vaccines candidates, which are in various stages of development.

We believe our operating expenses and capital requirements will fluctuate depending upon the timing of events, such as the progress of our NVX-CoV2373 clinical trials and regulatory approval for the use of NVX-CoV2373 in the U.S.

and internationally, as well as the scope, initiation and progress of our preclinical studies and clinical trials related to other research and development activities.

We have entered into APAs or supply agreements with Gavi, the EC, and various countries globally.

Our future capital requirements depend on numerous factors including, but not limited to, revenue from our product sales and royalties under licensing arrangements with our strategic partners;

funding and repayments under our grant agreements;

our projected activities related to the development and commercial support of NVX-CoV2373 and variant candidates, including significant commitments under various CRO, CMO, and CDMO agreements;

the progress of preclinical studies and clinical trials;

the time and costs involved in obtaining regulatory approvals;

the costs of filing, prosecuting, defending, and enforcing patent claims and other intellectual property rights;

and other manufacturing, sales, and distribution costs.

We plan to continue developing other vaccines and product candidates, such as our influenza vaccine candidate and potential combination vaccines candidates, which are in various stages of development.

We have entered into supply agreements, sometimes referred to as APAs, with the EC and various countries globally.

We also have grant and license agreements.

As of December 31, 2021, 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 licensing agreements, was approximately $8 billion.

The timing to fulfill performance obligations related to grant agreements will depend on the results of our research and development activities, including clinical trials.

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 one year.

The APAs or supply agreements typically contain terms that include upfront payments intended to assist us in funding investments related to building out and operating our manufacturing and distribution network, among other expenses, in support of our global supply commitment.

Such upfront payments generally become non-refundable upon our achievement of certain development and commercial milestones.

However, certain of the APAs and supply agreements may be terminated by the counterparty if we do not timely achieve requisite regulatory approval for NVX-CoV2373 in the relevant jurisdictions under such agreements.

If the APAs or supply agreements were terminated, the refundable portion of the upfront payments will be repaid.

We expect to sign additional APAs or supply agreements that are currently in active discussions and negotiations.

In May 2021, we finalized an APA with Gavi, building upon our MOU previously announced in February 2021.

Under the terms of the agreement, 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.

We expect to manufacture and distribute 350 million doses of NVX-CoV2373 to countries participating under the COVAX Facility.

Under a separate purchase agreement with Gavi, SIIPL is expected to manufacture and deliver the balance of the 1.1 billion doses of NVX-CoV2373 for low- and middle-income countries participating in the COVAX Facility.

We expect to deliver doses with antigen and adjuvant manufactured at facilities directly funded by the investments previously received from CEPI.

In October 2021, we entered into a supply agreement and a contract development manufacturing agreement with SIIPL and SLS under which SIIPL and SLS will supply us with NVX-CoV2373.

We expect to deliver doses with antigen and adjuvant manufactured at facilities directly funded under the funding agreement with CEPI, with initial doses supplied by SIIPL and SLS under the supply agreement.

We expect to supply significant doses that Gavi would allocate to low-, middle- and high-income countries, subject to certain limitations, utilizing a tiered pricing schedule and Gavi may prioritize such doses to low- and middle- income countries, at lower prices.

Additionally, we may provide additional doses, to the extent available from CEPI-funded manufacturing facilities, in the event that SIIPL cannot materially deliver expected vaccine doses to the COVAX Facility.

Together with SIIPL, we expect to initiate delivery of doses following receipt of appropriate regulatory authorizations.

Under the APA, we received an upfront payment of $350 million from Gavi in 2021 and recorded a receivable as of December 31, 2021, for an additional $350 million because the Company secured EUL for NVX-CoV2373 by the WHO in December 2021, which are recorded as deferred revenue.

We have also entered into supply and license agreements with strategic partners to supply NVX-CoV2373 in their specified territories under which we are entitled to receive royalties primarily from the sale of NVX-CoV2373 by our partners, such as SIIPL in India, Takeda in Japan, and SK bioscience in the Republic of Korea.

During 2021, we received royalties of $195.8 million under these licensing arrangements.

We funded our operations in 2021 with cash and marketable securities on hand, upfront payments under APAs, and proceeds from the sale of common stock, together with revenue under the OWS Agreement and CEPI Funding Agreement that support our NVX-CoV2373 vaccine development activities.

