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

Good afternoon. I'm Eric Joseph, senior biotech analyst at JPMorgan. Our next presenting company is Novavax. And I think I have the rare distinction of being probably one of the last few people to introduce CEO, Stan Erck, to bring us through -- to talk to us about the company. So we will be doing a Q&A after the presentation. Mic will be going around the floor, and you can also feel free to submit questions via the online digital conference book. So with that, Stan.

Thank you, Eric. So the comment was, I think, related to the fact that after 42 wonderful years of never having a problem being in biotech, I have retired today. I announced my retirement today. And so I will be with the company for another year plus and working -- hoping to advise them on some of the collaborations that we've established on a global basis. But you're right, maybe the last introduction at a JPMorgan meeting in any case. So going to move through. I can't go through all the slides. You can look them up on the website. I'm going to skip a little bit. And they're -- I'm data light on slides, but I'd like to tell you a little story about the company and turn it over to Q&A where we can be data heavy. We've got Filip Dubovsky, who's one of the best chief medical officers in the business. He's an encyclopedia of our data and can answer any question you want on the vast amount of data from our clinical trials. And sitting to his left, since we've just become a commercial company this last year, John Trizzino, who's our Chief Commercial Officer, can answer all questions on those subjects as well. So with that start, let me just skip to here and tell you about -- so today is -- 3 years ago today, we had a company with around 90 people in Maryland and a couple of dozen people in Sweden making an adjuvant. We had, I think, $90 million to $100 million in the bank. We had a market cap of roughly $110 million. And we had enough money -- we had projected to have enough money. So we ran out of money in May. That's where we were. But we're an optimistic crew, and we had a Phase III pivotal trial in flu going on, where we had data coming out -- expected to come out in the first week of April. And so that's the status we had. We had sold off our manufacturing capacity, and we had no ability to make GMP product. One day later, 1 day -- 3 years ago and 1 day, the gene sequence was -- the gene was sequenced for something called COVID-19. And in the past 10 years, we've been building vaccines based upon getting gene sequences and making proteins that are folded in a way that becomes very immunogenic. And so we started on this process 3 years ago, minus 1 day, and turned our company completely to COVID from that point, and built a company that is now, as this slide shows, is a company that has global capabilities. We have -- from the 100 people I told you about, we now have 2,000 people, excluding 3 of our very critical partnerships with the Serum Institute, with Takeda, and with SK Biosciences. And we've devoted ourselves to build the best -- I think we've built a best-in-class vaccine, and that's shown by the data that we presented in 2 Phase III pivotal trials. And we've gone from having $100 million in the bank to as high as $2 billion in the bank, and now at the end of 9/30, we have $1.3 billion. So we've established global manufacturing. We are making COVID. We are making a flu vaccine. And we're starting on making the respiratory syncytial virus vaccine. So we have respiratory vaccines, and that is our business. So let me talk about the foundation that we've built, the description, the characterization of the vaccine. The COVID vaccine 19 is very strong on safety. We had, like others, 90-plus percent safety of -- 90-plus percent efficacy of our vaccine even when we tested it in Phase III trials with circulating variants. It has a stability profile, which allows us to be stored at refrigerated temperatures, at 2 to 8 degrees, instead of being frozen and a very strong safety component to it as well. So that's what you want as a target product profile. We've taken that and developed a commercial presence in key markets in the Americas, in Europe and in APAC. We've got now headquarters in each of those countries. And in just 1 year, we've received authorizations in 47 different countries for our COVID-19 vaccine. And so we've got a manufacturing network that can make all the needs for our product. And let me move on. And we've developed what is a competitive product profile for a vaccine of choice. And so this is -- the vaccine that we have is -- has been shown, as I mentioned, safe and effective. It's also been able to demonstrate breadth of protection against all variants. We've taken our vaccine and tested against not only the original Wuhan strain, but against BA1 and 2 and 5 and show that we can make very potent immune responses against those variants. We have a durable immune response in our clinical trials. We've shown that we can have a vaccine that lasts. It prevents infection for up to past 6 months. And we've shown that we can make a