Shares of Novavax surged by over 20% on Thursday following the announcement that the company will resolve a contentious arbitration dispute with Gavi, a global vaccine organization not affiliated with any government, regarding the cancellation of a COVID-19 vaccine purchase agreement.
According to the terms, Novavax may potentially pay up to $475 million to Gavi, with the final sum subject to adjustment based on any additional vaccine orders placed by Gavi with the financially strained company within the next five years.
This resolution marks the removal of a significant uncertainty surrounding the future of the COVID-19 vaccine manufacturer, which has been striving to streamline expenses amid concerns about its financial viability amidst declining global demand for COVID-19-related products.
The rift between Novavax and Gavi originated in 2022 when Novavax terminated a purchase agreement previously made with Gavi, based in Geneva. The termination was attributed to Gavi’s alleged failure to secure the agreed-upon 350 million vaccine doses, which were intended for procurement under the COVAX Facility—a global initiative aimed at ensuring more equitable distribution of COVID-19 vaccines to lower-income nations.
In response, Gavi sought reimbursement of the $700 million it had advanced to Novavax for vaccine procurement. Novavax contended that these advance payments were nonrefundable. As part of the settlement terms, Novavax has made an initial payment of $75 million to Gavi and has committed to making deferred payments of $80 million annually until December 31, 2028.
These annual payments are structured to be disbursed in quarterly installments. Under the settlement agreement, Novavax has the option to offset its payments through an annual $80 million “vaccine credit,” which Gavi can utilize to purchase any of Novavax’s vaccines designated for low and lower-middle-income countries, funded by Gavi.
For instance, if Gavi opts to order $50 million worth of vaccines from Novavax in 2025, Novavax would only be obligated to pay $30 million to Gavi for that year. Additionally, Novavax has pledged a vaccine credit of up to $225 million, which Gavi can employ to procure additional vaccine doses throughout the five-year settlement period, “should there be additional demand.”
The terms outlined in the settlement could potentially bolster Novavax’s business prospects. Analysts had previously expressed concerns to CNBC that Novavax might face significant challenges if the arbitration compelled it to make the full $700 million payment to Gavi in 2023.
“Gavi welcomes this agreement, which allows us to maintain focus on our core programmatic goals, including providing access to COVID-19 vaccines for vulnerable people in lower-income countries,” remarked Gavi CEO David Marlow in a statement released on Thursday.
