Here's how a struggling company won $1.6 billion to make a coronavirus vaccine

In late February, as the coronavirus spread around the world, Dr Richard Hatchett, head of an international nonprofit that gives money to vaccine developers, got on an important call to discuss vaccine candidates after his plane touched down at London’s Heathrow Airport.

Executives from the Bill & Melinda Gates Foundation, which helped found and finance the nonprofit, were on the line, enthusiastic about Novavax, a small biotech company they thought had the potential to develop a vaccine against the virus — fast.

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Although the company, based in Gaithersburg, Maryland, had never brought a vaccine to market in its 33-year history, these experts were optimistic about its technology, which uses moth cells to pump out crucial molecules at a much faster rate than typical vaccines — a major advantage in a pandemic.

Hatchett’s organization, the Coalition for Epidemic Preparedness Innovations, would go on to invest $388 million in the company’s coronavirus vaccine. With that powerful backing, Novavax made an aggressive push to the U.S. government. The company’s effort paid off last week when Operation Warp Speed, the Trump administration’s effort to hurry coronavirus vaccines to the market, gave Novavax $1.6 billion, the largest award to date. The company’s stock surged 30%.

It was a dramatic turnaround for a little-known company that, just one year earlier, had been on the verge of collapse. One of its leading vaccine candidates — to prevent a deadly virus in infants — had failed for the second time in three years. The company’s stock was trading so low that it risked being removed from the Nasdaq. Looking for cash, it sold its manufacturing facilities. Word spread around the small world of Maryland biotech that Novavax might be closing soon.

Novavax’s good fortune may appear puzzling, given its track record and the air of secrecy surrounding Operation Warp Speed. But for those in the insular biotech world where connections matter, it is far less surprising. In the face of a deadly pandemic that is devastating the economy, the government is placing huge bets on vaccines and treatments that could enable a return to some semblance of normal life.

The Trump administration has said it wants to invest in a variety of vaccine technologies, and Novavax — which uses coronavirus proteins to provoke an immune response — offers an approach that is distinct from those of other companies that have already received major federal backing. Its method’s potential to quickly manufacture millions of doses was also attractive to the federal government and Hatchett’s organization. The success this spring of a clinical trial of Novavax’s flu vaccine boosted confidence in the company.

“When the need is great, you have to be willing to take financial risks,” said Hatchett.

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But skeptics see Novavax as a classic example of a second-tier player that has survived by limping from crisis to crisis, boosting its stock by promising vaccines for new outbreaks, yet never delivering. In its three decades in business, with a mix of public and private investment, it has developed experimental vaccines for viruses like the ones that cause severe acute respiratory syndrome (or SARS), Middle East respiratory syndrome (or MERS) and Ebola that never made it past early safety studies. It’s telling, critics say, that even as it has received growing amounts of government and philanthropic support, the company’s coronavirus vaccine effort has not attracted any deals with major drugmakers.

“The market wants to believe in fairy tales,” said David Maris, managing partner of Phalanx Investment Partners and a longtime analyst covering the pharmaceutical industry. He said investors wanted to believe that — like Cinderella — the companies that couldn’t go to the ball would eventually win the prince.

“It sometimes happens,” he said. “Usually it doesn’t.”

So far, the federal government has promised nearly $4 billion to six vaccine projects, but many aspects of the deals are confidential. The Trump administration has only released heavily redacted copies of its contracts with these companies.

When asked this week why Novavax has received more than anyone else, a Trump administration official said that smaller companies needed more federal investment in manufacturing compared to large pharmaceutical firms, which have an established track record for mass-producing vaccines. The $1.6 billion comes from the Department of Health and Human Services and the Defense Department and will be used to help develop and manufacture Novavax’s vaccine.

In pursuing its contracts, Novavax drew on influential ties it had cultivated in the federal government and close-knit global health community, according to interviews with current and former company executives, federal and global health officials, vaccine experts and investment analysts.

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The Biomedical Advanced Research and Development Authority, or BARDA, which makes deals with drug manufacturers during public health emergencies and is one of the federal agencies carrying out Operation Warp Speed, has been headed by two former Novavax executives. One of them would later complain that the company crossed ethical lines when it approached him about receiving funding this spring.

Novavax also tapped into a long-standing relationship with the Gates Foundation, which had previously provided it with funding and is one of the most powerful global players in the vaccine world.

John Trizzino, Novavax’s chief business and financial officer, said the company did nothing inappropriate but acknowledged that it used its connections to help win the deals. “This doesn’t happen by itself,” he said. “This happens through years and years of working within the industry, building solid relationships, having worked with many of these partners.”

If Novavax does succeed, it will represent a major success story for a company that has struggled for years. Founded in 1987, the company has operated on the outskirts of the industry, far from the biotech hubs of Boston and San Diego. Although vaccines have been its main focus, Novavax has over the years dabbled in other businesses, like prenatal vitamins and estrogen lotion.

In 2016, the company suffered a major setback when its late-stage clinical trial to treat respiratory syncytial virus, or RSV, in older people failed, and the company laid off one-third of its staff.

A review in 2017 from an employee on the website Glassdoor summed up the atmosphere. “Bowling on Fridays, unlimited sick days,” the person wrote under “pros.” Under “cons,” the person wrote, “The management rushed clinical trials for RSV, clinical trials failed, and layoffs insued [sic].”

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But Novavax was able to pursue a second clinical trial of the RSV vaccine with assistance from the Gates Foundation, which granted the company up to $89 million. That study tested whether giving the vaccine to pregnant women would pass the immunity to their newborns, who can become very sick from the virus.

But that trial failed too, and the company again found itself in a financial crisis. It initiated a reverse stock split to lift its share price and avoid delisting from the Nasdaq, and it sold its manufacturing facilities to another company, Catalent, for $18 million. The deal included 100 workers, or about one-third of its workforce at the time.

Trizzino said it was all part of the business.

“It’s biotech, and biotech can be a bit of a roller-coaster ride,” he said. “We’re innovators, and we’re looking for opportunities that other companies haven’t developed.”

He said working with the Gates Foundation on the RSV vaccine cemented that relationship. “They became very familiar with our technology,” Trizzino said. “So when coronavirus reared its head, they were supportive.”

The foundation declined to discuss details of vaccine candidates, but in a statement, Emilio Emini, its HIV program director, said, “We see promise in a range of COVID-19 vaccine candidates, including Novavax’s approach.”