Novavax Inc Q2 FY2023 Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the Novavax Second Quarter 2023 Financial Results and Operational Highlights Conference Call. At this time, all participant lines are in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Erika Schultz. You may begin.

Good morning and thank you all for joining us today to discuss our second quarter 2023 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. Please turn to slide two. Before we begin with prepared remarks, I need to remind you that this presentation includes forward-looking statements, including information relating to the future of Novavax, its key strategic priorities, operating plans, objectives, and prospects, full year 2023 financial guidance, its future financial or business performance, conditions or strategies, its partnerships, anticipated timing and outcome of future regulatory filings and actions, and the ongoing development of its vaccine candidates, the global market opportunities for our vaccine candidates, our manufacturing capacity, and 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 can 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 subsequent Form 10-Q filed with the Securities and Exchange Commission and available at www.sec.gov and on our website at novavax.com, as well as subsequent filings with the SEC. The forward-looking statements in this presentation speak as of the original date of this presentation and we undertake no obligation to update or revise any of these statements. Please turn to slide three. This presentation also includes references to a non-GAAP financial measure, which is forward-looking information for R&D and SG&A expense as adjusted to exclude one-time restructuring costs as described on this slide. Please turn to slide four. Joining me today is John Jacob, our President and CEO, who will provide an update on our progress during the quarter for our three key priorities. Additionally, John Trizzino, Chief Commercial Officer and Chief Business Officer, will provide an update on our commercial activities; and Dr. Filip Dubovsky, President of Research and Development, will discuss our COVID clinical development and pipeline. Finally, Jim Kelly, Chief Financial Officer and Treasurer, will provide an overview of our financial results. Rick Crowley, Chief Operations Officer, will also be available for the Q&A section at the end of today's call. I would now like to hand over the call to John Jacob. Please turn to slide five.

Thank you, Erika, and thank you everyone for joining us today to discuss our second quarter 2023 financial results and operational highlights. Since our last earnings call, the entire organization has continued to focus on our three priorities for the year; first, delivering an updated product for the upcoming fall season. Second, reducing our rate of spend, managing our cash flow and evolving our scale and structure. And third, driving additional value from our technology platform and portfolio via the advancement of our pipeline and business development activities. I'm pleased to share with you today the significant progress we've made on all three of these priorities for Novavax. Let's start with our first priority, delivering an updated product for the upcoming 2023 fall vaccination season. Thanks to our comprehensive strain change strategy and commercial readiness efforts, we are well-positioned to achieve this objective and reiterate our plan to deliver our updated vaccine on time for the fall season. Importantly, we believe we have a competitive product profile and have produced an ample supply to meet anticipated demand this season. We have initiated our filing for authorization in the US and are preparing to file our submissions in the coming weeks in other key markets. For the US, our commercial team is fully deployed and focused on ensuring our vaccine is widely available and accessible. Outside of the US, our sales continue to be driven by existing APAs with committed orders intended for delivery in the fourth quarter of this year. We are confident in our readiness to deliver an updated, differentiated and competitive vaccine for this fall season. In most of our key target markets, including the US, our vaccine, if authorized, would be the only non-mRNA protein-based option available, and we're excited about the potential to offer our vaccine as an important alternative to consumers around the world. John Trizzino will share more about our commercial readiness later in the call. So, let's move on to priority number two, which is to reduce our rate of spend, manage our cash flow, and evolve our scale and structure. We continue to make significant progress towards strengthening our financial position during the second quarter with the intent of building a solid financial foundation for long-term value creation. Commercial execution is an important contributor to our financial health. And for the second quarter, we recorded total revenue of $424 million, which brings us to over $500 million in revenue for the first half of the year. During the quarter, we also successfully executed and amended APA with Canada, a long-term valued customer. This agreement established a foundation for ongoing supply of our COVID vaccine and negotiated up to $350 million in cash payments to Novavax for 2023, further strengthening our cash position as we head into the fall season. The enhanced partnership with SK Bioscience that we announced earlier today includes an $85 million equity investment in Novavax at a 59% premium to the stock's 90-day volume-weighted average price. This mutually beneficial arrangement evolves our relationship with SK from a contract manufacturing organization to a strategic business partnership, extending SK Biosciences' commercialization rights in certain markets, providing Novavax with a milestone payment and future royalties for product sales in key APAC markets, and significantly improves our financial position by eliminating a $195 million outstanding liability from our balance sheet in 2023. We are also on track with the global restructuring and cost reduction plans announced last quarter. And as of today, have reduced current liabilities in 2023 by over $1 billion, ending the second quarter with over $900 million in cash and receivables. You will hear more today about our cost management, liability management, cash flow, and full year 2023 outlook from Jim Kelly later in the call. Finally, let's discuss priority number three, which is to leverage our technology platform, our capabilities and our portfolio of assets to drive additional value beyond Nuvaxovid alone. Starting with our pipeline. As COVID evolves into a seasonal public health challenge, along with other respiratory viruses, we are keenly aware of the emerging need for combination vaccines. Therefore, as a first step, Novavax has made it a strategic priority to develop our combination vaccine for COVID and influenza. Based on what we see as a robust emerging need and market opportunity, our improving balance sheet and recent progress on our corporate priorities, we've decided to make strategic stage gate investments in 2023 and 2024 to independently prepare this new product candidate for late-stage development, and importantly, can do so in line with our stated financial targets. In parallel, we will continue to evaluate the potential to partner this program and look forward to sharing updates with you as the program progresses. Moving on to Matrix-M collaborations. Our Matrix-M adjuvant is one of the keys to our unique technology platform and continues to offer potential value for both Novavax and our business partners. The R21/Matrix-M adjuvanted malaria vaccine developed by Oxford University and manufactured by the Serum Institute of India has received authorizations in multiple countries this year and has the potential to be an important tool in the fight against malaria around the globe. As part of this arrangement, Novavax expects to supply and receive payment for Matrix-M in support of launch readiness and will be eligible to receive royalties on future product sales. We also recently announced a new collaboration with the Bill and Melinda Gates Medical Research Institute for the use of our Matrix-M adjuvant in preclinical vaccine research. We have also expanded our discussions to explore the use of our Matrix-M adjuvant in clinical development programs, and we look forward to our continued partnership and important work towards our shared goal of improving global public health. As I have said since I joined Novavax as CEO in late January of this year, we intend to share our successes and opportunities as well as our challenges and risks with you in a transparent manner. So, let me be clear. While we are all excited about the progress we've achieved year-to-date on our key priorities, I want to emphasize that there is still significant execution risk for our business ahead of us. As we seek regulatory authorizations for our first updated version of Nuvaxovid and prepare to compete in the US market as it converts to a commercial model for the first time. Our success as a company will depend significantly on our continued ability to deliver on these priorities and on the emerging opportunity for COVID vaccination around the globe as the pandemic enters an endemic phase. As we continue to prepare for what should be an exciting opportunity this fall season, I am personally encouraged by the commitment and energy of our management team and all of our employees and sincerely grateful for the support of our loyal investors. You have our continued commitment to give you our best effort and our focus on the key priorities we have outlined. Now, I would like to hand it over to additional members of the team to discuss our results from the quarter in more detail, beginning with John Trizzino to discuss our commercial updates. John?

