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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
OR
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File No. 000-26770
NOVAVAX, INC.
(Exact name of registrant as specified in its charter)
Delaware22-2816046
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
700 Quince Orchard Road,
Gaithersburg,MD20878
(Address of principal executive offices)(Zip code)
(240) 268-2000
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading
Symbol(s)
Name of each exchange on which registered
Common Stock, Par Value $0.01 per shareNVAXThe Nasdaq Global Select Market
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerxAccelerated Filero
Non-accelerated fileroSmaller reporting companyo
Emerging growth companyo 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No x
The number of shares outstanding of the Registrant's Common Stock, $0.01 par value, was 118,790,222 as of October 31, 2023.


NOVAVAX, INC.
TABLE OF CONTENTS
Page No.
Item 1A.
Item 2.

i

PART I. FINANCIAL INFORMATION
Item 1.    Financial Statements
1

NOVAVAX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share information)
(unaudited)
For the Three Months Ended
September 30,
For the Nine Months Ended
September 30,
2023202220232022
Revenue:
Product sales$2,231 $626,091 $279,937 $1,267,174 
Grants164,922 106,273 389,380 313,348 
Royalties and other19,833 2,213 23,046 43,951 
Total revenue186,986 734,577 692,363 1,624,473 
Expenses:
Cost of sales98,929 434,593 188,792 720,874 
Research and development106,229 304,297 572,805 977,428 
Selling, general, and administrative107,460 122,876 313,709 327,028 
Total expenses312,618 861,766 1,075,306 2,025,330 
Loss from operations
(125,632)(127,189)(382,943)(400,857)
Other income (expense):
Interest expense(2,859)(4,169)(10,299)(15,279)
Other income (expense)(2,982)(34,783)26,912 (53,002)
Loss before income taxes
(131,473)(166,141)(366,330)(469,138)
Income tax expense (benefit)
(697)2,472 343 6,552 
Net loss
$(130,776)$(168,613)$(366,673)$(475,690)
Net loss per share:
Basic and diluted
$(1.26)$(2.15)$(3.94)$(6.13)
Weighted average number of common shares outstanding
Basic and diluted
103,429 78,274 93,046 77,631 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(unaudited)
For the Three Months Ended
September 30,
For the Nine Months Ended
September 30,
2023202220232022
Net loss
$(130,776)$(168,613)$(366,673)$(475,690)
Other comprehensive loss:
Foreign currency translation adjustment(3,686)(12,924)(5,486)(22,441)
Other comprehensive loss
(3,686)(12,924)(5,486)(22,441)
Comprehensive loss
$(134,462)$(181,537)$(372,159)$(498,131)
The accompanying notes are an integral part of these financial statements.
2


NOVAVAX, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share information)
September 30,
2023
December 31,
2022
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents$651,104 $1,336,883 
Restricted cash10,393 10,303 
Accounts receivable123,657 82,375 
Inventory69,592 36,683 
Prepaid expenses and other current assets152,018 237,147 
Total current assets1,006,764 1,703,391 
Property and equipment, net300,982 294,247 
Right of use asset, net 190,741 106,241 
Goodwill123,780 126,331 
Other non-current assets34,890 28,469 
Total assets$1,657,157 $2,258,679 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable$101,914 $216,517 
Accrued expenses311,201 591,158 
Deferred revenue192,187 370,137 
Current portion of finance lease liabilities1,332 27,196 
Convertible notes payable 324,881 
Other current liabilities861,956 930,055 
Total current liabilities1,468,590 2,459,944 
Deferred revenue608,842 179,414 
Convertible notes payable167,621 166,466 
Non-current finance lease liabilities53,158 31,238 
Other non-current liabilities37,296 55,695 
Total liabilities2,335,507 2,892,757 
Commitments and contingencies (Note 14)
Preferred stock, $0.01 par value, 2,000,000 shares authorized at September 30, 2023 and December 31, 2022; no shares issued and outstanding at September 30, 2023 and December 31, 2022
  
Stockholders' deficit:
Common stock, $0.01 par value, 600,000,000 shares authorized at September 30, 2023 and December 31, 2022; 119,641,667 shares issued and 118,730,398 shares outstanding at September 30, 2023 and 86,806,554 shares issued and 86,039,923 shares outstanding at December 31, 2022
1,196 868 
Additional paid-in capital4,066,585 3,737,979 
Accumulated deficit(4,642,562)(4,275,889)
Treasury stock, cost basis, 911,269 shares at September 30, 2023 and 766,631 shares at December 31, 2022
(91,706)(90,659)
Accumulated other comprehensive loss(11,863)(6,377)
Total stockholders’ deficit(678,350)(634,078)
Total liabilities and stockholders’ deficit$1,657,157 $2,258,679 
The accompanying notes are an integral part of these financial statements.
3


NOVAVAX, INC.    
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
Three and Nine Ended September 30, 2023 and 2022
(in thousands, except share information)
(unaudited)
Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Treasury
Stock
Accumulated Other
Comprehensive
Loss
Total Stockholders'
Deficit
SharesAmount
Balance at June 30, 202395,183,750 $952 $3,855,916 $(4,511,786)$(91,424)$(8,177)$(754,519)
Stock-based compensation— — 21,254 — — — 21,254 
Stock issued under incentive programs176,329 2 634 — (282)— 354 
Issuance of common stock, net of issuance costs $3,063
24,281,588 242 188,781 — — — 189,023 
Foreign currency translation adjustment— — — — — (3,686)(3,686)
Net loss
— — — (130,776)— — (130,776)
Balance at September 30, 2023119,641,667 $1,196 $4,066,585 $(4,642,562)$(91,706)$(11,863)$(678,350)
Balance at June 30, 202278,776,234 $788 $3,604,614 $(3,925,027)$(86,455)$(10,870)$(416,950)
Stock-based compensation— — 33,386 — — — 33,386 
Stock issued under incentive programs428,275 4 2,597 — (3,485)— (884)
Foreign currency translation adjustment— — — — — (12,924)(12,924)
Net loss— — — (168,613)— — (168,613)
Balance at September 30, 202279,204,509 $792 $3,640,597 $(4,093,640)$(89,940)$(23,794)$(565,985)

                            
Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Treasury
Stock
Accumulated Other
Comprehensive
Loss
Total Stockholders'
Deficit
SharesAmount
Balance at December 31, 202286,806,554 $868 $3,737,979 $(4,275,889)$(90,659)$(6,377)$(634,078)
Stock-based compensation— — 70,193 — — — 70,193 
Stock issued under incentive programs605,571 6 1,740 — (1,047)— 699 
Issuance of common stock, net of issuance costs of $3,924
32,229,542 322 256,673 — — — 256,995 
Foreign currency translation adjustment— — — — — (5,486)(5,486)
Net loss— — — (366,673)— — (366,673)
Balance at September 30, 2023119,641,667 $1,196 $4,066,585 $(4,642,562)$(91,706)$(11,863)$(678,350)
Balance at December 31, 202176,433,151 $764 $3,351,967 $(3,617,950)$(85,101)$(1,353)$(351,673)
Stock-based compensation— — 104,367 — — — 104,367 
Stock issued under incentive programs573,960 6 4,900 — (4,839)— 67 
Issuance of common stock, net of issuance costs of $2,311
2,197,398 22 179,363 — — — 179,385 
Foreign currency translation adjustment— — — — — (22,441)(22,441)
Net loss— — — (475,690)— — (475,690)
Balance at September 30, 202279,204,509 $792 $3,640,597 $(4,093,640)$(89,940)$(23,794)$(565,985)
The accompanying notes are an integral part of these financial statements.




4


NOVAVAX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended September 30,
20232022
Operating Activities:
Net loss$(366,673)$(475,690)
Reconciliation of net loss to net cash used in operating activities:
Depreciation and amortization30,431 21,832 
Non-cash stock-based compensation69,699 102,525 
Provision for excess and obsolete inventory49,533 358,075 
Impairment of long-lived assets10,081  
Right-of-use assets expensed, net of credits received 40,187 
Other items, net(3,015)(25,059)
Changes in operating assets and liabilities:
Inventory(82,542)(426,466)
Accounts receivable, prepaid expenses, and other assets(34,418)171,325 
Accounts payable, accrued expenses, and other liabilities(349,261)90,418 
Deferred revenue138,979 (155,268)
Net cash used in operating activities(537,186)(298,121)
Investing Activities:
Capital expenditures(44,932)(66,033)
Internal-use software(4,796)(4,888)
Net cash used in investing activities(49,728)(70,921)
Financing Activities:
Net proceeds from sales of common stock256,995 179,385 
Net proceeds from the exercise of stock-based awards699 67 
Finance lease payments(25,026)(45,904)
Repayment of 2023 Convertible notes(325,000) 
Payments of costs related to issuance of 2027 Convertible notes(3,591) 
Net cash provided by (used in) financing activities(95,923)133,548 
Effect of exchange rate on cash, cash equivalents, and restricted cash355 257 
Net decrease in cash, cash equivalents, and restricted cash(682,482)(235,237)
Cash, cash equivalents, and restricted cash at beginning of period1,348,845 1,528,259 
Cash, cash equivalents, and restricted cash at end of period$666,363 $1,293,022 
Supplemental disclosure of non-cash activities:
Right-of-use assets from new lease agreements$96,492 $118,262 
Capital expenditures included in accounts payable and accrued expenses$2,394 $11,984 
Internal-use software included in accounts payable and accrued expenses
$167 $ 
Supplemental disclosure of cash flow information:
Cash interest payments, net of amounts capitalized$11,751 $17,260 
Cash paid for income taxes$128 $17,843 
    
The accompanying notes are an integral part of these financial statements.
5


NOVAVAX, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023
(unaudited)
Note 1 – Organization and Business
Novavax, Inc. (“Novavax,” and together with its wholly owned subsidiaries, the “Company”) is a biotechnology company that promotes improved health by discovering, developing, and commercializing innovative vaccines to prevent serious infectious diseases. Novavax offers a differentiated vaccine platform that combines a recombinant protein approach, innovative nanoparticle technology and patented Matrix-M™ adjuvant to enhance the immune response. Novavax currently has one commercial program, for vaccines to prevent COVID-19, which includes Nuvaxovid prototype COVID-19 vaccine ("NVX-CoV2373,” or “prototype vaccine”) and Nuvaxovid updated COVID-19 vaccine (“NVX-CoV2601,” or “updated vaccine”) (collectively, “COVID-19 Program,” or “COVID-19 Vaccine”). Local authorities have also specified nomenclature for the prototype and updated vaccines within their labeling (“Novavax COVID-19 Vaccine, Adjuvanted” and “Novavax COVID-19, Adjuvanted (2023-2024 Formula), respectively, for the U.S.). The Company’s partner, Serum Institute of India Pvt. Ltd. (“SIIPL”), markets NVX-CoV2373 as “Covovax™.”
Beginning in 2022, the Company received approval, interim authorization, provisional approval, conditional marketing authorization, and emergency use authorization (“EUA”) from multiple regulatory authorities globally for its prototype vaccine for both adult and adolescent populations as a primary series and for both homologous and heterologous booster indications in select territories. In October 2023, the U.S. Food and Drug Administration (“U.S. FDA”) amended the EUA for its prototype vaccine to include its updated vaccine. The amended EUA authorizes use of the Company’s updated vaccine in individuals 12 years and older. In October 2023, the European Commission (“EC”) granted approval for the Company’s updated vaccine for active immunization to prevent COVID-19 caused by SARS-CoV-2 in individuals aged 12 and older. The Company exclusively depends on its supply agreement with SIIPL and its subsidiary, Serum Life Sciences Limited (“SLS”), for co-formulation, filling and finishing (other than in Europe) and on its service agreement with PCI Pharma Services for finishing in Europe. The Company plans to rely on these arrangements to supply its updated vaccine during the 2023-2024 vaccination season and subsequently (see Note 4).
Novavax is advancing development of other vaccine candidates, including its influenza vaccine candidate, its COVID19-Influenza Combination (“CIC”) vaccine candidate and additional vaccine candidates. The Company’s COVID-19 Program and its other vaccine candidates incorporate the Company’s proprietary Matrix-M™ adjuvant to enhance the immune response and stimulate higher levels of functional antibodies and induce a cellular immune response.

