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, 2024 are issued; our global restructuring and cost reduction plan (“Restructuring Plan”), which includes a more focused investment in our COVID-19 program (which currently includes our prototype COVID-19 vaccine ("NVX-CoV2373” or “prototype vaccine”) and XBB COVID-19 vaccine (“NVX-CoV2601”) and our updated vaccine for the 2024-2025 vaccination season (“NVX-CoV2705,” or “updated vaccine” and, collectively with NVX-CoV2373 and NVX-CoV2601, our “COVID-19 Vaccine” or “COVID-19 Program”), local regulatory authorities have also specified nomenclature for the labeling of NVX-CoV2373 and NVX-CoV2601 within their territories (e.g., “Novavax COVID-19 Vaccine, Adjuvanted”, “Novavax COVID-19, Adjuvanted (2023-2024 Formula),” respectively, for the U.S., and “Nuvaxovid ™ ” for ex-US territories) collectively referred to as our (“COVID-19 Program,” or “COVID-19 Vaccine”)); our cash flow forecast and projected revenue, including potential royalties and milestones pursuant to our collaboration and license agreement (the “Sanofi CLA”) with Sanofi Pasteur Inc. (“Sanofi”); potential market sizes and demand for our products and product candidates; the efficacy, safety, and intended utilization of our products and product candidates; the development of our clinical-stage product candidates and our recombinant vaccine and adjuvant technologies; the development of our preclinical product candidates; our expectations related to enrollment in our clinical trials; the conduct, timing, and potential results from clinical trials and other preclinical studies; plans for and potential timing of regulatory filings; our expectation of manufacturing capacity, timing, production, distribution, and delivery for our COVID-19 Vaccine by us and our partners; our expectations with respect to the anticipated ongoing development and commercialization or licensure of the COVID-19 Vaccine, ongoing development of COVID-19 variant strain-containing monovalent or bivalent formulations, including the Phase 2b/3 Hummingbird™ trial, and our COVID-19 Influenza Combination (“CIC”) vaccine candidate and our stand-alone influenza vaccine candidate; efforts to expand the COVID-19 Vaccine label worldwide as a booster, and to various age groups and geographic locations; the expected timing, content, and outcomes of regulatory actions; funding under our advance purchase agreements (“APAs”) and supply agreements and amendments to, termination of, discussion regarding, 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; our plans regarding APA amendments; 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 and timely manufacture, distribute, or market our COVID-19 Vaccine including as a single dose vial or pre-filled syringe product presentation for the 2024-2025 vaccination season and our ability to receive a Biologics License Application (“BLA”) from the U.S. Food and Drug Administration (“U.S. FDA”) for the 2024-2025 vaccination season; challenges related to the transition to our new partnership with Sanofi; 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; challenges or delays in conducting clinical trials; challenges or delays in obtaining regulatory authorization for our product candidates, including our updated vaccine in time for the 2024-2025 vaccination season or for future COVID-19 variant strain changes, our CIC vaccine candidate and our stand-alone influenza vaccine candidate; manufacturing, distribution or export delays or challenges; our substantial dependence on Serum Institute of India Pvt. Ltd. (“SII”) and Serum Life Sciences Limited (“SLS” and together with SII, “Serum”) for co-formulation and filling, and PCI Pharma Services for finishing our COVID-19 Vaccine and the impact of any delays or disruptions in their operations on the delivery of customer orders; difficulty obtaining scarce raw materials and supplies, including for our proprietary adjuvant; resource constraints, including human capital and manufacturing capacity, constraints on our ability to pursue planned regulatory pathways, alone or with partners, in multiple jurisdictions simultaneously, leading to staggering of regulatory filings, and potential regulatory actions; challenges in implementing the Restructuring Plan; our ability to timely deliver doses; challenges in obtaining commercial adoption and market acceptance of our COVID-19 Vaccine or any COVID-19 variant strain containing formulation; challenges meeting contractual requirements under agreements with multiple commercial, governmental, and other entities including requirements 25 to deliver doses that may require us to refund portions of upfront and other payments previously received or result in reduced future payments pursuant to such agreements; challenges related to the seasonality of vaccinations against COVID-19; challenges related to the demand for vaccinations against COVID-19; and other risks and uncertainties identified in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023, Part II, Item 1A. “Risk Factors” of our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2024 and this Quarterly Report on Form 10-Q, 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 our COVID-19 Vaccine 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 global company advancing protein-based vaccines with our Matrix-M TM adjuvant. Our proprietary recombinant technology platform harnesses the power and speed of genetic engineering to efficiently produce highly immunogenic nanoparticle vaccines designed to address global health needs. Our vaccine candidates are nanostructures of conformationally correct recombinant proteins that mimic those found on pathogens. This technology enables the immune system to recognize target proteins and develop protective immune responses. 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 an updated vaccine for individuals aged 12 and older for the upcoming 2024-2025 vaccination season and are seeking authorization of our updated vaccine globally. We submitted an amendment to our previously granted October 2023 Emergency Use Authorization (“EUA”) to the U.S. FDA, filed for a type II variation of our existing Marketing Authorization (“MA”) with the European Medicines Agency (“EMA”), and the United Kingdom's (“UK”) Medicines and Healthcare products Regulatory Agency (“MHRA”), and filed for authorization with Health Canada. These submissions follow the guidance from the U.S. FDA, EMA, the World Health Organization (“WHO”), and the National Advisory Committee on Immunization on the use of the JN.1 lineage strain for the updated formulation. We intend to ship our updated vaccine upon authorization in these markets. In the U.S., we were notified by the U.S. FDA that our BLA for our prototype vaccine and for NVX-CoV2601 was accepted for review with an action date of April 2025. 