NOVAVAX INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Any statements in the discussion below and elsewhere in this Quarterly Report on Form 10-Q (this "Quarterly Report") about expectations, beliefs, plans, objectives, assumptions, or future events or performance of Novavax, Inc. (“Novavax,” and together with its wholly owned subsidiaries, the “Company,” “we,” or “us”) are not historical facts and are forward-looking statements. Such forward-looking statements include, without limitation, statements about our capabilities, goals, expectations regarding future revenue and expense levels, and capital raising activities; our operating plans and prospects; potential market sizes and demand for our product candidates; the efficacy, safety, and intended utilization of our product candidates; the development of our clinical-stage product candidates and our recombinant vaccine and adjuvant technologies; the development of our preclinical product candidates; our expectations related to enrollment in our clinical trials; the conduct, timing, and potential results from clinical trials and other preclinical studies; plans for and potential timing of regulatory filings; our expectation of manufacturing capacity, timing, production, distribution, and delivery for our coronavirus vaccine candidate (“NVX-CoV2373") by us and our partners; our expectations with respect to the anticipated ongoing development and commercialization or licensure of NVX-CoV2373 and our seasonal quadrivalent influenza vaccine, previously known as NanoFlu; the expected timing, content, and outcomes of regulatory actions; funding from the U.S. government partnership formerly known as Operation Warp Speed (“OWS”), the U.S. Department of Defense (“DoD”), and the Coalition for Epidemic Preparedness Innovations (“CEPI”), and payments from the Bill & Melinda Gates Foundation (“BMGF”); funding under our advance purchase agreements and supply agreements and amendments to, or termination of, any such agreement; our available cash resources and usage and the availability of financing generally; plans regarding partnering activities and business development initiatives; and other matters referenced herein. Generally, forward-looking statements can be identified through the use of words or phrases such as “believe,” “may,” “could,” “will,” “would,” “possible,” “can,” “estimate,” “continue,” “ongoing,” “consider,” “anticipate,” “intend,” “seek,” “plan,” “project,” “expect,” “should,” “would,” “aim,” or “assume,” the negative of these terms, or other comparable terminology, although not all forward-looking statements contain these words. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs and expectations about the future of our business, future plans and strategies, projections, anticipated events and trends, the economy, and other future conditions. Forward-looking statements involve estimates, assumptions, risks, and uncertainties that could cause actual results or outcomes to differ materially from those expressed or implied in any forward-looking statements, and, therefore, you should not place considerable reliance on any such forward-looking statements. Such risks and uncertainties include, without limitation, challenges satisfying, alone or together with partners, various safety, efficacy, and product characterization requirements, including those related to process qualification and assay validation, necessary to satisfy applicable regulatory authorities, such as the U.S. Food and Drug Administration (“FDA”), World Health Organization (“WHO”), United Kingdom (“UK”) Medicines and Healthcare Products Regulatory Agency (“MHRA”), the European Medicines Agency (“EMA”), the Republic of Korea’s Ministry of Food and Drug Safety (“MFDS”), or Japan’s Ministry of Health, Labour and Welfare (“MHLW”); unanticipated challenges or delays in conducting clinical trials; difficulty obtaining scarce raw materials and supplies; resource constraints, including human capital and manufacturing capacity, constraints on the ability of Novavax to pursue planned regulatory pathways, alone or with partners, in multiple jurisdictions simultaneously, leading to staggering of regulatory filings, and potential regulatory actions; challenges meeting contractual requirements under agreements with multiple commercial, governmental, and other entities; and other risks and uncertainties identified in Part I, Item 1A “Risk Factors” of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which may be detailed and modified or updated in other documents filed with the United States Securities and Exchange Commission (“SEC”) from time to time, and are available at www.sec.gov and at www.novavax.com. You are encouraged to read these filings as they are made. Information in this Quarterly Report includes a financial measure that was not prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), which we refer to as adjusted cost of sales. We are presenting this non-GAAP financial measure to assist an understanding of our business and its performance. Adjusted