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

Great. Welcome, everyone. My name is Jess Fye. I'm a biotech analyst at JPMorgan. And the next company coming up is Moderna. The company is going to give a presentation, and then we're going to go into Q&A. [Operator Instructions] But with that, let me pass it over to the company's CEO, Stephane Bancel.

Thank you, Jess. Good afternoon. Let me start by reminding you that we'll be making forward-looking statements, and you can find those statements on the SEC on Moderna's website. Today, I'm going to start by talking briefly about the Moderna platform. Then I will recap 2024, and then we'll go into the future, our objectives, our outlook and important milestones for the year. We started Moderna because we were very intrigued about the possibility to have mRNA as an information molecule to make protein in vivo in the human body. We thought if this was possible, we will be able to make a lot of medicines that can now be done using recombinant technology. We thought, because we use always the same chemicals to make the mRNA, that we will have a much higher R&D productivity. We thought if we could industrialize this platform through process development and manufacturing, we could go much faster than recombinants. And we thought that because we make other products in the same reactors, we'll have greater capital efficiency. And so from the get-go, we set up our vision to build a platform, the tools, systems, processes to be able to invest in mRNA science, invest in delivery systems, invest in manufacturing to be able to get many, many medicines out for patients and creating value for shareholders on the way. One of the things that has panned out to be true from those beliefs we had in the early days is that if you look at the last 10-plus years of company existence at the difference of probability of technical success of Moderna in red versus the rest of industry in blue, you can see that in Phase I, we are consistently much higher than the industry. Phase II, consistently way higher than the industry and Phase III a little bit higher. And if you compound those numbers and you look at the probability of an asset to go from Phase I to approval, we're actually 6x higher than the industry average, which we think is a very important benefit from a value standpoint of this platform. If you recap quickly 2024, we said in terms of sales, we will achieve $3 billion to $3.5 billion of sales. In terms of actuals, we announced this morning, we should be on the low end of this $3 billion to $3.1 billion once the team finishes auditing the number. Very importantly, in cash, we said we should finish the year with $9 billion of cash. And I'm very thankful and very pleased to announce that thanks to the hard work of the team in terms of managing expenses, managing CapEx and also managing working capital, we're able to finish the year at $9.5 billion of cash. The other thing that we delivered during the year was, of course, the approval of RSV, our second product in the company history. We had a very busy year in terms of clinical readout for Phase III. We had 4 Phase III positive clinical readouts. And the first 3 on that list have actually been filed to the FDA. I'm also very thankful for the team that have accomplished, in only 3 months, 3 BLA filing. For a company our size and with our track record and history, this is really an amazing accomplishment by our teams. And then if you look across the pipeline, we still have multiple positive data. We had positive data in Phase I/II in norovirus, in EBV, in VZV, and I'm very pleased to report that norovirus is now enrolling in the Phase III study. We could have readout in '25 or '26 based on cases. We've showed some very exciting data in terms of duration of our INT Oncology product combined with KEYTRUDA with now a very exciting 3-year data that's actually better than the 2-year data. And we have also showed some early intriguing data in Phase I/II for our checkpoint vaccine, a PD-L1 and IDO1 vaccine that has been presented at ESMO earlier in the fall. Also, our rare disease program, PA and MMA that are both metabolic disease. Now PA is actually -- we've announced this morning, currently recruiting patients in its pivotal registration study, which is exciting for patients, because today, there is no drug available for patients with PA disease, it's a metabolic disease. And MMA should be dosing in this pivotal study soon in 2025. If we look forward, what we shared at R&D Day in 2024 is that our 3 priorities are pretty clear. The top priority is to drive revenues based on the approved products, COVID and RSV. But we have been investing heavily over the last few years, in a very broad