NOVAVAX INC 10-Q

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 (“Quarterly Report”) about expectations, beliefs, plans, objectives, assumptions, or future events or performance of Novavax, Inc. (“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, including our ability to continue as a going concern through one year from the date of Novavax’ unaudited financial statements for the period ended March 31, 2023; global restructuring and cost reduction plan, which includes a more focused investment in our NVX-CoV2373 program, reduction to our pipeline spending, the continued rationalization of our manufacturing network, a reduction to our global workforce, as well as the consolidation of facilities and infrastructure, the size and timing of the Company’s workforce reduction, the amount and timing of the charges and cash expenditures resulting from the workforce reduction, and the expected timing and impact of cost savings from our global restructuring and cost reduction plan; 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 NVX-CoV2373 (as defined below) 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, ongoing development of COVID-19 variant strain including the Phase 2b/3 Hummingbird™ trial, the timing of anticipated results and our efforts for the Fall 2023 vaccination season, 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 under the USG Agreement (as defined below); funding under our advance purchase agreements (“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; 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”), the 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, 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; challenges in implementing our global restructuring and cost reduction plan; challenges in obtaining commercial adoption of NVX-CoV2373 or a COVID-19 variant strain-containing formulation; and other risks and uncertainties identified in Part II, Item 1A “Risk Factors” of this Quarterly Report and in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022, 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. 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. 20 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. Overview We are 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 nanostructures of conformationally correct recombinant proteins that mimic those found on natural pathogens. This technology enables the immune system to recognize target proteins 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 some other vaccine approaches. Our vaccine candidates also incorporate our proprietary saponin-based Matrix-M™ adjuvant to enhance the immune response, 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”), that 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. We are also developing an influenza vaccine candidate, a COVID-19-Influenza Combination (“CIC”) vaccine candidate, as well as COVID-19 variant strain-containing formulation that we intend to provide in a monovalent or bivalent presentation in alignment with public health recommendations. In addition to COVID-19 and seasonal influenza, our other areas of focus include providing Matrix-M™ adjuvant for collaborations investigating the prevention of malaria, including R21/Matrix-M™ adjuvant malaria vaccine, which recently received authorization in several countries. We intend to focus the organization to align our investments and activities with our top priority of delivering an updated COVID-19 vaccine consistent with public health recommendations for strain composition for the 2023 Fall vaccination season. To maximize our opportunities and mitigate the significant risks and uncertainties of the COVID-19 market, we have taken several cost restructuring measures to reduce spend, extend our cash runway, and operate efficiently to best position the company to deliver longer-term growth. We discuss these cost restructuring strategies in greater detail in Note 2 to our consolidated financial statements in this Quarterly Report. 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 endemic and 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 (“Sf-/BV”) insect cell-expression system, which enables efficient, large-scale expression of the optimized protein. The Sf-/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 is a key differentiator within our platform. This adjuvant has enabled potent, well tolerated, and durable efficacy by stimulating the entry of antigen presenting cells (“APCs”) into the injection site and 21 enhancing antigen presentation in local lymph nodes. This in turn activates APCs, T-cell and B-cell populations, and plasma cells, which promotes the production of high affinity antibodies, an immune boosting response. This potent mechanism of action enables a lower dose of antigen required to achieve the desired immune response, thereby contributing to increased vaccine supply and manufacturing capacity. These immune-boosting and dose-sparing capabilities contribute to the adjuvant’s highly unique profile. We continue to evaluate commercial opportunities for the use of our Matrix-M™ adjuvant alongside vaccine antigens produced by other manufacturers. Matrix-M™ adjuvant is being evaluated in combination with several partner-led malaria vaccine candidates, including for R21/Matrix-M™ adjuvant, a malaria vaccine candidate created by the Jenner Institute, University of Oxford. The R21/Matrix-M™ adjuvant vaccine has been licensed to Serum Institute of India Pvt. Ltd. (“SIIPL”) for commercialization. Our