26 In May 2024, we entered into the Sanofi CLA with Sanofi, to co-commercialize our COVID-19 Vaccine, including future updated versions that address seasonal COVID-19 variants. We will continue commercialization of our updated vaccine. Beginning in 2025 and continuing during the term of the Sanofi CLA, we and Sanofi will commercialize the COVID-19 Vaccine worldwide in accordance with a commercialization plan agreed by us and Sanofi, under which we will continue to supply its existing APA customers and strategic partners, including Takeda and SII. Upon completion of the existing APAs, we and Sanofi will jointly agree on commercialization activities of each party in each jurisdiction. Additionally, Sanofi has the right to develop novel influenza-COVID-19 combination vaccines utilizing our COVID-19 Vaccine and Sanofi’s seasonal influenza vaccine, combination products containing our COVID-19 Vaccine and one or more non-influenza vaccines, and multiple new vaccines utilizing our Matrix-M TM adjuvant. We are eligible to receive royalties and milestones associated with the ongoing sales of our COVID-19 Vaccine and Sanofi’s influenza-COVID-19 combination vaccine and any other combination vaccines Sanofi may develop, as well as ongoing product royalties for vaccines developed with our Matrix-M TM adjuvant. This partnership provides the opportunity for us to focus more on research and development and pipeline expansion. We discuss this agreement in further detail in Note 6 to our consolidated financial statements. Additionally, our near-term focus is on developing a CIC vaccine candidate, as well as a stand-alone seasonal influenza vaccine candidate, and we are on track to initiate a Phase 3 trial in the fourth quarter of 2024 for both vaccine candidates. Furthermore, we provide our Matrix-M™ adjuvant for collaborations, including in R21/Matrix-M™ adjuvant malaria vaccine, which is authorized in several countries, as well as other preclinical vaccine research with our Matrix-M™ adjuvant, including through a partnership with the Bill & Melinda Gates Medical Research Institute. We intend to focus our organization to align our investments and activities with our top priorities of prioritizing the successful transition to our new partnership with Sanofi, executing our Phase 3 programs for the CIC and stand-alone seasonal influenza vaccine candidates, and delivering our updated vaccine. 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 the best position for us to deliver longer-term growth. We discuss these cost restructuring strategies in greater detail in Note 2 to our consolidated financial statements. Technology Overview We believe our recombinant nanoparticle vaccine technology and our proprietary Matrix-M™ adjuvant are well suited for the development and commercialization of vaccine candidates targeting a broad scope of respiratory and other endemic and emerging infectious diseases. Recombinant Nanoparticle Vaccine Technology Once a target 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 SII for commercialization, and in December 2023, received prequalification by the WHO. In July 2024, first commercial doses of the R21/Matrix-M™ adjuvant malaria vaccine were administered to children in Cote d’Ivoire and South Sudan. Additionally, in May 2023, we entered into a three- 27 year agreement with the Bill & Melinda Gates Medical Research Institute to provide our Matrix-M™ adjuvant for use in preclinical vaccine research. In June 2023, we signed a material transfer agreement with SK bioscience Co., Ltd. (“SK”) for use of our Matrix-M™ adjuvant in preclinical vaccine experiments for shingles, influenza, and pan-COVID-19. 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. In May 2024, pursuant to the Sanofi CLA, Sanofi received a non-exclusive license to develop and commercialize other vaccine products that include our Matrix-M™ adjuvant. COVID-19 Vaccine Regulatory and Licensure For our updated vaccine for the 2024-2025 vaccination season, we submitted an amendment to our previously granted October 2023 EUA to the U.S. FDA, filed for a type II variation of our existing MA with the EMA, and the UK’s MHRA, and filed for authorization with Health Canada. If the U.S. FDA grants an amended EUA for our updated vaccine, we expect that initial stocking orders of our updated vaccine will be available for shipment in pre-filled syringes to customers. In the European Union, we intend to have our updated vaccine available for distribution in unit-dose vials for immediate release post-approval. Additionally, in the U.K., we intend to have our updated vaccine available on the private market and in Canada, in five-dose vials for immediate release post-authorization should Canadian public health programs choose to provide the option for five-dose vials. We are working to continue to expand our label 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. Product Pipeline Our clinical pipeline encompasses vaccine candidates for infectious diseases. Our COVID-19 vaccine, partnered with Sanofi, is our most advanced product. We are seeking authorization of our 2024-2025 formulated JN.1 COVID vaccine globally. We will continue to commercialize our JN.1 COVID vaccine through the end of the 2024-2025 vaccination season. Beyond our COVID-19 vaccine, our clinical pipeline includes a CIC vaccine candidate and a stand-alone seasonal influenza vaccine candidate in addition to our Matrix-M™ adjuvant being used for collaboration in R21/Matrix-M™ adjuvant malaria vaccine. Novavax continues to optimize preclinical candidates, including an RSV vaccine and a new approach to H5N1 pandemic bird flu vaccination. In addition, we are seeking to expand our core technology to new targets and novel applications including mucosal vaccination and high-density nanoparticles. We continue to evaluate the potential of Matrix-M™ to augment immune responses to new and existing vaccines, including marketed products. We are conducting a prioritization review of our preclinical candidates to inform future early-stage clinical study investments to advance Novavax’s product pipeline. (1) Authorized in select geographies under trade names Novavax COVID-19 Vaccine, Adjuvanted; Covovax™; and Nuvaxovid™, and authorized in the U.S. under trade name, Novavax COVID-19 Vaccine, Adjuvanted (2023-2024 Formula); Ongoing post-authorization Phase 3 strain change trial. (2) Commercialized by SII; Granted prequalification by the WHO and distributed by UNICEF to endemic countries in Africa. Coronavirus Vaccine Clinical Development We continue to work on our efforts to expand our COVID-19 vaccine label within the adolescent and pediatric indications. Additionally, we continue to evaluate vaccine safety, immunogenicity, and effectiveness through ongoing clinical trials and collaborative evidence-generating real-world studies. 28 Phase 3 Strain-Change and Re-vaccination Studies Study 313: In November 2023, we fully enrolled 338 adults aged 18 and older in Part 2 of the study which will evaluate the immunogenicity of a single dose of NVX-CoV2601 in previously unvaccinated individuals. Data from Study 313 are intended to support BLA supplements and similar regulatory submissions in other territories for future variant strain formulations. Phase 2b/3 Pediatric Hummingbird™ Study 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 demonstrating both tolerability and immunologic responses. This ongoing trial is evaluating the safety, effectiveness (immunogenicity), and efficacy of two doses of our prototype vaccine (NVX-CoV2373), followed by a booster 6 months after the primary vaccination series. The trial completed enrollment in September 2023 and includes three age de-escalation cohorts of 1,200 children each. In consultation with the U.S. FDA, the filing strategy includes filing a supplemental BLA for these cohorts once the initial BLA is approved. We are in discussion with the U.S. FDA regarding additional analyses in light of the progressive increase in the number of children with baseline COVID-19 natural immunity during the enrollment period, which began in August 2022. Therefore, we do not anticipate authorization for these age groups for the 2024-2025 vaccination season. COVID-Influenza Combination and Stand-alone Influenza Program For our CIC vaccine candidate, we continue to interact with the U.S. FDA as part of the pre-investigational new drug application (“IND”) process and incorporate their recommendations into the Phase 3 design, study endpoints, comparators, and size of licensure enabling safety database. We previously disclosed our plan to modify the study to include a stand-alone influenza vaccine comparative component. We remain on track to initiate the study in the fourth quarter of 2024. While our focus remains on the combination product, our development plans will maintain optionality to advance our stand-alone seasonal influenza