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 our unaudited financial statements for the period ended June 30, 2023; our global restructuring and cost reduction plan (“Restructuring 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 our workforce reduction; the impact of our decision to progress our COVID-19-Influenza Combination (“CIC”) vaccine candidate toward late-stage development on our workforce requirements; the amount and timing of the charges and cash expenditures resulting from our 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, including our updated monovalent Omicron XBB.1.5 COVID-19 vaccine, which is referred to as our “XBB COVID vaccine”; the conduct, timing, and potential results from clinical trials; plans for and potential timing of regulatory filings, including our submission to the U.S. Food and Drug Administration (“FDA”) for the Biologics License Application for the full approval of the Novavax COVID-19 Vaccine, Adjuvanted; 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, ongoing development of our influenza vaccine candidate, COVID-19-Influenza Combination (“CIC”) vaccine candidate, high-dose COVID-19 vaccine candidate, and COVID-19 variant strain-containing monovalent formulation, including the Phase 2b/3 Hummingbird™ trial, and the timing of anticipated results from 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; 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, our ability to successfully develop, manufacture, distribute, or market an XBB COVID vaccine for COVID-19 for the fall 2023 COVID vaccine season, which is inherently uncertain and subject to a number of risks, including regulatory authorization, ability to timely deliver doses and commercial adoption and market acceptance; challenges in obtaining commercial adoption of NVX-CoV2373 or any COVID-19 variant strain containing formulation; challenges satisfying, alone or together with partners, various safety, efficacy, and product characterization requirements, including those related to process qualification, assay validation, and stability testing, necessary to satisfy applicable regulatory authorities, such as the 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; challenges or delays in conducting clinical trials; or obtaining regulatory authorization for our product candidates, including for our monovalent XBB COVID vaccine in time for the fall 2023 vaccination season, or for future COVID variant strain changes manufacturing distribution or export delays or challenges, including the requirement to obtain approval from the drug licensing body in India for the distribution of our XBB COVID vaccine to timely deliver such vaccine candidate for the fall 2023 vaccination season; our exclusive dependence on SIIPL and SLS for co-formulation and filling, and PCI for finishing NVX-CoV2373 and the impact of any delays or disruptions in these suppliers’ operations on the delivery of customer orders; 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 23 reduction plan; and other risks and uncertainties identified in Part II, Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, in Part II, Item 1A “Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 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. 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 full marketing authorization (“MA”), 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. Additionally, in partnership with regulators and public health authorities, we have been developing and manufacturing at commercial scale our XBB COVID vaccine that is in line with the FDA, WHO, and EMA recommendations for the 2023 fall season. We intend to deliver our XBB COVID vaccine for the 2023 fall vaccination campaign pending authorization from regulatory authorities. We are also developing a stand-alone influenza vaccine candidate, high-dose COVID-19 vaccine candidate, and a CIC vaccine candidate. 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, as well as other preclinical vaccine research with our Matrix-M™ adjuvant in partnership with the Bill & Melinda Gates Medical Research Institute. We intend to focus the organization to align our investments and activities with our top priority of delivering our XBB COVID vaccine for the 2023 fall season. To maximize our opportunities and mitigate the significant risks and uncertainties of the COVID-19 market, we have progressed our cost restructuring measures to reduce spend, extend our cash runway, and operate efficiently to seek 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 24 endemic and emerging infectious diseases. Recombinant Nanoparticle Vaccine Technology Once a pathogen of interest has been identified, the genetic sequence encoding an antigen is selected for 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 protein-based antigens that are properly folded and modified—which can be critical for functional, protective immunity. 