Moderna, Inc. (MRNA) Earnings Call Transcript & Summary

Great. Thanks, everybody, for joining us for the next session. Very pleased to have Moderna here. Quickly before we get started, I just need to read a disclosure statement. Please note that all important disclosures, including personal holdings disclosures and Morgan Stanley disclosures appear on the Morgan Stanley public website at morganstanley.com/researchdisclosures. So very pleased to have Stephane Bancel, who's the CEO of Moderna with us. And Stephane, I thought since you just had a big R&D review yesterday, maybe we could start off with some of the highlights from that.

Sure. Well, Matt, good morning and -- or good afternoon, and thank you for having us today. So yes, yesterday, I think we kind of gave an update on our programs. I think there's basically 4 directions that the company is taking, there's 4 priorities on product side. One is to develop a pan-respiratory annual booster vaccine. So the vision, and I'm sure we'll come back to it, is to have basically a COVID-19 booster and flu booster and RSV booster and keep adding components for more and more respiratory virus in a single shot, and that's a new development candidate we announced yesterday. We showed preclinical data showing actually that we could combine COVID, flu and RSV with no interference against those 6 different mRNAs in a single dose. The second priority is to develop a vaccine for complex viruses as first-in-class vaccine. And the 2 examples are, of course, CMV, which is very close to move to Phase III and the EBV, the Epstein-Barr virus, which drives mononucleosis but has potentially some long-term impact on MS as well as leukemia. The third priority of the company is to develop therapeutics using mRNA to encode human protein. So as you know, we are in cancer, autoimmune disease, rare genetic disease and cardiology. And then the fourth pillar, which is more for mid- to long-term growth. And we said to talk about it the last few months, is we announced that we set up a team within Moderna that's dedicated to genomics called Moderna Genomics. That's where we focus on gene editing and gene therapy using mRNA and using lipids. So we have no intention to use AAVs. What we want to use is mRNA to code the enzyme, that's basically what we're going to do with gene editing and that's coding the human protein as the medicine. So that's the type of things we discussed. We disclosed that we have now at the end of August, around $15 billion of cash, still generating a lot of cash, we have $8 billion end of Q1, $12 billion end of Q2. And so we want to invest aggressively in the company to point to scale it. We're now at 37 development programs across those 5 therapeutic areas.

Okay. Perfect. Good. There are a couple of items there I want to touch on. We're going to go in backwards order though. So we're going to start with non-COVID topics.

Thank you.

So you gave an update yesterday where you said you're fully enrolled on the neoadjuvant cancer vaccine study. Probably something people haven't talked about in a while, but I guess, maybe remind people why you went for neoadjuvant because a lot of the peptide vaccines sort of went in late line settings, and it was very hard to figure out what they may or may not have demonstrated. And then second, since it's a 12-month response-free endpoint, we should obviously get data sometime late next year. So just help us think about that opportunity.

Sure. I mean just to reframe what we are trying to do here, we're trying to develop a personalized cancer vaccine. It has 34 antigen that's, of course, individualized for every person based on sequencing the cancer cell DNA and the healthy cell DNA and comparing the mutation. The strategy here is basically that can we improve standard of care versus checkpoint monotherapy, and this is why the Phase II is a randomized 1 arm KEYTRUDA, 1 arm KEYTRUDA plus Moderna personalized cancer vaccine. And we went into the neoadjuvant because to your point, looking at the biology, talking to clinical experts and so on, we thought this was a place that was more structable. Now that we are fully enrolled and the study endpoint is a 12-month survival, ass you say, we should expect knowing in the late Q3 or early Q4 time frame next year the results of that study.

And I guess, I think you've always described the cancer programs as high risk, high reward. Maybe just frame for people if that's changed or just how you're thinking specifically about potential outcomes here.

Sure. I mean, as you know, Matt, because you've followed the company for many years, we've always tried at the company to tear apart mRNA technology risk versus biology risk. And so if you look at, for example, the vaccines, we started with flu in the olden days because it's a very well understood the virus. We did not start with HIV, which we are working on now because HIV, very, very complex biology. And so as I look at the portfolio of the company, we're trying to build the portfolio. We don't pretend to be smarter than anybody else. It's a bit like investors buying stocks. We really don't but 1 stock. If you know which stock was going to be the best performer in next 10 years, you, of course, only buy 1 stock, but you don't, so you build a portfolio to manage risk. And that's exactly what we did as we built this now 37 program portfolio of the company. And the way I think about cancer has not really changed, which is, I believe, the vaccine technology of Moderna has been very derisked on the safety front, has been very interesting data in clinic in terms of T cell. We know, of course, that's really important for cancer. So do I believe the technology of mRNA of Moderna has a good shot from a technical standpoint? Yes. On the biology, is 34 antigen going to be enough? Is a disease progression going to make it such a thing -- from a biology standpoint, it might not work, it's possible. So I continue to believe that oncology, just because of all the things that we collectively do not know about mechanism of disease and the complexity of the immune system, that it's still a high-risk product. But again, as always, as we all know, we have a good oncology drug. There's a lot of need out there from a market and a patient standpoint. And so we're inclined to think about it this way, yes.

Okay. Okay. Good. And then second program, which I think people have been highly interested in maybe not just because of the indication itself but because of the implications of being able to do something in rare diseases and how quickly then you could iterate is PA. So you said you've been through the first cohort, which I know there was trouble starting to enroll patients there. And so I think it's good to see that you got the first cohort in. So I guess, help people think about -- and it sounds like from what you said yesterday, maybe we'll get some PK/PD data starting next year after you've got a couple of cohorts worth of data. But what are you hoping to learn from that? And what makes you feel like you've got enough circulating protein and the right kind of dosing frequency that then you could maybe turn on 4, 5, 6, 7, 8 other rare disease programs?

Sure. And so for this liver rare genetic disease, as you know, the key is can we provide enough of a protein in the right cells of a liver? Because there's a lot of different cells in the liver, where the protein is needed biologically to get the function. We believe the mechanism is very well established, i.e. it would fit in many animal models and because it's a rare genetic disease with single mutation. We believe the biology risk on this one compared to cancer is broadly low. So the key question for us is will we be able to get enough protein in the right cells? So I think there's 2 questions, enough protein and in the right cells. Because if you put more protein than we need but in a wrong [ wave ] of cell, it's not going to work, of course. And this, we will only know in human what it looks like in human. We know it looks great in animals. We published that. But a [indiscernible] is not in human. And so that's the last question that actually is remaining for us. I think there's been a question around do we get response and do we get enough response? If we get response but actually not enough, what we would be able to play with is interval of dosing. The current interval of dosing is every 3 weeks, which is quite long, which should give us opportunity to reduce it. As you know, with the chikungunya antibody, which we use the same technology, we've been able to demonstrate repeat dosing with 1 week interval. So we think we could very easily, safety-wise, reduce the interval if we have to, once we see the data. So I think that's what we're going to try to tweak with the first few cohorts is with a signal or not. And if we see signal, is it good enough or not, and then say how do we play with a PK of a protein to get the PD we want. I think the PD is very straightforward. It's a blood biomarker. So we're going to know really well, do you move a biomarker or not. And if we don't move it, the drug is not working. And if we move it enough to bring back the kids at levels that you and I will have because we don't have that disease, we will think this is kind of a good proof of principle. And to your point on then the platform element of it and the scale up, which is it's exactly what we did in the vaccine 4, 5 years ago that you witnessed, Matthew, which was that with flu, we put our toe in the water to see was the technology working or whether we are a longer way from making enough antibodies. We were there, so we went and we scaled up very quickly. I think right now, we are maybe 12 or 13 or 14 vaccines, and there are many more that the team is working on in the lab that we want to scale up. We don't know if it's the same thing in rare disease. So we say we have 4 rare disease now in development. PA is the first one in the clinic. MMA is in the clinic, too, now dosing patients. And we announced yesterday that we got a safe to proceed to the clinic, so IND opened by FDA on GSD1a. And we always do that when we try new technology at Moderna, which is we do a small portfolio of drugs, not 1, not 10, because if you check and it doesn't work and you do 10, you're going to throw a lot of money through the window, which is not helping anybody. If you do 1, you might not get a false negative because of the biology. And so we think that the 3 to 4 assets like we have here is a good portfolio. But because there are several thousands of rare genetic disease in the liver that needs gain of function, so totally adapted to mRNA technology. We have been working on those in the clinic. Actually, if you look at our publication on our website, you could guess very easily, which are the other ones that we have not formally announced and it's immaterial. But for people that would be curious, just go and take a peek at the thing we published. There's a lot of animal model data where we show rescue. And so what we are doing is to get ready that if we have a positive signal in PA or MMA or GSD1a, is you will see us very quickly, I would say, in a matter of 12-ish months, bring 3, 4, 10 rare disease program using the same exact technology for liver and will be scaled up very quickly.

