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

Great. Welcome, everyone. Good afternoon. Good afternoon. My name is Jess Fye. I'm a biotech analyst at JPMorgan, and we're continuing the 42nd Annual Healthcare Conference today with Moderna. I'm going to pass it over to the company's CFO, Jamey Mock, for a presentation, and then we're going to go into Q&A. If you have a question, you can submit them to the portal, or I think someone will bring you a mic. But with that, let me pass it over to Jamey.

Terrific. Well, thank you, Jess, and thanks to the JPMorgan team for another terrific conference. Good afternoon, and it's a pleasure to be here with you today. On behalf of the entire global Moderna team, we thank you for your interest. Thank you for being here in person or live via our webcast. So before I begin, I will make -- in this presentation, we'll make forward-looking statements. Those are to the best of our estimates right now and that's subject to risks and uncertainties. For a full list of our risks register, please review our SEC filings. So today, I'd like to walk through the Moderna story, and I'll do it in a time line fashion. So I'll start with our platform. Why did we want to invest in it? What were the benefits that we saw? How have we invested in it over time? And then I'll move to that took us up to COVID, in the pandemic. And how are we prepared for it? What do we do for COVID? What do we need from a health perspective? And then we transition to the endemic over the last 2 years. And so that required a lot of resizing of the business. And then as we look forward, I'll give you how we're thinking about it both financially and from a late-stage clinical pipeline perspective. So I'll give you our financial framework and why we are so excited about the organic growth driver that we have at Moderna. So first off, Moderna is obviously founded on mRNA, which is nature's information molecule. And mRNA instructs the cell how to make proteins. And those proteins either prevent or treat diseases. And it was that belief that if we could maximize a platform that could optimize mRNA, we could treat or prevent many different diseases and it had many different benefits. So these are the handful of the benefits on the page. We've used this page for a very long time. But the first is the opportunity set. Number one, mRNA is a natural part of your body. But then number two, mRNA can hit many different types of proteins that other competitors cannot. So it can hit secreted proteins, transmembrane proteins, intracellular proteins. So we thought that if we weren't able to be successful with one vaccine or therapy, we would be very successful across a wide range. Number two, you can measure R&D efficiency a couple of different ways. You can measure it from a cost per trial perspective, but more importantly, from a success perspective, because a lot of money goes into R&D, and the more successful or the higher probability of success that we have, the better we'll be. And I'll show you a chart on how we stand on that later. Number three is about rapid and agile development. So because it's an information molecule, we believe we can iterate quickly. And I believe a good example of that is what we did in 2023 with flu. At our Vaccines Day in April of 2023, we said that our flu candidate had made it for the A streams but missed the B streams. And by our R&D Day in September, just 5 months later, we had already run a clinical trial, changed the formulation, and said that we had made it for both the A and B streams. So that's how quick we can iterate this portfolio. In addition to that, if you look at RSV, COVID and flu, and you look at the time from the time we started at Phase I till the time we completed Phase III, it took us, on average, 2 years, actually a little less, which is great compared to the standards in the industry. And then from a capital efficiency standpoint, really, this platform, we have -- we will have 5 manufacturing centers across the globe in a couple of years -- actually, in 2025. And those 5 can basically perform what we need across the entire portfolio. So almost every single vaccine, be it in respiratory or latent or rare disease, can go through the same manufacturing footprint. The only thing that's different is INT and that is because it is individualized. So it can still be at the same facility, but some of the production equipment is a little bit different. So we believe that over time, the more we pump through this pipeline, the cost of goods sold for the next drug or vaccine would go down. So we've been hard at it for well over 10 years. Moderna was established in 2010, '11 time frame, and we've been working on the science, the delivery mechanism and the manufacturing. All 3 of those are super important to be able to make this work. And that's what we call -- that's the foundation for the mRNA platform. And we continue to advance that every single day. In our overall research and development budget, we continue to put maybe $0.5 billion into research alone to continue to advance this platform and what's behind it as well as bring new candidates to the market. So then we hit COVID. And all that investment in the platform made us ready to tackle COVID. And I'll talk to you on the next page. You can't do it all yourselves. But in 2 days, in a matter of 2 days, we developed the vaccine. And that's because we had already invested in 9 different vaccines to our data at that point. So all that history and knowledge that we put into it was very useful and it only -- it only meant that it took us 2 days to design the vaccine. And then in about another 1.5 months, we started our clinical trials. And by the end of 1 year, we received authorization. Now we had a little bit of help, because it was a pandemic, but I think that shows you the art of the possible on how quick this platform can perform. We've always been investing in digitization, not just AI, but automation throughout our entire facilities. I'm sure we'll talk about that in particular, with our INT portfolio. And then we made the fortunate decision to invest in manufacturing capacity back in 2018 at a town just outside of Boston, so we were really ready to tackle COVID. But that said, nobody is fully ready for a pandemic by yourself. You don't really have the supplies and capabilities to service over 1 billion doses in a year. So we had to expand not only our internal manufacturing capacity, we created a CMO network with many different partners, 5 or 6 partners, over that time period. and we radically bought forward a lot of inventory. And that led to a very successful 2020, '21 and 2022 with about $36 billion in sales, and in 2023 we announced this morning that we had over $6 billion in sales as well. So over the 3 years, combined $42 billion for that investment. I think this is what was missed though. So a lot of people thought we were a COVID company, but at the same time, we knew COVID was going to go down and we better have a pipeline ready. And so we used that $36 billion, or the extra $6 billion, for 2023, and