pipeline, to diversify from COVID and to drive sales growth again. And so we're really focused on the 10 products that we have the opportunity to launch over the next 3 years. And also, we are very focused on driving cost efficiency across the entire company, and I will come back on those 3 topics. So first, in terms of sales, what we saw in 2024 is a stabilization of the COVID market. If you look at the COVID market, and we only have the data in retail right now, but the U.S. retail market was actually down 7%, which is much less than in the past. But what is very important for us is that what we think is the recurring business of the 65-plus, people at the highest risk of COVID, as you can see, was only down 2%. So there's good hope that we're getting to the bottom of the COVID market in the U.S. The 64 and under, as you can see, was down 12%. We are entering 2025. We have, actually, 2 products to be able to provide to our customers as we go into negotiation for the fall of '25. And we are getting RSV approved in more and more markets outside the U.S., giving us the opportunities to increase sales in those geographies. Tomorrow, we -- today, we communicated that guidance for 2025 is $1.5 billion to $2.5 billion compared to the $3 billion to $3.1 billion that we achieved. I think it's important to start by normalizing the year. We communicated, in 2024, that we had around $200 million in the U.S. that was due to returns that we reserved in 2023, because it was the first year that we are a commercial company, and it was very difficult to estimate how much return we're going to get. And then internationally, because of change in demand in vaccination in our key countries, there's around $400 million for advanced purchase agreement that is also not going to be recurring next year. So if you take those out, you actually look at the high end of the guidance, it's actually a flat year. But as you all know, there are a lot of uncertainties right now, and we wanted to reflect that with a wider guidance. There are uncertainties on vaccination rates. There's uncertainty on competitive environment and market share. There are uncertainties in terms of the timing of our readiness of our factories in the U.K. and Australia. Depending on when those get approved by local regulators, we will have sales of different levels because, of course, they will still have to order products, but it will be through a tender process. And so this we will see as the year evolves. And for RSV, of course, ACIP recommendations are going to be really important to see what happens to the RSV market. There are some upside, of course, as well in terms of vaccination rates. There's some upside in terms of market share. And one upside also in terms of new product sales. As I just said, we filed 3 products to the FDA, so we could have up to 3 approvals this year. But depending on when they happen, which, of course, we don't control, we've decided to not put any new product in that range of the guidance. The priority #2, of course, is to drive sales growth by launching new products. I mentioned the 3 that we filed in 2024. There's still quite a number of readouts coming that are going to be exciting this year and next year for us to be able to launch those products. Let's now talk a bit about costs. And I think it's important to start by saying that for the company, managing our cash has always been really important. Of course, during COVID, we had to focus on speed for obvious reason of saving as many lives as we could, and we could never compromise on quality. So cost was not a high priority as we had to execute at a very high speed. But as we are going down to an endemic market, the team has been now, for more than 18 months, very focused on reducing costs. And as you look at cash cost, it's important to see the difference between GAAP cost and cash cost. As you can see here on our '24 estimate, you have GAAP cost of around $7.2 billion, but cash cost at $6.5 billion because of stock-based compensation, depreciation and amortization. So it's quite a significant difference. So let me tell you where we have been and where we are going. If you look at the data, we had around $9 billion of cash cost in 2023. This year, the estimate, we will report, of course, the number on our Q4 earnings call is that we should be around $6.5 billion based on how the first 3 quarters are trending of cash cost estimate for the year. We announced this morning that because of this uncertainty on the top line that we are seeing in '25, we thought it was responsible and prudent to get ahead of this risk and to reduce our investments into the company just in case we end up at the low end of things. And so we announced we are