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 enhancing antigen presentation in local lymph nodes. This in turn activates APCs, T-cell and B-cell populations, and plasma cells, which promote the production of high affinity antibodies, an immune boosting response. This potent mechanism of action enables a lower dose of antigen 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. Additionally, in May 2023, we entered into a 3-year agreement with the Bill & Melinda Gates Medical Research Institute to provide our Matrix-M™ adjuvant for use in preclinical vaccine research. Our adjuvant technology is also being used by commercial partners as a key component in veterinary vaccines against equine influenza and Strangles as well as the manufacture of black-widow anti-venom. COVID-19 Vaccine Regulatory and Licensure We continue to expand the regulatory authorizations for our COVID-19 vaccine and remain focused on the planned EUA request for our XBB COVID vaccine for the 2023 fall season. We have received authorizations for NVX-CoV2373 in over 40 countries globally including from major regulatory agencies including the FDA, the WHO, the EMA, and the MHRA. To date, we have received full MA, 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 received regulatory authorizations, 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 second quarter 2023 and subsequent regulatory progress made for NVX-CoV2373 through the date of this filing on Form 10-Q. In July 2023, we initiated the rolling submission to the U.S. FDA for the Biologics License Application for the full approval of the Novavax COVID-19 Vaccine, Adjuvanted in individuals aged 12 years and older. In July 2023, the European Commission in the European Union granted our first full MA for Nuvaxovid™ as primary series in individuals aged 12 and older and as a booster in adults aged 18 and older. This decision followed the positive opinion in May 2023 for full MA from the Committee for Medicinal Products for Human Use of the European Medicines Agency. In May 2023, the Singapore Health Sciences Authority granted extended interim authorization for Nuvaxovid™ as a non-mRNA option in adolescents aged 12 through 17 years. 25 Additionally in May 2023, Taiwan’s Food and Drug Administration granted EUA for Nuvaxovid™ as a booster in adolescents aged 12 through 17 years. We are working to continue to expand our label for heterologous boosting in adults and adolescents, for primary and re-vaccination in 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, with our COVID-19 vaccine, NVX-CoV2373, as our lead product. NVX-CoV2373 has received authorizations for both adult and adolescent populations globally. We advanced NVX-CoV2373, through two pivotal Phase 3 clinical trials that demonstrated high efficacy against both the original COVID-19 strain and commonly circulating COVID-19 variants during the conduct of the trials, while maintaining a favorable safety profile. We are in the process of developing our XBB COVID vaccine, which is in line with the FDA, WHO, and EMA recommendations for the 2023 fall season. In June 2023, at the U.S. Vaccines and Related Biological Products Advisory Committee's meeting we shared nonclinical data demonstrating that our XBB COVID vaccine induced functional immune responses for Omicron XBB.1.5, XBB1.16, and XBB.2.3 subvariants indicating broad responses that could be applicable to forward-drift variants. We are finalizing our COVID-19 Phase 3 Strain-Change interim study report and additional nonclinical and manufacturing data summaries to support our XBB COVID vaccine for EUA and other regulatory authorizations. This is in-line with the expectation set by the U.S. Health and Human Services letter to all COVID-19 manufacturers communicating that the FDA will take regulatory action on submissions and the Centers for Disease Control and Prevention will provide vaccination recommendations in the latter part of September 2023. Pending EUA and additional regulatory authorizations, we expect to commercialize our XBB COVID vaccine for the 2023 fall season providing access and accessibility to a protein-based choice within the market. 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. 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. Coronavirus Vaccine Clinical Development We continue to evaluate vaccine effectiveness through ongoing and planned booster studies to support our planned requests for authorization to the FDA, WHO, and EMA for our XBB COVID vaccine for the upcoming 2023 fall season. We expect to leverage these studies to pursue additional regulatory authorizations of our COVID-19 vaccine for primary, re-vaccination, and pediatric indications globally. Phase 3 Strain-Change Trial In August 2023, we announced topline results from the Phase 3 Strain-Change Trial that achieved all three co-primary 26 endpoints demonstrating immunologic superiority for the Omicron BA.5 variant of a bivalent prototype and Omicron BA.5 vaccine compared to our prototype vaccine (NVX-CoV2373). The study compared our prototype vaccine (NVX-CoV2373), to a monovalent Omicron BA.5 vaccine and a bivalent vaccine (prototype and Omicron BA.5) in 750 adults who had previously received three or more doses of mRNA vaccine. This study design was developed in consultation