we put it -- poured it into the pipeline. And if you look at where we stood at the end of 2020, we had 25 development programs, and we almost doubled that over the last 3 years. But if you look at the finer detail and you look at Phase I and Phase II combined, we had 5 back at the end of 2020. We now have 17 at the end of 2023. And that's really the pivot point in the company. So we -- yes, COVID will be around for a while, unfortunately. But it will be part of our product portfolio for a long time. But we are hard at work to bring the next set of drugs and vaccines to the market, which is where I'll spend the bulk of the presentation. So over the 3 or 4 years, we had to make a lot of strategic choices. Back in 2020, it was all about vaccine development and getting our manufacturing ready. In 2021, it was -- we had to get -- we had to scale up, and almost everybody got 3 doses, the 2 primary plus a booster. In 2022, the virus continued to evolve, and so people got different boosters as well as -- we understood and the regulators understood who the high-risk populations were, so it went down to 2 doses. And by 2023, we were fully transitioned to an endemic. And that really meant that not only does the shots per year go down, but the overall volume goes down, which means we had to resize the company. And at the end, really, in the second half of 2023, we spent a lot of time doing that with our partners across the globe. And we took over $1 billion charge, I think about $1.6 billion charge, in the second half of 2023 to resize our footprint moving forward, and we are now set up for volume leverage. We believe we have the right capacity in place to scale the company to at least $10 billion, if not more, and I'll talk to you about where we stand next year, and hit our gross margin target at least of 75% to 80%, if not better. And as you would expect, we want all of our product lines to stand on their own. So the COVID product line is no different. And perhaps in 2023, it wasn't as profitable, but when we look at what -- I'll show you actually, in 2024, the profitability we expect from the COVID franchise by itself. So as we move into the financial framework, I just want to step back for a second and talk to you about our thinking. So you remember that 45 programs that I just talked about. We want to invest behind that. We've been investing behind that for the last 3 years, and when we had $18 billion in sales, everybody understood it. And I think what's different here is we have $4 billion in sales, and we still need to invest behind it. It's maybe not at the same level as we had once anticipated, but we believe we have an unparalleled opportunity for organic growth with this platform, and we are going to continue to invest behind it. So that's the rationale. We're going to use our balance sheet, which we announced earlier this morning. At the end of 2023, we finished with in excess of $13 billion in cash. So we're going to use that cash plus the profitability from COVID and RSV over the coming years and flu and everything that we add to it, to invest in it. So in 2024, we laid this out at the end of our Q3 call. We are reiterating it at this point that we expect sales to be approximately $4 billion. You can see cost of sales at 35%, or gross margin at 65%. Our R&D is essentially flat. It's actually a little bit down versus what our expectation is in 2023. SG&A is flattish, but it's down -- flat to down 10% next year. We still have some capital expenditures. But overall, when you back out some of the development for that pipeline, we actually think the COVID business makes about $1 billion. And at the end of this year, we're going to have about $9 billion. So we are prepared to have losses over the next 2 years. When you fast forward to 2025, we believe we will return to growth. And I'll talk to you about the products that we're launching in a page from now. With extra growth, our gross margin should go up because we'll have better volume leverage. And we are very flexible, at this point, to understand what we want to do from an operating expense perspective, be that R&D and SG&A. So we haven't really budgeted. We haven't really locked that in for 2025. A lot of that -- much of that is locked in for 2024, but we are very flexible. And then our capital expenditures, after we finish our facilities in the U.K., Canada and Australia, should be materially down from the $900 million that we talked about in 2024. So again, we're prepared to eat into our cash, but I think that's where it stops. So we think by the end of 2025, we'll be in about $6 billion to $7 billion, which is about half the cash balance we have right now, and then we plan to break even. We know that we can't do this forever and both through execution as well as execution on our cost, execution on our pipeline, execution on our rollouts, we think we'll be set up to breakeven come 2026. So now to the late-stage pipeline. You can see 9 different candidates on this page across 4 different franchises. So the lion's share of our financials from a revenue standpoint in the next 2 years is in respiratory, and I'll talk through these 4 different launches, which will all launch over the next 2 years. And then you can see across latent and other vaccines or oncology or rare disease, they are fast followers in 2025 and beyond. So starting with respiratory, in 2023, I mentioned that this morning, we announced that we achieved $6.7 billion in sales. $600 million of that -- versus our guidance of at least $6 billion. $600 million of that was related to recognition of deferred revenue that we were not expecting. So really, when you back that out, we achieved $6.1 billion versus the at least $6 billion that we had guided to. So we achieved our guidance. We had a lot of wins and misses across the globe, but one that we're proud of very much is around the U.S. We competed quite hard and did very well with 48% market share. So that's 2023. 2024, as we look to it, I already mentioned the sales, and it will be all respiratory in 2024. We are excited to bring RSV to the market, and we announced that we expect some regulatory approvals in the first half of 2024 which will set us up to actually have sales in 2024. And we're really excited about the product profile. We love the efficacy. We think it benchmarks well. The safety and tolerability is terrific as well as the ease of use. So the fact that it is prefilled syringe versus our competition we think matters from a productivity perspective in all the retail pharmacies and in doctors' offices. And then in 2025, we expect to grow off that $4 billion. So we'll have on the market COVID by then, RSV. RSV hopefully will continue to grow as well as there's further education out there. But then we're expecting to launch flu, our next-generation COVID product which we said we will have additional data on in the first half of 2024 for our next-gen COVID product, which makes it refrigerator-stable and it's very important in terms of an ease-of-use perspective for many different pharmacies and health care offices. And then