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

Hello, and welcome to the 2021 Credit Suisse Healthcare Conference. I'm Judah Frommer, Senior Biotech Analyst here at Credit Suisse, and we're thrilled to have David Meline, CFO; and Lavina Talukdar, Head of IR, from Moderna with us. With that, I think we can jump right into Q&A.

If the audience does have questions that they'd like to ask, they can certainly send them over to me via e-mail, [email protected]. So first, maybe we could start out with a little bit of background. And in this same place about 12 months ago, you guys were a little bit away from in EUA. Since then, obviously, millions of people have received the Spikevax COVID -- the Spikevax COVID vaccine. The general pipeline has advanced, and there have been announcements regarding several research initiatives and manufacturing partnerships. So before we get into a deeper conversation on these topics, could you give us a general high-level overview on Moderna's trajectory before the pandemic and how that's changed?

Yes. Thank you, Judah. To open up, I'm David Meline, and I joined the company in the first half of 2020. So if you look at the company at that time, it was some 800 people working on 20 programs in the development stage of its existence. We did, obviously, have R&D, and we were ramping up. We had clinical manufacturing that we were preparing to -- for commercial markets. But obviously, when we then responded to the pandemic and came with the development of that vaccine, we needed to quickly build out the company. The day I joined, we hired our first employee in a new commercial department, and the rest is a little bit of history. So today, at the 9-month mark this year, we had accumulated some $10 million of revenue in 2021. We have over 2,400 people now working at the company. We've got operations now in 12 countries, and that continues to expand. We've expanding as we'll talk a little later, our manufacturing footprint and capability as we go. And we continue to advance both the programs we are working on before the pandemic, but also we've continued to add to the pipeline now that we have a pretty spectacular proof-of-concept of this mRNA technology that really has caused us to look to accelerate our investment in these areas.

Got it. And maybe just to follow up with another high-level question. But with around $100 billion market cap, how does Moderna sustaining that per share value once COVID is endemic? Is it tied to rapid progression of in-house pipelines? Is there business development that's tied in there? What are the priorities?

Sure. No, good question. I would say, again, first, we do foresee this endemic phase starting and continuing, and we think that there's going to be a real significant market for COVID vaccines and boosters going forward. We think with the product and its viability, we're well-positioned to participate strongly in ongoing booster market for the company that will generate continued sales and revenue. Beyond that, of course, we've been accelerating and advancing our own internal pipeline. And so in terms of capital allocation priorities, obviously, what we have, that is our first priority, and we're investing very heavily to accelerate. And I think our shareholders are very clear with us. They want us to see us to bring more successes like the COVID vaccine as quickly as possible. The second priority, of course, is -- and we've talked about it, is really expanding the technological footprint to see adjacent spaces where there's synergy with our existing leadership in the area of mRNA and the associated lipid delivery technologies. And so we've talked about in-licensing nucleic acid technologies to enhance our capability as well as in the gene-editing space, where we recently had an announcement there with Metagenomi. And then finally, to the extent that we have excess capital that accumulates, which we finished the third quarter with over $15 billion of cash, we've announced that we've got an initial repurchase of share program that's been authorized. We didn't repurchase any shares in the third quarter, but I think it's fair to assume that you'll see some repurchase activity as soon as this year and certainly into 2022. So really, first and foremost, in the business, we think we'll have plenty of capital to do that. And we're also going to be conscientious in terms of the stewards of our shareholders' money.

Okay. Great. And speaking of Q3, maybe we could just hit on your sales guidance did move around a little bit. Could you recap that change, the drivers behind it? And maybe just remind people how dynamic your financial planning is currently and probably since you've gotten there.