cost of sales includes an estimate of standard manufacturing costs that were previously expensed to research and development prior to regulatory approvals for NVX-CoV2373 that would otherwise have been capitalized to inventory. Any non-GAAP financial measures presented are not, and should not be viewed as, substitutes for financial measures required by GAAP, have no standardized meaning prescribed by GAAP, and may not be comparable to the calculation of similar measures of other companies. We cannot guarantee future results, events, level of activity, performance, or achievement. Any or all of our forward-looking statements in this Quarterly Report may turn out to be inaccurate or materially different from actual results. Further, any forward-looking statement speaks only as of the date when it is made, and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, unless required by law. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. 18 Overview Novavax, Inc., together with our wholly-owned subsidiaries, is a biotechnology company that promotes improved health globally through the discovery, development, and commercialization of innovative vaccines to prevent serious infectious diseases around the world. Our proprietary recombinant technology platform harnesses the power and speed of genetic engineering to efficiently produce highly immunogenic nanoparticle vaccines designed to address urgent global health needs. Our vaccine candidates are genetically engineered nanostructures of conformationally correct recombinant proteins that mimic those found on natural pathogens. This technology enables the immune system to recognize the right target proteins from different angles and develop protective antibodies. We believe that our vaccine technology may lead to the induction of a differentiated immune response that may be more efficacious than naturally occurring immunity or other vaccine approaches. Our vaccine candidates also incorporate our proprietary saponin-based Matrix-M™ adjuvant to enhance the immune response and stimulate higher levels of functional antibodies and induce a cellular immune response. We have developed a COVID-19 vaccine (“NVX-CoV2373,” “Nuvaxovid™,” “Covavax”), and are developing an influenza vaccine, a COVID-19-Influenza Combination vaccine, and additional vaccine candidates. NVX-CoV2373 has received approval, interim authorization, provisional approval, conditional marketing authorization (“CMA”), and emergency use authorization (“EUA”) from multiple regulatory authorities globally. In addition to COVID-19 and seasonal influenza, our other areas of focus include respiratory syncytial virus (“RSV”) and malaria. Technology Overview We believe our recombinant nanoparticle vaccine technology together with our proprietary Matrix-M™ adjuvant is well-suited for the development of vaccine candidates targeting a broad scope of respiratory and other emerging infectious diseases at scale. Recombinant Nanoparticle Vaccine Technology Once a pathogenic threat has been identified, the genetic sequence encoding the antigen is selected for subsequent use in developing the vaccine construct. The genetic sequence may be optimized to enhance protein stability or confer resistance to degradation. This genetic construct is inserted into the baculovirus Spodoptera frugiperda (“Sf9/BV”) insect cell-expression system, which enables efficient, large-scale expression of the optimized protein. The Sf9/BV system produces proteins that are properly folded and modified – which can be critical for functional, protective immunity – as the vaccine antigen. Protein antigens are purified and organized around a polysorbate-based nanoparticle core, in a configuration that resembles their native presentation. This results in a highly immunogenic nanoparticle that is ready to be formulated with Matrix-M ™ adjuvant. Matrix-M™ Adjuvant Our proprietary Matrix-M™ adjuvant has been a key differentiator within our platform. This adjuvant has demonstrated potent, well-tolerated, and durable efficacy by stimulating the entry of antigen presenting cells (“APCs”) into the injection site and enhancing antigen presentation in local lymph nodes. This in turn activates APCs, T-cell and B-cell populations, plasma cells, and high affinity antibodies, thereby boosting immune response. This potent mechanism of action enables a lower dose of antigen required to achieve the desired immune response and we believe thereby contributes to increased vaccine supply and manufacturing capacity. These immune-boosting and dose-sparing capabilities contribute to the adjuvant’s highly unique profile. 