We anticipate our future operations to be funded by our cash, cash equivalents and marketable securities, upfront payments under our APAs and revenue under our OWS Agreement, and, following receipt of global regulatory authorizations, and potential approvals, revenue from product sales, royalties under licensing arrangements with our strategic partners, and/or other potential funding sources.

As of December 31, 2021, we had $1.5 billion in cash and cash equivalents, marketable securities, and restricted cash as compared to $806.4 million as of December 31, 2020.

These amounts consisted of $1.5 billion in cash and cash equivalents,

no marketable securities, and $13.1 million in restricted cash as of December 31, 2021 as compared to $553.4 million in cash and cash equivalents, $157.6 million in marketable securities, and $95.3 million in restricted cash as of December 31, 2020.

As of December 31, 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 licensing agreements, was approximately $3 billion, which excludes amounts related to the Gavi APA and the reduction in doses related to the Amended and Restated UK Supply Agreement, as defined below.

Failure to meet regulatory milestones, obtain timely supportive recommendations from governmental advisory committees, or achieve product volume or delivery timing obligations under our APAs may require us to refund portions of upfront payments or result in reduced future payments, which could adversely impact our ability to realize revenue from our unsatisfied performance obligations.

The timing to fulfill performance obligations related to grant agreements will depend on the results of our research and development activities, including clinical trials, and delivery of doses.

The timing to fulfill performance obligations related to supply agreements will depend on timing of product manufacturing, receipt of marketing authorizations for additional indications, delivery of doses based on customer demand, and the ability of the customer to request variant vaccine in place of the prototype NVX-CoV2373 vaccine under certain of our APAs.

The supply agreements typically contain terms that include upfront payments intended to assist us in funding investments related to building out and operating our manufacturing and distribution network, among other expenses, in support of our global supply commitment, and are applied to billings upon delivery of NVX-CoV2373.

Such upfront payments generally become non-refundable upon our achievement of certain development, regulatory, and commercial milestones.

In addition, we continue to assess our manufacturing needs and modify our global manufacturing footprint consistent with our contractual obligations to supply, and anticipated demand for, NVX-CoV2373, and, as a result, significant costs may be incurred.

Pursuant to the Fujifilm Settlement Agreement (see Note 4 to our consolidated financial statements in Part II, Item 8, “Financial Statements and Supplementary Data,” of this this Annual Report on Form 10-K), 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 Fujifilm CSA, of which $47.8 million, constituting the initial reservation fee under the Fujifilm CSA, was credited against the Settlement Payment on September 30, 2022.

We have an APA with the EC, acting on behalf of various European Union 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 2022, we were notified by the EC that it was cancelling approximately 7 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 approximately 63 million doses.

In January 2023, we finalized a revised delivery schedule for the remaining 20 million committed doses under the APA that were originally scheduled for delivery during the first and second quarters of 2022 and are expected to be delivered in 2023.

In July 2022, we entered into an Amended and Restated SARS-CoV-2 Vaccine Supply Agreement (as amended on September 26, 2022, the “Amended and Restated UK Supply Agreement”) with The Secretary of State for Business, Energy and Industrial Strategy (as assigned to the UK Health Security Agency), acting on behalf of the government of the United Kingdom of Great Britain and Northern Ireland (the “Authority”), which amended and restated in its entirety the SARS-CoV-2 Vaccine Supply Agreement, dated October 22, 2020, between the parties (the “Original UK Supply Agreement”).

Under the Original UK Supply Agreement, the Authority agreed to purchase 60 million doses of NVX-CoV2373 and made an upfront payment to us.

Under the terms of the Amended and Restated UK Supply Agreement, the Authority agreed to purchase a minimum of 1 million doses and up to an additional 15 million doses (the “Conditional Doses”) of NVX-CoV2373, with the number of Conditional Doses contingent on, and subject to reduction based on, our timely achievement of supportive recommendations from the Joint Committee on Vaccination and Immunisation (the “JCVI”) that is approved by the UK Secretary of State for Health, with respect to use of the vaccine for (a) the general adult population as part of a SARS-CoV-2 vaccine booster campaign in the United Kingdom or (b) the general adolescent population as part of a SARS-CoV-2 vaccine booster campaign in the United Kingdom or as a primary series SARS-CoV-2 vaccination, excluding where that recommendation relates only to one or more population groups comprising less than one million members in the United Kingdom.

If the Authority does not purchase the Conditional Doses or the number of such Conditional Doses is reduced below 15 million doses of NVX-CoV2373, we would have to repay up to $225.0 million related to the upfront payment previously received from the Authority under the Original UK Supply Agreement.

