What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-10 compared with 2020-08-10 · 291 added, 155 removed, 172 unchanged (72% of the section changed)

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Any statements in the discussion below and elsewhere in this Quarterly Report about expectations, beliefs, plans, objectives, assumptions or future events or performance of Novavax, Inc.

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

Such forward-looking statements include, without limitation, statements with respect to our capabilities, goals, expectations regarding future revenue and expense levels and capital raising activities, including possible proceeds from our May 2020 Sales Agreement (defined below);

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

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

potential market sizes and demand for our product candidates;

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the development of our clinical-stage product candidates and our recombinant vaccine and adjuvant technologies;

the development of our preclinical product candidates;

the development of our

preclinical product candidates;

the conduct, timing and potential results from clinical trials and other preclinical studies;

plans for and potential timing of regulatory filings;

our expectations with respect to manufacturing capacity, timing and production;

our expectations with respect to the anticipated ongoing development and potential commercialization or licensure of NVX-CoV2373, NanoFlu™ and ResVax™;

our expectation of manufacturing capacity, timing, production and delivery for NVX-CoV2373;

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

the expected timing and content of regulatory actions;

funding from Operation Warp Speed (“OWS”), the Department of Defense (“DoD”) and the Coalition for Epidemic Preparedness Innovations (“CEPI”), and payments by the Bill & Melinda Gates Foundation (“BMGF”);

funding from Operation Warp Speed (“OWS”), the U.S.

Department of Defense (“DoD”) and the Coalition for Epidemic Preparedness Innovations (“CEPI”), and payments from the Bill & Melinda Gates Foundation (“BMGF”);

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

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and other matters referenced herein.

You generally can identify these forward-looking statements by 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,” or “assume” or the negative of these terms, or other comparable terminology, although not all forward-looking statements contain these words.

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,” or “assume,” the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words.

Forward-looking statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed or implied in the statements.

Any or all of our forward-looking statements in this Quarterly Report may turn out to be inaccurate or materially different from actual results.

Because the risk factors discussed in this Quarterly Report and identified in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, and other risk factors of which we are not aware, could cause actual results or outcomes to differ materially from those expressed or implied in any forward-looking statements made by or on behalf of us, you should not place undue reliance on any such forward-looking statements.

These statements are subject to risks and uncertainties, known and unknown, which could cause actual results and developments to differ materially from those expressed or implied in such statements.

Risk factors discussed in this Quarterly Report, identified in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, and those of which we are not currently aware, could cause actual results or outcomes to differ materially from those expressed or implied in any forward-looking statements made by or on behalf of us, therefore, you should not place undue reliance on any such forward-looking statements.

We have included important factors that could cause results to differ in the cautionary statements included in this Quarterly Report, particularly those identified in Part II, Item 1A “Risk Factors” of this Quarterly Report and in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K.

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We cannot guarantee future results, events, level of activity, performance or achievement.

Further, any forward-looking statement speaks only as of the date on which 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.

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.

We are a late-stage biotechnology company that promotes improved global health through the discovery, development and commercialization of innovative vaccines to prevent serious infectious diseases and address urgent, global health needs.

Our vaccine candidates, including both our recently announced coronavirus vaccine candidate, NVX-CoV2373, as well as our lead candidate, NanoFlu, are genetically engineered, three-dimensional nanostructures of recombinant proteins critical to disease pathogenesis.

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

Our technology targets a variety of infectious diseases.

We are a late-stage biotechnology company promoting improved global health through the discovery, development and commercialization of innovative vaccines to prevent serious infectious diseases and address urgent, global health needs.

Our vaccine candidates, including both our coronavirus vaccine candidate, NVX-CoV2373, and our influenza vaccine candidate, NanoFlu, are genetically engineered, three-dimensional nanostructures of recombinant proteins critical to disease pathogenesis.

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

Our technology may be used to target a variety of infectious diseases.

We are also developing proprietary immune stimulating saponin-based adjuvants at Novavax AB, our wholly owned Swedish subsidiary.

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● Older Adults (1)

Combination Seasonal Influenza/RSV (1)

Combination Vaccines

● NanoFlu/NVX-CoV2373 (1)

● NanoFlu/RSV (1)

Ebola Virus (“EBOV”) (1)

(1) Includes Matrix-M adjuvant

(2) Supported by funding from OWS, DoD and CEPI

(3) Successfully achieved all primary endpoints and achieved statistical significance in key secondary endpoints

(2) Supported by funding from OWS, DoD, CEPI and BMGF

(3) Ongoing U.S.

Phase 2 and South Africa Phase 2b;

initiated UK Phase 3 in September 2020;

initiation of U.S.

Phase 3 expected by the end of November 2020

(4) Supported by a grant from BMGF

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Coronaviruses (“CoV”), so named for their “crown-like” appearance, are a large family of viruses, some of which are believed to have spread from animals to humans.

they include human diseases such as MERS and SARS, and COVID-19, the most recent disease resulting from the SARS-CoV2 virus.

COVID-19 first emerged in late 2019 in China, and by March 2020 was declared a global pandemic by the World Health Organization.

There are currently no licensed vaccines proven to prevent COVID-19, although a range of vaccine candidates are under development.

We have successfully produced a vaccine candidate, NVX-CoV2373, designed to provide protection against SARS-CoV-2, the virus that causes COVID-19.

These viruses cause human diseases such as MERS and SARS, and COVID-19, the disease resulting from the SARS CoV-2 coronavirus.

COVID-19 first emerged in late 2019 in China, and, as of March 2020, the World Health Organization declared it a global pandemic.

No vaccines proven to prevent COVID-19 have been approved for sale in the U.S., United Kingdom (“UK”), Japan, or European Union, although a range of vaccine candidates are under development.

We have successfully produced NVX-CoV2373, designed to provide protection against SARS-CoV-2.

We engineered NVX-CoV2373 from the genetic sequence of SARS-CoV-2 using our recombinant nanoparticle technology to generate the antigen derived from the coronavirus spike (S) protein.

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Clinical Development

In August 2020, we announced positive preliminary immunogenicity and safety results from our Phase 1 portion of the Phase 1/2 clinical trial of NVX-CoV2373, which we initiated in May 2020.

In October 2020, we announced we expect to begin a Phase 3 clinical trial in the U.S.

and Mexico by the end of November 2020.

This pivotal Phase 3 clinical trial is being conducted with support from the U.S.

Government through OWS.

The trial is expected to enroll up to 30,000 participants in the U.S.

and Mexico, with proportional representation among diverse populations most vulnerable to COVID-19 distributed across race/ethnicity, age and those living with co-morbidities.

In November 2020, we announced that the U.S.

Food and Drug Administration’s (“FDA”) granted NVX-CoV2373 Fast Track designation, which is intended for products that treat serious or life-threatening diseases or conditions and that demonstrate the potential to address unmet medical needs for such diseases or conditions.

