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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Any statements in the discussion below and elsewhere in this Annual Report about expectations, beliefs, plans, objectives, assumptions or future events or performance of Novavax, Inc. (“Novavax,” together with its wholly owned subsidiaries Novavax AB and Novavax CZ, 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; 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; the development of our preclinical product candidates; the conduct, timing and potential results from clinical trials and other preclinical studies; plans for and potential timing of regulatory filings; our expectation of manufacturing capacity, timing, production and delivery for NVX-CoV2373; our expectations with respect to the anticipated ongoing development and potential commercialization or licensure of NVX- CoV2373 and NanoFluTM; the expected timing and content of regulatory actions; funding from the U.S. government partnership formerly known as Operation Warp Speed (“OWS”), the U.S. Department of Defense (“DoD”) and the Coalition for Epidemic Preparedness Innovations (“CEPI”), and payments from the Bill & Melinda Gates Foundation (“BMGF”); our available cash resources and usage and the availability of financing generally; plans regarding partnering activities, 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,” or “assume,” the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words.

Forward-looking statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed or implied in the statements. Any or all of our forward-looking statements in this Annual Report may turn out to be inaccurate or materially different from actual results.

Because the risk factors discussed in this Annual Report and other risk factors of which we are not aware could cause actual results or outcomes to differ materially from those expressed or implied in any forward-looking statements made by or on behalf of us, you should not place undue reliance on any such forward-looking statements. These statements are subject to risks and uncertainties, known and unknown, which could cause actual results and developments to differ materially from those expressed or implied in such statements. We have included important factors that could cause results to differ in the cautionary statements included in this Annual Report, particularly those identified in Part I, Item 1A “Risk Factors” of this Annual Report. These and other risks may also be detailed and modified or updated in our reports and other documents filed with the Securities and Exchange Commission (“SEC”) from time to time. You are encouraged to read these filings as they are made.

We cannot guarantee future results, events, level of activity, performance or achievement. Further, any forward- looking statement speaks only as of the date on which 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.

Overview

We are a biotechnology company promoting improved global health through the discovery, development and commercialization of innovative vaccines to prevent serious infectious diseases and address urgent, global health needs. Our vaccine candidates, including both our coronavirus vaccine candidate, NVX-CoV2373, and our influenza vaccine candidate, NanoFlu, are genetically engineered, three-dimensional nanostructures of recombinant proteins. We believe that our protein-subunit-based candidates elicit differentiated immune responses that may be more efficacious than naturally occurring immunity or other, more traditional vaccine approaches. Our technology may be used to target a variety of infectious diseases. Our unique technology is paired with our proprietary immune-stimulating adjuvants, developed at Novavax AB, our wholly owned Swedish subsidiary. To date, we have formulated many of the vaccine candidates in our pipeline with our lead adjuvant,

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Matrix-MTM, including NVX-CoV2373 and NanoFlu. Matrix-M has been shown to enhance functional immune responses and has been well-tolerated in multiple clinical trials. Matrix-M also enables dose-sparing properties.

As the world continues to address the global COVID-19 pandemic, we remain focused today on bringing our NVX-CoV2373 vaccine candidate to market. We have begun rolling reviews with five regulatory authorities worldwide and have initiated submissions to the U.S. Food and Drug Administration (“FDA”) for our open investigational new drug application. In addition, NanoFlu continues to be a priority for our team, and we are exploring the potential for a combined NanoFlu / NVX-CoV2373 vaccine. Our dedicated NanoFlu team continues to seek approval from the FDA under an accelerated approval pathway. Although NVX-CoV2373 and NanoFlu are our near-term priorities, we remain optimistic that the additional programs in our pipeline, including our vaccine candidates for respiratory syncytial virus (“RSV”) and other emerging infectious diseases, present viable opportunities for future development.

Near-term Clinical Development Focus

Our development pipeline encompasses vaccine candidates addressing therapeutic areas including coronavirus, seasonal influenza, RSV and other emerging infectious diseases. At the forefront of our pipeline, we have evaluated our COVID-19 vaccine candidate, NVX-CoV2373, in various preclinical and clinical trials, including two Phase 3 trials, one Phase 2b trial, and one Phase 1/2 trial. Through our clinical development program, we have demonstrated the safety and efficacy of NVX-CoV2373. Additionally, in February 2021, we selected candidates for COVID-19 variant strain vaccines as standalone and bivalent candidates. We plan to initiate clinical testing of these new variant vaccine candidates in mid-2021. Outside of our COVID-19 vaccine candidate, we have advanced our NanoFlu program through a Phase 3 clinical trial, demonstrating positive top-line results and achieving statistical significance across secondary endpoints. We continue to evaluate the viability of certain combination vaccines, including combinations of our NanoFlu, NVX-CoV2373 and respiratory syncytial virus fusion (F) protein nanoparticle vaccine candidate (“RSV F Vaccine”).

A summary and status of our clinical and preclinical development program follows:

1.Supported by funding from the OWS, DoD, CEPI and BMGF

2.Ongoing PREVENT-19, a Phase 3 clinical trial in U.S. and Mexico; Ongoing Phase 3 in UK; Ongoing Phase 2b in South Africa

COVID-19 Vaccine Funding

Funding for our NVX-CoV2373 clinical development program encompasses over $2 billion from sources including CEPI, the DoD, and OWS.

A summary and status of our key COVID-19 funding developments follows:

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NVX-CoV2373 Manufacturing and Supply

With respect to the global manufacturing and supply of NVX-CoV2373, we have secured manufacturing for our antigen component and Matrix-M adjuvant, as well as secured fill / finish activities for NVX-CoV2373 at several sites globally. Through our various manufacturing partnerships, we expect our projected global manufacturing production rate of NVX-CoV2373 to be over two billion doses annually when we are at full capacity, which we expect to occur in mid-2021. Of this anticipated capacity, approximately one billion doses will be manufactured by Serum Institute of India Private Limited ("SIIPL").

NVX-CoV2373 and its components are being manufactured at the following Novavax (in bold) and partnered sites:

A summary and status of key manufacturing developments follows:

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NVX-CoV2373 Supply Agreements

Through the date of filing this Form 10-K, we have entered into several supply agreements with various countries globally that, if our COVID-19 product candidate is approved, are expected to result in the delivery of approximately 200 million doses of NVX-CoV2373, throughout 2021 and into the first half of 2022. In addition to these supply agreements, we have committed 110 million doses of NVX-CoV2373 to the U.S. government in relation to the funding received from OWS and the DoD.

A summary of our current supply agreements follows:

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Sale of Assets

In July 2019, we closed a transaction under an asset purchase agreement (the “Purchase Agreement”) with Catalent, pursuant to which we sold to Catalent certain assets related to our biomanufacturing and development activities located at the facilities situated at each of 20 Firstfield Road in Gaithersburg, MD 20878 and 9920 Belward Campus Drive in Rockville, MD 20850 for approximately $18 million and recorded a gain on the disposition of such assets of $9.0 million. Pursuant to the transactions contemplated by the Purchase Agreement, approximately 100 Novavax manufacturing and quality employees transferred to Catalent, and we assigned two facility leases to Catalent. We also entered into other ancillary agreements upon the closing of the transaction, including a Non-Commercial GMP Manufacturing Services Agreement pursuant to which we were required to purchase $6.0 million in certain services from Catalent set forth therein, through July 31, 2020. The transaction was treated as an asset disposition for accounting purposes.

Sale of Preferred Stock

In June 2020, we entered into a redeemable Series A Convertible Preferred Stock Subscription Agreement, pursuant to which we sold and issued in a private placement 438,885 shares of our newly designated redeemable Series A Convertible Preferred Stock, par value $0.01 per share (“Preferred Stock”), at a purchase price of $455.70 per share, for total gross proceeds of $200.0 million. During the fourth quarter of 2020, all outstanding shares of the Preferred Stock was converted and we issued 4,388,850 shares of common stock, par value $0.01 per share and reclassified $199.8 million from preferred stock to additional paid in capital. We recognized a beneficial conversion feature of approximately $24.1 million at the time of issuance of the Preferred Stock that was recorded in additional paid-in capital and accumulated deficit as the Preferred Stock issuance was contingently redeemable and convertible at any time at the option of the holder.

Sales of Common Stock

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In January 2021, we entered into an At Market Issuance Sales Agreement ("January 2021 Sales Agreement"), which allows us to issue and sell up to $500 million in gross proceeds of our common stock. From January 22 through February 24, 2021, we sold $1.7 million shares of common stock under the January 2021 Sales Agreement resulting in $452.0 million in net proceeds, leaving $42.2 million remaining.

During 2020, we entered into various At Market Issuance Sales Agreements, which allowed us to issue and sell up to $1.0 billion in gross proceeds of our common stock. During 2020, we sold a total of 25.2 million shares of common stock under such Sales Agreements resulting in $835.6 million in net proceeds (this amount excludes $3.2 million received in the first quarter of 2021 for shares traded in late December 2020). From January 1, 2021 through January 20, 2021, we sold $0.9 million shares of common stock from our At Market Issuance Sales Agreement entered into in November 2020 (“November 2020 Sales Agreement”) resulting in $113.0 million in net proceeds, leaving $27.2 million remaining under its November 2020 Sales Agreement. We terminated the November 2020 Sales Agreement by mutual agreement upon entering into the January 2021 Sales Agreement.

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, 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 as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. These estimates, particularly estimates relating to accounting for revenue, lease accounting and accounting for research and development expenses have a material impact on our consolidated financial statements and are discussed in detail throughout our analysis of the results of operations discussed below.

We base our estimates on historical experience and various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets, liabilities and equity that are not readily apparent from other sources. Actual results and outcomes could differ from these estimates and assumptions.

Revenue Recognition

We perform research and development under government funding, grant, license and clinical development agreements. Our revenue primarily consists of funding under U.S. government contracts and other arrangements to advance the clinical development and manufacturing of NVX-CoV2373. Our U.S. government contracts include the DoD Contract and the OWS Agreement. Other funding arrangements primarily include a grant and forgivable loan funding from CEPI.