Under the Amended and Restated UK Supply Agreement, the Authority also has the option to purchase up to an additional 44 million doses, in one or more tranches, through 2024.

As of November 30, 2022, the JCVI had not yet made a supportive recommendation with respect to NVX-CoV2373, thereby triggering, under the terms of the Amended and Restated UK Supply Agreement, (i) a reduction of the number of Conditional Doses from 15 million doses to 7.5 million doses, which reduced number of Conditional Doses are contingent on, and subject to further reduction based on, our timely achievement by November 30, 2023 of a supportive recommendation from JCVI that is approved by the UK Secretary of State for Health as described in the paragraph above, and (ii) an obligation for us to repay $112.5 million related to the upfront payment previously received from the Authority under the Original UK Supply Agreement, which is reflected in our consolidated balance sheet as Other current liabilities, with the remaining upfront payment balance of $112.5 million reflected in current Deferred revenue.

Under the terms of the Gavi APA, we received an upfront payment of $350.0 million from Gavi in 2021 and an additional payment of $350.0 million in the first quarter of 2022 related to our achieving EUL for NVX-CoV2373 by the WHO (the “Advance Payment Amount”).

On November 18, 2022, we delivered written notice to Gavi to terminate the Gavi APA on the basis of Gavi’s failure to procure the purchase of 350 million doses of NVX-CoV2373 from us as required by the Gavi APA.

As of November 18, 2022, we had only received orders under the Gavi APA for approximately 2 million doses.

On December 2, 2022, Gavi issued a written notice purporting to terminate the Gavi APA based on Gavi’s contention that the Company repudiated the agreement and, therefore, materially breached the Gavi APA.

Gavi also contends that, based on its purported termination of the Gavi APA, it is entitled to a refund of the Advance Payment Amount less any amounts that have been credited against the purchase price for binding orders placed by a buyer participating in the COVAX Facility.

As of December 31, 2022, the remaining Gavi Advance Payment Amount of $697.4 million, pending resolution of the dispute with Gavi related to a return of the remaining Advance Payment Amount, was reclassified from Deferred revenue to Other current liabilities in our consolidated balance sheet.

On January 24, 2023, Gavi filed a demand for arbitration with the International Court of Arbitration based on the claims described above.

Our response is currently due by March 2, 2023.

Arbitration is inherently uncertain, and while we believe that we are entitled to retain the remaining Advance Payment Amount received from Gavi, it is possible that we could be required to refund all or a portion of the remaining Advance Payment Amount from Gavi.

In July 2022, we entered into a modification to the USG 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 USG 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 February 2023, in connection with the execution of Modification 17 to the USG Agreement, the U.S.

government indicated to us that the award may not be extended past its current period of performance.

If the USG Agreement is not amended, as we had previously expected, then we may not receive all of the remaining $416 million in funding we had previously anticipated pursuant to the USG Agreement.

Our funding agreements currently include funding from CEPI in the form of one or more forgivable no interest term loans (“CEPI Forgivable Loan Funding”).

Payments received under the CEPI Forgivable Loan Funding are only repayable if NVX-CoV2373 manufactured by the CMO network funded by CEPI is sold to one or more third parties (which would have previously included, but is not limited to, any sales under our Gavi APA prior to its termination), and such sales cover our costs of manufacturing such vaccine, not including manufacturing costs funded by CEPI.

The timing and amount of any loan repayments is currently uncertain.

As of December 31, 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.

On January 31, 2023, we funded the outstanding principal amount of $325.0 million on the 2023 Notes, due February 1, 2023.

We funded our operations in 2022 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 USG Agreement that support our NVX-CoV2373 vaccine development activities.

We anticipate our future operations to be funded primarily by revenue from product sales, revenue under our USG Agreement, our cash and cash equivalents, and other potential funding sources.

The following table summarizes cash flows for 2022 and 2021:

2021 2020 Change

Summary of Cash Flows (in thousands):

Net cash (used in) provided by:

6 unchanged sentences

Cash, cash equivalents, and restricted cash at end of year $ 1,348,845 $ 1,528,259 $ (179,414)

Net cash provided by operating activities increased to $322.9 million for 2021, as compared to $42.5 million used in 2020.

The increase in cash provided is primarily due to payments under APAs recorded as deferred revenue, partially offset by funding of our increased net loss and the timing of payments to third parties.

