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

Ladies and gentlemen, the program is about to begin. Reminder that you can submit questions at any time via the ask questions tab on the webcast page. At this time, it is my pleasure to turn the program over to your host, Alec Stranahan. You may begin.

Okay. Hello, everyone. Welcome to day 1 of the 2022 Bank of America Biotech Conference. Thank you for joining this session with Novavax. My name is Alec Stranahan. I'm Vice President and Senior Biotech analyst here at BofA. And I'm pleased to be joined by John Trizzino, Chief Commercial Officer and Chief Business Officer; as well as Filip Dubovsky Executive Vice President and Chief Medical Officer. Thanks for joining guys.

Thank you, Alec. Good to be here.

Perfect. Perfect. All right. So this is going to be a fireside format. So mostly Q&A. I've got a few here, but for those in the audience, if you'd like to ask a question, you can look through the Veracast platform, and I'll read it off anonymously. So maybe just to start, Nuvaxovid. Could you give us a quick update on how the rollout has been so far this year in your view and sort of what we should expect into the end of the year? I know you guys reiterated the lower end of your full year guidance under your 3Q call recently?

Yes, that's right. Thanks, Alec. So look, '22 has been a great and successful year for the company, right? We finished Q3 with $1.6 billion of revenue, our first ever year of launching a commercial product license in over 43 countries around the globe, shipping globally, getting the booster -- adult booster update for the U.S. market and various markets around the globe. So we now have commercial deployment in 3 regions: Europe, Americas, Asia Pacific, continue to manufacture robustly across our infrastructure at our own facility in the Czech Republic and our partners at Serum Institute and SK Bio. We continue to build. There's still more work to be done. '22 was a foundation laying year for the company, and we look forward to moving and transitioning out of the pandemic phase and into commercial and which we believe will be very opportunistic for us as we have a chance to really talk about our product, promote the benefits of our protein-based vaccine and look to what the consumer may want as opposed to what purchasing governments may want related to the use of our vaccine.

Perfect. So I guess going into the end of the year, what is sort of the current focus? Is it more or less just delivering on the open contracts, I guess what's sort of left to do in terms of those deliveries?

Yes. So the purchase agreement contracts have been critically important to us to understand where that demand is, what we need to do as far as building infrastructure. We have previously discussed that some of the doses are moving out of the original contract period into '23 and potentially beyond, but that's already built into the guidance that we've provided. We're certainly looking for additional opportunity in the U.S. market, especially in '23, and I think for other new country opportunities as well, given the positioning of our regional offices. So yes, foundation based upon the APAs, new procurement opportunities on top of that.

Okay. Perfect. And do you think in terms of the current APAs that are open, do you imagine most of the deliveries are going to occur by the end of this year. Do you think there could be some sort of bleed over maybe into the first half of next year for those contracts?

Yes. Again, and then this is what we've previously disclosed at the last earnings call was that there is bleed over, but that's okay, right? Because the bleed over has been planned for and what's being shipped in this year result into the guidance that we've already provided. So whatever we think will shift and we know most of what that number is at the moment, is considered in the guidance we've given for '22 and how we're planning for '23.

Okay. Perfect. Well, that's a great segue heading into next year, you said that it could be sort of more of a traditional market. Could you paint us a picture of what this could look like and what you guys are doing to prepare to sell Nuvaxovid by yourselves?

Yes. It's a little bit of a challenging picture to paint. I think that, that's true for anybody in the COVID vaccine business at this point in time. This transition from pandemic to commercial is a little bit of a tricky business. I think it's going to vary, have some variability country by country for sure, right? There's already some signaling coming out of the U.S. about the public health emergency ending at some time after Q2. That triggers a number of things relative to the government purchasing or is the private market purchasing. I think we're anticipating at least in the U.S. as private market purchasing as we get into the second half of the year. But keep in mind that also signals the beginning of a little bit more of a seasonality coming into play here as well. So we need to be sensitive to that relative to revenue. And as we transition out -- and this isn't going to be true across the globe, but as we do transition out, we're going to go into these full boost campaigns, whether it's this September through December period of time in Northern Hemisphere and then this April, May, June period of time in the Southern Hemisphere. And so we're managing our way around that as well. But I think for us, the way that we look at it, it's an opportunity, right? I would much rather have the market deciding what product that they want to acquire than government being dependent on government procurement, which -- what is happening now is there some over-procurement over inventory position. And so decisions about use of product are being made more about procurement and inventories then about benefit to public health. And so we'll have an opportunity to voice that opinion as we transition out of the pandemic period.

