Novavax, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited, with comparison to Q1 2022. Novavax is a biotechnology company focused on vaccines, including its authorized COVID-19 vaccine, Nuvaxovid, and candidates for COVID-19 variants, influenza, and a COVID-19/influenza combination.
Key financial metrics
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total revenue | $81.0 million | $704.0 million |
| Operating income (loss) | $(312.8) million | $209.3 million |
| Net income (loss) | $(293.9) million; $(3.41) per share | $203.4 million; $2.66 per share |
| Net cash used in operating activities | $(325.6) million | $(88.5) million |
| Cash, cash equivalents and restricted cash, quarter-end | $636.9 million | $1,584.1 million |
- Revenue included product sales of $(7.5) million, grants of $87.4 million, and royalties and other revenue of $1.0 million. Product sales were negative because of a $64.7 million credit for an Australian vaccine lot removed from the market after stability testing. The credit was recorded against sales in Q1 and is to be applied to future doses.
- R&D expense was $247.1 million, down $136.4 million year over year; SG&A was $112.5 million, up $16.5 million. Cost of sales was $34.1 million, including $20.2 million of inventory-related charges and losses on firm purchase commitments.
- Cash and cash equivalents were $625.0 million; restricted cash brought the combined balance to $636.9 million. Cash declined $711.9 million during the quarter, including the $325.0 million repayment of 2023 convertible notes.
- At March 31, total convertible notes payable were $166.9 million, consisting of 5.00% notes due 2027. Current assets of $971.0 million were below current liabilities of $1,918.9 million; stockholders’ deficit was $895.6 million.
Material changes versus Q1 2022
- Revenue fell $623.0 million, primarily because COVID-19 product sales were substantially lower; Q1 2022 included $585.6 million of product sales. Q1 2023 product revenue also included the Australian credit.
- Novavax shifted from net income to a net loss. Lower R&D expense partly offset the revenue decline, while other income increased to $24.4 million, mainly from foreign-exchange gains and investment income.
- Operating cash use increased by $237.1 million. Financing cash flow shifted from $159.9 million provided in Q1 2022, which included stock-sale proceeds, to $354.4 million used in Q1 2023, primarily reflecting repayment of the 2023 notes.
Outlook, risks and unusual items
- Going concern: Management stated that substantial doubt exists about the company’s ability to continue as a going concern for one year after issuance of the statements. Its cash forecast indicates sufficient funding in that period, but depends on uncertain revenue, U.S. government funding, and the outcome of Gavi arbitration.
- Gavi dispute: Gavi seeks repayment of up to $697.4 million of remaining advance payments; Novavax disputes the claim. The arbitration outcome is uncertain and could require a full or partial refund.
- Government funding: The U.S. government indicated its award may not be extended beyond December 31, 2023. Novavax said it may not receive all of the $336.4 million in remaining anticipated funding. Modification 17 also made $60.0 million contingent on milestones.
- Cost reduction: A May 2023 plan targets a roughly 25% reduction in the global workforce, reduced pipeline spending, and manufacturing and facility consolidation. The company expects about half of the annual savings in 2023 and the full annual impact in 2024; savings were not quantified. It expects $10–$15 million of severance and benefit charges, mostly in Q2 2023, and is assessing additional consolidation costs.
- Commercial and regulatory execution: Novavax prioritized an updated COVID-19 vaccine for the Fall 2023 season. It expected mid-2023 results from its BA.5 strain-change study and planned a U.S. BLA filing in the second half of 2023. The filing notes manufacturing delays for BA.5 trial materials and uncertainty around strain guidance, approval, and commercial adoption.
- Other contract exposures and receipts: Novavax repaid $112.5 million to the UK in April 2023 and could owe a further $112.5 million if a required recommendation is not achieved by November 30, 2023. It reported a $100.4 million payment expected from Canada under an April amendment. The remaining Fujifilm settlement balance was $102.9 million; Novavax also paid Par $27.0 million in April.
- Development and legal risks: May 2023 preliminary data for COVID/influenza combination, standalone influenza, and high-dose COVID candidates showed reassuring preliminary safety and immune responses; further results and regulatory progress remain uncertain. Securities and derivative litigation is ongoing, with financial impact not estimable. The Australian lot removal also highlights product-quality and recall risk.
Important facts for investors to verify
- Cash burn, liquidity needs, and progress toward the stated cost savings and workforce reductions.
- Outcome and timing of Gavi arbitration, including any refund obligation related to the $697.4 million balance.
- Whether U.S. government funding is extended and whether the company earns milestone-contingent amounts.
- Regulatory timing, clinical results, manufacturing readiness, and customer demand for the Fall 2023 COVID-19 vaccine formulation.
- Collection of the anticipated $100.4 million Canada payment, remaining UK obligations, and further manufacturing or settlement costs.