Note 2 – Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. The consolidated financial statements are unaudited but include all adjustments (consisting of normal recurring adjustments) that the Company considers necessary for a fair presentation of the financial position, operating results, comprehensive loss, changes in stockholders’ deficit, and cash flows for the periods presented. Although the Company believes that the disclosures in these unaudited consolidated financial statements are adequate to make the information presented not misleading, certain information and footnote information normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted as permitted under the rules and regulations of the United States Securities and Exchange Commission (“SEC”).
The unaudited consolidated financial statements include the accounts of Novavax, Inc. and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Accumulated other comprehensive loss included a foreign currency translation loss of $11.9 million and $6.4 million at September 30, 2023 and December 31, 2022, respectively. The aggregate foreign currency transaction gains and losses resulting from the conversion of the transaction currency to functional currency were a $12.2 million loss and a $3.9 million gain, and a $38.6 million loss and $59.6 million loss for the three and nine months ended September 30, 2023 and 2022, respectively, which are reflected in Other income (expense).
6


The accompanying unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022. Results for this or any interim period are not necessarily indicative of results for any future interim period or for the entire year. The Company operates in one business segment.
Liquidity and Going Concern
The accompanying unaudited consolidated financial statements have been prepared assuming, subject to the disclosures herein, that the Company will continue as a going concern within one year after the date that the financial statements are issued. In addition, as of September 30, 2023, the Company had $666.4 million in cash and cash equivalents and restricted cash. Pursuant to the June 2023 Amendment to the advance purchase agreement between the Company and the Canadian government (the “Canada APA”), the Company expects to receive the second installment of $174.8 million from the Canadian government that is contingent and payable upon the Company’s delivery of vaccine doses in the fourth quarter of 2023 (see Note 3). During the nine months ended September 30, 2023, the Company incurred a net loss of $366.7 million and had net cash flows used in operating activities of $537.2 million.
In accordance with Accounting Standards Codification 205-40, Going Concern, the Company evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year after the date that these unaudited consolidated financial statements are issued. While the Company’s current cash flow forecast for the one-year going concern look forward period estimates that there will be sufficient capital available to fund operations, this forecast is subject to significant uncertainty, including as it relates to revenue for the next 12 months, the Company’s ability to execute on certain cost-cutting initiatives and a pending matter subject to arbitration proceedings. The Company’s revenue projections depend on its ability to successfully manufacture, distribute and market its updated vaccine for the 2023-2024 vaccination season, which is inherently uncertain and subject to a number of risks, including the Company’s ability to obtain regulatory authorizations, the incidence of COVID-19 during the 2023-2024 vaccination season, the Company’s ability to timely deliver doses and achieve commercial adoption and market acceptance of its updated vaccine.
Failure to meet regulatory milestones, timely obtain supportive recommendations from governmental advisory committees, or achieve product volume or delivery timing obligations under the Company’s advance purchase agreements (“APAs”) may require the Company to refund portions of upfront and other payments or result in reduced future payments which would adversely affect the Company’s ability to continue as a going concern. For example, if the Company fails to deliver its updated vaccine doses to the Canadian government in the fourth quarter of 2023, the second installment payment of $174.8 million will be terminated and not be payable to the Company. In addition, the Canadian government may terminate the Canada APA if the Company fails to achieve regulatory approval for use of the Biologics Manufacturing Centre, Inc. (“BMC”) for COVID-19 Vaccine production on or before December 31, 2024. Also, if the Company does not timely achieve supportive recommendations from the Joint Committee on Vaccination and Immunisation (the “JCVI”) of the government of the United Kingdom of Great Britain and Northern Ireland (the “Authority”) with respect to use of its COVID-19 Program for (a) the general adult population as part of a SARS-CoV-2 vaccine booster campaign in the United Kingdom or (b) the general adolescent population as part of a SARS-CoV-2 vaccine booster campaign in the United Kingdom or as a primary series SARS-CoV-2 vaccination, excluding where that recommendation relates only to one or more population groups comprising less than one million members in the United Kingdom, then the Company would be required to repay up to $112.5 million related to the upfront payment previously received from the Authority under the SARS-CoV-2 Vaccine Supply Agreement, dated October 22, 2020, between the Company and the Authority. On January 24, 2023, Gavi, the Vaccine Alliance (“Gavi”) filed a demand for arbitration with the International Court of Arbitration regarding an alleged material breach by the Company of the Company’s APA with Gavi (the “Gavi APA”). The arbitration hearing is scheduled for July 2024, with a written decision to follow. The outcome of that arbitration is inherently uncertain, and it is possible the Company could be required to refund all or a portion of the remaining advance payments of $696.4 million as of September 30, 2023 (see Note 3 and Note 14).
Management believes that, given the significance of these uncertainties, substantial doubt exists regarding the Company’s ability to continue as a going concern through one year from the date that these financial statements are issued.
7


In May 2023, the Company announced a global restructuring and cost reduction plan (the “Restructuring Plan”), which includes a more focused investment in its COVID-19 Program, reduction to its pipeline spending, the continued rationalization of its manufacturing network, a reduction to the Company’s global workforce, as well as the consolidation of facilities, and infrastructure. The workforce reduction plan included an approximately 25% reduction in the Company’s global workforce, comprised of an approximately 20% reduction in full-time Novavax employees and the remainder comprised of contractors and consultants. The Company has decided to progress its CIC vaccine candidate toward late-stage development and, as such, is assessing the impact on its workforce requirements. The Company expects the full annual impact of the cost savings from the Restructuring Plan to be realized in 2024 and approximately half of the annual impact to be realized in 2023 due to timing of implementing the measures, and the applicable laws, regulations, and other factors in the jurisdictions in which the Company operates. During the nine months ended September 30, 2023, the Company recorded a charge of $4.5 million related to one-time employee severance and benefit costs and recorded an impairment charge of $10.1 million related to the consolidation of facilities and infrastructure (see Note 15).
The Company’s ability to fund Company operations is dependent upon revenue related to vaccine sales for its products and product candidates, if such product candidates receive marketing approval and are successfully commercialized, and in particular the 2023-2024 vaccination season, which is inherently uncertain and subject to a number of risks, including the incidence of COVID-19 during the 2023-2024 vaccination season, regulatory authorization, ability to timely deliver doses and commercial adoption and market acceptance of its updated vaccine, the resolution of certain matters, including whether, when, and how the dispute with Gavi is resolved, and management’s plans, which includes cost reductions associated with the Restructuring Plan. Management’s plans may also include raising additional capital through a combination of equity and debt financing, collaborations, strategic alliances, asset sales, and marketing, distribution, or licensing arrangements. New financings may not be available to the Company on commercially acceptable terms, or at all. Also, any collaborations, strategic alliances, asset sales and marketing, distribution, or licensing arrangements may require the Company to give up some or all of its rights to a product or technology, which in some cases may be at less than the full potential value of such rights. In addition, the regulatory and commercial success of the Company’s COVID-19 Program and the Company’s other vaccine candidates, including an influenza vaccine candidate, and a CIC vaccine candidate, remains uncertain. Also, the impact of the Company’s more focused investment in its COVID-19 Program, reduction to its pipeline spending, continued rationalization of its manufacturing network, reduction to its global workforce, and consolidation of its facilities and infrastructure remain uncertain. If the Company is unable to obtain additional capital, the Company will assess its capital resources and may be required to delay, reduce the scope of, or eliminate some or all of its operations, or further downsize its organization, any of which may have a material adverse effect on its business, financial condition, results of operations, and ability to operate as a going concern.
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from those estimates.
Revenue Recognition Constraints
The Company constrains the transaction price for customer arrangements until it is probable that a significant reversal in cumulative revenue recognized will not occur. Specifically, if a customer arrangement includes a provision whereby the customer may request a discount, return, or refund for a previously satisfied performance obligation or otherwise could have the effect of decreasing the transaction price, revenue is constrained based on an estimate of the impact to the transaction price recognized until it is probable that a significant reversal in cumulative revenue recognized will not occur.
Restructuring
The Company recognizes restructuring charges when such costs are incurred. The Company’s restructuring charges consist of employee severance and other termination benefits related to the reduction of its workforce, the consolidation of facilities, and infrastructure and other costs. Termination benefits are expensed on the date the Company notifies the employee, unless the employee must provide future service, in which case the benefits are expensed ratably over the future service period. Ongoing benefits are expensed when restructuring activities are probable and the benefit estimable.
See Note 15 for additional information on the severance and employee benefit costs for terminated employees and impairment of assets in connection with the Company’s Restructuring Plan.
8


Recent Accounting Pronouncements
Adopted
In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), with amendments in 2018, 2019, 2020, and 2022. The ASU sets forth a “current expected credit loss” model that requires companies to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. ASU 2016-13 applies to financial instruments that are not measured at fair value, including receivables that result from revenue transactions. The Company adopted ASU 2020-06 on January 1, 2023, using a modified retrospective approach, and it did not have a material impact on the Company’s consolidated financial statements.
Note 3 – Revenue
The Company's accounts receivable included $71.1 million and $53.8 million related to amounts that were billed to customers and $52.6 million and $28.6 million related to amounts which had not yet been billed to customers as of September 30, 2023 and December 31, 2022, respectively. During the nine months ended September 30, 2023, and 2022, changes in the Company’s accounts receivables, allowance for doubtful accounts, and deferred revenue balances were as follows (in thousands):
Balance, Beginning of PeriodAdditionsDeductions Balance, End of Period
Accounts receivable:
Nine Months Ended September 30, 2023$96,210 $981,305 $(946,182)$131,333 
Nine Months Ended September 30, 2022454,993 1,519,345 (1,862,693)111,645 
Allowance for doubtful accounts(1):
Nine Months Ended September 30, 2023$(13,835)$ $6,159 $(7,676)
Nine Months Ended September 30, 2022    
Deferred revenue:(2)
Nine Months Ended September 30, 2023$549,551 $422,766 $(171,288)$801,029 
Nine Months Ended September 30, 20221,595,472 96,298 (251,576)1,440,194 
(1)    There was no bad debt expense recorded during the three and nine months ended September 30, 2023 or 2022. There was a $6.2 million reversal of a bad debt allowance during the nine months ended September 30, 2023 due to the collection of a previously recognized allowance for doubtful accounts. To estimate the allowance for doubtful accounts, the Company evaluates the credit risk related to its customers based on historical loss experience, economic conditions, the aging of receivables, and customer-specific risks.
(2) Deductions from Deferred revenue generally related to the recognition of revenue once performance obligations on a contract with a customer are met. During the three and nine months ended September 30, 2023, deductions included a $112.5 million reclassification of refundable upfront payments previously included in Deferred revenue to Other current liabilities. There were no such reclassifications during the three and nine months ended September 30, 2022.
9


As of September 30, 2023, the aggregate amount of the transaction price allocated to performance obligations that were unsatisfied (or partially unsatisfied), excluding amounts related to sales-based royalties, the Gavi APA, and the reduction in doses related to the Amended and Restated SARS-CoV-2 Vaccine Supply Agreement, dated as of July 1, 2022 (as amended on September 26, 2022, the “Amended and Restated UK Supply Agreement”) between the Company and the Authority, which amended and restated the Original UK Supply Agreement, was approximately $2 billion of which $801.0 million was included in Deferred revenue. Failure to meet regulatory milestones, timely obtain supportive recommendations from governmental advisory committees, or achieve product volume or delivery timing obligations under the Company’s advance purchase agreements may require the Company to refund portions of upfront and other payments or result in reduced future payments, which could adversely impact the Company’s ability to realize revenue from its unsatisfied performance obligations. The timing to fulfill performance obligations related to grant agreements will depend on the results of the Company's research and development activities, including clinical trials. The timing to fulfill performance obligations related to APAs will depend on the timing of product manufacturing, receipt of marketing authorizations for additional indications, delivery of doses based on customer demand, and the ability of the customer to request the Company’s updated vaccine in place of the prototype vaccine under certain of the Company’s APAs.
Under the terms of the Gavi APA and a separate purchase agreement between Gavi and SIIPL, 1.1 billion doses of the prototype vaccine were to be made available to countries participating in the COVAX Facility. The Company expected to manufacture and distribute 350 million doses of the prototype vaccine to countries participating under the COVAX Facility. Under a separate purchase agreement with Gavi, SIIPL was expected to manufacture and deliver the balance of the 1.1 billion doses of the prototype vaccine for low- and middle-income countries participating in the COVAX Facility. The Company expected to deliver doses with antigen and adjuvant manufactured at facilities directly funded under the Company's funding agreement with Coalition for Epidemic Preparedness Innovations (“CEPI”), with initial doses supplied by SIIPL and SLS under a supply agreement. The Company expected to supply significant doses that Gavi would allocate to low-, middle- and high-income countries, subject to certain limitations, utilizing a tiered pricing schedule and Gavi could prioritize such doses to low- and middle- income countries, at lower prices. Additionally, the Company could provide additional doses of prototype vaccine, to the extent available from CEPI-funded manufacturing facilities, in the event that SIIPL could not materially deliver expected vaccine doses to the COVAX Facility. Under the agreement, the Company received an upfront payment of $350.0 million from Gavi in 2021 and an additional payment of $350.0 million in 2022 related to the Company’s achieving an emergency use license for the Company’s prototype vaccine by the World Health Organization (“WHO”) (the “Advance Payment Amount”). The Company maintains that its termination of the Advance Payment Amount was valid and denies that Gavi is entitled to a refund.
On November 18, 2022, the Company delivered written notice to Gavi to terminate the Gavi APA on the basis of Gavi’s failure to procure the purchase of 350 million doses of the Company’s prototype vaccine from the Company as required by the Gavi APA. As of November 18, 2022, the Company had only received orders under the Gavi APA for approximately 2 million doses. On December 2, 2022, Gavi issued a written notice purporting to terminate the Gavi APA based on Gavi’s contention that the Company repudiated the agreement and, therefore, materially breached the Gavi APA. Gavi also contends that, based on its purported termination of the Gavi APA, it is entitled to a refund of the Advance Payment Amount less any amounts that have been credited against the purchase price for binding orders placed by a buyer participating in the COVAX Facility. Since December 31, 2022, the remaining Gavi Advance Payment Amount, which is $696.4 million as of September 30, 2023, pending resolution of the dispute with Gavi related to a return of the remaining Advance Payment Amount, has been classified within Other current liabilities in the Company’s consolidated balance sheet. On January 24, 2023, Gavi filed a demand for arbitration with the International Court of Arbitration based on the claims described above. The Company filed its Answer and Counterclaims on March 2, 2023. On April 5, 2023, Gavi filed its Reply to the Company’s Counterclaims. The arbitration hearing is scheduled for July 2024, with a written decision to follow. Arbitration is inherently uncertain, and while the Company believes that it is entitled to retain the remaining Advance Payment Amount received from Gavi, it is possible that it could be required to refund all or a portion of the remaining Advance Payment Amount from Gavi.
10