19 NVX-CoV2373 Regulatory and Licensure We continue to make progress in advancing NVX-CoV2373 toward regulatory approvals. We have received numerous authorizations globally, which collectively have the potential to reach over six billion individuals. To date, we have received approval, interim authorization, provisional approval, CMA, and EUA for both adult and adolescent populations, and we expect to initiate additional rolling submissions worldwide. We continue to work closely with governments, regulatory authorities, and non-governmental organizations in our commitment to facilitate equitable global access to our COVID-19 vaccine. For the territories in which our vaccine has gained authorization, NVX-CoV2373 is marketed under the brand name of Nuvaxovid™ COVID-19 Vaccine (SARS-CoV-2 rS [Recombinant, adjuvanted]) or as Covovax™ (manufacturing and commercialization by the Serum Institute of India Pvt. Ltd. (“SIIPL”)). 20 Through the date of filing this Quarterly Report, the below is a summary of regulatory authorizations for NVX-CoV2373: (1) Regulatory manufacturing and marketing approval received by partner Takeda Pharmaceutical Company Limited (“Takeda”). (2) Regulatory approval received in partnership with SIIPL. 21 In the first quarter of 2022, we have completed additional regulatory submissions in major markets for both adult and adolescent populations. We are in active discussions with regulatory authorities and remain focused on seeking additional authorizations for NVX-CoV2373. Below is a summary and status of our regulatory submissions completed through the date of filing this Quarterly Report. (1) Regulatory filing submitted by our partner, SK bioscience, Co., Ltd. (“SK bioscience”). (2) Regulatory filing submitted in partnership with SIIPL. 22 Clinical Pipeline Our clinical pipeline encompasses vaccine candidates spanning multiple therapeutic areas including coronavirus, seasonal influenza, RSV, and Matrix-M TM adjuvant collaborations for the prevention of malaria. Our COVID-19 vaccine candidate, NVX-CoV2373, is our leading product, having received approval, interim authorization, provisional approval, CMA, and EUA from multiple regulatory authorities globally. We advanced NVX-CoV2373 through two pivotal Phase 3 clinical trials that demonstrated high efficacy against both the original COVID-19 strain and commonly circulating COVID-19 variants of concern (“VoC”), while maintaining a favorable safety profile. We also advanced our influenza vaccine through a Phase 3 clinical trial, which demonstrated positive top-line results and achieved statistical significance in key secondary endpoints. We initiated a trial of a COVID-19-Influenza Combination vaccine (“CIC”) consisting of our influenza vaccine and NVX-CoV2373. In April 2022, we announced initial results from Phase 1/2 clinical trial of CIC demonstrating that formulating the combination vaccine is well-tolerated and immunogenic. Modeling results showed that combined formulation has the potential to reduce total antigen amount by up to 50% overall, optimizing production and delivery. Additionally, we remain interested in further development of our RSV Program for respiratory syncytial virus fusion (F) protein nanoparticle vaccine candidate (“RSV F Vaccine”). Ongoing Phase 3 trials are being conducted by our partner, Jenner Institute, University of Oxford, for R21, a malaria candidate currently under development by the University of Oxford in partnership with SIIPL, which is formulated using our Matrix-M ™ adjuvant. We remain focused on bringing our NVX-CoV2373 vaccine candidate to market following global regulatory authorizations. Through ongoing booster studies in our clinical trials, as well as the development of COVID-19 variant strain vaccine candidates, we continue to collect data to characterize and improve vaccine performance. We expect to leverage these clinical insights to advance the use and additional regulatory approvals of our COVID-19 vaccine for both primary vaccination around the globe, to use within a booster setting, and for the pediatric population amidst the ongoing and evolving COVID-19 pandemic. The pipeline chart below summarizes the core clinical and preclinical development programs that we are focusing on in the near-term. (1) Supported by OWS, DoD, CEPI, and BMGF. (2) Authorized for provisional approval, CMA, or EUA in select geographies under trade names Nuvaxovid TM and Covovax TM . Request submitted to the FDA for EUA. PREVENT-19, a Phase 3 clinical trial in the U.S. and Mexico; Ongoing PREVENT-19 pediatric expansion in the U.S.; Phase 3 clinical trial in the UK; Ongoing Phase 2b clinical trial in South Africa. We, along with our partners, will have commercial rights in authorized geographies to sell and distribute NVX-CoV2373. 