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

Joining us at TD Cowen Healthcare Conference. My name is Georgi Yordanov, one of the biopharma analysts. And I'd like to welcome John Trizzino, Chief Commercial Officer at Novavax.

So maybe, John, kind of like taking a step back, 2022 obviously shaped up to be quite of a turbulent year, a lot of evolving pieces, some high expectations from your team in terms of participating in the pandemic market. But 2023 is shaping to be quite different. We're entering the endemic market. So maybe can you just talk about the key priorities for Novavax as we enter 2023 and beyond?

Yes. So first of all, thanks, Georgi, for having timing me here. I'm happy to talk about our successes and what the future looks like. And so while '22 was challenging in many ways, it was also quite successful in many ways. I mean $2 billion of revenue is quite significant. -- expanding our regulatory footprint around the globe with over 47 countries licensed with our vaccine, growing policy support, improved data from our label expansion of boosting into adults and into adolescents. And so a lot more things done right than wrong, but certainly some growing pains experienced during the course of '22. Now '23, of course, bright prospects on what we're going to do in the U.S. market as we go from pandemic to endemic and a more commercial private payer setting. I think there's a great opportunity for us in the U.S. continuing to sell into our APAs, the $2.1 billion that we refer to as a book of business, spread over '23 and '24. We've had a change of an executive leadership with a new CEO coming on board, John Jacobs. And so we're excited about what's being implemented and what his strategic vision is and of course, the corporate -- the company's strategic vision of what we're doing globally. The expansion of our commercial footprint, both in the Americas, Europe and Asia Pacific based upon our regulatory submissions and already existing presence here. So I think there's a lot to look forward to and great opportunity as we view '23 and beyond as we look at what's going to become a more annual seasonal vaccination for COVID.

That's great. So maybe before we go into kind of like the commercial execution and expectations for 2023. Obviously, one big part of investors focus has been since your most recent call on the risk about liquidity. So can you just maybe summarize for us the cash you had exit in Q4, but also talk about some of the liabilities that you owe to other parties? And what gives you confidence that you can overcome the risks that you mentioned in the Q4...

Yes. So there's a few things that impact there, right? So certainly, $1.3 billion of cash at the end of the year. And certainly, the going concern led or notification is important, but it's important for a number of reasons, right? It's a disclosure and transparency of potential risks. I think the going concern is not exclusively about liquidity, right? It's about identifying the risks that are associated with that. So things like the Gavi arbitration weighed heavily on our decision to do a going concern letter. I think operational execution is another, right? While we're confident in what the U.S. market is going to be, we don't necessarily have years of experience in the commercial market in the U.S. And so therefore, saying, well, there's a degree of risk associated with what our revenue expectations are coming that contribute to that. And then lastly, U.S. government, there are some $416 million that is kind of yet to get a support from the U.S. government that we're working on. It's not saying that we're not going to get it. It's just saying that we don't have absolute commitments for that yet, and we're working on that as well as all 3 of those issues to resolve, but better to identify them than not and take a very conservative approach.

Understood. So obviously, one of the biggest liability is that Gavi contract. And we understand that you can't really comment on legal issues. But maybe one way to provide investors some comfort around that is just understanding the timing of when we might potentially hear something in terms of resolution?

Yes, a little bit tricky to kind of talk about timing of any legal matter. Again, so tough to benchmark it, I think arbitrations. There's a lot involved in what has to be done there, a lot of exchange of documents and discovery, their position, our position. Some of that has already been expressed publicly by them and by us about not receiving orders. And it's -- look, it's never been our intent to not ship doses, but you need to order to ship a dose. And so therefore, we hope that there's a settlement opportunity here. But again, that's about as much as I can say regarding that matter.

Understood. So I guess we're not very familiar with arbitration, and you alluded to that. So probably that would be the answer to that question. But as we think about that, the $700 million contract, is there -- there is a potential way to kind of like find a settlement and find the middle ground, right?

We would hope so, right?

I believe that you're right. But...