Product Sales
Product sales by the Company’s customer’s geographic location was as follows (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
North America
$2,231 $129,718 $2,231 $194,480 
Europe 347,005 59,322 760,750 
Rest of the world
 149,368 218,384 311,944 
Total product sales revenue$2,231 $626,091 $279,937 $1,267,174 
In May 2023, the Company extended a credit for certain doses delivered in 2022 that qualified for replacement under the contract with the Australian government. This credit is the result of a single lot sold to the Australian government that upon pre-planned 6-month stability testing was found to have fallen below the defined specifications and the lot therefore was removed from the market. The credit will be applied against the future sale of doses to the customer and, during the nine months ended September 30, 2023, the Company recorded a reduction of $64.7 million in product sales, with a corresponding increase to Deferred revenue, non-current.
In April 2023, the Company amended the Canada APA to forfeit certain doses originally scheduled for delivery in 2022 for a payment of $100.4 million received in the second quarter of 2023. On June 30, 2023, the Company entered into an additional amendment (the “June 2023 Amendment”) to the Canada APA. Pursuant to the June 2023 Amendment, the parties revised the Canadian government’s previous commitment by (i) forfeiting certain doses of COVID-19 Vaccine previously scheduled for delivery, (ii) reducing the amount of doses of COVID-19 Vaccine due for delivery, (iii) revising the delivery schedule for the remaining doses of COVID-19 Vaccine to be delivered, and (iv) requiring use of the Biologics Manufacturing Centre (“BMC”) Inc. to produce bulk antigen for doses in 2024 and 2025. In connection with the forfeiture of doses of COVID-19 Vaccine, the Canadian government agreed to pay a total amount of $349.6 million to the Company in two equal installments in 2023, which total amount equals the remaining balance owed by the Canadian government with respect to such forfeited vaccine doses. The first installment was payable upon execution of the June 2023 Amendment and the second installment is contingent and payable upon the Company’s delivery of vaccine doses in the second half of 2023. The first installment of $174.8 million was received from the Canadian government in July 2023. If the Company fails to deliver COVID-19 Vaccine doses to the Canadian government in the fourth quarter of 2023, the second installment payment of $174.8 million will be terminated and not be payable to the Company. The Canadian government may terminate the Canada APA, as amended, if the Company fails to achieve regulatory approval for use of BMC for COVID-19 Vaccine production on or before December 31, 2024. The June 2023 Amendment maintained the total contract value of the original Canada APA. Pursuant to the June 2023 Amendment, the Company and the Canadian government will endeavor to expand the Company’s previously agreed in-country commitment to Canada and to further partner to provide health, economic, and future pandemic preparedness benefits to Canada, which value may be provided through a number of activities, including without limitation, capital investments, the performance of activities or services, or the provision of technology or intellectual property licenses. Further, the parties will endeavor to enter into a memorandum of understanding (the “MOU”) to illustrate the Company’s ability to deliver such benefits over a 15-year period with an aggregate value of not less than 100% of the amount remaining to be paid under the June 2023 Amendment and ultimately received by the Company. As of September 30, 2023, the Company is in the process of negotiating the MOU. The Company agreed to hold $20.0 million in escrow for the benefit of the Canadian government, which amount is the sole recourse available to the Canadian government in the event of non-performance under the MOU.
Grants
The Company’s U.S. government agreement consists of a Project Agreement (the “Project Agreement”) and a Base Agreement with Advanced Technology International, 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 Base Agreement together with the Project Agreement the “USG Agreement”). In February 2023, in connection with the execution of Modification 17 to the Project Agreement (“Modification 17”), the U.S. government indicated to the Company that the award may not be extended past its current period of performance, which is December 31, 2023. Also, Modification 17 included provisions requiring that the payment of up to $60.0 million of consideration associated with manufacturing work now be contingent upon meeting certain milestones, including the delivery of up to 1.5 million doses of its prototype vaccine and
11


development and regulatory milestones related to commercial readiness, expansion of the EUA and development of multiple vial presentations. As of September 30, 2023, the Company now expects to be entitled to the full $1.8 billion-funding under the USG Agreement by December 31, 2023, and accordingly, the Company recognized a $43.8 million cumulative increase to grant revenue under the contract during the three months ended September 30, 2023.
Royalties and Other
Royalties and other includes royalty milestone payments, sales-based royalties, and Matrix-M™ adjuvant sales.
During the three and nine months ended September 30, 2023, the Company recognized $6.0 million revenue related to sales-based royalties, and $13.8 million and $17.0 million, respectively in revenue related to a Matrix-M™ adjuvant sales. During the three and nine months ended September 30, 2023, the Company did not recognize revenue related to milestone payments.
During the three and nine months ended September 30, 2022, the Company recognized no revenue and $20.0 million, respectively, related to milestone payments, $1.3 million and $10.5 million, respectively, related to sales-based royalties, and $1.0 million and $13.4 million, respectively, related to a Matrix-M™ adjuvant sales.
Note 4 – Collaboration, License, and Supply Agreements
SIIPL
The Company previously granted SIIPL exclusive and non-exclusive licenses for the development, co-formulation, filling and finishing, registration, and commercialization of its prototype vaccine, its proprietary COVID-19 variant antigen candidate(s), its quadrivalent influenza vaccine candidate, and its CIC vaccine candidate. SIIPL agreed to purchase the Company's Matrix-M™ adjuvant and the Company granted SIIPL a non-exclusive license to manufacture the antigen drug substance component of the Company’s COVID-19 Vaccine in SIIPL’s licensed territory solely for use in the manufacture of COVID-19 Vaccine. The Company and SIIPL equally split the revenue from SIIPL’s sale of COVID-19 Vaccine in its licensed territory, net of agreed costs. The Company also has a supply agreement with SIIPL and SLS under which SIIPL and SLS supply the Company with prototype vaccine, its proprietary COVID-19 variant antigen candidate(s), its quadrivalent influenza vaccine candidate, and its CIC vaccine candidate for commercialization and sale in certain territories, as well as a contract development manufacture agreement with SLS, under which SLS manufactures and supplies finished vaccine product to the Company using antigen drug substance and Matrix-M™ adjuvant supplied by the Company. In March 2020, the Company entered into an agreement with SIIPL that granted SIIPL a non-exclusive license for the use of Matrix-M™ adjuvant supplied by the Company to develop, manufacture, and commercialize R21, a malaria candidate developed by the Jenner Institute, University of Oxford (“R21/Malaria”). Under the agreement, SIIPL purchases the Company's 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.
Takeda Pharmaceutical Company Limited
The Company has a collaboration and license agreement with Takeda Pharmaceutical Company Limited (“Takeda”) under which the Company granted Takeda an exclusive license to develop, manufacture, and commercialize the Company’s COVID-19 Vaccine in Japan. Under the agreement, Takeda purchases Matrix-M™ adjuvant from the Company to manufacture doses of COVID-19 Vaccine, and the Company is entitled to receive milestone and sales-based royalty payments from Takeda based on the achievement of certain development and commercial milestones, as well as a portion of net profits from the sale of COVID-19 Vaccine. In September 2021, Takeda finalized an agreement with the Government of Japan’s Ministry of Health, Labour and Welfare ("MHLW") for the purchase of 150 million doses of its prototype vaccine. In February 2023, MHLW canceled the remainder of doses under its agreement with Takeda. As a result, it is uncertain whether the Company will receive future sales-based royalty payments from Takeda under the terms and conditions of their current collaboration and licensing agreement.
Bill & Melinda Gates Medical Research Institute
In May 2023, the Company entered into a 3-year agreement with the Bill & Melinda Gates Medical Research Institute
12


to provide the Company’s Matrix-M™ adjuvant for use in preclinical vaccine research.
SK bioscience, Co., Ltd
In February 2021, the Company entered into a Collaboration and License Agreement (“CLA”) with SK bioscience, Co., Ltd. (“SK”) to manufacture and commercialize its prototype vaccine for sale to the government of South Korea. The CLA was amended in December 2021 and July 2022 to include the sale of its prototype vaccine to Thailand and Vietnam and to supply the Company with the antigen component of prototype vaccine for use in the final drug product globally, including product to be distributed by the COVAX Facility. Under the CLA, as amended, SK agreed to pay the Company a royalty on the sale of its prototype vaccine in the low to middle double-digit range. The CLA was in addition to the Company's existing manufacturing arrangement with SK under a Development and Supply Agreement (“DSA”) entered into in August 2020. In July 2022, the Company signed an additional agreement with SK for the technology transfer of the Company’s proprietary COVID-19 variant antigen materials so that SK can manufacture the drug substance targeting COVID-19 variants, including the Omicron subvariants. The companies also signed an agreement to manufacture and supply its prototype vaccine in a prefilled syringe.
In June 2023, the Company entered into a material transfer agreement with SK for the use by SK of the Company’s Matrix-M™ adjuvant in preclinical vaccine experiments for shingles, influenza, and pan-COVID-19.
In August 2023, the Company and SK entered into a Settlement Agreement and General Release (the “Settlement Agreement”) regarding mutual release by the parties of all claims arising from or in relation to statements of work (“SOWs”) canceled by the Company under the DSA and the CLA (collectively the “Business Agreements”), and other SOWs under the Business Agreements (collectively, the “Subject SOWs”), in each case, in connection with the cessation of all drug substance and drug product manufacturing activity at SK for supply to the Company. Subject SOWs canceled by the Company under the Settlement Agreement included (i) Statement of Work No. 1 dated as of December 23, 2021 as amended to date under the CLA; (ii) Statement of Work No. 5 dated as of July 18, 2022 under the DSA; and (iii) Statement of Work No. 6 dated as of July 18, 2022, and as amended as of December 28, 2022 under the DSA.
Pursuant to the Settlement Agreement, the Company is responsible for payment of $149.8 million to SK in connection with the cancellation of manufacturing activity for the SOWs under the Business Agreements, of which (i) $130.4 million was paid in August 2023 and (ii) the remaining balance is to be paid on or before November 15, 2023. Under the Settlement Agreement, the Company and SK agreed to a wind down plan with respect to the remaining products, materials and equipment under the SOWs.
Under the Settlement Agreement, the Company and SK agreed to remove certain restrictions under the CLA that have been triggered by the launch of SK’s competing vaccine SKYCovione™ in the Republic of Korea. In addition, the Company agreed to extend the term of an exclusive license to SK under the CLA for the exploitation of antigen and vaccine products utilizing Company’s proprietary coronavirus vaccine antigens and Matrix-M adjuvant in certain territories. The Company recorded $4.0 million to Deferred revenue related to the extended licenses granted to SK under the Settlement Agreement.
In August 2023, the Company also entered into a Securities Subscription Agreement (the “Subscription Agreement”) with SK, pursuant to which the Company agreed to sell and issue to SK, in a private placement (the “Private Placement”), 6.5 million shares of the Company’s common stock, par value $0.01 per share (the “Shares”) at a price of $13.00 per share for aggregate gross proceeds to the Company of approximately $84.5 million. The closing of the Private Placement occurred on August 10, 2023. The fair value of the Company’s common stock on the date of closing, based on the quoted market price, was $46.5 million, which results in a premium paid by SK of approximately $38.0 million.
The Settlement Agreement and the Subscription Agreement were negotiated concurrently between the parties, and therefore were combined for accounting purposes and analyzed as a single arrangement. As a result, the Company recorded the $46.5 million fair value of common stock issued to SK, based on the quoted market price on the date of close, as an equity transaction. The remaining elements of the arrangement were deemed to relate to the settlement of the Company’s outstanding liabilities due to SK. These elements consist primarily of the cash payable to SK of $149.8 million, offset by the premium paid on the common stock purchase by SK of $38.0 million, which resulted in a net gain upon derecognition of the liabilities due to SK of $79.2 million in connection with the settlement. As a result, during the three and nine months ended September 30, 2023, the Company recorded this net gain of $79.2 million between research and development expense, for $57.7 million, and cost of sales, for $21.5 million, proportionally based on the where the underlying costs were originally recorded.

