Novavax Inc Q3 FY2023 Earnings Call

Ladies and gentlemen, thank you for standing by, and welcome to the Novavax Third Quarter 2023 Financial Results and Operational Highlights Conference Call. At this time, all participant lines are in a listen-only mode. 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 third quarter 2023 operational highlights and financial results. A press release announcing our results is currently available on our website, and an audio archive of this conference call will be available on our website later today. I need to remind you that this presentation includes forward-looking statements, including information related to the future of Novavax, its key strategic priorities, operating plans, objectives, and prospects. Each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ materially. Additional information regarding these factors appears under the heading Cautionary Note Regarding Forward-Looking Statements in the slide deck issued this afternoon. Please turn to Slide 3. Joining me today is John Jacob, our President and CEO, who will provide an update on our progress during the quarter across 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 clinical development and pipeline. Finally, Jim Kelly, Chief Financial Officer and Treasurer, will provide an overview of our financial results. I would now like to hand over the call to John Jacob. Please turn to Slide 4.

Thank you, Erika, and thanks everyone for joining us today. I'm pleased to be here along with our executive team to discuss our third quarter 2023 financial results and operating highlights. Let's begin with our first priority, delivering an updated product for the current fall vaccination season. We've demonstrated our ability to update our COVID-19 vaccine with seasonal strain changes and we are focused on commercial execution to gain market share and deliver on our commitments. In the U.S., we launched the season approximately three weeks ago with shipments to major retail pharmacies. We achieved our prelaunch goal of securing broad access to our vaccine, the only protein-based non-mRNA option in the country. Although we're seeing indicators of increased awareness and growing interest in our vaccine, it's too early to assess true market uptake. In Europe, Nuvaxovid was approved in October and we are also awaiting authorization in Canada, the UK, Australia, and New Zealand. We expect to deliver all contracted doses for the ‘23-‘24 season. Market wide, we have seen lower than expected COVID-19 vaccine demand, and we expect to deliver revenue at the low end of our prior guidance for the season, with some revenue expected to shift into the first quarter of 2024. Importantly, we did not originally expect any revenue in Q1 of 2024. Our management team is focusing on creating a robust and sustainable business platform. This also includes additional restructuring to create a more efficient business model, facilitating the anticipated launch of our combination COVID-19 influenza vaccine in 2026. Moving to priority number two, which is to reduce our spend and manage cash flow. Year-to-date, we've achieved a $950 million reduction in operating expenses versus 2022 and an approximate $1 billion reduction to current liabilities. We are on track to exceed our global restructuring and cost reduction plan for 2023 by over $100 million. While this reduction was an important step, we believe there are more efficiencies we can achieve. We are prepared to initiate additional cost reductions to decrease 2024 expenses by over $300 million beyond previously stated targets. Lastly, priority number three is to leverage our technology platform to drive additional value beyond Nuvaxovid. Our recombinant protein-based nanoparticle technology and the Matrix-M adjuvant can produce a variety of differentiated vaccines. We are focusing our R&D investment on bringing forward our COVID influenza combination vaccine product. We are planning to move directly into Phase 3 in 2024, pending FDA concurrence on an accelerated approval pathway, which if successful, would enable a potential launch in the U.S. in 2026. Now, I would like to hand it over to John Trizzino to discuss our commercial updates.

Thank you, John. Please turn to Slide 6. In the U.S., we are approximately three weeks into our season launch. We have secured broad access to our vaccine through contracts with major retailers, including CVS, Costco, Publix, and others. To date, the retail channel has represented approximately 90% of COVID-19 vaccinations. Looking at the flu market, the retail to non-retail channel split is currently about 65-35, which mirrors prior years. Based on our data, we estimate that the U.S. market could see as low as 30 million doses or as high as 50 million doses this season. We are expecting lower than anticipated sales due to various factors, including distribution challenges and consumer fatigue. Importantly, we don't believe that the 2023 market will be representative of future opportunities. We are encouraged by our vaccine's availability alongside mRNA options, which offers consumers a choice this season. Although we currently hold a low-single digit market share, we are optimistic about market share improvement as the season progresses, given that we are the only protein-based non-mRNA COVID-19 vaccine option. We are focusing on driving market share in the retail channel and executing targeted direct-to-consumer education efforts. Early feedback has indicated a demand for a differentiated vaccine option, and we expect product sales for Nuvaxovid to exceed $1 billion annually, providing a foundation to advance our pipeline. Now, I would like to hand it over to Filip to discuss updates for R&D.

Thanks, John. Please turn to Slide 12. I will cover our progress in the COVID influenza combination program and how we're expanding the use of Matrix-M adjuvant. Our combination vaccine program remains a priority because it has the potential to be preferred by consumers and healthcare providers. We have selected a formulation to advance into the next study. Neutralization responses are important as they predict clinical efficacy. We believe our selected formulation achieves favorable comparison to Nuvaxovid and licensed influenza vaccines. We observed a favorable reactogenic profile with our combination vaccine, indicating good tolerability. This points to a favorable product profile with a convenient two-in-one vaccine. We are on track to initiate the next study in 2024, aiming for accelerated approval pathways pending regulatory concurrence. Let me now share our plan timelines for the combination vaccine program. We anticipate initiating the Phase 3 study in the second half of 2024, which implies a regulatory filing in 2025. I’ll now hand it over to Jim to discuss our financial results.