Yes. I think what's important for everybody to understand is we're an innovator company, right? 3 years ago, we were less than 100 people. $60 million in the bank waiting on flu Phase III data, and we were faced with the pandemic. And we responded well. We created a vaccine off of our technology platform with our novel adjuvant. We received significant support from that, from the U.S. government, from CEPI. We got a significant order from a commitment to order over 350 million doses from Gavi alongside of what was being ordered from Serum. And it's a challenge for an organization like ours to go from that size to this size. But ongoing support for an innovative company like ours is important. The U.S. government to continue to support up to that maximum contractual amount. Gavi continuing to be supportive. Gavi's mission is for global public health. We want to be ready for the next pandemic. We've demonstrated we have a platform technology that can help with that. We've demonstrated technology platform that's looking forward to a combination of vaccine for flu and COVID. And so I think, therefore, specifically to your question, we're optimistic and hopeful that there is a solution that we can settle on, just like there are other opportunities where we want to continue to partner with these government agencies and nongovernment agencies going forward.

So on the Q4 call, another topic that was discussed there was the announcement of the rapid cost reductions. So maybe can you talk about your flexibility to dial up or down the spending to ensure liquidity? I guess another way to say this is like how aggressive can you be to ensure the company does not really face any challenges going forward, but still be able to have a product that is competitive.

Look, I think our CEO, John Jacobs has been very clear in the earnings call about what those priorities are, right? So it's cash flow, control, cost control. I'd like to think about it as normal financial discipline in the way that we manage our business. It's certainly operational execution, right, our need to make sure that we're demonstrating to the marketplace our ability to exist in the commercial marketplace to deliver the product that the policymakers want that we're going to be a variant containing vaccine come the fall of this year. And so delivering operational execution is critically important. And then, of course, looking at partnering opportunities with our pipeline and other opportunities in that regard. So strategically, we want to be well positioned, and that's the way that we're looking toward what we do in '23.

That's great. I guess switching to the commercial side and really how the company...

Sorry, just a follow up on that, too, right? So -- from a cost control standpoint, right, I think let's be clear, it really is those 2 elements of cost control and operational execution. You can't do one without the other, right? Cost control in and of itself is not going to take -- cost cutting is not going to take you to success, right? But you have to be disciplined, and you have to be focused on managing that sort of the business. You have to make sure that the business operating expenses are aligned with revenue generation. I mean it seems pretty simple and straightforward. But obviously, that's something that we need to do as we're coming out of the pandemic. Heavy spending, heavy investment and getting to a vaccine unprecedented in developing a vaccine in 2 years. mRNA did it in a year, right? But we have a very safe and very effective vaccine that the globe needs, and we just need to do that with operational excellence.

That's very helpful. Talking about kind of like that, obviously, the endemic market, your ability to participate in that market and what you mentioned about speed and times of developing a new product. At the recent FDA AdCom, you mentioned that you would hope that the agency could give you like a 6-month leading time to kind of inform what strain they would like the [ fall ] vaccination campaign to before, the agency itself seems like they're much more likely to align with the mRNAs. And now it seems like they're not really going to issue any guidance until May or June this year for the fall. So how, talk -- thinking about that 6-month lead time that you need? How do you feel like you're well positioned to participate in this market?