At contract inception, we analyze our revenue arrangements to determine the appropriate accounting under U.S. GAAP. Currently, our revenue arrangements represent customer contracts within the scope of ASC Topic 606, Revenue from Contracts with Customers (Topic 606) (“ASC 606”) or are subject to the contribution guidance in Accounting Standards Codification (ASC) Topic 958-605, Not-for-Profit Entities – Revenue Recognition (“ASC 958-605”) which applies to business entities that receive contributions within the scope of ASC 958-605. We recognize revenue from arrangements within the scope of ASC 606 following the five-step model: (i) identify the contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to our customer. We recognize contribution revenue within the scope of ASC 958-605 when the funder-imposed conditions have been substantially met. Contributions are recorded as deferred revenue until the period in which research and development activities are performed that satisfy the funder-imposed conditions.

Under our U.S government contracts, we are entitled to receive funding, on a reimbursable-cost or reimbursable-cost-plus fixed fee basis to support certain activities related to the development, manufacture and delivery of NVX-CoV2373 to the U.S. Government. We analyzed these contracts and determined that they are within the scope of ASC 606. Our obligations under each of the contracts are not distinct in the context of the contract as they are highly interdependent or interrelated and, as such, they are accounted for as a single performance obligation. The transaction price under these arrangements is the consideration we expect to receive and consists of the funded contract amount and the unfunded variable amount to the extent that it is probable that a significant reversal of revenue will not occur. We recognize revenue for these contracts over time as we transfer control over the goods and services and satisfy our performance obligation. We measure progress toward satisfaction of our performance obligation using an Estimate-at-Completion (“EAC”) process, which is a cost-based input method that reviews and monitors the progress towards the completion of our performance obligation. Under this process, we consider the costs that

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have been incurred to-date, as well as projections to completion using various inputs and assumptions, including, but not limited to, progress towards completion, labor costs and level of effort, material and subcontractor costs, indirect administrative costs, and other identified risks. Estimating the total allowable cost at completion of our performance obligation under a contract is subjective and requires us to make assumptions about future activity and cost drivers. Changes in these estimates can occur for a variety of reasons and, if significant, may impact the timing of revenue and fee recognition on our contracts. Allowable contract costs include direct costs incurred on the contract and indirect costs that are applied in the form of rates to the direct costs. Progress billings under the contracts are initially based on provisional indirect billing rates, agreed upon between us and the U.S. government. These indirect rates are subject to audit on an annual basis. The impact of changes in the indirect billing rates are recorded in the period when such changes are identified and reflect the difference between actual indirect costs incurred compared to the estimated amounts used to determine the provisional indirect billing rates agreed upon with the U.S. government. We recognize revenue on our U.S government contracts based on reimbursable allowable contract costs incurred in the period up to the transaction price. For our reimbursable-cost-plus fixed fee contracts, we recognize the fixed fee based on the proportion of reimbursable contract costs incurred to total estimated allowable contract costs expected to be incurred on completion of the underlying performance obligation as determined under the EAC process. Changes in estimates related to the EAC process are recognized in the period when such changes are made on a cumulative catch-up basis. We include the transaction price comprising both funded and unfunded portions of customer contracts, in this estimate. We have not experienced any material difference as a result of change in estimate arising from the EAC process.

Our other funding arrangements primarily include the CEPI Grant Funding and CEPI Forgivable Loan Funding (each as defined in “Note 2―Summary of Significant Accounting Policies” included in our Notes to Consolidated Financial Statements). The CEPI Forgivable Loan Funding is designated for the prepayment of certain manufacturing activities. We analyzed these other funding arrangements and determined that they are not within the scope of ASC 606 as they do not provide a direct economic benefit to the grantor. Payments received under the grant funding arrangements are considered conditional contributions under the scope of ASC 958-605 and are recorded as deferred revenue until the period in which such research and development activities are actually performed that satisfy the funder-imposed conditions. Payments received under the CEPI Forgivable Loan Funding agreements are only repayable if the proceeds of sales to one or more third parties of NVX-CoV2373 cover our costs of manufacturing such vaccine candidate, not including manufacturing costs funded by CEPI. As the financial risk remains with CEPI, we have determined that the use of the CEPI Forgivable Loan Funding is outside the scope of ASC Topic 470, Debt. The research and development risk is considered substantive, such that it is not yet probable that the development will be successful. Therefore, we have concluded that ASC Topic 730, Research and Development is considered applicable and most appropriate. Given the financial risk associated with the research and development activities lies with CEPI because repayment of any funds provided by CEPI depends solely on the results of the research and development activities having future economic benefit, we will account for our obligation under the CEPI Forgivable Loan Funding as a contract to perform research and development for others. We have determined that payments received under these agreements should be recorded as revenue under ASC 958-605 rather than a reduction to research and development expenses. This is consistent with our policy of presenting such amounts as revenue. In reaching this determination, we considered a number of factors, including whether we are principal under the arrangement, and whether the arrangement is significant to, and part of, our core operations. We will record revenue as we perform the contractual research and development services.

We have manufacturing and supply arrangements that include a license to use our intellectual property.The licensing arrangements include sales-based royalties, as well as certain development and commercial milestone payments, and the license is deemed to be the predominant item to which the milestone payments and sales-based royalties relate. The fulfillment of our obligation for the license is subject to a constraint, the achievement of the development and commercial milestone or the royalty-related sales under the arrangement. For milestone payments, the constraint is overcome and we recognize revenue, when the development and commercial milestone is achieved.

Lease Accounting

We determine at the inception or modification of a contract if an arrangement is, or contains, a lease, which exists when the contract conveys the right to control the use of identified property or equipment for a period of time in exchange for consideration. In determining if a contract contains a lease, we evaluate whether the contract, either explicitly or implicitly, is for the use of an identified asset and whether we have the right to direct the use of, and obtain substantially all of the benefit from, the identified asset. Depending on the contract, the lease commencement date, defined as the date on which the lessor makes the underlying asset available for use by the lessee and is the date on which the Company is required to accrue lease expenses, may be different than the inception date of the contract. We evaluate changes to the terms and conditions of a lease contract to determine if they result in a new lease or a modification of an existing lease. For lease modifications, we remeasure and reallocate the remaining consideration in the contract and reassess the lease classification at the effective date of the modification. We classify leases as either operating or finance leases based on the economic substance of the agreement.

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We enter into non-cancelable lease agreements for facilities and certain equipment. We also enter into manufacturing supply agreements with CMOs and CDMOs to manufacture our vaccine candidates. Certain of these manufacturing supply agreements include the use of identified manufacturing facilities and equipment that are controlled by us and for which we obtain substantially all the output, and may qualify as an embedded lease. We treat manufacturing supply agreements that contain a lease as lease arrangements in their entirety.

For leases that have a lease term of more than 12 months at the lease commencement date, we recognize lease liabilities, which represent our obligation to make lease payments arising from the lease, and corresponding right-of-use (“ROU”) assets, which represent the right to use an underlying asset for the lease term, based on the present value of the fixed future payments over the lease term. We calculate the present value of future payments using the discount rate implicit in the lease, if available, or our incremental borrowing rate. For all leases that have a lease term of 12 months or less at the commencement date (referred to as “short-term” leases), we have elected to apply the practical expedient in ASC Topic 842, Leases (“ASC 842”) to not recognize a lease liability or ROU asset but instead, recognize lease payments as an expense on a straight-line basis over the lease term and variable lease payments that do not depend on an index or rate, as an expense in the period in which the variable lease costs are incurred based on performance or usage in accordance with contractual agreements. In determining the lease period, we evaluate facts and circumstances that could affect the period over which we are reasonably certain to use the underlying asset while taking into consideration the non-cancelable period over which we have the right to use the underlying asset and any option period to extend or terminate the lease if we are reasonably certain to exercise the option. We re-evaluate short-term leases that are modified and if they no longer meets the requirements to be treated as short-term leases, we recognize and measure the lease liability and ROU asset as if the date of the modification is the lease commencement date (see Note 7 to the accompanying consolidated financial statements).

For operating leases, we recognize lease expense related to fixed payments on a straight-line basis over the lease term and lease expense related to variable payments as incurred based on performance or usage in accordance with the contractual agreements. For finance leases, we recognize the amortization of the ROU asset over the shorter of the lease term or useful life of the underlying asset. We expense ROU assets acquired for research and development activities under ASC Topic 730, Research and Development, if they do not have an alternative future use, in research and development projects or otherwise.

We use significant assumptions and judgment in evaluating our lease contracts and other agreements under ASC 842, including the determination of whether an agreement is or contains a lease, whether a change in the terms and conditions of a lease contract represent a new or modified lease, whether a lease represents an operating or finance lease, the discount rate used to determine the present value of lease obligations and the term of embedded leases in our manufacturing supply agreements.

Accounting for Research and Development Expenses

We estimate our prepaid and accrued expenses related to our research and development activities using a process that involves reviewing contracts and purchase orders, communicating with our project managers and service providers to identify services that have been performed on our behalf, and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or for which we have been invoiced in advance of the service. This estimation process includes a review of:

•expenses incurred under agreements with contract research organizations (“CROs”) that conduct our clinical trials and third party consultants; and

•the cost of developing and manufacturing vaccine components under third-party CMOs and CDMOs agreements, including expenses incurred for the procurement of raw materials, laboratory supplies and equipment.

We base our expenses on our estimates of the services provided and efforts expended pursuant to contracts, statements of work and related change orders with the service provider, as well as discussion with internal personnel and external service providers as to the progress of the services and the agreed-upon fee to be paid for such services. The financial terms of these agreements are based on negotiated terms, vary from contract to contract and may result in an uneven level of activity over time. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. Additionally, invoicing from third-party service providers may not coincide with actual work performed and can result in a prepaid or an accrual position at the end of the period. The estimation process requires us to make significant judgments and estimates in determining the services incurred as of the balance sheet date, which may result in either a prepaid or an accrual balance. As actual costs become known, we adjust our estimates. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed may vary from the related estimates and could result in us reporting amounts that are too high or too low in a particular period. Our prepaid and accrued expenses are dependent, in part, upon the receipt of timely and accurate reporting from CROs, CMOs, CDMOs and third-party service providers. Due to the nature of the estimation process, there may be a difference between estimated costs and actual costs incurred. Historically, we have not experienced any material differences in prior periods.