bivalent and a monovalent variant as needed, and that's going to be important later this year as we get through what is going to be a VRBPAC meeting at the end of January and where the FDA will determine what the direction of the next year's -- of this year's vaccine program is going to be. So we've done well in 2021, 2022. And what's the opportunity look like for COVID-19? There's lots of speculation about that, what's going to be going on with COVID in future years. We believe and I think others believe that there's going to be an annual need for revaccination. I think that's becoming more and more clear for COVID. It's a multibillion-dollar commercial opportunity, and we think that near-term opportunities remain to support increased vaccination rates globally. We've got the combination of waning immunity from vaccination and emerging variants, which are going to create an ongoing need for vaccination. And so we will be part of this, and we expect to be gaining market share throughout this -- throughout the coming years. So we're developing a pipeline, and we've got COVID, which was approved everywhere over the last 12 months, most recently in the United States. And we're going to build on that. We're going to continue to expand our label for COVID vaccine and improve it so that it's available for all age groups. And we're going to make -- continue to make variants at the direction of the FDA and other regulatory agencies. We combine that with what I told you about 3 years ago, which is we had a flu vaccine, which we made using the same platform technology with a recombinant nanoparticle protein combined with a Matrix adjuvant and put it together with our COVID vaccine. We started a trial a year ago with a Phase I/II trial with the COVID vaccine and a quadrivalent nanoparticle flu vaccine and showed great results in a Phase I/II trial that brought us into a Phase II trial that we started 2 weeks ago. We expect data from that trial in the second quarter of this year, and that will guide us to what we should do in a Phase III trial. The goal is to have a Phase III trial for 2 products, a combination COVID flu vaccine and a flu stand-alone vaccine. And so we want to show that our vaccine is -- actually, we want to show our vaccine is superior to competitive vaccines in a head-to-head trial. So we're restarting our RSV vaccine. We've been in that RSV business for 10 years, and we believe now with our Matrix adjuvant, with a new formulation of RSV vaccine, that we can bring RSV back into the market and probably is a combination respiratory vaccine either with flu or COVID or perhaps all three. And finally, the pipeline includes a malaria vaccine through a partnership with Serum Institute who licensed malaria antigen from Oxford University several years ago and used our Matrix adjuvant to bring it through Phase II trials, challenged trials and through efficacy, pivotal efficacy trial in Africa for malaria vaccine in kids. It showed 75% efficacy, which is much better than anything else that's been shown. And data from that will be published, we hope, within the coming month or two. And our plan is to help commercialize the product with our Matrix adjuvant and with Serum's manufacturing of the antigen. So that will be coming out as a new product, we hope, this year. And then finally, the financial highlights. As we started, as I say, 3 years ago, where we had 4 or 5 months' worth of money, at the end of the third quarter, we had $1.3 billion in cash. We had -- we guided to $2 billion in revenue in our first year of commercialization, and we've maintained that guidance of $2 billion. Looking ahead, we're not guiding for 2023 yet because we think it's a year that's too hard to predict as we turn into not only fulfilling our commitments under our advanced purchase agreements, but also getting the commercial marketplace and turning that into revenue for ourselves. And so we have $2.4 billion in committed advanced purchase agreements with delivery scheduled for '23 and '24, the majority of them is scheduled in '23, and another $0.5 billion in funding remaining under our Operation Warp Speed funding agreement that will likely be used up in 2023. And then finally, just to leave you what the upcoming milestones that are important. We've been asked to present at the VRBPAC meeting, which is the advisory meeting for the FDA on vaccines, on January 26. The discussion will be about primarily focused on what should be the vaccine strain for COVID for the 2023 fall season. And I'm sure there'll be lots of opinions about it and the vaccine companies who will be presenting our data. And hopefully, we'll have an answer soon after January 26 and give us guidance where we need to scale up production. We'll also have data from our Phase II COVID and influenza combination and influenza stand-alone trial that those data are expected midyear 2023. We'll be able to update our vaccine support in our variants strain throughout the year, and we expect to file for our U.S. BLA in 2023. So with that, we'd love to stimulate Q&A. We have lots of As, and if we can get some Qs, we'd be happy to do that.