vaccine, as described above, creating a pathway to potentially seek licensure. For our stand-alone seasonal influenza vaccine, we have generated positive data through our previous Phase 2 and Phase 3 trials. We expect to confirm and expand on these findings in the newly planned Phase 3 trial. We continue to believe this asset may also be attractive from a pandemic preparedness perspective and that similar performance in terms of comparative immunogenicity may be expected for A/H5N1 pandemic strains. High-dose COVID-19 Vaccine Study Study 205: In October 2023, we completed enrollment in a Phase 2 trial to evaluate our high-dose COVID-19 vaccine for annual vaccination in 994 adults ages 50 years and older. The trial measured immunogenicity levels of 5 micrograms of NVX-CoV2373 and of 5 micrograms, 35 micrograms, and 50 micrograms of NVX-CoV2601 matched with different levels of Matrix-M TM adjuvant. Analysis of the complete dataset is ongoing to determine the utility of pursuing a high dose formulation. R21/Matrix-M™ Adjuvant Malaria Vaccine R21/Matrix-M™ adjuvant malaria vaccine, formulated with our Matrix-M™ adjuvant is developed by our partner, the Jenner Institute, University of Oxford, and manufactured by SII. We have an agreement with SII related to its manufacture of R21/Matrix-M™ adjuvant malaria vaccine under which SII purchases our Matrix-M™ adjuvant for use in development activities at cost and for commercial purposes at a tiered commercial supply price, and pays a royalty in the single- to low-double digit range based on vaccine sales for a period of 15 years after the first commercial sale of the vaccine in each country. In December 2023, the WHO announced it prequalified the R21/Matrix-M TM adjuvant malaria vaccine to prevent malaria disease in children caused by the P. falciparum parasite in endemic areas. In July 2024, first commercial doses of R21/Matrix-M™ adjuvant malaria vaccine have been administered to children in Cote d’Ivoire and South Sudan. As part of the WHO malaria program, at their discretion, the vaccine is expected to be included in countries such as Central African Republic, Chad, Democratic Republic of Congo, Mozambique, Nigeria and Uganda. Business Highlights We have taken steps to enable a successful operationalization of the collaboration and license agreement (the Sanofi Agreement) with Sanofi. 29 • Effective January 1, 2025, Sanofi will assume primary commercial responsibility for our updated 2024-2025 formula COVID-19 vaccine (NVX-CoV2705) in the U.S., Europe and select major markets not currently subject to our APAs or existing partnership agreements. • Received $500 million upfront payment and an approximately $70 million equity investment from Sanofi • We are eligible to receive up to $700 million in development, regulatory and launch milestones for activities related to commercializing Nuvaxovid™ and advancing Sanofi’s flu-COVID-19 combination vaccine candidate plus royalties. In addition, we are eligible to receive royalties associated with any other Nuvaxovid™ combination vaccine Sanofi chooses to develop. • For each additional Sanofi vaccine product developed under the non-exclusive license with our Matrix-M™ adjuvant technology, we are eligible to receive additional launch and sales milestones of up to $210 million per product plus ongoing product royalties. We continued to leverage our technology platform to drive value creation. • On track to initiate the Phase 3 immunogenicity trial for both CIC and stand-alone influenza vaccine candidates in the fourth quarter of 2024, with data expected by mid-2025. • Conducting pipeline prioritization activities to determine our lead portfolio programs. We continued to progress our cost reduction program to create a more lean and agile organization and accelerate its focus on Research and Development (“R&D”). • On track with global restructuring and cost reduction plan with an approximately 34% reduction in combined R&D and Selling, General and Administrative (“SG&A”) expenses in the second quarter of 2024 compared to the same period for 2023. • Prepared to initiate an additional cost reduction program to reduce R&D plus SG&A expenses, with a portion of expenses to be reimbursed by Sanofi under the Sanofi Agreement. We plan to continue assessing existing capabilities to further refine the shape, size and scope of its organization this year and into 2025. We expect to deliver our updated 2024-2025 formula COVID-19 vaccine to the market by the start of the season. U.S. Market: • Submitted an EUA amendment to the U.S. FDA. • Advanced manufacturing of pre-filled syringe presentation of updated 2024-2025 formula COVID-19 vaccine following FDA strain selection guidance. Expect doses will be ready to ship upon receipt of EUA. • The U.S. FDA accepted the BLA for our COVID-19 vaccine with a Prescription Drug User Fee Act date of April 2025. • Advanced retail pharmacy contract negotiations to enhance access for the 2024-2025 vaccination season. Global Markets: • For 2024, made decision to conduct lean and targeted commercial launch in Europe in select key countries including Germany, Italy and Poland. • Submitted marketing authorization amendments to the EMA and expect doses will be ready to ship upon receipt of market authorization. Sales of Common Stock In August 2023, we entered into an At Market Issuance Sales Agreement (the “August 2023 Sales Agreement”), which allows us to issue and sell up to $500 million in gross proceeds of shares of its common stock, and terminated our then-existing At Market Issuance Sales agreement entered in June 2021 (the “June 2021 Sales Agreement”). During the three and six months ended June 30, 2024, we sold 12.2 million shares of our common stock resulting in net proceeds of approximately $188 million, 30 under the August 2023 Sales Agreement. As of June 30, 2024, the remaining balance available under the August 2023 Sales Agreement was approximately $51 million. 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 $6.0 million was included in prepaid expenses and other current assets as of June 30, 2023 and received in cash in July 2023. In May 2024, we also entered into a securities subscription agreement (the “Subscription Agreement”) with Sanofi, pursuant to which we sold and issued to Sanofi, in a private placement, 6,880,481 shares of our common stock, par value $0.01 per share at a price of $10.00 per share for aggregate gross proceeds to us of $68.8 million. The opening price of our common stock on the date of the sale approximated $10.00 per share and therefore all gross proceeds were allocated to stockholders’ deficit. 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, 2023, as filed with the SEC and are updated below to incorporate revenue recognition from licensing and transition services included in Licensing, royalties and other in our consolidated financial statements. Revenue Recognition, Licensing and Transition Services The terms of licensing agreements may contain multiple performance obligations, which may include licenses and transition services. We evaluate licensing agreements under ASC 606, Revenue from Contracts with Customers (“ ASC 606”), to determine the distinct performance obligations. Prior to recognizing revenue, we estimate the transaction price, including variable consideration that is subject to a constraint. Variable consideration is included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur and when the uncertainty associated with the variable consideration is subsequently resolved. Total consideration may include nonrefundable upfront license fees, transition service fees, other payments based upon the achievement of specified milestones, and royalty payments based on product sales from licensed products. For multiple distinct performance obligation arrangements, we allocate the transaction price to each