Thanks John. Please turn to slide six. Novavax's COVID vaccine is authorized for use in over 40 countries around the globe. Leading into the 2023, 2024 fall vaccination season, many of these countries are still purchasing COVID vaccines under advanced purchase agreements, APAs, while in the US moves to traditional vaccine purchasing and commercial operations. Today, I will be discussing specific activities and readiness for each region. Please turn to slide seven. The US, as planned, is exiting the pandemic phase and entering a more traditional seasonal vaccine market with many similarities to seasonal annual influenza vaccine distribution. We have been preparing for commercialization in the US throughout the pandemic phase, and we are ready organization-wide for availability of product as soon as September, of course, dependent on our FDA strain-specific authorization and ACIP recommendations for use. As you would expect, there has been significant collaboration across many US agencies and within HHS to ensure that this transition is executed smoothly and there is vaccine available for anyone interested in receiving a COVID vaccine. Critical updates and prioritization of public health objectives over the past few months have provided greater clarity for the upcoming vaccination season and focused our preparation. Let me highlight some of the most important and significant items. Based on the evaluation and recommendation from VRBPAC, the FDA selected the XBB.1.5 as the monovalent strain for the 2023-2024 COVID season. Novavax has been manufacturing this new variant strain at commercial scale based on the final strain recommendations in June. Our updated XBB.1.5 COVID vaccine is on track to be in our US facility in September and immediately available for distribution and use upon authorization. Two, HHS Secretary Becerra outlined four priorities for the transition to traditional commercial access to COVID vaccines. Novavax is working to support these priorities by producing sufficient supply of vaccine; ensuring low income and underserved populations have ready access to the vaccine whereby we will be participating in the Bridge Access Program with leading retailers to provide free vaccine to those without insurance coverage; providing a competitively priced vaccine that removes pricing as a barrier to access and working with the US government to share distribution and vaccination data for our XBB COVID vaccine. Three, the CDC plays a critical role on multiple fronts for the success of this first season. And I am pleased to report that Novavax has contracts and negotiated pricing in place with the CDC and other entities, including that for the vaccine for children's program funding that has made vaccine available for low-income children since 1994. Four, Novavax believes based on its own analysis and consensus across multiple sources that the US market demand for COVID vaccine this fall will range from 80 million to 100 million doses. Of course, market demand and the number of doses needed across all channels and populations in the US can only be estimated, and we will only know for sure as the respiratory disease season unfolds. What we do know with more certainty is that COVID vaccine strains continue to circulate and there is great value in a safe and effective vaccine to help prevent and to reduce the most severe complications of COVID disease and that Novavax is on track to be ready this fall with the ample COVID vaccine supply in support of US public health needs. With these imperatives in mind, we have put forth tremendous effort to ensure that we are organization-wide ready for the 2023-2024 COVID season. Please turn to slide eight and allow me to detail specific activity. A core focus for us is manufacturing readiness. We have been manufacturing our updated XBB-COVID vaccine at commercial scale, which will enable us to supply tens of millions of doses of our vaccine in line with our planned demand for the fall season. We expect to have doses in our US warehouse in advance of FDA's authorization and ACIP's policy recommendations to ensure that we can quickly ship initial stocking orders to customers in September. We are also keenly focused on our commercial readiness, central to our fall initiatives has been the execution of our targeted commercial contracting strategy. We continue to believe that the COVID vaccine market dynamics and the channels of distribution will be comparable to the annual seasonal influenza vaccine market. This market intelligence drives our strategy to make our vaccine available to the commercial, government and public health affiliated network of vaccine program stakeholders that are responsible for administering the majority of vaccinations. This target group consistently offers and administers greater than 150 million flu vaccinations across the country every fall and winter respiratory virus season. Execution of this strategy means we will make our COVID vaccine available via three key health care provider channels and buying groups. This would include, but may not be limited to the following: retail pharmacy across all national, regional and independent pharmacies, integrated delivery networks and physician buying groups and public health access via the CDC, VFC, Department of Defense, and Indian Health Services. This strategy is also dependent on and requires the utilization of a network of well-known and highly experienced vaccine distribution partners to deliver our product to the various points of service across the country. To that end, once authorized, any vaccinating health care provider or vaccinating organization interested in acquiring our vaccine will have a familiar selection of participating distributors that should provide for easy access to our vaccine. Having spent time in my career in the vaccine distribution space, I truly understand and value what our distribution partners bring to Novavax, our customers, and to the consumers who will receive our vaccine. To date, we have established critical relationships with key provider and retail buying groups, and executed distribution contracts that ensure national widespread availability to healthcare providers and ensure consumer choice in their COVID vaccine selection. Our recent progress includes the following: distributors contracts signed or in process that cover 100% of three priority health care provider channels. Pharmacy contracts signed or in progress representing approximately 80% of vaccines administered in pharmacies. CDC and other government services such as VA, DoD and Indian Health Service contracts are signed and coordination is in process for dose availability per the respective agreements. GPO and PPG contracts, physician buying group contracts signed or in final stages will provide access to office-based providers associated with the top integrated delivery networks and major medical groups that drive 90% of the vaccinations within these organizations. These relationships will ensure we have availability and broad access to key providers and pharmacies to support patient choice of their COVID vaccine. We feel confident that our overall strategy will create convenient nationwide access to our vaccine for any consumer seeking it as well as any healthcare provider who would like to acquire our vaccine for their COVID vaccination program this fall. And finally, we have implemented a commercial pricing strategy that will reflect the overall value that our vaccine delivers, allowing us to achieve broad access to competitively position our vaccine. We continue to see a significant market opportunity in the US based upon our commercial readiness efforts. We remain confident in our ability to capture meaningful market share during the upcoming fall season and beyond. Please turn to slide nine. Ex-US, we expect total revenue of approximately $700 million from APA orders for 2023 based on committed dose delivery schedules, subject to updated variant manufacturing and regulatory approvals, and I'd like to share some details about how this breaks down. In the EU, we will be completing our COVID vaccine shipments against the original APAs before the end of this year when we expect to deliver the remaining 17 million committed doses. The relationships established during the pandemic remain strong across the EU and our commercial organization deployed against key EU markets, including Germany, Spain, France, Italy, and Switzerland. We look forward to 2024 and the shift to traditional commercial vaccine distribution, both in the private and tender markets. We expect to continue to grow share in these key markets based upon the expressed need for the non-mRNA option and Nuvaxovid's position as a safe and effective protein-based vaccine approved for use in the EU. In Canada, we amended our APA, which provided for payment of forfeited doses in 2023, reinforced our commitment to establish in-country manufacturing in 2024 and 2025 and also extended dose purchasing commitments into 2024 and 2025. We are excited to have strengthened our partnership with Canada and established a foundation for continued vaccine supply. Finally, in Asia-Pacific, we have similarly created strong relationships with our country partners in this region. We continue to supply against existing APAs to Australia, New Zealand, Singapore, Taiwan, and Israel. While some APAs continue into 2023 and 2024, we are beginning to execute against traditional vaccine tender purchasing policy. Interest in vaccine choice remains high with specific focus on the need for a non-mRNA choice of a protein-based vaccine. Regarding ongoing label expansion and policy recommendations, across all of our priority markets, we are engaged with regulatory authorities and policymaking bodies to expand our label and advance policy recommendations that will enable broad market access. We are generating data from our Phase IIb/III global clinical trial to support expansions to our label in younger children aged six years to 11, which Filip will discuss in more detail shortly. And we are making important progress towards ensuring access to our product through supportive policies. As an example, Germany's policy body, the Robert Koch Institute, recently expanded their recommendation for vaccines this fall to include all licensed and variant-adaptive vaccines regardless of technology platform. This increasing policy support further drives our confidence that our updated XBB-COVID vaccine will be accessible this fall. We are also pursuing full approvals in key markets, which will establish the foundation for future regulatory approvals of our updated vaccine. Last month, we received our first full marketing authorization in the EU as a primary series for ages 12 and older and as a booster dose in adults. We are also preparing to file for full approval in other key markets. In the US, we have initiated the rolling submission of our BLA filing and we intend to submit the remainder of our data over the coming months. While full approval via the BLA process will be an important milestone for us early next year, we will be able to sell and market our updated XBB COVID vaccine for the upcoming 2023 fall vaccination season under emergency use authorization. Regarding competitive product profiling and positioning, in the majority of countries where we have APAs and in the US, our vaccine, if authorized, would be the only non-mRNA XBB protein-based COVID vaccine option, allowing our vaccine to serve as an important alternative to consumers and healthcare professionals. As we prepare to deliver our updated vaccine for the fall, we remain confident in the competitive product profile of our vaccine. With that said, I'd like to hand it over to Filip to discuss updates for our clinical development and pipeline.

