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

Good morning, everyone. Thank you for joining us here on our opening morning session for Moderna. Up here with me on the stage, I have the Senior Vice President of Investor Relations, Lavina Talukdar.

Lavina, I would love to just maybe start coming away from third quarter earnings, the company provided some new guidance. And what I thought was most intriguing about it was short-term guidance for 2023 as well as, for the first time, some forward-looking guidance for '24 and '25. That was quite helpful. And the Street has had some reactions to some of that. But also, I think, taking a step back, and I know you have some slides you can maybe talk to, is perhaps a confusion and uncertainty about where Moderna is going. On one side, we have the COVID vaccine revenue stream and then this whole pipeline of like 43 things that people just maybe are not paying attention to. So maybe you could talk a little bit about the audience -- to the audience about how you guys are looking at COVID and the vaccine revenue stream as well as what you guys are most focused on for the next couple of years that kind of drove your guidance.

Sure. Great. Thank you, Mike, for having us. Why don't we just dive right into that COVID revenue number because I think that what most people care about is in this new endemic phase, what is that tail revenue stream going to look like from COVID. And so we provided some guidance not only on 2023, which we think will set the floor to some degree this year, especially in the United States, but also what we think we'll see in 2024 and 2025 in terms of a tail revenue stream from COVID in this endemic phase. So why don't we start with 2023? And just recently on our third quarter call, we highlighted that we're expecting roughly $6 billion or at least $6 billion in sales for the full year. So what does that entail? We've already recorded about $4 billion in sales in the first 3 quarters of the year. So we're looking at another roughly $2 billion to be coming in from international markets as well as the U.S. In the international markets, those are driven by advanced purchase agreements, which are nonreturnable, $1.1 billion is what we're looking for in the fourth quarter and about 50% of that has already been shipped in that October, November time period. So international, we're on track to do that roughly $1.1 billion for the remainder of the year. And then in the U.S., we're expecting at least $1 billion in sales. We've recorded about $900 million in the third quarter. So that $2 billion in total roughly is what we're anticipating is coming from the U.S. market in this endemic phase, which equates to about 50 million Americans going in and getting their vaccine this fall between September and December of this year. Many of you know that there are publicly reported shots in arms or vaccinations that are reported on a weekly basis. And we've also provided some information that we seem to be on track to hit roughly that 50 million doses later this quarter. In terms of 2024, an important information that we provided in the third quarter as well is the resizing of our manufacturing footprint. So the transition year from a pandemic state to an endemic state is what we went through this year, and we were carrying quite a bit of inventory, excess inventory as well as contracts with our CDMOs that were take or pay. So you are on the hook for those contracts, whether you use the capacity or not. All of that's been resized over the summer months this year, and we're now in a very good position where we are rightsized for the endemic phase going forward as well as supporting the respiratory portfolio that we have, which in a nutshell, means we are able to leverage our capacity and our cost of sales will be more normalized. So at $4 billion, you should expect a cost of sales of 35%. And with each $2 billion in sales, you'll see a reduction in cost of sales by roughly 5% going forward. And then finally, on the '24, '25, just to round out that first question. I'm going to walk you through 2023 at first. So you'll see because that's going to be an anchor for what we think 2024 and 2025, particularly in the COVID arena is going to look like. So in 2023, we had signed contracts, international signed contracts from various countries outside of the U.S. that amounted to $4 billion in sales. Roughly $2 billion of those sales were from deferrals from the year before, so 2022, and those were recorded in the first half of this year. The remaining $2 billion is what's expected in the second half of this year, which we shared $1 billion or so has already been recorded in the third quarter. And we're looking for $1 billion from these international contracts in this fourth quarter as well. And 50% of that $1 billion has already been recorded as revenues thus far in the fourth quarter. So what we do know from our international contracts is that $1 billion for the fall of 2024 is what we're expecting to receive from those same countries. So we're recording -- or for our guidance, we have now $1 billion in APAs from those same countries for the 2024 time period. And that's what we're carrying forward into guidance. In the U.S., we expect, as I said, in 2023, the fall season to be roughly 50 million Americans who get the vaccine and $2 billion in sales. We think that should carry forward because this will be the second year in the non-pandemic state where about 50 million people in America receives their vaccines if that's what happens later this year. And again, we're on track for that. So we think it's a safe bet to carry that $2 billion forward in 2024, which gets you to roughly $3 billion in visibility for COVID sales in the 2024 time period. We have a new product launching next year in RSV, and we do expect additional international sales. Both of those amount to roughly about $1 billion. So in total, we're looking for approximately $4 billion in sales in 2024. For 2025, we do expect to grow. And you'll see on this slide, just early thoughts of our financial framework. $4 billion in sales in 2024, cost of sales about 35%. R&D and SG&A will be lower than what it was this year, R&D by about 5% or 10% and SG&A by 25%. And tax is going to be negligible. Capital expenditures of $0.9 billion. All of that equates to operating income of $1 billion. So we're committed from the COVID franchise alone to be cash flow positive there at $1 billion once you take out, strip out the R&D associated with the rest of the pipeline. In 2025, top line growth is what we expect, particularly given that RSV will be the second year on the market. And we believe we have the most differentiated profile amongst the competitors there. So I'll stop there, and maybe we can take...