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Other Supply Agreements
On September 30, 2022, the Company, FUJIFILM Diosynth Biotechnologies UK Limited (“FDBK”), FUJIFILM Diosynth Biotechnologies Texas, LLC (“FDBT”), and FUJIFILM Diosynth Biotechnologies USA, Inc. (“FDBU” and together with FDBK and FDBT, “Fujifilm”) entered into a Confidential Settlement Agreement and Release (the “Fujifilm Settlement Agreement”) regarding amounts due to Fujifilm in connection with the termination of manufacturing activity at FDBT under the Commercial Supply Agreement (the “CSA”) dated August 20, 2021 and Master Services Agreement dated June 30, 2020 and associated statements of work (the “MSA”) by and between the Company and Fujifilm. The MSA and CSA established the general terms and conditions applicable to Fujifilm’s manufacturing and supply activities related to the Company’s prototype vaccine under the associated statements of work.
Pursuant to the Fujifilm Settlement Agreement, the Company agreed to pay up to $185.0 million (the “Settlement Payment”) to Fujifilm in connection with cancellation of manufacturing activity at FDBT under the CSA, of which (i) $47.8 million, constituting the initial reservation fee under the CSA, was credited against the Settlement Payment on September 30, 2022 and (ii) the remaining balance is to be paid in four equal quarterly installments of $34.3 million each, which began on March 31, 2023. As of September 30, 2023, the remaining payment of $68.6 million was reflected in Accrued expenses. Under the Fujifilm Settlement Agreement, the final two quarterly installments due to Fujifilm were subject to Fujifilm’s obligation to use commercially reasonable efforts to mitigate losses associated with the vacant manufacturing capacity caused by the termination of manufacturing activities at FDBT under the CSA. Any replacement revenue achieved by Fujifilm’s mitigation efforts between July 1, 2023 and December 31, 2023 would offset the final two settlement payments owed by the Company. On October 2, 2023, the Company sent a notice of breach under the Fujifilm Settlement Agreement to Fujifilm setting forth the Company’s position that Fujifilm had not used commercially reasonable efforts to mitigate losses. The Company withheld the $34.3 million installment payment due to Fujifilm on September 30, 2023, pending resolution of the issues identified in the notice of breach. On October 30, 2023, FDBT filed a demand for arbitration with Judicial Arbitration and Mediation Services (“JAMS”) seeking payment of the third quarter installment of the Settlement Payment.
The Company continues to assess its manufacturing needs and intends to modify its global manufacturing footprint consistent with its contractual obligations to supply, and anticipated demand for, its COVID-19 Program, and in doing so, recognizes that significant costs may be incurred.
Note 5 – Cash, Cash Equivalents, and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported in the consolidated balance sheets that sums to the total of such amounts shown in the consolidated statements of cash flows (in thousands):

September 30, 2023December 31, 2022
Cash and cash equivalents$651,104 $1,336,883 
Restricted cash, current10,393 10,303 
Restricted cash, non-current(1)
4,866 1,659 
Cash, cash equivalents, and restricted cash$666,363 $1,348,845 
(1)Classified as Other non-current assets as of September 30, 2023 and December 31, 2022, on the consolidated balance sheets.
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Note 6 – Fair Value Measurements
The following table represents the Company’s fair value hierarchy for its financial assets and liabilities (in thousands):
Fair Value at September 30, 2023Fair Value at December 31, 2022
AssetsLevel 1Level 2Level 3Level 1Level 2Level 3
Money market funds(1)
$196,679 $ $ $398,834 $ $ 
Government-backed securities(1)
 200,000   296,000  
Treasury securities(1)
 36,913     
Corporate debt securities(1)
 23,028     
Agency securities(1)
    104,536  
Total cash equivalents$196,679 $259,941 $ $398,834 $400,536 $ 
Liabilities
5.00% Convertible notes due 2027
$$131,292 $$$172,789$
3.75% Convertible notes due 2023
    322,111  
Total convertible notes payable$ $131,292 $ $ $494,900 $ 
(1)All investments are classified as Cash and cash equivalents as of September 30, 2023 and December 31, 2022, on the consolidated balance sheets.
Fixed-income investments categorized as Level 2 are valued at the custodian bank by a third-party pricing vendor’s valuation models that use verifiable observable market data, such as interest rates and yield curves observable at commonly quoted intervals and credit spreads, bids provided by brokers or dealers, or quoted prices of securities with similar characteristics. Pricing of the Company’s convertible notes has been estimated using observable inputs, including the price of the Company’s common stock, implied volatility, interest rates, and credit spreads.
During the nine months ended September 30, 2023 and 2022, the Company did not have any transfers between levels.
The amount in the Company’s consolidated balance sheets for accounts payable and accrued expenses approximates its fair value due to its short-term nature.
Note 7 – Inventory
Inventory consisted of the following (in thousands):
September 30, 2023December 31, 2022
Raw materials$10,385 $13,912 
Semi-finished goods10,405 21,410 
Finished goods48,802 1,361 
Total inventory$69,592 $36,683 
Inventory write-downs as a result of excess, obsolescence, expiry, or other reasons, and losses on firm purchase commitments, offset by recoveries of such commitments, are recorded as a component of cost of sales in the Company’s consolidated statements of operations. For the three and nine months ended September 30, 2023, inventory write-downs were $18.1 million and $49.6 million, respectively and losses on firm purchase commitments were $63.5 million and $71.9 million, respectively. In addition, for the three and nine months ended September 30, 2023 the Company recorded recoveries on firm purchase commitments of $21.5 million and $40.3 million, respectively, related primarily to negotiated reductions to previously recognized firm purchase commitments. For the three and nine months ended September 30, 2022, inventory write-downs were $202.4 million and $358.1 million, respectively. For the three and nine months ended September 30, 2022, losses on firm purchase commitments were $46.6 million and $146.2 million, respectively.
Note 8 – Goodwill
The Company has one reporting unit, which has a negative equity balance as of September 30, 2023 and December 31,
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2022. The change in the carrying amounts of goodwill for the nine months ended September 30, 2023 was as follows (in thousands):
Amount
Balance at December 31, 2022$126,331 
Currency translation adjustments(2,551)
Balance at September 30, 2023$123,780 
Note 9 – Leases
The Company has embedded leases related to supply agreements with contract manufacturing organizations (“CMOs”) and contract manufacturing and development organizations to manufacture its COVID-19 Vaccine, as well as leases for its research and development and manufacturing facilities, corporate headquarters and offices, and certain equipment. During the nine months ended September 30, 2023, the Company continued to align its global manufacturing footprint as a result of its ongoing assessment of manufacturing needs consistent with its contractual obligations related to the supply, and anticipated demand for, its COVID-19 Program.
During the three and nine months ended September 30, 2023, the Company recognized a short-term lease benefit of $39.5 million and $48.0 million, respectively, related to the reversal of previously recognized embedded lease expense on the settlement of CMO contracts. During the three and nine months ended September 30, 2022, the Company recognized a short-term lease benefit of $46.6 million and expense of $37.3 million respectively, related to its embedded leases and expensed $24.2 million and $44.0 million respectively, for the write off of right of use (“ROU”) assets that represented assets acquired for research and development activities that did not have an alternative future use at the commencement or modification of the lease ROU written off. There were no ROU assets written off during the three and nine months ended September 30, 2023, related to embedded leases.
During the three and nine months ended September 30, 2023, the Company recognized $0.5 million and $1.4 million of interest expense, respectively, on its finance lease liabilities. During the three and nine months ended September 30, 2022, the Company recognized $0.9 million and $4.3 million of interest expense, respectively, on its finance lease liabilities.
During the nine months ended September 30, 2023, the Company recorded an impairment charge of $5.9 million related to ROU facility leases used for research and development, manufacturing and offices space that are impacted by the Restructuring Plan (see Note 15).
The Company has a lease agreement for approximately 170,000 square feet of space at 700 Quince Orchard Road, Gaithersburg, Maryland, which the Company uses for manufacturing, research and development, and corporate offices. The term of the lease expires in 2035 with options to extend the lease. The lease provides for an annual base rent of $5.8 million that is subject to future rent increases and obligates the Company to pay building operating costs. During the three months ended September 30, 2023, the Company obtained the right to direct the use of, and obtain substantially all of the benefit from, certain floors located at the premises and recognized a ROU asset and related lease obligation of $96.5 million as the lease commencement dates for accounting purposes had occurred. The lease obligation was reduced by $73.4 million for prepaid rent and prior costs incurred on behalf of the landlord.
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Note 10 – Long-Term Debt
Total convertible notes payable consisted of the following (in thousands):
September 30, 2023December 31, 2022
Current portion:
3.75% Convertible notes due 2023
$ $325,000 
Unamortized debt issuance costs (119)
Total current convertible notes payable$ $324,881 
Non-current portion:
5.00% Convertible notes due 2027
$175,250 $175,250 
Unamortized debt issuance costs
(7,629)(8,784)
Total non-current convertible notes payable$167,621 $166,466 
In February 2023, the Company repaid the outstanding principal amount of $325.0 million on its 3.75% Convertible notes due in 2023, together with accrued but unpaid interest on the maturity date. The repayment was funded by the issuance of the 5.00% Convertible notes due 2027 and the concurrent common stock offering in December 2022, as well as cash on hand. The effective interest rate of the 2027 Convertible notes is 6.2%.
The interest expense incurred in connection with the convertible notes payable consisted of the following (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Coupon interest $2,191 $3,047 $7,588 $9,141 
Amortization of debt issuance costs395 356 1,295 1,068 
Total interest expense on convertible notes payable$2,586 $3,403 $8,883 $10,209 
Note 11 – Stockholders' Deficit
In August 2023, the Company entered into an At Market Issuance Sales Agreement (the "August 2023 Sales Agreement"), which allows it to issue and sell up to $500 million in gross proceeds of shares of its common stock, and terminated its then-existing At Market Issuance Sales agreement entered in June 2021 (the “June 2021 Sales Agreement”). During the three months ended September 30, 2023, the Company sold 17.8 million shares of its common stock under its August 2023 Sales Agreement resulting in net proceeds of approximately $143 million. During the nine months ended September 30, 2023, the Company sold 25.7 million shares of its common stock under its June 2021 and August 2023 Sales Agreement resulting in net proceeds of approximately $211 million. As of September 30, 2023, the remaining balance available under the August 2023 Sales Agreement was approximately $354 million.
During the nine months ended September 30, 2022, the Company sold 2.2 million shares of its common stock resulting in net proceeds of approximately $179 million, under its June 2021 Sales Agreement. There was no sale of shares of common stock recorded during the three months ended September 30, 2022.
In August 2023, pursuant to the Securities Subscription Agreement with SK, the Company agreed to sell and issue to SK 6.5 million shares of the Company’s common stock, par value $0.01 per share at a price of $13.00 per share (the “Shares”) in a Private Placement for aggregate gross proceeds to the Company of approximately $84.5 million. The Company recognized the Shares at the settlement date fair value of $46.5 million (see Note 4 for additional discussion of the Securities Subscription Agreement with SK). The closing of the Private Placement occurred on August 10, 2023.