already taking a lot of actions across the company across R&D, in terms of portfolio, in terms of productivity projects, manufacturing, but also SG&A to reduce our cash cost this year. And because some of those savings will come in the middle of the year, we estimate that there's an additional $500 million of cost savings that will happen in '26 based on the work that is going to happen in '25 when you bake in a full year. And that is really important for us to be able to have a cost structure of around $5 billion in '26. If you look at how we are managing the $9.5 billion of cash that we got at COVID proceeds to invest in the business, to launch new products, to diversify the top line, to grow the top line, we basically reduced our net use of cash over the last few years, and we intend to continue to reduce that as we launch new products and get to profitability in 2028. One of the great opportunities we have is to really bring a lot of products to patients. If you look at the company's pipeline, this is really the late-stage pipeline. I remind you, we have 45 products in the clinic as we speak. But as I said in our priorities, it's really focusing on those products that we could launch in the next couple of years. We are trying to build a pretty unique respiratory franchise with COVID vaccine, RSV vaccine, flu plus COVID, flu vaccine as well to have a very, very robust franchise. We're also investing in latent virus vaccine against CMV and earlier in the pipeline against other viruses. So our norovirus, which is now in Phase III, could be the first and only product to market for a while given the -- [ all ] the vaccine status in our company's pipeline. We think there's a very large unmet medical need for norovirus. And also in terms of bundling ability with our China, with the retail China. We think it will be a very important asset to bring to them in terms of driving their growth of their net income. Of course, we're all extremely excited about cancer, and we cannot wait to have a Phase III data on our melanoma study combined with KEYTRUDA. As I said before, the Phase II data was really exciting. We have enrolled in only 14 months around 1,000 people around the world. It was a great endeavor by the team, and we're looking forward now to get that data. From a manufacturing standpoint, because those products are individualized, we've also invested and have a plant that will not be in the critical path of launch. So as soon as we get the data, hoping it's a confirmation of our Phase II, we'll be working really hard to prepare, of course, a BLA and to file this for approval. If you look across this portfolio, there is a TAM of more than $30 billion that we can address for some of them, like I mentioned, norovirus, CMV and others with no product on the market. And those products will also be a very nice commercial combination with the product that we already have in terms of medical and sales and marketing infrastructure. Also, the rare disease will be interesting product because we don't need to build new factories for those rare disease, again, because the platform will be done in the same factory. Once the R&D cost is behind us, the cost of sales and marketing, as you know, will be not very high. And so that's going to be also very interesting for patients, but to create a return for shareholders. So the key milestone that we are looking forward to, of course, is the potential for the approvals for the product that we just filed in the fall and a very interesting year with the CMV Phase III readout. We have been told by the DSMB that we need to keep going on the study to go to the final efficacy readout that should happen later this year. We have a Phase III for seasonal flu and for norovirus that could read out this year based on cases. If we don't have enough cases, they will read out next year. I mentioned the INT Phase III and the PA and MMA. They have agreed with FDA endpoints, medical decomposition event -- metabolic sorry, decomposition event for PA. There's a biomarker endpoint agreed with the FDA on MMA. And so we think that now with PA recruiting patients in pivotal studies and MMA going to be recruiting very soon, we should be getting data actually pretty quickly. So if you look at the key takeaway of today is that we achieved $3 billion of sales. We got our second product approved. We're able to restructure the business and file 3 BLA during the year. Our 3 priorities are really what is driving our roadmap and the entire team is very focused on this. And there's going to be quite a lot of catalysts and milestones happening this year between the Phase III readout and the potential approval. So with this, Jess, I'll be happy to take your questions.