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Recent Accounting Pronouncements

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 for Fiscal Years 2020 and 2019

The following is a discussion of our historical consolidated financial condition and results of operations, and should be read in conjunction with the consolidated financial statements and notes thereto set forth in this Annual Report. Additional information concerning factors that could cause actual results to differ materially from those in our forward-looking statements is described under Part I, Item 1A, “Risk Factors” of this Annual Report.

For our discussion of the year ended December 31, 2019, compared to the year ended December 31, 2018, please read Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations located in Annual Report on Form 10-K for the year ended December 31, 2019.

Revenue:

Revenue (in thousands):

Revenue for 2020 was $475.6 million as compared to $18.7 million for 2019, an increase of $460.6 million. The significant increase in revenue in 2020 was a result of our development activities related to NVX-CoV2373 and was primarily comprised of revenue for services performed under the OWS Agreement and the CEPI Funding Agreement. Revenue for the year ended December 31, 2019 was primarily comprised of revenue for services performed under the BMGF Grant Agreement and recovery of costs on the close-out of our contract with HHS BARDA.

We expect revenue in 2021 to significantly increase due to our NVX-CoV2373 program, which we anticipate will continue to be funded by OWS and CEPI and/or other revenue sources. Further, we anticipate bringing our NVXCoV2373 vaccine candidate to market following global regulatory approvals which, if achieved, should significantly impact revenue (also see below under Liquidity and Capital Resources in this Management's Discussion and Analysis). In anticipation, we have entered into various APAs with government customers that are expected to result in the delivery of approximately 200 million doses of NVX-CoV2373 throughout 2021 and into the first half of 2022. We also entered into multiple supply and license agreements with strategic partners to supply NVX-CoV2373 in their specified territories under which we are entitled to receive royalty revenue from the sale of NVX-CoV2373 by such partners.

Expenses (in thousands):

Research and Development Expenses

During 2020, our research and development activities were primarily focused on the development of NVX-CoV2373. During 2020, direct external research and development expenses related to NVX-CoV2373 were $609.4 million and comprised of costs related to the following:

•expenses incurred under agreements with CROs that conduct our clinical trials and third party consultants related to the development of NVX-CoV2373;

•developing and manufacturing the antigen drug substance and Matrix-M components of NVX-CoV2373 under agreements that we established with third-party CMOs and CDMOs;

•expenses incurred for the procurement of raw materials, laboratory supplies and equipment; and

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•other costs related to preclinical studies and regulatory consulting, as well as related program management activities to support our growing global operations.

In 2020, we also incurred significant costs related to developing our NVX-CoV2373 manufacturing and supply network, including the immediate expense recognition of $245.9 million of ROU assets associated with such manufacturing supply agreements.

Research and development expenses increased to $747.0 million for 2020 as compared to $113.8 million for 2019, an increase of $633.2 million primarily due to the development of NVX-CoV2373, as shown in the table below.

The following summarizes our research and development expenses for the years ended December 31, 2020 and 2019 (in millions):

Other vaccine development programs 2,651 27,016

Total direct external research and development expense 626,854 50,867

We do not provide forward-looking estimates of costs and time to complete our research programs due to the many uncertainties associated with vaccine development. As we obtain data from preclinical studies and clinical trials, we may elect to discontinue or delay clinical trials in order to focus our resources on more promising vaccine candidates. Completion of clinical trials may take several years or more, but the length of time can vary substantially depending upon the phase, size of clinical trial, primary and secondary endpoints and the intended use of the vaccine candidate. The cost of clinical trials may vary significantly over the life of a project as a result of a variety of factors, including:

•the number of participants who participate in the clinical trials;

•the number of sites included in the clinical trials;

•if clinical trial locations are domestic, international or both;

•the time to enroll participants;

•the duration of treatment and follow-up;

•the safety and efficacy profile of the vaccine candidate; and

•the cost and timing of, and the ability to secure, regulatory approvals.

As a result of these uncertainties, we are unable to determine the duration and completion costs of our research and development projects or when, and to what extent, we will generate future cash flows from our research projects.

For 2021, we expect research and development expenses to increase significantly over 2020 expenses due to our continued development activities for our NVX-CoV2373 program (see discussion on our NVX-CoV2373 program above) and increases in employee-related costs. Following regulatory approval of NVX-CoV2373, we expect products sales will result in certain types of costs recorded as research and development in 2020 being capitalized as inventory and expensed as cost of goods sold when product is delivered in 2021 and beyond. Cost of goods sold expenses could be significant depending on our commercial shipment levels.

Gain on Sale of Assets

As a result of the sale of assets transaction in 2019, we recorded a gain of $9.0 million.

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General and Administrative Expenses

General and administrative expensesincreased to $145.3 million for 2020 from $34.4 million for 2019, a increase of $110.9 million. The increase in general and administrative expenses is primarily due to increased employee-related costs, primarily stock-based compensation expense, and increased professional fees to support our NVX-CoV2373 program and relating to the acquisition and integration of Novavax CZ. As of December 31, 2020, we had 116 employees dedicated to general and administrative functions versus 41 employees as of December 31, 2019.

For 2021, we expect general and administrative expenses to increase significantly over 2020 expenses due to increased activities related to supporting our NVX-CoV2373 program and increases in employee-related costs.

Other Income (Expense):

Other Income (Expense) (in thousands):

We had total other expense, net of $1.5 million for 2020 compared to total other expense, net of $12.1 million for 2019, an increase of $10.6 million. In the year ended December 31, 2020, we recorded a $12.6 million gain on the intercompany loan with Novavax CZ due to changes in the exchange rates, and additional net interest expense of $1.5 million attributable to finance leases.

Net Loss:

Net Loss (in thousands, except per share information):

Net loss for 2020 was $418.3 million, or $7.27 per share, as compared to $132.7 million, or $5.51 per share, for 2019, an increase of $285.6 million. The increase in net loss was primarily due to increased development activities relating to NVX-CoV2373, including the immediate expense recognition of $245.9 million of ROU assets associated with our manufacturing supply agreements for NVX-CoV2373 and increased employee-related costs, primarily stock-based compensation expense, partially offset by increased revenue under the CEPI Funding Agreement and the OWS Agreement.

The increase in weighted average shares outstanding for 2020 is primarily a result of the sale of 32.4 million shares of common stock in 2020 and, to a lesser degree, the conversion of our Series A Convertible Preferred Stock to 4.4 million shares of our common stock in the fourth quarter of 2020, weighted for the period the shares were outstanding during the year.

Liquidity Matters and Capital Resources

Our future capital requirements depend on numerous factors including, but not limited to our projected activities related to the development of NVX-CoV2373, including significant commitments under various CRO, CMO and CDMO agreements, the progress of preclinical studies and clinical trials, the time and costs involved in obtaining regulatory approvals, the costs of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights and other manufacturing, sales and distribution costs. We plan to continue developing other vaccines and product candidates, such as NanoFlu and potential combination vaccines candidates, which are in various stages of development. We believe our operating expenses and capital requirements will fluctuate depending upon the timing of events, such as the progress of our NVX-CoV2373 clinical trials and approval for the use of NVX-CoV2373 in the U.S. and internationally, as well as the scope, initiation and progress of our preclinical studies and clinical trials related to other research and development activities.

We have entered into APAs or supply agreements with various countries globally that, if our product candidate is approved, are expected to result in the delivery of approximately 200 million doses of NVX-CoV2373 throughout 2021 and

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into the first half of 2022. The APAs or supply agreements typically contain terms that include upfront payments intended to assist us in funding investments related to building out and operating our manufacturing and distribution network, among other expenses, in support of our global supply commitment. Such upfront payments generally become non-refundable upon our achievement of certain development milestones. We expect to sign additional APAs or supply agreements that are currently in active discussions and negotiations.

We have also entered into supply and license agreements with strategic partners to supply NVX-CoV2373 in their specified territories under which we are entitled to receive royalty revenue primarily from the sale of NVX-CoV2373 by our partners.

We funded our operations in 2020 with proceeds from the sale of common stock and preferred stock in equity offerings together with revenue under our CEPI Funding Agreement and the OWS Agreement that support our NVX-CoV2373 vaccine development activities. We anticipate our future operations to be funded by our cash, cash equivalents and marketable securities, revenue under our OWS, CEPI, DoD agreements, upfront payments under our APAs, and following any potential global regulatory approvals, revenue from product sales, royalty arrangements with our strategic partners and/or other potential funding sources.

As of December 31, 2020, we had $806.4 million in cash and cash equivalents, marketable securities and restricted cash as compared to $82.2 million as of December 31, 2019. These amounts consisted of $553.4 million in cash and cash equivalents, $157.6 million in marketable securities and $95.3 million in restricted cash as of December 31, 2020 as compared to $78.8 million in cash and cash equivalents and $3.4 million in restricted cash as of December 31, 2019.

The following table summarizes cash flows for 2020 and 2019:

Summary of Cash Flows (in thousands):

Net cash (used in) provided by:

Net increase in cash, cash equivalents and restricted cash 566,558 221 566,337

Net cash used in operating activities decreased to $42.5 million for 2020, as compared to $136.6 million for 2019. The decrease is primarily due to payments received under the CEPI Funding Agreement and OWS Agreement, and the timing of payments to third-parties.

During 2020, our investing activities primarily consisted of capital expenditures, purchases and maturities of marketable securities and our acquisition of Novavax CZ. During 2019, our investing activities primarily consisted of purchases and maturities of marketable securities and proceeds from the sale of assets. Capital expenditures for the year ended December 31, 2020 and 2019 were $54.6 million and $1.9 million, respectively, and the increase was primarily due to the build out of our facilities and related capital expenditures to support NVX-CoV2373. For 2021, we expect an increase in our capital expenditures due to further development activities for our NVX-CoV2373 program, including the additional build out of research and development and manufacturing facilities and related equipment, and the build-out of our new corporate office facility to accommodate anticipated increases in headcount.

Our financing activities consisted primarily of sales of our common stock under our At Market Issuance Sales Agreements and, to a much lesser extent, stock option exercises and purchases under our employee stock purchase plan. In 2020, we received net proceeds of $874.1 million (this amount excludes $3.2 million received in the first quarter of 2021 for shares traded in late December 2020) from the sale of shares of common stock through our At Market Issuance Sales Agreements and $200.0 million through the issuance of preferred stock in a private placement. In 2019, we received net proceeds of $97.5 million from selling shares of common stock through our At Market Issuance Sales Agreements.