During 2021, our investing activities primarily consisted of capital expenditures and purchases and maturities of marketable securities.

During 2020, our investing activities primarily consisted of capital expenditures, purchases and maturities of marketable securities, and our acquisition of Novavax CZ.

Net cash used in operating activities was $415.9 million for 2022, as compared to cash provided by operating activities of $322.9 million in 2021.

The decrease in cash from operating activities is primarily due to a decrease in upfront payments received under our APAs, timing of payments to vendors, and an increase in inventory production, partially offset by a reduction in our net loss.

Our investing activities primarily consisted of capital expenditures and, in 2021, $159.8 million in proceeds from maturities and sale of marketable securities, net of purchases.

Capital expenditures for the years ended December 31, 2022 and 2021 were $89.1 million and $54.5 million, respectively.

For 2022, we expect an increase in our capital expenditures due to further development activities for our NVX-CoV2373 program, including the additional build out of research and development and manufacturing facilities and related equipment, and the build-out of our new corporate office facility to accommodate anticipated increases in headcount.

Our financing activities consisted primarily of sales of our common stock under our At Market Issuance Sales Agreements, finance lease payments related to embedded leases and, to a much lesser extent, exercises of stock-based awards and purchases under our employee stock purchase plan.

Our financing activities consisted primarily of sales of our common stock, issuance of our 2027 Notes, payments of finance lease liabilities, and exercises of stock-based awards.

In 2022, we received net proceeds of approximately $179 million and $70 million from the sale of shares of common stock through our At Market Issuance Sales Agreements and a public offering at $10.00 per share, respectively.

In addition, we received net proceeds of $166.4 million during 2022 through the issuance of our 2027 Notes (see Note 11 to the accompanying consolidated financial statements).

In 2021, we received net proceeds of approximately $565 million from the sale of shares of common stock through our At Market Issuance Sales Agreements.

In 2020, we received net proceeds of approximately $877 million (this amount excludes $3.2 million received in the first quarter of 2021 for shares traded in late December 2020) from selling shares of common stock through our various At Market Issuance Sales Agreements and approximately $200 million through the issuance of preferred stock in a private placement.

Going Concern

The accompanying consolidated financial statements in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K have been prepared assuming that we will continue as a going concern within one year after the date that the financial statements are issued.

At December 31, 2022, we had $1.3 billion in cash and cash equivalents and restricted cash, of which $236.2 million was raised in December 2022 through concurrent sales of our common stock and issuance of our 2027 Notes.

On January 31, 2023, the Company funded the outstanding principal amount of $325.0 million on the 2023 Notes.

During 2022, we incurred a net loss of $657.9 million and had net cash flows used in operating activities of $415.9 million.

While our current cash flow forecast for the one-year going concern look forward period estimates that we have sufficient capital available to fund operations, this forecast is subject to significant uncertainty, including as it relates to 2023 revenue, funding from the U.S.

government, and pending arbitration.

Our 2023 revenue depends on our ability to successfully develop, manufacture, distribute, or market an updated monovalent or bivalent formulation of a vaccine candidate for COVID-19 for the fall 2023 COVID vaccine season, which is inherently uncertain and subject to a number of risks, including regulatory approval.

See “Risk Factors—Risks Related to Product Development and Commercialization—The emergence and transmissibility of variants of the SARS-CoV-2 virus, and the demand for bivalent vaccines, may affect market acceptance or sales of NVX-CoV2373, and our strategy to develop versions of our COVID-19 vaccine to protect against certain variants may not be successful.” In February 2023, in connection with the execution of Modification 17 to the USG Agreement, the U.S.

government indicated to us that the award may not be extended past its current period of performance, which may result in us not receiving all of the remaining $416 million in funding we had previously anticipated.

See “Risk Factors—Risks Related to Our Financial Condition and Capital Requirements—Our existing funding and supply agreements do not assure success of our vaccine candidates or that we will be able to fully fund our vaccine candidates.” On January 24, 2023, Gavi filed a demand for arbitration with the International Court of Arbitration regarding an alleged material breach by us of the Gavi APA.

The outcome of that arbitration is inherently uncertain, and it is possible we could be required to refund all or a portion of the remaining Advance payment Amount of $697.4 million.

See Note 3 and Note 18 to our consolidated financial statements in Part II, Item 8,

“Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K for additional information related to the arbitration with Gavi.