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Note 12 – Stock-Based Compensation
Equity Plans
In January 2023, the Company established the 2023 Inducement Plan (the “2023 Inducement Plan”), which provides for the granting of share-based awards to individuals who were not previously employees, or following a bona fide period of non-employment, as an inducement material to such individuals entering into employment with the Company. The Company reserved 1.0 million shares of common stock for grants under the 2023 Inducement Plan. As of September 30, 2023, there were 0.2 million shares available for issuance under the 2023 Inducement Plan.
The 2015 Stock Incentive Plan, as amended (“2015 Plan”), was approved at the Company’s annual meeting of stockholders in June 2015. Under the 2015 Plan, equity awards may be granted to officers, directors, employees, and consultants of and advisors to the Company and any present or future subsidiary. The 2015 Plan authorizes the issuance of up to 21.0 million shares of common stock under equity awards granted under the 2015 Plan, which includes an increase of 6.2 million shares approved for issuance under the 2015 Plan at the Company's 2023 annual meeting of stockholders. All such shares authorized for issuance under the 2015 Plan have been reserved. The 2015 Plan will expire on March 4, 2025. As of September 30, 2023, there were 7.1 million shares available for issuance under the 2015 Plan.
The Amended and Restated 2005 Stock Incentive Plan (“2005 Plan”) expired in February 2015 and no new awards may be made under such plan, although awards will continue to be outstanding in accordance with their terms.
The 2023 Inducement Plan and the 2015 Plan permit, and the 2005 Plan permitted, the grant of stock options (including incentive stock options), restricted stock, stock appreciation rights (“SARs”), and restricted stock units (“RSUs”). In addition, under the 2023 Inducement Plan and the 2015 Plan, unrestricted stock, stock units, and performance awards may be granted. Stock options and SARs generally have a maximum term of ten years and may be or were granted with an exercise price that is no less than 100% of the fair market value of the Company’s common stock at the time of grant. Grants of share-based awards are generally subject to vesting over periods ranging from one to four years.
The Company recorded stock-based compensation expense in the consolidated statements of operations as follows (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Cost of sales$767 $51 $2,283 $51 
Research and development10,022 16,107 33,826 52,692 
Selling, general, and administrative9,971 15,389 33,590 49,782 
Total stock-based compensation expense$20,760 $31,547 $69,699 $102,525 
During the three and nine months ended September 30, 2023, total stock-based compensation capitalized in inventory was $0.5 million. During the three and nine months ended September 30, 2022, total stock-based compensation capitalized in inventory was $1.7 million.
As of September 30, 2023, there was approximately $102 million of total unrecognized compensation expense related to unvested stock options, SARs, RSUs, and the Company’s Employee Stock Purchase Plan, as amended (“ESPP”). This unrecognized non-cash compensation expense is expected to be recognized over a weighted-average period of approximately one year. This estimate does not include the impact of other possible stock-based awards that may be made during future periods.
The aggregate intrinsic value represents the total intrinsic value (the difference between the Company’s closing stock price on the last trading day of the period and the exercise price, multiplied by the number of in-the-money stock options and SARs) that would have been received by the holders had all stock option and SAR holders exercised their stock options and SARs on September 30, 2023. This amount is subject to change based on changes to the closing price of the Company's common stock. The aggregate intrinsic value of stock options and SARs exercises and vesting of RSUs for the nine months ended September 30, 2023 and 2022 was approximately $3 million and $19 million, respectively.
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Stock Options and Stock Appreciation Rights
The following is a summary of stock options and SARs activity under the 2023 Inducement Plan, 2015 Plan, and 2005 Plan for the nine months ended September 30, 2023:
2023 Inducement Plan2015 Plan2005 Plan
Stock
Options
Weighted-Average
Exercise
Price
Stock
Options
Weighted-Average
Exercise
Price
Stock
Options
Weighted-Average
Exercise
Price
Outstanding at December 31, 2022 $ 4,053,290 $46.07 63,725 $112.94 
Granted422,800 10.67 861,602 7.29   
Exercised  (5,374)6.71   
Canceled  (103,504)56.45 (5,450)39.70 
Outstanding at September 30, 2023422,800 $10.67 4,806,014 $38.94 58,275 $119.79 
Shares exercisable at September 30, 2023 $ 3,437,364 $40.58 58,275 $119.79 
The fair value of stock options granted under the 2023 Inducement Plan and the 2015 Plan was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Weighted average Black-Scholes fair value of stock options granted
$7.84
$37.66
$7.27
$60.24
Risk-free interest rate
4.3%-4.4%
3.0%-3.6%
3.5%-4.4%
1.4%-3.6%
Dividend yield%%%%
Volatility
128.7%-130.3%
122.2%-136.4%
120.4%-140.3%
120.5%-136.7%
Expected term (in years)
3.9-5.1
4.0-5.3
3.9-6.3
4.0-6.3
The total aggregate intrinsic value and weighted-average remaining contractual term of stock options and SARs outstanding under the 2023 Inducement Plan, 2015 Plan and 2005 Plan as of September 30, 2023 was approximately $1.4 million and 7.1 years, respectively. The total aggregate intrinsic value and weighted-average remaining contractual term of stock options and SARs exercisable under the 2023 Inducement Plan, 2015 Plan and 2005 Plan as of September 30, 2023 was approximately $1.1 million and 6.1 years, respectively.
Restricted Stock Units
The following is a summary of RSU activity for the nine months ended September 30, 2023:
2023 Inducement Plan2015 Plan
Number of
Shares
Per Share
Weighted-
Average
Fair Value
Number of
Shares
Per Share
Weighted-
Average
Fair Value
Outstanding and unvested at December 31, 2022 $ 2,034,574 $61.65 
Granted363,990 10.66 2,888,793 7.25 
Vested  (403,672)87.17 
Forfeited  (780,810)27.77 
Outstanding and unvested at September 30, 2023363,990 $10.66 3,738,885 $23.95 
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Employee Stock Purchase Plan
The ESPP was approved at the Company’s annual meeting of stockholders in June 2013. The ESPP currently authorized an aggregate of 1.2 million shares of common stock to be purchased, and the aggregate amount of shares will continue to increase 5% on each anniversary of its adoption up to a maximum of 1.65 million shares. The ESPP allows employees to purchase shares of common stock of the Company at each purchase date through payroll deductions of up to a maximum of 15% of their compensation, at 85% of the lesser of the market price of the shares at the time of purchase or the market price on the beginning date of an option period (or, if later, the date during the option period when the employee was first eligible to participate). As of September 30, 2023, there were 0.5 million shares available for issuance under the ESPP.
Note 13 – Income Taxes
The Company evaluates the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant piece of objective evidence evaluated was the cumulative loss incurred over the three-year period ended September 30, 2023 and that the Company has historically generated pretax losses. Such objective evidence limits the ability to consider other subjective evidence, such as projections for future growth. On the basis of this evaluation, as of September 30, 2023, the Company continued to maintain a full valuation allowance against its deferred tax assets, except to the extent Net Operating Losses (“NOLs”) have been used to reduce taxable income. The Company’s remaining U.S. Federal NOLs are subject to limitation in accordance with the 2017 Tax Cuts and Jobs Act (“TCJA”), which limits allowable NOL deductions to 80% of federal taxable income.
Effective January 1, 2022, a provision of the TCJA has taken effect creating a significant change to the treatment of research and experimental expenditures under Section 174 of the IRC (“Sec. 174 expenses”). Historically, businesses have had the option of deducting Sec. 174 expenses in the year incurred or capitalizing and amortizing the costs over five years. The new TCJA provision, however, eliminates this option and will require Sec. 174 expenses associated with research conducted in the U.S. to be capitalized and amortized over a five-year period. For expenses associated with research outside of the U.S., Sec. 174 expenses will be capitalized and amortized over a 15-year period.
During the three months ended September 30, 2023, the Company recognized $0.7 million of federal, state, and foreign income tax benefit. During the three months ended September 30, 2022, the Company recognized $2.4 million of federal, state, and foreign income tax expense. During the nine months ended September 30, 2023 and 2022, the Company recognized income tax expense of $0.3 million and $4.3 million, respectively. The Company recognized income tax expense related to foreign withholding tax on royalties of $0.1 million and $2.3 million, respectively, for the three and nine months ended September 30, 2022. The Company did not recognize any foreign withholding tax expense on royalties for the three and nine months ended September 30, 2023.
Note 14Commitments and Contingencies
Legal Matters
Stockholder Litigation
On November 12, 2021, Sothinathan Sinnathurai filed a purported securities class action in the U.S. District Court for the District of Maryland (the “Maryland Court”) against the Company and certain members of senior management, captioned Sothinathan Sinnathurai v. Novavax, Inc., et al., No. 8:21-cv-02910-TDC (the “Sinnathurai Action”). On January 26, 2022, the Maryland Court entered an order designating David Truong, Nuggehalli Balmukund Nandkumar, and Jeffrey Gabbert as co-lead plaintiffs in the Sinnathurai Action. The co-lead plaintiffs filed a consolidated amended complaint on March 11, 2022, alleging that the defendants made certain purportedly false and misleading statements concerning the Company’s ability to manufacture prototype vaccine on a commercial scale and to secure the prototype vaccine’s regulatory approval. The amended complaint defines the purported class as those stockholders who purchased the Company’s securities between February 24, 2021 and October 19, 2021. On April 25, 2022, the defendants filed a motion to dismiss the consolidated amended complaint. On December 12, 2022, the Maryland Court issued a ruling granting in part and denying in part defendants’ motion to dismiss. The Maryland Court dismissed all claims against two individual defendants and claims based on certain public statements challenged in the consolidated amended complaint. The Maryland Court denied the motion to dismiss as to the remaining claims and defendants, and directed the Company and other remaining defendants to answer within fourteen days. On December 27, 2022, the Company filed its answer and affirmative defenses. On March 16, 2023, the plaintiffs filed a motion for class certification and to appoint class representatives and counsel. The Company filed its opposition to the plaintiffs’ motion on September 22, 2023.
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After the Sinnathurai Action was filed, eight derivative lawsuits were filed: (i) Robert E. Meyer v. Stanley C. Erck, et al., No. 8:21-cv-02996-TDC (the “Meyer Action”), (ii) Shui Shing Yung v. Stanley C. Erck, et al., No. 8:21-cv-03248-TDC (the “Yung Action”), (iii) William Kirst, et al. v. Stanley C. Erck, et al., No. C-15-CV-21-000618 (the “Kirst Action”), (iv) Amy Snyder v. Stanley C. Erck, et al., No. 8:22-cv-01415-TDC (the “Snyder Action”), (v) Charles R. Blackburn, et al. v. Stanley C. Erck, et al., No. 1:22-cv-01417-TDC (the “Blackburn Action”), (vi) Diego J. Mesa v. Stanley C. Erck, et al., No. 2022-0770-NAC (the “Mesa Action”), (vii) Sean Acosta v. Stanley C. Erck, et al., No. 2022-1133-NAC (the “Acosta Action”), and (viii) Jared Needelman v. Stanley C. Erck, et al., No. C-15-CV-23-001550 (the “Needelman Action”). The Meyer, Yung, Snyder, and Blackburn Actions were filed in the Maryland Court. The Kirst Action was filed in the Circuit Court for Montgomery County, Maryland, and shortly thereafter removed to the Maryland Court by the defendants. The Needleman Action was also filed in the Circuit Court for Montgomery County, Maryland. The Mesa and Acosta Actions were filed in the Delaware Court of Chancery (the “Delaware Court”). The derivative lawsuits name members of the Company’s board of directors and certain members of senior management as defendants. The Company is deemed a nominal defendant. The plaintiffs assert derivative claims arising out of substantially the same alleged facts and circumstances as the Sinnathurai Action. Collectively, the derivative complaints assert claims for breach of fiduciary duty, insider selling, unjust enrichment, violation of federal securities law, abuse of control, waste, and mismanagement. Plaintiffs seek declaratory and injunctive relief, as well as an award of monetary damages and attorneys’ fees.
On February 7, 2022, the Maryland Court entered an order consolidating the Meyer and Yung Actions (the “First Consolidated Derivative Action”). The plaintiffs in the First Consolidated Derivative Action filed their consolidated derivative complaint on April 25, 2022. On May 10, 2022, the Maryland Court entered an order granting the parties’ request to stay all proceedings and deadlines pending the earlier of dismissal or the filing of an answer in the Sinnathurai Action. On June 10, 2022, the Snyder and Blackburn Actions were filed. On October 5, 2022, the Maryland Court entered an order granting a request by the plaintiffs in the First Consolidated Derivative Action and the Snyder and Blackburn Actions to consolidate all three actions and appoint co-lead plaintiffs and co-lead and liaison counsel (the “Second Consolidated Derivative Action”). The co-lead plaintiffs in the Second Consolidated Derivative Action filed a consolidated amended complaint on November 21, 2022. On February 10, 2023, defendants filed a motion to dismiss the Second Consolidated Derivative Action. The plaintiffs filed their opposition to the motion to dismiss on April 11, 2023. Defendants filed their reply brief in further support of their motion to dismiss on May 11, 2023. On August 21, 2023, the court entered an order granting in part and denying in part the motion to dismiss. On September 5, 2023, the Company filed an Answer to the consolidated amended complaint. On September 6, 2023, the court entered an order granting the individual defendants an extension of time to file their answer until November 6, 2023. On October 6, 2023, the Board of Directors of the Company formed a Special Litigation Committee (“SLC”) with full and exclusive power and authority of the Board to, among other things, investigate, review, and analyze the facts and circumstances surrounding the claims asserted in the pending derivative actions, including the claims that remain following the court’s order on the motion to dismiss in the Second Consolidated Derivative Action. On November 7, 2023, the court entered an order granting the parties’ request to stay the Second Consolidated Derivative Action for up to six months from the date of entry of the order. This includes staying the deadline for the individual defendants to respond to the consolidated amended complaint.
On July 21, 2022, the Maryland Court issued a memorandum opinion and order remanding the Kirst Action to state court. On December 6, 2022, the parties to the Kirst Action filed a stipulated schedule pursuant to which the plaintiffs were expected to file an amended complaint on December 22, 2022, and either (i) the parties would file a stipulated stay of the Kirst Action or (ii) the defendants would file a motion to stay the case by January 23, 2023. The plaintiffs filed an amended complaint on December 30, 2022. On January 23, 2023, defendants filed a motion to stay the Kirst action. On February 22, 2023, the parties in the Kirst Action filed for the Court’s approval of a stipulation staying the Kirst Action pending the resolution of defendants’ motion to dismiss in the Second Consolidated Derivative Action. On March 22, 2023, the Court entered an order staying the Kirst Action pending resolution of the motion to dismiss in the Second Consolidated Derivative Action. The parties continue to discuss next steps in the litigation following the Maryland Court’s ruling on the motion to dismiss the Second Consolidated Derivative Action.
On August 30, 2022, the Mesa Action was filed. On October 3, 2022, the Delaware Court entered an order granting the parties’ request to stay all proceedings and deadlines in the Mesa Action pending the earlier of dismissal of the Sinnathurai Action or the filing of an answer to the operative complaint in the Sinnathurai Action. On January 9, 2023, following the ruling on the motion to dismiss the Sinnathurai Action, the Delaware Court entered an order granting the Mesa Action parties’ request to set a briefing schedule in connection with a motion to stay by defendants. On February 28, 2023, the court granted the defendants’ motion and stayed the Mesa Action pending the entry of a final, non-appealable judgment in the Second Consolidated Derivative Action. On August 31, 2023, the Mesa plaintiffs filed a motion to lift the stay in the Mesa Action. On October 6, 2023, the Company filed an opposition to plaintiff’s motion to lift the stay. On October 17, 2023, the Mesa plaintiff filed his reply in further support of his motion to lift the stay.
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On December 7, 2022, the Acosta Action was filed. On February 6, 2023, defendants accepted service of the complaint and summons in the Acosta Action. On March 9, 2023, the court entered an order granting the parties’ request to stay the Acosta Action pending the entry of a final, non-appealable judgment in the Second Consolidated Derivative Action. On October 13, 2023, the parties filed, and the Delaware Court entered, a stipulated order providing that (i) if the Delaware Court declines to lift the stay in the Mesa Action, the Acosta Action will also remain stayed, and (ii) if the Delaware Court lifts the stay in the Mesa Action, the stay in the Acosta Action will also be lifted.
On April 17, 2023, the Needelman Action was filed. On July 12, 2023, the parties filed a stipulation and proposed order to stay the Needelman Action pending the Maryland Court’s decision on the motion to dismiss in the Second Consolidated Derivative Action. The court entered that order on July 17, 2023. The parties continue to discuss next steps in the litigation following the Maryland Court’s ruling on the motion to dismiss the Second Consolidated Derivative Action. The financial impact of this claim, as well as the claims discussed above, is not estimable.
On October 6, 2023, the Company’s board of directors voted unanimously to form a Special Litigation Committee (“SLC”) vested with full power and authority with respect to, among other things, claims in the derivative lawsuits related to certain sales of Company stock by certain Company officers, directors, or employees. The SLC has retained its own independent counsel.
On November 18, 2022, the Company delivered written notice to Gavi to terminate the Gavi APA based on Gavi’s failure to procure the purchase of 350 million doses of prototype vaccine from the Company as required by the Gavi APA. As of November 18, 2022, the Company had only received orders under the Gavi APA for approximately 2 million doses. On December 2, 2022, Gavi issued a written notice purporting to terminate the Gavi APA based on Gavi’s contention that the Company repudiated the agreement and, therefore, materially breached the Gavi APA. Gavi also contends that, based on its purported termination of the Gavi APA, it is entitled to a refund of the Advance Payment Amount less any amounts that have been credited against the purchase price for binding orders placed by a buyer participating in the COVAX Facility. Since December 31, 2022, the remaining Gavi Advance Payment Amount, which is $696.4 million as of September 30, 2023, pending resolution of the dispute with Gavi related to a return of the remaining Advance Payment Amount, has been classified within Other current liabilities in the Company’s consolidated balance sheet. On January 24, 2023, Gavi filed a demand for arbitration with the International Court of Arbitration based on the claims described above. The Company filed its Answer and Counterclaims on March 2, 2023. On April 5, 2023, Gavi filed its Reply to the Company’s Counterclaims. On August 24, 2023, Gavi filed a Statement of Claim, and on September 21, 2023, the Company filed a Statement of Defense and Counterclaim. The arbitration hearing is scheduled for July 2024, with a written decision to follow. Arbitration is inherently uncertain, and while the Company believes that it is entitled to retain the remaining Advance Payment Amount received from Gavi, it is possible that it could be required to refund all or a portion of the remaining Advance Payment Amount from Gavi.
On September 30, 2022, the Company and Fujifilm entered into the Fujifilm Settlement Agreement regarding amounts due to Fujifilm in connection with the termination of manufacturing activity at FDBT under the CSA dated August 20, 2021 and the MSA by and between the Company and Fujifilm. The MSA and CSA established the general terms and conditions applicable to Fujifilm’s manufacturing and supply activities related to the Company’s prototype vaccine under the associated statements of work. Pursuant to the Fujifilm Settlement Agreement, the Company agreed to pay up to $185.0 million (the “Settlement Payment”) to Fujifilm in connection with cancellation of manufacturing activity at FDBT. Under the Fujifilm Settlement Agreement, the final two quarterly installments due to Fujifilm were subject to Fujifilm’s obligation to use commercially reasonable efforts to mitigate losses associated with the vacant manufacturing capacity caused by the termination of manufacturing activities at FDBT under the CSA. Any replacement revenue achieved by Fujifilm’s mitigation efforts between July 1, 2023 and December 31, 2023 would offset the final two settlement payments owed by the Company. On October 2, 2023, the Company sent a notice of breach under the Fujifilm Settlement Agreement to Fujifilm setting forth the Company’s position that Fujifilm had not used commercially reasonable efforts to mitigate losses. The Company withheld the $34.3 million installment payment due to Fujifilm on September 30, 2023, pending resolution of the issues identified in the notice of breach (see Note 4). On October 30, 2023, FDBT filed a demand for arbitration with JAMS seeking payment of the withheld installment payment.
The Company is also involved in various other legal proceedings arising in the normal course of business. Although the outcomes of these other legal proceedings are inherently difficult to predict, the Company does not expect the resolution of these other legal proceedings to have a material adverse effect on its financial position, results of operations, or cash flows.
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Note 15Restructuring
During the nine months ended September 30, 2023, the restructuring charge recorded by the Company comprised (in thousands):
Amount
Severance and employee benefit costs$4,503 
Impairment of assets10,081 
Total Restructuring charge (1)
$14,584 
(1) Restructuring charges of $0.5 million, $2.3 million and $11.5 million are included in Cost of sales, Research and development and Selling, general, and administrative expenses, respectively, in the Consolidated Statements of Operations for the nine months ended September 30, 2023. All impairment charges were taken in the three months ended June 30, 2023. These charges reflect substantially all expected restructuring charges under the Restructuring Plan.
Severance and employee benefit costs
Employees affected by the reduction in force under the Restructuring Plan are entitled to receive severance payments and certain termination benefits. The Company recorded a severance and termination benefit cost in full for employees who were notified of their termination in the three months ended June 30, 2023 and had no requirements for future service. The Company paid a total of $4.3 million for the severance and employee benefit costs during the nine months ended September 30, 2023 and the remaining liability of $0.2 million is included in Accrued expenses in the Company’s consolidated balance sheet as of September 30, 2023.
Impairment of assets
In connection with the Restructuring Plan, the Company evaluated its long-lived assets for impairment including certain leased laboratory and office spaces located in Gaithersburg, Maryland. The Company performed an impairment evaluation for the applicable long-lived assets which is subject to judgment and actual results may vary from the estimates, resulting in potential future adjustments to amounts recorded. During the three months ended June 30, 2023, the Company recorded an impairment charge of $10.1 million related to the impairment of long-lived assets, including $5.9 million related to ROU assets for facility leases.
Note 16Subsequent Events
On October 2, 2023, the Company sent a notice of breach under the Fujifilm Settlement Agreement to Fujifilm setting forth the Company’s position that Fujifilm had not used commercially reasonable efforts to mitigate losses. The Company withheld the $34.3 million installment payment due to Fujifilm on September 30, 2023, pending resolution of issues identified in the notice of breach (see Note 4). On October 30, 2023, FDBT filed a demand for arbitration with JAMS seeking payment of the third quarter installment of the Settlement Payment.
On October 2, 2023, the World Health Organization (“WHO”) announced its recommendation of the R21/Matrix-M™ malaria vaccine to prevent malaria in children following advice from its Strategic Advisory Group of Experts and Malaria Policy Advisory Group. The vaccine contains R21 antigen developed by University of Oxford, specific to the malaria parasite, and Novavax’s Matrix-M™ adjuvant. This recommendation is a required step on the pathway to the WHO’s prequalification (“PQ”) of the vaccine. PQ designation is necessary for United Nations agencies and partners, for example UNICEF and Gavi, to procure the vaccine for eligible countries. This is the first recommendation from WHO to support the use of a vaccine containing the Company’s Matrix-M™ adjuvant in children as young as five months of age and it is based on the results from the Phase 3 clinical trial. The R21/Matrix-M™ malaria vaccine is being developed and manufactured by SIIPL.
On October 3, 2023, the Company announced that the updated vaccine has received EUA from the U.S. FDA for active immunization to prevent COVID-19 in individuals aged 12 and older. Immediately upon authorization, the Company’s updated vaccine has also been included in the recommendations issued by the U.S. Centers for Disease Control and Prevention on September 12, 2023.

