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

Hello, everyone. My name is Ted Tenthoff. I'm a senior biotech analyst at Piper Sandler. And before I begin our next presentation, I'm required to point out certain disclosures regarding the relationship between Piper and our next presenting company, Moderna, which are located both at the back of the room and also at the registration desk. As you all probably are well familiar by this point, Moderna is the leading developer of Messenger RNA or mRNA vaccines and medicines. mRNA shares have been under significant pressure over the last 2 years with the waning of the COVID pandemic. It just shows you, you do a good turn and then everybody forgets you. However, we really believe the company is in the strongest position in its history with a strong balance sheet, fundamentally derisk technology and a late-stage clinical pipeline with several upcoming approvals over the next several years. Here from Moderna is CFO, Jamey Mock. Jamey, thanks for being with us.

Thanks for having us, Ted.

So Jamey, I really appreciate the level of financial modeling that you've gone into and the guidance that you're providing. And I want to start with that because it really gives sort of a framework, not just for COVID but really how these new launches could layer in and return Moderna to growth and ultimately profitability. So maybe you can walk us through that. How are you deploying capital? What's your outlook over the next 2, 3 years with that in mind?

Yes. Thanks. And again, thanks for having us. Yes. So I mean you kind of said it in some of your opening remarks there that we think we're in a great position. And yes, we wrote a wave here, but in -- 2024 might be a low point for us. But we wanted to set out kind of our philosophy here, which is we have a tremendous pipeline, a tremendous platform, and we want to invest in it because we think it's a true organic growth driver. And so we've come out and said, hey, we're going to invest in these products and in R&D over the next couple of years and use a fair amount of our capital and try to launch 15 new products by 2028, which is outstanding. It would be somewhat unprecedented. So that was the philosophy in terms of laying out the framework to say, let's make sure we understand the baseline for 2024, and we said that sales will be about $4 billion and that we'd use about $4 billion of cash in 2024, and we're starting at $13 billion. And then again, it would probably happen, we'd return to growth in 2025 as we launch more products, but again use $2 billion to $3 billion of capital. And then by 2026, we think that the portfolio and what we have at that point, we will break even. And we are cash conscious, and we always all have been. And then I think we wanted to show that, hey, volume might have changed, this wave might be a little bit behind us, but COVID is here to stay. We will launch new products. We are going to invest in this platform, and that was kind of what we came out with to make sure our investors understood that.

Yes. So I'm going to dig a little bit deeper into COVID and then kind of go through the later-stage pipeline, if that's okay. There is clearly still a risk. I got my vaccine, my son got COVID. I didn't get it. So thank you very much. There's also a little bit of a political backlash here against vaccine over how this whole pandemic was handled. But all that aside, walk us through your current outlook for Spikevax revenues for the remainder of this year, as you mentioned, $4 billion next year. What does this look like kind of over the next couple of years?

Yes. So unfortunately, we believe COVID is here to stay and that the virus will continue to mutate and that it will be here for the long term. And what does that mean for us? Maybe I'll talk short term, and then I'll talk long term. So short term, as we were entering the year, we only had 2 data points. 2021, 2022, and those were 2 very different vaccination rates. And that's basically how we size this year. We said it could be -- and I'll take the U.S. as an example, it could be on the low end similar to last year, which was 50 million doses of vaccinations. And in 2021, it was more like 100 million vaccinations. And so that's how we approached the year. It turns out that this year is shaping up to be more like last year. So on the lower end and kind of be at that 50 million level. So that's now 2 data points in a row. So if I were to think short term, we think that 2 data points is starting to be a trend. So that's what we're planning for, both in the guidance we gave for 2024 that the U.S. would be similar, and it's roughly $2 billion of revenue for us, and that's at the 50 million vaccination rate level. But then it will pick up over time as the population grows, the older adult percentage of the population grows as well. And then longer term, though, if you really step back and think about it, I mean, just compare COVID to flu, it's 3x the health burden. So that has to normalize in our belief, sometime. It might take a while, but there's 3x more hospitalizations, there's 3x more deaths. So you would think that, that would get more to like a flu-like level, which in the United States is over 150 million doses per year. So longer term, I think there is growth. In the shorter term, though, we are planning for the lower end of this range. And then maybe we'll talk about it, but we can talk about combination vaccines. And I think that will increase the market size for COVID. So that's short term kind of similar to this year, similar to last year. And then longer term, I think there is room for development.