Management believes that, given the significance of these uncertainties, substantial doubt exists regarding our ability to continue as a going concern through one year from the date that these financial statements are issued.

Our ability to fund Company operations is dependent upon revenue related to vaccine sales for our products and product candidates, if such product candidates receive marketing approval and are successfully commercialized;

the resolution of certain matters, including whether, when, and how the dispute with Gavi is resolved;

and management’s plans, which include resolving the dispute with Gavi and may include raising additional capital through a combination of equity and debt financing, collaborations, strategic alliances, and marketing, distribution, or licensing arrangements.

New financings may not be available to us on commercially acceptable terms, or at all.

Also, any collaborations, strategic alliances, and marketing, distribution, or licensing arrangements may require us to give up some or all of our rights to a product or technology, which in some cases may be at less than the full potential value of such rights.

In addition, the regulatory and commercial success of NVX-CoV2373 and our other vaccine candidates, including an influenza vaccine candidate, CIC vaccine candidate, or a COVID-19 variant strain-containing monovalent or bivalent formulation, remains uncertain.

If we are unable to obtain additional capital, we will assess our capital resources and may be required to delay, reduce the scope of, or eliminate some or all of our operations, or downsize our organization, any of which may have a material adverse effect on our business, financial condition, results of operations, and ability to operate as a going concern.

Contractual Obligations

6 unchanged sentences

Finance leases obligation 74,837 29,153 5,680 5,968 34,036

Convertible notes (a) 325,000 — 325,000 — —

Convertible notes (1)

500,250 325,000 — 175,250 —

Contractual obligations recognized as of December 31, 2022

Purchase commitments (b) 826,112 826,112 — — —

Facilities lease agreement (c) 104,249 5,814 12,067 12,678 73,690

649,940 372,335 35,034 196,009 46,562

Purchase commitments (2)

560,638 560,638 — — —

Facilities lease agreement (3)

56,109 3,397 7,050 7,407 38,255

Total contractual obligations $ 1,266,687 $ 936,370 $ 42,084 $ 203,416 $ 84,817

(a) See Note 8 to the consolidated financial statements included in this Annual Report on Form 10-K regarding our Notes, which will mature on February 1, 2023, and bear cash interest of 3.75%, payable February 1 and August 1 of each year.

(b) This amount primarily represents our non-cancelable fixed payment obligations under certain CMO, CDMO, and lab supply agreements that we are not contractually able to terminate for convenience.

(1) We had $325.0 million of 3.75% convertible senior unsecured notes due February 1, 2023, which we repaid in full.

In 2022, we issued $175.3 million of 5.00% convertible senior unsecured notes due in 2027.

See “Note 11—Long-term Debt” included in our Notes to Consolidated Financial Statements for additional information related to our convertible notes.

(2) This amount primarily represents our non-cancelable fixed payment obligations under certain CMO, CDMO, and lab supply agreements that we are not contractually able to terminate for convenience.

Certain agreements provide for termination rights subject to termination fees.

Under such agreements, we are contractually obligated to make payments to vendors, mainly to reimburse them for their estimated unrecoverable expenses incurred.

As of December 31, 2021, these agreements are active

ongoing arrangements and the Company expects to receive value from these arrangements in the future.

The exact amount of such obligations is dependent on the timing of termination, and the exact terms of the relevant agreement, and cannot be reasonably estimated.

(c) This relates to the lease of 700 Quince Orchard that did not commence as of December 31, 2021 (see Note 7 to the consolidated financial statements).

As of December 31, 2022, these agreements are active ongoing arrangements and we expect to receive value from these arrangements in the future.

The amount of such obligations is dependent on the timing of termination and the terms of the relevant agreement, and cannot be reasonably estimated.

Our current obligations under non-cancelable purchase agreements are reflected in our consolidated balance sheets.

(3) This relates to the lease of floor space at 700 Quince Orchard that had not commenced as of December 31, 2022 (see Note 10 to the consolidated financial statements).

In addition to the above obligations, we enter into a variety of agreements and financial commitments in the normal course of business.

The terms generally allow us the option to cancel, reschedule, and adjust our requirements based on our business needs, prior to the delivery of goods or performance of services.

The terms generally allow us the option to cancel, reschedule, or adjust our requirements based on our business needs, prior to the delivery of goods or performance of services.

It is not possible to predict the maximum potential amount of future payments under these agreements due to the conditional nature of our obligations and the unique facts and circumstances involved in each particular agreement.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis