Earnings Call Transcript - NVAX Q1 2024

Operator, Operator

Good morning, and welcome to Novavax' First Quarter 2024 Financial Results and Operational Highlights Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Erika Schultz, Senior Director, Investor Relations. Please go ahead.

Erika Schultz, Senior Director, Investor Relations

Good morning, and thank you all for joining us today to discuss our first quarter 2024 financial results and operational highlights. 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 2. 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, statements related to potential royalties and milestones, operating plans, objectives and prospects, full year 2024 financial guidance, the amount and impact of Novavax' cost reduction plans, 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, marketing opportunities, manufacturing capacity and 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 morning and under the heading Risk Factors in our most recent Form 10-K and subsequent Form 10-Qs, filed with the Securities and Exchange Commission available at www.sec.gov and on our website at novavax.com. 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. Please turn to Slide 3. Joining me today is John Jacobs, our President and CEO, who will discuss our agreement with Sanofi announced this morning. Additionally, John Trizzino, our President and Chief Operating 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 and implications of the Sanofi partnership. I would now like to hand over the call to John Jacobs.

John Jacobs, President and CEO

Thank you, Erika, and thank you, everyone, for joining us today. Today, we enter a new and exciting chapter in the history of Novavax. This morning, we announced that we have signed a global co-development and co-commercialization agreement with Sanofi. This agreement is both material and strategically important for Novavax. It is further validation of our technology platform and provides significant opportunity to drive value creation and benefit global public health. The agreement represents a multibillion-dollar opportunity over time for Novavax. Via this agreement, we generate significant near-term cash flow, a strengthened balance sheet as well as the opportunity to strategically pivot to a new lean operating model, focusing more on our strengths in research and development and pipeline expansion to accelerate our growth and generate long-term value for our shareholders. First, the upfront and near-term milestones associated with this agreement are anticipated to equate to approximately $1.3 billion in cash, with approximately half expected within 10 days of signing. These cash payments provide us with a significant capital infusion to help us manage our business, which in turn enables us to remove the going concern status for Novavax. Second, beginning in 2025, it allows us to leverage one of the largest proven global leaders in the vaccine business to commercialize Nuvaxovid in the U.S., U.K. and Europe initially and worldwide over time. This provides hundreds of millions of dollars in potential cost synergies, enabling us to drive toward a new, lean operating model with total costs anticipated to be well below our prior stated cost reduction targets. We expect our royalties and milestones from Sanofi's efforts with Nuvaxovid to exceed the value of what our own efforts might have yielded, had we kept the product exclusively. By licensing Sanofi to use our Nuvaxovid to develop their own combination flu and COVID products, and to use Matrix-M as a component of other vaccines across their portfolio, we expect to realize substantial additional royalties and milestones valued potentially in the billions, driven by Sanofi's product development and commercialization efforts over the years and decades to come. The royalties and milestones associated with potential new vaccines Sanofi may develop using Matrix-M, as well as those anticipated from sales of our COVID-19 vaccine and the development of Sanofi's combination flu COVID and other potential combination vaccines, should help us sustain cash flow as we invest in our own R&D in an efficient and thoughtful manner for years to come. In fact, we have done all of this while retaining the ability to broaden and accelerate development of our wholly owned pipeline. This includes modifying our planned 2024 pivotal trial for our combination flu and COVID vaccine to also yield pivotal results for our stand-alone flu vaccine, and we now anticipate readouts for both the combination and stand-alone flu vaccine in mid-2025. In addition to our late-stage CIC and flu stand-alone programs, we will now be able to assess and contemplate the addition of some early-stage programs to our pipeline within the cost structure of a new lean operating model. We will be pragmatic, shareholder-focused, and market aware about how to bring these assets forward through partnering, out-licensing, co-development, co-commercialization, or commercializing on our own, only for the right asset and benefiting from our learnings from the COVID experience. The key here is that we intend to have multiple organic opportunities from our own pipeline, with optionality on how to optimize value from them. We look forward to providing additional details and updates on our new pipeline and future growth strategy for Novavax in the coming months as we operationalize our partnership with Sanofi. This transaction further validates Novavax's product development capability and the extraordinary value of our Matrix-M adjuvant technology, potentially enhancing our future licensing and business development opportunities across our tech platform. In summary, this transaction capitalizes our current business, seeks to increase our future anticipated value from Nuvaxovid while enabling us to significantly reduce our operating costs and complexity, creating a future stream of royalties and milestones from multiple potential new products to be developed by Sanofi, broadening and accelerating our own development pipeline and enhancing our future deal-making capabilities, leveraging Matrix-M, our late and early stage pipeline, and our product development capabilities. Jim Kelly will now walk you through the financial terms. Jim?