You know well, that's such an important question, right? So we need to be -- provide clarity to the investment community as to what we're doing and how we're positioned, right? So the VRBPAC conversation said, well, we're maybe not making a decision until June. We had to establish a position that says, "Well, you need to understand how we operate. We -- from the point that the strain is identified to the point that you have large-scale manufacturing output is a 6-month period of time." So how can we manage through that process to understand what that means. If you wait until June until VRBPAC makes an announcement about what the strain is, you don't have enough time. But there's already been an established working group with FDA that's looking at strain, change strategy, strain change decisions. And alongside of that, we've implemented a plan internally, whereby we would be looking at multiple strains that are being surveilled, that are circulating around the globe. Bring that into our discovery group, develop that vaccine that we could bring into production, do all of the process development work, get it into large-scale manufacturing so that by the time you get to that May or June time frame, it's really a ratification of the strain and you have strains ready to go, right? So that would be the idea. You're not going to wait until June and then say, okay, this is the strain and not have done no work in front of that. The intent is to make sure that that's ready to go at that point in time. [indiscernible] No, no. Ultimately, right, there has to be a harmonization of strain selection and we will align with what FDA wants in that strain selection process, will also align and harmonize with what EMA. EMA has already made statements about harmonizing with FDA strain selection choices. Again, very similarly, what's done in the flu market. But the working group with FDA is going to give us an opportunity to work closely with them and see what they're seeing from a surveillance standpoint and say, here's maybe, let's call it, 4 vaccine candidates that will take through that entire process and actually have manufactured some product at large scale manufacturing. So that when that decision is made, we can align with FDA and we'll have made our best bet on what those strains would be based upon that ongoing conversation and working group with FDA. So the goal is we will be aligned in the fall campaign with whatever those regulatory authorities are choosing the strength to be included.

So as you think about the manufacturing and the speed to get there, what -- I guess, what is the shortest lead time that you need before -- for you to be able to actually position yourself to be part of that market?

I think it's this framework that we've talked about. It's -- we're saying what we need to do, and each year, we'll streamlining that process, right? You're not -- the expectation is not that there's going to be a clinical trial necessary every year to validate that new strain. The intention is to have a strain change protocol. Again, like influenza, where there's 1 or 2 strains selected every year that goes into that process. There's not a need for a clinical trial to demonstrate that. You take that new strain, you bring it into your normal manufacturing process, and then you push that into the marketplace.

Got it. And then just final question on that. Just given that we know that the virus evolves much more rapidly than influence, so if the agency does decide that they're going to be like making the final decision in, let's say, June or July every year, how do you feel like you could, I guess, manufacture at risk? Or like what is -- what exactly...

Same process, right? We're going to go through that ongoing working group, looking at strains that are circulating and do that advanced planning and advanced work, right, ahead of that final determination or ratification being made, right? We should not find ourselves and/or public policy should not find itself in making any kind of surprise assessments as to what that strain is going to be. And I think the plan is that there is a strategy and pretty much a consensus across the globe that there's going to be annual seasonal vaccination. It's not going to be this whole notion of boosting. You don't use the term boosting when you talk about flu vaccinations. You use the term annual vaccination. Similarly here, that's the direction we're heading in.

Got it. So maybe kind of like coming back to some of the regulatory developments that you have. Can you just remind us where you stand in terms of full approval in the U.S. You had previously guided hoping that you would complete the filing by the end of last year, but where are you at, at this point for full approval for the COVID vaccine.

Full approval. Yes, I misunderstood. Sorry. So BLA -- so 2 components, there's actually 3 components there: public health emergency, which is going to be eliminated as of the end of May, right? And so that has some implications. But not to us but to what the U.S. government does under an emergency situation. Then you have the emergency use authorization, which we're still operating under and we have guidance from the FDA that we will be able to operate into the fall season under emergency use authorization without restriction, right? Then there's the BLA itself, in which we'll be filing in the second half of this year, which will really be for the future. So we -- the BLA approval and filing is not necessary for us to operate in the fall under emergency use authorization, but it is important for us to get it submitted and approved for operating under a full BLA for '24 and beyond.

And can you talk about the gating factors in terms of that full BLA approval and submission? What has been the reason for the late?

So it's an accumulation of data, right? So it's not just the Phase IIIs that were completed and complete kind of clinical study reports that have to be finalized. But there were some ongoing work that was done post some of those trials that are being included in the package. So it's really getting the full data set together, the full safety data set, the full out reports and compiling all that and publishing all that and making sure that, that's a complete data set for them to have and review the BLA.

And would you characterize that the remaining factors are mostly clinical data related? Or do you feel like manufacturing, there's still some concerns?

No, no. It's just having a complete data set.