And then one thing I forgot to ask, given that you've gotten through the first cohort in PA, you presumably have done multiple dosing. So what does that tell us about safety of multiple dosing with the formulation?

So I think it tells us what we already knew because, of course, with every safety event, we'll have, of course, announce it because it's the same technology as chikungunya and we shared that very publicly over the last few years. There is no surprise that there is no safety issue with the PA program in a similar manner. As you know, with rare disease, which is why I'm happy we started first with Chikungunya in healthy people, is with rare, kids have a pretty bad health because they have been 4 years missing the critical enzyme that you and I have is that looking at the triggers versus the in terms of safety, it starts in patients with very severe disease. And that's also why it was important for us to do the chikungunya first into healthy people, so we've got a good sense of the technology in people that don't have disease symptom, if that makes sense.

Yes. Yes. Okay. All right. Good. I want to talk about flu, but I think we need to talk about COVID in the context of flu and what you're doing with pan-respiratory. So maybe let's start with third dose.

Okay.

What's going on with third dose? I think people look and they sort of hear competing views from the government versus the FDA or Biden versus the FDA. So maybe just give us your view on third dose and what's happening right now?

Sure. So let me maybe step back, I mean to kind of go back to basic immunology and vaccinology. What's happening is what was predicted a long time ago for anybody with carriers. You can go back and watch our April 14 Vaccine Day of this year. We had a group from Australia presenting modeling and data showing the loss of efficacy over time. So there's waning immunity over time. It's known. It is not linked to our vaccine or Pfizer's vaccine or anybody else. It's what happens with immunology. And then they also add a very important point at the end of the presentation, which is the more the variants you have that's far away from the original strain that the vaccine was designed for, the more you take yet another hit on efficacy. You get a compounding effect. And so if you look at the vaccines, they are losing efficacy over time. I think the good news of the Moderna vaccine, which I don't think everybody appreciates, is that the 2-month endpoint, which was November public data, 94% efficacy; for the 6-month endpoint, we had 93% efficacy. So we have a very slow slope of loss of efficacy. The BioNtech-Pfizer vaccine, and again, it's all public information, was at 95% in the December time frame at 2 months. And at 6 months at the same time cut off end of March, and as you know, both study was I think on the same day by accident, July 27, this was mostly Alpha. It was a Wuhan strain in Alpha. There was not really Delta by then in the U.S. And their vaccine was declining much faster. My opinion is that this is due to the dose. The Moderna vaccine is 100 microgram. The Pfizer vaccine is 30 microgram. So those get you to a different place to start. Both vaccine are waning, but they're starting from a different concentration of antibodies, which is why you are explaining in the real-world evidence that we seem to be holding more and longer efficacy than the Pfizer vaccine. And then it's Delta. So if you look at where we are now as a country, if I just focus on the U.S. first, you can extrapolate using the same assumption and logic and modeling, which is the people have got vaccinated, let's say, in December, January, February, which, by definition, where the older people and people at highest risk. That's how we prioritized them rightly so as a country. Those people have been vaccinated now, let's stick with January, for 8, 9 months. So if you look at the data we already had at 6 months from the clinical studies, where you saw in the case of Pfizer, I think 83% efficacy at 6 months with Delta -- sorry, with Alpha or Wuhan. And then you had another knockdown of Delta effect. That could be 10%, 20%, if you look at the real-world evidence from Mayo, from the German -- from Belgium, from Qatar, it's very consistent that it may be more in the 60%. And that's where we are as the country. So you have people that have been vaccinated and are getting disease now. Because you have memory of immune system, because when you get infected, basically it also acts as a third dose because your immune system is going to make a lot of antibody. You see a lot of people that we are hearing from the doctors and the clinicians that get infected, get no symptom. It's mostly the younger people. Or get infected and get very mild symptoms. I know somebody who got Delta confirmed who basically had a runny nose and was coughing a bit, but nothing bad, looked like a little cold. And that was Delta, confirmed Delta. And you have people that get hospitalized and people are dying. And that's basically where we were are on the slope, that basically took a big hit with Delta. And every month that's going to go by now is going to make it more problematic. And I think that is why you see the government and I think rightly so, wanting to move fast, which is we're getting into the fall where people spend more time indoor. And we're getting more and more away from the first wave of people that got vaccinated. And those are the people at highest risk. So if we want to make sure that we have a good fall and winter as a country, it's very important, I believe, that people get the third dose very quickly.