Interesting. I guess, in your view, what sort of drive success in an endemic market for Nuvaxovid? Is it the price in access with availability? Or is it durability against new variants? Is it maybe the logistical benefit?

Yes, it's a little bit of all that, and there's not 1 right formula for the entire globe, right? It's varying. We're seeing fairly significant differences, whether it's in Australia or EU or U.K. or Canada, where Asia Pacific countries in Japan or South Korea or Indonesia, there's a high degree of variability here across the board. But I think there's a fundamental element about the global public health or national public health making a decision of what's the benefit of their population and how they support our pilot policy. And we're beginning to see that. We're beginning to see policy starting to shift as these countries Switzerland, for example, just recently has talked about parallel use and recommendation for our product and mRNA. So I think the market is going to drive that, right? The public health officials and the marketplace will drive the demand. Pricing will have a factor in the U.S., maybe not so much of a factor in other countries. Pfizer has signaled some price ranges already, which are completely and wholly consistent with cost benefit analysis on disease burden and the benefit of the vaccine, a highly effective vaccine. So we would expect to kind of follow suit with the direction and pace that's being set there. In other instances, it's just an opportunity for us to communicate more effectively to health care providers about the benefits of our vaccine and the use of our vaccine. And then you mentioned it as well, access is critically important. Right now, we're having a really difficult time with over-inventory positions in many countries of even being made available at the pharmacy or health care providers. And we're working really hard to make sure that when someone goes to their health care provider or goes to their pharmacy and say, I'd like a dose of Nuvaxovid and it's available in that provider.

Right. And I think you guys mentioned on your 3Q call, a single-use files as sort of your path forward in terms of formulation and sort of the shelf life, how that could help facilitate access.

Yes, great question and important for our positioning to the marketplace. So at minimum for Southern Hemisphere, we're looking to transition to a lower dose vial, hopefully, 5 doses. We are working through that at the moment. Certainly, for the fall campaign, Northern Hemisphere in 2023, we expect to have prefilled syringe or a unit dose vial. But I think a single dose formulation so that we're eliminating any wastage that might be attributable to high dose presentations.

Okay. Okay. And in terms of facilitating or using the logistical burden, could you maybe speak to sort of the storage requirements for Novavax versus some of the mRNA vaccines?

Yes. So 2 to 8 storage and shipping still remains as a very relevant and critical component. And ease of storage, ease of shipment, not having to go through a process of flying out of vial prior to utilization. I think there's a cost factor here of shipping and storage of a frozen product versus shipping and storage of a 2 to 8 product refrigerated versus frozen is kind of a significant logistical issues. So clearly, there continues to be a significant benefit. So what does the product look like in fall of '23, right? It's what the market wants. It's either going to be a bivalent or a monovalent, and we're going to be reacting to kind of public health direction and policy direction. In that regard, it's going to be a single -- some type of single-dose presentation, whether it's prefilled syringe or whether it's a unit dose vial. And it's going to be 2 to 8 for ease of use amongst what will be a number of other differentiated characteristics that we'll talk more about as we accumulate data and publish data. The work that Filip and his team is ongoing, right, with clinical trials and clinical activity to support the presentation of this vaccine.

I guess the other -- another point is the way that our vaccine technology works is that -- we only have 1 -- currently 1 presentation, right? So we can use this for primary vaccination for boosting for adolescents and in the near future for children. And that's an advantage as far as avoiding medication errors, which is obviously a big deal for the providers to make sure they get the right format a vaccine in the right individual.

Okay. Okay, that makes sense. When we're thinking about the endemic market, I guess, listen, seen some analogues to flu, both in terms of the size, and also the way that vaccines may sort of find their ways in people's arms. So I guess who is the -- when you're looking at the endemic market, who is the end customers? Is it going to be large health care systems? Or I guess, how are you sort of approaching where to sort of focus your commercial effort?