Thanks John. Please turn to slide 10 and 11. Today, I have to cover three topics. First, I'll update you on our strain change study, which is our number one priority. Then I want to share some new pediatric data before I touch base on plans for our clinical pipeline. Please move to slide 12. Study 311 Part 2 is a key study upon which our XBB strain change regulatory filing is based. This study compared a prototype vaccine to BA 5 in a bivalent vaccine with prototype plus BA 5 in 750 adults. The study design was agreed upon with regulatory agencies to support the upcoming strain change filing for XBB.1.5. Here are important findings from the study. We achieved all three co-primary endpoints. The bivalent vaccine induced a superior neutralizing response against BA 5 compared to the prototype strain vaccine. It also generated a non-inferior BA 5 seroconversion response to the noninferior neutralizing response to the prototype. As an aside, the monovalent BA 5 vaccine was more immunogenic than the bivalent, a finding that recapitulated the preclinical data we discussed in the June VRBPAC. And finally, all formulations had similar reactogenicity profiles. Findings from both the BA 1 and BA 5 parts of the 311 study provide reassurance that our manufacturing is consistent and the various strains perform comparably. These data have been submitted to the FDA to support regulatory approval for our updated XBB COVID vaccine. In addition to updating our vaccine for the fall season, we continue to work on expanding our label to include the pediatric population. Please go to slide 13. 3503 is our global pediatric HD escalation study being conducted in children six months of age to 11 years of age. Enrollment is complete in the six to 11-year-old cohort and the two to five-year-olds but is ongoing in young children. The data on this slide is preliminary top line data for the six to 11-year-old cohort. On the right-hand side, we display validated neutralizing responses after two doses. As the group, children achieved a titer of 5,380, which represents a geometric fold rise of over 21-fold. To put this value in context, this is fivefold higher than seen in our adult Phase III study conducted in the US and Mexico, which was associated with high levels of protection. The protocol-defined primary effectiveness endpoint was to demonstrate the immune responses in children was not inferior to the immune responses in young adults in the US Mexico Phase III study. The children's immune responses were not inferior for both the geometric mean titer as well as seroconversion rate. Overall, we saw a reassuring safety profile through 20 days post dose two. The unsolicited adverse events and medically attended adverse events were balanced between the vaccine and placebo and represented common childhood illnesses. There were no related SAEs, no events of special interest, no myocarditis, and no pericarditis. We also evaluate clinical efficacy. However, over the short observation window, we only observed two cases and they are both in the placebo group. Please move to the next slide, slide 14, and look at reaction events. Here we have displayed reactogenicity events after dose one on the top of the slide and dose two on the bottom of the slide. Local symptoms are on the left-hand side, in blue, and systemic symptoms are in green on the right. For each term, most children reported no symptoms. And when they did have symptoms, the vast majority were reported as mild or moderate. There was no significant increase in symptoms between dose one and dose two. We think our vaccine may play a special role in the pediatric population. The vaccine appears to be very well tolerated while inducing robust immune responses. This profile, in addition to our classic common protein technology, may be reassuring when parents and providers choose vaccines for children. We expect to submit these preliminary results to the EUA in the fourth quarter. And while the length of regulatory review is not known, we believe that approval of EUA amendment could occur in early 2024. Okay, let's move to the next slide, slide 15, and review our plans for the clinical pipeline in support of our third corporate pillar. Last quarter, I shared some top-line data from our clinical programs, and we are still awaiting final humoral and cellular immune readouts to finalize formulation decisions. But as John mentioned, we made some stage-gated investments to keep development on track. For the COVID influenza combination vaccine candidate, we showed immune responses from the combination were comparable to licensed influenza vaccines as well as our authorized COVID vaccine. This is a priority pipeline asset for us because there's consumer and medical provider preference for a combination of vaccines. We will be investing in developing a co-formulated vaccine in preparation for the Phase II study planned for next year. The purpose of the Phase IIb study will be to establish a robust safety database for the co-formulated product and confirm the previous immunogenicity. We believe the stage-gated investment will provide all the data needed for regulatory interactions prior to our Phase III decision and increase the asset's overall value. We continue to evaluate ways to accelerate this program and secure sufficient funding for a large and complex pivotal Phase III study, for example, through strategic partnerships. For our standalone influenza vaccine candidate, we showed you our vaccine-induced wild-type HAI responses that were overall better than two market-leading license vaccines. While the combination COVID-influenza vaccine will be our primary focus, the clinical development plan does maintain an option to take the stand-alone flu products through advanced development. We also recognize that our influenza vaccine platform may be attractive from a pandemic preparedness perspective because the currently available avian influenza vaccines are poorly immunogenic. Preclinical evaluation is ongoing for three different highly pathogenic H5N1 strains. Now, that optimal target product profile will allow for a single-dose pandemic vaccine, which has been elusive with other vaccine technologies. And finally, for our high-dose COVID vaccine candidate, we shared our immuno responses were improved with higher antigen doses without increasing reactogenicity and we plan on starting a high-dose COVID vaccine study in older adults in the fourth quarter. Now, these three vaccine candidates exemplify the inherent flexibility and potency of our adjuvanted recombinant protein nanoparticle technology. We can induce very broad immune responses and long-lived cellular responses. You've seen that we can use high antigen doses without compromising tolerability. This is critical as we think about high antigen applications for difficult to immunize populations such as older adults and allows us to modulate antigen dosage levels in combination of vaccines to overcome immunologic interference. These features are important and potentially differentiate our products. The vision is to leverage these attributes and establish a leadership position in the seasonal respiratory viral vaccine space. We think the space will be dominated by combination vaccines and target a number of pathogens that are specifically troublesome for older adults, including influenza, COVID, RSV, and HMPV. Okay, let me hand it off to Jim to discuss our financial results.