James Kelly, Chief Financial Officer and Treasurer

Thank you, John. Please turn to Slide #5. This new agreement with Sanofi provides for a multibillion-dollar potential across upfronts, equity investment, milestone, and royalties. The anticipated present value of the royalties on Sanofi's Nuvaxovid and CIC sales are expected to be the largest individual component of value in this transaction. The COVID-19-related terms include the potential for approximately $1.3 billion in cash payments and equity investments. Plus Novavax is eligible to receive two royalties on related product sales. Additionally, we are eligible to receive up to $200 million in milestones plus ongoing royalties for each new vaccine developed utilizing Novavax' Matrix-M adjuvant. For example, if Sanofi develops five products with our Matrix-M, each with $1 billion in sales, this would represent hundreds of millions in royalties per year plus up to $1 billion in one-time milestones. During the second quarter of 2024, the initial cash payments include the $500 million upfront and the approximately $70 million equity investment in Novavax stock. Near-term Nuvaxovid COVID-19 milestones of $350 million and CIC milestones of another $350 million should provide important future cash flow to the company. Novavax is eligible to receive tiered royalties on net sales in each of the COVID-19-related product categories, enabling meaningful participation in future economics from current and future products under this agreement. Please turn to Slide #6. New vaccines developed with Matrix-M by Sanofi create a broad opportunity to advance this technology and provide Novavax with multiple revenue generation sources. Novavax will support Sanofi as it prepares to advance all programs associated with this agreement, and Novavax will be eligible for cost reimbursement across a host of spend categories. John will now walk you through the first quarter commentary. John?

John Jacobs, President and CEO

Thank you, Jim. Please turn to Slide 7. It took a lot of hard work over the past 15 months to get here, with a determined focus on the strategic priorities we identified when I first joined the company, to better position Novavax to execute significant business development opportunities like this partnership with Sanofi. Since early 2023, the management team and I have been making significant progress on our three priorities: Priority one, delivering an updated product for the fall vaccination season; priority two, reducing our rate of spend, managing our cash flow and evolving our scale and structure; and priority three, leveraging our technology platform, capabilities, and assets to drive additional value beyond Nuvaxovid alone. Importantly, we had to make significant progress on the first two priorities to optimize the potential of our third priority. Over the last 15 months, by strengthening our balance sheet, reducing significant onetime legacy liabilities, including Gavi, and proving that we could streamline our strain selection process and update our vaccine to align with regulatory requirements, we put Novavax in a position to execute meaningful business development agreements. The Sanofi agreement is strategically important for our company, as it enables a pivot to a new growth strategy, a new lean operating model, and a new chapter in the history of Novavax. With that in mind, we have made appropriate adjustments to our priorities for the remainder of 2024. For the remainder of this year, we will be focusing on the following: #1, prioritizing the successful transition of our new partnership with Sanofi; #2, continuing to expand and diversify organic opportunities and create additional value from our technology platform; #3, preparing to initiate an additional cost reduction program to reduce 2025 R&D plus SG&A expenses net of Sanofi cost reimbursement to below $500 million; and #4, delivering an updated product for the '24-'25 fall vaccination season. As our strategy and vision and expanded pipeline for the company evolve, we intend to share more about the new path forward for Novavax. We will spend the next several months analyzing and crystallizing our future pipeline and our strategic focus, with the goal of sharing our updated plans for Novavax in more detail towards the end of this year. Now I would like to hand it over to the team to discuss our results from the quarter in more detail, beginning with John Trizzino for our commercial updates. John?

John Trizzino, President and Chief Operating Officer

Thank you, John. Please turn to Slide 8. We are very excited about the potential of the Sanofi agreement for our business. As John mentioned, our first priority is operationalizing the agreement to enable Sanofi to commence co-commercialization activities starting January 1 of next year. This collaboration agreement with Sanofi validates the significant investment made in the Novavax technology platform to date and the dedicated and passionate effort of the many people that have contributed along the way. While we firmly believe that our COVID vaccine is the best one approved for use, it has been challenging to transition from being an innovator focused on developing vaccines for infectious diseases to being a commercial business focused on operational execution. Now partnered with Sanofi, we see a clear opportunity to leverage their brand and global infrastructure for the benefit of public health, revenue generation, and increased return to our investors. The burden of disease for COVID remains clear and well-documented. Vaccination continues to be recommended as the best defense for the prevention of severe disease, hospitalization, and death. Advisory committees like the CDC ACIP and other health policy bodies around the globe continue to recognize this need. The COVID virus continues to circulate throughout the year, but with concentrated disease burden during the typical winter respiratory disease season from late fall to early spring. The ongoing need for both a COVID and influenza annual seasonal vaccination leads to the public health benefit of a single combination vaccine. A single visit and vaccination create a convenience that we believe will translate into improved vaccination rates, especially in older adults who are most at risk. Sanofi is well recognized as the leader in influenza vaccines, and this collaboration agreement creates the opportunity for a COVID-influenza combination vaccine with their existing licensed product. In parallel with preparing for Sanofi's '25 commercialization activities for the upcoming '24/'25 season, we intend to support our key markets of the U.S., Europe, and U.K. but to do so in an increasingly streamlined, targeted, and cost-efficient manner during our last season commercializing on our own. Recently, both WHO and EMA recommended the use of a monovalent JN1 lineage COVID-19 vaccine. Novavax plans to be ready to deliver our JN1 protein-based vaccine globally this fall, and we have been developing and manufacturing this vaccine candidate as we anticipate the VRBPAC meeting for U.S. strain selection on June 5. Please turn to Slide 9. In the U.S., we intend to build upon our efforts from the '23 season by offering our vaccine in a more competitive single-dose prefilled syringe presentation. We intend to have product at distribution centers in the U.S. no later than mid-August, and ready for the season start in early September pending FDA release. We expect that the CDC and competitors will conduct preseason disease awareness campaigns to drive vaccination rates, and we will focus our efforts on building upon our increased healthcare provider awareness of Novavax, which we achieved last season, focusing our marketing efforts and investment on the retail and 60-plus age group, where we foresee the highest potential for conversion to Novavax's vaccine given their historically higher vaccination rates. In retail, we are having encouraging discussions that increase our optimism about improved retail access for the season. As John mentioned, we have completed the submission of our BLA. While we are pleased with this progress, we have decided, in consultation with the FDA, to seek emergency use authorization for our updated vaccine targeting JN1 to be available by early September, at the start of the season in a prefilled syringe. This pathway has been mapped out with the FDA to enable an expedited review timeframe and a more straightforward review process. This effort will occur in parallel with the BLA review process, with the goal of having full BLA approval sometime this year. Though the BLA is important, the most crucial factors for a successful campaign are timely launch at the beginning of the season, broad availability in retail, high levels of awareness, which we already have from last year, and a competitive product presentation in a prefilled syringe. We believe we can more effectively achieve these parameters this year by choosing the EUA option in parallel to the BLA pathway. Please turn to Slide 10. With our pandemic error APA complete in Europe, we are entering a commercial and tender market for the first time in the region and are prioritizing our goal of timely delivery of an updated COVID-19 vaccine in several key European countries. In our major APA markets in Australia, New Zealand, and Canada, we are seeing a more formal, non-pandemic consumer demand pattern and are seeking to optimize the value of these contracts, while acting in the best interest of public health for these customers. We are in discussions regarding potential adjustments to dose volumes, pricing per dose, and timing of delivery schedules that should better reflect market demand. Where possible, we seek cash prepayment in exchange for moving to future delivery of doses. Due to significant reductions in demand since the pandemic, awaiting regulatory approvals and ongoing contract renegotiations, we are lowering total revenue guidance for 2024. Jim will discuss guidance on revenue and expenses in more detail shortly. Though we have remaining value on our APAs and intend to optimize that value where we can, over the next 2 to 3 years, we are moving from a pandemic-based APA period toward a fully normalized vaccine market. We look forward to working with our new partner to optimize our commercial opportunity. Now to discuss our combination and influenza vaccines, and other key R&D updates, I want to hand the call to Filip.

Filip Dubovsky, President of Research and Development

Thanks, John. Please turn to Slide 12. Today, I want to cover several topics. First, I want to share data on our JN1 candidate before touching on our revised CIC and influenza Phase III plans. Then I will show you some preclinical data on our optimized RSV vaccine candidate that we are evaluating for future development. Finally, I want to introduce you to two innovative expansions of our technology: mucosal vaccination and the development of a novel nanoparticle format, which we are exploring as an avian H5N1 pandemic vaccine. As John mentioned, these innovations are examples of work we've been doing over the past year to generate additional value from our technology platform. Please turn to Slides 13 and 14. The World Health Organization and EMA have recommended the JN1 line vaccines for the '24/'25 season. This is a variant we've previously advanced in the commercial development. Here, I'm showing neutralizing responses in nonhuman primates vaccinated with XBB.1.5 vaccine and boosted with a single dose of JN1. On the left side, you can see the responses to the JN1 variants were low prior to boosting. On the right side, the responses to JN1 and JN1 drift variants are robust following a boost. These data provide us confidence that our vaccine has utility against the currently circulating strains, such as KP2, and possibly future-proofing our vaccine against other evolving variants. The strain selection will be confirmed by VRBPAC on June 5, and we plan on submitting our string change filing shortly after that. Let's go to Slides 15 and 16. We've modified our plans for the upcoming Phase III study to include the evaluation of a stand-alone seasonal influenza vaccine in addition to our COVID influenza combination vaccine in adults greater than 6 years of age. This is planned to be an immunologic noninferiority superiority study comparing our vaccine to age-recommended licensed comparators. Although we previously received supportive regulatory guidance for the stand-alone influenza program, we will reconfirm the acceptability of this design for the flu influenza portion of the study. The study is still on track for the second half of this year, with the decision-making readout available mid-2025. Let's move to Slides 17 and 18. We have optimized our RSV F nanoparticle vaccine antigen with the specific goal of maximizing the breadth of neutralizing responses. Here, I'm showing the immune responses in mice vaccinated with our RSV antigen with Matrix compared to the licensed GSK vaccine with the ASL1E adjuvant. We used competitive bidding against a panel of monoclonal antibodies known to bind neutralizing epitopes, including Side 0,2,4,5 and P27. On the left side, our bidding results on our antigen, and on the right side, the results on the GSK antigen. In both cases, a favorable breadth of response is demonstrated for our vaccine. It's interesting to note, on the right panel, that the P27 neutralizing sequence is not present on the GSK antigen. Let's go to Slides 19 and 20 to look at RSV neutralizing responses. Here, I'm showing responses for RSV A on the left and RSV B on the right. We see a significant increase for RSV A compared to the licensed GSK vaccine, which represents the difference of titers from 3,700 to over 23,000. For RSV B, the titer difference is from 440 to over 1,500. This antigen can be used as a stand-alone vaccine or as part of a broader combination vaccine program. Based on our previous clinical experience with a related construct, we are evaluating whether additional preclinical or toxicology studies are required, and partnering discussions for this antigen are ongoing. Let's shift to Slides 20 and 21 to look at our early progress in expanding our core technology into mucosal vaccinations. We've developed an intranasal formulation including our PS80 nanoparticle antigen with our Matrix adjuvant. In this experiment, we explored this technology with our COVID antigen. We've primed these mice with a bivalent vaccine containing prototype in BA5 and boosted them with intramuscular or intranasal XBB.1.5 vaccine formulations. On the far left side, you can see the initial priming sequence inducing no XBB.1.5 specific mucosal IgA antibody. In the middle, after intramuscular boosting, detectable mucosal IgA was seen. However, intranasal boosting revealed a very large IgA signal. This is important because mucosal IgA is the first line of defense against respiratory viruses and has implications for the prevention of infection and potentially impact transmission. Let's move to Slide 22 for additional characterization of immune response. Here we are displaying XBB.1.5 new responses in the blood on the left and mucosal neutralizing responses on the right. Little evidence of serum XBB.1.5 neutralizing response was observed after priming with the bivalent BA5 vaccine. However, XBB.1.5 responses increased 27-fold with intramuscular boosting, and surprisingly, intranasal vaccination boosted these central responses over tenfold. When we evaluated mucosal neutralizing responses on the right panel, again, there was no response after priming, but a profound response was seen after intranasal boosting, supporting the hypothesis that this approach may have utility in blocking infections. We believe the small rise in mucosal neutralizing responses following intramuscular boosting represents antibody transit from the blood compartment. These results are being prepared for publication, and we are evaluating this approach with different antigens in various preclinical models. If these findings are validated in the clinic, this could open the door for a needle-free vaccination approach, which could block infection and potentially transmission, specifically for respiratory and gastrointestinal infections whose point of entry is through the mucosa. Please turn to Slides 23 and 24 to look at our development of Matrix as a core for a new class of nanoparticles. We've identified transmembrane domains for molecular anchors and can link antigens directly into the Matrix adjuvant. The left image shows a model and an electron photomicrograph of a classic PS80 nanoparticle with antigens decorating the polysorbate core. The right image features the novel Matrix particle, where the antigens shown in blue are anchored directly into the vertices of the structure. This model is confirmed by the EM image on the right. This new format is larger than the PS80 nanoparticle, which we hypothesize may facilitate allogeneic cognition and phagocytosis. This also increases antigen density to 40 to 60 copies per nanoparticle, which may boost activation of antigen processing cells. Finally, linking to antigen at an adjuvant ensures co-delivery into a single endosome in antigen processing cells, potentially enhancing T cell responses, and this format is amenable to both intramuscular and intranasal administration. Let's go to Slide 25 to assess this in nonhuman primates. In this experiment, we utilized a highly pathogenic avian H5N1 2344b antigen, specifically American wigeon, as a model antigen. Here, we primed humans with our quadrivalent seasonal vaccine to closely mimic the immunologic background. We then boosted them with a single dose of H5N1 matrix nanoparticle vaccine intramuscularly or intranasally to measure neutralizing responses. On the left, a single 60-microgram intramuscular dose boosted H5N1 neutralizing responses to very high levels in all animals. The right shows that a single intranasal dose resulted in 100% seroconversion, with a geometric mean titer of 263. This represents a marked level of 1 to 40, which is used in the literature as a level relevant for protection. Single-dose pandemic influenza vaccination has been elusive, so these results certainly caught our attention. If validated in the clinic, this could lead to a game-changing approach; a single-dose vaccination in a pandemic setting would be much easier to deploy and could significantly impact public health. We are in discussions with government agencies on the best way to advance these candidates into the clinic for evaluation and validation. I've covered a lot today. To summarize, we are in commercial production of the JN1 vaccine, which has shown good results in preclinical evaluation and our goal is to have this product available at the beginning of the vaccination season. We've expanded our Phase III study to include stand-alone influenza in addition to our combination vaccine, and the study is on track to begin in the second half of this year, consistent with its original timeline. We've optimized our RSV construct and are evaluating additional work needed before deciding on advancing the candidate. Finally, we've developed two different derivatives of our technology, with the ability to vaccinate intranasally using adjuvanted PS80 nanoparticles that induce mucosal immune responses while boosting serum-neutralizing responses. Finally, we've identified molecular anchors that can attach antigens directly to Matrix, which in nonhuman primates prior to the seasonal vaccine, led to unprecedented immune responses with a single dose for H5 pandemic vaccines. Let me hand it back to Jim.

James Kelly, Chief Financial Officer and Treasurer

Thank you, Filip. Please turn to Slides 26 and 27. We're focused on improving the financial health and performance of Novavax to enable long-term value creation. Today, we announced the strategically important Sanofi agreement and have removed our going concern disclosure, evidencing this progress. I will now share a few key themes for the first quarter of 2024, and a look towards a full year 2024 and beyond. For the first quarter of 2024, Novavax recorded total revenue of $94 million and significantly improved our balance sheet profile by reducing current liabilities by $831 million. The Gavi and Fuji Film settlements continue our efforts to address legacy contractual matters. As we continue to transform Novavax into a more lean and agile organization, we reduced our Q1 2024 R&D and SG&A by 50% compared to the prior year. As we look to 2024, we are updating our targeted guidance for R&D and SG&A expenses to between $700 million and $750 million, as we continue to resize our organization. For 2025, Novavax is prepared to initiate an additional cost reduction program to reduce R&D plus SG&A expenses to below $500 million, the portion of which we expect to be reimbursed by Sanofi under today's announced agreement. We ended the first quarter of 2024 with cash and accounts receivable of $570 million, and have over $600 million in potential dose deliveries under our APAs over the next 3 years. With the Sanofi agreement announced today, we have approximately $570 million in cash payments for the second quarter of 2024 that further improved our financial position. Please turn to Slide 28. Turning to a more detailed view of our first quarter 2024 financial results, I will provide commentary focused on revenue, COGS, combined R&D, and SG&A. For the first quarter of 2024, we recorded total revenue of $94 million compared to $81 million in the same period of 2023. Our product sales of $82 million in the first quarter of 2024 were primarily related to the APA deliveries to Europe and reflect the successful completion of the European APA agreement. Royalties and others of $12 million for the first quarter of 2024 include license fees and Matrix-M reimbursement under our agreements with Takeda and SK Biosciences. Our cost of sales for the first quarter of 2024 were $59 million compared to $34 million in the same period of 2023, and these periods include $15 million and $25 million, respectively, relating to excess obsolete or expired inventory, losses on firm purchase commitments, and unutilized manufacturing capacity. As previously noted, Novavax's R&D plus SG&A of $175 million for the first quarter of 2024 reflects a 50% and $180 million reduction from the same period in 2023. Please turn to Slide 29. We're committed to creating a more lean and agile organization to align the company with our market opportunities. Over the past year, we've reduced our workforce by over 30% compared to the first quarter of 2023. For 2024, we're updating our targeted combined R&D and SG&A expense guidance to $700 million to $750 million from our prior target of $700 million to $800 million, as we continue to seek savings in our cost structure. Novavax is prepared to initiate an additional cost reduction program to reduce 2025 R&D and SG&A expenses to below $500 million, a portion of which is expected to be reimbursed by Sanofi under the agreement. We're prioritizing improvements to long-term supply chain efficiency, including exploring the sale of our Czech Republic manufacturing facility. Please turn to Slide 30, where I'd like to discuss our progress on balance sheet and liability management. Since December 31, 2022, we've reduced the company's current liabilities by $1.7 billion, including an additional $831 million reduction in the first quarter of 2024, primarily driven by the Gavi and Fuji settlements. Please turn to Slide 31. Now let's turn to financial guidance with an emphasis on our combined revenue and initial Sanofi payments totaling $970 million to $1.17 billion. This reflects a material improvement in our sources of cash flow for 2024. Beginning with the $570 million in initial payments under the Sanofi agreement, received in the second quarter of 2024, reflects just the beginning of potential multibillion dollars in economics across upfront equity investments, milestones, and royalties under this agreement. For 2024, we are updating our total revenue and now expect to achieve total revenue of $400 million to $600 million. Our projected total revenue includes $150 million to $250 million from APA sales based on expected dose delivery schedules and non-APA revenue of $250 million to $350 million from our commercial market product sales plus royalties and other revenues from our partner-related activities. The $400 million reduction to our full year 2024 expected product sales guidance reflects the following: $100 million from the Canada APA as we await the Canadian order for 2024; our intent is to add this back when we have clarity on this order. $250 million related to Australia, New Zealand, and Israel APAs as we work with those countries on revised dose delivery schedules for later periods, and if possible, seeking potential prepayments in 2024. Finally, $50 million from EU commercial sales as we reduce commercial investments in select markets for the 2024-'25 vaccination season post the Sanofi agreement. 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 would like to turn the call back over to John for some closing remarks.

John Jacobs, President and CEO

Thank you, Jim, and thank you, everyone, for joining us today. Before we take your questions, I would like to reiterate our key priorities for the remainder of this year. Priority one, prioritizing the successful transition of our new partnership with Sanofi; priority two, continuing to expand and diversify our organic opportunities and create additional value through our technology platform; priority three, preparing to initiate an additional cost reduction program to reduce 2025 R&D plus SG&A expenses, net of Sanofi cost reimbursement to below $500 million; and priority four, delivering our updated product for the '24-'25 fall vaccination season. I would now like to turn the call over to our operator for Q&A. Operator?

Operator, Operator

Your first question comes from Roger Song from Jefferies.

Jiale Song, Analyst

Congrats on the Sanofi deal. A couple of questions from us. Maybe start from the Sanofi deal. Can you give us a little bit clarity around the reimbursement for the co-development, commercial, and regulatory costs, particularly helpful you already give us the guidance for 2024 and 2025? And how should we think about the cost moving forward after 2025?

John Jacobs, President and CEO

Yes, Roger, good question. I'll have Jim Kelly address that, but we believe the deal affords us hundreds of millions of dollars in potential cost synergy. But Jim, why don't you take the question?

James Kelly, Chief Financial Officer and Treasurer

Yes, certainly. And thank you, Roger. The categories of cost reimbursement under this agreement include R&D activities that Novavax may do under the joint budget to support the COVID-19 program from 2025 forward. That includes, for example, the pediatric studies that are ongoing and select medical affair activities. An additional category of reimbursement will include activities related to the technology transfer, which will be exceptionally important as we support Sanofi as they ramp up their commercial capabilities. In addition to that, we are entering into supply agreements for both COVID-19 supply in the coming years, plus for specifically Matrix-M adjuvant. We're eligible for reimbursement across all those categories. As I look specifically, and I'll set the supply aside, and I look to potential reimbursement in 2025 with respect to R&D activities and track transfer, we believe that reimbursement amount could be up to $100 million, around $75 million to $100 million. As I described driving our R&D plus SG&A to below $500 million, you then subtract that reimbursement. Now we're targeting $400 million or so, for a go-forward basis. You're watching the continued evolution of our cost structure. We know we're nimble. We know we act with urgency. This is our path.

Jiale Song, Analyst

Excellent. That's very, very helpful. Thank you for the color. Then in terms of the milestone payment, I see you laid out the milestone payments for the COVID side. Just curious about the COVID influenza combination side—how much near-term milestone we should look at? Are all those back-ended milestones?

John Jacobs, President and CEO

Go ahead, Jim.

James Kelly, Chief Financial Officer and Treasurer

Yes. Listen, we're exceptionally excited by the potential for Sanofi to advance the combination of the COVID vaccine along with their market-leading flu vaccine. Those milestones, the $350 million are across both product development and approval milestones. They are non-sales-based, but rather related to the near-term development and approval of those programs. We're not offering additional detail at this time, but it is certainly a priority of the agreement.

John Jacobs, President and CEO

And Roger, it's John. Just to build upon Jim's response to your good question. I want to ensure that everyone understands this deal is not just $1.2 billion or $1.3 billion. This is a multibillion-dollar deal. The $1.3 billion represents the initial upfront, the $70 million equity investment in the company and the near-term milestones associated with our activities related to Nuvaxovid and Sanofi developing their combo vaccine. Importantly, however, the majority of what we see as the future value of this deal comes from anticipated royalties that will be ongoing from Sanofi's ability to sell our COVID vaccine and their own combination vaccines using our Nuvaxovid. Through the deal, they have the opportunity to develop their own flu-COVID combination, including other combination products, each of which we will receive royalties for. Additionally, for each new Matrix-M product they may develop, there is potential for up to $200 million in one-time milestones as well as ongoing royalties—a flat royalty rate for years to come. When you consider the entirety of the agreement, including the upfront payments, near-term milestones, and the immense potential royalties when partnering with a company like Sanofi, we truly believe this is a multibillion-dollar opportunity. I want to ensure that people don't misunderstand the potential of this partnership and what it could mean for the future of Novavax and for global public health.

Jiale Song, Analyst

Excellent, that's very helpful. I understand the milestone payment for the COVID combination is contingent upon development approval, not the sales milestone. Got it. Okay. Lastly, for the existing APA, I understand you are reducing to $600 million. I just want to confirm that's already post-negotiation with different partners? Compared to last time, maybe around $1 billion? And for the outstanding APA, given the partnership with Sanofi, who will book the sales? Will Novavax only get the royalty from the APA?

James Kelly, Chief Financial Officer and Treasurer

So looking to John Trizzino, maybe talk a little about the status of our APAs, but I'll reiterate the pieces to the change in our revenue guidance. Emphasizing that specifically, the $350 million related to APAs— we're continuing active dialogue with these APAs; they have been great partners. The pieces there we took $100 million related to Canada and placed it to the side while we await that order. It just seemed prudent at this time to not have it in our guidance while we await their order for the upcoming season. Our intent is, of course, to add it back once we have clarity. And then the $250 million across Australia, New Zealand, and Israel—$200 million relates specifically to Australia. There are ongoing regulatory matters related to Australia. I'll let John address that and characterize some of the dialogue.

John Jacobs, President and CEO

Yes. And Roger, just to build upon Jim's answer, I think you asked about the $600 million total going forward. Jim notes in his commentary that this did not include deferred revenue from Canadian prepayments in the past, so you might have been looking at that thinking it could have been higher. But we excluded deferred revenue, which is an accounting matter, and when you looked at the $600 million here. Regarding what happens when the APAs wind down in relation to Sanofi, we mentioned that Sanofi will take on commercialization in 2025 for the U.S., Europe, and the U.K. and over time globally. We will maintain responsibility to manage these APAs through their fruition in 2026, and we take that responsibility seriously, intending to bring forward the majority of value in the remaining APAs. While it may be spread out over time to better meet global market demand, our future is not about the APA business. As those APAs wind down, it is the final chapter in the legacy of the pandemic, and we move toward a bright and exciting future for Novavax. When I first joined, the APA value was 100% of our business opportunity, over $2 billion. We've pulled down roughly two-thirds of that value in the last 15 months; we have about one-third left. We intend to optimize that between now and the end of 2026 and look forward to a bright future. As those APAs wind down, it's our intention to transfer those markets to Sanofi for them to begin commercializing our Nuvaxovid vaccine and the other products they may develop in those markets as APAs wrap up. I hope that answers your question.

Operator, Operator

Your next question comes from Eric Joseph from JPMorgan.