Boy, again, that differs country by country, right? But let me first talk about what should drive demand. And I think let's talk about disease burden here, right? I mean, that should be the driver of demand for vaccine. As I've been in the vaccine business for a long time, there's clearly a correlate between fear and vaccination rates, right? If there's a keen awareness as to the burden of the disease, and there is related to COVID, right? Much higher hospitalization, much more severe disease than influenza that by itself should be an indication that there should be more vaccinations provided to prevent COVID than for flu. So therefore, the market sizing by definition, should be sized, should be bigger based upon that disease burden. Then you look at -- we're coming off of the tail end. So what's negatively impacting that is vaccine fatigue, right? People are tired of COVID, they're tired of being vaccinated, they're tired of the booster. But the reality is there is a benefit to being vaccinated, and I think that's what we're going to see happening over the next couple of seasons. So where does that pull-through come therefore come into play? Certainly, from a health care provider standpoint, right, we got to educate the public health community. We got to educate the health care provider. We have to educate pharmacists about making sure that they're reminding people when they come into this pharmacy to get vaccinated. And of course, you've got to educate and communicate to the general public, right? They have to have an awareness that this is not going away just because the public health emergency is being waived or just because people are not wearing masks anymore, does it mean that the virus is not circulated. And so I think that there's going to have to be an ongoing educational campaign. It's not politically popular right now, right? The political environment wants it to go away, but it's not going away. And there continues to be new variants emerging, and we need to continue to remain diligent. Did you want to?

No. I mean just as a science ID guy, don't bet against the virus. We're seeing a really very rapid change. And we're seeing people are dying, right? I mean people are dying in the U.S. and they're dying at a fairly steady rate right now and be curious to see what happens when this next batch of variance emerges because you already know they're rising in the proportion right now. As we head into the winter season, this could be a tough one for us.

Yes. And I just saw through the Newswire that Nuvaxovid was a proven adolescence in Canada. So you guys are continuing to expand in terms of where Nuvaxovid can go. And I think I've seen some estimates in terms of the endemic market, it could be comparable to flu, I guess it depends who you ask on that. But in terms of manufacturing and just being able to supply the demand, I guess how are you approaching that side? Are you continuing to expand your own in-house manufacturing for Nuvaxovid? Or are you still sort of having that flexibility through going forward? How do you sort of see manufacturing in over the next 6 to 12 months?

Yes. So that's a good question because recall that we scaled up for peak pandemic activity, right? And so that's now behind us and what we have to look forward ahead of us is what's going to be that kind of normal annual commercial demand for the product, which is clearly going to be less than what the pandemic peaks were. But what we're left with, which is a very robust global manufacturing infrastructure at our facility in the Czech Republic, our ongoing partnership with Serum Institute and our ongoing relationship at SK, our license partners, SK Bio and Takeda. So at the moment, we have more than sufficient global manufacturing capacity, whether it's a monovalent or it's a bivalent, our ability to do train changes has been underway during all of '22, and we'll continue and go onward just like what happens for influenza, right? So Filip and I have been in the flu vaccine business for a long time. And what happens is this ongoing cycle of surveillance, sub circulating strains, all of the manufacturers participate in a process, where we're looking at what strains are circulating, making sure that those strains can be converted into a vaccine. That antigen added to the quadrivalent influenza vaccine and that happens on an annual and seasonal basis, right? So we would -- we were already building out the capability to do that, and that's going to be ongoing relative to our support of annual commercial vaccination.

I mean, a couple of points. I mean a lot of -- John's right. Every time a new variant appears to be emerging, we make -- so we have a waiting for us to move into manufacturer. It is called for by the local authorities and that allows us to get a jump on the process once a new recommendation is pushed forward. The other thing about the manufacturing we have now, it's not just for COVID, right? I mean these are the same facilities that use the same process to manufacture influenza vaccine. And I think maybe something John said which resonates with me, what wasn't apparent is there may be a call for both bivalent product next year as well as continue monovalent, whether it be variant or prototype. So the manufacturing capability we have now is really scale to be able to address all those needs.