with regulatory agencies to support the upcoming strain-change EUA request to the FDA for our XBB COVID vaccine. The data also showed that the monovalent Omicron BA.5 vaccine performed better with higher neutralization titers and seroresponse rates than the bivalent vaccine (prototype and Omicron BA.5), supporting the use of our XBB COVID vaccine for the 2023 fall vaccination season. These results show that our protein-based vaccine can be successfully adapted to new variant strains. Phase 2b/3 Hummingbird™ Trial In August 2023, we announced topline results from our Phase 2b/3 Hummingbird™ trial that met its primary endpoints in children aged 6 through 11 years confirming immunologic effectiveness. This ongoing trial is evaluating the safety, effectiveness (immunogenicity), and efficacy of two doses of NVX-CoV2373, followed by a booster 6 months after the primary vaccination series. The trial includes three age de-escalation cohorts of 1,200 children each. The next cohort aged 2 through 5 years is fully enrolled, with topline results expected in the fourth quarter of 2023. COVID-Influenza Combination and Stand-alone Influenza Program In May 2023, we announced preliminary topline data from our Phase 2 trial for CIC, stand-alone influenza and high-dose COVID-19 vaccine candidates. All three vaccine candidates contain our Matrix-M™ adjuvant, showed preliminary robust immune responses, reassuring safety profiles, and reactogenicity that was comparable to the licensed influenza vaccine comparator arms. We intend to further explore our options to progress select candidates into late-stage development. R21/Matrix-M™ Adjuvant Malaria Vaccine 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 and manufactured by SIIPL, which is formulated with our Matrix-M™ adjuvant. In April 2023, the R21/Matrix-M™ adjuvant malaria vaccine received multiple authorizations including in Ghana and Nigeria as well as in July 2023 received authorization in Burkina Faso. 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. Business Highlights Second Quarter 2023 and Recent Highlights During the second quarter, we continued to make progress on our three key priorities for 2023. Priority #1: Deliver an Updated COVID Vaccine for the Upcoming 2023 Fall Vaccination Season During the second quarter, we continued preparations to deliver our updated XBB COVID vaccine for the 2023 fall season. In most of our key target markets, including the U.S., the Novavax vaccine, if authorized, would be the only non-mRNA protein-based XBB COVID vaccine available. • Continue to prepare to deliver our updated XBB COVID vaccine for the fall, consistent with recommendations from the FDA, EMA and WHO ◦ Initiated filing in the U.S., with submissions in the European Union (“EU”) and Canada to follow in the coming weeks ◦ Manufacturing ongoing at commercial scale to supply global markets ◦ Fully deployed commercial teams across the U.S., EU and other select markets, with executed contracts to support market access 27 • Received first Full Marketing Authorization in the EU for Nuvaxovid™ as a primary series in individuals aged 12 and older and as a booster in adults aged 18 and older • Initiated rolling submission of U.S. Biologics License Application (BLA) for full approval of the Novavax COVID-19 Vaccine, Adjuvanted for adults and adolescents aged 12 through 18 Priority #2: Reduce our Rate of Spend, Manage our Cash Flow and Evolve our Scale and Structure We have made significant progress towards strengthening our financial position. We continued to deliver on our commitments to reduce our spend, address our one-time liabilities, and improve our cash flow, with the goal of building a solid financial foundation for long-term value creation. • Reduced current liabilities by $323 million during the second quarter and by $864 million in the first half of 2023 • Reduced combined research and development and selling, general and administrative expenses to $313 million in the second quarter of 2023, compared to $398 million in the same period in 2022 • On track with our Restructuring Plan and reiterate target to reduce our annual combined research and development and selling, general and administrative expenses by approximately 20% to 25% in 2023 versus 2022, and by approximately 40% to 50% in 2024 versus 2022 • Executed amended Canada APA in June 2023, outlining an updated delivery schedule for Nuvaxovid™ and negotiated up to $350 million in 2023 payments Priority #3: Leverage our Technology Platform, our Capabilities and our Portfolio of Assets to Drive Additional Value Beyond Nuvaxovid TM Alone We continued to leverage our pipeline and technology platform with the intent of delivering long-term growth and protecting global health. • Based on the ongoing receipt and analysis of our Phase 2 safety and immunogenicity results for CIC, decision to make strategic stage gate investments in 2023 and 2024 to advance our co-formulated CIC vaccine candidate in preparation for late-stage development • Continued to advance partnerships with Matrix-M TM adjuvant technology ◦ In partnership with Oxford University