adjuvant technology is also being investigated in veterinary applications and is a key component in equine vaccine to prevent Strangles. NVX-CoV2373 Regulatory and Licensure We are advancing NVX-CoV2373 through multiple regulatory approvals. We have received authorizations in over 40 countries globally from major regulatory agencies including the FDA, the WHO, the EMA, and the MHRA. To date, we have received approval, interim authorization, provisional approval, CMA, and EUA for the adult population, aged 18 and older, the adolescent population, aged 12 to 17 years, and the pediatric population, aged 7 to 11 years in select territories. The regulatory authorizations for NVX-CoV2373 include primary series and both homologous and heterologous booster indications within specific countries. For the territories in which our vaccine has gained authorization, NVX-CoV2373 is marketed under the brand names (i) Nuvaxovid™ (SARS-CoV-2 rS Recombinant, adjuvanted), (ii) Covovax™ (manufacturing and commercialization by SIIPL), or (iii) Novavax COVID-19 Vaccine, Adjuvanted. Below we highlight the first quarter 2023 and subsequent regulatory authorizations received through the date of this filing on Form 10-Q. In January 2023, our partner SK bioscience received expanded manufacturing and marketing approval from Korean Ministry of Food and Drug Safety for Nuvaxovid™ for use as a booster in adults aged 18 and older. We are working to continue to expand our label for heterologous boosting in adults, adolescents, and younger children, and to achieve supportive policy recommendations enabling broad market access. We continue to work closely with governments, regulatory authorities, and non-governmental organizations in our commitment to facilitate global access to our COVID-19 vaccine. Clinical Pipeline Our clinical pipeline is comprised of vaccine candidates for infectious diseases. Our lead product is our COVID-19 vaccine, NVX-CoV2373, which has received approval, interim authorization, provisional approval, CMA, or EUA for both adult and adolescent populations in over 40 countries. 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, while maintaining a favorable safety profile. Beyond COVID-19, our clinical pipeline includes seasonal influenza and CIC vaccines, in addition to our Matrix-M™ adjuvant being used for collaborations investigating the prevention of malaria. We remain focused on expanding our NVX-CoV2373 vaccine label within the booster and adolescent market following global regulatory authorizations. We continue to evaluate vaccine effectiveness through ongoing booster studies in our clinical trials, and we continue to advance development of our COVID-19 variant strain containing monovalent or bivalent formulation. In March 2023, we initiated the Phase 3 COVID-19 Omicron BA.5 clinical trial evaluating our prototype vaccine compared to an Omicron BA.5 vaccine, as well as a bivalent containing vaccine. Topline results are expected mid-year 2023, which we expect will confirm the strain-change approach we anticipate using for future variant vaccine candidate approvals. Further pediatric development is ongoing in the Phase 2b/3 Hummingbird™ Global Clinical Trial, which is evaluating the safety, immunogenicity, and effectiveness of NVX-CoV2373 in children. The trial includes three age de-escalation cohorts of 1,200 children each. The cohort aged six to 11 years has completed enrollment, and enrollment is ongoing in the cohort aged two to five years. Topline results in the cohort aged six to 11 years are expected mid-year 2023. We expect to leverage these clinical insights to pursue additional regulatory approvals of our COVID-19 vaccine for primary, booster, and pediatric indications globally, amidst the ongoing COVID-19 landscape. 22 Additionally, we are developing our quadrivalent nanoparticle influenza vaccine (“qNIV”) candidate, which we advanced through a successful Phase 3 study published in September 2021, demonstrating the utility of a stand-alone influenza vaccine or for use in a combination vaccine. We have subsequently updated our qNIV candidate for further development. We continue to progress a Phase 2 dose-confirming trial evaluating our stand-alone influenza vaccine candidate, qNIV and our CIC vaccine candidate, which combines NVX-CoV2373 and our updated qNIV approach in a single formulation. In January 2023, we completed enrollment of 1,575 participants in the Phase 2 CIC clinical trial. The clinical trial will 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. Although our COVID-19, CIC, and influenza stand-alone vaccine candidates are our near-term priorities, our partner-led malaria candidates present strong opportunities for future development. An ongoing Phase 3 clinical trial is being conducted for R21/Matrix-M™ adjuvant malaria vaccine, developed by our partner, the Jenner Institute, University of Oxford, manufactured by SIIPL, and is formulated with our Matrix-M™ adjuvant. As of the filing of this Quarterly Report, the R21/Matrix-M™ adjuvant malaria vaccine received authorizations in Ghana and Nigeria. We have an agreement with SIIPL related to its manufacture of R21/Matrix-M™ adjuvant malaria vaccine under which SIIPL purchases Matrix-M™ adjuvant, as well as pays royalties based on its vaccine sales. The pipeline chart below summarizes the core clinical development programs that we are focusing on in the near-term. (1) Authorized in select geographies under trade names Novavax COVID-19 Vaccine, Adjuvanted; Covovax™; and