And I think you've said you've submitted 50 micrograms for the third dose. I don't know, just -- I mean, I guess, obviously, it has to go through regulatory review, but what's your outlook on that process and why 50 versus 100?

So let me start by the science and then let's talk about the process. So as you remember, last year, as we were all running against the virus, we picked 100 micrograms for the Phase III because this was well tolerated in the Phase I study, and it was the highest level of antibody. And if you remember, our vaccine, unlike other vaccines, had a very nice level of antibodies across each group, which was, I think, really the uniqueness of the Moderna vaccine. And so we say, look, in this business, efficacy always win for tolerable safety profile. And so we went with the highest dose. It was a bit of a complicated decision for us because we knew by going 100 versus 50, we're going to take a half a mass hit on manufacturing. And we knew that because we did not have infrastructure manufacturing rights, because we never launched that product before, and we never planned for a pandemic, is that this was going to be a huge impact on how many dose we could get out of the door in '21 and '22 and, of course, revenues as well. But we say, look, in this business, efficacy is always the most important thing you need to solve for. We went to 100 micrograms and I don't regret the decision. But as we've learned more, as we got the Phase II data later with the 50 and 100 micrograms. And as we tested in the clinic, the 50 and we also tested with Dr. Fauci with 100-microgram as a third dose, but it's very clear from the data at the 50-microgram is that you get, against Delta, a 42x increase in neutralizing antibody against Delta between pre-third dose and post-third dose. So it's kind of already worked well. And what you get is you get to a point where you are at 1.75 more antibodies than at the 2-month point of a Phase III, which got us with 94% efficacy. So you put all those pieces together, for healthy adults, we think 50-microgram is the right dose. For the immunocompromised, as you know, the FDA has already gone and authorized the 100-microgram dose which I think given those people have a weaker immune system, it's smart to go 100. We know it's well tolerated. So that's a bit where the scientific card fell as we looked at the data. As you know, we've always been a data-driven company. I don't know how to do drugs without looking at data. And so it's like, will the 100-microgram work for healthy adults? Of course. Will it give you more antibodies? Of course. But as you look at getting enough antibodies at a good tolerability profile. And then the other piece was more of a public health element, which was, there's 1 billion dose swing from Moderna in '22. So if you think about it next year at 50-microgram, we'll have 3 billion dose available for the planet. Pfizer, from the last public data they shared, should have around 4 billion doses. That will provide an mRNA booster for everybody on the planet next year. For all of us to stop this pandemic, we need people across the world because we're not going to be safe, as we all know, when variants keep coming up. And so as we look at all those pieces, we submitted the 50 microgram. We are very open with the FDA before submission. As you can imagine, we talk to them almost on a daily basis at different level of FDA just to be very aligned and in lockstep at sharing data in real time to also help their work. And if there was something that they will never accept, I would rather know it before I submit something. It's always easier to save time. And the thing I need to give a lot of credit to the FDA is it has been an amazing collaboration and dialogue since the inversions of a virus, which is why we are able to go so fast on the EUAs, is the FDA has been really wonderful to tell us exactly what they were expecting, what was not acceptable. So that we will not waste any time work very closely with the regulators to get the product that they were comfortable with to American citizens.