and SIIPL, secured authorizations in Ghana, Nigeria and Burkina Faso for R21/Matrix-M TM malaria vaccine leveraging our Matrix-M TM adjuvant technology • Announced partnership with Bill & Melinda Gates Medical Research Institute to provide our Matrix-M TM adjuvant for use in preclinical vaccine research 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 $500.0 million in gross proceeds of shares of its common stock. During the three and six months ended June 30, 2023, we sold 7.9 million shares of our common stock under our June 2021 Sales Agreement resulting in net proceeds of approximately $68 million, of which $6 million was included in prepaid expenses and other current assets as of June 30, 2023 and received in cash in July 2023. As of June 30, 2023, the remaining balance available under the June 2021 Sales Agreement was approximately $249 million. During the six months ended June 30, 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 28 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 ”). 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 June 30, 2023 and 2022 Revenue Three Months Ended June 30, 2023 2022 Change Revenue (in thousands): Product sales $ 285,163 $ 55,455 $ 229,708 Grants 137,079 107,774 29,305 Royalties and other 2,184 22,696 (20,512) Total revenue $ 424,426 $ 185,925 $ 238,501 Revenue for the three months ended June 30, 2023 was $424.4 million as compared to $185.9 million for the same period in 2022, an increase of $238.5 million. Revenue for the three months ended June 30, 2023 and June 30, 2022 was primarily comprised of revenue from product sales of NVX-CoV2373 and 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. The increase in revenue is primarily due to an increased quantity of dose sales of NVX-CoV2373 during the three months ended June 30, 2023 as compared to the same period in 2022. Product sales Product sales for the three months ended June 30, 2023 were $285.2 million as compared to $55.5 million during the three months ended June 30, 2022. Our product sales related to sales of NVX-CoV2373 under our APA agreements. The geographic distribution of product sales was as follows: Three Months Ended March 31, 2023 2022 Change North America $ — $ — $ — Europe 1,518 — 1,518 Rest of the world 283,645 55,455 228,190 Total product sales revenue $ 285,163 $ 55,455 $ 229,708 Grants Grant revenue during the three months ended June 30, 2023 was $137.1 million as compared to $107.8 million during the same period in 2022, an increase of $29.3 million. Grant revenue for 2023 and 2022, comprised revenue for services performed under our USG Agreement. The increase was primarily due to increased support activities under the USG Agreement during the three months ended June 30, 2023. 29 Expenses Three Months Ended June 30, 2023 2022 Change Expenses (in thousands): Cost of sales $ 55,777 271,077 $ (215,300) Research and development 219,475 289,648 (70,173) Selling, general, and administrative 93,717 108,160 (14,443) Total expenses $ 368,969 $ 668,885 $ (299,916) Cost of Sales Cost of sales was $55.8 million for the three months ended June 30, 2023, including expenses of $19.8 million related to excess, obsolete, or expired inventory and losses on certain firm purchase commitments and a credit of $17.9 million related to negotiated certain reductions to previously recognized firm purchase commitments. Cost of sales was $271.1 million for the three months ended June 30, 2022, including expense of $255.3 million related to excess, obsolete, or expired inventory and losses on firm purchase commitments. Prior to receiving regulatory approval, we expensed manufacturing costs as research and development expenses. After receiving regulatory approval, we capitalize the costs of production for a particular supply chain when we determine that we have a present right to the economic benefit associated with the product. While we tracked the quantities of our manufactured vaccine product and components, we did not track pre-approval manufacturing costs and therefore the manufacturing cost of our pre-launch inventory produced prior to approval is not reasonably determinable. However, based on our expectations for future manufacturing costs to produce our vaccine product and components inventory, we estimate at June 30, 2023, we had approximately $25.9 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 June 30, 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 $71.7 million, an adjustment of $15.9 million as compared to cost of sales recognized. If inventory sold for the three months ended June 30, 2022 was valued at expected standard cost, adjusted cost of sales for the period would have been approximately $279.5 million, an adjustment of $8.4 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 were $219.5 million for the three months ended June 30, 2023 as compared to $289.6 million for the three months ended June 30, 2022, a decrease of $70.2 million. The decrease was primarily due to a reduction in overall expenditures relating to development activities on coronavirus vaccines, including NVX-CoV2373 and XBB COVID