Nuvaxovid™. (2) Ongoing Phase 3 strain change trial. (3) R21/Matrix-M™ adjuvant malaria vaccine being commercialized by SIIPL. Business Highlights First Quarter 2023 and Recent Highlights During the quarter, we made progress delivering on the three near-term priorities laid out during our fourth quarter 2022 earnings call. Priority #1: Deliver an Updated, Competitive COVID Vaccine for the Upcoming 2023 Fall Vaccination Season We remain focused on our top priority of delivering an updated, competitive COVID vaccine consistent with public health recommendations for the 2023 Fall vaccination season. • Ongoing discussions with global regulators on strain selection guidance and advancement of commercial preparedness for Fall 2023 ◦ Invited to join the U.S. FDA Technology Working Group to evaluate emerging variants in preparation for strain selection at the June VRBPAC meeting ◦ Ongoing development of variant strains “at risk” to support regulatory and commercial readiness ◦ Modified U.S. government agreement for up to 1.5 million additional doses of Novavax’s COVID vaccine for delivery in 2023, with initial delivery supplied in five-dose vials in the first quarter of 2023 • Continued expansion of Nuvaxovid label to enable broader uptake in the long-term commercial market 23 • Completed enrollment and on track to receive topline results mid-2023 for Part 2 of Phase 3 strain change study, which is a regulatory prerequisite for updating our 2023-2024 vaccine composition • Expect to file U.S. Biologics License Application in second half of 2023 Priority #2: Reduce our Rate of Spend, Manage our Cash Flow and Evolve our Scale & Structure We are focused on significantly reducing our expenses while retaining the key capabilities needed to execute our operating plans. • Announced a global restructuring and cost reduction plan, which is expected to reduce our annual combined 2024 R&D and SG&A expenses ◦ Includes consolidation of facilities and infrastructure and approximately 25% reduction in global workforce ◦ 2023 R&D and SG&A expense reduction expected to be based on timing of implementation, local laws and regulations and other factors Priority #3: Leverage our Technology Platform, our Capabilities and our Portfolio of Assets to Drive Additional Value Beyond Nuvaxovid Alone We continue to leverage our pipeline and technology with the intent of delivering long-term growth and protecting global health. • Announced positive Phase 2 COVID-Influenza Combination (CIC) vaccine, standalone influenza, and high-dose COVID vaccine data, which evaluated safety and immunogenicity of different formulations ◦ All three vaccine candidates were well-tolerated, demonstrated a reassuring preliminary safety profile, and had reactogenicity comparable to authorized comparators ◦ Preliminary topline immune responses for all three vaccine candidates were robust • Serum Institute of India has received authorizations in Ghana and Nigeria for R21/Matrix-M™ adjuvanted malaria vaccine ◦ Vaccine was developed by Jenner Institute, University of Oxford, and formulated with our proprietary Matrix-M™ adjuvant Sales of Common Stock 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 its common stock. As of March 31, 2023, the remaining balance available under the June 2021 Sales Agreement was approximately $318 million. There were no sales recorded under the June 2021 Sales Agreement during the three months ended March 31, 2023. During the three months ended March 31, 2022, we sold 2.2 million shares of our common stock resulting in net proceeds of approximately $179 million, under the June 2021 Sales Agreement. Critical Accounting Policies and Use of Estimates The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements (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, 2022, as filed with the SEC. 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 ”). 24 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 March 31, 2023 and 2022 Revenue Three Months Ended March 31, 2023 2022 Change Revenue (in thousands): Product sales $ (7,457) $ 585,628 $ (593,085) Grants 87,379 99,301 (11,922) Royalties and other 1,029 19,042 (18,013) Total revenue $ 80,951 $ 703,971 $ (623,020) Revenue for the three months ended March 31, 2023 was $81.0 million as compared to $704.0 million for the same period in 2022, a decrease of $623.0 million. Revenue for the three months ended March 31, 2023 was primarily for services performed under our U.S. government agreement with Advanced Technology International (“USG Agreement”), the Consortium Management Firm acting on behalf of the Medical CBRN Defense Consortium in connection with the partnership formerly known as Operation Warp Speed, net of a credit related to product sales of NVX-CoV2373. Revenue for the three months ended March 31, 2022 was primarily comprised of revenue from product sales of NVX-CoV2373, which commenced in 2022 and, to a lesser extent, revenue for services performed under the USG Agreement. The reduction in revenue is primarily due to the decrease in product sales of NVX-CoV2373 during the three months ended March 31, 2023 as compared to the same period in 2022. Product sales Product sales for the three months ended March 31, 2023 were $(7.5) million as compared to $585.6 million during the three months ended March 31, 2022. Product sales in the three months ended March 31, 2023, included a credit of $64.7 million for certain doses delivered in 2022 that qualified for replacement. The credit is the result of a single lot sold to the