distinct performance obligation based on its relative standalone selling price. The standalone selling price is generally determined for each performance obligation based on the prices charged to customers, discounted cash flows, or using expected cost-plus margin. For standalone selling prices determined using discounted cash flows, we consider discounted, probability-weighted cash flows related to the performance obligation transferred. In developing such estimates, we apply judgment in determining the forecasted revenues, expected margins, and the discount rate. These estimates are subjective and require us any to make assumptions about future cash flows. Revenue related to performance obligations satisfied at a point in time is recognized when the customer obtains control of the promised asset. For performance obligations recognized over time, we recognize revenue using an input method to measure progress by utilizing costs incurred to-date relative to total expected costs. Under this process, we consider the costs that have been incurred to-date, as well as projections to completion using various inputs and assumptions, including, but not limited to, progress towards completion, labor costs and level of effort, material and subcontractor costs, indirect administrative costs, and other identified risks. Estimating the total cost at completion of our performance obligation under a contract is subjective and requires us to make assumptions about future activity and cost drivers. Changes in these estimates can occur for a variety of reasons and may impact the timing of revenue recognition on our contracts. Changes in estimates related to the process are recognized in the period when such changes are made on a cumulative catch-up basis. We have not experienced any material difference as a result of change in estimate arising from this process. 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 ”). 31 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, 2024 and 2023 Revenue Three Months Ended June 30, 2024 2023 Change Revenue (in thousands): Product sales $ 19,904 $ 285,163 $ (265,259) Licensing, royalties, and other 395,580 2,184 393,396 Grants — 137,079 (137,079) Total revenue $ 415,484 $ 424,426 $ (8,942) Revenue for the three months ended June 30, 2024 was $415.5 million as compared to $424.4 million for the same period in 2023, an decrease of $8.9 million. Revenue for the three months ended June 30, 2024 was primarily comprised of revenue from licensing and revenue from product sales of COVID-19 Vaccine. Revenue for the three months ended June 30, 2023 was primarily comprised of product sales of COVID-19 Vaccine 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 decrease in revenue is due to a decrease in the quantity of dose sales of COVID-19 Vaccine and a decrease in revenue under the USG Agreement during the three months ended June 30, 2024 because we recognized the full funding in revenue by the end of 2023, partially offset by additional licensing revenue from the Sanofi Collaboration and Licensing Agreement (“Sanofi CLA”). Product sales Product sales for the three months ended June 30, 2024 were $19.9 million as compared to $285.2 million during the three months ended June 30, 2023. Our product sales related to revenue from commercial sales of COVID-19 Vaccine, which commenced in 2022. The geographic distribution of product sales was as follows: Three Months Ended June 30, 2024 2023 Change North America $ 1,607 $ — $ 1,607 Europe 169 1,518 (1,349) Rest of the world 18,128 283,645 (265,517) Total product sales $ 19,904 $ 285,163 $ (265,259) Licensing, royalties, and other Licensing, royalties, and other includes licensing payments, Transition Services revenue, and Technology Transfer revenue from the Sanofi CLA; royalty milestone payments; sales-based royalties; and Matrix-M™ adjuvant sales. Licensing, royalties, and other revenue during the three months ended June 30, 2024 was $395.6 million as compared to $2.2 million during the same period in 2023, an increase of $393.4 million. The increase was primarily due to $386.3 million of licensing revenue from the Sanofi CLA, which represents the amount of the $500 million upfront payment recognized at a point-in-time. The remaining amount of the upfront payment will be recognized in revenue as Transition Services and Technology Transfer are performed over time. During the three months ended June 30, 2024, we recognized $6.6 million based on progress completed of Transition Services. 32 Grants We did not have any Grant revenue during the three months ended June 30, 2024, as compared to $137.1 million during the same period in 2023, a decrease of $137.1 million. Grant revenue comprised revenue for services performed under our USG Agreement. As of December 31, 2023, we had recognized the full contract funding under the USG Agreement in revenue. Expenses Three Months Ended June 30, 2024 2023 Change Expenses (in thousands): Cost of sales $ 46,242 $ 55,777 $ (9,535) Research and development 106,946 219,475 (112,529) Selling, general, and administrative 101,298 93,717 7,581 Total expenses $ 254,486 $ 368,969 $ (114,483) Cost of Sales Cost of sales was $46.2 million for the three months ended June 30, 2024, including expenses of $11.4 million related to excess, obsolete, or expired inventory and losses on certain firm purchase commitments, and $12.9 million related to unutilized manufacturing capacity. Cost of sales was $55.8 million for the three months ended June 30, 2023, including expense of $19.8 million related to excess, obsolete, or expired inventory and losses on firm purchase commitments, partially offset by $17.9 million of negotiated reductions to certain previously recognized firm purchase commitments, and $11.4 million related to unutilized manufacturing capacity. 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. During the three months ended June 30, 2024, we did not sell any pre-launch inventory. If inventory sold for the three months ended June 30, 2023 was valued at expected standard cost, adjusted cost of sales for the period would have been approximately $71.7 million, an adjustment of $15.9 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 $106.9 million for the three months ended June 30, 2024 as compared to $219.5 million for the three months ended June 30, 2023, a decrease of $112.5 million. The decrease was primarily due to a reduction in overall expenditures relating to development activities on coronavirus vaccines, including our COVID-19 Program, and CIC, as summarized in the table below (in thousands): Three Months Ended June 30, 2024 2023 Coronavirus vaccines $ 40,812 $ 139,646 Other vaccine development programs 400 285 Total direct external research and development expense 41,212 139,931 Employee expenses 36,238 46,132 Stock-based compensation expense 6,158 9,946 Facility expenses 12,914 14,158 Other expenses 10,424 9,308 Total research and development expenses $ 106,946 $ 219,475 Research and development expenses for coronavirus vaccines for the three months ended June 30, 2024 and 2023 decreased from $139.6 million to $40.8 million primarily as a result of a reduction in manufacturing and support costs due, in part, to a reduction in our global manufacturing footprint consistent with our contractual obligations to supply, and anticipated 33 demand for, COVID-19 Vaccine, including embedded lease costs, under 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 were $101.3 million for the three months ended June 30, 2024 as compared to $93.7 million for the same period in 2023, an increase of $7.6 million. Excluding the Sanofi transaction related costs of $29.5 million, the decrease in selling, general, and administrative expenses is primarily due to certain cost containment measures to reduce our operating spend. For the remainder of 2024, we expect a reduction in