vaccine, and CIC, as summarized in the table below (in thousands): Three Months Ended June 30, 2023 2022 Coronavirus vaccines $ 139,646 $ 201,015 Influenza vaccine — 2,274 Other vaccine development programs 285 224 Total direct external research and development expense 139,931 203,513 Employee expenses 46,132 43,177 Stock-based compensation expense 9,946 19,695 Facility expenses 14,158 10,863 Other expenses 9,308 12,400 Total research and development expenses $ 219,475 $ 289,648 Research and development expenses for coronavirus vaccines for the three months ended June 30, 2023 and 2022, decreased from $201.0 million to $139.6 million primarily as a result of a reduction in manufacturing and support costs under manufacturing supply agreements with Contract Manufacturing Organizations (“CMOs”) and contract manufacturing and development organizations (“CDMOs”), a reduction in clinical study costs and the commercialization of internal manufacturing 30 capabilities, as offset by a benefit of $20.5 million and $87.2 million, respectively, related to previously accelerated manufacturing costs for leases that we determined were embedded in manufacturing supply agreements with CMOs and CDMOs. Selling, General, and Administrative Expenses Selling, general, and administrative expenses were $93.7 million for the three months ended June 30, 2023 as compared to $108.2 million for the same period in 2022, a decrease of $14.4 million. The decrease in selling, general, and administrative expenses is primarily due to certain cost containment measures to reduce our operating spend, partially offset by restructuring expenses of $11.5 million. For the remainder of 2023, we expect a reduction in our annual combined research and development, and selling, general, and administrative spend as a result of our Restructuring Plan announced during the three months ended June 30, 2023. Other Income (Expense) Three Months Ended June 30, 2023 2022 Change Other income (expense): Interest expense $ (3,124) $ (6,234) $ 3,110 Other income (expense) 5,532 (19,873) 25,405 Total other income (expense), net $ 2,408 $ (26,107) $ 28,515 Total other income, net was $2.4 million for the three months ended June 30, 2023 as compared to a total other expense, net of $26.1 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, including an intercompany loan with Novavax CZ. Income Tax Expense During the three months ended June 30, 2023 and 2022, we recognized an income tax benefit of $0.1 million and income tax expense $1.4 million, respectively, of income tax expense related to federal, state, and foreign income taxes. Net Income (Loss) Three Months Ended June 30, 2023 2022 Change Net Income (Loss) (in thousands, except per share information): Net income (loss) $ 58,008 $ (510,485) $ 568,493 Net income (loss) per share, basic $ 0.65 $ (6.53) $ 7.18 Net income (loss) per share, dilutive $ 0.58 $ (6.53) $ 7.11 Weighted average shares outstanding, basic 89,362 78,143 11,219 Weighted average shares outstanding, dilutive 104,065 78,143 25,922 Net income for the three months ended June 30, 2023 was $58.0 million, or $0.65 per share, basic, as compared to net loss of $510.5 million, or $6.53 per share, basic, for the same period in 2022. The increase in income during the three months ended June 30, 2023, was primarily due to the increase in commercial sales of NVX-CoV2373 in the three months ended June 30, 2023 and by a decrease in excess, obsolete, or expired inventory and losses on firm purchase commitments, research and development, and selling, general and administrative expenses as a result of the implementation of our Restructuring Plan. The increase in weighted average shares outstanding for the three months ended June 30, 2023 was primarily a result of the sale of common stock. 31 Six Months Ended June 30, 2023 and 2022 Revenue Six Months Ended June 30, 2023 2022 Change Revenue (in thousands): Product sales $ 277,706 $ 641,083 $ (363,377) Grants 224,458 207,075 17,383 Royalties and other 3,213 41,738 (38,525) Total revenue $ 505,377 $ 889,896 $ (384,519) Revenue for the six months ended June 30, 2023 was $505.4 million as compared to $889.9 million for the same period in 2022, a decrease of $384.5 million. Revenue for the six months ended June 30, 2023 was primarily comprised of revenue from product sales of NVX-CoV2373 and services performed under our USG Agreement. The decrease in revenue was primarily due to a decrease in quantity of doses sold of NVX-CoV2373 during the six months ended June 30, 2023 as compared to the same period in 2022. Product sales Product sales for the six months ended June 30, 2023 were $277.7 million as compared to $641.1 million during the six months ended June 30, 2022. Our product sales related to sales of NVX-CoV2373 under our APA agreements. The geographic distribution of product sales was as follows: Six Months Ended June 31, 2023 2022 Change North America $ — $ 64,762 $ (64,762) Europe 58,785 413,745 (354,960) Rest of the world 218,921 162,576 56,345 Total product sales revenue $ 277,706 $ 641,083 $ (363,377) Grants Grant revenue during the six months