Novavax, Inc. (NVAX) Earnings Call Transcript & Summary

Welcome, everyone. This is Roger Song, one of the senior biotech equity analysts at Jefferies in the U.S. Next presenter company is Novavax, and welcome John, CCO and the CBO and the Filip, CMO. Yes, in the next 25, 35 -- 30 minutes, we have this fireside chat to talk about Novavax, the platform, the pipeline, very exciting launch for the COVID vaccine. Let's get to it. All right?

So maybe let's get started. We know Novavax is a vaccine company, long-standing vaccine company. What are the key technology you have? And why we -- your vaccine can be differentiated from other vaccines?

So maybe I'll start off with that. So we have one core technology that we deploy against all of our target diseases. And it's a recombinant protein that's made in baculovirus. And that's important because as this is made in insect cells, the glycans, the sugars are very short on the outside of recombinant proteins. And that allows, we think, additional access to the important epitopes to the immune system. And we formulate it as a particle. So that looks to the immune system like a little [indiscernible] virus. So it's processed in the natural way. And then, of course, we have our adjuvant, which is saponin-based adjuvant. And the hallmarks of that are that it generates a kind of a profound neutralizing antibody response and a polyfunctional CD4 T cell response. So that's pretty much exactly what you want if you're trying to neutralize viruses.

Got it. And so we have many other vaccine technology platform, particularly mRNA and some other protein-based technology. So how you will say your -- this particular nanoparticle and the protein-based technology has some kind of differentiation? And what are the key advantage and maybe pros and the cons compared to other technology platform?

Yes. So one of the important differentiators is our storage and handling conditions. So for our current vaccine, we're at 2 to 8 degrees for shipping, storage and use. And that makes it a small carbon footprint and easier to manage. When you give it from a performance perspective, what we've demonstrated is a very durable immune response and one that's very broad. So our initial Phase III studies, the majority of cases were actually caused by variants. And our [indiscernible] efficacy was over 90% for both of those studies. So we demonstrated it works against variants. And when you look back at our flu work, which was done in the face of drifted H3N2, it's the same story. So whether you're talking about drift variants of flus, or variants for COVID, we've demonstrated this technology is capable of inducing immune responses that are relevant for those kinds of drifts.

All right. Great. And we now just talk about the science in the platform and the John is here, your COVID vaccine already launched globally. And I think if I count this right, almost like a $1.7 billion sales already booked for you. And just tell us the -- maybe to start, what did the launch look like so far? And what do we expect for the next?

Yes. So it's -- 2022 has been an exciting foundation laying year for the company in building up with all of our regulatory approvals and authorizations around the globe, over 43 countries now, including a WHO Emergency Use Listing and shipping around the globe. I think it's important to understand that this has been a significant effort for a company that back in January of '20 when the pandemic was first identified that we started with no manufacturing capacity, had to build that out, had to build out a commercial organization. We're an innovator. And so we had this technology platform that Filip was describing and had to leverage that innovation into vaccine development programs and large-scale scale-up. And we've done that at this point. So now we're beginning to see this transition from the pandemic period into this endemic more commercially oriented period of time, where I think that's going to phase-in, in a variety of ways. In Europe I think we're going to see that phasing in over time with continued procurement by the European Commission. The U.S. is going to be probably slightly different in a anticipation that they might be dropping their public health emergency and therefore, going to a commercial sale of product sooner. So that means that we have access into that market more easily and can demonstrate that differentiation of our product directly to the health care provider. So we're, in many ways, eager for that to happen, and we'll see that transition happening around the globe through '23 and then through '24.

Okay. Great. Maybe we can just be a little bit specific, separate this year versus next year maybe onward. For 2022, in the recent 3Q, you did reiterate the guidance for $2 billion, invest all with -- curious how confident you are about this number and how you will be able to achieve that number?