Okay. Okay. Good. I think your vision about a pan-respiratory vaccine is pretty clear. Obviously, the first step there is flu. So the initial study is enrolled there. So maybe just outline for people when we can expect to see something from there and what we need to look for in that data. And then if I can just ask you to remember a third piece, which is I think there's a decent debate among investors about how you get flu approved and what's the requirement for getting flu approved. So if you could touch on that, too.

Sure. So I'm going to start and if I forget the piece, please remind me. So the flu has a quadrivalence, and we believe anything less than quadrivalent is a nice science experiment in human. It's not a commercial product. With a quadrivalent vaccine, the mRNA-1010 has been fully enrolled. And because it's a kind of 1 month antibody follow-up like -- we call it in vaccine as the first data point, we should have that very quickly. We didn't present it yesterday because we don't have it, obviously. If not, we'll have shown it. So people should expect pretty quickly then we should be able to share that data. And the piece we're all going to be looking at the data is actually very simple because flu, as you know, Matthew, as an approvable endpoint by the FDA, which is the HA titer at 40:1 ratio. So if you can show like we've shown in the past that that's an important data point, I want to remind people. If you can show that you have, after a 40:1 dilution, you can still detect the HA antibody, it's an FDA approvable endpoint. Because, as you can imagine, we've been learning a lot about flu from the last 20, 30, 40 years that we have had vaccines on the market. And so that's the piece that we -- that I'm going to be looking for when I see the data is where are we and also in different age groups. My prediction is the antibody will be high. And my prediction is that they can enroll very nicely across age group because we've seen it for COVID. We've seen it for the all the 2 old flu program we did with much older technology of Moderna, the H10 program in 2015 and the H7 program in the U.S. in 2016. That data has been published and it's on our website. And at that time, with all Moderna technology, you already saw all the participants making more than 40:1 antibody levels, so I would expect to see the same things here at actually a lower dose because the current technology of lipid manufacturing process is much better than what we had back then. And so if -- when we have that data, we see at every dose that we tried in the Phase I, how much antibody we get, that's going to allow us to pick the dose of Phase II/III, the pivotal study for the flu program alone, 1010, and that's a gating factor to start in the clinic. The new program, the 1073, which is the 1010, the 4 mRNAs for flu, plus 1273 that's currently authorized as a 5 mRNA program. And because this will be a booster program from a product concept standpoint TPP, it's going to be 50 micrograms of 1273 COVID component. We will have learned the dose of flu quadrivalent. And that will be what we will take into the clinic to validate in a Phase I/II that we have -- which we have seen in animals and with our Moderna platform animal vaccines, not for cancer, but flu vaccine predict human. We have seen no interference as we showed yesterday the data. So we really expect that just to check the box exercise, but we have to do for regulators. And so that will be the pivotal point, to pick the dose for the new program 1073. And then as soon as we have that dose of that program, then we'll flip into a Phase II/III as well. As you know, those will be pretty quick to run because it's approvable endpoint for the flu. 1273 is already authorized, and I hope soon approved for a BLA. So we think the path to approval is going to be pretty quick.

So is it -- I mean, is the upside case or is the base case ahead of next winter? Or do you think it's going to take 2 winters to get to that? Like how should people be thinking about that?

Yes. So what we've said, I think, on the Q2 call, is that the earliest would be, I think '23. And just because people should forget no more product BLA time lines, there's not going to be an EUA for such a product. And so you need to get your Phase III data with at least 6 months of data. We need to clean the data prior to the FDA, and accelerated approval is 6 months of review. So when you just look at the time lines and where we are now is like could we make the fall of '23 and winter of '24? Yes, we can. But it's assuming everything goes perfectly. If you look at what we did in COVID, things worked pretty well. It's a platform, we know how to make GMP, CMC stuff and so on, a combination, as you know, we've already done and so on. So do I think we have a chance of getting that time line? Yes. But '22 is not in the cards.

Okay. Perfect. Look, there are a lot of other topics we could keep going on, but I think we should just transition to, I guess, the last one, which is you talked about the cash you have in the bank now. I think a lot of people want to know what are you going to do with that? And I know you've talked about in the past about -- on the second quarter about returning some cash to shareholders through buybacks, about investing in the business. But I think there's also a question of are you going to start buying stuff, too? So maybe you could just address for people broadly your plans for the cash and how you think about BD.