Contractual Obligations

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The following table summarizes our contractual obligations as of December 31, 2020 (in thousands):

(a) See Note 11 to the consolidated financial statements included in this Annual Report regarding our Notes, which will mature on February 1, 2023, and bear cash interest of 3.75%, payable February 1 and August 1 of each year.

(b) This amount represents our non-cancelable fixed payment obligations under certain CMO and CDMO agreements that we are not contractually able to terminate for convenience. Certain agreements provide for termination rights subject to termination fees. Under such agreements, we are contractually obligated to make payments to vendors, mainly to reimburse them for their estimated unrecoverable expenses incurred. As of December 31, 2020, these agreements are active ongoing arrangements and the Company expects to receive value from these arrangements in the future. The exact amount of such obligations is dependent on the timing of termination, and the exact terms of the relevant agreement, and cannot be reasonably estimated.

(c) This relates to the lease of 700 Quince Orchard that did not commence as of December 31, 2020 (see Note 7 to the consolidated financial statements).

In addition to the above obligations, we enter into a variety of agreements and financial commitments in the normal course of business. The terms generally allow us the option to cancel, reschedule, and adjust our requirements based on our business needs, prior to the delivery of goods or performance of services. It is not possible to predict the maximum potential amount of future payments under these agreements due to the conditional nature of our obligations and the unique facts and circumstances involved in each particular agreement.

Off-Balance Sheet Arrangements

We are not involved in any off-balance sheet agreements that have or are reasonably likely to have a material future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are subject to certain risks that may affect our results of operations, cash flows and fair values of assets and liabilities, including volatility in foreign currency exchange rates and interest rate movements.

Foreign Currency Exchange Risk

Although we are headquartered in the U.S. where we conduct the vast majority of our business activities, our results of operations are subject to foreign currency exchange rate fluctuations, including our foreign subsidiaries’ operations. We have two foreign consolidated subsidiaries, Novavax AB, which is located in Sweden, and Novavax CZ, which is located in the Czech Republic.

While the financial results of our global activities are reported in U.S. dollars, the functional currency for our foreign subsidiaries is their respective local currency. Fluctuations in the foreign currency exchange rates of the countries in which we do business will affect our operating results, often in ways that are difficult to predict. A 10% decline in the exchange rate between the U.S. dollar and Swedish Krona would result in a decline of stockholders’ equity (deficit) of approximately $4.7 million as of December 31, 2020. A 10% decline in the exchange rate between the U.S. dollar and Czech Koruna would result in a decline of stockholders’ equity (deficit) of approximately $9.9 million as of December 31, 2020.

Interest Rate Risk

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Our exposure to interest rate risk is primarily confined to our investment portfolio. As of December 31, 2020, our investments were classified as available-for-sale. We do not believe that a change in the market rates of interest would have any significant impact on the realizable value of our investment portfolio. Changes in interest rates may affect the investment income we earn on our marketable securities when they mature and the proceeds are reinvested into new marketable securities and, therefore, could impact our cash flows and results of operations.

Our Notes have a fixed interest rate and we have no additional material debt. As such, we do not believe that we are exposed to any material interest rate risk as a result of our borrowing activities.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this item is set forth on pages F-1 to F-31.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

Item 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The term “disclosure controls and procedures” (defined in SEC Rule 13a-15(e)) refers to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported, within time periods specified in the rules and forms of the Securities and Exchange Commission. “Disclosure controls and procedures” include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

The Company’s management, with the participation of the chief executive officer and the chief financial officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this Annual Report (the “Evaluation Date”). Based on that evaluation, the Company’s chief executive officer and chief financial officer have concluded that, as of the Evaluation Date, such controls and procedures were effective at the reasonable assurance level.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act, as a process designed by, or under the supervision of, the Company’s principal executive officer and principal financial officer and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States (“GAAP”). Such internal control includes those policies and procedures that:

•pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

•provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

•provide reasonable assurance regarding prevention or timely detection of an unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. In making this assessment, our management used the criteria set forth in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its assessment, our management has determined that, as of December 31, 2020, our internal controls over financial reporting are effective based on those criteria.

On May 27, 2020, we completed our acquisition of Novavax CZ. We are in the process of evaluating the existing controls and procedures of Novavax CZ and integrating it into our internal control over financial reporting. In accordance with SEC Staff guidance permitting a company to exclude an acquired business from management’s assessment of the effectiveness of internal control over financial reporting for the year in which the acquisition is completed, we have excluded the business that we acquired in the Novavax CZ acquisition from our assessment of the effectiveness of internal control over financial reporting as of December 31, 2020. The business that we acquired in the Novavax CZ acquisition represented 15% of the Company’s total assets as of December 31, 2020, none of the Company’s revenue and less than 3% of the Company’s net loss for the year ended December 31, 2020.

Ernst & Young LLP has issued a report on our internal control over financial reporting. This report is included in the Reports of Independent Registered Public Accounting Firm in Item 15.(a)(1).

Changes in Internal Control over Financial Reporting

Our management, including our chief executive officer and chief financial officer, has evaluated any changes in our internal control over financial reporting that occurred during the quarterly period ended December 31, 2020 and has concluded that there was no change that occurred during the quarterly period ended December 31, 2020 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management’s assessment of and conclusion on the effectiveness of disclosure controls and procedures and internal controls over financial reporting did not include the internal controls related to the operations acquired in the acquisition of Novavax CZ that are included in our December 31, 2020 consolidated financial statements. Our audit of internal control over financial reporting also did not include an evaluation of the internal control over financial reporting of Novavax CZ.

Item 9B. OTHER INFORMATION

None.

PART III

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this item is incorporated by reference from our definitive Proxy Statement for our 2021 Annual Meeting of Stockholders scheduled to be held in June 2021 (the “2021 Proxy Statement”). We expect to file the 2021 Proxy Statement within 120 days after the close of the fiscal year ended December 31, 2020.

Item 11. EXECUTIVE COMPENSATION

We incorporate herein by reference the information required by this item concerning executive compensation to be contained in the 2021 Proxy Statement.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

We incorporate herein by reference the information required by this item concerning security ownership of certain beneficial owners and management and related stockholder matters to be contained in the 2021 Proxy Statement.

The following table provides our equity compensation plan information as of December 31, 2020. Under these plans, our common stock may be issued upon the exercise of stock options and purchases under our Employee Stock Purchase Plan (“ESPP”). See also the information regarding our stock options and ESPP in Note 13 to the consolidated financial statements included herewith.

Equity Compensation Plan Information

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Equity compensation plans not approved by security holders N/A N/A N/A

(1)Includes our 2015 Stock Incentive Plan, 2005 Stock Incentive Plan and ESPP. The weighted-average exercise price in column (b) excludes restricted stock units, which are not subject to an exercise price.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

We incorporate herein by reference the information required by this item concerning certain related party transactions set forth in Note 16 to our consolidated financial statements included herewith. We incorporate herein by reference other information required by this item concerning certain other relationships and related transactions and director independence to be contained in the 2021 Proxy Statement.

Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

We incorporate herein by reference the information required by this item concerning principal accountant fees and services to be contained in the 2021 Proxy Statement.

PART IV

Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)The following documents are filed as part of the Annual Report:

(1)Index to Financial Statements

Reports of Independent Registered Public Accounting Firm F- 2

Consolidated Balance Sheets as of December 31, 2020 and 2019 F- 5

Notes to Consolidated Financial Statements F- 9

(2)Financial Statement Schedules

Financial statement schedules are omitted because they are not applicable, not required under the instructions or all the information required is set forth in the financial statements or notes thereto.

(3)Exhibits

Exhibits marked with a single asterisk (*) are filed herewith.

Exhibits marked with a double plus sign (††) refer to management contracts, compensatory plans or arrangements.

Confidential treatment has been granted for portions of exhibits marked with a double asterisk (**).

Confidential information contained in exhibits marked with a caret (^) has been omitted because it (i) is not material and/or (ii) would be competitively harmful if publicly disclosed.

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All other exhibits listed have previously been filed with the SEC and are incorporated herein by reference.

ExhibitNumber Description

4.4* Description of Registrant’s Securities

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10.18††* Offer letter to Gregory F. Covino dated October 30, 2020

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71

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21* Subsidiaries of the Registrant

Item 16. FORM 10-K SUMMARY

Not applicable.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

NOVAVAX, INC.

By: /s/ Stanley C. Erck

Stanley C. Erck

President and Chief Executive Officer

Date: March 1, 2021

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

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Name Title Date

Stanley C. Erck

Gregory F. Covino

/s/ James F. Young Chairman of the Board of Directors March 1, 2021

James F. Young

/s/ Gregg H. Alton Director March 1, 2021

Gregg H. Alton

/s/ Richard H. Douglas Director March 1, 2021

Richard H. Douglas

/s/ Gary C. Evans Director March 1, 2021

Gary C. Evans

/s/ Rachel K. King Director March 1, 2021

Rachel K. King

/s/ Margaret G. McGlynn Director March 1, 2021

Margaret G. McGlynn

/s/ Michael A. McManus Director March 1, 2021

Michael A. McManus

/s/ Rajiv I. Modi Director March 1, 2021

Rajiv I. Modi

/s/ David M. Mott Director March 1, 2021

David M. Mott

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2020, 2019 and 2018

Contents

Reports of Independent Registered Public Accounting Firm F- 2

Consolidated Balance Sheets as of December 31, 2020 and 2019 F- 5

Notes to Consolidated Financial Statements F- 9

F- 1

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

Novavax, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Novavax, Inc. (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 1, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the account or disclosures to which they relate.

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Identification of embedded leases related to manufacturing supply agreements

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2014.

Tysons, Virginia

March 1, 2021

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

Novavax, Inc.

Opinion on Internal Control over Financial Reporting

We have audited Novavax, Inc.’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Novavax, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.

As indicated in the accompanying Management's Report on Internal Control over Financial Reporting included in item 9A, management's assessment of and conclusion of the effectiveness of internal control over financial reporting did not include the internal controls of Novavax CZ (formerly Praha Vaccines a.s.), which is included in the 2020 consolidated financial statements of the Company and constituted 15% of total assets, as of December 31, 2020, and 0% and 3% of revenue and net loss, respectively, for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Novavax CZ.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and our report dated March 1, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting included in Item 9A. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Tysons, Virginia

March 1, 2021

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NOVAVAX, INC.