Thank you, Filip. This morning, we announced our financial results for the second quarter of 2023. Details of our results can be found in our press release issued today and our 10-Q filing. In addition, we also announced this morning the execution of agreements with SK Bioscience that enhance our strategic business partnership and include an $85 million equity investment in Novavax at a 59% premium to the 90-day volume-weighted average price. I'll begin by providing an overview of our second quarter 2023 results. Then I'll provide more details regarding our quarterly results, liability management, and progress on our global restructuring and cost reduction plan. Finally, I'll share an update on our financial guidance for the full year 2023. Please turn to slide 17. For the second quarter of 2023, we recorded $424 million in total revenue, reflecting a $239 million and 128% increase compared to the second quarter of 2022. Combined R&D and SG&A expenses for the second quarter of 2023 were $313 million. This reflects an $85 million or 21% decrease compared to the second quarter of 2022 and a $46 million or 13% decrease compared to the first quarter of 2023. This improvement represents the continued progress of our ongoing cost reduction plan and demonstrates our commitment towards an improved financial profile to drive long-term value. Additionally, in the first half of 2023, we reduced our outstanding liabilities by $864 million, including a $323 million reduction in the second quarter of 2023. With the SK Bioscience announcement today and settlement of related manufacturing agreements, the reduction to current liabilities now exceeds $1 billion for the year. And finally, we ended the second quarter with $518 million in cash and an accounts receivable balance of $395 million for a combined total of over $900 million as we head into the fall vaccination season. Please turn to slide 18. Beginning with revenue. Our second quarter 2023 performance benefited from improvements to both product sales of Nuvaxovid and grant revenue as we recorded total revenue of $424 million compared to $186 million in the second quarter of 2022. Of note, this materially reflects the final sales of our Wuhan vaccine for the season. Our cost of sales for the second quarter of 2023 was $56 million compared to $271 million in the second quarter of 2022. This includes $2 million related to excess obsolete or expired inventory and losses on firm purchase commitments as compared to $255 million in the same period in 2022. Research and development expenses for the second quarter of 2023 were $219 million compared to $290 million for the second quarter of 2022. The decrease was primarily due to a reduction in clinical and manufacturing spend. Selling, general and administrative expenses for the second quarter of 2023 were $94 million compared to $108 million in the second quarter of 2022. The decrease was primarily due to a reduction in spending by corporate support functions as outlined in the global restructuring and cost reduction plan announced in May. Total operating expenses for the second quarter of 2023 included $15 million in one-time restructuring costs related to workforce reductions, fixed asset write-offs, and the consolidation of certain facilities, of which $12 million was recorded in SG&A. These charges reflect substantially all of the restructuring costs we expect to record under our restructuring plan. For the second quarter of 2023, we recorded net income of $58 million compared to a net loss of $510 million in the second quarter of 2022. Please turn to slide 19. Today, we announced new agreements with SK Bioscience that reflect the evolution of our relationship from a contract manufacturer arrangement to a strategic business partnership, including an equity investment by SK Bioscience in Novavax. First, the upgraded agreements extend SK Biosciences' commercial rights in South Korea, Thailand, and Vietnam, and provides for a $4 million milestone to Novavax in return for the extension of these rights in addition to existing economic terms which include royalties on future product sales in those markets. Second, SK Bioscience is making an $85 million equity investment in Novavax' common stock at $13 a share, reflecting a 59% premium to the volume weighted average price over the 90 days prior to August 8, 2023. Third, the agreement settled $195 million in outstanding Novavax contract manufacturing liabilities for $154 million. In total, under these agreements, Novavax will issue 6.5 million common shares and pay net cash of $65 million to SK Bioscience to settle $195 million current liability as of June 30th, 2023. Please turn to slide 20, we've made significant progress to reduce our outstanding current liabilities, including the reduction of $323 million during the second quarter and $864 million in total for the first half of 2023. And as we just discussed, the SK Bioscience agreement announced today reduces our current liabilities by $195 million for a total reduction of over $1 billion year-to-date in 2023. Please turn to slide 21. In May, we announced our global restructuring and cost reduction plan. Today, we remain on track to significantly reduce Novavax's expenses while retaining capabilities needed to drive results and build future value. For the full year 2023, we reiterate our target to reduce our annual combined R&D and SG&A expenses to between $1.3 billion and $1.4 billion, reflecting a 20% to 25% reduction compared to 2022. For the full year 2024, we also reiterate our target of R&D and SG&A expenses of below $1 billion, reflecting a 40% to 50% decrease when compared to 2022. Importantly, we've been able to further reduce our anticipated cost structure to allow us to now include one-time restructuring costs and strategic stage gate investments to advance our flu program towards late-stage development in 2023 and 2024 while maintaining our R&D and SG&A expense guidance. In summary, we are on target with our plans to reduce our R&D and SG&A scale and cost structure by 40% to 50% in 2024. We have aggressively reduced our current liabilities by over $1 billion in 2023 and approach the fall vaccination season with over $900 million in cash and receivables, all supporting our intent of building a solid financial foundation for long-term value creation. Please turn to slide 22. Before discussing our full year 2023 financial guidance, I am pleased to share that since April, we've secured up to approximately $600 million in cash to improve our cash runway. The up to $450 million in cash payments negotiated this year under our Canada APA represent an important source of nondilutive funding for the company. In addition, we've raised $153 million of equity capital through an $85 million investment by SK Bioscience and $68 million in equity raised through our ATM program at an average combined price representing a significant premium to our 90-day volume-weighted average price. I'd like to spend a moment on the accounting associated with the up to $450 million in non-dilutive cash payments in 2023 related to forfeited doses. These amounts will be initially recorded as deferred revenue, along with existing related upfront payments for these forfeited doses. These combined amounts will later be recognized ratably as product sales between 2023 and 2025 as the remaining performance obligations are met under the amended Canada APA. We do not expect this to be a material contributor to 2023 product sales. Regarding payment timing, we received the initial $100 million cash payment related to the April 2023 APA amendment in the second quarter of 2023. The up to $350 million in cash payments associated with the June 2023 APA amendment are to be paid in two equal installments of $175 million. The first $175 million payment was received in July 2023, and a second $175 million payment is contingent and payable upon delivery of the vaccine in the second half of 2023. Of note, for our full year 2023 revenue guidance, $100 million of the up to $350 million cash payments associated with the June APA amendment was included in the prior full year 2023 product sales and total revenue guidance. For this reason, we are removing this $100 million cash payment from our full year 2023 revenue guidance. With that said, let's turn to our full year 2023 financial guidance. We expect to achieve full year 2023 total revenue of between $1.3 billion and $1.5 billion, including product sales of between $960 million and $1.14 billion and grant revenue of between $340 million and $360 million. Our full year 2023 product sales guidance includes US market product sales of between $260 million and $440 million and approximately $700 million in APA product sales based on 2023 committed dose delivery schedules, each subject to updated variant manufacturing and regulatory approvals as well as successful pull-through in the US market. In the first half of 2023, we recorded $505 million in total revenue, which is in line with the expected phasing of total revenue guidance provided in May. As a result, we expect total revenue of approximately $800 million to $1 billion in the second half of 2023. In addition, we expect that our updated XBB COVID vaccine product sales will materially occur in the fourth quarter. This is based on the recent US FDA announcement for plans to approve updated COVID vaccines in late September, plus the expected timing for other regulatory approvals and deliveries of our updated XBB COVID vaccine outside the US. For expenses, as I mentioned earlier, we are reiterating our targets to reduce our combined R&D and SG&A expenses for the full year 2023 and 2024. Of note, our combined R&D and SG&A expenses for the second quarter of 2023 were $313 million. The midpoint of our full year 2023 R&D and SG&A guidance range implies an approximately $340 million quarterly run rate for the second half of 2023. In the coming quarters, we expect to see a seasonal increase in our sales and marketing investments as our commercial team executes during the fall 2023 vaccination season. If successful in achieving the full year 2023 guidance outlined today, we believe this will support the funding of our operations for the next 12 months. In our 10-Q filing, you will see that we have provided an update on our going concern disclosure, which we first provided in our 10-K filing in February. Specifically that this forecast continues to be subject to significant uncertainty related to revenue for the next 12 months, funding from the US government, and pending arbitration. We look forward to sharing additional updates as we seek to improve Novavax's financial performance, cost structure, and strength to deliver shareholder value. With that, I'd like to turn the call back over to John for some closing remarks.