The program is designed to facilitate development and expedite review of drugs to treat serious and life-threatening conditions so that approved products can reach the market expeditiously.

Specifically, Fast Track designation facilitates meetings to discuss

all aspects of development to support licensure and provides the opportunity to submit sections of a U.S.

biologics license application (“BLA”) on a rolling basis as data become available.

This permits the FDA to review modules of the BLA as they are received instead of waiting for the entire BLA submission.

In September 2020, we initiated our first Phase 3 study in the UK, in partnership with the UK Government’s Vaccines Taskforce.

The trial is a randomized, placebo-controlled, observer-blinded study to evaluate the efficacy, safety and immunogenicity of NVX-CoV2373 in subjects aged 18 to 84 years.

In October 2020, we expanded enrollment from 10,000 to 15,000 volunteers, some of whom have been recruited through the National Health Service Vaccine Registry.

The increased enrollment is likely to facilitate assessment of safety and efficacy in a shorter time period than originally anticipated.

Half of the trial participants will receive two intramuscular injections of NVX-CoV2373 comprising 5 micrograms of antigen with 50 micrograms of Matrix-M, administered 21 days apart, while the other half of the trial participants will receive placebo.

The trial is designed to enroll at least 25 percent of participants over the age of 65 as well as to prioritize groups that are most affected by COVID-19.

Additionally, up to 400 participants will also receive a licensed seasonal influenza vaccine as part of a co-administration sub-study.

The primary endpoint is first occurrence of PCR-confirmed symptomatic COVID-19 with onset at least seven days after the second study vaccination in volunteers who have not been previously infected with SARS-CoV-2.

The primary efficacy analysis will be an event-driven analysis based on the number of participants with symptomatic or moderate/severe COVID-19 disease.

The trial protocol calls for unblinding of data once 152 participants have achieved mild, moderate or severe endpoints.

Two interim analysis are planned once 66 and 110 endpoints have occurred.

As of November 9, 2020, we have enrolled over 9,000 participants in this trial.

We expect this trial to be fully enrolled by the end of November 2020, and dependent on the overall COVID-19 attack rate, interim data in this event-driven trial are expected as soon as early first quarter 2021.

These data are expected to serve as the basis for global licensure.

In August 2020, we initiated a Phase 2b clinical trial in South Africa to evaluate the efficacy of NVX-CoV2373.

The trial includes two cohorts.

In October 2020, we expanded enrollment from 2,665 to 4,404.

One cohort evaluates efficacy, safety and immunogenicity in approximately 4,164 healthy adults.

The second cohort evaluates safety and immunogenicity in approximately 240 medically stable, HIV-positive adults.

This allows for evaluation of the vaccine across a diverse, representative study population.

The Phase 2b clinical trial is supported in part by a $15.0 million grant from the BMGF.

In August 2020, we announced positive preliminary immunogenicity and safety results from our Phase 1 portion of the Phase 1/2 clinical trial of NVX-CoV2373 initiated in May 2020.

The Phase 1 portion was a randomized, observer-blinded, placebo-controlled trial in 131 participants at two sites in Australia.

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Results from this trial showed that NVX-CoV2373 was generally well-tolerated, elicited robust antibody responses numerically superior to that seen in human convalescent sera and induced robust polyfunctional CD4 + T cell responses.

The Phase 2 portion of the study is expected to initiate in the third quarter of 2020, enrolling approximately 1,500 healthy adults in the U.S.

In September 2020, the Phase 1 portion clinical results were published in The New England Journal of Medicine.

In August 2020, we initiated the Phase 2 portion of the Phase 1/2 clinical trial.

The Phase 2 portion is designed to evaluate the safety and immunogenicity of NVX-CoV2373 with Matrix-M in participants aged 18 to 84 years.

The secondary objectives of the Phase 2 portion include preliminary evaluation of efficacy.

The Phase 2 portion will assess two dose levels (5 and 25 micrograms), each with 50 micrograms of Matrix-M.

We completed enrollment of 1,288 healthy volunteers in October 2020, with approximately 50 percent of participants 60 years of age and older, at up to 40 sites in the U.S.

and Australia.

That Phase 2 portion of the trial is designed to assess expanded safety and immunogenicity in both adults 18-59 years of age and adults 60 years and above.

We expect to report top-line data from the Phase 2 portion of the trial early in the fourth quarter of 2020.

In April 2020, we announced that NVX-CoV2373 demonstrated high immunogenicity in animal models measuring spike protein-specific antibodies, antibodies that block the binding of the spike protein to the receptor and high levels of wild-type virus neutralizing antibodies.

In late October 2020, we reported favorable preliminary reactogenicity data from the Phase 2 portion of the trial during the Centers for Disease Control and Prevention Advisory Committee on Immunization Practices meeting.

In July 2020, we were selected to participate in OWS, a U.S.

government sponsored program working to accelerate the development, manufacturing and distribution of COVID-19 vaccines, therapeutics and diagnostics, under which we are entitled to receive funding of up to $1.6 billion to support certain activities related to the development of NVX-CoV2373, and the manufacture and delivery of NVX-CoV2373 to the U.S.

We expect this funding will assist in rapidly developing large-scale manufacturing capacity and transitioning into ongoing production, including the capability to stockpile and distribute large quantities of NVX-CoV2373 for use in clinical trials and commercially, if approved.

We expect the OWS arrangement to also fund the late-stage clinical studies necessary to determine the safety and efficacy of NVX-CoV2373, including a pivotal Phase 3 clinical trial with up to 30,000 subjects that we expect to begin in the fourth quarter of 2020.

OWS funding is also expected to support our plans to file submissions for licensure with the FDA.

government sponsored program working to accelerate the development, manufacturing and distribution of COVID-19 vaccines, therapeutics and diagnostics.

Through a Base Agreement and a Project Agreement (together, the “OWS Agreement”) entered into with Advanced Technology International, Inc., the Consortium Management Firm acting on behalf of the Medical CBRN Defense Consortium in connection with OWS, we are entitled to receive funding up to $1.6 billion to support certain activities related to the development of NVX-CoV2373, and the manufacture and delivery of 100 million doses of NVX-CoV2373 to the U.S.

government as early as late 2020.

We expect this funding will assist in rapidly developing our large-scale manufacturing capacity and transitioning into ongoing production, including the capability to stockpile and distribute large quantities of NVX-CoV2373 for use in clinical trials and potentially for commercial sale, if licensed.

We anticipate

that the OWS Agreement will fund the late-stage clinical studies necessary to determine the safety and efficacy of NVX-CoV2373, including a pivotal Phase 3 clinical trial with up to 30,000 subjects expected to begin by the end of November 2020.

Funding under the OWS Agreement is also expected to support our plans to file submissions for licensure with the FDA.

In June 2020, we were awarded a contract by the U.S.

DoD under which we are entitled to receive funding of up to $60 million for the manufacturing of NVX-CoV2373.