I can start with the commercial one. So you're not guiding right now for 2023 revenues with Nuvaxovid. But I guess two things. One, do you anticipate any additional -- what kind of visibility do you have on the potential for additional government contracts, APAs? And then secondly, I know you've talked a little bit about expectations around the transition of the COVID vaccine payer paradigm transitioning from governmental to private insurer. I guess when do you expect that transition to really kind of get underway? And then what does that look like both -- or how might that differ in the U.S. versus across the pond in the EU?

Yes. So there's multiple components to that question, Eric, of course, right? So we have existing APAs that were created back in -- early in '21 that we're still working from and expect, as one of Stan's slide shows, is $2.4 billion of potential revenue coming from those contracts over the course of the balance of all those agreements. So places like Australia, New Zealand, Canada, Europe, for example, are the foundation for some revenue generation, both in '23 and '24, and we've communicated to the marketplace about the managing of some of those volumes. But in fact, those agreements all remain intact. The big change for '23 is obviously going to be a shift in the U.S. market going from pandemic and government purchasing to a more private normal commercial marketplace. There's a couple of components there as well with the public health emergency will likely end sometime by the end of April. You'll begin to see private purchasing taking place that will open up the market to us so that we're not bound by whatever decisions the U.S. government is making, but going out into the marketplace, the pharmacy chains, integrated delivery networks, physician markets, et cetera, use of distribution in order to prebook into that market for the fall campaign. I think that, that's going to be significant. And as we look out at the marketplace, I think the way we should be thinking about sizing the market again on one of the slides that was presented, I think in general, we're talking about a $15 billion to $18 billion global annual revenue marketplace. The 2 key markets for us are obviously the U.S. market and the EU market. These represent combined some -- in excess of $10 billion of potential revenue generation on an annual basis globally, right? I think we would reasonably expect that even under kind of flat competitive conditions from a product profile perspective, that it's easily to us to envision some 25% to 30% market share that would grow over the next couple of years relative to those market opportunities. So I think there's a very robust COVID marketplace. I think there's a very robust market opportunity available to us given that we're present in the U.S. market. Our commercial deployment is happening in the Americas and in place now are -- in the EU and U.K. in place now and a growing presence in Asia Pacific based upon the work that we've already done in Australia, New Zealand, Singapore, Indonesia, Taiwan, for example.

What do you think has contributed to the strength of the robustness of the COVID vaccine to emerging variants? And do you expect that to be sustainable as time goes on, obviously, with the virus constantly changing?

So that's probably me. So you're referring likely to the data that we've shown now several times, that the immune response to our protein vaccine holds up. It holds up through the early variants as well as through strains as far as BA.5. And just to remind you that our initial Phase III studies, and Stan referenced this earlier, the majority of cases were caused by variants. These were the early variants. These were alpha, beta, delta, some iota, epsilon, et cetera. And the vaccine worked well. I mean that is a 90% efficacy that was a primary influenza studies. So we think we have a very good idea what's going on. So there are obviously large conserved sections of the spike protein that don't change with when -- as these variants emerge, we know where they are. We've done a lot of structure function analysis, so we understand where these neutralizing sequences are, and we know they haven't changed through BA.5. Now that is great news. Now as we look at their latest batch of variants, the most recent ones, when we look at these conserved areas, we start losing them, right? So I don't think we're going to -- nothing lasts forever. So I think we can fully expect when we finish our analyses to think we may need to make an adjustment. In any case, in the U.S., we're going to be doing whatever comes out of the FDA's advice for the composition of the vaccine. They recommended a composition to bivalent with [ XBB115 ]. That's what we'll deliver. And we make all these routinely. We're a recombinant protein vaccine company. Every time a new sequence comes out, we generate the spike, we generate the protein. We do the analysis of the structure function to make decisions about whether our current vaccine still has utility or not. So stay tuned, I guess, is the answer to your question. So far, so good. There's some threat on the horizon.

