By settling now and agreeing to deferred payments over the next five years, Novavax avoids the risk of being responsible for a much bigger payout all at once. The arbitration hearing over the disputed vaccine purchase agreement with Gavi was scheduled for this summer.

By FRANK VINLUAN
Novavax isn’t in a good financial position to be refunding money to customers, having gone through a cost-saving restructuring amid flagging sales of the Covid-19 vaccine that is its only revenue-generating product. But arbitration is uncertain, so rather than roll the dice and risk a huge payout if the dispute resolution does not go its way, the company has agreed to pay Gavi, the Vaccine Alliance, as much as $475 million over the next five years to settle a squabble over a $700 million purchase agreement.

Like other Covid-19 vaccine makers, Gaithersburg, Maryland-based Novavax supplies its vaccine under advance purchase agreements. Government bodies and health organizations such as Gavi make upfront payments to secure vaccine supply. Novavax uses that money to support manufacturing and distribution of its vaccine. The company considers these upfront payments nonrefundable.

Gavi paid $350 million up front under its 2021 advance purchase agreement with Novavax, according to the vaccine maker’s financial reports. After the vaccine secured an emergency use license from the World Health Organization in early 2022, Gavi paid Novavax another $350 million.

As a protein-based vaccine that can be stored at standard refrigerator temperatures, Novavax’s vaccine, marketed in some regions under the name Nuvaxovid, is a more viable choice for parts of the world that lack the infrastructure to support the ultra-cold chain requirements of messenger RNA-based vaccines. The Gavi agreement covered the purchase of 350 million vaccine doses. By mid-November 2022, Gavi had only ordered about 2 million doses, Novavax said. The company sent Gavi a termination notice.

Gavi countered by sending Novavax written notice that it was terminating the agreement, contending the company breached the deal. In addition, Gavi said it is entitled to a refund, minus what has been credited for binding orders placed for Gavi’s Covid-19 Vaccines Advance Market Commitment (COVAX), which was established to secure Covid-19 vaccines for low- and middle-income countries.

Early last year, Gavi filed a demand for arbitration. A hearing at the International Court of Arbitration was scheduled for July. The settlement announced Thursday terminates the original purchase agreement and brings the arbitration to a close. The new agreement calls for Novavax to pay Gavi an initial $75 million. In addition, Novavax must pay $80 million each year through 2028, deferred payments that will total $400 million. However, the amount Novavax pays out each year could be reduced by Gavi purchases of vaccines for supply to low- and middle-income countries. In the event that vaccine demand spikes, the settlement grants Gavi an additional vaccine credit of up to $225 million that may be applied to sales of Novavax vaccines for supply to low-income and lower middle-income countries that exceeds the $80 million deferred payment amount in the years covered by the pact.

In the joint news release announcing the settlement, Novavax President and CEO John Jaocbs said the agreement gives both parties “the ability to continue to work together toward our shared mission of ensuring equitable access to safe and effective vaccines.” Meanwhile, Gavi CEO David Marlow said the agreement allows his organization to keep focus on goals that include providing Covid-19 vaccine access to those in lower-income countries.

“It is good for global immunization, for countries and for healthy manufacturing markets,” Marlow said.

All Covid-19 vaccine manufacturers are experiencing slumping demand for their shots, but as a late-comer to the market, Novavax never experienced the revenue highs achieved by makers of the messenger RNA-based vaccines. In the nine months ended Sept. 30, 2023, the company reported $279.9 million in product sales, down nearly 78% compared to the same period in 2022. Of that total sum, $218.3 million came from outside of the U.S. and Europe.

On Feb. 28, Novavax is scheduled to report 2023 financial results for the fourth quarter and full year.

Photo: Nathan Howard/Bloomberg, via Getty Images