Okay. And so on the topic of new variants, I know you guys are focused on Nuvaxovid currently, but I believe you also have the Q1 version you're developing as well. Can you maybe speak to sort of the COVID pipeline in terms of what you're doing to prepare for the next variant?

Yes. I mean, it starts with what I said, right? Every time something new crops up, we make for it, so we can move it rapidly into manufacturing that's called for. We've disclosed our BA.1 data in the previous call, and we're doing that with regulators and policy bodies now. And that's one of the reasons why you see shifts in booster recommendations in some countries when they petition to our data. But really, we're going to be doing whatever the policy bodies recommend for the next strain. So if FDA chooses to stick with a BA.5 we're going to deliver that. Now what do we have going on in the clinic. What we said is our next study is either going to be with the BA.5 or BQ.1.1, we have both ready. And we're just now interacting with regulators to see what data they want to see immediately, and that's what we'll take into the clinic.

Okay. Perfect. And I did want to ask you 1 last question on COVID-19, do you want to talk about the rest of the pipeline as well. But on the recent bivalent data, what is sort of your high-level take there? I know you guys said that increased confidence in Nuvaxovid in your eyes. Maybe you could walk us through sort of the absolute benefit in terms of the neutralizing antibody response we saw the bivalence and sort of how that informs your view for Nuvaxovid and also additional bivalent development from your platform?

Sure. And it's probably even broader than that, right? We think this is a hallmark of our technology. And just to remind people, what we have is we have proper confirmation, the proper 3D structure of the surface glycoproteins, which are presented as a particle. So that has its own pathway of -- into the immune system and response. And since we manufacture in insect cells, we have short glycans our proteins, short sugars, and we believe that increases the exposure of the immune system. And we marry that with our adjuvant system and what that leads overall is an induction of a high level of neutral antibody in a very broad response. We saw this in as published for our influenza work. I guess it must be close to 18 months ago now, where we showed that our flu this formulated exactly the same way, induce very broad responses against drifted H3N2 as well as ancestral strains and drifted H3N2 or ancestral strain is exactly the same thing as a variant. It just changes the virus makes as it adapts to the immune system and becomes more fit in the overall population. So we're seeing this tech work out exactly the same way. So we presented data before that we are able to induce a very broad immune response. And we think this is going to translate into protection. We have even logic data for that. And we're really waiting for real-world evidence to support that. And it's starting to trickle in now. We don't have the absolute high amount of usage to allow us together that data very fast. So in that regard, we're waiting for it to come through. And we anticipate being available first half of next year sometime.

Okay. That's helpful. I do want to maybe shift gears and talk about the rest of the pipeline. Maybe we can talk about the quadrivalent flu and also the combo vaccine, both of which we've seen data from. I guess what are sort of the next steps in your view for both of these? Is your plan to take both forward? Or is the focus really going to be on the combo?

Yes. So the answer is both. So we previously announced -- yes, we have previously announced that we will be starting our next study this month. And it's really to nail down the very specific exact formulation that we're going to be taking into Phase III study, which we have planned for next fall in Northern Hemisphere. But yes, the idea is that we do want to, in fact, have optionality whether people just a flu vaccine or flu COVID vaccine, we want to be able to deliver that to the customer.

Okay. Just to be clear, that's the combo, the study plans for the combo or them all now.

Both. I mean our plan is to deliver a program that allow us to ensure both at the same time.

Just clarity on language here, right. So it flu and COVID combo, right? So flu alone is still quadrivalent, right? Not monovalent. So flu alone versus flu COVID combo.

Got it. Got it. Okay. That's helpful. I guess longer term, how does the combo sort of feed into your competitive positioning? Do you think ultimately that's going to be what most people are getting, let's say, if it's not inferior to each one on its own? And how do you see your development programs sort of backing up in terms of how advanced it is versus, say, the mRNA competitors?