We're advanced in terms of the malaria vaccine. Is this segment crowded? Or is it a new vaccine that nobody has?

Yes, I'll take this on. I started off my career in malaria vaccine. So I think I've done more malaria vaccine studies and failures than anyone probably in the universe, except maybe the NIH, they failed a lot. This vaccine is very similar to the one that GSK has brought forward. It's based on the hepatitis B platform. Except instead of being a chimeric vaccine, each of the hepatitis B service antigens has the NANP, the malaria sequence embedded in it. So it's actually a more antigenically dense version of the ad vaccine. And the adjuvant system is different. Obviously, the adjuvant system has our own Matrix in it. What's been published from the Oxford Group is that this results in induction of very high levels of antibody to the NANP, which is a critical epitope of [indiscernible] to prevent infections. [ And the test of this ], as Stan mentioned, and now in the Phase II and now Phase III. And it's been presented by the Oxford Group recently, I guess, at TropMed. And the results they presented, it was both in regions that they had endemic transmission as well as CECL transmission. And the vaccine appears to work quite well. The next steps really are to finish up the PQ process and then start deploying the vaccine. So there's obviously a second step in check with Geneva to get the PQ done before we can start using the vaccine.

You mentioned, I saw one of the slides, prevention of infection, which if a lot of the data we've seen from the mRNA vaccines is that they're not preventing infection, they're preventing hospitalization, severe illness and death. Do you have data on that? And with no mucosal coverage, why is it that you are able to prevent infection?

Yes. So it's an interesting story. We know for multiple nonhuman primate studies that when we vaccinated with our vaccine, we can actually induce sterilizing protection, both in the upper airway as well as lower airway. And we do have not only transited IgG in those spaces, but also IgA. Our best data from the clinic is from our U.K. Phase III study, and this was published by Heath. What we looked at was illness prevention of infection through a 6 months observation period at a median of 101 days observation, and that efficacy was 82.5% with a lower bond of about 75%. So why is that important? Well, it's important because if you don't get infected, you can spread it to your family. You can't breed new variants and you can get a long COVID and sequelae of COVID. So we think it's an important finding and a feature of this technology.

Is that [indiscernible]?

This was only in primates, and I don't think that we looked for the signal.

Question on your adjuvant. The Matrix series is obviously a key differentiator for Novavax and the group. Can you elaborate a little bit on how the adjuvant figures into the outlook?

Yes. I guess -- should I keep talking? Thanks, boss. So yes, the adjuvant is critical. And we did early studies where we evaluated our nanoparticle with COVID with and without adjuvant and the adjuvant is in fact required. It adds a couple of very key features, and it culminates in this hemologic phenotype we see with all of our vaccines. We get a very high levels of neutralizing antibody response. They're very broad. And at the same time, we have this polyfunctional cellular response, is Th1-biased, CD4 response primarily. And it's polyfunctional. And the reason that's important is we think that's the kind of phenotype you need for memory as well as effector memory, right? So that's what the adjuvant provides. It's the same thing that provides for the malaria vaccine. It's the same thing that provides for a flu product. We know from our Phase III flu study that we were able to induce extremely broad immune responses even against rifted H3 and 2s. We look at a whole bunch of them, including against very old ancestral strains. So what we saw for drifted blue is exactly the same thing as we see for COVID variants. It's a same phenomena. A flu drip is the same as a COVID variant. It's the same thing we're looking at.

Sorry, I have another question. For the combination flu plus COVID, is mRNA able to do that? Are we able to replicate or it would be difficult for them, meaning you will have competition soon? Or is it something that you're not very much concerned about, going to be unique in this profile?