our combination, which is, in our view, very much a game changer. So this is for flu and COVID. We said we'd have data out in 2024 on this product and perhaps launch it in 2025. But the combination vaccine really helps in 3 ways. One is from a compliance perspective, so it helps payers and insurers understand that people are going to get vaccinated. And just to take the U.S. as an example, U.S. has roughly 150 million people that get vaccinated with flu, and only 50 million people that get vaccinated with COVID. So if it's in one shot, you might imagine that additional COVID shots would happen. And also from a convenience perspective, from a consumer perspective, you got one shot versus 2 shots or 3 shots someday, if you add RSV to that. And then from a cost perspective, the majority of our cost of goods sold is the presentation type. It's either a prefilled syringe or a single dose file, and if it's all in one unit, you don't have 2 or 3, you have one. And it also reduces the cost of implementation from a pharmacy or a provider where it's one shot of labor versus 2 or 3 shots of labor. So we're quite excited in the respiratory business. Will really help with the next couple of years' financials. So now I'll get into latent and other CMV, cytomegalovirus. For those of you that don't know what CMV is, it is the leading cause of congenital birth defects that are transferred from a mother to a fetus. And as an example, in the U.S., there are 12,000 to 20,000 babies per year that are born with birth defects. It's been addition for a long period of time. There is no vaccine available today, and we are in a Phase III trial. That Phase III trial is fully enrolled. We said at our R&D Day in September of last year, in terms of getting to the first analysis from an efficacy perspective, we were about 25% the way there. So this morning, we said, look, we don't control it, but we believe we might have an efficacy readout in the year 2024. So that's an exciting milestone to look forward to. In case of INT or individualized neoantigen therapy in oncology, we've released terrific data around adjuvant melanoma in terms of the fact that it's very durable. We recently released in our Phase I/II trial that after 3 years, it improves the risk of recurrence by almost 50%, 49%. So we are quite encouraged by that. And as a result of that, we have started and are enrolling 2 Phase III trials, both in adjuvant melanoma and in non-small cell lung cancer. And then I think the news is, and we've been saying this for a while, is we want to rapidly expand into additional clinical studies. This is in combination with Merck, who presents after us, in addition to KEYTRUDA. So we think of it as, if you go through the KEYTRUDA portfolio, we'd like to add to that and bring additional products to market. And then finally, in rare disease, we have a portfolio of about 6 candidates in the pipeline right now, primarily in the liver. There are over 1,000 potential rare diseases of the liver. But right now, we've advanced 2 that we expect to move into a pivotal trial in 2024 and in the rare disease world. That's basically the final step before commercialization. And then across those 2 candidates, I think we have almost 20 years of cumulative patient experience on it, and so we're quite encouraged by that. So if you go back to what I said in terms of the fact that at the end of 2023, we have 7 Phase III trials and 10 Phase II trials. Those 7 are the 4 in respiratory, CMV and the 2 in INT, but soon, we would expect PA and MMA to essentially be a Phase III, although it's called a pivotal trial. And most importantly, I think that's why we believe that this is a platform that is set up for years of organic growth. So yes, 2024 will be a low point of approximately $4 billion, which is obviously down from the $18 billion that we've been experiencing over the last 2 years. But from here on out, we've invested in a pipeline that can continue to bring new drugs and vaccines to the market every single year. So we said RSV this year, flu, COVID and the combination vaccine in 2025, and then maybe some of these drugs on the bottom will come out in 2026. So we really believe we are set up for organic growth for the next handful of years, and then a pipeline that will come quickly behind it. And this is what gives us confidence to invest so much in R&D. And this is what I mentioned at the outset, which compares our success rate, our actual success rate, by phase versus the industry standard. And if you look at Phase I, our success rate over our portfolio has been 68%. The industry has been 35%. It's almost 2x. In Phase II, it's 3x, at 78% versus 27%. In Phase III about on par, but if you look at that, there's actually a couple of flu candidates that ultimately got there. So we had 3 Phase III flu trials, P301, 302, 303. If you -- in fairness, 301 and 302 didn't get there, and that's why we are at 67%. All 3 programs, RSV, COVID and flu have gotten there. And so that's what gives us confidence that this pipeline is coming, and then it's up to us to execute, which really is what I hope you take from today. So the platform, in our view, is very much working, and this is now all about execution by us. And in 2023, I think we did a good job. We achieved what we said we would in terms of $6 billion, and we grew share in the U.S., but we can do better. And in 2024 through 2025, we've laid out how we will be financially disciplined -- through 2026, I should say. How we will be financially disciplined to invest but bring this late-stage pipeline to market. And that's -- this is what I walked you through in terms of just those 9, and there's clearly more than that. I think it's exciting for 3 reasons. One is that it's imminent, from a time line perspective. These products aren't coming 5 years from now. These products are coming 1, 2, 3 to 4 years from now. Two is that it's sizable, both from a financial perspective and from an impact on lives perspective, and the financial perspective is the $10 billion that I talked about. And then three is it's diverse. So quite often, we're perceived as a COVID company, and I hope everybody takes away from this presentation that we are far more than that. And in a matter of 2024, we will launch our second product. I think we'll be a much bigger respiratory business over the 2 years, and then we will add to it latent viruses, oncology and rare. So in closing, this is our mission: deliver the greatest possible impact to people through mRNA vaccines. I will tell you this is what fuels our employee base every single day. And I joined a little over a year ago, and I could sense it from the outside. But after being here for a little over a year, I can feel it every day. And I want to thank them for their passion, for their excellence, for their dedication to this mission. So big thank you to them. And then lastly, thank you for your attention and to our investors. Thank you for your trust and support, and I think we look forward to continued collaboration around our fulfilling this mission over the coming years. So thank you.

Great. So thanks so much for that presentation. And as a reminder, if you have questions you want to submit to the portal, I'll get them up here. But maybe to start out. You mentioned the potential for your COVID business to still deliver $1 billion of operating profit, which I think implies $1.5 billion of OpEx for the COVID business. I'm curious how much of that is variable and how much is sort of like recurring R&D you need to update the vaccine, i.e., could that business maybe become more profitable over time?

Yes. So I would say it depends on what you consider. Let's go through the cost categories. So I think what you're backing into there is, obviously, all of our cost of sales, which is 35% of the $4 billion, is COVID and RSV right now in 2024. And we have a footprint. So that footprint we -- is there for leverage, good or bad, and there's, I would say, hard to give an exact percentage, but a large portion of that is fixed now. Maybe it's 50% of that is fixed or 40% of that is fixed. But then we will have additional raw materials and presentation types via vial PFS, so 50% to 66% is maybe variable. Then when you move to the OpEx side, I mean you always need some amount of OpEx for running the business, reporting the business, making sure that we have SEC disclosures, et cetera. We obviously need a commercial team in that, but that can flex a little with how successful we are. Commercial and marketing is perhaps half of that overall SG&A bucket, and so we would expect that it is able to flex some up and down. And then on the R&D side, the R&D side every year now, particularly on COVID, it's mostly about understanding the next variant. So it's not that expensive. It's still in the $100 million, $200 million from a maintenance perspective, but it's not several hundred million dollars. And that's breaking out next-gen COVID into a different category, which is going to have to stand on its own. So when you add all that up, maybe 50% to 66% variable, and the rest is kind of fixed.