Thank you, Filip. Please turn to Slide 17. Before discussing our third quarter financial performance, I would like to share updates on three important financial themes that aim to drive shareholder value. We are sharing our updated financial guidance for the COVID 2023-2024 season, estimating total revenue at $1.3 billion, reflecting the lower end of our prior guidance range. We expect approximately $1 billion for total revenues in 2023 and around $300 million in the first quarter of 2024. This updated total revenue guidance reflects a reduction in U.S. sales estimates due to current market conditions, offset by favorable adjustments from our APAs plus grants and royalties. We have over $960 million across cash accounts receivable as of the third quarter 2023. Our management team remains focused on creating a robust business platform while driving significant improvements to our cost structure to achieve long-term shareholder value. Please turn to Slide 18. For the third quarter 2023, we recorded $187 million in total revenue. Our combined R&D and SG&A expenses were $213 million, reflecting a significant decrease and highlighting our commitment to improving financial performance while maintaining key capabilities. We are prepared to further reshape our operations to align with the COVID market opportunity. We are targeting to reduce 2024 R&D and SG&A expenses by over $200 million compared to prior targets. If we achieve our guidance outlined today, we believe this will support funding for our operations in the next 12 months. I would like to now turn it back to John for closing remarks.

Thank you, Jim. I am proud of the significant progress we've made against our three priorities in 2023, including the launch of our updated vaccine, being over $100 million ahead on our cost reduction targets, and enabling a potential Phase 3 initiation of our combination vaccine program in the coming year. We are excited about our ongoing U.S. commercial launch and the opportunities ahead. This includes the potential for a sustainable COVID-19 business, our combination COVID flu program, and the strength of our Matrix-M adjuvant to further diversify our revenue generation opportunities in the future. With that, we will now take your questions.

We will now begin the question-and-answer session. Our first question comes from Roger Song from Jefferies. Your line is open.

Great. Thanks for the comprehensive update. A couple of questions from us. Maybe start from the U.S. market. Understanding you're updating the guidance to $50 million to $150 million sales for this season. I want you to give us a little bit of color on how confident you are about that guidance given that third-party databases seem to suggest you're still behind that number. Just curious about your thinking around how Novavax will capture further market share toward the end of the season and more importantly, how do you see next season in terms of potential market share for the Novavax protein-based vaccine for COVID. Thank you.

Hi, Roger. Thank you for your question. Appreciate you joining the call. It's very early in the season right now. We're seeing some strong sparks of early interest in the vaccine. The biggest unknown remains how large the market will really be. I'll ask John Trizzino to elaborate on that for you.

Thanks, John. Hey, Roger. We're learning a lot every day about the current ’23-‘24 season. There are factors leading to the slower start, including distribution challenges and vaccine fatigue among consumers. However, we do expect to see a market opportunity through the end of November and December as we look at pharmacy vaccinations. We believe there will be a significant growth in the non-retail sector based on current dynamics. We are seeing some early metrics indicating that in a select national retailer, we achieved up to 10% market share in the initial weeks of the launch. Given that, we remain optimistic.

Got it. Yeah. Thanks, John.

Hey, certainly. The APAs we have are tied to committed delivery schedules, and we are focused on getting doses to market. We expect our deliveries in important markets like Australia and New Zealand will align with their seasonal needs. All these APAs do come with stipulations that we have to deliver on time per the agreement, but we currently expect to get them there on schedule.

Excellent. Great. Thank you. Maybe just one last one from me. You can directly move into the COVID flu combination trial, Phase 3 trial next year. Given the additional operational expense cuts for 2024, how do you think that will impact that Phase 3 plan? Will you be able to sufficiently fund that trial without a partner?

Great question, Roger. We're driving towards an efficient pathway to get to our combination product by 2026. We envision a clear path through to over $2 billion in cash from several key components: cash on hand, expected cash from sales, and outstanding APA contract value. So we have confidence in our capacity to fund both the COVID product and to accelerate the combination product development.

And that doesn't include additional revenue opportunities from other regions, which could provide even more funding flexibility. So we are confident in our financial strategy moving forward.

Thanks, good morning. In the U.S., looking across the pharmacies contracted with your updated vaccine, can you provide insight on their aggregate market share relative to seasonal vaccines, particularly with Walgreens not being part of that mix?

When it comes to historical channel dynamics, for flu vaccines, the retail share has typically been very high. We expect to see a shift in market dynamics as we go deeper into the season, increasing accessibility through pharmacies. But we still need time to assess how consumer behaviors are shifting.

We are currently in over 14,000 retail outlets across the U.S. CVS represents a large portion of consumer access. Although we would like to have Walgreens in the mix, we are still reaching close proximity to the majority of Americans through available pharmacies.

To the extent we continue to build strong relationships with pharmacies and drive awareness successfully, we’ll be able to reach those consumers effectively.

As we build out our relationship with healthcare providers and retail pharmacies, we will continue adapting strategies to ensure our vaccine is recognized and utilized effectively.

Hi, great. Just a quick one regarding ex-U.S. approvals. Are you still in the process of completing the filings, or are they all done? Can you provide any color on potential timing for remaining approvals?

We are waiting on approvals from several key markets, including the UK, Canada, Australia, New Zealand, and more. We expect some deliveries to occur before the end of the year, while others may roll into Q1, depending on the regulatory timelines.

Our secured orders reflect a strong indication of delivery in the upcoming quarters based on our supply chain status and expected APA commitments.

Can you comment on the regulatory milestones for both the updated vaccine and the combination vaccine? Also, what is the status on clinical study designs?

We are scheduled for discussions with the FDA in Q1 2024 regarding our IND filing for the combination vaccine. The focus is ensuring we are well-prepared with data to support our applications and potential approvals.

I'm confident that we are taking the necessary steps to position ourselves favorably for both the COVID flu combination and the timely updates for seasonal vaccines.

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

Thank you for your time and energy today. I appreciate your questions and wish you a great close to your week. Thank you all.