CONSOLIDATED BALANCE SHEETS

December 31,

(in thousands, except share and per share information)

ASSETS

Current assets:

Marketable securities 157,649 —

Prepaid expenses and other current assets 181,264 7,977

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

Current liabilities:

Current portion of finance lease liabilities 105,862 —

Non-current finance lease liabilities 40,083 —

Commitments and contingencies

Stockholders’ Equity (Deficit):

Accumulated other comprehensive income (loss) 7,024 (12,508)

Total liabilities and stockholders’ equity (deficit) $ 1,582,479 $ 172,957

The accompanying notes are an integral part of these financial statements.

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NOVAVAX, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

Year Ended December 31,

(in thousands, except per share information)

Revenue:

Expenses:

Gain on sale of assets — (9,016) —

Other income (expense):

Basic and diluted net loss per share $ (7.27) $ (5.51) $ (9.99)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

Year Ended December 31,

(in thousands)

Other comprehensive income (loss):

Net unrealized gains on marketable securities available-for-sale 9 5 12

The accompanying notes are an integral part of these financial statements.

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NOVAVAX, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

Year Ended December 31, 2020, 2019 and 2018

Shares Amount

(in thousands, except share information)

Non-cash stock-based compensation — — 18,314 — — — 18,314

Restricted stock cancelled (938) — — — — — —

Unrealized gain on marketable securities — — — — — 12 12

Foreign currency translation adjustment — — — — — (2,586) (2,586)

Non-cash stock-based compensation — — 17,048 — — — 17,048

Fractional shares purchased in stock split — — — — (1) — (1)

Unrealized gain on marketable securities — — — — — 5 5

Foreign currency translation adjustment — — — — — (1,322) (1,322)

Preferred stock beneficial conversion feature — — 24,139 (24,139) — — —

Unrealized gain on marketable securities — — — — — 9 9

Foreign currency translation adjustment — — — — — 19,523 19,523

The accompanying notes are an integral part of these financial statements.

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NOVAVAX, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31,

(in thousands)

Operating Activities:

Reconciliation of net loss to net cash used in operating activities:

Gain on sale of assets — (9,016) —

Non-cash impact of lease termination — — (4,381)

Right-of-use assets expensed 245,861 — —

Changes in operating assets and liabilities:

Accounts receivable, prepaid expenses and other assets (422,689) (4,202) 1,212

Investing Activities:

Acquisition of Novavax CZ, net of cash acquired (165,516) — —

Proceeds from sale of assets — 18,333 —

Financing Activities:

Net proceeds from sale of preferred stock 199,822 — —

Proceeds from the exercise of stock-based awards 44,469 992 2,745

Treasury stock related to tax withholding on stock-based awards (39,087) — —

Finance lease payments (96,065) — —

Supplemental disclosure of non-cash activities:

Right-of-use assets from new lease agreements $ 247,599 $ — $ —

Supplemental disclosure of cash flow information:

Cash interest payments, net of amounts capitalized $ 13,705 $ 12,188 $ 12,188

The accompanying notes are an integral part of these financial statements.

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NOVAVAX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020, 2019 and 2018

Note 1 – Organization

Novavax, Inc. (“Novavax,” and together with its wholly owned subsidiaries, Novavax AB and Novavax CZ (formerly, Praha Vaccines a.s.), the “Company”) is a late-stage biotechnology company that promotes improved global health through the discovery, development and commercialization of innovative vaccines to prevent serious infectious diseases and address urgent, global health needs. The Company’s vaccine candidates, including both its coronavirus vaccine candidate, NVX-CoV2373, and its lead influenza vaccine candidate, NanoFluTM, are genetically engineered, three-dimensional nanostructures of recombinant proteins critical to disease pathogenesis and may elicit differentiated immune responses, which may be more efficacious than naturally occurring immunity or traditional vaccines.

Note 2 – Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of Novavax, Inc. and its wholly owned subsidiaries, Novavax AB and Novavax CZ. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the consolidated financial statements in conformity with generally accepted accounting principles in the United States (“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.

Cash and Cash Equivalents

Cash and cash equivalents consist of highly liquid investments with maturities of three months or less from the date of purchase. Cash and cash equivalents consist of the following at December 31 (in thousands):

Treasury securities 44,052 —

Corporate debt securities 246,668 —

Cash equivalents are recorded at cost, which approximate fair value due to their short-term nature.

Marketable Securities

Marketable securities consist of debt securities with maturities greater than three months from the date of purchase that have historically included commercial paper, government-backed securities, treasury securities, corporate notes and agency securities. Classification of marketable securities between current and non-current is dependent upon the maturity date at the balance sheet date taking into consideration the Company’s ability and intent to hold the investment to maturity.

Interest and dividend income are recorded when earned and included in investment income in the consolidated statements of operations. Premiums and discounts, if any, on marketable securities are amortized or accreted to maturity and included in investment income in the consolidated statements of operations. The specific identification method is used in computing realized gains and losses on the sale of the Company’s securities.

The Company classifies its marketable securities with readily determinable fair values as “available-for-sale.” Investments in securities that are classified as available-for-sale are measured at fair market value in the consolidated balance

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sheets, and unrealized gains and losses on marketable securities are reported as a separate component of stockholders’ equity (deficit) until realized. Marketable securities are evaluated periodically to determine whether a decline in value is “other-than-temporary.” The term “other-than-temporary” is not intended to indicate a permanent decline in value. Rather, it means that the prospects for a near term recovery of value are not necessarily favorable, or that there is a lack of evidence to support fair values equal to, or greater than, the carrying value of the security. Management reviews criteria, such as the magnitude and duration of the decline, as well as the Company’s ability to hold the securities, including whether the Company will be required to sell a security prior to recovery of its amortized cost basis, the investment issuer’s financial condition and business outlook to predict whether the loss in value is other-than-temporary. If a decline in value is determined to be other-than-temporary, the value of the security is reduced and the impairment is recorded as other income (expense) in the consolidated statements of operations.

Concentration of Credit Risk

Financial instruments expose the Company to concentration of credit risk and consist primarily of cash and cash equivalents and marketable securities. The Company’s investment policy limits investments to certain types of instruments, including asset-backed securities, high-grade corporate debt securities and money market funds, places restrictions on maturities and concentrations in certain industries and requires the Company to maintain a certain level of liquidity. At times, the Company maintains cash balances in financial institutions, which may exceed federally insured limits. The Company has not experienced any losses relating to such accounts and believes it is not exposed to a significant credit risk on its cash and cash equivalents.

Fair Value Measurements

The Company applies Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), for financial and non-financial assets and liabilities.

ASC 820 discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). The statement utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

•Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

•Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

•Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.

Restricted Cash

The Company’s current and non-current restricted cash includes payments received under the Coalition for Epidemic Preparedness Innovations (“CEPI”) funding agreements (see Note 8), payments received under the Bill & Melinda Gates Foundation (“BMGF”) grant agreements (see Note 8), escrow funds paid in connection with the acquisition of Novavax CZ (see Note 6), escrow funds received in connection with a sale of assets transaction in 2019, and cash collateral accounts under letters of credit that serve as security deposits for certain facility leases. The Company will utilize the CEPI and BMGF funds as it incurs expenses for services performed under these agreements.

As of December 31, 2020, the restricted cash balances (both current and non-current) consisted of $1.5 million for payments received from BMGF, $92.4 million of payments under the CEPI funding agreements, and $1.5 million of security deposits. As of December 31, 2019, the restricted cash balances (both current and non-current) consisted of $1.4 million for payments received from BMGF, $1.5 million held in escrow received in connection with the sale of assets transaction and $0.4 million of security deposits.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the statement of cash flows at December 31 (in thousands):

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Restricted cash non-current 1,460 410

Cash, cash equivalents and restricted cash $ 648,738 $ 82,180

Property and Equipment

Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets, generally three to twenty-five years. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the estimated useful lives of the improvements or the remaining term of the lease. Repairs and maintenance costs are expensed as incurred.

Lease Accounting

The Company determines at the inception or modification of a contract if an arrangement is, or contains, a lease, which exists when the contract conveys the right to control the use of identified property or equipment for a period of time in exchange for consideration. In determining if a contract contains a lease, the Company evaluates whether the contract, either explicitly or implicitly, is for the use of an identified asset and the Company has the right to direct the use of, and obtain substantially all of the benefit from, the identified asset. Depending on the contract, the lease commencement date, defined as the date on which the lessor makes the underlying asset available for use by the lessee and is the date on which the Company is required to accrue lease expenses, may be different than the inception date of the contract. The Company evaluates changes to the terms and conditions of a lease contract to determine if they result in a new lease or a modification of an existing lease. For lease modifications, the Company remeasures and reallocates the remaining consideration in the contract and reassesses the lease classification at the effective date of the modification. Leases are classified as either operating or finance leases based on the economic substance of the agreement.

The Company enters into non-cancelable lease agreements for facilities and certain equipment. Further, the Company enters into manufacturing supply agreements with contract manufacturing organizations and contract development and manufacturing organizations to manufacture its vaccine candidates. Certain of these manufacturing supply agreements include the use of identified manufacturing facilities and equipment that are controlled by the Company and, if the Company receives substantially all of the output of the underlying assets, qualify as an embedded lease. manufacturing supply agreements that contain a lease are treated as lease arrangements in their entirety.

For leases that have a lease term of more than 12 months at the lease commencement date, the Company recognizes lease liabilities, which represent the Company’s obligation to make lease payments arising from the lease, and corresponding right-of-use (“ROU”) assets, which represent the right to use an underlying asset for the lease term, based on the present value of the fixed future payments over the lease term. The Company calculates the present value of future payments using the discount rate implicit in the lease, if available, or the Company’s incremental borrowing rate. For all leases that have a lease term of 12 months or less at the commencement date (referred to as “short-term” leases), the Company has elected to apply the practical expedient in ASC Topic 842, Leases (“ASC 842”), to not recognize a lease liability or ROU asset but instead, recognize lease payments as an expense on a straight-line basis over the lease term and variable lease payments that do not depend on an index or rate, as an expense in the period in which the variable lease costs are incurred based on performance or usage in accordance with contractual agreements. In determining the lease period, the Company evaluates facts and circumstances that could affect the period over which it is reasonably certain to use the underlying asset while taking into consideration the non-cancelable period over which it has the right to use the underlying asset and any option period to extend or terminate the lease if it is reasonably certain to exercise the option. The Company re-evaluates short-term leases that are modified and if they no longer meet the requirements to be treated as short-term leases, recognizes and measures the lease liability and ROU asset as if the date of the modification is the lease commencement date.