ended June 30, 2023 was $224.5 million as compared to $207.1 million during the same period in 2022, an increase of $17.4 million. Grant revenue for 2023 and 2022, comprised revenue for services performed under our USG Agreement. The increase was primarily due to increased clinical and development activities under the USG Agreement during the six months ended June 30, 2023. Expenses Six Months Ended June 30, 2023 2022 Change Expenses (in thousands): Cost of sales $ 89,863 $ 286,281 $ (196,418) Research and development 466,576 673,131 (206,555) Selling, general, and administrative 206,249 204,152 2,097 Total expenses $ 762,688 $ 1,163,564 $ (400,876) 32 Cost of Sales Cost of sales was $89.9 million for the six months ended June 30, 2023, including expense of $40.0 million related to excess, obsolete, or expired inventory and losses on certain firm purchase commitments and a credit of $18.8 million related to negotiated reductions to certain previously recognized firm purchase commitments. Cost of sales was $286.3 million for the six months ended June 30, 2022, including expense of $255.3 million related to excess, obsolete, or expired inventory and losses on firm purchase commitments. Prior to receiving approval, we expensed manufacturing costs as research and development expenses. After receiving approval, we capitalize the costs of production for a particular supply chain when we determine that we have a present right to the economic benefit associated with the product. While we tracked the quantities of our manufactured vaccine product and components, we did not track pre-approval manufacturing costs and therefore the manufacturing cost of our pre-launch inventory produced prior to approval is not reasonably determinable. However, based on our expectations for future manufacturing costs to produce our vaccine product and components inventory, we estimate at June 30, 2023 we had approximately $25.9 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 sold for the six months ended June 30, 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 $120.8 million, an adjustment of $30.9 million as compared to cost of sales recognized. If inventory sold for the three months ended June 30, 2022 was valued at expected standard cost, adjusted cost of sales for the period would have been approximately $439.5 million, an adjustment of $153.2 million. The cost of sales as a percentage of product sales may fluctuate in the future as a result of changes to our customer mix or standard costs. Research and Development Expenses Research and development expenses decreased to $466.6 million for the six months ended June 30, 2023 from $673.1 million for the same period in 2022, a decrease of $206.6 million. The decrease was primarily due to a reduction in overall expenditures relating to development activities on coronavirus vaccines, including NVX-CoV2373 and XBB COVID vaccine, and CIC, as summarized in the table below (in thousands): Six Months Ended June 30, 2023 2022 Coronavirus vaccines $ 279,869 $ 489,948 Influenza vaccine 1,476 3,570 Other vaccine development programs 557 1,027 Total direct external research and development expense 281,902 494,545 Employee expenses 99,545 86,919 Stock-based compensation expense 23,804 36,582 Facility expenses 33,561 24,072 Other expenses 27,764 31,013 Total research and development expenses $ 466,576 $ 673,131 Research and development expenses for coronavirus vaccines for the six months ended June 30, 2023 and 2022, decreased from $489.9 million to $279.9 million primarily as a result of a reduction in manufacturing and support costs under manufacturing supply agreements with CMO and CDMO, a reduction in clinical study costs and the commercialization of internal manufacturing capabilities, as offset by a benefit of $32.2 million and $67.4 million, respectively, related to previously accelerated manufacturing costs for leases that we determined were embedded in manufacturing supply agreements with CMOs and CDMOs. Selling, General, and Administrative Expenses Selling, general, and administrative expenses increased to $206.2 million for the six months ended June 30, 2023 from $204.2 million for the same period in 2022, an increase of $2.1 million. The increase in selling, general, and administrative expenses is primarily due to restructuring expenses, partially offset by cost containment measures to reduce our operating spend including a decrease in professional fees and marketing costs in support of our NVX-CoV2373 program. 