Thanks for the presentation. I don't know how to ask this without asking it sort of bluntly, but how conservative is your new 2025 top line guidance? And what changed so much relative to when you last gave us those numbers that it's changing by $1 billion today?

Sure. So there's a lot of factors. As I mentioned during my remarks, if you look at the $2.5 billion, it's basically the normalization of the $3 billion to $3.1 billion numbers that we see for 2024. And then there's a lot of uncertainty, some that were not clear before the season before we gave the numbers, like RSV is a good example. I mean the RSV market is much lower than we thought. The competitive environment has been much tougher on COVID. And then some countries have changed guidelines of recommendation. I mean there are countries where you used to have recommendation, 65 plus that now have moved to 75 plus, not in the U.S. but outside the U.S. So you have quite a number of parameters like this that have changed. There's, of course, uncertainty on what will happen to vaccination rate. And so we also didn't want to include the new products because we have learned from the RSV launch last year that including the new product forecasted sales in the first year is a very dangerous endeavor. So we learned from that mistake, and we didn't do it in the guidance for next year. So these are some of the factors that we took into consideration to have a guidance that we can deliver on.

Okay. When you talk about competitiveness in the COVID market, does that mean price? Or share?

So a bit of both, so there's been a lot of pressure on price in 2024, in the U.S. Share has also reduced versus '23. We think a lot because of price, but also bundling. If you think about Moderna compared to a lot of our competitors, we were in 2024 during contracting season in Q1 or Q2, a 1-product company. And so a lot of our competitors in a different field where we are, are able, with the retail channel, to bundle products, to provide discounts for bundles that we're not able to provide. So one of the things that we're excited, if you look at '25, but especially '26, '27 is you're going to have potentially a next-gen COVID with a higher efficacy that should be able to help because there's been nobody else with such a product. We talked about, potentially, the flu plus COVID combo, also the norovirus. So if you look again at the next couple of years, we should be able to be quite an attractive partner to the retail channels, helping us then driving growth. If you think about it, this is how we drive revenue growth. See, if this here is not moving for the market, it's not helping them. It's not helping us. So we think this is going to put Moderna in a quite different competitive position over the next couple of years.

Okay. It also looks like you've been able to identify more expense to pull out of the cost structure sooner than expected. And if I recall in the past, I think you had characterized, at least 2025 and maybe even the next year to an extent having less flexibility in the cost structure. So how are you able to do it? And were any products paused or shelved to achieve that?

It's a great question. So it goes back to what we have been saying all along, which is we want to invest the proceeds of COVID during the pandemic to build shareholder value, to bring new products to patients for the mid and long term. We don't think keeping the cash in T-bills is going to be the way to create shareholder value. And we know the platform works. I mean if you think about it, for many, many years in the company history, in the early days, we didn't know. We believe the platform should work, but we didn't know. Now we have 2 products approved. We have 4 positive Phase III. So we know the platform works. So we think the best thing we can do for shareholders is to invest their capital to drive new products and to drive new products and to drive value in such a way. But at the same time, we also say that we're going to be very careful and disciplined about our cash burn and our investments. And so because, as we realize through the fall, those changes and the uncertainty that we have that I've just described, because there is a possibility that we will be below the $2.5 billion, we needed to get ahead of it, not behind it. And so what we discussed with the team through the fall, looking at the top line that I just described and the budget, and we discussed with our Board when we presented the budget to the Board is to say we have to get ahead of this just in case we are in the midpoint of the guidance or in the low range of our guidance. We cannot pedal back after and we need to get ahead of this. And so we looked across the entire P&L, both in terms of R&D portfolio, i.e., prioritization. We're also looking at it in terms of productivity. Same thing in manufacturing. There's still a lot of things we can do in terms of manufacturing productivity. And same thing in G&A. So we're looking at everything also on the CapEx. There are some projects that we wanted to do that we say, look, we're going to wait a bit before doing those projects. The plant in Canada, U.K. and Australia, as we spoke about, are almost finished. So we're just having the tail end of that. The Norwood plant is finished. As we said, the plant for the cancer, the INT product, the personalized, individualized product is also mostly done. So the CapEx also is coming down. And the team is doing also a lot of work with suppliers in terms of pricing renegotiation, in terms of working capital. So the team is really working on all the levers that we have because every dollar matters, and we want to have those dollars to invest in the business and of course, to be as efficient as we can.

Got it. So I think the 2028 breakeven guidance, I think you had kind of penciled in a $6 billion top line for that year. But now if we're talking about OpEx materially lower than that in the short term, should we think about the '28 kind of required revenue being lower? Or do you still kind of see the products stacking up to $6 billion of revenue in '28 even with the pullback on that?