our annual combined research and development, and selling, general, and administrative spend as a result of our Restructuring Plan as discussed in Note 16 to our consolidated financial statements. Other Income (Expense) Three Months Ended June 30, 2024 2023 Change Other income, net (in thousands): Interest expense $ (4,143) $ (3,124) $ (1,019) Other income 7,731 5,532 2,199 Total other income, net $ 3,588 $ 2,408 $ 1,180 Total other income, net was $3.6 million for the three months ended June 30, 2024 as compared to a total other income, net of $2.4 million for the same period in 2023. The increase in other income, net is primarily due to additional interest income from higher Cash and cash equivalents and Marketable securities balances. Income Tax Expense During the three months ended June 30, 2024, we recognized an income tax expense of $2.2 million related to federal, state, and foreign income taxes. During the three months ended June 30, 2023, we recognized an income tax benefit of $0.1 million related to federal, state, and foreign income taxes. Net Income Three Months Ended June 30, 2024 2023 Change Net Income (in thousands, except per share information): Net income $ 162,381 $ 58,008 $ 104,373 Net income per share, basic $ 1.09 $ 0.65 $ 0.44 Net income per share, dilutive $ 0.99 $ 0.58 $ 0.41 Weighted average shares outstanding, basic 148,379 89,362 59,017 Weighted average shares outstanding, dilutive 165,855 104,065 61,790 Net income for the three months ended June 30, 2024 was $162.4 million, or $1.09 per share, basic, as compared to net income of $58.0 million, or $0.65 per share, basic, for the same period in 2023. The increase in net income during the three months ended June 30, 2024, was primarily due to a decrease in research and development expenses. The increase in weighted average shares outstanding for the three months ended June 30, 2024 was primarily a result of sales of our common stock. 34 Six Months Ended June 30, 2024 and 2023 Revenue Six Months Ended June 30, 2024 2023 Change Revenue (in thousands): Product sales $ 102,228 $ 277,706 $ (175,478) Licensing, royalties, and other 407,111 3,213 403,898 Grants — 224,458 (224,458) Total revenue $ 509,339 $ 505,377 $ 3,962 Revenue for the six months ended June 30, 2024 was $509.3 million as compared to $505.4 million for the same period in 2023, an increase of $4.0 million. Revenue for the six months ended June 30, 2024 was primarily comprised of revenue from licensing and product sales of COVID-19 Vaccine. Revenue for the six months ended June 30, 2023 was primarily comprised of revenue from product sales of COVID-19 Vaccine and services performed under our USG Agreement. The increase in revenue is due to $392.9 million of licensing and other revenue from the Sanofi CLA, partially offset by a decrease in revenue under the USG Agreement and in the quantity of dose sales of COVID-19 Vaccine. Product sales Product sales for the six months ended June 30, 2024 were $102.2 million as compared to $277.7 million during the six months ended June 30, 2023. Our product sales related to revenue from commercial sales of COVID-19 Vaccine, which commenced in 2022. Our product sales primarily related to sales of COVID-19 Vaccine under our APA agreements. The geographic distribution of product sales was as follows: Six Months Ended June 30, 2024 2023 Change North America $ (4,755) $ — $ (4,755) Europe 90,586 58,785 31,801 Rest of the world 16,397 218,921 (202,524) Total product sales $ 102,228 $ 277,706 $ (175,478) During the six months ended June 30, 2024, product sales in North America includes $4.8 million of gross-to-net deductions in excess of the wholesaler acquisition costs (“WAC”), primarily due to wholesale distributor fees for shipments expected to be returned and adjustments made to estimated returns of prior period product sales. Licensing, royalties, and other Licensing, royalties, and other includes licensing payments, Transition Services revenue, and Technology Transfer revenue from the Sanofi CLA; royalty milestone payments; sales-based royalties; and Matrix-M™ adjuvant sales. Licensing, royalties, and other revenue during the six months ended June 30, 2024 was $407.1 million as compared to $3.2 million during the same period in 2023, an increase of $403.9 million. The increase was primarily due to $386.3 million of licensing revenue from the Sanofi CLA, which represents the amount of the $500 million upfront payment recognized at a point-in-time. The remaining amount of the upfront payment will be recognized in revenue as Transition Services and Technology Transfer are performed over time. During the six months ended June 30, 2024, we recognized $6.6 million based on progress completed of Transition Services. Grants We did not have any Grant revenue during the six months ended June 30, 2024 as compared to $224.5 million during the same period in 2023, a decrease of $224.5 million. Grant revenue comprised revenue for services performed under our USG Agreement. As of December 31, 2023, we had recognized the full contract funding under the USG Agreement in revenue. 35 Expenses Six Months Ended June 30, 2024 2023 Change Expenses (in thousands): Cost of sales $ 105,451 $ 89,863 $ 15,588 Research and development 199,625 466,576 (266,951) Selling, general, and administrative 188,096 206,249 (18,153) Total expenses $ 493,172 $ 762,688 $ (269,516) Cost of Sales Cost of sales was $105.5 million for the six months ended June 30, 2024, including expenses of $20.2 million related to excess, obsolete, or expired inventory and losses on certain firm purchase commitments, and $18.8 million related to unutilized manufacturing capacity. 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 firm purchase commitments, and a credit of $18.8 million related to negotiated reductions to certain previously recognized firm purchase commitments, and $15.9 million related to unutilized manufacturing capacity. 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. If inventory sold for the six months ended June 30, 2024 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 $107.1 million, an adjustment of $1.6 million as compared to cost of sales recognized. If inventory sold for the six months ended June 30, 2023 was valued at expected standard cost, adjusted cost of sales for the period would have been approximately $120.8 million, an adjustment of $30.9 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 $199.6 million for the six months ended June 30, 2024 from $466.6 million for the same period in 2023, a decrease of $267.0 million. The decrease was primarily due to a reduction in overall expenditures relating to development activities on coronavirus vaccines, including our COVID-19 Program, and CIC, as summarized in the table below (in thousands): Six Months Ended June 30, 2024 2023 Coronavirus vaccines $ 65,962 $ 279,869 Other vaccine development programs 736 2,033 Total direct external research and development expense 66,698 281,902 Employee expenses 74,191 99,545 Stock-based compensation expense 11,663 23,804 Facility expenses 24,696 33,561 Other expenses 22,377 27,764 Total research and development expenses $ 199,625 $ 466,576 Research and development expenses for coronavirus vaccines for the six months ended June 30, 2024 and 2023 decreased from $279.9 million to $66.0 million primarily as a result of a reduction in manufacturing and support costs due, in part, to a reduction in our global manufacturing footprint consistent with our contractual obligations to supply, and anticipated demand for, COVID-19 Vaccine, including embedded lease costs, under manufacturing supply agreements with CMOs and CDMOs. The decrease was also due to a benefit of $26.6 million for the six months ended June 30, 2024 resulting from the Confidential Settlement Agreement and Release agreement entered into with Fujifilm resulting in a reduction to previously recorded expense (see Note 6 to our consolidated financial statements). 