33 Other Income (Expense) Six Months Ended June 30, 2023 2022 Change Other income (expense) (in thousands): Interest expense $ (7,440) $ (11,110) $ 3,670 Other income (expense) 29,894 (18,219) 48,113 Total other income (expense), net $ 22,454 $ (29,329) $ 51,783 We had total other income, net of $22.5 million for the six months ended June 30, 2023 as compared to total other expense, net of $29.3 million for the same period in 2022. During the six months ended June 30, 2023, other income increased due to the favorable impact of exchange rates on foreign currency denominated balances, including an intercompany loan with Novavax CZ, and an increase in investment income due to higher interest rates. During the six months ended June 30, 2022, Other expense was primarily related to the unfavorable impact of foreign exchange rate differences on the intercompany loan with Novavax CZ. Income Tax Expense During the six months ended June 30, 2023 and 2022, we recognized $1.0 million and $4.1 million, respectively, of income tax expense related to federal and state income taxes and foreign withholding tax on royalties. Net Loss Six Months Ended June 30, 2023 2022 Change Net Loss (in thousands, except per share information): Net loss $ (235,897) $ (307,077) $ 71,180 Net loss per share, basic and diluted $ (2.69) $ (3.97) $ 1.28 Weighted average shares outstanding, basic and diluted 87,769 77,305 10,464 Net loss for the six months ended June 30, 2023 was $235.9 million, or $2.69 per share, as compared to $307.1 million, or $3.97 per share, for the same period in 2022. The decrease in net loss during the six months ended June 30, 2023 was primarily due to the decline in research and development expenses associated with NVX-CoV2373 and cost of sales, partially offset by reduced product sales revenue. The increase in weighted average shares outstanding for the six months ended June 30, 2023 is primarily a result of sales of our common stock in 2023 and 2022. 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 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 June 30, 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 $2 billion, of which $907.4 million is included in Deferred revenue in our Consolidated balance 34 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 or other 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 and second installment during the three and six months ended June 30, 2023, respectively, and the remaining balance of $68.6 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 currently depend exclusively on SIIPL and SLS for co-formulation and filling, and PCI for finishing NVX-CoV2373 and any delays or disruptions in these suppliers’ operations could prevent or delay the delivery of customer orders. 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 therefore was removed from the market. The credit will be applied against the future sale of doses to Australia. In July 2023, we amended the Australia APA to provide for replacement doses and to extend the delivery schedule through 2025. We have an APA with His Majesty the King in Right of Canada as represented by the Minister of Public Works and Government Services, as successor in interest to Her Majesty the Queen in Right of Canada, as represented by the Minister of Public Works and Government Services (the “Canadian government”), 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 received in the second quarter of 2023. In June 2023, we entered into an additional amendment (the “June 2023 Amendment”) to the Canada APA. Pursuant to the June 2023 Amendment, the parties revised the Canadian government’s previous commitment by (i) forfeiting certain doses of the NVX-CoV2373 previously scheduled for delivery, (ii) reducing the amount of doses of NVX-CoV2373 due for delivery, (iii) revising the delivery schedule for the remaining doses of NVX-CoV2373 to be delivered, and (iv) requiring use of the Biologics Manufacturing Centre (“BMC”) Inc. to produce bulk antigen for doses in 2024 and 2025. In connection with the forfeiture of doses of NVX-CoV2373, the Canadian government agreed to pay a total payment amount of $349.6 million to the Company in two equal installments in 2023, which total amount equals the remaining balance owed by the Canadian government with respect to such forfeited vaccine doses. The first installment was payable upon execution of the June 2023 Amendment and the second installment is contingent and payable upon our delivery of vaccine doses in the second half of 2023. The first installment of $174.8 million was received from the Canadian government in July 2023. If the Company fails to deliver COVID-19 vaccine doses to the Canadian government by the second half of 2023, the second installment of $174.8 million will be terminated and not be payable to the Company. The Canadian government may terminate the Canada APA, as amended, if we fail to achieve regulatory approval for use of BMC for NVX-CoV2373 production on or before December 31, 2024. The June 2023 Amendment maintained the total contract value of the original Canada APA. 35 Pursuant to the June 2023 Amendment, we and the Canadian government will endeavor to expand our previously agreed in-country commitment to Canada and to partner to provide health, economic, and future pandemic preparedness benefits to Canada, which value may be provided through a number of activities, including without limitation, capital investments, the performance of activities or services, or the provision of technology or intellectual property licenses. Further, the parties will endeavor to enter into a memorandum of understanding (the “MOU”) to illustrate our ability to deliver such benefits over a 15 year period with an aggregate value of not less than 100% of the amount remaining to be paid under the June 2023 Amendment and ultimately received by us. We agreed to hold $20.0 million in escrow for the benefit of the Canadian government, which amount is the sole recourse available to the Canadian government in the event of non-performance under the MOU. 