Australian government that upon pre-planned 6-month stability testing was found to have fallen below the defined specifications and the lot was therefore removed from the market. The geographic distribution of product sales was as follows: Three Months Ended March 31, 2023 2022 Change North America $ — $ 64,762 $ (64,762) Europe 57,267 413,745 (356,478) Rest of the world (64,724) 107,121 (171,845) Total product revenue $ (7,457) $ 585,628 $ (593,085) Grants Grant revenue during the three months ended March 31, 2023 was $87.4 million as compared to $99.3 million during the same period in 2022, a decrease of $11.9 million. Grant revenue for 2023 and 2022, comprised revenue for services performed under the Project Agreement. The decrease was primarily due to the net effect of a cumulative constraint on revenue as a result of the execution of Modification 17 to the Project Agreement during the three months ended March 31, 2023. 25 Expenses Three Months Ended March 31, 2023 2022 Change Expenses (in thousands): Cost of sales $ 34,086 15,204 $ 18,882 Research and development 247,101 383,483 (136,382) Selling, general, and administrative 112,532 95,992 16,540 Total expenses $ 393,719 $ 494,679 $ (100,960) Cost of Sales Cost of sales was $34.1 million for the three months ended March 31, 2023, including expense of $20.2 million related to excess, obsolete, or expired inventory and losses on firm purchase commitments. Cost of sales was $15.2 million, or 3% of product sales, for the three months ended March 31, 2022, due to the significant write off of pre-launch inventory as research and development expenses. 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 March 31, 2023, we had approximately $6.4 million of salable 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 March 31, 2023 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 $49.1 million, an adjustment of $15.0 million as compared to cost of sales recognized. If inventory sold for the three months ended March 31, 2022 was valued at expected standard cost, adjusted cost of sales for the period would have been approximately $160.0 million, or 27% of product sales, an adjustment of $145.0 million. 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 decreased to $247.1 million for the three months ended March 31, 2023 as compared to $383.5 million for the three months ended March 31, 2022, a decrease of $136.4 million. The decrease was primarily due to a reduction in overall expenditures relating to development activities on coronavirus vaccines, including NVX-CoV2373 and Omicron variant vaccine candidates, bivalent formulations, and CIC, as summarized in the table below (in thousands): Three Months Ended March 31, 2023 2022 Coronavirus vaccines $ 140,014 $ 288,933 Influenza vaccine 1,476 1,296 Other vaccine development programs 481 803 Total direct external research and development expense 141,971 291,032 Employee expenses 53,413 43,742 Stock-based compensation expense 13,858 16,887 Facility expenses 19,402 13,208 Other expenses 18,457 18,614 Total research and development expenses $ 247,101 $ 383,483 Research and development expenses for coronavirus vaccines for the three months ended March 31, 2023 and 2022, included a benefit of $11.7 million related to previously accelerated manufacturing costs and an expense of $21.0 million related to the acceleration of manufacturing costs, respectively, for leases that we determined were embedded in multiple 26 manufacturing supply agreements with Contract Manufacturing Organizations (“CMOs”) and contract manufacturing and development organizations (“CDMOs”). Selling, General, and Administrative Expenses Selling, general, and administrative expenses increased to $112.5 million for the three months ended March 31, 2023 from $96.0 million for the same period in 2022, an increase of $16.5 million. The increase in selling, general, and administrative expenses is primarily due to an increase in expenses related to the expansion of our commercial sales operations in Europe and other costs in support of our NVX-CoV2373 program, partially offset by certain cost containment measures to reduce our operating spend. For the remainder of 2023, we plan to restructure our global footprint to reduce our annual combined research and development, and selling, general, and administrative spend. Other Expense Three Months Ended March 31, 2023 2022 Change Other income (expense): Interest expense $ (4,316) $ (4,876) $ 560 Other income 24,362 1,654 22,708 Total other income (expense), net $ 20,046 $ (3,222) $ 23,268 Total other income, net was $20.0 million for the three months ended March 31, 2023 as compared to a total other expense, net of $3.2 million for the same period in 2022. The increase in other income is due to the favorable impact of exchange rates on foreign currency denominated balances and an increase in investment income due to higher interest rates. Income Tax Expense During the three months ended March 31, 2023 and 2022, we recognized $1.2 million and $2.7 million, respectively, of income tax expense related to federal, state, and foreign income taxes and foreign withholding tax expense on royalties. Net Loss Three Months Ended March 31, 2023 2022 Change Net Income (Loss) (in thousands, except per share information): Net income (loss) $ (293,905) $ 203,408 $ (497,313) Net income (loss) per share, basic $ (3.41) $ 2.66 $ (6.07) Net income (loss) per share, dilutive $ (3.41) $ 2.56 $ (5.97) Weighted average shares outstanding, basic 86,158 76,457 9,701 Weighted average shares outstanding, dilutive 86,158 80,711 5,447 Net loss for the three months ended March 31, 2023 was $293.9 million, or $3.41 per share, basic, as compared to net income of $203.4 million, or $2.66 per share, basic, for the same period in 2022. The decrease in income during the three months ended March 31, 2023, was primarily due to the decline in commercial sales of NVX-CoV2373 in the three months ended March 31, 2023, offset by a decrease in research and development expenses. The increase in weighted average shares outstanding for the three months ended March 31, 2023 was primarily a result of the sale of common stock and exercises of stock-based awards. 