Thank you, Jim. Please turn to slide 23. I'd like to close today's call by reiterating the important progress we've made on all three priorities for 2023. The updates we shared today reflect meaningful progress against our priorities, which are intended to place Novavax on a path to success both this year and beyond. During the past quarter and through midyear, we have under priority one, continued to prepare for the fall season and have now manufactured our XBB vaccine at commercial scale with ample supply, initiated our regulatory filing with the FDA, and have our commercial team fully deployed with the majority of US commercial contracts completed or in progress to ensure broad access to our vaccine this fall. In priority two, we've significantly reduced our current liabilities by over $1 billion and in parallel have built a cash and receivables balance of over $900 million as we head into the fall vaccination season. We are also on track with our cost reduction initiatives. And in addition, we're able to absorb our one-time related restructuring charges within those stated targets. Under priority three, we will be advancing our pipeline of future assets with a priority focus on our new combination vaccine program and secondarily, our stand-alone flu program, as Filip outlined earlier in the call. Regarding business development, we signed a new agreement with SK Bioscience that includes an $85 million investment in Novavax at a premium and removes the $195 million current liability from our balance sheet. In addition, new approvals were achieved for the R21 malaria vaccine and we anticipate upcoming sales of Matrix-M to support that launch as well as potential royalties from future sales. And we were proud to announce that we signed an agreement with the Bill & Melinda Gates Medical Research Institute to advance several vaccine development programs using our Matrix-M technology and look forward to furthering that partnership. When I first joined you all in February for the fourth quarter earnings call, I pledged to you our commitment to be transparent about our opportunities as well as our challenges and to provide a balanced perspective on our progress. With this commitment in mind, I hope you can see from today's announcement that we have made significant progress on our key priorities so far this year and have overcome several of the barriers to success we have highlighted since my arrival. And importantly, that these successes have helped to put the company in a better position now to achieve our objectives for the year as we approach the fall season. That being said, we cannot yet claim a successful year as there is still much work to be done with significant execution risk ahead of us. Much of our success this year will be dependent on how and when regulatory authorities react to our filings, how the fall season unfolds, including demand for the COVID vaccine in general. And we will need to continue to execute successfully against all of our objectives. I want you to know that I am confident in our management team and in our organization's desire and focus to advance our objectives. It is with humility that I give you our full commitment to continue these efforts with the goal of delivering our vaccine this season to consumers around the world and doing our best to deliver a successful performance for our company and our shareholders and all key stakeholders in 2023. With that, we will now take your questions.

