Leases

12 Months Ended

Dec. 31, 2021

Leases [Abstract]

Leases

Leases

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

During 2021 and 2020, the Company entered into various CMO and CDMO manufacturing supply agreements that include the use of identified manufacturing facilities and contain fixed or minimum commitments. 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. Additionally, during 2021, the Company amended its various CMO and CDMO agreements that modified existing embedded leases under ASC 842 as the Company continued to have the exclusive use of, and control over, a portion of manufacturing facilities and equipment of the supplier during the contractual term of the new arrangement. For leases that were previously determined to represent short-term embedded leases, the modifications did not result in a change in lease classification.

During 2021 and 2020, the Company recognized ROU assets of $144.4 million and $245.9 million, respectively, for its finance leases and long-term operating related to leases embedded in CMO and CDMO manufacturing supply agreements. 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.

During 2021, the Company entered into and extended various facility lease agreements related to research and development facilities and office space. During 2020, the Company entered into a lease agreement for the premises located at 700 Quince Orchard Road, Gaithersburg, Maryland ("700QO"). 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 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 incurred $36.4 million in 2021 related to tenant improvement costs and anticipates that it will incur substantial additional tenant improvement costs, net of total landlord contribution of $30.6 million, through 2023 to bring the building to the condition necessary for its intended use. The Company is anticipated to occupy the premises in phases and occupied the third floor during the first quarter of 2022.

As of December 31, 2021, the facility leases, excluding the 700QO lease, have expirations that range from approximately three to nine years, some of which include options to extend the lease term. The Company includes the option to extend the lease in determining the lease term if 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.

The Company uses its incremental borrowing rate in determining its ROU assets and long-term lease obligations. The Company uses 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 of the lease inception date.

Supplemental balance sheet information related to leases as of December 31, 2021 and 2020 was as follows (in thousands, except weighted-average remaining lease term and discount rate):

		December 31,
Lease Assets and Liabilities	Classification	2021		2020
Assets:
ROU assets, operating, net	Other non-current assets	$	40,123	$	7,794
Liabilities:
Current portion of operating lease liabilities	Other current liabilities	$	30,983	$	3,782
Current portion of finance lease liabilities	Current portion of finance lease liabilities	130,533		105,862
Total current lease liabilities		$	161,516	$	109,644
Non-current portion of operating lease liabilities	Other non-current liabilities	$	39,116	$	10,122
Non-current portion of finance lease liabilities	Non-current finance lease liabilities	—		40,083
Total non-current lease liabilities		$	39,116	$	50,205
Weighted-average remaining lease term (years):
Operating leases		5.0		4.5
Finance leases		3.7		4.7
Weighted-average discount rate:
Operating leases		6.0%		13.8%
Finance leases		5.2%		6.4%

Lease expense for the operating and short-term leases for the years ended December 31, 2021 and 2020 was as follows (in thousands):

	Year Ended December 31,
	2021		2020
Operating lease expense	$	37,027	$	2,462
Short-term lease expense	468,210		66,805
Variable lease expense	116,435		4,854
Finance lease expense:
ROU assets expensed	$	112,528	$	242,009
Interest expense	7,241		3,097
Total finance lease expense	$	119,769	$	245,106

Supplemental cash flow information related to leases for the year ended December 31, 2021 and 2020 was as follows (in thousands):

	Year Ended December 31,
	2021		2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used in operating leases	$	203,991	$	63,634
Operating cash flows used in finance leases	7,241		3,097
Financing cash flows used in finance leases	127,907		96,065
ROU assets obtained in exchange for operating lease obligations	$	66,682	$	5,590
ROU assets obtained in exchange for finance lease obligations	112,528		242,009

As of December 31, 2021, maturities of lease liabilities were as follows (in thousands):

Year	Amount
2022	$	166,244
2023	7,104
2024	7,238
2025	7,361
2026	7,344
Thereafter	19,186
Total minimum lease payments	214,477
Less: imputed interest	(13,845)
Total lease liabilities	$	200,632

Leases

Leases

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

During 2021 and 2020, the Company entered into various CMO and CDMO manufacturing supply agreements that include the use of identified manufacturing facilities and contain fixed or minimum commitments. 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. Additionally, during 2021, the Company amended its various CMO and CDMO agreements that modified existing embedded leases under ASC 842 as the Company continued to have the exclusive use of, and control over, a portion of manufacturing facilities and equipment of the supplier during the contractual term of the new arrangement. For leases that were previously determined to represent short-term embedded leases, the modifications did not result in a change in lease classification.