Yes. Sure, let's kind of take that chronologically. Finishing off this year 2023, in the middle of the fourth quarter now, there's about $2 billion to -- in the quarter that you would need to hit your $6 billion guidance. You said, I think you've essentially shipped the required APA contracts already. And so that's already been hit. And so it's just the remaining $1 billion or so for the rest of this quarter, which is all coming from U.S. And I think if you look at the jabs, we're sort of tracking around -- where are we? Do you think if you go to the rest of November and then the last 4 weeks of December, it is tracking around 50 million. That's give or take.

Give or take 50 million.

Jefferies is tracking a little bit lower, but it's all in the same mix. And actually, what I would say is one of the things that has come out, and this could be interesting for '24 is that actually the market share numbers for Moderna have moved from, you tell me which, but it's like 35% U.S. has moved almost it's now 45% plus.

Correct.

And what's going on there? Why are you gaining market share? And do you think that, that could continue? What's going on there?

Great question. So the commercial -- U.S. commercial team worked really hard over the summer to make sure that the contracts that we were signing with retail pharmacies, IDNs, all channels throughout the COVID market. And they were able to, for the first time ever, speak to the differentiated efficacy with our product as well as one of the major factors on the pharmacy side, the convenience factor, which is that our product is shipping as a prefilled syringe. So you take it right out of the fridge very simply and then you can inject as opposed to dealing with reconstituting or unfreezing. So we think that's a big competitive advantage.

I hasn't called up the different pharmacies and I don't work in the pharmacy to check out like how it works. But again, this is going from Pfizer's using still the 10 per vial.

No, I think they are single-dose vial.

They're single-dose vials.

But they're just not enough...

But someone has to draw it out to do it. Okay. Whereas Moderna and through and by the way, we cover ROVI, who were the 2 I guess publicly disclosed. The person who's doing the single fill syringe? ROVI?

ROVI, I mean, our fill-finish, right? ROVI, Catalent.

And Catalent, okay. And so the single use syringe is something you have transitioned to because we'll get to RSV in a second. That is also -- talk to that. That's also one of the key differentiators for RSV.

That's right. So for our RSV vaccine, which is now fully filed across the globe with regulators, and we're expecting approval in 2024, we believe has the strongest profile relative to the competition that's already on the market. So on efficacy, on par, if not better, than Glaxo's vaccine efficacy there. Safety -- on the safety side, we didn't see any demyelinating events like GBS in our clinical study. So we think that's a differentiating factor. And then on this convenience factor, yes, we will be prefilled syringe, whereas both the competition need multiple steps to actually get their vaccine ready. So we think that's going to be...

Okay. Yes. So this is interesting. So again, chronologically, you believe you're on track in the fourth quarter in the U.S. to hit the number of jabs, 50 million, times the market share number, multiply times a price, do you think Wall Street price or shouldn't be any surprises on that front as well? But that hasn't been a factor basically on...

That's right. So -- right. So list price is $129 rounded up. And typically, in vaccines, there's a 30% to 50% vaccine discount. En masse, you should assume somewhere in that range as a discount for the gross -- for the net price.

For the U.S. price, okay, like Jefferies and consensus is like $90 to $100 versus $130 gross. Okay. So you pointed out, you're on track to hit the fourth quarter. When you look to 2024, you believe that APA contracts of $1 billion are fairly visible because it's a repeat of prior, $2 billion of U.S. is based on mirroring exactly what just happened in '23.

As well as '22.

As well as '22.

Second year.

Okay. So the reason why I'm talking to this is because Wall Street seems uncertain about what will happen for revenues. And your point is you think that, that's a fairly visible revenue stream because it's replicating what just happened in 2023. And so unless you think that COVID is completely disappearing, that shouldn't change based on the numbers that are there.

It really shouldn't. And if you look at hospitalization data, the severity of COVID relative to a flu infection, for instance, is much higher. And so that could be an argument for why you see a little bit of growth as well just because you don't feel good when you have COVID. And so with that experience, that could take vaccinations up and probably not in the population in this room, but for older adults, more vulnerable individuals, it's an important vaccination.

Yes. So everybody looks pretty young here. But the primary population, I actually don't have the numbers because I'm not sure that CDC breaks it out by age. But are you guys getting the sense that most of all the 50 million, I say most, but a significant majority of those 50 million are the older population above 60 to 65, and that is what's going to be replicated every year because those are the high-risk people, not here in the room, but the others, and so that's why it's fairly visible. Is that what you guys are seeing?

It is visible. Now it's too early to say exactly what the breakout is this season in terms of the older population or maybe even the younger population getting the vaccine. So we'll be looking at that data. But that older vulnerable population is a sizable population in the U.S.

It's 80 million, right?

Because it's about 80 million people. That's right.

Right. And so if you do out the math, you guys think or a fair base case is that perhaps half of these people who are older are getting vaccinations. And then if you multiply your market share, that's why it's replicated based on those people, not on these younger people...

That's right. And if we use flu as a proxy, you'll see that the older population, about 75% of them typically get...

So for flu, it's even -- or I'm here to see the proxy, take a look at the flu, 75% of those 80 million people are getting flu vaccines in the United States, look how high that penetration is for that. How about RSV, talk to that market. One is that GSK just put up -- I don't cover GSK, my other colleague does, but are those like $900 million.

That's $1.3 billion is what I think is the total market.

$1.3 billion. Okay. And I thought $900 million or something was for the U.S., but it's a big number. Now your point is, look at that, $1 billion just in the first year, you think you can get some of that growing market -- a growing market, but also your proportion based on efficacy and your prefilled syringe.

That's right.

Okay. And that when people are doing out their market -- tell me where you think the RSV market is briefly because you believe that you should get a big proportion of that. And that's additive.

We do. And that's really just driven by the profile of the vaccine, what we think that the competitors are doing very well. This is the first year that the RSV products are launching. The education piece, that's important I think they've done a really nice job at. And then we'll be coming in with the best-in-class profile product next year. So we're encouraged by what we've seen in the marketplace already. And so we think that market for that older adult population is somewhere in that $6 billion to $7 billion range and over time, we would think our fair share is at least 1/3.

And so for those doing out the numbers, I've done this out, so you had the COVID numbers, we just did that. The flu, we'll get to them. So RSV part is the older population above 60 to 65. That's 80 million people. You should assume a proportion of that is going to get RSV. I don't know if you guys think that's going to be 50% or something. You said flu is 75%. What is -- where do you think RSV would be?

Flu is 75%. RSV, flu as well as COVID typically happen around the same time of the year, are well understood by physicians who treat older patients. And so we think that over time, we're hopeful that we'll get to a flu-like penetration, but it will take some time.

Okay. And then the flu part. The reason why I want to come to that is because if RSV is launching, the third product that is coming in the respiratory vaccine space is a combination. Pfizer has also suggested that they're moving forward into Phase III with theirs, although maybe you could speak to some differentiation. And so where are you with this combination? Is this an extremely high probability that it's going to be "positive" next year and filed to the FDA and that this should give people confidence that utilization and price could generate upside to where the numbers you just gave.

So we're really excited about our combination portfolio. And you're right, flu plus COVID is the first one that we believe will be on the market. It's in a Phase III. Right now, we've just demonstrated in a Phase I/II study that immunogenicity looks equal to better on any flu vaccine that you're testing it against, whether that's DNA enhanced or the normal regular flu vaccine and then similar on the COVID antibody levels as well. So very excited about the profile there on immunogenicity, but even more importantly, in the combination, the reactogenicity profile looks as if you're just getting one vaccine, but you're getting protected...

So let me repeat this, because every single piece of pushback from people who are skeptical on it is not necessarily that it doesn't "work". It's that people feel like the side effects or reactogenicity is going to be too high for people so they don't want to do a combination. Now I'm not sure if that's because they think that somehow it's worse or higher than taking 2 jabs because just to be clear, there's a significant amount of people that are doing 2 jabs right by this season. I don't know if you...

Right now, it's about 25%.

25% of what, the flu people are doing it?

Either the flu people or the COVID people that are going into the CVSs or Walgreens the world in the U.S. If you're offered one -- if you go in for one vaccine and offered the other, about 25%, it's early days, but that's what we're seeing.

