NOVAVAX INC quarterly report, Q2 FY2021

Novavax, Inc. — Q2 2021 Form 10-Q

Reporting period: Quarter and six months ended June 30, 2021. Unaudited consolidated results. Novavax is a clinical-stage biotechnology company focused chiefly on its COVID-19 vaccine candidate NVX-CoV2373; it had no vaccine product approved for sale during the period.

Financial performance and position

Metric	Q2 2021	Q2 2020	Six months 2021	Six months 2020
Revenue	$298.0 million	$35.5 million	$745.2 million	$38.9 million
Research and development	$570.7 million	$34.8 million	$1,163.4 million	$51.7 million
General and administrative	$73.2 million	$17.7 million	$136.4 million	$27.1 million
Net loss	$352.3 million	$17.5 million	$575.0 million	$43.4 million
Basic and diluted loss per share	$4.75	$0.30	$7.82	$0.84

Revenue growth primarily reflected NVX-CoV2373 development work funded under U.S. government and CEPI agreements, plus $23.5 million in royalties from SK bioscience. Revenue also included grants and other amounts; it was not primarily product-sale revenue. Operating expenses substantially exceeded revenue, and the company remained loss-making.

Cash and liquidity: Cash, cash equivalents and restricted cash totaled $2.123 billion at June 30, 2021, versus $648.7 million at December 31, 2020. Cash and cash equivalents were $2.075 billion; restricted cash was $47.9 million. Working capital was $703.5 million.
Cash flows, six months: Operating activities provided $807.5 million, investing activities provided $128.7 million, and financing activities provided $538.1 million. Operating cash generation was driven substantially by advance purchase payments recorded as deferred revenue and payment timing, rather than net income.
Deferred revenue and commitments: Deferred revenue was $1.220 billion, primarily upfront advance-purchase payments. The company reported $7.0 billion of allocated transaction price for unsatisfied or partly unsatisfied performance obligations, expected to be fulfilled within 12 months.
Debt and leases: Convertible notes had $325 million principal, a 3.75% coupon and a February 2023 maturity; carrying value was $322.7 million. Current and non-current finance lease liabilities totaled $107.6 million. The company reported no material off-balance-sheet arrangements.
Equity financing: Novavax raised $564.9 million net from common-stock sales during the first half. A new at-the-market agreement authorized up to $500 million gross proceeds; no shares had been sold under it by June 30.

Material changes and business developments

First-half revenue increased $706.3 million year over year, while R&D expense increased $1.112 billion. Management attributed the expense increase chiefly to NVX-CoV2373 development and manufacturing activities. The first-half net loss increased $531.7 million.
Q2 R&D included $497.2 million of direct external NVX-CoV2373 expenses. Management cited clinical-trial, manufacturing, raw-material and related program costs. G&A growth reflected employee-related costs, stock-based compensation and professional fees.
The company received $350 million from Gavi during Q2 under its COVAX supply agreement and expected another $350 million if WHO emergency-use listing is secured. Gavi’s agreement covers availability of 1.1 billion doses across the COVAX Facility; Novavax expected to manufacture and distribute 350 million of those doses.
In June, the U.S. government instructed Novavax to prioritize FDA alignment on analytical methods before additional U.S. manufacturing and said it would not fund further U.S. manufacturing until alignment. Other OWS-funded activities, including clinical work, regulatory interactions and assay development, were to proceed.
Q2 cash and cash equivalents rose sharply, reflecting financing, government and CEPI funding, and advance purchase payments. Marketable securities were nil at June 30; investments were classified as cash equivalents.

Outlook, commentary and principal risks

Management expected 2021 revenue, R&D expense and G&A expense to increase significantly compared with 2020, driven by the COVID-19 program. Capital expenditures were also expected to rise for manufacturing, research and development facilities, equipment and office capacity. No numerical earnings or expense guidance was provided.
Management projected global NVX-CoV2373 manufacturing capacity of about 100 million doses per month by the end of Q3 2021 and about 150 million per month by the end of Q4, including approximately one billion annualized doses from SIIPL. These were expectations, not achieved results.
As of the filing date, the company expected regulatory submissions in several markets and planned an FDA EUA submission in Q4 2021. In August 2021 it reported submissions in India, Indonesia and the Philippines and expected a WHO submission; these are post-quarter updates. CMC completion, assay validation and regulatory review remained key dependencies.
Management reported 90.4% overall efficacy in the final PREVENT-19 analysis and 89.7% in the UK Phase 3 final analysis. It also reported lower efficacy in the South Africa trial, predominantly against the Beta variant. These trial results do not assure regulatory approval, manufacturing readiness or commercial success.
Major risks include regulatory delays or non-approval; manufacturing scale-up, quality, raw-material and third-party capacity constraints; meeting delivery commitments; competition and changing vaccine demand; and the possibility that advance payments could require repayment if development, approval or supply obligations are not met. The U.S. government’s pause on funding additional U.S. manufacturing pending FDA analytical-method alignment is a notable execution risk.
The company reported a stockholder derivative lawsuit challenging certain 2020 equity awards. Stockholders ratified the awards in June 2021; defendants sought dismissal, and Novavax did not expect a material estimable financial impact.
Novavax reported an accumulated deficit of $2.449 billion and warned that continued losses and substantial funding needs were expected. It also disclosed volatility in its share price and potential dilution from future equity financing.

Investor verification priorities

Track FDA alignment on analytical methods, CMC readiness and the status and timing of regulatory submissions and authorizations.
Verify whether projected manufacturing capacity is achieved, including partner output, product quality and delivery against purchase agreements.
Assess the conversion of deferred revenue and advance payments into recognized revenue, and the company’s ability to meet delivery obligations without refunds or other funding shortfalls.
Monitor cash burn, operating cash flow excluding advance-payment timing effects, capital spending, additional equity issuance and the 2023 convertible-note maturity.
Review clinical evidence across variants, safety follow-up and booster studies, and whether changing competition and vaccine demand affect commercial prospects.