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. 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. Since December 31, 2022, the remaining Gavi Advance Payment Amount, which is $696.4 million as of June 30, 2023, pending resolution of the dispute with Gavi related to a return of the remaining Advance Payment Amount, has been classified within 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. The arbitration hearing is scheduled for July 2024, with a written decision to follow. 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 $250.6 million in funding of June 30, 36 2023 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. As of June 30, 2023, we constrained $48.0 million of these contingent milestones related that we are eligible to recognize in the 2023 fall vaccination campaign. 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 June 30, 2023, we had $517.9 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 six months ended June 30, 2023 primarily with cash and cash equivalents and revenue from product sales, together with revenue under the USG Agreement that support our NVX-CoV2373 vaccine development 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 six months ended June 30, 2023 and 2022 (in thousands): Six Months Ended June 30, 2023 2022 Change Net cash provided by (used in): Operating activities $ (497,531) $ (259,413) $ (238,118) Investing activities (31,337) (41,402) 10,065 Financing activities (293,044) 164,524 (457,568) Effect on exchange rate on cash, cash equivalents, and restricted cash (8,992) (4,453) (4,539) Net increase (decrease) in cash, cash equivalents, and restricted cash (830,904) (140,744) (690,160) 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 $ 517,941 $ 1,387,515 $ (869,574) Net cash used in operating activities was $497.5 million for the six months ended June 30, 2023, as compared to $259.4 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 $31.3 million for the six months ended June 30, 2023, as compared to $41.4 million for the same period in 2022. The decrease in cash used in investing activities is primarily due to lower expenditure on equipment and leasehold improvements. Net cash used in financing activities was $293.0 million for the six months ended June 30, 2023, as compared to net cash provided by finance activities of $164.5 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 June 30, 2023, we had $517.9 million in cash and cash equivalents and restricted cash. During the six months ended June 30, 2023, we incurred a net loss of $235.9 million and had net cash flows used in operating activities of $497.5 million. 37 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 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 authorization, ability to timely deliver doses and commercial adoption and market acceptance. Further, failure to meet regulatory milestones, timely obtain supportive recommendations from governmental advisory committees, or achieve product volume or delivery timing obligations under the Company’s advance purchase agreements may require the Company to refund portions of upfront and other payments or result in reduced future payments. 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 $250.6 million in funding as of June 30, 2023 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 $696.4 million as of June 30, 2023. 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 our Restructuring 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 workforce reduction plan included an approximately 25% reduction in the Company’s global workforce, comprised of an approximately 20% reduction in full-time Novavax employees and the remainder comprised of contractors and consultants. We have decided to progress CIC toward late-stage development and, as such, we are assessing the impact on our workforce requirements and ability to meet our future needs. We incurred one time restructuring expenses of $14.7 million during the three months ended June 30, 2023. See Note 16 to our unaudited consolidated financial statements in Part I for more details on restructuring. 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. 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, and in particular the 2023 Fall vaccination campaign, which is inherently uncertain and subject to a number of risks, including regulatory authorization, ability to timely deliver doses and commercial adoption and market acceptance; the resolution of certain matters, including whether, when, and how the dispute with Gavi is resolved; and management’s plans, which include completing 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 financings, 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 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.