36 Selling, General, and Administrative Expenses Selling, general, and administrative expenses decreased to $188.1 million for the six months ended June 30, 2024 from $206.2 million for the same period in 2023, a decrease of $18.2 million. Excluding the Sanofi transaction related costs of $30.8 million, the decrease in selling, general, and administrative expenses is primarily due to certain cost containment measures to reduce our operating spend. Other Income Six Months Ended June 30, 2024 2023 Change Other income, net (in thousands): Interest expense $ (8,254) $ (7,440) $ (814) Other income 11,385 29,894 (18,509) Total other income, net $ 3,131 $ 22,454 $ (19,323) Total other income, net for the six months ended June 30, 2024 was $3.1 million as compared to $22.5 million for the same period in 2023. This is primarily due to a decrease in Other income as a result of the unfavorable impact in 2024 as compared to 2023 of exchange rates on foreign currency denominated balances, including an intercompany loan with Novavax CZ. Income Tax Expense During the six months ended June 30, 2024, we recognized an income tax expense of $4.5 million related to federal, state, and foreign income taxes. During the six months ended June 30, 2023, we recognized an income tax expense of $1.0 million related to federal, state, and foreign income taxes. Net Income (Loss) Six Months Ended June 30, 2024 2023 Change Net Income (Loss) (in thousands, except per share information): Net Income (Loss) $ 14,831 $ (235,897) $ 250,728 Net Income (Loss) per share, basic $ 0.10 $ (2.69) $ 2.79 Net Income (Loss) per share, dilutive $ 0.10 $ (2.69) $ 2.79 Weighted average shares outstanding, basic 144,147 87,769 56,378 Weighted average shares outstanding, dilutive 145,121 87,769 57,352 Net income for the six months ended June 30, 2024 was $14.8 million, or $0.10 per share, basic, as compared to Net loss of $235.9 million, or $2.69 per share, basic, for the same period in 2023. The increase in net income during the six months ended June 30, 2024, was primarily due to a decrease in research and development expenses. The increase in weighted average shares outstanding for the six months ended June 30, 2024 is primarily a result of sales of our common stock. Liquidity Matters and Capital Resources Our future capital requirements depend on numerous factors including, but not limited to, revenue from our product sales, milestone payments, royalties and reimbursements under licensing arrangements with our strategic partners; our projected activities related to the development and commercial support of our COVID-19 Vaccine and our CIC vaccine candidate, including significant commitments under various clinical research organizations, 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 potential combination vaccines candidates, which are in various stages of development. Our ability to generate revenue from product sales is subject 37 to uncertainty specifically as it relates to our ability to successfully develop, manufacture, distribute, and market our updated vaccine and to successfully execute on our APAs, as discussed below. Additionally, our plans include our ongoing restructuring and cost reduction measures (see Note 16 to the consolidated financial statements), and may also include raising additional capital through a combination of additional equity and debt financing, collaborations, strategic alliances, asset sales, and marketing, distribution, or licensing arrangements. New financings may not be available to us on commercially acceptable terms, or at all. 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. In May 2024, we entered into the Sanofi CLA pursuant to which Sanofi received: i) A co-exclusive license to commercialize our current stand-alone COVID-19 Vaccine, including our prototype vaccine and updated vaccines, that address seasonal variants throughout the world (the “COVID-19 Vaccine Products”); ii) A sole license to develop and commercialize combination products containing a potential combination of our COVID-19 Vaccine and Sanofi’s seasonal influenza vaccine (“COVID-19 and influenza Combination Products” or “CIC Products”); iii) A non-exclusive license to develop and commercialize combination products containing both our COVID-19 Vaccine and one or more non-influenza vaccines (“Other Combination Products” and together with the COVID-19 Vaccine Products, CIC Products, and Other Combination Products (“Licensed COVID-19 Products” ); and iv) A non-exclusive license to develop and commercialize other vaccine products selected by Sanofi that include our Matrix-M™ adjuvant. Under the Sanofi CLA, we received a non-refundable upfront payment of $500 million. In addition, we will also be eligible to receive development, technology transfer, launch, and sales milestone payments totaling up to $700 million in the aggregate with respect to the Licensed COVID-19 Products and royalty payments on Sanofi’s sales of such licensed products. In addition, we are eligible to receive development, launch, and sales milestone payments of up to $200 million for each of the first four Adjuvant Products and $210 million for each Adjuvant Product thereafter, and royalty payments on Sanofi’s sales of all such licensed products. Commencing shortly after the effective date of the Sanofi CLA, we commenced activities related to the technology transfer of our manufacturing process for the COVID-19 Vaccine Products and Matrix-M™ components to Sanofi. Until the successful completion of such transfer, we will supply Sanofi with both COVID-19 Vaccine Products and Matrix-M™ intermediary components for Sanofi’s use and are eligible for reimbursement of such costs from Sanofi. Additionally, Sanofi will reimburse us for our research and development and medical affairs costs related to the COVID-19 Vaccine Products in accordance with agreed upon plans and budgets. Under the Sanofi CLA, we will continue to commercialize the updated vaccine. Beginning in 2025 and continuing during the term of the Sanofi CLA, we and Sanofi will commercialize the COVID-19 Vaccine Products worldwide in accordance with a commercialization plan agreed by us and Sanofi, under which we will continue to supply our existing APA customers and strategic partners, including Takeda and SII. Upon completion of the existing APAs, we and Sanofi will jointly agree on commercialization activities of each party in each jurisdiction. In May 2024, we also entered into the Subscription Agreement, pursuant to which we sold and issued to Sanofi, in a private placement, 6,880,481 shares of our common stock, par value $0.01 per share at a price of $10.00 per share for aggregate gross proceeds to us of $68.8 million. The opening price of our common stock on the date of the sale approximated $10.00 per share and therefore all gross proceeds were allocated to stockholders’ deficit. We have also entered into supply agreements, sometimes referred to as APAs, with the EC and various countries globally. As of June 30, 2024, the aggregate amount of the transaction price allocated to performance obligations that were unsatisfied (or partially unsatisfied), excluding amounts related to sales-based royalties under the licensing agreements, was approximately $2 billion, of which $1.2 billion is included in Deferred revenue on our consolidated balance sheet. Failure to timely meet regulatory milestones, obtain timely supportive recommendations from governmental advisory committees, or achieve product volume or delivery timing obligations under our APAs may require us to refund portions of upfront 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 supply agreements will depend on timing of product manufacturing, receipt of marketing authorizations for additional indications, delivery