I'll just focus on just the elderly population because that is where a significant majority of the COVID is being done. So if you take those COVID numbers, 25% of those people, which is half of the 80 million is doing a second injection of flu at the same time, different week or whatever it is.

Same time.

I think a lot at the same time. So ask them how do they feel and you're telling me that the combo injection that you have and you started Phase III, you don't see any difference in reactogenicity.

That's right. So what we've said is that the reactogenicity from that Phase I/II study for the combination is as if you've just gotten the COVID vaccine, one vaccine.

Okay. Yes. And is that combination in Phase III also with RSV? Is that another Phase III? Or you have not started a Phase III combo RSV?

So the triplet combination with RSV, flu and COVID is still in the Phase I/II study. So that has not started yet. Again, our first combination we anticipate, will be in the flu COVID vaccine.

Why not start a RSV flu or RSV COVID?

Well, it's just the timing. So we're running all of those studies. And the beauty of mRNA, the platform, is really you can offer your customer base a menu-type option. So we will have COVID by itself as an option, flu by itself as an option, COVID flu. And then in the future, should these Phase I/II studies in the triplet with including RSV or a flu RSV vaccine also look to be promising, we may have those on the market.

Is there any differentiation between your COVID flu and the competitors COVID flu, which just started Phase III as well? I'm not sure.

So the data we've seen from our competitors is in the younger adult population. We really think this market is the older adult population because they are the ones most at risk and most vulnerable. It's also where most physicians urge that population to get protected from these respiratory viruses. So it's hard to compare. Obviously, it's not head-to-head studies, but it's also hard to compare because the populations that they've given us data on are different from the ones that we...

The reason I point this out is just because if you assume the volume numbers that we just walked through and that people will get the combination, then there's additive revenues either because -- I don't know what you say, there's a flu portion to that or there's a combination of premium pricing because of convenience. There's a whole lot of host of factors and because for those here who might be a U.K.-based audience that the U.S. is paying $40 per injection as administrative fee, and that's not in the price. And so there's actually a cost savings to the system because it's one injection, not 2. And so there is a pharmacoeconomic advantage to using combo because U.S. health care system pays per injection, you'd be saving money with one injection. Is that true?

That is absolutely true. And so there are multiple benefits to having a combination on the market for many stakeholders. So for payers, if you just...

And by the way, single payer systems as well.

As well as single payer systems, there is an administration fee that's associated with giving a jab. In the U.S., as you rightly pointed out, it's about $40 just to give me, administer me injection.

Total cost of that.

The total cost of getting it, the paperwork, the nurses' fee. And so the system would be saving $40 if you have 2 vaccines in 1 and $80 if you have 3 vaccines in 1. So that's one benefit. Obviously, physicians like it because of compliance, you get your patient population protected against 2 or 3 viruses.

Compliance is higher.

Compliance is higher. And then the benefit to us is really, as you pointed out, pricing, but we also expect to see gross margin expansion because the vial is the most expensive part of the manufacturing process.

And that would still be a single -- that's a single vial and all fits in one.

All fits in one, presumably, we'll have it in a prefilled syringe.

Okay. And the data for the combination, is that early '24, first half '24, it's ahead of the winter season?

So we're currently in the Phase III right now, we'll have the data sometime in 2024 because if our guidance is 2025 launch, we'll have to have seen the Phase III filed it in between...

In ahead of winter '25?

Ahead of the winter 2025.

Okay. Last question in the last minute is a near-term update on INT. For those who haven't followed every acronym, the PCV personalized cancer vaccine, but it's an INT, individualized neoantigen therapy. Are we getting an update soon? Are you engaged with FDA? Do you want to file this cancer vaccine? What is the update there? What should the expectation be?

Expecting update relatively soon. We said by the end of this year. This will be the second analysis that we're doing on the Phase II study, which was a head-to-head against the standard of care in adjuvant melanoma, which is KEYTRUDA. So in this study, what we're looking to show is the combination of INT plus KEYTRUDA helps people survive longer without their cancer coming back. And so that data, that second analysis will be available in the fourth quarter of this year, so weeks away. If that data continues to be as strong as that first analysis that we ran, that will put us in a very good position to go talk to regulators about accelerated approval.

Should the base case be that you're filing or the base case is -- what is the base case?

We think that this product should actually be in the hands of physicians and patients. So if the data looks good and continues to show positive results, I think that puts us in a very good position to have those discussions with global regulators.

Thank you very much, Lavina. Excellent. We look forward to the updates. Thank you for all that you guys have done. Appreciate it.