We will now begin the question-and-answer session. First question will come from Roger Song with Jefferies. You may now go ahead.

Great. Thanks for taking the question and congrats for all the progress.

Thank you, Roger.

Thank you, John. I have a couple of questions for you. First, I’d like to focus on the US market. Regarding the XBB filing you’ve started, what else needs to be submitted? Will the FDA require XBB clinical data in comparison to the BA 5 data you already have? Is there any risk in supplying everything needed to meet the requirements by late September? That covers one part of the US question. The other part concerns the key drivers for gaining significant market share in the US. Could you discuss your pricing strategy? In your 10-Q, I noticed the presentations for five doses versus one dose; is there any impact from that? Thank you.

Thank you, Roger. Filip, would you take Roger's first question, please, on the FDA submission?

Sure. So, we have submitted the preclinical packages, and we're going to complete that file this month. We previously discussed with the FDA the need for what kind of clinical data we need, and that's why we connected the study we did. The XBB BA 5 data is adequate, and not only for the US but globally for approval for XBB.1.5. And our plan is to have the product available in time for the FDA CDC release at the end of September.

Thank you, Filip. And John Trizzino, would you like to take the US commercial?

Yes, thank you, Roger. The key drivers have been mentioned previously, but to recap, a major component of our strategy is ensuring that all market segments have access to the vaccine. We have discussed various distribution channels including pharmacies, national and regional providers, as well as public health offices. These entities are essential to our strategy to provide the non-mRNA, protein-based vaccine widely. Our pricing aligns with public expectations, approximately $130 of WACC, which is incorporated into a reimbursement strategy that gives us a competitive edge by ensuring that the vaccine is procured through standard channels. It's important to note that we faced significant access limitations last season due to government contract purchasing and a late vaccine approval. Now, we are well-equipped with inventory in warehouses starting in September, and the distribution network is set up. There is strong interest from both the consumer market and healthcare providers in trying the protein-based vaccine.

Great. Thank you. Maybe next question is regarding the financials. So, very glad to see your financial position improved significantly. And also, Jim, you mentioned on the call, if all the operational plans are successful, you can remove your going concern. That's key for investors, I believe. And maybe just elaborate on that point a little bit when and under what condition you will potentially remove the going concern in the next 12 months? Thank you.

Yes. Jim Kelly, you can take that question.

Hey Certainly. And you're exactly right that this is an area of high interest for investors, our financial health. We really think we've made significant progress. As you heard us mention, we have $900 million as of 6/30 in both cash and receivables. And we just announced a really important improvement in our strategic partnership with SK that certainly eliminates further liabilities. When it comes to the going concern, you are correct that it is further disclosed in our 10-Q. And we look forward to providing more updates, especially in light of our performance this fall in the updated vaccine commercial marketplace. And I think that's about what we can say right now. I think we're optimistic with our operating plan. We continue to execute well. And if we do so, that would be in line with our expectations that with the appropriate execution, we endeavor to remove that going concern. So, more on that in the future.

Excellent. Thank you for the comment. That’s it from us.

Our next question will come from Eric Joseph with JPMorgan. You may now go ahead.

Good morning. Could you clarify whether the updated XBB vaccine would be available as a single-dose or multi-dose format for the US fall campaign? I'm also curious to know if any national or regional PBMs require a single-dose format. I have a follow-up as well.

Thank you, Eric. John T., do you want to take that one?

Yes. Thank you. Yes, we will be providing five-dose vial presentation, which is a reduction from our previous endos. We have been talking about unit dose vials based on an assessment of what market conditions are looking like. To ensure that we had sufficient supply and then sufficient timing parameters, the decision was made to go with a five-dose vial. There is no specific prevention from having a multi-dose vial. And the reality is we still have refrigerator stability while others are still being shipped frozen products. Ease of administration of the five-dose vial is essential in making sure that there are no barriers to the use of the five-dose vial and that is being communicated and coordinated with all of our customers, distributors, pharmacies, health care providers, etc. You had a follow-up question?

Yes, it did. That's very helpful. Thanks, John. Maybe just picking up on your comments about pricing and you made a note about WACC, but your comments being competitively priced, I guess, what should we be thinking about in terms of discounts or really net price? Is there a range that we should be modeling in the US?