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On October 18, 2023, the Company announced that the Medicines and Healthcare products Regulatory Agency in the United Kingdom has granted full marketing authorization for its prototype vaccine for individuals aged 12 and older for active immunization to help prevent COVID-19.
On October 18, 2023, the Company announced that Singapore's Health Sciences Authority has granted full approval for Novavax's prototype vaccine for active immunization to prevent COVID-19 in individuals aged 12 and older. The Singapore Ministry of Health has included Novavax’s prototype vaccine in the National Vaccination Programme as a protein-based non-mRNA option for COVID-19 prevention.
On October 31, 2023, the Company announced that the EC has granted approval for the updated vaccine for active immunization to prevent COVID-19 caused by SARS-CoV-2 in individuals aged 12 and older. This decision follows positive opinion for approval from the Committee for Medicinal Products for Human Use.


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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 September 30, 2023 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 Nuvaxovid prototype COVID-19 vaccine ("NVX-CoV2373” or “prototype vaccine”) and Nuvaxovid updated COVID-19 vaccine (“NVX-CoV2601” or “updated vaccine”) collectively referred to as our (“COVID-19 Program,” or COVID-19 Vaccine”)), reduction to our pipeline spending, the continued rationalization of our manufacturing network, a reduction to our global workforce, as well as the consolidation of facilities, and infrastructure; our new cost reduction plan focused on further reductions to spend on Research & development expenses, Selling, general, & administrative expenses and supply network costs; the amount and timing of the charges and cash expenditures resulting from the size and timing of our workforce reduction; the impact of our decision to progress our COVID-19-Influenza Combination (“CIC”) vaccine candidate toward late-stage development on our workforce requirements; potential market sizes and demand for our product candidates; the efficacy, safety, and intended utilization of our product candidates; the development of our clinical-stage product candidates and our recombinant vaccine and adjuvant technologies, including NVX-CoV2601; the conduct, timing, and potential results from clinical trials; plans for and potential timing of regulatory filings, including our submission to the U.S. Food and Drug Administration (“U.S. FDA”) for the Biologics License Application (“BLA”) for the full approval of the Novavax COVID-19 Vaccine, Adjuvanted; our expectation of manufacturing capacity, timing, production, distribution, and delivery for NVX-CoV2601 by us and our partners; our expectations with respect to the anticipated ongoing development and commercialization or licensure of our COVID-19 Program, ongoing development of our influenza vaccine candidate, CIC vaccine candidate, high-dose COVID-19 vaccine candidate, and COVID-19 variant strain-containing monovalent formulation, including the Phase 2b/3 Hummingbird™ trial, and the timing of anticipated results from and our efforts for the 2023-2024 vaccination season, efforts to expand the COVID-19 Program label worldwide as a booster, and to various age groups and geographic locations; the expected timing, content, and outcomes of regulatory actions; funding from the U.S. government partnership formerly known as Operation Warp Speed under the USG Agreement (as defined below); funding under our advance purchase agreements (“APAs”) and supply agreements and amendments to, termination of, or legal disputes relating to any such agreement; our available cash resources and usage and the availability of financing generally; plans regarding partnering activities and business development initiatives; and other matters referenced herein. Generally, forward-looking statements can be identified through the use of words or phrases such as “believe,” “may,” “could,” “will,” “would,” “possible,” “can,” “estimate,” “continue,” “ongoing,” “consider,” “anticipate,” “intend,” “seek,” “plan,” “project,” “expect,” “should,” “would,” “aim,” or “assume,” the negative of these terms, or other comparable terminology, although not all forward-looking statements contain these words.
Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs and expectations about the future of our business, future plans and strategies, projections, anticipated events and trends, the economy, and other future conditions. Forward-looking statements involve estimates, assumptions, risks, and uncertainties that could cause actual results or outcomes to differ materially from those expressed or implied in any forward-looking statements, and, therefore, you should not place considerable reliance on any such forward-looking statements. Such risks and uncertainties include, without limitation, our ability to successfully manufacture, distribute, or market NVX-CoV2601 for the 2023-2024 vaccination season, our ability to timely deliver doses; challenges in obtaining commercial adoption and market acceptance of NVX-CoV2601, NVX-CoV2373 or any COVID-19 variant strain containing formulation; challenges satisfying, alone or together with partners, various safety, efficacy, and product characterization requirements, including those related to process qualification, assay validation, and stability testing, necessary to satisfy applicable regulatory authorities, such as the U.S. FDA, the World Health Organization (“WHO”), United Kingdom (“UK”) Medicines and Healthcare Products Regulatory Agency (“MHRA”), the European Medicines Agency (“EMA”), the Republic of Korea’s Ministry of Food and Drug Safety, or Japan’s Ministry of Health, Labour and Welfare; challenges or delays in conducting clinical trials; or obtaining regulatory authorization for our product candidates, including for NVX-CoV2601 in time for the 2023-2024 vaccination season, or for future COVID variant strain changes manufacturing distribution or export delays or challenges; our exclusive dependence on Serum Institute of India Pvt. Ltd. (“SIIPL”), that markets our prototype vaccine as (“Covovax™”), and Serum Life Sciences Limited (“SLS”) for co-formulation, filling and finishing (other than in Europe), and PCI Pharma Services for finishing our COVID-19 Vaccine in Europe and the impact of any delays or disruptions in these suppliers’ operations on the delivery of customer orders; difficulty obtaining scarce raw materials and supplies; resource constraints, including human capital and manufacturing capacity, constraints on the ability of Novavax to pursue planned regulatory pathways, alone or with partners, in multiple jurisdictions simultaneously, leading to staggered regulatory filings, and potential regulatory actions; the loss of future funding from the U.S. government; the potential for an unfavorable outcome
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in disputes, including the pending arbitration with Gavi; challenges meeting contractual requirements under agreements with multiple commercial, governmental, and other entities including requirements 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 in implementing our global restructuring and cost reduction plan; and other risks and uncertainties identified in Part II, Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, in Part II, Item 1A “Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, in Part II, Item 1A “Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 and in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022, which may be detailed and modified or updated in other documents filed with the SEC from time to time, and are available at www.sec.gov and at www.novavax.com. You are encouraged to read these filings as they are made.
We cannot guarantee future results, events, level of activity, performance, or achievement. Any or all of our forward-looking statements in this Quarterly Report may turn out to be inaccurate or materially different from actual results. Further, any forward-looking statement speaks only as of the date when it is made, and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, unless required by law. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
Information in this Quarterly Report includes a financial measure that was not prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), which we refer to as adjusted cost of sales. We are presenting this non-GAAP financial measure to assist an understanding of our business and its performance. Adjusted cost of sales includes an estimate of standard manufacturing costs that were previously expensed to research and development prior to regulatory approvals for our COVID-19 Program that would otherwise have been capitalized to inventory. Any non-GAAP financial measures presented are not, and should not be viewed as, substitutes for financial measures required by GAAP, have no standardized meaning prescribed by GAAP, and may not be comparable to the calculation of similar measures of other companies.
Overview
We are a biotechnology company that promotes improved health through the discovery, development, and commercialization of innovative vaccines to prevent serious infectious diseases. Our proprietary recombinant technology platform harnesses the power and speed of genetic engineering to efficiently produce highly immunogenic nanoparticle vaccines designed to address 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 COVID-19 vaccine for the 2023-2024 vaccination season. In October 2023, the U.S. FDA granted emergency use authorization (“EUA”) for our updated vaccine for active immunization to prevent COVID-19. The updated vaccine is authorized as (1) a single dose in individuals 12 years and older who have been vaccinated with any COVID-19 vaccine at least 2 months after receipt of the last previous dose of COVID-19 vaccine, and (2) a series of 2 doses administered 3 weeks apart to individuals 12 years and older who were not previously vaccinated with any COVID-19 vaccine. Our updated vaccine is available within the U.S. at many major pharmacy retailers. Outside the U.S., in October 2023, we were granted approval by the European Commission (“EC”) for our updated vaccine. We are committed to meeting the full supply of our key target markets through their advanced purchase agreements (“APAs”). We continue to work closely with regulatory authorities for authorization of our updated vaccine globally. We previously developed a prototype COVID-19 vaccine, which has received full marketing authorization (“MA”), marketing approval, interim authorization, provisional approval, conditional marketing authorization (“CMA”), from multiple regulatory authorities in over 40 countries globally. We continue to seek full regulatory authorizations for our prototype vaccine, which we believe will facilitate authorization for our updated strains in the future.
Additionally, we are also developing a stand-alone influenza vaccine candidate, high-dose COVID-19 vaccine candidate, and a CIC vaccine candidate. In addition to COVID-19 and seasonal influenza, our other areas of focus include providing Matrix-M™ adjuvant for collaborations, including in R21/Matrix-M™ adjuvant malaria vaccine, which recently
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received authorization in several countries, as well as other preclinical vaccine research with our Matrix-M™ adjuvant, including a partnership with the Bill & Melinda Gates Medical Research Institute.
We intend to focus the organization to align our investments and activities with our top priority of delivering our updated vaccine for the 2023-2024 vaccination season. To maximize our opportunities and mitigate the significant risks and uncertainties of the COVID-19 market, we have progressed our cost restructuring measures to reduce spend, extend our cash runway, and operate efficiently to seek to best position the Company to deliver longer-term growth. We discuss these cost restructuring strategies in greater detail in Note 2 to our consolidated financial statements in this Quarterly Report.
Technology Overview
We believe our recombinant nanoparticle vaccine technology, together with our proprietary Matrix-M™ adjuvant, is well suited for the development and commercialization of vaccine candidates targeting a broad scope of respiratory and other 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 SIIPL for commercialization. Additionally, in May 2023, we entered into a 3-year agreement with the Bill & Melinda Gates Medical Research Institute to provide our Matrix-M™ adjuvant for use in preclinical vaccine research. 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.

COVID-19 Vaccine Regulatory and Licensure

In October 2023, we received EUA from the U.S. FDA for our updated vaccine, to prevent COVID-19 in individuals aged 12 and older. Our updated vaccine is marketed in the U.S. under the brand name Novavax COVID-19 Vaccine, Adjuvanted (2023-2024 Formula). In September 2023, the U.S. Centers for Disease Control and Prevention (“CDC”) Advisory Committee on Immunization Practices (“ACIP”) voted in favor of a recommendation for the use of 2023-2024 monovalent XBB containing COVID-19 vaccines authorized under EUA or approved BLA in individuals 6 months and older, which was adopted by the CDC Director. The U.S. FDA’s grant of EUA and CDC’s September 2023 recommendation makes our updated vaccine the only protein-based non-mRNA COVID-19 vaccine available in the U.S. The formulation for our updated vaccine aligns with global harmonized guidance from the U.S. FDA, EMA, and WHO recommendations for the 2023-2024 vaccination season. We continue to progress regulatory authorizations for our updated vaccine globally. In October 2023, we were granted approval by the EC for our updated vaccine in individuals aged 12 and older, which followed the positive opinion for approval from the Committee for Medicinal Products for Human Use of the EMA. We expect to meet the full supply commitment for
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doses to European countries that requested it through APAs.
We have received authorizations for our prototype COVID-19 vaccine in over 40 countries globally including from major regulatory agencies including the WHO, EMA, and MHRA. To date, we have received full MA, approval, interim authorization, provisional approval, CMA, and EUA for the adult population, aged 18 and older, the adolescent population, aged 12 to 17 years, and the pediatric population, aged 7 to 11 years in select territories. The regulatory authorizations for our prototype vaccine include primary series and both homologous and heterologous booster indications within specific countries. For the territories in which our vaccine has received regulatory authorizations, our prototype vaccine is marketed under the brand names (i) Nuvaxovid™ (SARS-CoV-2 rS Recombinant, adjuvanted), (ii) Covovax™ (manufacturing and commercialization by SIIPL), or (iii) Novavax COVID-19 Vaccine, Adjuvanted. In October 2023, for our prototype vaccine we received full marketing authorization in the UK from the MHRA in individuals aged 12 and older, full approval in Singapore from Singapore’s Health Sciences Authority in individuals aged 12 and older, full registration in Australia from Australia’s Therapeutic Goods Administration as a booster in individuals aged 12 and older, and authorization in the EU from EMA for use as a booster in adolescents aged 12 through 17 years. We believe these authorizations for our prototype vaccine enable a pathway for additional authorizations for our updated strains of our COVID-19 vaccine in the future.
We are working to continue to expand our label for heterologous boosting in adults and adolescents, for primary and re-vaccination in younger children, and to achieve supportive policy recommendations enabling broad market access. We continue to work closely with governments, regulatory authorities, and non-governmental organizations in our commitment to facilitate global access to our COVID-19 vaccine.
Clinical Pipeline
Our clinical pipeline is comprised of vaccine candidates for infectious diseases, with our COVID-19 vaccines, our prototype vaccine (NVX-CoV2373) and our updated vaccine (NVX-CoV2601), as our lead products. Our prototype has received authorizations for both adult and adolescent populations globally. We advanced our prototype vaccine, through two pivotal Phase 3 clinical trials that demonstrated high efficacy against both the original COVID-19 strain and commonly circulating COVID-19 variants during the conduct of the trials, while maintaining a favorable safety profile. Our updated vaccine has received authorization from the U.S. FDA, and the EC. We advanced our updated vaccine through a Phase 3 strain-change trial and the EUA was based on non-clinical data presented in June 2023, at the U.S. Vaccines and Related Biological Products Advisory Committee's meeting. Beyond COVID-19, our clinical pipeline includes seasonal influenza and CIC vaccines, in addition to our Matrix-M™ adjuvant being used for collaboration in R21/Matrix-M™ adjuvant malaria vaccine.
The pipeline chart below summarizes the core clinical development programs that we are focusing on in the near-term.
Pipeline (2023.10.24).jpg
(1) Authorized in select geographies under trade names Novavax COVID-19 Vaccine, Adjuvanted; Covovax™; and Nuvaxovid™.
(2) Authorized in the U.S. under trade name, Novavax COVID-19 Vaccine, Adjuvanted (2023-2024 Formula); Ongoing post-authorization Phase 3 strain-change trial.
(3) Authorized in Ghana, Nigeria, and Burkina Faso; Commercialized by SIIPL; Recommended by the WHO.

Coronavirus Vaccine Clinical Development
We continue to evaluate vaccine effectiveness and safety through ongoing and planned booster studies, as well as
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collect real-world evidence for our updated vaccine. While these studies were not required ahead of our EUA receipt from the U.S., they will generate data to support continued use of our vaccine in subsequent seasons. We expect to leverage these studies to pursue additional regulatory authorizations of our COVID-19 vaccine for primary, re-vaccination, and pediatric indications globally.
Phase 3 Strain-Change and Re-vaccination Studies
Study 311 Part 2: In August 2023, we announced topline results that achieved all three co-primary endpoints demonstrating immunologic superiority for the Omicron BA.5 variant of a bivalent prototype and Omicron BA.5 vaccine compared to our prototype vaccine (NVX-CoV2373). This study design was developed in consultation with regulatory agencies to support the strain-change request for our updated vaccine (NVX-CoV2601) and demonstrated that our protein-based vaccine can be successfully adapted to new variant strains.
Study 312: In May 2023, we completed enrollment of 147 adults aged 18 and older who received 2 or 3 doses of mRNA and boosted with our prototype vaccine (NVX-CoV2373). The trial compared the prototype vaccine (NVX-CoV2373) booster on top of mRNA primed individuals compared to those primed and boosted with our prototype vaccine (NVX-CoV2373). Topline results are expected in the fourth quarter of 2023. This trial is intended to support the use of our vaccine as a second or subsequent re-vaccination.
Study 313: In September 2023, we fully enrolled 332 adults aged 18 and older in Part 1 of the study to evaluate the immunogenicity and safety of our updated vaccine (NVX-CoV2601) in previously mRNA vaccinated individuals. Part 1 topline results are expected in the fourth quarter of 2023. Part 2 of the study is in the process of enrollment and will aim to evaluate the immunogenicity of our updated vaccine (NVX-CoV2601) in previously unvaccinated adults aged 18 and older. This study is intended to support sBLA for future variant vaccine products.
Study 314: In September 2023, we fully enrolled 401 adolescents aged 12 to 17 years who were previously vaccinated with mRNA vaccines to evaluate the immunogenicity of boosting with our updated vaccine (NVX-CoV2601) and with a bivalent format vaccine containing our updated vaccine (NVX-CoV2373 + NVX-CoV2601). This data is intended to support adolescent heterologous label expansion in some territories with topline results expected in the first quarter of 2024.

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 immunologic effectiveness. We remain on track to submit data for this cohort to the U.S. FDA in the first quarter of 2024. 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 includes three age de-escalation cohorts of 1,200 children each. The next cohort aged 2 through 5 years is fully enrolled, with topline results expected in the fourth quarter of 2023. The last cohort aged 6 to 23 months is fully enrolled and topline results are expected in first quarter of 2024.
COVID-Influenza Combination and Stand-alone Influenza Program
We continue to make strategic investments to prepare our CIC vaccine for advanced development. We have selected the CIC dose formulation and we remain on track to initiate the next study in the second half of 2024. Pending regulatory concurrence, we have designed this study to evaluate immunogenicity endpoints for accelerated approval while simultaneously expanding our safety database. We have updated the study’s designation to a Phase 3 study.
While our focus remains on the combination product, our development plans will maintain optionality to advance our stand-alone influenza vaccine, creating a pathway to potentially seek licensure. For our stand-alone influenza vaccine we have generated positive data through our previous Phase 2 trial and continue to believe this asset may be attractive from a pandemic preparedness perspective. The neutralization responses were more than double seen with Fluzone® HD for the A strains and similar performance may be expected for A/H5N1 pandemic strains.
In May 2023, we announced preliminary topline data from our Phase 2 trial for CIC, stand-alone influenza and high-dose COVID-19 vaccine candidates. All three vaccine candidates contain our Matrix-M™ adjuvant, showed preliminary robust immune responses, reassuring safety profiles, and reactogenicity that was comparable to the licensed influenza vaccine comparator arms.
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High-dose COVID-19 Vaccine Study
Study 205: In October 2023, we initiated a Phase 2 trial to evaluate our high-dose COVID-19 vaccine for annual vaccination in older adults. The trial will compare immunogenicity levels of 5 micrograms of our prototype vaccine (NVX-CoV2373) against 5 micrograms, 35 micrograms, and 50 micrograms of our updated vaccine (NVX-CoV2601) that are matched with different levels of adjuvant. Data from this trial is intended to potentially support further development of a higher dose formulation for older adults, similar to that of influenza vaccines.
R21/Matrix-M™ Adjuvant Malaria Vaccine
Our partner-led malaria candidates present strong opportunities for future development. An ongoing Phase 3 clinical trial is being conducted for R21/Matrix-M™ adjuvant malaria vaccine, developed by our partner, the Jenner Institute, University of Oxford and manufactured by SIIPL, which is formulated with our Matrix-M™ adjuvant. We have an agreement with SIIPL related to its manufacture of R21/Matrix-M™ adjuvant malaria vaccine under which SIIPL 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 October 2023, the WHO announced its recommendation of R21/Matrix-M™ adjuvant malaria vaccine to prevent malaria in children following advice from its Strategic Advisory Group of Experts and Malaria Policy Advisory Group. The WHO recommended that the R21/Matrix-M™ adjuvant malaria vaccine be administered in a 4-dose schedule from five months of age. This recommendation is a required step on the pathway to the WHO’s prequalification (“PQ”) of the vaccine. PQ designation is necessary for United Nations agencies and partners, for example UNICEF and Gavi, to procure the vaccine for eligible countries. This is the first recommendation from WHO to support the use of a vaccine containing our Matrix-M™ adjuvant in children as young as five months of age and it is based on the results from the Phase 3 clinical trial.
In September 2023, results from the Phase 3 clinical trial conducted in four African countries with 4,800 children aged 36 months to five years were published in a preprint manuscript in The Lancet. The preprint manuscript reported that R21/Matrix-M™ adjuvant malaria vaccine is well-tolerated and offers high-level efficacy against clinical malaria in African children at sites of both seasonal and perennial transmission.
In July 2023, R21/Matrix-M™ adjuvant malaria vaccine received authorization in Burkina Faso and in April 2023, received authorizations in Ghana and Nigeria.

Business Highlights
Third Quarter 2023 and Recent Highlights
U.S. Market: Novavax received EUA from the U.S. FDA in October for its updated vaccine and is executing its commercial strategy to maximize access for consumers who want a protein-based non-mRNA vaccine option.

Expect U.S. 2023-2024 season COVID-19 vaccine demand of between 30 and 50 million doses, with potential for significant November and December vaccinations given current trends and later start as compared to 2022

Secured broad access to the Company’s updated vaccine through major pharmacies, clinics and government programs
Novavax’s vaccine is available at approximately 14,000 pharmacy locations, including Costco, CVS Pharmacy, Giant, Publix, Rite Aid and Stop & Shop

Global Markets: Received approval in Europe for the Company’s updated vaccine in individuals aged 12 and older

Advancing regulatory filings against existing APAs for Australia, New Zealand, Singapore and Taiwan

Clinical development and technology platform updates

Expect to initiate a pivotal Phase 3 trial for CIC vaccine candidate in the second half of 2024, with potential for accelerated approval and launch as early as 2026

Advanced partnerships with Matrix-M™ adjuvant technology
R21/Matrix-M™ adjuvant vaccine received recommendation from the WHO; launch expected in 2024
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Novavax is prepared to initiate a new cost reduction program to reduce 2024 expenses by over $300 million. Intend to further reshape the size and scope of global business operations beyond previously announced 2024 targets to align with the COVID-19 market opportunity.

Anticipate reducing 2024 Research & development expenses and Selling, general, & administrative expenses by over $200 million compared to prior targets to reflect $750 million or lower spend for 2024, representing a greater than 50% reduction compared to 2022

In addition, anticipate reducing supply network costs by over $100 million as we continue to rationalize our manufacturing footprint


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 our common stock, and terminated our then-existing At Market Issuance Sales agreement entered in June 2021 (the "June 2021 Sales Agreement"). During the three months ended September 30, 2023, we sold 17.8 million shares of our common stock under our August 2023 Sales Agreement resulting in net proceeds of approximately $143 million. During the nine months ended September 30, 2023, we sold 25.7 million shares of our common stock under our June 2021 and August 2023 Sales Agreement resulting in net proceeds of approximately $211 million. As of September 30, 2023, the remaining balance available under the August 2023 Sales Agreement was approximately $354 million.
During the nine months ended September 30, 2022, we sold 2.2 million shares of our common stock resulting in net proceeds of approximately $179 million, under our June 2021 Sales Agreement. There was no sale of shares of common stock recorded during the three months ended September 30, 2022.
In August 2023, we entered into a Securities Subscription Agreement (the “Subscription Agreement”) with SK, pursuant to which we agreed to sell and issue to SK, in a private placement (the “Private Placement”), 6.5 million shares of the Company’s common stock, par value $0.01 per share (the “Shares”) at a price of $13.00 per share for aggregate gross proceeds to us of approximately $84.5 million. We recognized the Shares at the settlement date fair value of $46.5 million (see Note 4 to our consolidated financial statements in this Quarterly Report). The closing of the Private Placement occurred on August 10, 2023.
Critical Accounting Policies and Use of Estimates
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements (unaudited) and the accompanying notes, which have been prepared in accordance with generally accepted accounting principles in the United States.
The preparation of our consolidated financial statements requires us to make estimates, assumptions, and judgments that affect the reported amounts of assets, liabilities, and equity and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Our critical accounting policies and estimates are included under Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as filed with the SEC.
Recent Accounting Pronouncements Not Yet Adopted
See “Note 2―Summary of Significant Accounting Policies” included in our Notes to Consolidated Financial Statements (under the caption “Recent Accounting Pronouncements”).
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.
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Three Months Ended September 30, 2023 and 2022
Revenue
Three Months Ended September 30,
20232022Change
Revenue (in thousands):
Product sales$2,231 $626,091 $(623,860)
Grants164,922 106,273 58,649 
Royalties and other19,833 2,213 17,620 
Total revenue$186,986 $734,577 $(547,591)
Revenue for the three months ended September 30, 2023 was $187.0 million as compared to $734.6 million for the same period in 2022, a decrease of $547.6 million. Revenue for the three months ended September 30, 2023 and 2022 was primarily comprised of revenue from 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 primarily due to a decreased quantity of dose sales of COVID-19 Vaccine during the three months ended September 30, 2023 as compared to the same period in 2022, partially offset by increased support activities under the USG Agreement, a $43.8 million increase to cumulative revenue under the USG Agreement, and additional Royalties and other revenue related to sales-based royalties and sales of Matrix-M™ adjuvant.
Product sales
Product sales for the three months ended September 30, 2023 were $2.2 million as compared to $626.1 million during the three months ended September 30, 2022. Our product sales related to sales of COVID-19 Vaccine under our APA agreements. The geographic distribution of product sales was as follows:
Three Months Ended September 30,
20232022Change
North America
$2,231 $129,718 $(127,487)
Europe— 347,005 (347,005)
Rest of the world
— 149,368 (149,368)
Total product sales
$2,231 $626,091 $(623,860)
Grants
Grant revenue during the three months ended September 30, 2023 was $164.9 million as compared to $106.3 million during the same period in 2022, an increase of $58.6 million. Grant revenue comprised revenue for services performed under our USG Agreement. The increase was primarily due to increased support activities and achievement of certain milestones under the USG Agreement during the three months ended September 30, 2023.
Royalties and other
Royalties and other includes royalty milestone payments, sales-based royalties, and Matrix-M™ adjuvant sales. Royalties and other revenue during the three months ended September 30, 2023 was $19.8 million as compared to $2.2 million during the same period in 2022, an increase of $17.6 million. The increase was primarily due to increased revenue related to a Matrix-M™ adjuvant sales and sales-based royalties.
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Expenses
Three Months Ended September 30,
20232022Change
Expenses (in thousands):
Cost of sales$98,929 $434,593 $(335,664)
Research and development 106,229 304,297 (198,068)
Selling, general, and administrative107,460 122,876 (15,416)
Total expenses$312,618 $861,766 $(549,148)
Cost of Sales
Cost of sales was $98.9 million for the three months ended September 30, 2023, including expenses of $81.6 million related to excess, obsolete, or expired inventory and losses on certain firm purchase commitments, $14.3 million related to unutilized manufacturing capacity, and a credit of $21.5 million related to certain negotiated reductions to previously recognized firm purchase commitments. Cost of sales was $434.6 million for the three months ended September 30, 2022, including expense of $249.0 million related to excess, obsolete, or expired inventory and losses on firm purchase commitments. Prior to receiving regulatory approval, we expensed manufacturing costs as research and development expenses. After receiving regulatory approval, we capitalize the costs of production for a particular supply chain when we determine that we have a present right to the economic benefit associated with the product. While we tracked the quantities of our manufactured vaccine product and components, we did not track pre-approval manufacturing costs and therefore the manufacturing cost of our pre-launch inventory produced prior to approval is not reasonably determinable. However, based on our expectations for future manufacturing costs to produce our vaccine product and components inventory, we estimate at September 30, 2023, we had approximately $24.3 million of salable commercial inventory that was expensed prior to approval. We expect to utilize the majority of our reduced-cost inventory through 2024. If inventory sold for the three months ended September 30, 2023 was valued at expected standard cost, including expenses related to excess and obsolete inventory, adjusted cost of sales for the period would have been approximately $103.2 million, an adjustment of $4.3 million as compared to cost of sales recognized. If inventory sold for the three months ended September 30, 2022 was valued at expected standard cost, adjusted cost of sales for the period would have been approximately $444.0 million, an adjustment of $9.4 million. The cost of sales as a percentage of product sales may fluctuate in the future as a result of changes to our customer pricing mix or standard costs.
Research and Development Expenses
Research and development expenses were $106.2 million for the three months ended September 30, 2023 as compared to $304.3 million for the three months ended September 30, 2022, a decrease of $198.1 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 September 30,
20232022
Coronavirus vaccines $41,263 $208,004 
Influenza vaccine
662 3,011 
Other vaccine development programs91 843 
Total direct external research and development expense42,016 211,858 
Employee expenses33,957 45,150 
Stock-based compensation expense10,022 16,107 
Facility expenses12,360 16,770 
Other expenses7,874 14,412 
Total research and development expenses$106,229 $304,297 
Research and development expenses for coronavirus vaccines for the three months ended September 30, 2023 and 2022 decreased from $208.0 million to $41.3 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
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Contract Manufacturing Organizations (“CMOs”) and contract manufacturing and development organizations (“CDMOs”). The decrease was also due to a benefit of $57.7 million for the three months ended September 30, 2023 resulting from our settlement agreement and Private Placement with SK (see Note 4 to our consolidated financial statements in this Quarterly Report). The decrease was partially offset by a benefit $80.5 million for the three months ended September 30, 2022 related to previously accelerated manufacturing costs for leases that we determined were embedded in manufacturing supply agreements with CMOs and CDMOs.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses were $107.5 million for the three months ended September 30, 2023 as compared to $122.9 million for the same period in 2022, a decrease of $15.4 million. The decrease in selling, general, and administrative expenses is primarily due to certain cost containment measures to reduce our operating spend.
For the remainder of 2023, we expect a reduction in our annual combined research and development, and selling, general, and administrative spend as a result of our Restructuring Plan announced during the three months ended June 30, 2023.
Other Income (Expense)
Three Months Ended September 30,
20232022Change
Other income (expense):
Interest expense$(2,859)$(4,169)$1,310 
Other income (expense)(2,982)(34,783)31,801 
Total other income (expense), net$(5,841)$(38,952)$33,111 
Total other expense, net was $5.8 million for the three months ended September 30, 2023 as compared to a total other expense, net of $39.0 million for the same period in 2022. The decrease in other expense, net is due to the favorable impact in 2023 as compared to 2022 of exchange rates on foreign currency denominated balances, including an intercompany loan with Novavax CZ, and an increase in interest income due to higher interest rates.
Income Tax Expense
During the three months ended September 30, 2023, we recognized an income tax benefit of $0.7 million related to federal, state, and foreign income taxes. During the three months ended September 30, 2022, we recognized an income tax expense of $2.5 million related to federal, state, and foreign income taxes.
Net Income (Loss)
Three Months Ended September 30,
20232022Change
Net Loss (in thousands, except per share information):
Net loss
$(130,776)$(168,613)$37,837 
Net loss per share, basic and diluted
$(1.26)$(2.15)$0.89 
Weighted average shares outstanding, basic and diluted
103,429 78,274 25,155 
Net loss for the three months ended September 30, 2023 was $130.8 million, or $1.26 per share, as compared to net loss of $168.6 million, or $2.15 per share, for the same period in 2022. The decrease in net loss during the three months ended September 30, 2023, was primarily due to a decrease in excess, obsolete, or expired inventory and losses on firm purchase commitments, research and development expenses, and selling, general and administrative expenses as a result of the implementation of our Restructuring Plan, partially offset by a decrease in product sales.
The increase in weighted average shares outstanding for the three months ended September 30, 2023 was primarily a result of sales of our common stock.
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Nine Months Ended September 30, 2023 and 2022
Revenue
Nine Months Ended September 30,
20232022Change
Revenue (in thousands):
Product sales$279,937 $1,267,174 $(987,237)
Grants389,380 313,348 76,032 
Royalties and other23,046 43,951 (20,905)
Total revenue$692,363 $1,624,473 $(932,110)
Revenue for the nine months ended September 30, 2023 was $692.4 million as compared to $1.6 billion for the same period in 2022, a decrease of $932.1 million. Revenue for the nine months ended September 30, 2023 was primarily comprised of revenue from product sales of COVID-19 Vaccine and services performed under our USG Agreement. The decrease in revenue was primarily due to a decrease in quantity of doses sold of COVID-19 Vaccine during the nine months ended September 30, 2023 as compared to the same period in 2022.
Product sales
Product sales for the nine months ended September 30, 2023 were $279.9 million as compared to $1.3 billion during the nine months ended September 30, 2022. Our product sales related to sales of COVID-19 Vaccine under our APA agreements. The geographic distribution of product sales was as follows:
Nine Months Ended September 30,
20232022Change
North America
$2,231 $194,480 $(192,249)
Europe59,322 760,750 (701,428)
Rest of the world
218,384 311,944 (93,560)
Total product sales
$279,937 $1,267,174 $(987,237)
Grants
Grant revenue during the nine months ended September 30, 2023 was $389.4 million as compared to $313.3 million during the same period in 2022, an increase of $76.0 million. Grant revenue comprised revenue for services performed under our USG Agreement. The increase was primarily due to increased support activities under the USG Agreement during the nine months ended September 30, 2023.
Royalties and other
Royalties and other includes royalty milestone payments, sales-based royalties, and Matrix-M™ adjuvant sales. Royalties and other revenue during the nine months ended September 30, 2023 was $23.0 million as compared to $44.0 million during the same period in 2022, a decrease of $20.9 million. The decrease was primarily due to decreased revenue related to milestone payments.
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Expenses