Well, it's a significant advance and opportunity, right? If you look -- you have -- for us, so both our recombinant protein nano particle technology both our Matrix adjuvanted both will have to be administered at the beginning of the fall campaign and from the typical winter respiratory season. So a noninferior and hopefully superior vaccine from a combo standpoint would be a market game changer, right? You're going to absolutely be taking market share away from 1 or the other. And there may still be some people that don't like combos. But I think for the most part, I think you have something that's a compelling case. We've seen this take place in the pediatric space, right? So there's lots of really good examples about where combination vaccines grab market share and provide a benefit to the consumer and convenience and from a health care provider getting somewhat vaccinated for multiple diseases with 1 vaccination instead of people having to come back multiple times. So I think it would be a significant advancement and differentiated offering.

And just from a tech perspective, we've got plenty of room in our technology. So there's really no problem adding valiancies I mean the data that we presented early in the year showed we were actually going to be dropping the overall dosage level as we balance out the immune responses between the and the flu and the COVID. And that means basically that we can keep adding, right? We can keep adding other stuff if you're thinking toward a more global respiratory viral vaccine.

Okay. Very interesting. We've got about 5 minutes left at this point. One more question in terms of the combo and also the monovalent. Have you got any sense from -- sorry, the quadrivalent flu vaccine. Have you gotten a sense from the FDA or any other regulators, whether you would need to get the quadrivalent approved first and so that that's efficacious on its own in order for the combo to get approved? Or would they be willing to sort of look at the totality of the data, even if the quadrivalent is not approved first.

Listen, I think we're planning on a program that's going to deliver both answers the same right? And that will allow us to provide optionality to the customer. It's not a step-wise process. Remember, our flu vaccine, and this is before I joined the company, already had a pathway to approval in the U.S. And the important thing is that what we see in our data made us think that we actually have a differentiated better product. . And that's why we're really keen on doing a clinical efficacy study next year to see if those immune responses will really translate into clinical benefit. We know that some of the vaccines that are available right now just don't work that well. We have some years, including last year, where there were extremely low estimates of efficacy released by the U.S. CDC, and we think we can do better. And we think we can do better because we -- the immune responses we were able to induce against the drifted strain were robust. So that's what we want. We don't want a -- we want a superior product, if we can nail that endpoint. And then assuming if something happens and that's not there, we still have the combination product as a differentiator.

Right. That makes sense. I got in the investor question through the line on the cash position and cash burn. Looking into 2023, you do have $1.3 billion cash. Can you sort of walk us through your capital allocation priorities? Would you need to trim in any area of R&D, SG&A to extend the runway? And maybe if you could just speak to the Gap repayment potential repayment as well, how that factors into.

Yes. So I think our position is consistent with what we communicated at the earnings call. But to reiterate, I think the cash position that we have at the end of Q3 allows us for some optionality and ability to either take out the convert in due course or look at market conditions and decide what other options we might have specifically for the convert or other means to offset that. But as it stands right now, we have sufficient capital cash to execute and deal with the convert. As far as capital allocation is concerned, that's always a great question. And we're not going to give kind of specific guidance on it, but let me kind of direct you to what our priorities are. Our priorities are as an organization, is delivering a very successful COVID vaccine and Nuvaxovid profitable, market share grabbing, differentiated vaccine in 2023 and setting the stage for ongoing commercial success. Then looking at our pipeline, certainly, the COVID combo with flu is going to be important to our development program. Our technology platform continues to show benefits, and we're going to continue to look at other candidates that we're going to be pursuing that. So there'll be resources made available to do that on our own and with partners. And so I think that there's flexibility in our cash use. We got to focus on the markets that we're deployed in, right? I think we mentioned before about effective pull-through in the marketplace, communications to health care providers, communication to consumers making sure that we have the robust product offering that we say that we have. So laser focused '23 on delivering against those priority objectives and capital will be deployed accordingly.

And continuing to improve the label, right? So we have different flavors of label globally and different policy recognitions globally. So generating data to both address the benefits we can still add to the label as well as improving the policy recommendations globally is a key driver, and we'll use some cash for that.

All right. Well, I think that's a great wrap up. We're up on time. So we're going to have to leave it there. But really appreciate the discussion. I think we covered a lot of ground. I'm looking forward to continued progress into next year. Thanks for joining the conference.

Great. Thank you, Alec. See you.

Bye.