Yes. So, we're not going to disclose the specific contract pricing terms. But as you can imagine, it's part of the overall access strategy and contracting strategy across all of these channels that we are making sure that the reimbursement calculations are being taken into consideration for what they are purchasing for, what the health care providers are being reimbursed for, and knowing that, that's an important calculation for that strategy. So, contracting across all channels in particular, I've mentioned pharmacy, I've mentioned office-based physicians, but office-based physicians are in categories of integrated delivery networks, or in physician buying groups. And therefore, that contracting strategy significantly affects their decision-making.

Final one, if I could. Just speaking a last one here. With respect to the remainder of deliveries under APA in the EU, are you effectively done with distributing the Wuhan strain at this point? Or should there be some through still in the second half of that format? I guess if that's not the case to get, what's the timing that you expect to sort of be ready with the XBB strain delivery in that region?

Go ahead, John.

Yes. So Eric, all of our shipments in the fall will be the variant strain XBB. The different regions have different rollouts of the APA. So, APAs in the EU are finishing up before the end of this year when we expect to deliver the remaining 17 million committed doses. The relationships established during the pandemic remain strong across the EU and our commercial organization deployed against key EU markets, including Germany, Spain, France, Italy, and Switzerland. We look forward to 2024 and the shift to traditional commercial vaccine distribution, both in the private and tender markets. We expect to continue to grow share in these key markets based upon the expressed need for the non-mRNA option and Nuvaxovid's position as a safe and effective protein-based vaccine approved for use in the EU. In Canada, we amended our APA, which provided for payment of forfeited doses in 2023, reinforced our commitment to establish in-country manufacturing in 2024 and 2025 and also extended dose purchasing commitments into 2024 and 2025. We are excited to have strengthened our partnership with Canada and established a foundation for continued vaccine supply. Finally, in Asia-Pacific, we have similarly created strong relationships with our country partners in this region. We continue to supply against existing APAs to Australia, New Zealand, Singapore, Taiwan, and Israel. While some APAs continue into 2023 and 2024, we are beginning to execute against traditional vaccine tender purchasing policy. Interest in vaccine choice remains high with specific focus on the need for a non-mRNA choice of a protein-based vaccine. Regarding ongoing label expansion and policy recommendations, across all of our priority markets, we are engaged with regulatory authorities and policymaking bodies to expand our label and advance policy recommendations that will enable broad market access.

Great. Thanks for taking all the questions.

Thank you, Eric.

Our next question will come from Brendan Smith with TD Cowen. You may now go ahead.

Hi guys. Thanks so much for taking the question. Congrats on the quarter.

Thank you, Brendan.

Yes. So, a couple of quick ones from a kind of building on, I think, the last couple of questions. I guess, really, to your point about the APAs, I wanted to also ask if you're still planning to or maybe currently negotiating with any of these governments to try to monetize any of the remaining APAs? Or are you expecting at this point to really just go ahead and fill them as is? And then I guess one last question on the remaining supplies of the Wuhan vaccine, if we should maybe expect any, I don't know, potential write-offs or disposal of the existing doses or really what your plan is for any outstanding supplies there as we kind of move into the fall with the XBB booster? Thanks.

John, do you want to take the first question on APAs?

Yes, let me clarify. For the remainder of the year, all shipments will be of the variant strain vaccine XBB. No additional shipments of the Wuhan vaccine will be made during this time, and we have complied with the recommendations to include the variant strain. We will continue this approach across all regions where we operate. The Advanced Purchase Agreements (APAs) differ by country; there are no APAs in the US since it is a fully commercial market. In Canada, we will follow the amended APA which extends into 2024 and 2025, and we are in ongoing discussions about their long-term COVID vaccine needs. In Europe, the arrangements will conclude this year, but we are having conversations on a country-by-country basis regarding their tender and private markets. Similarly, in Australia and New Zealand, the APAs have been extended for another year. The relationships formed during the pandemic remain strong, and we have received great cooperation and flexibility. We have retained the full contract value of the APA in all cases, so we will either ship updated variant vaccines or manage future purchase commitments to meet those obligations.

And then Jim Kelly, the second question on any potential write-offs from Wuhan?

Yes, exactly. And we don't anticipate any write-offs associated with Wuhan. And I think you noted in our COGS this quarter, I think it's about $2 million in ex-pre and obsolescence. So, we've balanced those items, and we're fully focused on delivering the updated vaccine this fall. I'll just reiterate what John just said about getting all the Wuhan vaccine to our customers. We are fortunate. Our customers requested to have Wuhan delivered by Q2, and we delivered on that. And that was a part of what people are happy to see in our top-line this quarter. And when you think about our guidance that we've given just in terms of phasing of revenue, we had said, hey, about one-third or $500 million we expected before the fall season. Well, we did just that. And so the remaining $800 million to $1 billion is this back half of the year, and we look forward to executing with our updated vaccine.

All right, great. Thanks guys.

Our next question will come from Mayank Mamtani with B. Riley. You may now go ahead.

Good morning team. Great to see solid execution against your plan. I appreciate your transparency. Just quickly kind of following up on the prior question around the current liabilities management. We noticed the Gavi update mostly sort of being focused on 2024 in your 10-Q. I'm just curious, anything additional on that topic, we should hear beyond the color you provided in Canada and with the SK Bio, anything else that could happen on the current liabilities bucket we should be looking out for in the near-term? And then I have a couple of follow-up questions.

Jim. Do you want to comment?

Thank you for asking about current liabilities, as it is crucial for our financial health moving forward. We have successfully reduced our current liabilities by $864 million year-to-date, and there's an additional $195 million related to significant agreements with SK Bio. The progress we've made in recent months has significantly strengthened our financial position. However, we still face approximately $700 million in other liabilities linked to Gavi. We believe the claims in our dispute are unwarranted, and although we cannot comment further on legal matters, we have disclosed that the arbitration hearing is set for July 2024. We look forward to providing updates on our financial strength in future calls.