Yes. So guidance is always a little bit tricky in this changing environment, right? It's all a bit unpredictable. The solid basis for our guidance is on our advanced purchase agreements that we've had since the beginning of 2021. But there's a lot of changing pieces here. And so we're doing our best to kind of keep the investment community updated on what we think that revenue guidance is going to look like. So we're reiterating the lower end of what was the original $2 billion to $2.3 billion. Next year, I think it's way too early to tell about what that means. But we have a number of APAs that are still in place. We have certainly a high confident expectation that we'll see substantial revenue coming from the U.S. market. Ongoing relationships in Europe, U.K., Australia, New Zealand, Canada. And so I think we're continuing to build, right? We didn't have that revenue or selling of doses bumped during the pandemic. So I think you're going to see a little -- a lot more consistency of revenue generation coming from Novavax and a build in confidence based upon the labeling, right? So we've had significant improvements in our label, adult boosting, heterologous boosting, adolescent, we've got adolescent boosting that would be coming. We've got a pediatric trial that's underway. So I think there are a number of very positive activities that are happening around the globe to support ongoing revenue generation. And I think the consensus in the marketplace that we're going to see this becoming an annual vaccination. The virus is not going away. We're going to see the need for an annual vaccination, it's going to look a whole lot like the flu market with potentially the need to look at what strain is circulating in any particular year. But I think the consensus is also that it's going to be larger than the influenza market, right? Influenza market today is somewhere between $5 billion to $8 billion globally. Reasonable expectations are that this is $15 billion to $25 billion on an annual basis globally, if you look at all of the markets around the globe. So I think the future looks bright for us, and we're going to see that building over the next 12 to 18 months.

Awesome. Yes, we are aware of this kind of uncertainty, this environments. And I think we're not asking for specific guidance for next year or the future. But just in your view, given your vaccine profile, how do you think Novavax vaccine, COVID vaccine will play in the future market? Let's say, we entering this private endemic vaccine annual booster, and your vaccine and in terms of the market share and what are the key drivers to give you the confidence you will take the meaningful market share in the future marketplace.

Yes. Again, you look, there will be a COVID market every year. I think there's going to be a significant COVID market. I think our ability to capture market share is going to be dependent upon our differentiated characteristics, some of which Filip has already talked about. I think our novel Matrix-M adjuvant, our saponin-based adjuvant is pivotal to the differentiation related to durability and protection related to cross-strain protection, related to the benefits you would get from efficacy. We have a data point from one of our trials that demonstrated 82% efficacy at preventing infection, not the reduction of moderate-to-severe disease, but the actual blocking of infection. I think that that's a critical differentiating factor. So you have all of these product profile differentiating characteristics. We're also building a commercial organization around the globe now. So that organization is now in place in Europe, in place and growing in U.S., Canada, Mexico. Similarly, in the Asia Pacific region, we have a team of people that are working already in Australia. We're going to be creating a commercial hub in Singapore. So therefore, with that in mind, we don't want to just have one product in the bag, right? We want to have multiple. So that's the reason why we're looking at our influenza program, our influenza combo program with COVID and then certainly other vaccine candidates that we're looking forward to that are building in our pipeline, including RSV, right? We've learned a lot during this COVID period about the construct of our antigen, about the use of our adjuvant. If you remember, that RSV trial that failed its Phase III was a single dose, not adjuvanted, okay, lesson learned, right? It needs to be adjuvanted with Matrix and it needs to be 2 doses. We're likely going to see that going back into the clinic at some point soon and getting a signal. Now that's in the face of some really good RSV data that's out there already. But I think we can make a compelling case as to why the effectiveness and safety profile of our vaccine would be worth pursuing. So more to come.

I mean when I think from a science view, if you're in truly an annual vaccination campaign, so what do you need? So you need durability. And then you can never guess which variant is cropping up next. So you need a technology that provides a very broad immune response. So we could chase the current variants. People are making BA.5s, but now it's BQ.1 that's causing disease. So what you really need is a technology that's capable of inducing immune response, that's going to be relevant for what evolves next and what's causing next. So for a annual vaccination scheme, I think that the technology we have is actually quite suited for it. So we'll gather the data and show you.

Yes. I do have some kind of this variant-specific vaccine question, just in a moment. Maybe just one more question for John. In terms of the APA, I know we are in the transition period, right? So we are still in the pandemic government-driven public kind of player and APA. And do you -- if I count this correct, you have like almost 200 million doses for the APA, you delivered 35 million in the third quarter and potentially given the guidance, maybe another 15 million in the fourth quarter. So you have 150 million doses for APA left. So how should we think about these doses as we're entering from the, transition from the pandemic to endemic next year, maybe 2024?