During 2021 and 2020, the Company recognized ROU assets of $144.4 million and $245.9 million, respectively, for its finance leases and long-term operating related to leases embedded in CMO and CDMO manufacturing supply agreements. 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.

During 2021, the Company entered into and extended various facility lease agreements related to research and development facilities and office space. During 2020, the Company entered into a lease agreement for the premises located at 700 Quince Orchard Road, Gaithersburg, Maryland ("700QO"). 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 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 incurred $36.4 million in 2021 related to tenant improvement costs and anticipates that it will incur substantial additional tenant improvement costs, net of total landlord contribution of $30.6 million, through 2023 to bring the building to the condition necessary for its intended use. The Company is anticipated to occupy the premises in phases and occupied the third floor during the first quarter of 2022.

As of December 31, 2021, the facility leases, excluding the 700QO lease, have expirations that range from approximately three to nine years, some of which include options to extend the lease term. The Company includes the option to extend the lease in determining the lease term if 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.

The Company uses its incremental borrowing rate in determining its ROU assets and long-term lease obligations. The Company uses 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 of the lease inception date.

Supplemental balance sheet information related to leases as of December 31, 2021 and 2020 was as follows (in thousands, except weighted-average remaining lease term and discount rate):

		December 31,
Lease Assets and Liabilities	Classification	2021		2020
Assets:
ROU assets, operating, net	Other non-current assets	$	40,123	$	7,794
Liabilities:
Current portion of operating lease liabilities	Other current liabilities	$	30,983	$	3,782
Current portion of finance lease liabilities	Current portion of finance lease liabilities	130,533		105,862
Total current lease liabilities		$	161,516	$	109,644
Non-current portion of operating lease liabilities	Other non-current liabilities	$	39,116	$	10,122
Non-current portion of finance lease liabilities	Non-current finance lease liabilities	—		40,083
Total non-current lease liabilities		$	39,116	$	50,205
Weighted-average remaining lease term (years):
Operating leases		5.0		4.5
Finance leases		3.7		4.7
Weighted-average discount rate:
Operating leases		6.0%		13.8%
Finance leases		5.2%		6.4%

Lease expense for the operating and short-term leases for the years ended December 31, 2021 and 2020 was as follows (in thousands):

	Year Ended December 31,
	2021		2020
Operating lease expense	$	37,027	$	2,462
Short-term lease expense	468,210		66,805
Variable lease expense	116,435		4,854
Finance lease expense:
ROU assets expensed	$	112,528	$	242,009
Interest expense	7,241		3,097
Total finance lease expense	$	119,769	$	245,106

Supplemental cash flow information related to leases for the year ended December 31, 2021 and 2020 was as follows (in thousands):

	Year Ended December 31,
	2021		2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used in operating leases	$	203,991	$	63,634
Operating cash flows used in finance leases	7,241		3,097
Financing cash flows used in finance leases	127,907		96,065
ROU assets obtained in exchange for operating lease obligations	$	66,682	$	5,590
ROU assets obtained in exchange for finance lease obligations	112,528		242,009

As of December 31, 2021, maturities of lease liabilities were as follows (in thousands):

Year	Amount
2022	$	166,244
2023	7,104
2024	7,238
2025	7,361
2026	7,344
Thereafter	19,186
Total minimum lease payments	214,477
Less: imputed interest	(13,845)
Total lease liabilities	$	200,632