Eric Joseph, Analyst

My congrats on the deal. What I'm hoping to do is just get a bit better understanding of the strategic positioning of your COVID-flu program versus Sanofi's COVID-flu ambitions. Would you be targeting different market segments? I'm also curious whether you see opportunities for your own flu stand-alone, and as a follow-up to that, can you talk about what work Sanofi has done on the feasibility of a Nuvaxovid Fluzone Quad combination or Fluzone HD combo?

John Jacobs, President and CEO

Eric, for competitive reasons, we're not going to get into details on specific strategies around our pipeline assets. But what I can say to address your question is that we're very excited that we've been able to double our shots on goal in our late-stage program by adjusting our original CIC clinical trial, as Filip described today to include a stand-alone flu vaccine. Filip shared some exciting data on H5N1 flu, and previously shared positive immunogenicity and other data results from our prior flu work. We believe we have two potentially registration-worthy vaccine assets by this time next year should we succeed with that clinical program. Our strategy is to consider optionality on how to monetize those and bring them forward should we have success. That could include additional partnering and business development, out-licensing to organizations that would like to see those vaccines, creating additional deals like the one we have with Sanofi or deciding to pursue it independently. Our aim is to allow data to inform that strategy, ensuring we capitalize optimally on what we have midway through next year. What we're excited about is the value of our technology platform. The Sanofi deal has validated the immense value that Matrix-M and our nanoparticle technology offer, and we intend to keep optimizing that. Additionally, we are expanding our portfolio with early-stage work, exploring RSV, etc. That's where I’ll leave it for now.

Operator, Operator

Your next question comes from Alec Stranahan from Bank of America.

Unknown Analyst, Analyst

Congrats on the deal. This is John on for Alex. Probably just some clarification questions for us. I think the first one for the $350 million in milestones for activities related to Nuvaxovid. What are the potential milestones in the upcoming year or two that we could see for your company to receive? That's the first question. Secondly, for marketing and branding, in terms of future commercialization of Sanofi branded products, how would that work? Could you shed some light on the branding message in the future?

John Jacobs, President and CEO

John, do you want to take that question?

John Trizzino, President and Chief Operating Officer

Yes, I’ll take the second one first; which is what the opportunity is in the marketplace. So as John said, we cannot comment on the marketing and sales strategies. But I think it’s good to understand what the marketplace currently looks like and how the combination of our COVID vaccine with their flu vaccine presents significant market opportunities. From a public health and revenue generation perspective, Sanofi is the market leader in flu vaccinations in the U.S. and around the globe. There is a clear need for a combination vaccine. A market assessment for a combo vaccine would also include the cannibalization of the flu market while leveraging that for the benefit of COVID vaccination uptake in that combined format. This collaboration creates an opportunity for significant market share and increased vaccination rates for both COVID and flu through the combo vaccine. As we build towards that, their position in the marketplace for co-commercialization would be critical in leveraging the Sanofi brand, their infrastructure, and their deep reach into the vaccine market. That confidence in the strength and safety and efficacy of the product says volumes about the potential. We foresee much greater market share and vaccination rate increases under this relationship.

James Kelly, Chief Financial Officer and Treasurer

And I’m happy to take the first question regarding the breakdown and timing of the $350 million in future milestones. On Slide #5, we mapped it out. The expectation is that these are all near-term activities over the next 12 to 24 months. Certainly, the COVID-19 manufacturing tech transfer may take a little longer, but these other ones are important strategic activities and priorities.

John Jacobs, President and CEO

And Eric, as mentioned, the majority of value we expect from this deal goes beyond the initial $1.2 billion or $1.3 billion, to ongoing royalties anticipated from Sanofi selling our Nuvaxovid and their combination products. In addition, there's potential for anything they develop with the Matrix-M platform, with each new Matrix-M product eligible for milestones and ongoing royalties. It’s critical to understand the components of value in this deal, and why we believe that it has multibillion-dollar potential for Novavax.

Operator, Operator

Your next question comes from Mayank Mamtani from B. Riley Securities.

Mayank Mamtani, Analyst

Congrats on this landmark deal. I'm glad to hear the BLA has been submitted. Is there a PDUFA date granted yet? That's my quick follow-up to the prior question. And given everything in place now—the BLA plan and the FDA EUA—looks like non-APA revenue guidance could be focused on royalty revenue. What could you say about market share assumptions in that $250 million to $350 million?

John Jacobs, President and CEO

Yes. John, why don't you take the BLA question first.

John Trizzino, President and Chief Operating Officer

Yes, Mayank. There are a couple of pieces to the question. First of all, we have successfully submitted the BLA to the FDA. A couple of steps were involved in that process. It was the initial approval of the BLA for the XBB strain that was under emergency use authorization last year. We were then adding the prefilled syringe and strain change to that BLA submission, ensuring everything tied up nicely ahead of the season. While that strategy was communicated thoughtfully to the FDA, in reassessing the situation through collaboration, we concluded that focusing on the strain change and prefilled syringe authorization would be the best approach, opting for the more expedited EUA pathway over a formal BLA process. This parallel path will help us meet market timeliness in a significant way; the product is authorized for use with no restrictions on how we communicate its benefits. We’ll have inventory in our distribution center in mid-August, poised for market entry pending authorization. That’s the critical aspect of our strategy.

John Jacobs, President and CEO

As for market share, we see a significant opportunity in the U.S. market and expect a dramatic shift from last year's performance. In the '23 season, we were late to the market by approximately four to five weeks, while nearly 50% of the COVID market had already been administered by that time—and we were also using a five-dose presentation. We are excited about the chance to perform significantly better this coming season with our prefilled syringe, ready in time for when we launch.

Mayank Mamtani, Analyst

Very helpful. And then on the Phase III CIC trial design, I was curious if you could talk about the key immunogenicity objectives established with the FDA for the different strains and how noninferiority or superiority must be assessed relative to the three arms you are utilizing?

John Jacobs, President and CEO

Yes. Filip, why don't you take that one?

Filip Dubovsky, President of Research and Development

Yes, you're right. We've turned this ground before. The real difference is twofold: the specific age group we're targeting because we believe this is where medical use is greatest. Our potential competitors will also be factored into our success going forward. I'm not going to elaborate on the specific criteria we have agreed upon with the FDA for establishing superiority or non-inferiority, but the criteria for non-inferiority has been validated with many other sponsors in the past.

Mayank Mamtani, Analyst

Understood. And lastly, if you could discuss expectations for reaching breakeven, especially given the expenditure ramp-down and considering your long-term respiratory pipeline infrastructure, how should we think about profitability?

John Jacobs, President and CEO

Thank you, Mayank. Go ahead, Jim.

James Kelly, Chief Financial Officer and Treasurer

Guiding principle one: We are building an enterprise towards cash flow positivity and value creation. One thing you heard John mention earlier is that we believe that the economics and cash flow under this agreement with Sanofi, across this portfolio, is indeed superior to what we could have generated independently. We are working towards creating a value creation platform aimed at increasing shareholder value. We will continue to provide updates on our evolving business model to deliver against that guiding principle.

Operator, Operator

Your next question comes from Brendan Smith from TD Cowen.

Brendan Smith, Analyst

Huge congrats on this deal. I have a quick question. We've been hearing reports that the FDA might consider authorizing updated boosters early this year, potentially in August. Is this something included in your conversations, and do you think it may impact your timing or launch capabilities? Also, looking at the broader opportunity, how are you thinking about non-COVID non-flu areas in your strategy—what makes sense for Novavax versus collaboration?

John Jacobs, President and CEO

Brendan, excellent questions. I'll take the second question and then hand it to John Trizzino and Filip, to address your question about strain timing and launch capabilities for the season. In terms of strategy, we are working to crystallize our future pipeline and organic growth strategy based on our technology platform in the coming months. We're eager to share further details. We were excited to present new science to the investor community today, showcasing the progress Filip and his team have been making for months. We are still assessing the best ways to optimize our assets and considering additional early-stage assets to add to our pipeline, all within the new lean operating model Jim outlined in his prepared remarks and answers.

Filip Dubovsky, President of Research and Development

The EMA and other regulatory bodies have already designated a strain, and we expect a designation from the FDA in early June. We continuously engage with those agencies. We plan to submit our supplemental filing immediately after the VRBPAC meeting. While we aim for product readiness in mid-August, it's contingent on timing set by the FDA and CDC. Currently, we feel well-positioned for whatever timeframe they establish. Importantly, John's team has indicated that there will be readiness through that critical period, syncing with the beginning of the vaccination campaign, likely post-Labor Day in the U.S.

John Jacobs, President and CEO

To summarize, we maintain a wholly-owned independent portfolio, and our combination influenza COVID vaccine is completely ours, separate from the vaccine that Sanofi will develop using our Nuvaxovid. That's essential for everyone to understand.

Operator, Operator

Your next question comes from Vernon Bernardino from H.C. Wainwright.

Vernon Bernardino, Analyst

Congratulations from me also. I want to point out the recognition of your great partnership, advancing protein-based vaccines. One question that deserves mention is regarding the combination vaccine—will a BLA approved flu or COVID vaccine be necessary for progressing the combination vaccine work, which includes their quadrivalent flu vaccine? As a follow-up to this, what’s your view on the potential enhancements when overall development incorporates Matrix-M?

John Jacobs, President and CEO

Yes. Filip, would you address the BLA question?

Filip Dubovsky, President of Research and Development

No, their regulatory path requires their stand-alone BLA; hence, it does not depend on our regulatory process for Nuvaxovid. They must compile a safety and efficacy package for their combination flu vaccine with Nuvaxovid. The approach they take is for them to decide, as this would be critical for approval with regulators.

Vernon Bernardino, Analyst

Okay. Thank you, and congrats.

John Jacobs, President and CEO

Thank you, Vernon. We want to reiterate that this deal holds tremendous value—a multibillion-dollar potential for Novavax, including an upfront payment of $1.3 billion and the anticipated royalties representing an even greater value than the upfront.

Operator, Operator

This concludes our question-and-answer session. I would like to turn the conference back over to John Jacobs for any closing comments.

John Jacobs, President and CEO

Thank you for joining us today. We appreciate your time. We'll keep working with humility, diligence, and all of our efforts to return value to our loyal shareholders. I want to thank all of our Novavax employees for their time and energy, making this new chapter possible. Thank you, everyone, for joining. The conference has now concluded. You may now disconnect. Thank you.