Yes. Thank you. So as we've been ramping up from basically first product, our vaccine was approved last year just after Christmas. So we've been ramping through the year from a very point of 0. And what we've tried to do is as we've moved along and improved our capability to produce and been signing contracts, we have been talking about what we thought the production capability range would be this year, that progressed through the year as we gain more confidence in our ability to produce and deliver. And certainly, we signed APA contracts. We'd indicated totaling some $20 billion this year. So in the event, what we saw, by the time we got here into early November was, as we updated the outlook for available product to be released to the market this year, we indicated that our best estimate now is some 700 million to 800 million doses this year, which compared to some prior indication, that we thought we could achieve upwards to 800 million to 1 billion. So we refine that estimate. We brought it down a little bit. Why did that happen? Well, a few things. One is, as we -- as the market demand shifted, as we fulfilled the initial requirements in the U.S. and then in Western Europe, and we started to ship more product internationally to more diverse set of countries, what we're seeing with -- when that happens is that you get a longer lead time for those deliveries, whether they be from our European supply chain or from the U.S., which has then caused us to refine the outlook for the year in terms of releases. The second thing that happened is we've had some transition as we've been adding more fill/finish capacity. In some cases, what that means is that there's a slowdown in release as you make some transitions on your production lines. And then thirdly, what we saw was that we saw some bottlenecks. As you -- initially, we were building out the actual production processes at the front end and lining up supply of materials. And as that ramped up, then the back end where you have the release procedures, we started getting bottleneck there in the third quarter. And so the sum of all that caused us to refine the outlook to 700 million to 800 million this year, where the balance of that demand is going to be met as we move into 2022. Accordingly, if you look at revenue, which I think you asked about, we indicated that we expect that 700 million to 800 million doses to generate $15 billion to $18 billion of revenue this year. That's versus the original $20 billion APA number. And the reason for the refined revenue number is twofold. One is the doses that we're delivering. And then secondly, we took into consideration, we have visibility now on the mix. And as we've been prioritizing more product going to the African Union and COVAX, which is our lowest tier of pricing that also impacted the total revenue in 2021, and some of that will shift into '22. So anyway, so those are some dynamics. I know there's a lot of interest in it. There's a lot of interpretation. It's something, a miss at Moderna, and I can assure you there, we feel very good about what we've achieved thus far. If you went back 6 months and said, "Would these guys be on the cusp of delivering up to 800 million units or $18 billion in their first year of commercial operation?" I think a lot of people would have suggested that wasn't really possible. And so we feel very good about what we're on the cusp of achieving. Are we frustrated? Of course. We're very ambitious, and the need out there is -- continues to be very strong. And so rest assured, we're pushing ourselves every day to max this out.

Thanks for all the color. That was really helpful. And maybe just into some of the underlying drivers of kind of go-forward demand. Boosters, obviously, a hot topic for everyone in COVID vaccine manufacturing land. But what's kind of the inside-the-house view on the need for continued boosters? And what do you think the competitive landscape looks like on the booster front, maybe specifically within the U.S. with kind of the mix-and-match opportunity?

Sure. So first point is, yes, I mean moving into an endemic phase, which we think is real. We think there will be an ongoing requirement for boosters. Certainly, the first round of boosting has already been mandated and is in the process of being put in place around the world. I think it's too early to know with certainty as to what the market holds after that, but we think it's a reasonable, as we've said many times. And others have to assume that there's going to be ongoing requirements. We think we're well-positioned to participate strongly in the booster market based on a few factors. We think our product has proven to be very competitive, and we've set a pretty high bar for performance. But in terms of efficacy and safety and tolerability, we think we meet the mark we've set. The number of competitors, there are several we expect. And again, we've, I think, shown that we can compete in the market, especially given the developing recognition and preference for mRNA-based vaccines where the most demand is, obviously, we're in a small set of providers of that technology. And then we're -- our technology, if there are changes in formulation, we're well-placed to be able to quickly make that available. And then I think importantly, for those who have experienced our product, the satisfaction that they have and the fact they're coming back, I think, means that we feel very good about participating going forward. The second part, if I understand the question, was around the mix and match that's been approved. And we were quite pleased with the decision that was made to authorize the mix and match, at least, initially here in the U.S., but we're seeing it being approved elsewhere around the world. Why are we pleased with that? Well, first of all, what's been shown is that when you give Moderna's booster vaccine following primary series of Pfizer, J&J, you see that you get the highest antibody, tighter levels with Moderna's as the booster. So that puts us in a good position to be adopted as a booster. And in fact, some of the data you're seeing now coming out of the CDC indicates that we're getting a very strong demand for our product as a booster, which makes sense given the strength of the data readout on that.

