Novavax, a biotechnology company known for its protein-based Covid-19 vaccine, has agreed to pay up to $475 million to Gavi, the Vaccine Alliance, over the course of five years to settle a dispute over a $700 million advance purchase agreement, thus avoiding a potentially costly arbitration. Like other Covid-19 vaccine manufacturers, Novavax relies on advance purchase agreements, in which upfront payments from government bodies and health organizations secure the supply of the vaccine, supporting its manufacturing and distribution.
According to Novavax’s financial reports, Gavi had originally agreed to pay $350 million upfront, later paying an additional $350 million after Novavax’s vaccine received an emergency use license from the World Health Organization in the early days of 2022. However, Gavi only ordered about 2 million doses from Novavax, despite the agreement covering the purchase of 350 million doses, leading to the termination of the deal by Novavax. Gavi responded by filing a demand for arbitration, arguing that Novavax had breached the agreement. This led to the scheduling of a hearing at the International Court of Arbitration in July.
The newly announced settlement, which also terminates the much disputed original purchase agreement, requires Novavax to pay an initial $75 million to Gavi. In addition, Novavax is obliged to pay $80 million each year until 2028, summing up to $400 million in deferred payments. These annual payouts could potentially be reduced by Gavi’s purchases of vaccines for supply to low- and middle-income countries.
In the event of a sudden increase in vaccine demand, the settlement terms reportedly grant Gavi an additional vaccine credit of up to $225 million, applicable to sales of Novavax’s vaccines that exceed the $80 million deferred payment amount in the years covered by the agreement.
Novavax, a late entrant to the Covid-19 vaccine market, has been hit hard by the dwindling demand for vaccines. The company’s revenue for the nine months up to September of 2023 was $279.9 million, a nearly 78% drop compared to the same period in 2022. Of the total revenue, $218.3 million was reported to have been generated outside of the US and Europe.
The company’s 2023 financial results for the 4th quarter and full year are due to be reported on February 28. With this settlement, Novavax has largely avoided the risk of a major payout, which could have had serious financial implications for the company.