So it's a great question. And what we're seeing and how that's going to play itself out is the shifting to this annual vaccination program. Again, a lot like influenza and that you have a southern hemisphere season that we're -- as we enter into '23, you're going to see the fall campaign for Southern Hemisphere kicking in. So there's a product shipments in front of that, just like there were product shipments in front of the Northern Hemisphere, that booster season. I think -- so you're going to see the effects of that as you begin to -- the APAs begin to shift and align with where the vaccinations or the timing of those vaccinations and when they are occurring. So you'll see this South America, Australia, New Zealand product being shipped and then back into the same sequence as we saw this past year.

Got it. All right. So the timing wise kind of Southern Hemisphere, is kind of in the first half, maybe in the second half, we can start to see the...

Yes. So there's been an ongoing really solid relationship with all of our country partners, right? So all of the governments are purchasing and some of them are going to stay in their national immunization programs and continue to make government purchases. Some of them are going to transition from some percentage of government purchase to some percentage of private market, and those are different all around the globe. And so that's a little bit of the challenge is, how much of that APA is left? And our relationships with every single one of those governments has been really strong and is not changing. What is changing is the timing of some of those shipments. So as we've talked about before, is we're seeing some of that pushing out from '22 into '23. And then some of those shipments are going to be sequenced relative to the seasonality associated with the vaccination programs.

Got it. Okay. Great. Coming back to you, Filip. So definitely related to the recent data you just released for the Omicron vaccine. Maybe you can just high level, summarize what you have seen in terms of monovalent, bivalent and compared to your prototype, what is the overall strategy Novavax has to address this kind of variant, emerging variants and maybe kind of quite frequently?

So the data that we disclosed, and I guess it was Tuesday, was a study where we compared our prototype vaccine to BA.1 to the bivalent format, that BA.1 plus prototype. And it was designed as a strain-change study , so we can move to the Omicron-based vaccine if we needed to. And it's been -- met its endpoint, it's predefined endpoint and the BA.1 vaccine induced immune response that was a little bit better than the prototype against BA.1. But when we looked at the next level of endpoints, we saw our bivalent really offered no benefit to -- either the monovalents. And in fact, when you look at the absolute magnitude of the immune responses as measured by either IgG or pseudo mutualization against BA.5, the prototype, actually, one, numerically, it had the highest values. We don't think this is an accident. We think this is actually a natural outcome of the kind of vaccine we have and what you get with repeat vaccinations. It's our belief that the vast majority of the spike is conservative. So only a little bit changes with each new variant. And we believe we're inducing a immune response against the conservative epitopes of the spike protein. We've demonstrated that. We dug them out of animals as well as people who have been vaccinated with our product that we generate these antibody profiles, which are capable of neutralizing all the variants. So it's our belief, and we have data to support that if you keep vaccinating with our primary vaccine or prototype, you're really focusing and sharpening the immune responses against these cryptic epitopes, that generates broad-leaved protection.

Yes. Yes, I think that's very important because you are targeting this conserved epitope, so you can provide this base kind of protection across the -- whatever the variants you're going to have. But what will be -- let's say, will be the next step for this variant-specific vaccine? Because for them, for U.S., they are requiring, right? So we're requiring the bivalent targeting specific kind of variant, but some countries don't. So what is your strategic plan to address across the countries?

All right. So I mean -- let me crack and then you can go next. So I guess one point to make is in the U.S., actually, you're required to have a bivalent boost if you're a mRNA vaccine. But that's not part of our label. We have the ability to use our vaccine as a booster in the U.S. with a prototype vaccine. And I think it's based on the kind of data we just talked about, that the FDA has given us the latitude to stay in this space. And we have ongoing discussions with them and to review our ongoing data as well to what future looks like. Now we're prepared to shift, right? We've demonstrated we can and we succeeded with our primary endpoint for our strain-change study. So we can move to a variant if we need to. Because we're a recombinant protein vaccine company, we can make variations very fast. So we're keeping track of all the current ones to assure ourselves the immune responses that we're inducing are actually relevant to the current crop. If we see a shift, we can certainly shift to a variant strain that's relevant. And the bivalent worked okay. So if that's required by the customer, I think we're prepared to deliver that.