It's a super helpful color. And I definitely want to get to a combination of vaccines. I'd like to kind of introduce some of the potential combos first because your next approval will likely be an RSV vaccine, mRNA-1345. You've already submitted to regulatory agencies globally. Do we know what action dates are? And I believe you used a priority review voucher to accelerate that time frame. When can we get approval for 1345?

Yes. So as you mentioned, we've filed in many countries across the globe. And some might be sooner, but I'll focus on the U.S. because that really is still the lion's share of the market at this point. So in the U.S., we've said that we'll be -- we believe we should be approved in the second quarter of 2024. And that is in time for ACIP as they make their recommendation on which providers for the vaccine will be recommended. And so that we could hit the second half kind of fall season for RSV. And so there might be other jurisdictions that could be sooner or later across the globe, but the U.S. is really the most meaningful.

Yes. And how does 1344 stack up against Pfizer and GSK's introductions? How have those launches gone?

Their launches have gone great, which we're encouraged by. I think that's great that the market is receptive to RSV and getting a vaccination shot. In terms of how we stack up, we're pretty proud of our product profile. And I would mention maybe 3 areas. One, the efficacy of our product and how it benchmarks, we think it's near the top of the class. The second is the safety profile of our RSV vaccine, and we've had no GBS events, no demyelinating events, as well as the fact that we have PFS. And I think that is a real differentiator for us in terms of, if you think about pharmacies or doctor's office and how technicians are overworked right now, a one-step approach to PFS has really made a difference. And we've seen it make a difference on COVID this year, too, when you look at our market share. So our market share last year for COVID was call it, mid-30s, 35%, 36% in the United States. And this year, we are at kind of 48%, almost 50% market share. And I think that's due to the same thing. It's due to the efficacy of the COVID product. It's due to prefilled syringe. It's due to our agile commercial team and how we work with customers. So we're pretty encouraged by the outlook for RSV.

Excellent. And the third product here would be seasonal flu. I think this is a really interesting product for Moderna because it's not just one thing. It's -- you guys are developing mRNA-1010 as the lead, which is a quadrivalent hemagglutinin based, which is really very similar to today's seasonal flu vaccines, but you really have a much broader effort behind that. So starting with mRNA-110, remind us sort of what you showed. We saw increased activity against the B strain, which have always been a little bit tougher to treat. What's the go-forward strategy for 110?

Yes. And maybe to elaborate on what you just said, I mean, I think that's the value of the mRNA platform that you can add additional antigens that hopefully make it more effective over time. And that's our entire strategy behind flu. But specifically on 1010, we kind of showed that already. We had 3 trials for -- 3 Phase III trials for flu. And on the second one, we actually missed on some of the B strains. And I think we announced that in April of this year. And 6 months later, I think in October, we released data that said we've actually beaten both the A strains and the B strains versus both the standard dose as well as in 3 out of 4 of those strains, the high dose flu comparators. So we're actually quite pleased with how we've been able to adopt that product to make it a higher efficacy than some of the competitors out there. And but to your point, we will continue to add additional antigens to it to make it more and more effective over time.

Right and even potentially including neuraminidase, which really has never been achieved with any of the seasonal flu vaccines. So we could see actually increased response rate. And there's the benefit that you guys can produce some much more quickly. You could actually get the product to market around now.

Yes. I mean just look at COVID, with an mRNA vaccine, it takes us about 60 days to get ready. So when the strain is selected at the end of June, we could be ready by September 1 to actually launch a product. And that's the same for flu. So the longer you go into the season, the better the strain selection will be and the mRNA platform allows you to pick the right strains, which should hopefully make it more effective.

So I'm going to start to kind of unpackage this whole concept of combinatorial respiratory vaccines. And there are steps to it, there's lots of different pieces. From a modeling standpoint, it's a little bit of a nightmare because it's confusing sort of who will get what, how it will all roll out. The first step is really mRNA-1083 which is a combination of Spikevax and mRNA-110 today, but it's essentially going to be COVID plus flu. Tell us about the interim data and then where are we in terms of Phase III trials and ultimately getting that combo, the first combo registered?

Yes. It's funny you mentioned forecasting and how difficult it is to model because we spend a lot of time on that in our company. As well as just looking at 2023's experience as well with COVID. But to get to your point, so we've released, I think, a month or so ago, how is our Phase I/II trial candidate going for COVID plus flu. And if you look at it, I think we had 2 different populations from the age of 50 to 64, and that was against a standard dose flu and then from 65 through age 79, we had it against the high dose flu. And both, if you look at the tighter levels, performed extremely well and actually beat it -- beat the flu products, the comparative flu products in both of those populations. And then COVID was similar. So we're actually very encouraged by the efficacy of a combination, which was one of the key questions out there was can they both be effective in one shot. And I think our Phase I/II data, we are actually quite encouraged by. In terms of the rollout of that, so now we've launched the Phase III trial. So we are enrolling right now, and we will look at the data after that and then work with regulators to hopefully bring it to market. We said, hopefully, by 2025.

Great. Awesome. And then I just kind of want to take a half a step back for manufacturing for a second because, again, especially for the seat that you're in sort of watching things go out, watching things come in, adding it all up at the end and seeing where it comes out. I mean it's incredible if you think about the sheer scale of the ramp to meet the COVID pandemic over the last few years. Clearly, you guys saw early on the value of being able to make the products, and that really served us all well during the pandemic. How do you kind of rightsize manufacturing going forward with COVID sort of going back, but also with all these new mRNA vaccines, not too far down in the future?

Yes. It's a great question. So just to put that into perspective, over 2021 and 2022, we delivered over 1 billion doses. And we went from one facility in Norwood to an entire manufacturing footprint with a lot of partners that actually served us quite well. And we ramped up for that. And now it's obviously a different game right now in terms of volume. So it's a fraction of that. And so actually, in the third quarter, we performed a lot of resizing efforts. And that's with all of our partners, and we still need our partners, and we're encouraged by that. But also our inventory levels. So we had built a lot of inventory with an expectation of different volumes moving forward. And after that's all said and done, we took about $1.6 billion of charges, or we'll take $1.6 billion of charges over the course of the second half of this year. We are set up for volume leverage. So we said at the $4 billion level, we would be 35% cost of sales or 65% gross margin next year. And then at the $6 billion level, we should get to 30% cost of sales, and $8 billion level, 25% cost of sales and so on and so forth. And so we really now believe that we have the right footprint to participate in that volume and move forward and actually have that volume leverage. It was not easy, and our partners really worked with us to do that, but we are really poised for future margin expansion, which we're excited about.

Yes. Great. One of the other late-stage program set is probably a little less well understood only because it's such a novel approach here is 1647, which is for CMV or cytomegalovirus. This is actually a very common virus, probably half of the people here have been exposed or seem to be positive even a little bit more. You guys are running a Phase III trial called CMVictory. What's the goal of this study? And what is really the ultimate goal of this vaccine?

Yes. So -- Yes, CMV is a terrible disease. And as you mentioned, it's a latent disease, which means it stays in your body, and that's why most of us have it, but it's just hasn't come to fruition yet at this point. But it's also transferred in pregnancies quite a bit. So 1 in 200 babies are unfortunately diagnosed with CMV. And our -- and as well as in transplant. So those are the two leading areas of where it is transmitted. So our trial is designed to really attack the first pregnancies, and we have 7,500 patients that are currently being enrolled or it's actually now fully enrolled. 50% will receive a placebo and 50% will receive our vaccine. And I should mention that there is no other competing vaccine out there. So it's really that's why we're competing against the placebo. And our goal is to actually prevent it, to prevent transmission of it. And the defects that are out there are jaundice, seizures, eyesight loss, hearing loss. And so where are we right now, we, as I mentioned, are fully enrolled. And at R&D Day a few months ago, we said our first interim analysis will be at 81 events. And at that point, we were about 20 -- we have seen 25% of those events. So recently, we said we'll give you an update in Vaccines Day, but there's a chance that sometime in 2024, we have an interim analysis for CMV.

Yes. Awesome. That will be really interesting to see. And then how is that -- how do you envision moving forward in transplant patients because obviously a very different patient population versus broad vaccination versus in the targeted transplant on [indiscernible]?

Yes. We haven't designed the full trial yet, but our goal is to, again, prevent the transmission through transplants as well.

Yes. Awesome. So that will be a little easier to do than the large population. So you and partner Merck recently, I think, reinvigorated the field in cancer vaccines with your individualized neoantigen therapy, mRNA-4157. This was in combination with KEYTRUDA in melanoma. Remind us sort of what you saw there. But maybe the bigger question is, how are you and Merck taking this forward to treat cancer more broadly?

Yes. So we saw amazing results, and we've released at least 2, and we've released a little bit of trickle-on effect as well, but I'll mention 2. So in terms in our Phase II trial for melanoma -- adjuvant melanoma, we, after 2 years, had shown that we improved the outcome for patients by 44% versus KEYTRUDA alone. And that's an incredible increase in terms of standard of improvement for cancer patients in terms of recurrence-free survival. We also looked at distant metastasis-free survival as well and said that we improved that by 65%. So we are extremely encouraged by the results that we saw in adjuvant melanoma. And as we look forward, I mean, both Merck is very public about it. We're very public about it that we believe that this can affect many different indications. And if you look at KEYTRUDA, I think they have 19 or 20 different indications at this point. And right now, we've said we're going into non-small cell lung cancer. And we've already started a Phase III trial on that, and we'll come out with other indications in the not-too-distant future.

Yes. And this is a pretty interesting program. Again, I'm going to sort of go back to the logistics behind the [indiscernible] breaking. But this is really -- kind of walk us through how you make this if you don't mind because it's just such a unique product.

Yes. It's a great point. So going back and I'll answer that question. So if you asked about cost of goods sold on a prior question, every other product in our portfolio, so rare disease, latent disease, all of the respiratory, all uses the same infrastructure. So that same manufacturing capacity that we've built can be applied to all of those different products in the future here. INT is a little bit different because it is miniaturized. It's actually individualized as the name suggests, for an individual. So we sequence, so we have to have a sequencing partner at this point. So we sequence a patient's blood, and we look for a tumor cell and what's different on the neoantigens there versus a healthy cell, and then we run that through an algorithm and develop a mRNA vaccine by picking 34 neoantigens specific to that individual. And then it goes through a pretty similar manufacturing process, albeit much more miniaturized and much more overhead. So it's not nearly the cost point of a traditional respiratory vaccine, but it's still a very good -- a lot of leverage that we will have from a manufacturing perspective. And I'd say the other big thing is turnaround time. So patients, as you know, oncology every day matters. So we're hard at work in terms of getting that, being able to serve at least 3,000 patients. We're also hard at work to make sure that we can understand what is the turnaround time to be able to get a vaccine to the individual, including the sequencing. So you draw the blood, you sequence, you bring it back and then we've got to get it back in arms. And it's a 27-week therapy every 3 weeks for 9 weeks that we give a dose to an individual. So that's what -- that's kind of a little bit about the manufacturing process and the team's hard at work.