23 Business Highlights First Quarter 2022 and Recent Highlights Expanded Worldwide Authorizations for COVID-19 Primary and Booster Vaccination in Adult Population Aged 18+ • Received manufacturing and marketing approval with our partner Takeda, in Japan for Nuvaxovid™ for primary, heterologous and homologous boosting indications • Granted authorization (emergency use, provisional, interim or conditional) for Nuvaxovid™ in Great Britain, Canada, Australia, Switzerland, Singapore and New Zealand • Received full regulatory approval for Nuvaxovid™ in South Korea with our partner SK bioscience, becoming the first protein-based vaccine approved in South Korea • Granted EUA for Covovax™ with our partner SIIPL in Thailand and Bangladesh • Submitted request for EUA to the U.S. FDA and, with SIIPL, filed for EUA in South Africa ◦ FDA scheduled Vaccines and Related Biological Products Advisory Committee (“VRBPAC”) meeting for June 7th, 2022 Progressed COVID-19 Vaccine Regulatory Pathway for Children Aged 12-17 Years • Granted EUA for adolescents in India with SIIPL for Covovax™ • Submitted requests for authorization for Nuvaxovid™ in adolescents to the European Union, Great Britain, Australia and New Zealand • Filed for approval of Nuvaxovid™ with SK bioscience, for adolescents in South Korea • Additional global submissions planned throughout the second quarter of 2022 CIC Vaccine Candidate Clinical Development • Announced initial results of CIC Phase 1/2 trial, combining NVX-CoV2373 and quadrivalent influenza vaccine candidate ◦ Immune response confirmed in stand-alone influenza vaccine candidate and CIC vaccine candidate with potential path forward for both ◦ Demonstrated combined formulation has potential to reduce total antigen amount by up to 50% overall ◦ Expect to begin CIC Phase 2 trial by the end of 2022 COVID-19 Vaccine Supply and Distribution • Delivered Nuvaxovid™ globally to European Union, Canada, Australia, Thailand, Singapore and New Zealand and with SK bioscience to South Korea COVID-19 Vaccine Clinical Development • UK Phase 3 study demonstrated ongoing durability of protection against infection and disease in long term follow-up (median of 101 days) ◦ 82.5% efficacy in protection against all COVID-19 infection, as measured by PCR+ or anti-N seroconversion ◦ 82.7% overall efficacy against disease ◦ 100% efficacy against severe disease 24 • Continued rapid development and assessment of strain change, including Omicron-specific clinical studies with topline readout expected in third quarter of 2022 ◦ Evaluating benefit of Omicron-specific (BA.1 and BA.2) or bivalent vaccine compared to current prototype, with first doses expected this month • Progressed South Africa Phase 2 study with ongoing administration in participants to evaluate a three-dose regimen and different dosing schedules in -immunocompromised participants, providing flexibility to national delivery programs ◦ Topline results expected in fourth quarter of 2022 • Progressed PREVENT-19 Phase 3 study in adolescents aged 12-17 years ◦ Achieved primary effectiveness endpoint and demonstrated comparability to adult population ◦ Demonstrated 80% overall clinical efficacy and 82% efficacy against Delta variant ◦ Vaccine was generally well-tolerated and safety profile was consistent with previous studies ◦ Initiated booster study to evaluate safety and immunogenicity of a third dose • Continued clinical trials in younger age groups to build on positive pediatric data ◦ Expect to initiate PREVENT-19 Phase 3 trial in younger age groups (5-11 years) by third quarter of 2022 ◦ SIIPL generated positive data from Phase 2/3 India study in children ages 2-17 years showing robust immune responses with favorable reactogenicity profiles • Announced participation in Phase 1/2 heterologous booster study sponsored by National Institute of Allergy and Infectious Diseases ◦ Evaluating safety, reactogenicity and immunogenicity of heterologous boosters in approximately 180 individuals aged 18 years or older ◦ Topline results expected later this year and full results in 2023 • Announced participation in Phase 3 study in the United Arab Emirates evaluating boost with NVX-CoV2373 in participants who were immunized with an inactive COVID-19 vaccine in individuals aged 18 years or older Sales of Common Stock During the three months ended March 31, 2022, we sold 2.2 million of shares of our common stock resulting in net proceeds of approximately $179 million, under our most recent At Market Issuance Sales agreement entered in June 2021 (the “June 2021 Sales Agreement”), which allows us to issue and sell up to $500 million in gross proceeds of shares of our common stock. As of March 31, 2022, the remaining balance under our June 2021 Sales Agreement was approximately $318 million. During the three months ended March 31, 2021, we sold 2.6 million shares of our common stock resulting in net proceeds of approximately $565 million, under our various At Market Issuance Sales agreements then in effect. Critical Accounting Policies and Use of Estimates There are no material changes to our critical accounting policies as described in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC. Recent Accounting Pronouncements Not Yet Adopted See “Note 2―Summary of Significant Accounting Policies” included in our Notes to Consolidated Financial Statements (under the caption “ Recent Accounting Pronouncements ”). Results of Operations The following is a discussion of the historical financial condition and results of the Company’s operations that should be read in conjunction with the unaudited consolidated financial statements and notes set forth in this Quarterly Report. 