Okay. And you made a lot of progress on the market share front in 2023. Is there more room to run there? And how do you think you did that?

Yes, there's always room to run, but we obviously have a tough competitor. And the way I think about it is I think we've proven ourselves. And I think, first off, if you look at the value of our product, 2023 was the first time that we could actually promote our product. We believe we have best-in-class efficacy, and we are excited about how we have a prefilled syringe, and I get back to that productivity within a pharmacy or doctor's office, and I think that's important. And then we are pretty agile. It's our only product, so we service our customers quite well. So I think that sets us up to hopefully do more. And I think over 50% is clearly there, but I think we're in a -- it will be competitive for years to come. But I don't see us going back to where we were last year, which was at 37%. I think we've proven ourselves, and I think moving forward, it can get better, or there's going to be years that it might be a little less.

Okay. One of the parts that's harder for us to track in this market is kind of the ex-U.S., and there's -- most of the world is outside of the U.S., so it's tricky. How do you perceive the level of demand for Spikevax outside of the U.S. sort of in 2024 and going forward?

Yes, I think every market is going to mirror what's happened in the U.S. over time. So the U.S., what do I mean by that? The U.S., as was every country, centrally procured. And you've seen the U.S. move to an endemic or AKA commercial market where you have to compete. And I think in the year 2024, that's going to be similar. So there'll be markets that are still globally or centrally procured from a country perspective, and then there'll be markets like Japan, who we believe will move into a more commercial mode. And that will change the way you have to compete, but overall, that's what I think we should watch for. And then in terms of the vaccination rates, we've seen a couple of years of what I'd call relatively stable behavior. It's down a little bit in 2023 versus 2022, but we're planning on -- we now have 2 data points that are pretty close to each other that, that's kind of what we're planning on for next year or the foreseeable -- at least the short term. There's ways it can grow over time, but for the short term, that's what we're planning on.

Got it. So that kind of takes me to my next question. As we think of a return to topline growth in 2025, I'm curious what that embeds for COVID? And is COVID returning to growth? Or is this growth from other products?

Great question. Our assumption is it's growth from other products. So we do not anticipate -- I mean, we still hope that COVID can grow over time. And I mentioned in my presentation how combination vaccines, as an example, could really increase the vaccination rates of COVID. And then there are, I think, obviously, the politics behind it as it gets away from it, who knows, and strain evolution. But -- and even at the end of the day, maybe the last thing before I go back to it is if you look at hospitalizations and deaths and the health care burden of COVID, it's far worse than flu. And so it just doesn't logically make sense to us that right now, it's a fraction of flu from a vaccination rate perspective. So back to your question, we're expecting stable COVID and the new products to have us return to growth.

Got it. So maybe kind of switching to the new products. What's your plan to compete in RSV?

Yes. So I mentioned -- I mean, we are very pleased with our product profile. So number one, we believe we have best-in-class or thereabouts efficacy. From a safety and tolerability standpoint, we haven't seen Guillain-Barré syndrome, and we had 37,000 patients. That's not to say that it can't happen, but to date, it hasn't happened. And we're the only ones with a prefilled syringe. So I think there, you say you have a great product profile to start. Then you look at, okay, well, how did we compete in 2023 in COVID? And it's going to have to be similar. Particularly in the U.S., I should say. And so now we're bringing a second product through that same channel to actually help expand our share in that market overall in 2023. And then the last thing I'd say is internationally, we're looking at regulatory approvals to understand, okay, if there's a tender, when should we get that launched by? And we won't be able to make every single country all the time. It takes a lot of resources. It will take some time to get through all the global approvals. But we're prioritizing those to make sure that we look at the size of the market, when is the tender process, and roll out our regulatory approvals as best as we can.

Sticking with new products and flu. I think you mentioned filing flu in 2024. What's gating to that filing at this point?

Really just working with regulators on the package. So we're still in conversations with them to file a package for submission. But at this point, knowing that it takes a while, we don't anticipate any flu revenue in 2024. So it's all now in 2025, but we're working with regulators to make the final submission.

Can you get approved in time for the contracting season, for the 2025 vaccination season?

TBD with regulators, but obviously, that is what we are hoping to do.