Okay. Great. And if you could provide some, I guess, level of comparison between FDA authorization of Spikevax as a booster shot and kind of expectations from other regulatory bodies around the world.

Yes. So our product has been approved as a booster already in the U.S., of course, in the EU and Switzerland. And then we've got a number of other countries that are -- where we've applied that are going through the approval process, and we expect that to be broadly improved here in the near term. And likewise, down to 12 years old, we have -- Switzerland [ disapproved ] that, and where people are tracking what we're going through and expecting approval and increasingly younger ages as we move forward as well.

Okay. That makes sense. And is there anything you see kind of U.S. versus rest of the world on the go-forward need for either annual or seasonal boosters? Or is kind of the signs sell out on how that's going to look as this does become an endemic issue?

Sure. Yes. Maybe I'll comment, and Lavina can add to this. I would say the first point is it's a little early to know precisely, and that time is now passed to really understand the boosting requirements other than to have a belief that we think there is an ongoing requirement. Secondly, in terms of U.S. versus international, last I looked, there's a lot more people in the world outside the U.S. than in the U.S. So I think the market is going to be larger. Certainly, we already saw last quarter that international surpassed the U.S. market, and we believe that will continue. And we're well positioned and well-positioned already, but building a presence globally to enable us to service the market around the world, which is an important priority. But Lavina, did you want to add anything?

Sure. Yes. Thanks, Judah, a good question in terms of anticipating the endemic market formation. So we're taking cues from nature and like other human coronaviruses and other respiratory viruses. In fact, where the evolution of the SARS-CoV-2 virus and the pandemic now moving into the phase that we're in, where boosters are being recommended against the variants that have developed through this phase. This -- and towards the end of this pandemic, we do anticipate that SARS-CoV-2 will follow the similar path to other respiratory viruses and human coronaviruses, in particular, like OC43, which is endemic in the human population right now, OC43 is. So SARS-CoV-2 seems to be following that particular path. And so we are getting ready, and we're running the business as if this will be a seasonal virus that will be contending with in the endemic phase.

Okay. Great. That's helpful. And then maybe just one more on -- I think this was mentioned on the quarterly earnings. But it sounded like sequential R&D was driven by some clinical and multivalent vaccine development for COVID. So do you see that increased R&D as kind of a new baseline? Or is it a temporary tick-up that should come down? How are you thinking about the spend there?

Yes. No, thank you for asking. So what I intended to say, and I'm not sure who was clear based on your question now. So we've seen, as we've ramped the company broadly that we've seen a rising level of spend, both on an absolute basis and as a percent of revenue. We've indicated we expected that to be happening both in the R&D and in the other areas of commercial and SG&A through 2021. And so I was reaffirming last week to expect that to continue in R&D in the fourth quarter of this year. And in particular, we've got some concentrated investments as we're completing our development and the continued development of our COVID vaccine. But what I intended to say, and I'm not sure how clearly it came through, as you look into 2022, we also expect to see a continued ramp of investment, including in R&D, both absolute and as a percent of revenue for the time being. Because as the portfolio broadens out and accelerates, that's going to put pressure on spending, which is, I think, very aligned with the advice I'm getting from investors who say, "Hey, this technology, you guys got to accelerate. You're in the lead." And it's all about driving this hard as quickly as we can, and that's exactly what we're doing. So I think you should expect and if you're modeling at all, trend for some continued increases in that area, both absolute and as a percent of revenue.

Got it. Okay. And sure, we could spend all day talking about COVID, but maybe moving into some of the other programs here. So probably makes sense to go next to flu. I believe you have a readout from your Phase I trial in flu coming in the next couple of months. Can you give us some idea of what we should expect from that?

Sure. Why don't I take that, David?

Sure.

So we did announce that our Phase I flu study is -- was fully enrolled at the September R&D date, which includes 180 people in this -- participants in this Phase I trial. Obviously, Phase I looks at safety and tolerability. So we'll be sharing the profile on those metrics. But we'll also be able to share immunogenicity data. And the good thing about flu is that there are benchmarks out there that correlates a protection, if you will, that get flu vaccines approved every single year. And so that correlative protection, on the neutralizing antibodies against flu in particular, is the HAI titer levels, which we will likely be sharing. And what you're looking for there is a 1 in 40 HAI titer level or because most of us are going to be seropositive against flu, a fourfold increase from baseline levels for the titer. So we'll be sharing that information, both the immunogenicity as well as the safety tolerability profile once we have all the data in-house and cleaned and ready to go.

Okay. Great. And maybe just taking a step back on flu, right? How -- given the fact that there is often a mismatch in how the flu vaccine is actually matched to the strain that's revolving through the population, how could your vaccine differentiate itself on an efficacy basis given existing WHO surveillance data?

So over time, we do anticipate that we will likely be closer to the circulating flu vaccines. But that's not going to happen with this very first data set that we see because we are following WHO recommendations for this first speed-to-market approach with mRNA-1010. And so we're not rocking the boat in any way in terms of the regulatory path there. But over time, as I said, with maybe our next-generation flu products, because our technology allows us to quickly design and manufacture our vaccines, we can be much closer to the actual circulating flu viruses, which we think will reduce this mismatch that some of the traditional flu vaccine manufacturers suffer with now.

Got it. Okay. And I think you've spoken about a potential kind of a combination respiratory vaccine. So does it make sense to view flu as the backbone of maybe an annual respiratory combo vaccine? Or would COVID be the backbone? Maybe it doesn't matter, but how are you thinking about that?

Yes. So I think it doesn't matter which one you're going to call the backbone. But the intent is to have a pan-respiratory vaccine, one that combines the viruses of vaccine against all the viruses that have a similar profile where they are affecting the most vulnerable populations, usually those that are 50 and above because they have weakened immune systems. And so the intent is to come out with that pan-respiratory vaccine so that each winter, you can give 1 vaccine and protect against these viruses that have a similar profile of causing disease burden and hospitalizations amongst the most vulnerable in the population. So -- but not sure that it would matter. Flu is the backbone or COVID is the backbone. We want to have both in there. And then ultimately, RSV as well.

Got it. That makes sense. And have you started conversations with regulatory bodies about a potential combination vaccine? Or are you kind of going 1 by 1, and then you'll tackle combining them later?

So if you were to look at our vaccines pipeline, you will have already seen there are -- there's 1 vaccine that combines 2 different viruses. And it's now being tested in the pediatric population, that's hMPV PIV3. And that would be the closest proxy to what we're trying to do with flu plus COVID, a COVID booster, 2 separate respiratory viruses in a vaccine that addresses both. But we do also have CMV as a proxy kind of for people to look at. There, we have 6 different antigens or different pieces of the CMV virus that come together in 2 different antigens. So multiple ways to put many different mRNAs into 1 vaccine. So we've already shown that we can do that with respiratory viruses, hMPV and PIV3. We don't see an obstacle or any kind of technological hurdle for us to be able to do that with multiple mRNAs in 1 vaccine because of our CMV example. But we do have to have these conversations with regulators. The approach that we're taking right now is each of these are moving first as stand-alone vaccines against these viruses and ultimately, at some point in the future, we'll bring them together.

Okay. Got it. And moving on to RSV. How do you envision potential long-lasting behavioral changes from the pandemic, specifically mask-wearing as maybe affecting the potential market size for something like RSV, maybe especially amongst older adults?

Well, so that's a great question. And it kind of makes us have to use our crystal ball, which none of us really have a perfect crystal ball on. But you're right, there could be behavioral changes that affect transmission of RSV, which could mean that time lines are longer before readouts happen or people just protect themselves against RSV. But if I were to bet, just like everybody was giving up cards, it's very hard to change human behavior. And so we'll see as we come out of this pandemic. And frankly, we're already starting to see it on the streets of major metropolitan cities where, even in the midst of the boosters' phase of this pandemic, people are walking around without a mask. But a good point and a good question.

That makes sense. And I think in the R&D Day, you talked about the Phase I RSV trial and pooling data across different doses. How could that impact the Phase II/III study and the design there?

So that was -- that data that we shared at R&D Day was really for competitive reasons, why we didn't want to highlight which doses showed what. We do also want to have it in a publication. It shouldn't impact what we're going to be doing in Phase II/III as I think that the clinicians here have already selected a dose, and we're rapidly looking to move into a Phase II/III for RSV.

Got it. Okay. Moving to CMV. You dosed your first patient. So maybe just we can start out with how are things progressing for the trial in terms of patient and site enrollment?

Sure. So very excited about CMV and the first participants that have been dosed, but that was really just announced about 2 weeks, maybe 1.5 weeks ago. So it's still early days. We're pleased with having the sites up and running. And as more sites come on board, we expect to see enrollment going much, much faster. I'll remind everyone that the N for our CMV study is 6,900 women of child-bearing age, both seropositives and seronegatives. So we anticipate that we're going to put all of our resources against this trial. It's our second Phase III trial that we'll be running and a very important indication to have out there and try and stop CMV transmission, particularly from mom to her expecting baby. And so we're doing well so far.

Okay. Got it. And can you just remind us what makes CMV unique in that it requires seroconversion data rather than just relying on antibody titers, which is maybe different from what we've seen from you guys thus far?

Well, so CMV doesn't have a correlative protection like flu does, for instance, where you can use antibody data as the established endpoint is already out there by regulators. We would have to show, just like we did with COVID-19, a reduction in infection cases. I do believe that Jackie Miller, at one of our vaccines days, has spoken to the interim analysis that are set up within the CMV trial, Phase III trial. So just like COVID-19, should we see a very strong result out of the vaccine itself, you could start to see the separation of the curves between vaccinated and placebo participants in the trial. And if we see that the statistics and it hits the statistical hurdle, then obviously, we'd have something to report.

Okay. Got it. I think from there, we can move on to your personalized cancer vaccine. So maybe could you just first describe how tissue-specific targeting would work within this context?

So for the personalized cancer vaccine, the targeting that we're doing is really looking for the neoantigens. So in order to get to the neoantigens, we are biopsying the cancer tumor cells and then looking for proteins or differences, neoantigens in those tumor cells that would be different from normal cell or the normal tissue in the individuals that we're personalizing the cancer vaccine for. Once we've identified -- and there are many hundreds of differences between cancer cells and the normal cells in these individuals. But once we've identified those differences, we'll pick out 34 of those different antigens and put them into our PCV vaccine. And the hope there is to unmask the tumor cell to the immune system. Since we're running the trial in combination with KEYTRUDA, which is an immuno-oncology product that revs up the immune system, the hope there is that, that combination action of unmasking the tumor and then arming the T-cells, revving them up to go after tumor would actually lead to a decrease in tumor burden and tumor size.

Okay. Got it. And at your R&D Day, I think you talked about being fully enrolled in the adjuvant setting. Now could you just remind us why you decided to target the adjuvant setting rather than later line settings that some other peptide vaccines you're going after?

Sure. So it is adjuvant melanoma that we're targeting. We think the mechanism of action for our PCV vaccine would likely be best suited in that adjuvant population, where you can -- you have some time to actually educate the immune system through the PCV approach and have KEYTRUDA on board. KEYTRUDA is actually the standard of care in those resected patients. And so what we're looking to do is at the 12-month time frame, now that we're fully enrolled, we'd like to see a higher percentage of people in the combination arm living recurrence-free at the 12-month mark versus KEYTRUDA alone. And so if we can do that, given the safety and tolerability profile, I think that would be a major win for patients with adjuvant melanoma.