That's great. Okay. So I guess one question that we've had specific to that, and maybe you can share your opinion is some are worried that because you don't have full BLA approval, pharmacies, which are usually where a lot of the influenza vaccinations happen every year might not be willing to hold an EUA products when there is fully approved products on the market in terms of more of like a liability issue. Is that something you've heard? And how do you think you can get around it?

Every conversation that we've been having, there's no indication that there would be any basis for that restriction, right? FDA is giving us freedom to operate by allowing us to commercialize under an emergency use authorization. I think understandable that there's a question about that, but we've now had multiple conversations with FDA about that freedom to operate in those emergencies authorization conditions.

And have you had conversations with [indiscernible] pharmacies and the I guess, the potential...

[indiscernible] key off of what FDA says, right? And so pharmacies are critically important. We're already engaged with the major retail change. Access is important, right? I mean not only is supportive policy from ACIP important, but when somebody goes to the pharmacy and seeks out a vaccination, having it available on the shelf is going to be critically important. So related to that, right, delivering a unit dose vial in the second half of the year is part of that strategy, also smaller packaging sizes. So a 10 pack of a 10 dose. Therefore, we can get a lot of initial orders out into the channel to make sure that there's access at all public health and provider opportunities, whether it's in a physician office or whether it's a pharmacy or a clinic, our mission is to make sure that, that product is available across the board.

That's great. And I guess that's a good segue to thinking about that commercial market and what it would look like. Can you talk about the differences, the potential differences between what the commercial market is in the U.S. versus the EU?

Yes. So we're a global company now, right? And so we've now deployed in the U.S., Canada, eventually Mexico, Europe, U.K., Australia, New Zealand, Asia Pacific market. So there's quite significant differences in some of the deployment. A lot of commonality, but some significant differences. Most notably, the reimbursement mechanism in the U.S., the ability to -- once we have full BLA is to promote to the consumer as well as to the health care provider. Some of the market in Europe, there's a mix of tender business. So tenders being just contracts, government purchasing and distribution mixed with private pay in many of those markets. So deploying a team who understands those markets, that's engaged in those markets. While we have advanced purchase agreements that are going to continue in '23 and '24, the work that's being done today is to support pull-through in those markets as well as setting the stage for the tender submissions that probably won't come into play until '24 or '25.

That's great. And then, I guess our understanding is if we use influenza as a proxy, a majority of EU countries, they usually contract with just 1 or 2, like they don't really provide as many options as what we see in the U.S. market. So what gives you confidence that you could be one of those 1 or 2 options that these European countries usually contract with?

Yes. So I think it comes down to the desire to have a portfolio of vaccines, not exclusively relying on mRNA. And I think there's kind of a growing awareness and decision that there's a need to have that. Now typically, where there's national immunization programs, they don't like offering choice, right? But I think in this particular case, there is a value to having a protein-based vaccine and the attributes to that protein-based vaccine alongside of what they're used to. And I think that's going to be important to make sure that there's an overall acceptance, right? So what drives the uptake of the vaccine is having a good product choice is important, supporting policy, vaccine confidence and then vaccination rates will increase if you have all of those elements in place.

Yes, I'll repeat the question. It's on expiration of the product and...

So we have 9 months of dating of the product today and expecting to expand that to 12 months. We don't have that yet, but we expect to have up to 12 months of [indiscernible]. So I think it's more than sufficient enough to -- if you look at that season and durability of protection of when you're going to vaccinate. So expiry is one thing, so stability of the product and then you've got durability of protection. So you want to be able to vaccinate through the season and then have a sufficiently long time of durability of protection once vaccinated.

Switching back to kind of like the near-term opportunity. On the Q4 call, you mentioned that you have already agreed on delivery schedules for the EU APA for 2023. That's 20 million doses, which sets a nice kind of like revenue floor, which provides obviously comfort. Can you just talk about, I guess, how many doses remain in that APA? Any additional color on exactly when those doses are scheduled to be delivered? And then importantly, as we think about the pricing, are we still talking about the $20 per dose pricing versus what some of your competitors are guiding in terms of [ north of $100 ]?