of doses based on customer 38 demand, and the ability of the customer to request variant 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 COVID-19 Vaccine. Such upfront payments generally become non-refundable upon our achievement of certain development, regulatory, and commercial milestones. Additionally, for the remaining APA agreements, our intent is to amicably negotiate or deliver doses or when appropriate, exit agreements. In October 2023, NVX-CoV2601 received EUA from the U.S. FDA for active immunization to prevent COVID-19 in individuals aged 12 and older. Immediately upon authorization, NVX-CoV2601 has also been included in the recommendations issued by the CDC in September 2023. Doses became available within the U.S. at many major pharmacy retailers, following the Center for Biologics Evaluation and Research release of vaccine batches. We have established reserves for gross-to-net deductions for amounts that we expect to return to our customers. As of June 30, 2024, gross-to-net reserve balances were $54.6 million related to product returns and $0.9 million related to wholesale distributor fees, discounts, and chargebacks and was included in Accrued expenses on our consolidated balance sheet. Pursuant to the Settlement Agreement with Fujifilm (see Note 6 to our consolidated financial statements), in March 2024, we paid $42.0 million to Fujifilm, the parties agreed to a mutual release of claims arising from, under or otherwise in connection with the prior confidential settlement agreement and release effective September 30, 2022, and Fujifilm agreed to dismiss its demand for arbitration with the Judicial Arbitration and Mediation Services (“JAMS”). This payment is less than amounts previously recognized as embedded lease expense and reflected in Research and development expenses from Fujifilm manufacturing activity and accordingly, during the six months ended June 30, 2024, we recorded a benefit of $26.6 million as Research and development expenses. We have an APA with the Commonwealth of Australia (“Australia”) for the purchase of doses of COVID-19 Vaccine (the “Australia APA”). In March 2024, we and Australia agreed to cancel the COVID-19 Vaccine doses previously scheduled for delivery in the fourth quarter of 2023. As a result of the cancellation, the total contract value was reduced by $54.0 million, including $6.0 million of deferred revenue related to the cancelled doses that will be applied as a credit towards future deliveries of doses. Australia is not required to purchase updated vaccine doses until we receive authorization from the Therapeutic Goods Administration (“TGA”). We do not expect approval in time for product delivery in 2024 which could result in a loss or deferral of approximately $240 million of contract value. We plan to seek an amendment to the Australia APA which may not be achievable on acceptable terms or at all. As of June 30, 2024, $119.1 million was classified as current Deferred revenue and $14.7 million was classified as non-current Deferred revenue with respect to the Australia APA in our consolidated balance sheet. If we are unable to satisfy our obligations under the Australia APA, $92.5 million of deferred revenue may become refundable and approximately $225 million of remaining funds under the contract may no longer be available. In July 2024, the Pharmaceutical Management Agency (“Pharmac”), a New Zealand Crown entity, provided notice of its termination of its APA (the “New Zealand APA”). As of June 30, 2024, $31.3 million was classified as current Deferred revenue with respect to the APA in our consolidated balance sheet. New Zealand has requested a refund of certain advanced payments and we are in discussion with Pharmac on both, whether its termination of the New Zealand APA was appropriate under the New Zealand APA, and whether a refund of the advanced payments is appropriate under the New Zealand APA . Approximately $125 million of the contract value related to future deliverables may no longer be available if the APA is terminated. 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 COVID-19 Vaccine (the “Canada APA”). The Canadian government may terminate the Canada APA, as amended, if we fail to receive regulatory approval for its COVID-19 Vaccine using bulk antigen produced at Biologics Manufacturing Centre (“BMC”) Inc. on or before December 31, 2024. We do not anticipate achieving regulatory approval of our COVID-19 Vaccine using bulk antigen produced at BMC on or before December 31, 2024. Therefore, we plan to seek an amendment to the Canada APA to address possible alternatives, which may not be achievable on acceptable terms or at all. As of June 30, 2024, $452.1 million was classified as current Deferred revenue and $136.1 million was classified as non-current Deferred revenue with respect to the Canadian APA in our consolidated balance sheet. If the Canadian government terminates the Canada APA, $28.0 million of the deferred revenue would become refundable and approximately $224 million of the contract value related to future deliverables would no longer be available. In September 2022, we entered into an Amended and Restated SARS-CoV-2 Vaccine Supply Agreement (the “Amended and Restated UK Supply Agreement”) with The Secretary of State for Business, Energy and Industrial Strategy (as 39 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 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 our prototype vaccine, 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 (“JCVI”) that is approved by the UK Secretary of State for Health. If the Authority did not purchase the Conditional Doses or the number of such Conditional Doses was reduced below 15 million doses of our prototype vaccine, 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 made a supportive recommendation with respect to our prototype vaccine, 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 were 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. As of November 30, 2023, the JCVI had not made a supportive recommendation with respect to the prototype vaccine, thereby triggering a reduction in the number of Conditional Doses from 7.5 million doses to zero. As of August 2024, we are in discussions with the Authority regarding the treatment of the remaining upfront amount previously received of $112.5 million, which is reflected in Other current liabilities on our consolidated balance sheet. We entered into an APA with the Vaccine Alliance (“Gavi”) in May 2021 (the “Gavi APA”), pursuant to which we received upfront payments of $700 million from Gavi (the “Advance Payment Amount”) to be applied against purchases of our prototype vaccine by certain countries participating in the COVAX Facility. As of December 31, 2023, the remaining Gavi Advance Payment Amount was $696.4 million. In February 2024, we and Gavi entered into a Termination and Settlement Agreement (the “Gavi Settlement Agreement”) terminating the Gavi APA, settling the arbitration proceedings, and releasing both parties of all claims arising from, under, or otherwise in connection with the Gavi APA. Pursuant to the Gavi Settlement Agreement, we are responsible for payment to Gavi of (i) an initial settlement payment of $75 million, which we paid in February 2024, and (ii) deferred payments, in equal annual amounts of $80 million payable each calendar year through a deferred payment term ending December 31, 2028. The deferred payments are due in variable quarterly installments beginning in the second quarter of 2024 and total $400 million during the deferred payment term. Such deferred payments may be reduced through Gavi’s use of an annual vaccine credit equivalent to the unpaid balance of such deferred payments each year, which may be applied to qualifying sales of any of our vaccines funded by Gavi for supply to certain low-income and lower-middle income