Okay. And maybe just following up on that. How should we think about kind of the opportunity that, that endpoint presents for you? And maybe just more about the potential outcomes within this program?

Yes, excellent question. So the mechanism of action that I just detailed for you should really not be that different for other cancer types. So much like we saw the immuno-oncology drugs, again, with a specific mechanism of action work in 1 tumor type, it then worked in many other tumor types. We would anticipate something similar here as well because, again, the mechanism of action that I just described should not be different should -- when we move from melanoma to some other tumor types as well. So it really affords us an opportunity to then accelerate development of our PCV vaccine into other tumor types, should we see a positive data readout in adjuvant melanoma.

Got it. And to that point, could you give us a little bit of an update on the progress being made with the Phase I head and neck cancer study?

Sure. So just like many other cancer therapies, Phase I studies, which are often basket-type Phase I studies, we did have a cohort of individuals in the Phase I for PCV, with HPV-negative head and neck cancer. And there, we saw in an early set of patients, a 50% reduction in tumor size, which compares very favorably to the standard of care, KEYTRUDA, which happened to show a 15% reduction in tumor size in its early days. And so we're following that signal. We've expanded that cohort from 10 patients now to 40-plus patients. And if that signal persists, and frankly, even if it comes down slightly, it will still be a pretty compelling signal to make sure that we speak to regulators about should we see that continue in the expanded cohort.

Okay. Great. And maybe just to round out the PCV. So the program does rely on T-cell activation. You've seen in kind of other modalities, whether it's CAR-T or others, that there could be safety signals tied to CRS potentially. So how do you envision this vaccine program kind of navigating potential safety concerns, if you have any?

So so far, so good, knock on wood. We've now dosed in excess of 200 patients with various types of cancers. And they've been repeat dose. Some of these folks have been on PCV plus KEYTRUDA for 9 cycles, 9 chemo cycles or treatment cycle. So so far, so good on the safety and tolerability profile. In terms of CRS and potentially seeing that we have not seen anything like that to date that I'm aware of, and because we are very specifically targeting neoantigens that are specific to the tumor cells themselves and awakening the T cells towards those neoantigens, we think that specificity may actually help in not actually seeing some of the more broader cytokine release syndrome issues that we've seen with CAR-T.

Got it. Okay. And we want to make sure we touch on kind of the rare disease programs here. I think you're expecting some initial data from a few cohorts of propionic acidemia. So what are you hoping to see there? And how could that be a read-through for other rare disease programs within the platform?

Yes. So at R&D Day, we did announce that the first cohort in the propionic acidemia Phase I/II trial was fully enrolled. These patients will be followed with multiple dosing cycles. And so we do expect to, at some point, have enough data, a cogent set of data in these handful of patients to actually see if there is any difference or moving of the biomarkers that would speak to the disease. And so as soon as we feel like the data is cogent and consistent, we will share that with the community.

Got it. Okay. And maybe we could just wrap up with -- David did talk about the Metagenomi collaboration. But maybe from a broader perspective, you talked about launching Moderna Genomics not that long ago and kind of the plan to move further into gene editing. So what are the high-level aspirations there? And kind of what are you hoping are kind of the near-term catalysts or milestones you can talk about there?

Sure. So being interested in nucleic acids actually started even at the beginning of the journey at Moderna because many people forget that mRNA is actually a nucleic acid just like DNA is. And what we found that we're really good at doing is delivering nucleic acids in the form of mRNA mainly. And so we're extending that expertise, if you will, into DNA and gene-editing enzymes as well. And so given that the field in gene therapy and gene editing really feels like they're still on version 1.0 in terms of the difficulty in delivering some of these nucleic acids, we think that we want to -- we're very well-equipped to move the field further ahead, which brings us to the complementary technology tool sets that we're looking at to really advance this field. And Metagenomi is the first in, I'm sure, many different collaborations that we'll do in the space.

Okay. Great. And with that, we're bumping up right against time. So we do want to thank both of you for the time today and for your participation. We really appreciate it.

Thank you.

Thanks, Judah.