In May 2020, we signed a restated funding agreement with CEPI under which we are entitled to receive funding of up to $384.5 million (the “CEPI Funding Agreement”), in addition to the $3.9 million of funding CEPI provided in March 2020, to be used by us for the development of NVX-CoV2373.

Pursuant to the CEPI Funding Agreement, if approved, a portion of the NVX-CoV2373 supply produced by us, other than vaccine manufactured under the OWS arrangement, is expected to be procured and allocated through the COVAX Facility component of the Access to COVID-19 Tools (ACT) Accelerator, an international equitable vaccine purchasing initiative launched by the World Health Organization, Gavi the Vaccine Alliance, CEPI and other global non-governmental organizations and governmental leaders in 2020.

Manufacturing

In May 2020, we announced the acquisition of Praha Vaccines a.s.

(“Praha Vaccines”), formerly part of the Cyrus Poonawalla Group, in an all cash transaction of approximately $167.3 million, subject to customary working capital adjustments.

The acquisition includes a biologics manufacturing facility and associated assets in Bohumil, Czech Republic.

The facility is expected to provide annual capacity of over 1 billion doses of antigen starting in 2021 for NVX-CoV2373.

The acquisition included a 150,000-square foot state-of-the-art vaccine and biologics manufacturing facility and other support buildings, along with the existing employees and all related and required infrastructure.

The facility is completing a renovation that includes Biosafety Level-3 (BSL-3) capabilities.

As part of the transaction, approximately 150 employees with significant experience in vaccine manufacturing and support have joined Novavax.

The acquisition of Praha Vaccines was supported by our funding arrangements with CEPI, which we expect will enable us to dramatically expand our manufacturing capacity.

We plan to work collaboratively with the Serum Institute of India (SII), part of the Cyrus Poonawalla Group, to increase production levels at the Bohumil facility by the end of 2020.

In June 2020, we entered into contract manufacturing arrangements with AGC Biologics and the Polypeptide Group to provide contract development and manufacturing services, supplying us with large-scale production of Matrix-M.

These arrangements are expected to allow us to significantly increase our capacity to deliver doses of NVX-CoV2373 in 2020 and 2021.

In July 2020, we announced a manufacturing partnership with FUJIFILM Diosynth Biotechnologies (“FDB”) that allows for the large-scale contract production of NVX-CoV2373 in connection with our OWS arrangement, initially at FDB’s facility in North Carolina.

Also in July 2020, we entered into a supply and license agreement with Serum Institute of India Private Limited (“SIIPL”), under which we granted exclusive and non-exclusive licenses to SIIPL for the development, co-formulation, filling and finishing, registration and commercialization by SIIPL of NVX-CoV2373.

SIIPL agreed to purchase the two vaccine components (the antigen drug substance and the Matrix-M adjuvant) from us and we will equally split the revenue from sale of such product by SIIPL in its licensed territory, net of agreed costs.

We granted to SIIPL (i) an exclusive license in India during the agreement, and (ii) a non-exclusive license (a) during the “Pandemic Period” (as declared by the World Health Organization), in all countries other than specified countries designated by the World Bank as upper-middle or high-income countries, with respect to which we retain rights, and (b) after the Pandemic Period, in only those countries designated as low or middle-income by the World Bank.

Following the Pandemic Period, we may notify SIIPL of any bona fide opportunities for us to license the product to a third party in such low and middle-income countries and SIIPL would have an opportunity to match or improve such third party terms, failing which, we would have the discretion to remove one or more non-exclusive countries from SIIPL’s license.

In August 2020, we announced a partnership with Takeda Pharmaceutical Company Limited (“Takeda”) for the exclusive development, manufacturing and commercialization of NVX-CoV2373 in Japan.

DoD (the “DoD Contract”) under which we are entitled to receive funding of up to $60.0 million for the manufacturing of NVX-CoV2373.

In May 2020, we signed a restated funding agreement which was modified in November 2020, with CEPI (the “CEPI Funding Agreement”), under which we are entitled to receive funding of up to $399.5 million, in addition to the $3.9 million of funding CEPI provided in March 2020, to be used by us for the development of NVX-CoV2373.

Pursuant to the CEPI Funding Agreement, if approved, a portion of the NVX-CoV2373 supply produced by us, other than vaccine manufactured under the OWS Agreement, is expected to be procured and allocated through the COVAX Facility component of the Access to COVID-19 Tools (ACT) Accelerator, an international equitable vaccine purchasing initiative launched by the World Health Organization, Gavi the Vaccine Alliance, CEPI and other global non-governmental organizations and governmental leaders in 2020.

Manufacturing and Supply

To date, we have increased our projected global manufacturing capacity for NVX-CoV2373 to over two billion annualized doses when we are at full capacity, which we expect to occur in mid-2021.

The antigen component of NVX-CoV2373 is being manufactured at Novavax CZ and at the following partnered manufacturing sites:

● Biofabri S.L.

● FUJIFILM Diosynth Biotechnologies (“FDB”) in North Carolina and Texas in the United States

● FDB in the UK

● Serum Institute of India Private Limited (“SIIPL”) in India

● SK Bioscience Co., Ltd.

(“SK bioscience”) in the Republic of Korea

● Takeda Pharmaceutical Company Limited (“Takeda”) in Japan

Matrix-M adjuvant is being manufactured at Novavax AB and the following partnered manufacturing sites:

● AGC Biologics in the United States and Denmark

● PolyPeptide Group (will manufacture two key intermediaries used in Matrix-M) in the U.S.

In November 2020, we signed a Heads of Terms with the Australian Federal Government to supply up to 40 million doses of NVX-CoV2373 beginning as early as the first half of 2021, subject to the successful completion of the Phase 3 clinical trial program and approval of NVX-CoV2373 by the Therapeutic Goods Administration.

In October 2020, we entered into a SARS-CoV-2 vaccine supply agreement with The Secretary of State for Business, Energy and Industrial Strategy, acting on behalf of the government of the UK (the “Authority”), for the purchase of up to 60 million doses of NVX-CoV2373, plus such additional orders as the Authority may make from time to time.

We agreed to continue to conduct a UK-based Phase 3 clinical trial of NVX-CoV2373 to assess the efficacy of NVX-CoV2373 in the UK population, establish a dedicated supply chain for NVX-CoV2373 in the UK and seek regulatory approval for the NVX-CoV2373 in the UK.

FDB’s UK site is expected to produce up to 180 million doses annually.

We expect to supply up to 60 million doses of NVX-CoV2373 to the UK beginning as early as the first quarter of 2021.

Excess supply of antigen manufactured at the FDB’s site in Billingham, Stockton-on-Tees may be available for us to sell to additional markets outside the UK.

In August 2020, we reached an agreement in principle with the Government of Canada to supply up to 76 million doses of NVX-CoV2373.

We and Canada expect to finalize an advance purchase agreement under which we will supply

doses of NVX-CoV2373 to Canada beginning as early as the second quarter of 2021.

This purchase arrangement will be subject to licensure of NVX-CoV2373 by Health Canada.