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 and repayments under our grant 27 agreements; our projected activities related to the development and commercial support of NVX-CoV2373 and variant candidates, including significant commitments under various contract research organization, CMO, and CDMO agreements; the progress of preclinical studies and clinical trials; the time and costs involved in obtaining regulatory approvals; the costs of filing, prosecuting, defending, and enforcing patent claims and other intellectual property rights; and other manufacturing, sales, and distribution costs. We plan to continue developing other vaccines and product candidates, such as our influenza vaccine candidate and potential combination vaccines candidates, which are in various stages of development. We have entered into supply agreements, sometimes referred to as APAs, with Gavi, the Vaccine Alliance (“Gavi”); the European Commission (“EC”); and various countries globally. We also have grant and license agreements. As of March 31, 2023, 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, our advance purchase agreement with Gavi (the “Gavi APA”) and the reduction in doses related to the Amended and Restated UK Supply Agreement (as defined below), was approximately $3 billion, of which $689.8 million is included in Deferred revenue in our Consolidated balance sheet. Failure to meet regulatory milestones, timely obtain 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. Pursuant to the Fujifilm Settlement Agreement, we are responsible for a Settlement Payment of up to $185.0 million to Fujifilm in connection with the cancellation of manufacturing activity at FDBT under the Fujifilm CSA, of which (i) $47.8 million, constituting the initial reservation fee under the CSA, was credited against the Settlement Payment on September 30, 2022 and (ii) the remaining balance is to be paid in four equal quarterly installments of $34.3 million each. We paid the first installment of $34.3 million during the three months ended March 31, 2023 and the remaining balance of $102.9 million is reflected in Accrued expenses (see Note 4 to our consolidated financial statements in this Quarterly Report). During April 2023, we made a payment of $27.0 million to Par Sterile Products, LLC (“Par”) under the Settlement Agreement and Release of Claims (see Note 15 to our consolidated financial statements in this Quarterly Report). 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 in doing so recognize that significant costs may be incurred. We have an APA with the Commonwealth of Australia for the purchase of doses of NVX-CoV2373 (the “Australia APA”). In April 2023, we amended the Australia APA to reduce the number of doses to be delivered with a commensurate increase in the per-dose price, such that the total contract value of the Australia APA is maintained with doses to be delivered through 2024. In May 2023, we extended a credit for certain doses delivered in 2022 to Australia that qualified for replacement under the Australia APA. This credit is the result of a single lot sold to the Australian government that upon pre-planned 6-month stability testing was found to have fallen below the defined specifications and the lot was therefore removed from the market. The credit will be applied against the future sale of doses to Australia. We have an APA with Her Majesty the Queen in Right of Canada as represented by the Minister of Public Works and Government Services for the purchase of doses of NVX-CoV2373 (the “Canada APA”). In April 2023, we amended the Canada APA to forfeit certain doses originally scheduled for delivery in 2022 for a payment of $100.4 million expected to be received in the second quarter of 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 28 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. In April 2023, we repaid the $112.5 million related to the November 30, 2022 triggering event. If we are unable to timely achieve a supportive recommendation from the JCVI by November 30, 2023, a reduction in the number of Conditional Doses from 7.5 million doses to zero will be triggered and we may be required to repay an additional $112.5 million in 2024. 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 2022 related to our achieving an emergency use license 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. We filed our Answer and Counterclaims on March 2, 2023. On April 5, 2023, Gavi filed its Reply to our Counterclaims. 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 will be required to refund all or a portion of the remaining Advance Payment Amount from Gavi. 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 $336.4 million in funding we had previously anticipated pursuant to the USG Agreement. Modification 17 included provisions requiring that the payment of $60.0 million of consideration associated with manufacturing work now be contingent upon meeting certain milestones, including the delivery of up to 1.5 million doses of NVX-CoV2373 and development and regulatory milestones related to commercial readiness, expansion of the EUA and development of multiple vial presentations. Our funding agreements currently include funding from the Coalition for Epidemic Preparedness Innovations (“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 March 31, 2023, we had $636.9 million in cash and cash equivalents and restricted cash as compared to $1.3 billion as of December 31, 2022. We funded our operations for the three months ended March 31, 2023 with cash and cash equivalents and revenue from product sales, together with revenue under the USG Agreement that support our NVX-CoV2373 vaccine development 29 activities. In May 2023, we announced our plan to restructure our global footprint to reduce our planned expenditures. 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 the three months ended March 31, 2023 and 2022 (in thousands): Three Months Ended March 31, 2023 2022 Change Net cash provided by (used in): Operating activities $ (325,593) $ (88,510) $ (237,083) Investing activities (23,558) (16,826) (6,732) Financing activities (354,379) 159,865 (514,244) Effect on exchange rate on cash, cash equivalents, and restricted cash (8,372) 1,312 (9,684) Net increase (decrease) in cash, cash equivalents, and restricted cash (711,902) 55,841 (767,743) Cash, cash equivalents, and restricted cash at beginning of period 1,348,845 1,528,259 (179,414) Cash, cash equivalents, and restricted cash at end of period $ 636,943 $ 1,584,100 $ (947,157) Net cash used in operating activities was $325.6 million for the three months ended March 31, 2023, as compared to $88.5 million for the same period in 2022. The increase in cash used in operating activities is primarily due to a decrease in upfront payments received under our APAs, partially offset by the timing of payments to vendors. Net cash used in investing activities was $23.6 million for the three months ended March 31, 2023, as compared to $16.8 million for the same period in 2022. The increase in cash used in investing activities is primarily due to an increase in internal use software expenditure. Net cash used in finance activities was $354.4 million for the three months ended March 31, 2023, as compared to net cash provided by finance activities of $159.9 million for the same period in 2022. The increase in cash used in financing activities is primarily due to the $325 million repayment of our 3.75% Convertible notes during 2023 and net proceeds of approximately $179 million from the sales of our common stock under our June 2021 Sales Agreement during 2022. Going Concern The accompanying unaudited consolidated financial statements in Part I, Item 1, “Consolidated Financial Statements” of this Quarterly Report 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 March 31, 2023, we had $636.9 million in cash and cash equivalents and restricted cash. During the three months ended March 31, 2023, we incurred a net loss of $293.9 million and had net cash flows used in operating activities of $325.6 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 revenue for the next twelve months, funding from the U.S. government, and a pending matter subject to arbitration proceedings. Our revenue projections depend 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 and commercial adoption. 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 $336.4 million in funding we had previously anticipated. 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 15 to our unaudited consolidated financial statements in Part I, Item 1, “Consolidated Financial Statements” of this Quarterly Report 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. In accordance with Accounting Standards Codification 205-40,  Going Concern , we evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that these unaudited consolidated financial statements are issued. In May 2023, we announced a 30 global restructuring and cost reduction plan. This plan includes a more focused investment in our NVX-CoV2373 program, reduction to our pipeline spending, the continued rationalization of our manufacturing network, a reduction to our global workforce, as well as the consolidation of facilities and infrastructure. The planned workforce reduction includes an approximately 25% reduction in our global workforce, comprised of an approximately 20% reduction in full-time Novavax employees and the remainder comprised of contractors and consultants. We expect the full annual impact of the cost savings to be realized in 2024 and approximately half of the annual impact to be realized in 2023 due to timing of implementing the measures, and the applicable laws, regulations, and other factors in the jurisdictions in which we operate. We expect to record a charge of approximately $10 million to $15 million related to one-time employee severance and benefit costs, the majority of which is expected to be incurred in the second quarter of 2023 and are evaluating the anticipated costs related to the consolidation of facilities and infrastructure. Our ability to fund our 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 cost reductions associated with our global restructuring and cost reduction plan. Our plans 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 further 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.