Shares of vaccine maker Novavax jumped over 20% on Thursday after the company announced it had reached a settlement agreement with Gavi, the Vaccine Alliance. The settlement resolves a dispute between the two organizations over a canceled COVID-19 vaccine order and provides a boost to the small cap pharmaceutical company.
In May 2021, Novavax signed an advance purchase agreement with Gavi for 350 million doses of its COVID vaccine. Gavi is a public-private global health partnership focused on increasing access to immunization in lower-income countries. It was planning to distribute Novavax’s shots globally through the COVAX initiative.
However, in 2022, Novavax terminated the agreement due to Gavi’s failure to procure any of the planned vaccine doses. Gavi sought a refund on $700 million in advance payments it had made to Novavax, but the company claimed these payments were non-refundable.
The dispute went to arbitration, with Gavi demanding full repayment of the $700 million in 2023. This presented a major financial risk for the small cap Novavax, which has a market capitalization under $5 billion.
Under the new settlement, Novavax will pay Gavi a total of up to $475 million, but in installments over 5 years. An initial $75 million payment has already been made. The remaining payments of $80 million annually through 2028 can potentially be reduced based on any future Novavax vaccine orders Gavi makes.
Gavi also has the option to order discounted Novavax vaccines over the next 5 years using “vaccine credits” provided under the settlement terms. This means that if demand arises, Novavax has the opportunity to supply more of its shots to Gavi for use in lower-income countries.
The flexible settlement terms are highly positive for Novavax’s business outlook. Instead of facing a risky $700 million payment in 2023, the company can spread payments over time while potentially recouping some of the amounts through future vaccine orders.
Many analysts viewed the Gavi arbitration as one of the largest overhangs on the beaten-down stock. Resolving this dispute eliminates a major uncertainty just as Novavax is struggling with low demand for its COVID vaccine. It also ensures Novavax can still participate in serving lower-income markets through partnerships like COVAX.
As a small cap player in the competitive vaccine space, Novavax relies heavily on such partnerships. The Gavi settlement provides the company with much-needed cash flow relief and keeps the door open to future deals. Novavax can now focus its resources on boosting sales and advancing other vaccines in its pipeline.
All told, the settlement comes as a major win for Novavax and its investors. While risks remain for the small vaccine developer, removing the Gavi arbitration cloud and securing continued market access is the optimistic boost Novavax needed right now. The company still faces challenges but has bought itself more time to strategically get back on track.
