Novavax Inc Q2 FY2022 Earnings Call

Good morning and welcome to Novavax Second Quarter 2022 Financial Results and Operational Highlights Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Silvia Taylor, Senior Vice President of Global Corporate Affairs and Investor Relations. Please go ahead.

Good afternoon, and thank you all for joining us today to discuss our second quarter 2022 operational highlights and financial results. A press release announcing our results is currently available on our website at novavax.com, and an audio archive of this conference call will be available on our website later today. Before we begin with prepared remarks, I want to remind you that this presentation includes forward-looking statements, including information related to the future of Novavax, its key strategic priorities, plans and prospects for 2022, and financial guidance including revenue and gross margin; the ongoing development of our vaccine candidates, including anticipated timing of trials and results; the scope, timing, and outcome of future regulatory filings and actions; the efficacy, safety and intended utilization of our vaccine candidates; the global market opportunities for our vaccine candidates; the future availability of our vaccine candidates and key upcoming milestones. Each forward-looking statement contained in this presentation is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements. Additional information regarding these factors appears under the heading Cautionary Note regarding forward-looking statements in the slide deck we issued this afternoon, and under the heading Risk Factors in our most recent Form 10-K and our second quarter Form 10-Q filed with the Securities and Exchange Commission. The forward-looking statements in this presentation speak only as of the original date of this presentation, and we undertake no obligation to update or revise any of these statements. During this conference call, in order to provide greater transparency regarding our operating performance, we will refer to certain non-GAAP financial measures that involve adjustments to GAAP results. Any non-GAAP financial measures presented should not be considered to be an alternative to financial measures required by GAAP and are unlikely to be comparable to non-GAAP financial measures provided by other companies.

Thanks, Silvia, and thanks to everyone for joining us today to discuss Novavax’s second quarter results. Once again, we have had a very significant quarter of achievements. We continue to transition into a commercial company, and we see more evidence that our vaccine platform is second to none. In the next few minutes, I and my team will share with you some of the many achievements and breakthroughs that are transforming the company. While we do that, let me take a moment to address what is probably the most visible aspect of our earnings report. Our revenue for the quarter came in well below anyone’s projections. With respect to all of 2022, we’re expecting to fall short of our earlier projections. For the quarter, revenue was $186 million, a significant shortfall from both the first quarter results and our expectations. The shortfall was a result of a couple of issues, one of which is short-term, the timing of our shipments to Europe. The other is a broader issue and will take some time to work through, which includes changes in expectations from two major markets: the U.S. and the COVAX Facility. Globally, particularly with respect to COVAX, there was a surge in supply, and when coupled with challenges COVAX had with the distribution into low- and middle-income countries, this limited the need for them to order contracted product from us. In the case of the U.S., I believe we were late to the market, and U.S. vaccination was driven by what was available and shown to work, which are mRNA vaccines. In addition, while we are approved for primary vaccination, we are not yet approved for adolescents and boosting, which are critical indications. We are hopeful that we can get through this soon, but the absence of these indications slows the rollout of our vaccine. We are now projecting that we will have no new revenues in 2022 from the U.S. and from COVAX, originally planning for revenue from these two markets arising from the sale of 110 million and 350 million doses, respectively. In terms of where we go from here, I’m happy to say that just since July 1, we have filled over $400 million in revenue. This has been such an extraordinary beginning to the third quarter that I want to share what we have done through today. From an operational standpoint, we have again had one of the most productive and transformative quarters in our history. In the U.S., immunizations are currently underway with our COVID-19 vaccine, which is the first protein-based vaccine offered to Americans. This followed our emergency use authorization and unanimous recommendation from the FDA’s Advisory Committee, VERPAC and the CDC’s Advisory Committee on immunization practices. Globally, we have continued the rollout of our COVID-19 vaccine. We have authorization in 43 countries, and as of today, we have delivered over 73 million doses around the world. We initiated new studies in adolescents in younger children and made progress in expanding our label. We have already received authorizations for boosting in adolescents in markets around the world with more to come. This past quarter, we announced new data for our vaccines, showing that immune responses to our vaccines have proven to give broad protection against variants, which we think is a unique feature of our recombinant nanoparticle adjuvanted vaccine. We also showed data on our vaccines' durability and breadth of response through 12 months. At the same time, we know the market is quickly evolving. During the quarter, we advanced our Omicron strain vaccine program. This is a transformational year for the company, and we’re building on a great vaccine platform. While there have been many ups and downs in these markets, it’s important to note that while some of our delivery schedules have been shifted into 2023, total demand under most APAs remains unchanged. Today we are revising our 2022 full-year revenue guidance to $2 billion to $2.3 billion, which we’ll discuss further during our call. Through our commercial readiness efforts and global label expansion to date, we believe we are laying the foundation for a successful transition to a commercial market in 2023 and are poised to play a significant role in the future COVID-19 landscape.