25 Three Months Ended March 31, 2022 and 2021 Revenue Three Months Ended March 31, 2022 2021 Change Revenue (in thousands): Product sales $ 585,628 $ — $ 585,628 Grants 99,301 446,893 (347,592) Royalties and other 19,042 336 18,706 Total revenue $ 703,971 $ 447,229 $ 256,742 Revenue for the three months ended March 31, 2022 was $704.0 million as compared to $447.2 million for the same period in 2021, an increase of $256.7 million. Revenue for the three months ended March 31, 2022 was primarily comprised of revenue from product sales of NVX-CoV2373 and, to a lesser extent, revenue for services performed under the agreement with the U.S. government partnership formerly known as OWS (“OWS Agreement”). Revenue for the three months ended March 31, 2021 was primarily comprised of revenue for services performed under the OWS Agreement and our funding agreements with CEPI. The increase in revenue was due to the commencement of product sales of NVX-CoV2373, partially offset by decreased development activities under the OWS Agreement as we approach anticipated commercialization of NVX-CoV2373. We expect revenue in 2022 to significantly increase as compared to 2021 due to product sales of NVX-CoV2373 under various supply agreements, sometimes referred to as advance purchase agreements (“APAs”), as a result of multiple global regulatory approvals, royalties from the sale of NVX-CoV2373 under our supply and license agreements with strategic partners to supply NVX-CoV2373 in their specified territories where we are entitled to receive royalties from such sales, and our NVX-CoV2373 program, which we anticipate will continue to be funded by OWS and other revenue sources. Expenses Three Months Ended March 31, 2022 2021 Change Expenses (in thousands): Cost of sales $ 15,204 $ — $ 15,204 Research and development 383,483 592,671 (209,188) Selling, general, and administrative 95,992 63,190 32,802 Total expenses $ 494,679 $ 655,861 $ (161,182) 26 Cost of Sales Cost of sales was $15.2 million, or 3% of product sales, for the three months ended March 31, 2022. Prior to receiving approval, we expensed manufacturing costs as research and development expenses. After receiving approval, we capitalize the costs of production for a particular supply chain when we determine that we have a present right to the economic benefit associated with the product. While we tracked the quantities of our manufactured vaccine product and components, we did not track pre-approval manufacturing costs and therefore the manufacturing cost of our pre-launch inventory produced prior to approval is not reasonably determinable. However, based on our expectations for future manufacturing costs to produce our vaccine product and components inventory, we estimate that approximately $0.7 billion of commercial inventory was expensed prior to approval. We expect to utilize the majority of our reduced-cost inventory during 2022. If inventory sold for the three months ended March 31, 2022 was valued at expected standard cost, adjusted cost of sales for the period would have been approximately $160 million, or 27% of product sales, an adjustment of $145 million. The cost of sales as a percentage of product sales may fluctuate in the future as a result of changes to our customer mix or standard costs. Research and Development Expenses Research and development expenses decreased to $383.5 million for the three months ended March 31, 2022 as compared to $592.7 million for the three months ended March 31, 2021, a decrease of $209.2 million primarily due to research and development of NVX-CoV2373, as summarized in the table below (in millions): Three Months Ended March 31, 2022 2021 NVX-CoV2373 $ 288,933 $ 538,125 Influenza vaccine 1,296 1,126 Other vaccine development programs 803 304 Total direct external research and development expense 291,032 539,555 Employee expenses 43,742 24,955 Stock-based compensation expense 16,887 23,790 Facility expenses 13,208 2,995 Other expenses 18,614 1,376 Total research and development expenses $ 383,483 $ 592,671 Research and development expenses for NVX-CoV2373 for the three months ended March 31, 2022, and March 31, 2021 included approximately $21.0 million and $22.8 million, respectively, related to the acceleration of manufacturing costs for leases that we determined were embedded in multiple manufacturing supply agreements with Contract Manufacturing Organizations (“CMOs”) and contract manufacturing and development organizations (“CDMOs”). For 2022, we expect total research and development expenses to decrease as compared to 2021. The decline in 2022 is anticipated to result from expected capitalization of manufacturing costs during 2022 that were previously recognized as research and development expenses in prior periods, partially offset by research and development expenses related to increased clinical activities as we continue to develop our NVX-CoV2373 and other programs. Selling, General, and Administrative Expenses Selling, general, and administrative expenses increased to $96.0 million for the three months ended March 31, 2022 from $63.2 million for the same period in 2021, an increase of $32.8 million. The increase in selling, general, and administrative expenses is primarily due to an increase in professional fees in support of our NVX-CoV2373 program. For 2022, we expect selling, general, and administrative expenses to increase significantly due to increased activities related to supporting our NVX-CoV2373 program and increases in employee-related costs and professional fees. Other Income (Expense) Three Months Ended March 31, 2022 2021 Change Other Income (Expense) (in thousands): Interest expense $ (4,876) $ (4,839) $ (37) Other income (expense) 1,654 (6,231) 7,885 Total other expense, net $ (3,222) $ (11,070) $ 7,848 27 We had total other expense, net, of $3.2 million for the three months ended March 31, 2022 as compared to $11.1 million for the same period in 2021. In the three months ended March 31, 2021, we recorded a $5.9 million loss on the intercompany loan with Novavax CZ due to changes in the foreign exchange rates. Income Tax Expense We recognized federal and state income tax expense of $0.6 million, in total, for the three months ended March 31, 2022 and did not recognize federal or state income tax expense for the three months ended March 31, 2021. During the three months ended March 31, 2022 and 2021, we recognized $2.1 million and $3.0 million, respectively, of income tax expense related to foreign withholding tax on royalties. Net Income (Loss) Three Months Ended March 31, 2022 2021 Change Net Income (Loss) (in thousands, except per share information): Net income (loss) $ 203,408 $ (222,719) $ 426,127 Net income (loss) per share, basic $ 2.66 $ (3.05) $ 5.71 Net income (loss) per share, dilutive $ 2.56 $ (3.05) $ 5.61 Weighted average shares outstanding, basic 76,457 73,035 3,422 Weighted average shares outstanding, dilutive 80,711 73,035 7,676 Net income for the three months ended March 31, 2021 was $203.4 million, or $2.66 per share, basic, as compared to a net loss of $222.7 million, or $3.05 per share, basic, for the same period in 2021. The change in net income (loss) was primarily due to the commencement of commercial sales of NVX-CoV2373, partially offset by decreased revenue under the OWS Agreement. The increase in weighted average shares outstanding for the three months ended March 31, 2022 is primarily a result of sales of our common stock and exercises of stock-based awards in 2022 and 2021. Liquidity Matters and Capital Resources Our future capital requirements depend on numerous factors including, but not limited to, revenue from our product sales and royalties under licensing arrangements with our strategic partners; funding under our grant agreements; our projected activities related to the development and commercial support of NVX-CoV2373 and variant candidates, including significant commitments under various CRO, CMO, and CDMO agreements; the progress of preclinical studies and clinical trials; the time and costs involved in obtaining regulatory approvals; the costs of filing, prosecuting, defending, and enforcing patent claims and other intellectual property rights; and other manufacturing, sales, and distribution costs. We plan to continue developing other vaccines and product candidates, such as our influenza vaccine candidate and potential combination vaccines candidates, which are in various stages of development. We have entered into supply agreements, sometimes referred to as APAs, with Gavi, the Vaccine Alliance (“Gavi”); the European Commission; and various countries globally. We also have grant and license agreements. As of March 31, 2022, the aggregate amount of the transaction price allocated to performance obligations that were unsatisfied (or partially unsatisfied), excluding amounts related to sales-based royalties under the license agreements, was approximately $7 billion. The timing to fulfill performance obligations related to grant agreements will depend on the results of our research and development activities, including clinical trials, receipt of US marketing authorization, and delivery of doses. The timing to fulfill performance obligations related to supply agreements will depend on timing of product manufacturing, receipt of marketing authorizations, and delivery of doses. The supply agreements typically contain terms that include upfront payments intended to assist us in funding investments related to building out and operating our manufacturing and distribution network, among other expenses, in support of our global supply commitment, and are applied to billings upon delivery of NVX-CoV2373. Such upfront payments generally become non-refundable upon our achievement of certain development, regulatory, and commercial milestones. Certain of the supply agreements may be terminated by the counterparty in the event we fail to achieve requisite regulatory approval for NVX-CoV2373 in relevant jurisdictions within established time periods. Failure to successfully develop and commercialize NVX-CoV2373 and failure to meet regulatory milestones or product volume or delivery timing obligations under our supply agreements may require us to refund significant portions of the prepayments or reduce payments, which could have a material and adverse effect on our financial condition. In addition, we continue to assess our manufacturing needs and intend to modify our global manufacturing footprint consistent with our contractual obligations to supply, and anticipated demand for, NVX-CoV2373, and in doing so recognize that significant costs may be incurred. 