I think that's exactly right, just to maybe put an exclamation mark on it. I mean, the science is what the science is, and it's demonstrated through that study that Filip just described, the benefit of continuing to use the monovalent prototype. But then you have to deal with policy and then you have to deal with marketing and you have to deal with marketplace perceptions. And so that's an acknowledgment that what we need to do is be prepared to move to the bivalent if that's where the market takes us. In a lot of ways, it's kind of like what happened with the flu market back, what is it now, 10, 15 years ago, when we moved from trivalent to quadrivalent that the market shifted in that direction. We have to be prepared to do so. Look, the marketplace is changing on us. We've got to be sensitive to what the public and the policymakers are saying about what works and what they're trying to do to promote vaccine confidence, what they're trying to do to promote the benefit of the use of the vaccine, the politics involved in getting people to come to get vaccinated. These are all important factors that we'll respond and react to but our data is what our data is, and so we should just make sure that we're continuing to pursue that. Now to emphasize, it's exactly what Filip said is, right? We -- while the U.S. government is saying bivalent, FDA has given us a label with a monovalent prototype to be boosted and ACIP confirmed that. We haven't had any issues with selling product into the EU or into Australia or into Canada against this latest, but we're prepared to respond to whatever needs to be done.

Got it. I think in the 3Q, you also disclosed you will do some kind of very specific vaccine development in -- not in BA.4 or BA.5 but rather, it's in the BQ.1.1 and maybe why that decision? And also, as you said, you can react to this emerging environment pretty quickly. So what will be the turnaround time for this BQ.1.1? And when you will get ready for the market?

Al right. Yes. So we -- the study that I described was the first part of the BA.1. We were going to do the second part of it with BA.5, but when we just looked at the EPI, we saw that BA.5 was dropping, and it just stopped being a relevant strain to take forward. And well, like BQ.1.1 was emerging. So that's the one we selected to drive into the clinic. Once again, it's really more as a additional test case than anything else. Now that being said, if you look forward into the early next year and you're thinking about supplying product to the Southern Hemisphere that might not be a bad variants to have in your back pocket. So we're kind of looking at that time frame to have it available.

Okay. So basically, the first half, you will get that ready. Got it.

Now -- well, really, my point is going to be slightly different, is we can't really bet against the virus. We have to be nimble enough to be able to respond to whatever crops up. So something truly, truly different or scary comes up where you need to be able to shift to supply product against that variant.

Okay. Got it. Okay. I think you've got most of the regulatory approval or authorization across the globe and including U.S. But for the U.S., you have a couple of things remaining in terms of the booster, as a second booster, because a lot -- we have some people already got the first booster and also the U.S. also in terms of the BLA for approval. So what does the time line look like? And what additional steps you need to take to get the additional regulatory hurdle?

Yes. And it's also the younger pediatric group as well. So I mean we disclosed data on Tuesday that showed our data as a second boost dose. And that's the data that's being prepared for submission with the FDA. It's curious because it's really unique to the U.S. where we had this first booster language. Everywhere else, we are wide open to be used as subsequent boosters. And the majority of our vaccine is in fact being used as fourth booster or more globally. The other point is adolescent boosting. That's also data that we shared on Tuesday. So that's in the bag. That's a question of just preparing for regulatory filing and it being reviewed by the agencies. The pediatric study is ongoing. Right now, we're in school age kids, 6 to 11 years of age. And we cleared our sentinel cohort, and we're now expanding that to get the safety database big enough for the FDA to push forward. So I think those are our major label augmentations and those will go in sequentially to all the regulators globally.

Got it. Okay. And the I think you have quite a few partners for the manufacture, the major one is in the India. So just what is the current update for the manufacturing capacity and how you're going to adjust this based on the demand, the real demand in the future?

Yes. So we have several partnerships manufacturing as well as marketing partners, right? So Serum Institute is manufacturing for us and where all of our current approvals are based upon Serum manufacturing. We also have an arrangement with SK Bio in South Korea both for a manufacturing partnership as well as licensing into South Korea, same with Takeda in Japan, manufacturing partnership as well as their exclusive rights to sell product into Japan. Of course, we also have our own CZ facility in the Czech Republic that is just submitted for approval to be shipped for product to be used in the EU. We would reasonably expect that product would be coming out of that facility in '23. DP, so drug products, so filled and packaged in Europe as well. And I think that's going to be an important foundational element to our manufacturing strategy going forward. Adjuvant capacity, we have a facility in Uppsala, Sweden and then other contract manufacturing locations in several other locations around the globe to provide sufficient makeshift capacity as well. So I think that infrastructure is now in place. So again, if you really think about where we started and where we are with manufacturing capacity in place, fill finish sites in place, and adjuvant in place. Regulatory around the globe now. So we have a regulatory team dedicated in the EU, along with the commercial team in the EU. So that infrastructure is there and ready to go. And I think we're at just about at steady state going forward for all of those functional attributes.