Yes. So it goes back to the fact that we want to be responsible and disciplined and careful. As I said, we've run this company for most of its history, being extremely focused on cash and runway. You have the same Chairman, you have the same CEO, you have the same President of the company. You have the same leadership that has gone through building this company. We made 1 mistake, which is -- I mean, we made a lot of mistakes, but we made 1 big mistake, which is we were too rational about the vaccination rate in the U.S. and the way it was going to transition from pandemic to endemic. If you think about it, last year, in the U.S., in the 65 and above, you had 3x more people hospitalized of COVID than flu, 3x, not 2%, 3x. But yet, the vaccination rate of COVID is significantly lower than flu. It doesn't make any logical scientific sense. Well, we were most probably too logical, too scientific, and we were wrong. But we learned from that, which is reflected in the guidance, and we are also reflecting that into our cost structure. If I had this information 2 years ago that we should not be rational, that people at high risk, like 65 and above will get more vaccination because of the risk of high hospitalization, we'll have reduced the investments earlier. But that's one of the mistakes we made. We were too rational. I think we're not the only one, but we were too rational it. So we learn from it and we move forward. We need to learn from our mistakes.

Okay. You also updated us on the interim for the CMV Phase III trial. And I think in the past, you had suggested that the final data could come mere months after the interim. Is that still the right way to think about when we could -- next year on that study?

That's correct. So if you look at the number of cases required for the first analysis, which just happened to the final analysis -- the second and final analysis, it's not a lot of cases in difference. And so if you look at the -- as you know, those studies when they enroll, there's an acceleration in enrollment. So it's not surprising that you should be able to accelerate the number of case readouts. And so we confirm that based on where we are now in the cases we are seeing, we should be able -- pretty rapidly, not weeks, I'm talking months, obviously, be able to get the data. When we get the information from the DSMB, like we've always done, we will share it publicly.

Okay. What about INT? So you've completed enrollment now for the Phase III for melanoma. When can we hear that data?

Yes. So we completed the enrollment around September. The Phase III started in July 2023. So the teams, across the board, with our colleagues at Merck, did a really great job to get this done. As you know, we have to manufacture every product for every individual. And if you look at the Phase II data, you started to see separation from the KEYTRUDA-only arm at around 12-plus months. So if you just play the calendar forward, 2026, it's tough to be precise on when because, again, it's case driven, but 2026 should be when we get the melanoma Phase III data readout. As I said, the plant will not be in critical path. The plant could have been on critical path for the potential accelerated approval, but because we're going for full approval now, of course, the plant should not be critical path. And so we're going to be waiting, like all of you, for the data. And hopefully, if we get data confirming the Phase II, we will be filing the data with our Merck colleagues as fast as possible and getting the product to patients. Because we think the benefit could be really substantial, as you know, the data at the 3-year mark, 2 out of 3 people have no distant metastases, which, of course, is the leading cause of death is metastasis. And so we think this product with no incremental toxicity compared to KEYTRUDA, which people are going to get anyway. So when you think about a risk-reward standpoint, you have a product where 2 out of 3 people could be 3 years out with no distant metastasis, with the same tox profile of KEYTRUDA alone. And so we think that this is a product that is going to benefit a lot of patients. And so we are really eager to get this product to patients as fast as we can.

Okay. And what about the other INT trials, for example, the Phase III for lung or -- kind of, is there anything that we could learn before we flip the card on the Phase III melanoma trial, anything in '25?

So because all those studies have all enrollment curve and they're all timing to read out, it's really hard to predict are we going to get or not additional data from those studies before we see the melanoma Phase III. Like we've done in the past, when we'll have data, we'll share it at medical conferences. We have done that consistently. But at this stage, it's really hard to predict precisely when we're going to get those data.

Okay. But when you get melanoma, we won't be waiting on manufacturing.

No.