Novavax, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Novavax is a biotechnology company commercializing its COVID-19 vaccine, NVX-CoV2373 (Nuvaxovid/Covovax), while developing variant, influenza, combination, and other vaccine candidates. Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions.
Financial results and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Product sales | $55.5m | — | $641.1m | — |
| Grant revenue | $107.8m | $272.5m | $207.1m | $719.4m |
| Total revenue | $185.9m | $298.0m | $889.9m | $745.2m |
| Cost of sales | $271.1m | — | $286.3m | — |
| Operating loss | $483.0m | $345.8m | $273.7m | $554.5m |
| Net loss | $510.5m | $352.3m | $307.1m | $575.0m |
| Basic loss per share | $6.53 | $4.75 | $3.97 | $7.82 |
- Margins and unusual cost items: Q2 cost of sales was 489% of product sales; six-month cost of sales was 45% of product sales. Cost of sales included $155.7m of inventory write-downs and $99.6m of losses on firm purchase commitments, totaling $255.3m. Management estimated about $0.3bn of commercial inventory had been expensed before approval and expected to use this reduced-cost inventory during 2022. It estimated standard cost of sales to high-income countries at 15%–30% of sales.
- Cash flow: Operating activities used $259.4m in the first half of 2022, versus $807.5m provided in the prior-year period. Capital expenditures were $41.4m. Cash, cash equivalents, and restricted cash totaled $1.388bn at June 30, down from $1.528bn at year-end 2021.
- Balance sheet and debt: Current assets were $2.136bn and current liabilities $2.156bn. Total liabilities were $3.040bn; stockholders’ deficit was $417.0m. Convertible notes had $325m principal and $324.2m carrying value; they became current during the period and mature February 1, 2023. The filing describes no additional material debt.
Changes versus the prior comparable period
- First-half revenue increased 19% to $889.9m as vaccine product sales and royalties began to offset substantially lower grant revenue. Q2 revenue declined 38% year over year, mainly because OWS grant revenue fell, partly offset by initial product sales.
- First-half net loss narrowed to $307.1m from $575.0m, principally reflecting commercial sales and lower R&D expense, partly offset by inventory and purchase-commitment charges. Q2 net loss widened to $510.5m from $352.3m, reflecting lower revenue and the significant cost-of-sales charges.
- First-half R&D expense declined to $673.1m from $1.163bn; SG&A increased to $204.2m from $136.4m. Inventory rose to $256.3m from $8.9m at year-end, while accounts receivable fell to $194.5m from $455.0m.
Outlook, commentary, and key risks
- Management expected 2022 revenue to increase significantly versus 2021, citing vaccine sales, partner royalties, and continued program funding. It said some planned Q2 product revenue shifted to the second half due to revised customer delivery plans.
- Management expected 2022 R&D expense to decrease versus 2021, SG&A to increase significantly, and capital expenditures to continue increasing for manufacturing, R&D, and office facilities. The filing does not provide a specific full-year revenue or earnings forecast.
- In July 2022, after the quarter, the FDA authorized NVX-CoV2373 for emergency use in adults. The company reported initial U.S. government deliveries under modified agreements and described additional potential U.S. orders as dependent on demand, regulatory guidance, pricing, and funding.
- Customer commitments and timing remain uncertain. Gavi had paid $700m upfront and notified Novavax it intended to seek revised dose numbers and timing; it may seek partial or full recovery, which Novavax disputes it is entitled to do. The company had not received a Gavi order. The EU canceled 5m doses and revised its commitment to 65m. The amended UK agreement set a 1m-dose minimum, with additional doses contingent on a supportive JCVI recommendation; failure to meet the condition could require repayment of up to $225m.
- Management identified possible significant costs from adjusting its manufacturing footprint. Risks include demand and acceptance shifts as variants emerge, delays in regulatory or manufacturing requirements, contractual delivery obligations, and foreign-exchange exposure. A 10% decline in relevant foreign exchange rates was estimated to reduce stockholders’ equity by about $24m.
- Legal matters include a securities class action and related derivative suits alleging misleading statements concerning manufacturing and regulatory approval, and a Par Sterile Products arbitration alleging breach of a manufacturing agreement. The arbitration was preliminary and the potential loss was not reasonably estimable; an adverse result could materially affect the company.
Important facts for investors to verify
- Whether product deliveries and sales accelerate as planned, and how customer revisions or cancellations affect revenue and cash receipts.
- Whether Novavax can reduce inventory-related charges and achieve its projected manufacturing costs, particularly after the $255.3m of Q2 inventory and commitment charges.
- Progress on the Gavi, EU, UK, and U.S. agreements, including any repayment exposure, order changes, and fulfillment conditions.
- How the company will address the $325m convertible notes maturing in February 2023 and fund ongoing operations and rising commercial costs.
- Developments and potential financial consequences in the securities litigation, derivative actions, and Par arbitration.