So we're not overall giving revenue guidance, but we've given you a little bit of a sneak peek into Europe based on the 20 million doses. And yes, under the already agreed to APA in Europe, so at that price. We haven't given any other additional percent of what's going to happen within '23 versus '24 other than the 20 million doses.

How many more doses, I guess, remain in that APA -- if we...

Yes, so more dollars than doses, right? So we're kind of -- there's an honoring of the agreements that are taking place. It's more about the total dollars associated with that than the dose is necessarily.

Got it. So I guess excluding the [ 400 million ] assuming a $20 per dose, you have guided that there is at least [indiscernible] left in APAs.

[indiscernible] billion in total.

Right. So in addition to that, there will be another [ $1.7 million ]?

Of dollars of revenue. That would be correct.

That's very helpful. And then, I guess, similarly, as we think about the U.S. market, your U.S. government contract, you basically -- because of that, you're kind of like owe the government 100 million doses. Can you talk about, basically, can you, I guess, get out of it in a way, meaning like, can you sign an additional contract for kind of the future? Or would you have to supply the government out of that 100 million doses for the near-term future?

So I'd characterize that differently, right? The contract provided for up to 100 million doses to be purchased by the government under that agreement, right? Right now -- and so there wasn't necessarily kind of a specific allocation of those total dollars. There was, in general, an estimate of how that money would be spent. It does not have to be spent on those doses. Although there -- as you've seen from our press releases up to 1.5 million doses to be purchased, again, with some other gating events of payments to be made against that, right? So it goes back to the $416 million remaining in that U.S. government contract to be spent in a variety of ways. While many of that hasn't -- much of that hasn't been specifically determined, which is why we put it in as a risk factor, we fully expect that we're going to be able to agree to much of that to be used. Some of it may be for product purchase under the new agreement we have with them. But the U.S. government wants to get out of purchasing doses. And so there's not going to be an obligation for us to fulfill that 100 million dose requirement under the agreement, and which was not in a requirement under the agreement, which was an up-to opportunity.

No, that's great. And then finally, in the last few minutes that we have, maybe can you just talk about the COVID flu combination opportunity? You obviously wanted the -- the only company that has kind of registrational ready influenza plus marketed COVID vaccine. Can you talk about what is the data that we expect middle of this year? And then how do you think about the timing of getting that prior to market?

Yes. So first of, I think it's important to remind everybody, we already have demonstrated success with both flu and with COVID, right? So there's a leg up on the competition. Now it's a matter of kind of speed to getting the rest of that clinical data completed, which is important for people to understand, pandemic readiness is not necessarily an indicator of what happens with all other products going forward. But we did have a successful Phase III trial back 3 years ago, right? So we have, on the same technology platform [indiscernible] nanoparticle plus matrix for flu, same thing for COVID. It naturally puts together real well. The Phase II study that we're under is going to read out in May, and we're going to get a really clear indication of what that looks like going forward. We're obviously optimistic in what the outcome of that will be, but it's really a gating event to what we do next and making sure that we're laser-focused based upon that data and what it's telling us about the combination of products, make sure they behave nicely together, make sure we have at minimum a non-inferior product in flu and hopefully a superior product in flu. We see from the Moderna data that just came out that flu may be not as easy to solve as COVID was. And so I think we have a leg up in that regard because of the data we already have.

That's great. And is it -- do you have any kind of like rough sense of when it would be the earliest that you can see that get probably getting to market?

Hard to say, right? Because you got to come out of that and then you got to go into an efficacy trial. I think at this point, it's not just going to be immunogenicity that's good to win the day. I think you're going to have to show the efficacy of the combination.

Got it. That's very helpful. I'm going to pause just to see if there's any additional questions from the audience before we conclude. But with that, we are, unfortunately, at time. Thank you so much for being here, and thank you so much for providing all these additional insights.

Of course, my pleasure. Thank you.