In August 2020, we entered into a development and supply agreement with SK bioscience for the antigen component of NVX-CoV2373 for supply to global markets including the COVAX Facility.

In addition, we and SK bioscience signed a letter of intent with the Republic of Korea’s Ministry of Health and Welfare to work toward broad and equitable access to NVX-CoV2373 for the global market as well as to make the vaccine available in South Korea.

Under the terms of the agreement, SK bioscience will manufacture NVX-CoV2373 for use in the final drug product globally during the COVID-19 pandemic.

In August 2020, we announced a partnership with Takeda for the exclusive development, manufacturing and commercialization of NVX-CoV2373 in Japan.

Takeda will receive funding from the Government of Japan’s Ministry of Health, Labour and Welfare to support the technology transfer, establishment of infrastructure and scale-up of manufacturing.

We anticipate that Takeda has manufacturing capacity of over 250 million doses per year.

We will be entitled to receive payments based on the achievement of certain development and commercial milestones, as well as a portion of proceeds from the sale of the vaccine.

Historically, we developed a vaccine candidate against MERS, a novel coronavirus first identified in 2012, as well as a vaccine candidate against SARS in 2005.

We anticipate that Takeda has a manufacturing capacity of over 250 million doses per year.

We will be entitled to receive payments based on the achievement of certain development and commercial milestones, as well as a portion of proceeds from vaccine sales.

In July 2020, we announced a manufacturing partnership with FDB allowing for the large-scale contract production of NVX-CoV2373 in connection with our OWS Agreement, beginning at FDB’s North Carolina facility.

Also in July 2020, we entered into a supply and license agreement with SIIPL, as amended by the parties in September 2020, under which we granted exclusive and non-exclusive licenses to SIIPL for the development, co-formulation, filling and finishing, registration and commercialization by SIIPL of NVX-CoV2373.

SIIPL has agreed to purchase Matrix-M adjuvant from us and we have granted SIIPL a non-exclusive license to manufacture the antigen drug substance component of NVX-CoV2373 in SIIPL’s licensed territory solely for use in the manufacture of NVX-CoV2373 under the terms of the agreement.

We will equally split with SIIPL the revenue from SIIPL’s sale of NVX-CoV2373 in its licensed territory, net of agreed costs.

Following the Pandemic Period, we may notify SIIPL of any bona fide opportunities for us to license NVX-CoV2373 to a third party in such low and middle-income countries and SIIPL would have an opportunity to match or improve such third party terms, failing which, we would have the discretion to remove one or more non-exclusive countries from SIIPL’s license.

We anticipate SIIPL to manufacture approximately one billion doses of NVX-CoV2373 in 2021.

Historically, we developed a vaccine candidate against MERS, a novel coronavirus first identified in 2012, and a vaccine candidate against SARS in 2005.

In 2012, within weeks of obtaining the sequence of the circulating MERS strain, we successfully produced a vaccine candidate designed to provide protection.

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Influenza is a world-wide infectious disease with serious illness generally occurring in more susceptible populations such as children under 18 years old and older adults, but also occurring in the general population.

According to an influenza vaccines forecast by GlobalData in 2019, the market for seasonal influenza vaccines is expected to grow from approximately $4.6 billion in 2018 to approximately $6.5 billion in 2028 (in the countries comprising the eight major markets).

According to a 2019 Global Data forecast of influenza vaccines, the market for seasonal influenza vaccines is expected to grow from approximately $4.6 billion in 2018 to approximately $6.5 billion in 2028 (in the countries comprising the eight major markets).

Recent flu seasons have shown an increase in the influenza disease burden.

For the 2017-18 flu season, the Centers for Disease Control and Prevention estimates that influenza in the U.S.

For the 2017-18 flu season, the

Centers for Disease Control and Prevention estimates that influenza in the U.S.

resulted in 48.8 million illnesses, 959,000 hospitalizations and 79,400 deaths, a dramatic increase across all categories compared to previous years.

In March 2020, we announced positive top-line results from our Phase 3 clinical trial of our nanoparticle seasonal quadrivalent influenza vaccine candidate, including our proprietary Matrix-M adjuvant (“NanoFlu”).

The trial was a randomized, observer-blinded, active controlled trial in approximately 2,652 healthy older adults (65 years and older) across 19 clinical sites in the U.S.

The trial’s primary objective was to demonstrate non-inferior immunogenicity as measured by hemagglutination inhibition (“HAI”) titers of vaccine homologous influenza strains compared to a licensed seasonal vaccine, and to describe its safety profile.

NanoFlu achieved all the primary objectives, and was well-tolerated and had a safety profile comparable to a U.S.-licensed quadrivalent vaccine, Fluzone ® Quadrivalent with a modest increase in local adverse events.

NanoFlu also achieved statistical significance in key secondary endpoints.

This positive data will support a U.S.

biologics license application (“BLA”), which BLA will include process performance qualification and a lot consistency clinical trial, and licensure of NanoFlu using the U.S.

Food and Drug Administration’s (“FDA”) accelerated approval pathway.

In January 2020, we announced that the FDA granted NanoFlu Fast Track designation, which is intended for products that treat serious or life-threatening diseases or conditions and that demonstrate the potential to address unmet medical needs for such diseases or conditions.

The program permits the FDA to review modules of a BLA as they are received instead of waiting for the entire BLA submission.

In addition, priority review (six-month review versus standard 10-month review) is an additional benefit that may potentially be available for NanoFlu in the future.

In June 2019, we announced that the FDA acknowledged that the accelerated approval pathway is available for NanoFlu.

For seasonal influenza vaccines, the HAI antibody response is considered an acceptable surrogate marker of activity that is reasonably likely to predict clinical benefit.

To be considered for accelerated approval, a BLA for a new seasonal influenza vaccine should include results from one or more well-controlled studies designed to meet immunogenicity endpoints along with a commitment to conduct confirmatory post-marketing studies of clinical effectiveness in preventing influenza.

In March 2020, we announced positive top-line results from our Phase 3 clinical trial of our nanoparticle seasonal quadrivalent influenza vaccine candidate, which includes our proprietary Matrix-M adjuvant (“NanoFlu”).

This positive data will support a BLA, which BLA will include process performance qualification and a lot consistency clinical trial, and licensure of NanoFlu using the FDA accelerated approval pathway.

In October 2020, we announced the formation of a leadership team within the Company focused on advancing NanoFlu to regulatory licensure.

The leadership team will establish a separate NanoFlu development unit within our Company, which we expect to benefit from joint shared services with key cross-functional departments within the Company and to build on the Company’s established knowledge base in the discovery and development of innovative vaccines to prevent serious infectious diseases.

Respiratory Syncytial Virus (RSV)

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In the U.S., RSV is the leading cause of hospitalization of infants and, globally, is second only to malaria as a cause of death in children under one year of age.

Data from our Prepare trial, which was initiated in December 2015, was announced in February 2019.

