NOVAVAX INC quarterly report, Q2 FY2023

Novavax, Inc. — Q2 2023 Form 10-Q

Reporting period: Three and six months ended June 30, 2023. Novavax is a biotechnology company whose only commercial program is its COVID-19 vaccine, NVX-CoV2373, marketed in certain territories as Nuvaxovid or Covovax. The company was developing an updated XBB COVID vaccine for the fall 2023 campaign.

Financial results and liquidity

Metric	Q2 2023	Q2 2022	Six months 2023	Six months 2022
Total revenue	$424.4 million	$185.9 million	$505.4 million	$889.9 million
Operating income (loss)	$55.5 million	$(483.0) million	$(257.3) million	$(273.7) million
Net income (loss)	$58.0 million	$(510.5) million	$(235.9) million	$(307.1) million
Net income (loss) per share, diluted	$0.58	$(6.53)	$(2.69)	$(3.97)
Operating cash flow	Not provided by quarter	Not provided by quarter	$(497.5) million	$(259.4) million

Q2 revenue comprised $285.2 million product sales, $137.1 million grants and $2.2 million royalties and other. Six-month product sales were $277.7 million, grants $224.5 million and royalties and other $3.2 million.
Q2 operating and net margins were approximately 13.1% and 13.7%, respectively. Six-month operating and net margins were approximately negative 50.9% and negative 46.7%.
At June 30, cash, cash equivalents and restricted cash totaled $517.9 million, down from $1.349 billion at year-end. Current assets were $1.128 billion and current liabilities $1.596 billion, a working-capital deficit of approximately $468.7 million.
Total liabilities were $2.440 billion; stockholders’ deficit was $754.5 million. Convertible notes had a $167.2 million carrying value, representing $175.3 million principal of 5.00% notes due 2027. The $325 million 3.75% notes due 2023 were repaid in February.
Cash used in investing activities was $31.3 million and cash used in financing activities was $293.0 million in the first half. Financing included the $325 million note repayment; stock sales generated approximately $62.0 million net proceeds.

Changes versus comparable periods

Q2 revenue increased $238.5 million year over year, primarily because of higher vaccine dose sales. Product sales rose to $285.2 million from $55.5 million, largely from rest-of-world sales.
Q2 net results improved by $568.5 million, reflecting higher sales and substantially lower inventory-related costs, research and development, and selling, general and administrative expenses.
For the first half, revenue fell $384.5 million, mainly because fewer doses were sold; product sales decreased $363.4 million. Despite lower R&D and cost of sales, the company remained loss-making.
First-half operating cash use increased $238.1 million year over year, primarily due to lower upfront payments under advance purchase agreements, partly offset by vendor-payment timing.
Current liabilities declined $864 million during the first half, according to management. Common shares outstanding increased during the period, including 7.9 million shares sold in Q2 for approximately $68 million net proceeds.

Outlook, management commentary and key risks

Going concern: Management states that substantial doubt exists about the company’s ability to continue as a going concern for one year after issuance of the statements. Its forecast indicates sufficient capital, but depends on uncertain vaccine revenue, U.S. government funding, the Gavi arbitration and execution of cost reductions.
Cost restructuring: The plan includes an approximately 25% global workforce reduction, lower pipeline spending, manufacturing-network rationalization and facility consolidation. Management targets combined R&D and SG&A expense reductions of approximately 20%–25% in 2023 and 40%–50% in 2024, versus 2022. Full annual savings are expected in 2024, with approximately half realized in 2023. Q2 restructuring charges were $14.7 million, including $10.1 million of asset impairment.
COVID vaccine execution: Fall 2023 revenue depends on regulatory authorization, timely production and delivery, and market adoption of the updated XBB vaccine. The filing identifies manufacturing, export, and supplier risks; Novavax relies on SIIPL/SLS and PCI for key manufacturing and finishing activities. The U.S. single-dose vial presentation was not validated in time, so the company expected to offer a five-dose vial if authorized.
Funding and contract exposure: The USG Agreement runs through December 2023; the U.S. government indicated it may not be extended, putting up to $250.6 million of anticipated remaining funding at risk. The company also disclosed $696.4 million of remaining Gavi advance payments subject to arbitration, with a hearing scheduled for July 2024 and a possible refund of all or part.
Other contingent receipts and repayments: Novavax received $174.8 million from Canada in July 2023; another $174.8 million is conditional on second-half 2023 deliveries. Failure to meet a U.K. advisory recommendation deadline could trigger an additional $112.5 million repayment. A $64.7 million credit for Australian doses that failed stability specifications reduced first-half product sales and increased deferred revenue.
Commercial and pipeline developments: The company reported a July 2023 rolling U.S. BLA submission for full approval and first full EU marketing authorization. August 2023 trial updates reported positive immunogenicity results for the strain-change and pediatric studies; these are subsequent-period developments described in the filing. Management chose to advance its COVID-influenza combination candidate toward late-stage development.
Other unusual items: Q2 other income benefited from foreign exchange movements. First-half other income also included favorable foreign exchange effects and higher investment income. Novavax settled a Par Sterile Products dispute for $27 million; the arbitration was dismissed with prejudice in August 2023.
Legal matters: The company faces securities and derivative litigation; management says the financial impact is not estimable. The Gavi dispute is the most material disclosed contingency.

Investor verification priorities

Track cash use, post-quarter cash receipts, and whether management’s one-year liquidity forecast remains achievable.
Verify XBB regulatory decisions, manufacturing and export readiness, dose deliveries, and actual commercial demand and pricing.
Monitor the Gavi arbitration and potential repayment exposure, along with U.S. government funding and U.K. recommendation-related obligations.
Assess whether restructuring delivers the stated expense savings without impairing vaccine supply or pipeline execution.
Reconcile product sales, grants, deferred revenue and receivables to realized cash collections; accounts receivable was $394.9 million at quarter-end.
Review dilution from equity issuance and the company’s remaining capacity under its at-the-market sales agreement, approximately $249 million at June 30.