For operating leases, the Company recognizes lease expense related to fixed payments on a straight-line basis over the lease term and lease expense related to variable payments as incurred based on performance or usage in accordance with the contractual agreements. For finance leases, the Company recognizes the amortization of the ROU asset over the shorter of the lease term or useful life of the underlying asset. The Company expenses ROU assets acquired for research and development activities under ASC Topic 730, Research and Development, if they do not have an alternative future use, in research and development projects or otherwise.

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The Company uses significant assumptions and judgment in evaluating its lease contracts and other agreements under ASC 842, including the determination of whether an agreement is or contains a lease, whether a change in the terms and conditions of a lease contract represent a new or modified lease, whether a lease represents an operating or finance lease, the discount rate used to determine the present value of lease obligations and the term of a lease embedded in its manufacturing supply agreements.

Revenue

The Company performs research and development under government funding, grant, license and clinical development agreements. The revenue primarily consists of funding under U.S. government contracts and other arrangements to advance the clinical development and manufacturing of NVX-CoV2373. The Company’s U.S. government contracts are with the U.S. Department of Defense (the “DoD”) and its participation in formerly known as Operation Warp Speed (“OWS”) (see Note 8). Other funding arrangements primarily include a grant and forgivable loan funding from CEPI (see Note 8).

At contract inception, the Company analyzes the revenue arrangement to determine the appropriate accounting under U.S. GAAP. Currently, the Company’s revenue arrangements represent customer contracts within the scope of ASC Topic 606, Revenue from Contracts with Customers (Topic 606) (“ASC 606”) or are subject to the contribution guidance in ASC Topic 958-605, Not-for-Profit Entities – Revenue Recognition (“ASC 958-605”), which applies to business entities that receive contributions within the scope of ASC 958-605. The Company recognizes revenue from arrangements within the scope of ASC 606 following the five-step model: (i) identify the contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenue when (or as) it satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that it will collect the consideration it is entitled to in exchange for the goods or services it transfers to its customer. The Company recognizes contribution revenue within the scope of ASC 958-605 when the funder-imposed conditions have been substantially met. Contributions are recorded as deferred revenue until the period in which research and development activities are performed that satisfy the funder-imposed conditions.

Under the U.S. government contracts, the Company is entitled to receive funding of up to $1.8 billion, on a reimbursable-cost or reimbursable-cost-plus-fixed-fee basis, to support certain activities related to the development, manufacture and delivery of NVX-CoV2373 to the U.S. government. The Company analyzed these contracts and determined that they are within the scope of ASC 606. The obligations under each of the contracts are not distinct in the context of the contract as they are highly interdependent or interrelated and, as such, they are accounted for as a single performance obligation. The transaction price under these arrangements is the consideration the Company is expecting to receive and consists of the funded contract amount and the unfunded variable amount to the extent that it is probable that a significant reversal of revenue will not occur. The Company recognizes revenue for these contracts over time as the Company transfers control over the goods and services and satisfies the performance obligation. The Company measures progress toward satisfaction of the performance obligation using an Estimate-at-Completion (“EAC”) process, which is a cost-based input method that reviews and monitors the progress towards the completion of the Company’s performance obligation. Under this process, management considers the costs that have been incurred to-date, as well as projections to completion using various inputs and assumptions, including, but not limited to, progress towards completion, labor costs and level of effort, material and subcontractor costs, indirect administrative costs and other identified risks. Estimating the total allowable cost at completion of the performance obligation under a contract is subjective and requires the Company to make assumptions about future activity and cost drivers. Changes in these estimates can occur for a variety of reasons and, if significant, may impact the timing of revenue and fee recognition on the Company’s contracts. Allowable contract costs include direct costs incurred on the contract and indirect costs that are applied in the form of rates to the direct costs. Progress billings under the contracts are initially based on provisional indirect billing rates, agreed upon between the Company and the U.S. government. These indirect rates are subject to audit on an annual basis. The Company records the impact of changes in the indirect billing rates in the period when such changes are identified. These changes reflect the difference between actual indirect costs incurred compared to the estimated amounts used to determine the provisional indirect billing rates agreed upon with the U.S. government. The Company recognizes revenue on the U.S government contracts based on reimbursable allowable contract costs incurred in the period up to the transaction price. For reimbursable-cost-plus-fixed-fee contracts, the Company recognizes the fixed-fee based on the proportion of reimbursable contract costs incurred to total estimated allowable contract costs expected to be incurred on completion of the underlying performance obligation as determined under the EAC process. The Company recognizes changes in estimates related to the EAC process in the period when such changes are made on a cumulative catch-up basis. The Company includes the transaction price comprising both funded and unfunded portions of customer contracts, in this estimate.

The Company’s other funding agreements currently include funding from CEPI of $399.5 million in the form of a grant of $257.0 million (“CEPI Grant Funding”) and one or more forgivable no interest term loans of $142.5 million (“CEPI Forgivable Loan Funding”). Under the Company’s grant funding arrangements, including the CEPI Grant Funding, the Company is primarily entitled to reimbursement for costs that support development related activities of NVX-CoV2373. The

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CEPI Forgivable Loan Funding is designated for the prepayment of certain manufacturing activities. The Company analyzed these other funding arrangements and determined that they are not within the scope of ASC 606 as they do not provide a direct economic benefit to the grantor. Payments received under the grant funding arrangements are considered conditional contributions under the scope of ASC 958-605 and are recorded as deferred revenue until the period in which such research and development activities are actually performed that satisfy the funder-imposed conditions. Payments received under the CEPI Forgivable Loan Funding agreements are only repayable if the proceeds of sales to one or more third parties of NVX-CoV2373 cover the Company’s costs of manufacturing such vaccine candidate, not including manufacturing costs funded by CEPI. As the financial risk remains with CEPI, the Company determined that the use of the CEPI Forgivable Loan Funding is outside the scope of ASC Topic 470, Debt. The research and development risk is considered substantive, such that it is not yet probable that the development will be successful. Therefore, the Company has concluded that ASC 730 is considered applicable and most appropriate. Given the financial risk associated with the research and development activities lies with CEPI because repayment of any funds provided by CEPI depends solely on the results of the research and development activities having future economic benefit, the Company has accounted for the obligation under the CEPI Forgivable Loan Funding as a contract to perform research and development for others. The Company has determined that payments received under these agreements should be recorded as revenue under ASC 958-605 rather than a reduction to research and development expenses. This is consistent with the Company’s policy of presenting such amounts as revenue. In reaching this determination, the Company considered a number of factors, including whether it is principal under the arrangement, and whether the arrangement is significant to, and part of, the Company’s core operations. The Company will record revenue as it performs the contractual research and development services.

The Company has manufacturing and supply arrangements that include a license to use the Company's intellectual property.The licensing arrangements include sales-based royalties, as well as certain development and commercial milestone payments, and the license is deemed to be the predominant item to which the milestone payments and sales-based royalties relate. The fulfillment of the Company's obligation for the license is subject to a constraint, the achievement of the development and commercial milestone or the royalty-related sales under the arrangement. For milestone payments, the constraint is overcome and the Company recognizes revenue, when the development and commercial milestone is achieved. For the year ended December 31, 2020, the Company recognized $20.0 million related to a development and commercial milestone payment. The Company did not recognized any revenue in 2020 related to sales-based royalties.

The opening and closing balances of receivables and contracts liabilities were $262.0 million and $7.5 million, and $273.2 million and $1.7 million, respectively, from the Company's revenue contracts with customers. The aggregate amount of the transaction price allocated to the performance obligations that were unsatisfied (or partially unsatisfied) was $1.8 billion at the end of reporting period, of which $1.5 billion relates to OWS.

Other Intangible Assets

The Company’s intangible assets include proprietary adjuvant technology and collaboration agreements, which were measured at the estimated fair values as of their acquisition dates. Amortization expense for intangible assets is recorded on a straight-line basis over the expected useful lives of the assets, ranging for 7 years to 20 years.

Impairment of Long-Lived Assets

Long-lived assets, including property and equipment and finite-lived intangible and right-of-use assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable based on the criteria for accounting for the impairment or disposal of long-lived assets under ASC Topic 360, Property, Plant and Equipment. The Company calculates the estimated fair value of a long-lived asset (group) using the income approach. Impairment losses are recognized when the sum of expected future cash flows is less than the assets’ (group’s) carrying value.

Goodwill

Goodwill is subject to impairment tests annually or more frequently should indicators of impairment arise. The Company has determined that, because its only business is the development of recombinant vaccines, it operates as a single operating segment and has one reporting unit. The Company primarily utilizes the market approach and, if considered necessary, the income approach to determine if it has an impairment of its goodwill. The market approach is based on market value of invested capital. To ensure that the Company’s capital stock is the appropriate measurement of fair value, the Company considers factors such as its trading volume, diversity of investors and analyst coverage. If considered necessary, the income approach is used to corroborate the results of the market approach. Goodwill impairment may exist if the carrying value of the reporting unit exceeds its estimated fair value. If the carrying value of the reporting unit exceeds its fair value, step two of the

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impairment analysis is performed. In step two of the analysis, an impairment loss is recorded equal to the excess of the carrying value of the reporting unit’s goodwill over its implied fair value, should such a circumstance arise.

During 2020, the Company changed its annual goodwill impairment testing date from December 31 to October 1. Management has determined that the change in the testing date does not represent a material change to a method of applying an accounting principle as it does not have a material effect on the Company’s consolidated financial statements in light of the Company’s internal controls and requirements under ASC Topic 350, Intangibles—Goodwill and Other, to assess goodwill impairment upon certain triggering events.

At October 1, 2020 and December 31, 2019, the Company used the market approach to determine if the Company had an impairment of its goodwill. The fair value of the Company’s single reporting unit was substantially higher than its carrying value, resulting in no impairment to goodwill as of October 1, 2020 and December 31, 2019.