In February 2019, we announced data from our Prepare trial, initiated in December 2015.

The Prepare trial was conducted to determine whether ResVax reduced incidence of medically significant RSV-positive LRTI in infants through a minimum of the first 90 days of life and up through the first six months of life.

While these data did not meet the trial’s primary efficacy endpoint, it did demonstrate efficacy against a secondary objective by reducing RSV LRTI hospitalizations in treated infants.

ResVax is thus the first RSV vaccine to show efficacy in a Phase 3 clinical trial, and in addition, showed important effects against a variety of pre-specified exploratory endpoints and post-hoc analyses.

This included a ~60% reduction in RSV-related severe hypoxemia and a ~74% reduction in RSV-related, radiographically-confirmed pneumonia through day 90.

As in previous clinical trials, ResVax also showed favorable safety and tolerability results.

In light of the fact that the trial failed to meet the primary endpoints, the FDA and European Medicines Agency recommended that we conduct an additional Phase 3 clinical trial to confirm efficacy.

BMGF has supported the Prepare trial for ResVax through a grant of up to $89.1 million pursuant to a grant agreement we entered into with BMGF in September 2015 (the “BMGF Grant Agreement”);

BMGF continues to financially support our efforts to conduct certain follow-on analyses of the Phase 3 data.

While the data did not meet the trial’s primary efficacy endpoint, it did demonstrate efficacy against a secondary objective by reducing RSV LRTI hospitalizations in treated infants.

In July 2020, these data were published in the New England Journal of Medicine.

BMGF supported the Prepare trial for ResVax through a grant of up to $89.1 million pursuant to a grant agreement we entered into with BMGF in September 2015 (the “BMGF Grant Agreement”), including our efforts to conduct certain follow-on analyses of the Phase 3 data.

We are assessing opportunities to bring ResVax to market, in conjunction with our pursuit of a regulatory licensure approach for the U.S., the European Union and other geographies.

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We continue to assess the development opportunities for our RSV F Vaccine for pediatrics.

Combination Respiratory Vaccine

With the ongoing development of our NanoFlu and RSV F Vaccine, a strong rationale exists for developing a combination respiratory vaccine that is designed to protect susceptible populations against both diseases.

Although testing is at an early stage, we believe that a combination vaccine against both influenza and RSV may be achievable.

Additional combinations of our vaccines, including combinations that include NVX-CoV2373, are also being considered.

Combination Vaccines

With the ongoing development of NanoFlu, NVX-CoV2373, and RSV F Vaccine, a strong rationale exists for developing two combination respiratory vaccines designed to protect susceptible populations against these diseases.

Although testing is at an early stage, we believe that a combination vaccine against both influenza in combination with COVID-19, and influenza in combination with RSV, may be achievable since both vaccines are created using our recombinant nanoparticle technology and include our proprietary Matrix-M adjuvant.

EBOV is a filovirus that produces severe, often fatal illness in humans.

Within the last decade, it has produced two large outbreaks in Sub-Saharan Africa with high mortality.

There are currently no licensed treatments proven to prevent EBOV, although a range of blood, immunological and drug therapies are under development.

We have developed an EBOV glycoprotein vaccine candidate (“Ebola GP Vaccine”) expressed in insect cells, using our core recombinant baculovirus technology.

In five separate studies, carried out in collaboration with the National Institute of Allergy and Infectious Disease, active immunization with Ebola GP Vaccine was shown to be highly immunogenic and efficacious in preventing lethal disease in non-human primates challenged with EBOV.

Our 2015 Phase 1 clinical trial demonstrated that our Ebola GP Vaccine is highly immunogenic in humans, well-tolerated and, in conjunction with our proprietary Matrix-M adjuvant, demonstrated marked antigen dose-sparing and induced significant increases in neutralizing antibody titers.

There are currently two vaccines licensed to prevent EBOV.

We developed an EBOV glycoprotein vaccine candidate (“Ebola GP Vaccine”) expressed in insect cells, using our core recombinant baculovirus technology.

Although not in active development, our Ebola GP Vaccine is a viable development opportunity in the event of dedicated funding or a partnership arrangement.

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In May 2020, we entered into an At Market Issuance Sales Agreement (“May 2020 Sales Agreement”), which allows us to issue and sell up to $250 million in gross proceeds of our common stock.

During the six months ended June 30, 2020, we sold 2.2 million shares of common stock under the May 2020 Sales Agreement resulting in $107.0 million in net proceeds, leaving $141.6 million remaining under the May 2020 Sales Agreement.

During the nine months ended September 30, 2020, we sold 2.8 million shares of common stock under the May 2020 Sales Agreement resulting in $160.3 million in net proceeds (this amount excludes $3.9 million received in the fourth quarter of 2020 for shares traded in late September 2020).

From October 1, 2020 through November 3, 2020, we sold 0.7 million shares of common stock resulting in $74.1 million in net proceeds, leaving $8.7 million remaining under the May 2020 Sales Agreement.

In March 2020, we entered into an At Market Issuance Sales Agreement (“March 2020 Sales Agreement”), which allowed us to issue and sell up to $150 million in gross proceeds of our common stock.

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Critical Accounting Policies and Use of Estimates

There are no material changes to our critical accounting policies as described in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as filed with the SEC.

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.

These estimates, assumptions and judgments particularly in relation to revenue recognition (discussed in greater detail below), lease accounting (discussed in greater detail below) and impairment of long-lived assets have a material impact on our consolidated financial statements and are discussed in detail throughout our analysis of the results of operations discussed below.

For additional discussion of our critical accounting policies and estimates, see Item 7 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as filed with the SEC.

Revenue Recognition

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

Our revenue primarily consists of funding under U.S.

government contracts and other arrangements to advance the clinical development and manufacturing of NVX-CoV2373.

government contracts include the DoD Contract and the OWS Agreement.

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

At contract inception, we analyze our revenue arrangements to determine the appropriate accounting under U.S.

Currently, our revenue arrangements represent customer contracts within the scope of ASC Topic 606, Revenue from Contracts with Customers (Topic 606) (“ASC 606”) or are contributions under the scope of Accounting Standards Codification (ASC) Topic 958-605, Not-for-Profit Entities – Revenue Recognition (“ASC 958-605”).

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

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

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

(iii) determine the transaction price;

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

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

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

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

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

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

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

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

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

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

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

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 productivity, material and subcontractor costs, and identified risks.

Estimating the total allowable 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, if significant, may impact the timing of revenue and fee recognition on our contracts.

Allowable contract costs include direct

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

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

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

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

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

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

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

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

Our other funding agreements primarily include the CEPI Grant Funding and CEPI Forgivable Loan Funding.

Under our grant funding arrangements including the CEPI Grant Funding, we are entitled to reimbursement for costs that support development related activities of NVX-CoV2373.

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

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

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

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

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

The research and development risk is considered substantive, such that it is not yet probable that the development will be successful.