Yes, it's incredible because it really is a personalized vaccine that you've developed there. So lots of other important vaccines that are just going to kind of layer on over the next several years. EBV, HIV, herpes, shingles, kind of in the interest of time, I'd like to switch to what I think is one of the most compelling opportunities. I always tell Steph on this. He's probably thinking of hearing me, talking about it, but it just makes so much sense to me rather than manufacture our protein in Cambridge or in Zug and shipping it and injecting it once a week or once a day, once every 3 days, it makes so much more sense to me to encode the RNA for a protein that is dysfunctional or mutated and then enable the patient to produce their own protein. I mean, really, the patient almost becomes a factory here, and there's just so much complexity to that transitional process that I think is missed when it's made in a stainless steel vat versus made in the body cell. So I see a lot of different applications for mRNA to actually express endogenous proteins. One of the biggest ones is orphan diseases. And you guys are really starting to advance some of these programs including propionic acidemia in Paramount and then also methylmalonic acidemia for Landmark. Without going into individual programs, how big of an opportunity is this internally do you think? How many different diseases do you think this could be applied to in the orphan disease setting?

Yes. Maybe I'll talk relatively short term, we'll call it by 2028 and what we've said and then longer term as well. So we have 5 or 6 programs that are pretty far advanced. You mentioned a couple of them. And we said by 2028, there are 4 that we think that we can come out with and launch by that point. And we think of every rare disease is roughly $0.5 billion to $1 billion revenue opportunity. So that should give you some modeling in terms of by 2028, here's the kind of size of opportunity we're talking about in the relatively short term. But that's mostly liver, intracellular and if you look at that, there are hundreds of diseases. So what's beyond that, we're not sure yet. But right now, we've got about 6 candidates. We think 4 can be ready by 2028, and we hope it to be quite material thereafter.

How -- one of the great things about Moderna now is you're self-sufficient and you don't really have to seek partners like you did in the past. How do you guys evaluate and look at new areas? So for example, we've kind of gotten vaccines, moving along, cancer vaccines are underway and partnered with Merck. You've got the big effort in orphan disease. How do you select these new modalities for mRNA and what are some of the other ones that you think are really kind of progressing the best?

Yes. So we have been very disciplined about that over time. And we look at where the biology or therapeutic areas intersect with our technology and what we can do in terms of whether it's a vaccine or a different application. And what we look for is a therapeutic area that might have -- or a technology area that might have many different applications, not just one. And we've actually cut programs for therapeutic areas where we don't think it can expand, where it could be 5 to 10 different drugs, not just 1 different drug, right? And so right now, that's why we've prioritized respiratory because we can obviously see all the effects we talked about, many of them latent, you mentioned 5 or 6 that we are already well underway on, oncology, which we have a couple of others in addition to [ INT ] and then rare disease we mentioned. So that's how we look at it. I'd say the other dimension we look at is near-term revenue and therefore, profitability because we have this massive opportunity, and we still need to fund it ourselves. And yes, we have a lot of capital right now. But we also need to generate and start having this organic growth and this actual cash return to be able to fund more and more of the pipeline so we look at, okay, well, how far off is it until we get some revenue from this. And we also look at diversification. So we don't want to just be a respiratory-only company. We want to diversify into many different therapeutic areas. So that's what's where we spend most of our research and platform dollars. So we've broken down our R&D in the past that says, look, if we're going to spend nearly $5 billion, about 10% to 15%, maybe 20% of that is in research and platform, what we call platform every year. And that's either a new novel vaccine or that's another vaccine in one of the therapeutic areas that we're talking about. And that's why we now have a pipeline of 45-plus candidates. And every year, we're looking for more and more INDs in some area that could create another therapeutic area.

Awesome. Jamey, really helpful. I know it's been a long road, but I think it's going to start to get really exciting over the next couple of years as you guys launch more products and really get back to the value that you created initially for the pandemic. So thanks for being with us and thanks for taking the time.

Thank you, Ted. Much appreciated. Thank you.

Thank you, everybody.