countries. We have the right to price the vaccines offered to such low-income and lower-middle income countries in our discretion, and, when utilized by Gavi, we will credit the actual price per vaccine paid against the applicable credit. We intend to price vaccines offered via the tender process, consistent with our shared goal with Gavi to provide equitable access to those countries. Also, pursuant to the Gavi Settlement Agreement, we granted Gavi an additional credit of up to $225 million that may be applied against qualifying sales of any of our vaccines for supply to such low-income and lower-middle income countries that exceed the $80 million deferred payment amount in any calendar year during the deferred payment term. In total, the Gavi settlement agreement is comprised of $700 million of potential consideration, consisting of the $75 million initial settlement payment, deferred payments of up to $400 million that may be reduced through annual vaccine credits, and the additional credit of up to $225 million that may be applied for certain qualifying sales. We recorded the $3.6 million difference between the refund liability recorded as of December 31, 2023 of $696.4 million and the $700 million of total consideration under the arrangement as a revenue adjustment during the six months ended June 30, 2024. As of June 30, 2024, the remaining amounts included on our consolidated balance sheet are classified as $225 million in non-current Deferred revenue for the additional credit that may be applied against future qualifying sales, $90 million in Other current liabilities, and $305 million in Other non-current liabilities. In addition, we and Gavi entered into a security agreement pursuant to which we granted Gavi a security interest in accounts receivable from SII under the SII R21 Agreement (see Note 6 to our consolidated financial statements), which will continue for the deferred payment term of the Gavi Settlement Agreement. On February 22, 2024, the claims and counterclaims were dismissed with prejudice. 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 project vaccine, as defined under the CEPI funding agreement, manufactured by the CMO network funded by CEPI is sold to one or more third parties (which could include sales credited 40 under the Gavi Settlement Agreement), 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. We continue to assess our manufacturing needs and modify our global manufacturing footprint consistent with our contractual obligations to supply, and anticipated demand for, COVID-19 Vaccine, and in doing so recognize that significant costs may be incurred. For the 2023-2024 vaccination season, we have depended exclusively on Serum for co-formulation and filling (other than in Europe), and PCI Pharma Services for finishing COVID-19 Vaccine in Europe. For the 2024-2025 vaccination season, we are seeking to expand our supply chain network and introduce new single-dose vial or pre-filled syringe product presentations in certain markets. In May 2024, we and SLS entered into a supply agreement (the “SLS Supply Agreement”) under which SLS will supply us antigen drug substance and finished COVID-19 Vaccine doses. The SLS Supply Agreement includes the general terms and conditions of supply orders between us and SLS. We and SLS intend to execute statements of work and firm purchase orders to included specific quantities to be delivered under the SLS Supply Agreement. Pursuant to the SLS Supply Agreement, SLS or its authorized manufacturer is responsible for obtaining and maintaining all necessary permits or other regulatory approvals to manufacture drug substance and drug product. Unless otherwise earlier terminated, the SLS Supply Agreement will expire on the later of June 30, 2028 or two years after the expiration or termination of the last firm purchase order under the SLS Supply Agreement. Either party may terminate the SLS Supply Agreement if the other party commits a material breach of the SLS Supply Agreement that is not timely cured or is not curable. The SLS Supply Agreement contains certain customary representations and warranties of the parties along with certain customary covenants, including confidentiality and indemnity provisions. Any delays or disruptions in these suppliers’ operations could prevent or delay the delivery of customer orders. As of June 30, 2024, we had $1.1 billion in cash and cash equivalents, restricted cash and marketable securities as compared to $583.8 million as of December 31, 2023. We funded our operations for the six months ended June 30, 2024 primarily with cash and cash equivalents, non-refundable upfront payment under the Sanofi CLA and Subscription Agreement, proceeds from the sale of securities under our August 2023 Sales Agreement, upfront payments under APAs, and revenue from product sales. In May 2023, we announced our plan to restructure our global footprint to reduce our planned expenditures and in January 2024, we announced further reductions in our global workforce. We anticipate our future operations to be funded primarily by milestone payments, royalties and transition services under our Sanofi CLA, revenue from product sales, our cash and cash equivalents and investments in marketable securities, and other potential funding sources including equity financings, which may include at the market offerings, debt financings, collaborations, strategic alliances, asset sales, and marketing, distribution or licensing arrangements. The following table summarizes cash flows for the six months ended June 30, 2024 and 2023 (in thousands): Six Months Ended June 30, 2024 2023 Change Net cash provided by (used in): Operating activities $ 230,714 $ (497,531) $ 728,245 Investing activities (379,957) (31,337) (348,620) Financing activities 264,102 (293,044) 557,146 Effect on exchange rate on cash, cash equivalents, and restricted cash (3,111) (8,992) 5,881 Net increase (decrease) in cash, cash equivalents, and restricted cash 111,748 (830,904) 942,652 Cash, cash equivalents, and restricted cash at beginning of period 583,810 1,348,845 (765,035) Cash, cash equivalents, and restricted cash at end of period $ 695,558 $ 517,941 $ 177,617 Net cash provided by operating activities was $230.7 million for the six months ended June 30, 2024, as compared to net cash used in operating activities of $497.5 million for the same period in 2023. The increase in cash provided by operating activities is primarily due to the non-refundable upfront payment under the Sanofi CLA, an increase in amounts received under our APAs and an overall decrease in operating expenses period-over-period, partially offset by the timing of payments to vendors. Net cash used in investing activities was $380.0 million for the six months ended June 30, 2024, as compared to $31.3 million for the same period in 2023. The increase in cash used in investing activities is primarily due to our investment in marketable securities, partially offset by lower expenditures on equipment and leasehold improvements. 41 Net cash provided by financing activities was $264.1 million for the six months ended June 30, 2024, as compared to net cash used in financing activities of $293.0 million for the same period in 2023. The increase in cash provided by financing activities is primarily as a result of proceeds from the sale of shares under our August 2023 Sales Agreement of approximately $188 million and Subscription Agreement of $68.8 million in 2024 as compared with the $325 million repayment of our 3.75% Convertible notes and finance lease payments during 2023. Going Concern As described in Note 2 to our consolidated financial statements, we evaluated our ability to continue as a going concern and concluded that we will have sufficient capital available to fund our operations for at least one-year from the date that the financial statements were issued.