Stock-Based Compensation

The Company accounts for stock-based compensation related to grants of stock options, stock appreciation rights, restricted stock awards and purchases under the Company’s Employee Stock Purchase Plan, as amended and restated (the “ESPP”) at fair value. The Company recognizes compensation expense related to such awards on a straight-line basis over the requisite service period (generally the vesting period) of the equity awards, which typically occurs ratably over periods ranging from one year to four years.

The expected term of stock options and stock appreciation rights granted is based on the Company’s historical option exercise experience and post-vesting forfeiture experience using the historical expected term from the vesting date, whereas the expected term for purchases under the ESPP is based on the purchase periods included in the offering. The expected volatility is determined using historical volatilities based on stock prices over a look-back period corresponding to the expected term. The risk-free interest rate is determined using the yield available for zero-coupon U.S. Government issues with a remaining term equal to the expected term. The Company has never paid a dividend, and as such, the dividend yield is zero, and the Company does not intend to pay dividends in the foreseeable future.

Restricted stock awards are recorded as compensation expense over the expected vesting period based on the fair value at the award date using the straight-line method of amortization.

See Note 13 for a further discussion on stock-based compensation.

Research and Development Expenses

Research and development expenses include salaries, stock-based compensation, laboratory supplies, consultants and subcontractors, including external contract research organizations (“CROs”), contract management organizations ("CMOs") and contract management and development organizations ("CDMOs") and other expenses associated with the Company’s process development, manufacturing, clinical, regulatory and quality assurance activities for its clinical development programs. In addition, related indirect costs such as fringe benefits and overhead expenses are also included in research and development expenses.

The Company estimates its research and development expense related to services performed under its contracts with external service providers based on an estimate of the level of service performed in the period. Research and development activities are expensed as incurred.

Accrued Research and Development Expenses

The Company accrues research and development expenses, including clinical trial-related expenses, as the services are performed, which may include estimates of those expenses incurred, but not invoiced. The Company uses information provided by third-party service providers and CROs, CMO's and CDMO's invoices and internal estimates to determine the progress of work performed on the Company’s behalf. Assumptions based on clinical trial protocols, contracts and participant enrollment data are also developed to determine and analyze these estimates and accruals.

Income Taxes

The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes. Under the liability method, deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss carryforwards.

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Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The effect of changes in tax rates on deferred tax assets and liabilities is recognized in income in the period such changes are enacted. A valuation allowance is established when necessary to reduce net deferred tax assets to the amount expected to be realized.

Tax benefits associated with uncertain tax positions are recognized in the period in which one of the following conditions is satisfied: (1) the more likely than not recognition threshold is satisfied; (2) the position is ultimately settled through negotiation or litigation; or (3) the statute of limitations for the taxing authority to examine and challenge the position has expired. Tax benefits associated with an uncertain tax position are reversed in the period in which the more likely than not recognition threshold is no longer satisfied.

Interest and penalties related to income tax matters are recorded as income tax expense. At December 31, 2020 and 2019, the Company had no accruals for interest or penalties related to income tax matters.

Net Loss per Share

Net loss per share is computed using the weighted average number of shares of common stock outstanding. At December 31, 2020, 2019 and 2018, the Company had outstanding stock options and unvested restricted stock awards totaling 6,679,629, 4,992,792 and 2,975,481 underlying shares of the Company’s common stock, respectively. At December 31, 2020 and 2019, the Company’s Notes (as defined in Note 11) would have been convertible into approximately 2,385,800 shares of the Company’s common stock assuming a common stock price of $136.20 or higher. These and any other shares due to the Company upon settlement of its capped call transactions are excluded from the computation, as their effect is antidilutive.

Foreign Currency

The accompanying consolidated financial statements are presented in U.S. dollars. The functional currency of Novavax AB, which is located in Sweden, is the local currency (Swedish Krona) and the functional currency of Novavax CZ, which is located in the Czech Republic, is the local currency (Czech Koruna). The translation of assets and liabilities of Novavax AB and Novavax CZ to U.S. dollars are made at the exchange rate in effect at the consolidated balance sheet date, while equity accounts are translated at historical rates. The translation of the statement of operations data is made at the average exchange rate in effect for the period. The translation of operating cash flow data is made at the average exchange rate in effect for the period, and investing and financing cash flow data is translated at the exchange rate in effect at the date of the underlying transaction. Translation gains and losses are recognized as a component of accumulated other comprehensive income (loss) in the accompanying consolidated balance sheets. The foreign currency translation adjustment balance included in accumulated other comprehensive income (loss) was $7.0 million and $(12.5) million at December 31, 2020 and 2019, respectively.

Segment Information

The Company manages its business as one operating segment: the development of recombinant vaccines. The Company does not operate separate lines of business with respect to its vaccine candidates. Accordingly, the Company does not have separately reportable segments as defined by ASC Topic 280, Segment Reporting.

Recent Accounting Pronouncements

Recently Adopted

In January 2017, the FASB issued Accounting Standards Update (“ASU”) No. 2017‐04, Intangibles-Goodwill and Other (Topic 350) (“ASU 2017‐04”), which will simplify the goodwill impairment calculation by eliminating Step 2 from the current goodwill impairment test. The new standard does not change how a goodwill impairment is identified. The Company will continue to perform its quantitative goodwill impairment test by comparing the fair value of its reporting unit to its carrying amount, but if the Company is required to recognize a goodwill impairment charge, under the new standard, the amount of the charge will be calculated by subtracting the reporting unit's fair value from its carrying amount. Under the current standard, if the Company is required to recognize a goodwill impairment charge, Step 2 requires it to calculate the implied value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination and the amount of the charge is calculated by subtracting the reporting unit's implied fair value of goodwill from the goodwill carrying amount. The standard was effective January 1, 2020 for the Company and will be applied prospectively from the date of adoption. The adoption of ASU 2017-04 did not have a material impact on the Company’s historical financial statements.

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Not Yet Adopted

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which will simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including certain convertible instruments and contracts on an entity’s own equity. Specifically, the new standard will remove the separation models required for convertible debt with cash conversion features and convertible instruments with beneficial conversion features. It will also remove certain settlement conditions that are currently required for equity contracts to qualify for the derivative scope exception and will simplify the diluted earnings per share calculation for convertible instruments. ASU 2020-06 will be effective January 1, 2022 for the Company and may be applied using a full or modified retrospective approach. Early adoption is permitted, but no earlier than January 1, 2021 for the Company. Management has evaluated the impact of adopting ASU 2020-06 and has determined such adoption will not have a material impact on the overall stockholders' equity (deficit) in the Company’s consolidated financial statements.

Note 3 – Fair Value Measurements

The following table represents the estimated fair value of the Company’s financial assets and liabilities (in thousands):

Fair Value at December 31, 2020 Fair Value at December 31, 2019

Assets Level 1 Level 2 Level 3 Level 1 Level 2 Level 3

Treasury securities(3) — $ 54,088 — — — —

Corporate debt securities(4) — $ 373,681 — — — —

Agency securities — $ 20,600 — — — —

Liabilities

Convertible notes payable $ — $ 407,238 $ — $ — $ 125,811 $ —

(1)Classified as cash and cash equivalents as of December 31, 2020 and 2019, respectively (see Note 2).

(2)Includes $44,250 and $20,000 classified as cash and cash equivalents as of December 31, 2020 and 2019, respectively, on the consolidated balance sheets.

(3)Includes $44,052 classified as cash and cash equivalents as of December 31, 2020 on the consolidated balance sheets.

(4)Includes $246,668 classified as cash and cash equivalents as of December 31, 2020 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, e.g., 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 Notes (as defined in Note 11) has been estimated using other observable inputs, including the price of the Company’s common stock, implied volatility, interest rates and credit spreads among others.

During the years ended December 31, 2020 and 2019, 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 4 – Marketable Securities

Marketable securities classified as available-for-sale as of December 31, 2020 and 2019 were comprised of (in thousands):

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Treasury securities $ 10,038 $ — $ (2) $ 10,036 $ — $ — $ —

As of December 31 2020, investments in marketable securities, including corporate debt securities, were due to mature within one year.

Note 5 – Goodwill and Other Intangible Assets

Goodwill

The changes in the carrying amounts of goodwill for the years ended December 31, 2020 and 2019 were as follows (in thousands):

Year EndedDecember 31,

Goodwill resulting from the acquisition of Novavax CZ 70,662 —

Currency translation adjustments 13,563 (813)

Identifiable Intangible Assets

Purchased intangible assets consisted of the following as of December 31, 2020 and 2019 (in thousands):

Finite-lived intangible assets:

Amortization expense for the years ended December 2020, 2019 and 2018 was $0.6 million, $0.7 million and $0.7 million, respectively. Estimated amortization expense for existing intangible assets for each of the five succeeding years ending December 31, is as follows (in thousands):

Year Amount

Note 6 - Acquisition of Novavax CZ

On May 27, 2020 (the “Acquisition Date”), the Company entered into a Share Purchase Agreement (the “Deed”) by and among Novavax AB, the Company’s wholly-owned Swedish subsidiary (the “Buyer”), and De Bilt Holdings B.V., Poonawalla Science Park B.V., and Bilthoven Biologicals B.V. (collectively, the “Sellers”) and, solely as guarantors, each of

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Serum International B.V. and the Company. Pursuant to the terms and conditions of the Deed, the Buyer acquired all the issued and outstanding shares of Novavax CZ (formerly, Praha Vaccines a.s.), a vaccine manufacturing company (the “Acquisition”). The assets of Novavax CZ acquired as part of the Acquisition include a biologics manufacturing facility and associated assets in Bohumil, Czech Republic and will be used by the Company to expand its manufacturing capacity.

Allocation of Purchase Price to Assets Acquired and Liabilities Assumed

The Company has accounted for the Acquisition as a business combination using the acquisition method of accounting, with the Company as the acquirer. The acquisition method requires the Company to record the assets acquired and liabilities assumed at fair value. The amount by which the purchase price exceeds the fair value of net assets acquired is recorded as goodwill. The Company completed the appraisal process necessary to assess the fair values of the assets acquired and liabilities assumed to determine the amount of goodwill to be recognized as of the Acquisition Date. The final determination of the fair value of all assets and liabilities is presented in the table below.