Yes. It's truly remarkable you're able to establish all the infrastructure within such a short period of time.

Yes. We've gone from 100 people back in January of '20 to over 2,000 globally, $1.7 billion of sales in our first-year revenue generation, not too bad.

All right. So the conversation is focused on the COVID for sure. But you do have some other pipeline, as you mentioned earlier, John and Filip. So I think the most advanced one may be the CIC, the flu and the COVID combination. We know in the future, the combo vaccine could be one of the solution kind of long term. So where are you for the CIC? I believe you're going to start a Phase II by the end of this year and when you will have some data readout.

Yes. So we -- previously this year, we announced the results of our initial combination work with our quadrivalent flu plus COVID. And what we knew before going in there, the various immunologic interference between influenza and COVID and we saw that in our Phase III study in the U.K. So we innovated a way around that in that study by altering the stoichiometry, the amounts of antigen of flu versus spike. We learned that if we increase the spike and decrease the hemagglutinin we get a immune response that was comparable to the individual vaccines. So that was all about scoping out the right blend for our vaccine. The Phase II study we're starting, I guess, next month, is really a confirmatory for that, and we have a couple of little tweaks we're looking at. And that's going to be the final product that we take forward into the Phase III study, which is scheduled to start next year. We have lot more confidence about that now. We see what kind of a flu season we're seeing in the Northern Hemisphere currently. We were always curious whether we would be trying to do a efficacy study in the face of no flu. But I think that what we're seeing now in the current EPI gives us a lot more confidence that we can have a successful trial next year with that.

Awesome. That's great. Look forward to it. Any other pipeline candidates you want to highlight here. I think RSV may be one of them and -- because you have 2,000 people there, so they definitely do a lot more R&D in the -- what are the other pipeline candidates you want to highlight here?

Yes. Other than RSV, nothing that we'd want to highlight at the moment. I think what we're doing is kind of an exhaustive review of those infectious disease candidates that would work well within our technology platform. And I think we're going to talk about that more in the future. Right now, I think the discipline in being focused on delivering our COVID vaccine into the commercial markets, having a strong position in the commercial markets as we're coming out of the pandemic is critically important for success in '23. So laser focused on operational execution, laser focused on making sure we're well positioned in those commercial markets and having a very successful '23. I think we're doing a lot of foundation laying work from a pipeline development, plus also looking at the fact that there maybe are other M&A opportunities that might exist that would leverage this now significant infrastructure that we have. Filip has a substantial clinical organization complemented by our regulatory team, complemented by regulatory, complemented by our commercial organization. So it would make sense that we build off of that foundation that we've created for COVID and leverage that for other product opportunities.

The adjuvant is actually a pretty key part of our technology. And for -- some of you may know there's actually a component of a malaria vaccine. We just had a successful Phase III readout in Western Africa. So we'll see where that product goes as well. So I think there are ways to use our adjuvant as a value driver as well.

Awesome. Yes. Glad to hear M&A thesis here. Okay. And maybe just before we wrap this up, I know Jim is not here, your CFO is not here. So what is your cash position, how confident you are for the -- supporting the operation plan? And maybe just highlight what are the key upcoming catalysts?

Yes. So as reported in Q3, so $1.3 billion in cash. So we're still in a strong cash position. We expect to continue to be in that position. Everybody is fully aware that we have a convert that comes due in Q1, certainly sufficient enough cash in order to clear that, if needed, or looking at other options on what to do with the convertible debt. So we're looking at ongoing revenue generation. I think that that's obviously an important part of cash generation that we think will have a positive impact on that. So as -- I think some of the numbers that have been reported on the earnings call, we're talking about where our expenses are relative to R&D, R&D shifting out of expensed R&D and to cost of goods, so you're going to have cost of goods properly aligned with revenue generation. And that SG&A, as you would expect, driven by the commercial activities and the creation of the commercial organization. So selling expense will be proportionate with revenue generation but important for that messaging to be out there and people understand what our expense structure looks like relative to our kind of new commercial activities.

Awesome. Great. I thank John and Filip for the time, and thanks, everyone. Thank you.