Very helpful. Filip, could you briefly discuss the ongoing flu-COVID work? We recently experienced a significant setback with an antibody effort and have seen mixed results from the mRNA for a specific strain subtype. What insights are you gaining, and how do you envision the execution for your candidate, considering the advantages of your combination, as you plan the design of the Phase III study?

Yes. So, first, I want to remind you that the data that we presented previously was a relatively small data set, right? We compared 11 different formulations. So those had to be bedside mixes. So the whole idea is for this next study, we're going to be testing a co-formulated vaccine which would be the final formulated product we're looking at. To develop the safety database, we could actually go into a large Phase III study. We think we're going to have a superior product. That's the target product profile, and we aim to prove that with a clinical efficacy Phase III study to follow. Now that being said, our stage-gated approach is really to release resources to develop the co-formulation and looking forward in the future, hopefully, to get that Phase IIb study taken care of next year to increase the value of the asset and really to assure us that as we go into a Phase III study, we'll have a superior product.

Okay, understood. And maybe just one final question for John. The US product sales guidance range is quite broad, and I was curious about how we should characterize aspects such as timing, market share, pricing, and volume levels based on your discussion with customers. Given that you haven't already worked with GPOs, can you break down those different variables in terms of how we might excel within that broad range?

Yes, John T., do you want to comment?

Yes. I believe there is a notable variation in estimates for total US market demand, which is likely due to the unpredictability surrounding market sizing for the upcoming fall season. Last fall, we experienced significant vaccine fatigue as people were already receiving their second or third booster shots, and the urgency of vaccination was less emphasized as the government projected a return to normalcy. This fall, the situation is different. We now have a new strain of the virus that necessitates the updated vaccine to ensure protection and minimize severe illness. The effectiveness of this campaign will largely depend on how well we communicate the importance of vaccination to consumers and healthcare providers, supported by the CDC's efforts to inform the public. Participation at pharmacies will also be crucial, alongside engagement from office-based practitioners in public health initiatives and funding programs for underprivileged populations. Over the coming weeks and months, we'll observe how these factors unfold. Regarding our market share, we had minimal representation in the US market last year, but we have moderate expectations for the upcoming period. There is a clear demand for non-mRNA COVID vaccinations, and consumers recognize the benefits of a protein-based vaccine. We stand as the only provider of such a vaccine in the US market, and we aim to emphasize the importance of choice for consumers. Therefore, we anticipate gaining some market share in this fall campaign.

Great. Thanks guys for taking our questions. Appreciate it.

Our next question will come from Alec Stranahan with Bank of America. You may now go ahead.

Hey guys. Thanks for taking our question. Just a couple from us. First, maybe just a finer point on the expectations around the BLA approval. Is your expectation that going into the fall vaccination cycle that you'll have an EUA in hand? And if not, are any of the contract deliveries that you expect contingent on a BLA, ACIP recommendation, or MMWR recommendations? And then I've got a follow-up. Thank you.

Go ahead, John T. on that question.

Yes, that's actually a really good question that we want to make sure everybody clearly understands. So, we are already in the process of submitting for the BLA. We expect that to be final submission within the coming weeks and months and then a BLA approval in the first quarter of next year. That process does not have a negative or positive effect for the full campaign. There is constant coordination and communication with the FDA. We expect full operating flexibility under the emergency use authorization. That conversation, as I said, has been taking place with the regulators and with the FDA. And so no restrictions across any of our distributors, pharmacies, healthcare providers because we will have that EUA authorization available for this product from the FDA.

Okay, great. And maybe one quick follow-up maybe for Filip. Just in terms of the data that goes into the BLA, what the FDA would want to see for full approval. Is this simply comparability versus the Nuvaxovid on immunogenicity? Or do you need to also demonstrate protection from infection? And if it's the latter, would you be updating the market once this data is available? Thank you.

Yes. So, let me be kind of crisp on this, the BLA itself is based on the prototype vaccine 2373, the original strain. So, that's as John said, we have a rolling submission and that's going in now. The approval for EUA for the XBB is also going in. As I've said, we've completed a complete clinical role. And the data I showed you today is the key clinical data for authorization of the XBB variant. There's no other data in that file other than the data you saw today. And that's going to be concluded this month with expectation for us to build products by the end of September for the CDC FDA. Now, there's a subsequent supplemental BLA next year, which will wrap all this up into a single file going forward. So, at some point next year, we're going to be out of the EUA game and in a straight BLA game with this and all subsequent variants.

Great. Thank you.

Our next question will come from Vernon Bernardino with H.C. Wainwright. You may now go ahead.

Hi everyone. Thanks for taking my question, and congrats on the restructuring and positive results on the liabilities. I just wanted to confirm a few things. Just wanted to confirm that the WACC you quoted was $130 and whether that was for a single dose booster type shot or is that for the full vaccination regimen? And I have a follow-up. Thank you.

So Vernon, that $130 WACC is $130 per dose regardless of presentation. And so therefore, the calculation is based upon WACC reimbursement follows in line with that calculation. And then, of course, the supporting contracts out to specific healthcare providers are all part of how that process works.

How does that work with the fact that some might see it as a premium price? How will that influence acceptance, considering a combination of COVID and the vaccine? Specifically, to what extent is the vaccine perceived as something we want, and therefore, worthy of premium pricing?

Yes, I don't know that I would call it premium pricing. You're in the prevention or reduction of illness of a significant severe disease. So, the justification for that is based upon pharmacoeconomic modeling that takes a look at the benefit received from the vaccine against the economic burden associated with hospitalization, illnesses out of school, out of work, etc., etc. I think we have a calculation that is reviewed. We're confident that there is a robust cost-benefit analysis that supports that WACC consistent with the other manufacturers. I won't yet comment on where we're going to be pricing strategy for a combo vaccine. But if you do have something based upon the data that we saw from the Phase II, that immunogenicity is robust and better than the leading vaccine in the market and that you also are combining that with a COVID vaccine that has a robust efficacy profile against a severe disease burden that you would expect to see pricing consistent with the economic benefit.

Terrific. Appreciate the additional insight.

And this will conclude our question-and-answer session. I'd like to turn the conference back over to John for any closing remarks.

Just want to say thank you for joining us today everyone. We appreciate it, and we look forward to sharing further updates with you in the future. Have a great day everybody.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.