28 Under the terms of our contracted supply commitment with Gavi, which includes the supply obligation of our licensed partner, SIIPL, 1.1 billion doses of NVX-CoV2373 are to be made available to countries participating in the COVAX Facility, which was established to allocate and distribute vaccines equitably to participating countries and economies. The Novavax portion is a supply agreement that contemplates that we will manufacture and distribute 350 million doses. Under that agreement with Gavi, we received an upfront payment of $350 million from Gavi in 2021 and an additional payment of $350 million in the first quarter of 2022 related to our achieving WHO EUL. Although Novavax is prepared to deliver the quantities of NVX-CoV2373 doses to Gavi under the terms of our supply agreement, we were recently notified by Gavi of their intent to seek to revise the number and timing of doses of NVX-CoV2373 supplied by Novavax under such agreement. To date, Novavax has not received an order from Gavi and the timing and quantities of future orders to deliver NVX-COV2373 to the COVAX facility are unclear. We have also entered into supply and license agreements with strategic partners, such as SIIPL in India, Takeda in Japan, and SK bioscience in the Republic of Korea, that allow them to supply NVX-CoV2373 in their specified territories and under which we are entitled to receive royalties primarily from their sales of NVX-CoV2373. During the three months ended March 31, 2022, we recognized royalties of $7.4 million under these licensing arrangements. In the three months ended March 31, 2022, we primarily funded our operations with cash and cash equivalents, upfront payments under APAs, revenue from product sales, royalties under licensing arrangements with our strategic partners, and proceeds from the sale of common stock together with revenue under the OWS Agreement that supports our NVX-CoV2373 vaccine development activities. We anticipate our future operations to be funded by revenue from product sales, royalties under licensing arrangements with our strategic partners, our cash and cash equivalents, upfront payments under our APAs, revenue under our OWS Agreement, and other potential funding sources. As of March 31, 2022, we had $1.6 billion in cash and cash equivalents and restricted cash as compared to $1.5 billion as of December 31, 2021. The following table summarizes cash flows for the three months ended March 31, 2022 and 2021 (in thousands): 2022 2021 Change Net cash provided by (used in): Operating activities $ (88,510) $ 663,085 $ (751,595) Investing activities (16,826) 141,609 (158,435) Financing activities 159,865 576,987 (417,122) Effect on exchange rate on cash, cash equivalents, and restricted cash 1,312 (1,349) 2,661 Net increase in cash, cash equivalents, and restricted cash 55,841 1,380,332 (1,324,491) Cash, cash equivalents, and restricted cash at beginning of period 1,528,259 648,738 879,521 Cash, cash equivalents, and restricted cash at end of period $ 1,584,100 $ 2,029,070 $ (444,970) Net cash used in operating activities was $88.5 million for the three months ended March 31, 2022, as compared to net cash provided by operating activities of $663.1 million for the same period in 2021. The decrease in cash provided is primarily due to the application of upfront payments under APAs resulting from sales of NVX-CoV2373 during the three months ended March 31, 2022 as compared to an increase in cash due to the receipt of upfront payments under APAs during the three months ended March 31, 2021. During the three months ended March 31, 2022 and 2021, our investing activities consisted primarily of capital expenditures and maturities and sale of marketable securities, net of purchases. Capital expenditures for the three months ended March 31, 2022 and 2021 were $16.8 million and $13.8 million, respectively. For 2022, we expect our capital expenditures to continue to increase due to further development activities for our NVX-CoV2373 program, including the additional build-out of research and development and manufacturing facilities and related equipment, and the build-out of our new corporate office facility. Our financing activities consisted primarily of sales of our common stock under our At Market Issuance Sales Agreements, payments of finance lease liabilities, and exercise of stock-based awards. In the three months ended March 31, 2022 and 2021, we received net proceeds of approximately $179 million and $565 million, respectively, from selling shares of common stock through our At Market Issuance Sales Agreements. 29