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

Given the financial risk associated with the research and development activities lies with CEPI because repayment of any funds provided by CEPI depends solely on the results of the research and development activities having future economic benefit, we will account for our obligation under the CEPI Forgivable Loan Funding as a contract to perform research and development for others.

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

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

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

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

Lease Accounting

We determine at the inception of a contract if an arrangement is, or contains, a lease, which exists when the contract conveys the right to control the use of identified property or equipment for a period of time in exchange for consideration.

Depending on the contract, the lease commencement date, defined as the date on which the lessor makes the underlying asset available for use by the lessee, may be different than the inception date of the contract.

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

We enter into non-cancelable lease agreements for office space and certain equipment.

We also enter into supply agreements with contract manufacturing organizations and contract development and manufacturing organizations to manufacture our vaccine candidates.

Certain of these supply agreements include the use of identified manufacturing facilities and equipment that are controlled by us and may qualify as an embedded lease.

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

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

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

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

accordance with contractual agreements.

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

We reevaluate short-term leases that are modified and if they no longer meets the requirements to be treated as short-term leases, we recognize and measure the lease liability and ROU asset as if the date of the modification is the lease commencement date.

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

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

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

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

Recent Accounting Pronouncements Not Yet Adopted

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Results of Operations

The following is a discussion of the historical financial condition and results of operations of the Company and should be read in conjunction with the unaudited consolidated financial statements and notes thereto set forth in this Quarterly Report.

Three Months Ended June 30, 2020 and 2019 (amounts in tables are presented in thousands, except per share information or as otherwise indicated)

The following is a discussion of the historical financial condition and results of the Company’s operations that should be read in conjunction with the unaudited consolidated financial statements and notes set forth in this Quarterly Report.

Three Months Ended September 30, 2020 and 2019 (amounts in tables are presented in thousands, except per share information or as otherwise indicated)

Three Months Ended

September 30,

Revenue (in thousands):

Total revenue

Revenue for the three months ended June 30, 2020 was $35.5 million as compared to $3.4 million for the same period in 2019, an increase of $32.2 million.

Revenue for the three months ended June 30, 2020 was primarily comprised of revenue for services performed under the CEPI Funding Agreement.

Revenue for the three months ended June 30, 2019 was primarily comprised of revenue for services performed under the BMGF Grant Agreement and revenue from Novavax AB.

The significant increase in revenue was due to increased development activities relating to NVX-CoV2373 under the CEPI Funding Agreement.

Revenue for the three months ended September 30, 2020 was $157.0 million as compared to $2.5 million for the same period in 2019, an increase of $154.5 million.

Revenue for the three months ended September 30, 2020 was primarily comprised of revenue for services performed under the CEPI Funding Agreement, participation in OWS and the DOD contract.

Revenue for the three months ended September 30, 2019 was primarily comprised of revenue for services performed under the BMGF Grant Agreement and revenue from Novavax AB.

The significant increase in revenue was due to increased development activities relating to NVX-CoV2373 under the CEPI Funding Agreement, participation in OWS and the DOD contract.

We expect revenue in 2020 to significantly increase due to our NVX-CoV2373 program, which we anticipate will be primarily funded by OWS, CEPI, DoD and/or other potential non-dilutive funding sources.

Three Months Ended

September 30,

Expenses (in thousands):

Research and development

Gain on Catalent transaction

General and administrative

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Research and Development Expenses

Research and development expenses include salaries, stock-based compensation, laboratory supplies, consultants and subcontractors, including external contract research organizations, and other expenses associated with our process development, program-related manufacturing, clinical, regulatory and quality assurance activities for our programs.

In addition, indirect costs such as fringe benefits and overhead expenses related to research and development activities, are also included in research and development expenses.

Research and development expenses increased to $34.8 million for the three months ended June 30, 2020 from $30.4 million for the same period in 2019, an increase of $4.4 million, or 15%.

The increase was primarily due to increased development activities relating to NVX-CoV2373, partially offset by decreased employee-related and other costs and development activities of ResVax as compared to the same period in 2019.

At June 30, 2020, we had 298 employees dedicated to our research and development programs versus 265 employees as of June 30, 2019.

For 2020, we expect research and development expenses to significantly increase due to our anticipated development activities for our NVX-CoV2373 program (see discussion on our NVX-CoV2373 program above) and increases in employee-related costs.

Research and development expenses include salaries, stock-based compensation, laboratory supplies, consultants and subcontractors, including external contract research and manufacturing organizations, and other expenses associated with our process development, program-related manufacturing, clinical, regulatory and quality assurance activities for our programs.

Indirect costs such as fringe benefits and overhead expenses related to research and development activities, are also included in research and development expenses.

Research and development expenses increased to $294.1 million for the three months ended September 30, 2020 from $18.6 million for the same period in 2019, an increase of $275.5 million.

The increase was primarily due to increased development activities relating to NVX-CoV2373, including the write-off of $187.2 million of ROU assets associated with our manufacturing supply agreements for NVX-CoV2373 that we determined do not currently have an alternative future use, and increased employee-related costs, primarily stock-based compensation expense.

As of September 30, 2020, we had 433 employees dedicated to our research and development programs versus 127 employees as of September 30, 2019.

For 2020, we expect research and development expenses to increase significantly due to our anticipated development activities for our NVX-CoV2373 program (see discussion on our NVX-CoV2373 program above) and increases in employee-related costs.

Expenses by Functional Area

We track our research and development expenses by the type of costs incurred in identifying, developing, manufacturing and testing vaccine candidates.

We track our research and development expenses according to the type of costs incurred during identification, development, manufacture and testing of vaccine candidates.

We evaluate and prioritize our activities according to functional area and therefore believe that project-by-project information would not form a reasonable basis for disclosure to our investors.

Historically, we did not account for internal research and development expenses by project, since our employees’ work time is spread across multiple programs and our internal manufacturing clean-room facility produces multiple vaccine candidates.

The following summarizes our research and development expenses by functional area for the three months ended June 30 (in millions):

The following summarizes our research and development expenses by functional area for the three months ended September 30 (in millions):

Manufacturing

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As we obtain data from preclinical studies and clinical trials, we may elect to discontinue or delay clinical trials in order to focus our resources on more promising vaccine candidates.

Completion of clinical trials may take several years or more, but the length of time can vary substantially depending upon the phase, size of clinical trial, primary and secondary endpoints and the intended use of the vaccine candidate.

Completion of clinical trials may take several years or more, but the length of time can vary substantially depending on the phase, size of clinical trial, primary and secondary endpoints and the intended use of the vaccine candidate.

The cost of clinical trials may vary significantly over the life of a project as a result of a variety of factors, including:

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● the safety and efficacy profile of the vaccine candidate;

● the cost and timing of, and the ability to secure, regulatory approvals.

● the cost, timing, and ability to secure, regulatory approvals.

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

General and Administrative Expenses

General and administrative expenses increased to $17.7 million for the three months ended June 30, 2020 from $9.6 million for the same period in 2019, an increase of $8.1 million, or 84%.