The table below summarizes the final allocation of the Purchase Price based upon the fair values of assets acquired and liabilities assumed (in thousands):

Prepaid expense and other current assets $ 326

Property and equipment 96,739

Accounts payable (1,193)

Accrued expenses (205)

Other non-current liabilities (813)

Purchase Price, net of cash acquired $ 165,516

The fair value of the assets acquired and liabilities assumed were determined using market and cost valuation methodologies. The fair value measurements were based on significant unobservable inputs that were developed by the Company using publicly available information, market participant assumptions, and cost and development assumptions. Because of the use of significant unobservable inputs, the fair value measurements represent a Level 3 measurement as defined in ASC 820. The market approach is a valuation technique that uses prices and other relevant information generated by market transactions involving identical or comparable assets, liabilities, or a group of assets or liabilities. The cost approach estimates value by determining the current cost of replacing an asset with another of equivalent utility. The cost to replace a given asset reflects the estimated reproduction or replacement cost for the property, less an allowance for loss in value due to depreciation.

The cost approach was the primary approach used to value fixed assets, including the real property. Fixed assets are depreciated on a straight-line basis over their expected remaining useful lives, ranging from four years to 25 years.

The Company recorded $70.7 million in goodwill related to the Acquisition representing the Purchase Price that was in excess of the fair value of the assets acquired and liabilities assumed. The goodwill generated from the Acquisition is not expected to be deductible for U.S. federal income tax purposes. The goodwill recognized is attributable to intangible assets that do not qualify for separate recognition, such as the assembled workforce of Novavax CZ.

Current assets and current liabilities were recorded at their contractual or historical acquisition amounts, which approximate their fair value.

Impact to Financial Results for the Year Ended December 31, 2020

The results of operations from Novavax CZ have been included in the consolidated financial statements since the Acquisition Date. As a result, the consolidated financial results for the year ended December 31, 2020 does not reflect a full twelve months of Novavax CZ results. From the Acquisition Date through December 31, 2020, Novavax CZ has not recognized any revenue and has recorded a net loss from operations of $11.3 million.

The Company incurred approximately $2.7 million of costs related to the Acquisition in the year ended December 31, 2020, which are included within general and administrative expenses in the consolidated statements of operations.

Supplemental Pro Forma Financial Information (Unaudited)

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The unaudited pro forma financial information for the periods set forth below gives effect to the Acquisition as if it had occurred as of January 1, 2019. The pro forma financial information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved had the Acquisition been consummated as of that time. The unaudited pro forma financial information combines the historical results of operations of the Company and Novavax CZ for the periods presented below and reflects the application of certain pro forma adjustments (in thousands, except per share amounts):

Year Ended December 31,

(in thousands, except per share information)

Basic and diluted net loss per share $ (7.04) $ (3.22)

Pro forma adjustments include the recognition of depreciation expense based on the Acquisition Date fair value and remaining useful lives of Novavax CZ fixed assets (net of historical depreciation expense) and the elimination of costs related to the Acquisition, which are non-recurring in nature.

Note 7 – Leases

As of December 31, 2020, the Company had operating leases for its research and development and manufacturing facilities, corporate headquarters and offices and certain equipment, as well as embedded leases related to multiple manufacturing supply agreements with CMOs and CDMOs to manufacture the Company’s COVID-19 vaccine candidate, NVX-CoV2373.

The CMO and CDMO manufacturing supply agreements were entered into during 2020 and include the use of identified manufacturing facilities, contain fixed or minimum commitments and include variable costs related to production and material costs in excess of the fixed or minimum commitment specified in the agreements. The Company evaluated the agreements at inception and determined that certain of these arrangements contain an embedded lease under ASC 842 as it has the exclusive use of, and control over, a portion of the manufacturing facility and equipment of the supplier during the contractual term of the arrangement. The Company classified the CMO and CDMO arrangements as operating and finance leases based on the terms of the agreement. The Company recognized lease expense related to fixed payments for its short-term operating leases on a straight-line basis over the lease term and lease expense related to variable payments as incurred based on performance or usage in accordance with the contractual agreements. The Company recognized lease liabilities and ROU assets of $245.9 million for its finance leases and long-term operating leases. The Company’s weighted average Incremental Borrowing Rate for its lease obligations was 6.4%. The Company expensed the ROU assets since they relate to research and development activities for the development of NVX-CoV2373 for which the Company does not have an alternative future use. The Company used significant judgment and estimates, including the estimated value of the underlying leased asset and financial profile of comparable companies to analyze the credit spread as on the date of the lease inception.

During 2020, the Company entered into various facility lease agreements, including a lease for the premises located at 700 Quince Orchard Road, Gaithersburg, Maryland ("700QO") that is expected to commence in 2021. The lease is for approximately 170,000 square feet of space that the Company intends to use for manufacturing, research and development and offices. The term of the lease is approximately 15 years 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. The Company anticipates that it will incur substantial tenant improvement costs, net of a landlord contribution of $30.6 million, in 2021 to bring the building to the condition, necessary for its intended use. The Company is planning to occupy the premises in phases expected to start in the second half of 2021. Since the commencement date isn’t until 2021, the lease amounts were not included as an ROU asset and lease liability as of December 31, 2020.

At December 31, 2020, the facility leases, excluding the 700QO lease, have expirations that range from approximately three to six years, some of which include options to extend the leases or terminate the leases early. Options to extend the leases or terminate the leases early are only included in the lease term when it is reasonably certain that the option will be exercised. The facility leases contain provisions for future rent increases, and obligate the Company to pay building operating costs. The Company records operating lease expense for each of its operating leases on a straight-line basis from lease commencement date through the end of the lease term.

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Supplemental balance sheet information related to leases as of December 31, 2020 was as follows (in thousands, except weighted-average remaining lease term and discount rate):

Lease Assets and Liabilities Classification Amount

Assets:

ROU assets, operating, net Other non-current assets $ 7,794

Liabilities:

Current portion of operating lease liabilities Other current liabilities $ 3,782

Total current lease liabilities $ 109,644

Total non-current lease liabilities $ 50,205

Weighted-average remaining lease term (years):

Operating leases 4.5

Finance leases 4.7

Weighted-average discount rate:

Operating leases 13.8 %

Finance leases 6.4 %

Lease expense for the operating and short-term leases for the year ended December 31 was as follows (in thousands):

Operating lease expense $ 2,462

Short-term lease expense 66,805

Finance lease expense:

Interest expense 3,097

Total finance lease expense $ 245,106

Supplemental cash flow information related to leases for the year ended December 31, 2020 was as follows (in thousands):

Amount

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows used in operating leases $ 63,634

Operating cash flows used in finance leases 3,097

Financing cash flows used in finance leases 96,065

ROU assets obtained in exchange for operating lease obligations $ 5,590

ROU assets obtained in exchange for finance lease obligations 242,009

As of December 31, 2020, maturities of lease liabilities were as follows (in thousands):

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Year Amount

Total minimum lease payments 172,935

Less: imputed interest (13,086)

Total lease liabilities $ 159,849

Note 8 – U.S. Government Contracts, Grants and Other Revenue Arrangements

U.S. Government Contracts

Operation Warp Speed

In July 2020, the Company entered into a Project Agreement (the “Project Agreement”) with Advanced Technology International, Inc. (“ATI”), the Consortium Management Firm acting on behalf of the Medical CBRN Defense Consortium in connection with OWS. OWS is a partnership among components of the U.S. Department of Health and Human Services and the U.S. Department of Defense working to accelerate the development, manufacturing and distribution of COVID-19 vaccines, therapeutics and diagnostics. The Project Agreement, which was last amended in December 2020, relates to the Base Agreement the Company entered into with ATI in June 2020 (the “Base Agreement,” together with the Project Agreement, the “OWS Agreement”). Under the OWS Agreement, the Company is entitled to receive funding of up to $1.7 billion to support certain activities related to the development of NVX-CoV2373 and the manufacture and delivery of the vaccine candidate to the U.S. Government. Pursuant to the OWS Agreement, the Company is authorized to make expenditures or incur obligations of up to $1.6 billion.

The OWS Agreement requires the Company to conduct certain clinical, regulatory and other activities, including a pivotal Phase 3 clinical trial to determine the safety and efficacy of NVX-CoV2373, and to manufacture and deliver to the U.S. Government 100 million doses of the vaccine candidate. Funding under the OWS Agreement is payable to the Company for various development, clinical trial, manufacturing, regulatory and other activities. The OWS Agreement contains terms and conditions that are customary for U.S. Government agreements of this nature, including provisions giving the U.S. Government the right to terminate the Base Agreement and/or the Project Agreement based on a reasonable determination that the funded project will not produce beneficial results commensurate with the expenditure of resources and that termination would be in the U.S. Government’s interest. If the Project Agreement is terminated prior to completion, the Company is entitled to be paid for work performed and costs or obligations incurred prior to termination and consistent with the terms of the OWS Agreement. The performance period under the Project Agreement extends from July 2020 through December 2021, subject to early termination by the U.S. Government or extension by mutual agreement of the parties. In 2020, the Company recognized revenue under the OWS Agreement of $204.7 million.

U.S. Department of Defense

In June 2020, the Company entered into a letter contract that was last amended in January 2021 (the “DoD Contract”) with the DoD Joint Program Executive Office for Chemical, Biological, Radiological and Nuclear Defense (“JPEO-CRBND-EB”), under which JPEO-CRBND-EB agreed to provide funding of up to $45.7 million to the Company to support the manufacture of NVX-CoV2373. Under the DoD Contract, the Company is authorized to make expenditures or incur obligations up to the full amount of the funding.

Under the DoD Contract, the Company is expected to deliver 10 million doses of NVX-CoV2373 to the DoD. The 10 million doses of NVX-CoV2373 may be used in Phase 2/3 clinical trials or under an EUA, if approved by the U.S. Food and Drug Administration (“FDA”). Pursuant to the DoD Contract, if NVX-CoV2373 is approved by the FDA, the DoD is entitled to most-favored customer status for a period of five years from the award of the DoD Contract, meaning that the Company cannot give any comparable commercial client in the United States more favorable pricing than the DoD under similar transactional circumstances. In 2020, the Company recognized revenue from the DoD Contract of $12.5 million.

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Grants and Other Revenue Arrangements

Coalition for Epidemic Preparedness Innovations