Thanks, Stan. Please skip Slide 6 and jump to Slide 7. Our clinical development program is collecting data to expand our label for additional indications and populations. Today, I’ll discuss clinical updates for three key areas: homologous and heterologous boosting, expansion into younger pediatric populations, and development of our Omicron variant vaccine. This is data recently made available by the U.S. government and NIH scientists, identifying levels of protection for our vaccine. The protection was identified in our U.S. Mexico Phase 3 study, where a majority of the cases were caused by variants. The study concludes that while both pseudoneutralization and IgG can serve as measures of protection, the IgG seems to better predict protective responses. On the bottom of the slide are the antibody levels associated with various levels of protection. This study confirms that IgG is critical to understand the protective efficacy of our vaccines. Moving on, displayed here is the immune response kinetics from our U.S. Australia study after a two-dose priming series, a boost at six months, and another boost at twelve months. You can see a peak following two doses, which decays over six months, followed by a single dose boost, which then sees a slower decay over the subsequent six months. Following this, a very good boost occurs with the fourth dose. Highlighting the antibody levels after the six-month boost indicates that they remain above the levels associated with protection in our Phase 3 study, giving us confidence we maintain protective immune responses over time. In our U.S. Mexico Phase 3 study, we can see a peak after two doses that decays through month eleven, followed by a significant boost with a single dose achieving a 27-fold increase from the pre-boost levels. After overlaying protective thresholds derived from U.S. government scientists over our vaccine response, we predict approximately 88% efficacy at seven months, and after the boost, high immune responses are achieved that are associated with more than 95% protection. Furthermore, we displayed the immune responses of our prototype vaccine against the Omicron BA.1 subvariant, showing a very similar pattern. After boosting at eleven months, antibody levels are comparable to the prototype responses previously observed. The government’s protective thresholds suggest significant protection can be expected after two doses, and a 95% protective level is predicted after the booster delivered at eleven months. Testing with our technology is expected to provide high levels of antibodies recognizing variants and durable immune responses. As we track market share country-by-country, we will leverage data from recently initiated Phase 2b/3 global clinical trials to pursue label expansion in younger children six months of age to 11 years.

Thanks, Filip. Now let’s discuss the status of our commercial rollout globally. Since the start of our commercial launch to date, we and our partners have delivered over 73 million doses of Nuvaxovid and Covovax around the world, including over 3.2 million doses delivered in the United States. Our vaccine is now available in 47 states across the U.S., and vaccinations are underway. Our doses delivered include those by our partners into licensed territories. Serum Institute of India, SK Bioscience, and Takeda have all successfully delivered over 17 million doses to areas including Japan, South Korea, India, Indonesia, and Thailand. Receiving booster and adolescent label expansions globally has taken longer than expected, and expanding our label is our core commercial priority. This drove a shift in demand for our vaccine from the second quarter into the second half of the year and into 2023. Importantly, our total contracted demand remains mostly unchanged, although after ongoing discussions with Gavi, we no longer expect to receive an order from the COVAX facility in 2022. In the UK, we recently amended our supply agreement, which now includes the purchase of a minimum of 1 million doses and up to an additional 15 million doses, contingent upon receiving supportive policy recommendations from the UK’s policymaking body, the JCVI. The agreement also includes an option to purchase up to an additional 44 million doses through 2024. For Europe, we expect to deliver the remainder of our total order of 65 million doses from a previous order in the second half of this year and into 2023.

Thank you, John. Please turn to Slides 24 and 25. I’ll begin by providing an overview of our second quarter 2022 total revenue performance, net income, and cash position. In the second quarter of 2022, we recorded $186 million in total revenue, a net loss of $510 million, and we ended the period with $1.4 billion in cash. For the second quarter of 2022, total revenue included $55 million in product sales based on 3 million doses sold by Novavax; $23 million of royalties and other revenue, including a $20 million milestone payment from Takeda; and $108 million in grants revenue from the U.S. government. Branch revenue was lower than expected due to decreased activities under our agreements with the U.S. government. We entered 2022 with approximately $800 million of funding remaining under our $1.8 billion agreements with the U.S. government and expect to record at least $400 million of this amount in 2022. Research and development expenses for the second quarter of 2022 were $290 million compared to $571 million for the comparable period in 2021. The decrease was primarily due to lower clinical development activities for our COVID-19 vaccine. We recorded selling, general and administrative expenses of $108 million for the second quarter of 2022, with a projected increase as we continue to build our commercial capabilities. We recorded a net loss of $510 million compared to a loss of $352 million in the second quarter of 2021, and we continue to maintain a full tax valuation allowance, ending the quarter with $1.4 billion in cash.

Thank you, Jim. In the coming months, we will remain focused on achieving our key strategic priorities for 2022, which include continuing the global delivery of our vaccine; maximizing our label with the addition of boosting in adolescent populations, which is critical to access global demand; completing development of our Omicron-containing vaccine; and progressing into Phase 2 for our COVID-19 influenza combination vaccine. I believe that over time, we’ll demonstrate that our vaccine can provide longer-lasting protection than other platforms. If I’m right, these attributes should translate to building a significant share of the recurring COVID market.

We will now begin the question-and-answer session. Our first question comes from Georgi Yordanov with Cowen and Co. Please go ahead.

Hey, guys. Thank you so much for taking our questions. Maybe for us, can you just help us understand exactly how the contract with the EU works? You had previously said that there were 27 million doses scheduled to be delivered in Q1 then 42 million doses for Q2? Does that mean the current revenue looks like basically, you failed to deliver those doses? Can you just explain how exactly we should expect the revenue to be flowing and why were only 3 million doses delivered this quarter? And then I have a couple of follow-ups. Thank you.

Yes. So this is Stan. Actually, we delivered the doses in the first quarter, and then we delivered the doses in the second quarter. All those doses were actually in our warehouse, in our distribution center in Europe. The challenge was that it took longer to get through all of the internal, in-country processes that get the vaccine released and to the customer on time so that we could book it by June 30. Unfortunately, June 30 is a non-movable target, and we missed it by a few weeks. All those doses got invoiced in July. Since July 1, we’ve filled over $400 million worth of revenue just in that period alone that was supposed to belong in the second quarter, but we missed June 30.