The increase in general and administrative expenses is primarily due to increased professional fees relating to the Praha Vaccines acquisition and supporting our NVX-CoV2373 program and increased employee-related expenses.

At June 30, 2020, we had 61 employees dedicated to general and administrative functions versus 43 employees as of June 30, 2019.

General and administrative expenses increased to $56.9 million for the three months ended September 30, 2020 from $7.9 million for the same period in 2019, an increase of $49.0 million.

The increase in general and administrative expenses is primarily due to increased employee-related costs, primarily stock-based compensation expense, and increased professional fees relating to the integration of Novavax CZ and supporting our NVX-CoV2373 program.

As of September 30, 2020, we had 89 employees dedicated to general and administrative functions versus 41 employees as of September 30, 2019.

For 2020, we expect general and administrative expenses to significantly increase due to increased activities related to supporting our NVX-CoV2373 program and increases in employee-related costs.

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Three Months Ended

Other Income (Expense):

September 30,

Other Income (Expense) (in thousands):

Investment income

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Other income (expense)

Total other income (expense)

We had total other expense, net of $0.5 million for the three months ended June 30, 2020 as compared to $2.9 million for the same period in 2019.

In the three months ended June 30, 2020, we recorded a $2.7 million gain on the intercompany loan with Praha Vaccines due to changes in the exchange rates.

Total other income (expense), net

We had total other expense, net of $3.4 million for the three months ended September 30, 2020 as compared to $3.1 million for the same period in 2019.

In the three months ended September 30, 2020, we recorded a $1.0 million gain on the intercompany loan with Novavax CZ due to changes in the exchange rates and additional interest expense of $1.1 million for finance leases.

Three Months Ended

September 30,

Net Loss (in thousands, except per share information):

Net loss per share

Weighted shares outstanding

Net loss for the three months ended June 30, 2020 was $17.5 million, or $0.30 per share, as compared to $39.6 million, or $1.69 per share, for the same period in 2019.

The decrease in net loss was primarily due to increased revenue under the CEPI Funding Agreement in the three months ended June 30, 2020.

The increase in weighted average shares outstanding for the three months ended June 30, 2020 is primarily a result of sales of our common stock in 2020 and 2019.

Six Months Ended June 30, 2020 and 2019 (amounts in tables are presented in thousands, except per share information or as otherwise indicated)

Six Months Ended

Weighted average shares outstanding

Net loss for the three months ended September 30, 2020 was $197.3 million, or $3.21 per share, as compared to $18.0 million, or $0.74 per share, for the same period in 2019.

The increase in net loss was primarily due to increased development activities relating to NVX-CoV2373, including the write off of $187.2 million of ROU assets associated with our manufacturing supply agreements for NVX-CoV2373 and increased employee-related costs, primarily stock-based compensation expense, partially offset by increased revenue under the CEPI Funding Agreement, the OWS Agreement and the DoD Contract.

The increase in weighted average shares outstanding for the three months ended September 30, 2020 is primarily a result of sales of our common stock in 2020 and 2019.

Nine Months Ended September 30, 2020 and 2019 (amounts in tables are presented in thousands, except per share information or as otherwise indicated)

Nine Months Ended

September 30,

Revenue (in thousands):

Total revenue

Revenue for the six months ended June 30, 2020 was $38.9 million as compared to $7.3 million for the same period in 2019, an increase of $31.6 million.

Revenue for the six months ended June 30, 2020 was primarily comprised of revenue for services performed under the CEPI Funding Agreement.

Revenue for the six months ended June 30, 2019 was primarily comprised of revenue for services performed under the BMGF Grant Agreement and revenue from Novavax AB.

The significant increase in revenue was due to increased development activities relating to NVX-CoV2373 under the CEPI Funding Agreement.

Six Months Ended

Revenue for the nine months ended September 30, 2020 was $195.9 million as compared to $9.8 million for the same period in 2019, an increase of $186.1 million.

Revenue for the nine months ended September 30, 2020 was primarily comprised of revenue for services performed under the CEPI Funding Agreement, the OWS Agreement and the DoD Contract.

Revenue for the nine months ended September 30, 2019 was primarily comprised of revenue for services performed under the BMGF Grant Agreement and revenue from Novavax AB.

The significant increase in revenue was due to increased development activities relating to NVX-CoV2373 under the CEPI Funding Agreement, the OWS Agreement and the DoD Contract.

Nine Months Ended

September 30,

Expenses (in thousands):

Research and development

Gain on Catalent transaction

General and administrative

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Research and Development Expenses

Research and development expenses include salaries, stock-based compensation, laboratory supplies, consultants and subcontractors, including external contract research and manufacturing organizations, and other expenses associated with our process development, program-related manufacturing, clinical, regulatory and quality assurance activities for our programs.

In addition, indirect costs such as fringe benefits and overhead expenses related to research and development activities, are also included in research and development expenses.

Research and development expenses decreased to $51.7 million for the six months ended June 30, 2020 from $65.9 million for the same period in 2019, a decrease of $14.1 million, or 21%.

This decrease was primarily due to decreased development activities of ResVax and lower employee-related and other costs in the six months ended June 30, 2020 as compared to the same period in 2019, partially offset by increased development activities relating to NVX-CoV2373.

At June 30, 2020, we had 298 employees dedicated to our research and development programs versus 265 employees as of June 30, 2019.

Research and development expenses increased to $345.8 million for the nine months ended September 30, 2020 from $84.5 million for the same period in 2019, an increase of $261.3 million.

This increase was primarily due to increased development activities relating to NVX-CoV2373, including the write off of $187.2 million of ROU assets associated with our manufacturing supply agreements for NVX-CoV2373 that we determined do not currently have an alternative future use, and increased employee-related costs, primarily stock-based compensation expense.

As of September 30, 2020, we had 433 employees dedicated to our research and development programs versus 127 employees as of September 30, 2019.

Expenses by Functional Area

The following summarizes our research and development expenses by functional area for the six months ended June 30 (in millions):

The following summarizes our research and development expenses by functional area for the nine months ended September 30 (in millions):

Manufacturing

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General and Administrative Expenses

General and administrative expenses increased to $27.1 million for the six months ended June 30, 2020 from $18.3 million for the same period in 2019, an increase of $8.8 million, or 48%.

At June 30, 2020, we had 61 employees dedicated to general and administrative functions versus 43 employees as of June 30, 2019.

Other Income (Expense):

Six Months Ended

General and administrative expenses increased to $84.0 million for the nine months ended September 30, 2020 from $26.2 million for the same period in 2019, an increase of $57.7 million.

The increase in general and administrative expenses is primarily due to increased employee-related costs, primarily stock-based compensation expense and increased professional fees relating to the acquisition and integration of Novavax CZ and supporting our NVX-CoV2373 program.

As of September 30, 2020, we had 89 employees dedicated to general and administrative functions versus 41 employees as of September 30, 2019.