Sure. So the first priority of cash use is grow the business. We worked 10 years to build this platform, which we think is really unique in the pharmaceutical industry. I don't think there's ever been a platform like this one. What has limited our growth in the last 10 years was lack of cash. We're cash flow negative. We have to grow financing to financing. And so we are in a position that we never thought was going to happen so fast. And so we're not going to miss that opportunity to invest in science to keep strengthening the platform, including the genomics effort is exactly that. Going into new verticals, modalities like the lung with Vertex, like stem cell, and we want to keep adding more and more verticals because we will be playing a long game. We want to have more development candidates. We have 37 programs now. I will remind that in 15, 12, 18 months from now and then having 75 or 100 another 12, 18 months after. So we're investing a lot in therapy care where we serve to expand the number of programs. We're investing in manufacturing. We're investing in digital to scale the company. So I will always prioritize growing the business because I'm very long on Moderna and because it's a platform. I think the bases of the company are ahead of us. And the pace at which we're going to grow is what I think people do not appreciate because there's never been a digital medicine company before in this industry. It is all been analog, small analog molecule. So always invest in business, that's priority #1. Priority #2 is to expand the business through either technology license or asset license or M&A. As I've said on the call clearly, I hope and I repeat it, I have no interest to buy small molecule or large molecule assets or companies, zero interest. Even if they complement the portfolio, it's somebody tomorrow we're working with an amazing COVID antiviral treatment, small molecule, I will not even look at the file. And the reason is very simple, is all of our technology, all the beauty of Moderna is the nucleic acid technology. So technology around new gene editing enzyme, we're super interested in. Gene editing or gene therapy asset, again, not AAVs. I have no interest in AAVs. I don't like AAVs, personally. I think using a virus as a vector is not a good safe idea for the long term. I've said this for years. A lipid that falls apart into ours, I like a lot. That is biodegradable, which is what our lipids are. And so using a license of a few assets of a technology we like to really test it in our own hands and to see how good it is in the clinic, this would be interested in, and M&A if it makes sense. People should not believe that we're going to use our cash band to go buy gene-editing companies. That is not how we think. I will want to find great technology that we can validate through assets before we buy something. I would rather know something really works and buy it more expensive later than just buying something that's already massively overinflated because I think a lot of time, some assets, as I look at them, are massively overpriced because people sometimes tend to forget all the work and all the capital and all the risk still ahead of those technologies. And I would rather invest in and leapfrog what the current big, for example, gene editing players have. If you look at the gene editing field, there's a lot of new, very interesting enzymes that we believe from what we have seen under the hood are more potent and safer than the one of the leading of the biggest, let's say, gene editing companies of first generation. And we might have a very nice plate to leapfrog the technology-wise pool, license of an enzyme. But then we plug into the Moderna platform mRNA lipid manufacturing in our [ wooden zone ] to quickly go into a clinic, if we like it, then that type of company we buy. So if I was a betting person, Matthew, which I'm not, I will tell you the most probability in the next 5 years is we will buy small companies, mostly private, than the chance of us buying a big public company because it will be easier to integrate because a company is very digital. I have no interest by a big company that have to do a lot of retooling. I've done M&A before when I ran bioMérieux. It's very distracting. I will do it if it creates value for Moderna, but I will not do it lightly. And so the third piece is returning cash to shareholders. As we said, we're not looking at dividend. We talked about it briefly at the Board, but we don't think it's adapted to Moderna now. But as we think about the growth of the company and we want to keep growing the company, buying back stock to reduce the share count and to create value in addition to net income growth and growing the business by reducing the share count in the next 5, 10 years by knowing it a bit every year. And the $1 billion announcement we made people I think should think about it as a tiptoe in the water. We want to be careful. We don't want to start with big numbers and then not execute those plans. Our goal is to execute the plan. I want to buy back $1 billion of shares -- worth of shares. And I think that as we grow the cash balance and as the company matures, we should actually think we will do more than that.

Okay. Great. Well, listen, Stephane, thanks for all the comments, and I hope to see you in person.

Thank you so much for the invitation. Have a good weekend, Matthew. Stay safe.

Bye.

Bye.