Other Income (Expense):

Nine Months Ended

September 30,

Other Income (Expense) (in thousands):

Investment income

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Other income (expense)

Total other income (expense)

We had total other expense, net of $3.5 million for the six months ended June 30, 2020 as compared to $5.9 million for the same period in 2019.

In the six months ended June 30, 2020, we recorded a $2.7 million gain on the intercompany loan with Praha Vaccines due to changes in the exchange rates.

Six Months Ended

Total other income (expense), net

We had total other expense, net of $6.8 million for the nine months ended September 30, 2020 as compared to $9.0 million for the same period in 2019.

In the nine months ended September 30, 2020, we recorded a $3.5 million gain on the intercompany loan with Novavax CZ due to changes in the exchange rates and additional interest expense of $1.1 million for finance leases.

Nine Months Ended

September 30,

Net Loss (in thousands, except per share information):

Net loss per share

Weighted shares outstanding

Net loss for the six months ended June 30, 2020 was $43.4 million, or $0.84 per share, as compared to $82.8 million, or $3.77 per share, for the same period in 2019.

The decrease in net loss was primarily due to increased revenue under the CEPI Funding Agreement in the three months ended June 30, 2020.

The increase in weighted average shares outstanding for the six months ended June 30, 2020 is primarily a result of sales of our common stock in 2020 and 2019.

Weighted average shares outstanding

Net loss for the nine months ended September 30, 2020 was $240.7 million, or $4.39 per share, as compared to $100.9 million, or $4.43 per share, for the same period in 2019.

The increase in weighted average shares outstanding for the nine months ended September 30, 2020 is primarily a result of sales of our common stock in 2020 and 2019.

Liquidity Matters and Capital Resources

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We plan to continue to have multiple vaccines and product candidates in various stages of development, and we believe our operating expenses and capital requirements will fluctuate depending upon the timing of events, such as the scope, initiation, rate and progress of our preclinical studies and clinical trials and other research and development activities.

We have primarily funded our recent operations with proceeds from the sale of common stock and preferred stock in equity offerings, and revenue under the BMGF Grant Agreement and CEPI Funding Agreement.

We have primarily funded our recent operations with proceeds from the sale of common stock and preferred stock in equity offerings, revenue under the CEPI Funding Agreement, OWS Agreement and the DoD Contract.

We anticipate our future operations to be additionally funded by OWS, CEPI, DoD and/or other potential non-dilutive funding sources.

As of June 30, 2020, we had $609.5 million in cash and cash equivalents, marketable securities and restricted cash as compared to $82.2 million as of December 31, 2019.

These amounts consisted of $424.4 million in cash and cash equivalents, $77.9 million in marketable securities and $107.2 million in restricted cash as of June 30, 2020 as compared to $78.8 million in cash and cash equivalents and $3.4 million in restricted cash as of December 31, 2019.

The following table summarizes cash flows for the six months ended June 30, 2020 and 2019 (in thousands):

Six Months Ended

Summary of Cash Flows:

As of September 30, 2020, we had $571.6 million in cash and cash equivalents, marketable securities and restricted cash as compared to $82.2 million as of December 31, 2019.

These amounts consisted of $334.2 million in cash and cash equivalents, $169.8 million in marketable securities and $67.6 million in restricted cash as of September 30, 2020 as compared to $78.8 million in cash and cash equivalents and $3.4 million in restricted cash as of December 31, 2019.

The following table summarizes cash flows for the nine months ended September 30, 2020 and 2019 (in thousands):

Nine Months Ended

September 30,

Summary of Cash Flows (in thousands):

Net cash (used in) provided by:

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Cash, cash equivalents and restricted cash at end of period

Net cash provided by operating activities increased to $92.5 million for the six months ended June 30, 2020, as compared cash used in operating activities to $80.6 million for the same period in 2019.

The increase in cash provided is primarily due to payments received under the CEPI Funding Agreement and timing of payments to third-parties.

During the six months ended June 30, 2020 and 2019, our investing activities consisted of purchases and maturities of marketable securities, our acquisition of Praha Vaccines in 2020 and, to a much lesser extent, capital expenditures.

Capital expenditures for the six months ended June 30, 2020 and 2019 were $3.9 million and $1.3 million, respectively.

Net cash provided by operating activities increased to $86.0 million for the nine months ended September 30, 2020, as compared cash used in operating activities to $112.9 million for the same period in 2019.

The increase in cash provided is primarily due to payments received under the CEPI Funding Agreement and OWS Agreement, and the timing of payments to third-parties.

During the nine months ended September 30, 2020 and 2019, our investing activities consisted of purchases and maturities of marketable securities, our acquisition of Novavax CZ in 2020, proceeds from the Catalent transaction in 2019 and, to a much lesser extent, capital expenditures.

Capital expenditures for the nine months ended September 30, 2020 and 2019 were $12.6 million and $1.6 million, respectively.

For 2020, we expect a significant increase in our capital expenditures due to our development activities for our NVX-CoV2373 program.

Our financing activities consisted primarily of sales of our common stock under our At Market Issuance Sales Agreements and issuance of preferred stock in a private placement, and to a lesser extent, stock option exercises and purchases under our Employee Stock Purchase Plan.

In the six months ended June 30, 2020, we received net proceeds of $392.3 million from selling shares of common stock through our At Market Issuance Sales Agreements and $199.8 million through the issuance of preferred stock in a private placement.

In the six months ended June 30, 2019, we received net proceeds of $55.2 million from selling shares of common stock through our At Market Issuance Sales Agreements.

Our financing activities consisted primarily of sales of our common stock under our At Market Issuance Sales Agreements and issuance of preferred stock in a private placement, payments of finance lease liabilities and to a lesser extent, stock option exercises and purchases under our Employee Stock Purchase Plan.

In the nine months ended September 30, 2020, we received net proceeds of $445.6 million from selling shares of common stock through our At Market Issuance Sales Agreements and $200.0 million through the issuance of preferred stock in a private placement.

In the nine months ended September 30, 2019, we received net proceeds of $67.2 million from selling shares of common stock through our At Market Issuance Sales Agreements.

Based on our most recent cash flow forecast, we believe our current capital is sufficient to fund our operating plans for a minimum of twelve months from the date that this Quarterly Report was filed.

Additional capital may be required in the future to develop our vaccine candidates through clinical development, manufacturing and commercialization.

Additional capital may be

required in the future to develop our vaccine candidates through clinical development, manufacturing and commercialization.

Our ability to fund the Company’s operations is dependent upon management’s plans, which include receiving non-dilutive funding from domestic and international sources, raising additional capital in the near term primarily through a combination of equity and debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements and in the longer term, from revenue related to product sales, to the extent our product candidates receive marketing approval and can be commercialized.

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Off-Balance Sheet Arrangements

We did not have any material off-balance sheet arrangements as of June 30, 2020.

We did not have any material off-balance sheet arrangements as of September 30, 2020.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis