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

Good morning, everyone, and thank you for joining us for this next session of Baird's Healthcare Conference. And I'm really pleased that we have with us Novavax. And with us is Jim Kelly, CFO; and we also have Robert Walker, Chief Medical Officer. Guys, thank you so much for joining us.

Joel, thank you. Thank you very much and really appreciate you having us here today. Your timing is excellent. And I'm sure we'll jump into this in a minute with respect to some real-time activity happening at the ACIP meeting today. But before we get there, thanks again, and thanks for everyone for joining.

Exactly. I think you're right that this is my most real-time meeting of the conference. So this is really exciting for me. But maybe first, before we get to the -- I'd be interested just to kind of take a step back and kind of as an overview, earlier this year, you announced 3 priorities for the company for 2023. Could you kind of remind us of those 3 priorities and provide an update on the progress made to date?

Certainly. And for -- I'm quite sure that you're -- most folks are familiar with Novavax, but I'll just kind of restate a little bit about who we are and what we're driving to achieve. We're a protein-based vaccine company. We have nanotechnology Adjuvanted. We've got a COVID vaccine that many folks are familiar with, but we've got an exceptional platform that we think has utility across a large range of vaccines. So what we're doing as a company is we are evolving rapidly from a pandemic era company to a more traditional commercial company in an endemic setting. And so earlier this year, we announced just key initiatives on that path, including priorities to have and deliver an updated vaccine for this fall season, which is exceptionally important, especially in the United States as it converts over to a traditional commercial market. Two, resize the company, improve our financial strength, extend our cash runway. This is a part of changing the size and focus of the company to be that more traditional endemic company and put some of those onetime liabilities that we're tied to building up a supply network for a pandemic. We're slowly but truly and I say slowly but truly, but we've rapidly done it this year, reducing short-term liabilities by over $1 billion in the first 6 months of the year. So -- and then the third priority is to take that technology platform and create value beyond COVID. And we saw some really good early results on flu in our combination flu, COVID vaccine from a Phase IIa study that we announced in May, and we're really looking forward to advancing that program. So those are the 3 priorities and a little background of the company.

Terrific. And it provides a great framework for the rest of our conversation today. So maybe first and thinking about the COVID vaccine and the upcoming kind of fall vaccination season, I think yesterday, there was an update on the availability and readiness of Novavax's vaccine. Could you tell us more about that and the commercial activities that you've been focused on up until now?

Yes, certainly. So what you're referencing is today and actually live right now occurring is the CDC's ACIP. So this is the advisory committee for immunization practices, this is our meeting on COVID vaccines. It's literally happening right now. They invited Novavax to speak and they've brought along the other 2 manufacturers, Moderna and Pfizer, talk about our data what are we seeing with respect to our vaccine against some of the emerging variants. And they're going to be voting later today on populations and how a vaccine should be used. So that's happening live today, and there'll be updates at the end of the day. Yesterday, the announcement was that we are in active dialogue with FDA. So our XBB filing in the U.S. or data in the U.S. is under review, and we've got our -- and it's not yet approved, and we've got our commercial supply in market. So we're ready to go. Now yesterday, Pfizer, Moderna were approved. And so now it's simply waiting for the pull-through on our part in working in collaboration with FDA. But today is -- in the coming weeks is just a critical start to the fall COVID vaccine season. And so we're ready to participate.

Yes. Yes, as you mentioned, yesterday, there's an update from FDA that Pfizer and Moderna's COVID vaccine were approved. I think some are hoping that Novavax might be on the same time line, but it didn't seem to be. But I'd be really -- it seems like there is active dialogue going on with FDA. And I guess could you tell us more about the remaining steps between now and what you could anticipate could result in approval?

Yes. Well, certainly. I'll start by first reiterating what an exceptional partner FDA has been. And I mean along the way with both us and working with Pfizer and Moderna on everything from preparing and aligning on strain selections to -- as folks know, we're operating under emergency use authorization. So it comes with a much more iterative, I'll call it sort of a rolling data review process, and we work with the FDA week in and week out on that. At this point in the process, while I can't give a time to completion because -- great partner, I never want to put them on the spot. We're just working diligently with them through any open closeout questions, and we look forward to being ready for the fall. But just simply not able to offer much more beyond that and really thankful of the collaboration we've had with the FDA.

Maybe I could just add that for the EUA amendment, the FDA has asked for all the data to be submitted to the IND first. So we did that and they reviewed the data and then they say, okay, go ahead and submit to the EUA. We think you're ready. So we've already [ tested ] that, and we're in that post submit-to-EUA period.

Terrific. And then -- and thinking about the fall season in the U.S., do you have contracts in place? And any sense of the time line on when you could deliver -- begin delivering the doses under those contracts?

Yes, certainly. So the United States is just such a critical market for us this year as it's the first traditional commercial market post pandemic. And so you're exactly right. We've got contracts in place, and most people who know vaccine space, it's specialty distribution. And then I'll call it sort of point of delivery, point of purchase contracts. So picture half the market in terms of vaccinations occurring, for example, in a retail environment. So here's the status of our contracting. We're ready that -- for folks the number I'd put out or the metric I put out there is people who want to get vaccinated, think about 70% of the individuals who get vaccinated, they're within 5 miles of where we've contracted. We've got ourselves set up. We got a supply in market ready to go and contracts in place to enable 70% of people to get vaccinated within 5 miles of their home. So we're ready.

Great. I think with that in mind, it's perfect to hear that readiness. There's also 2 competitors out there who also have readiness as well. And could you help frame how Novavax's vaccine could be differentiated and compete to get market share?

Well, certainly. And I think one of the critical aspects to, I'll call it, our market relevance is in all these markets where we'll be serving public health, we are the only non-mRNA option. And these countries and these regulatory authorities, they want choice. It's good for public health. And so at core of our go-to-market strategy is that we are the non-mRNA choice. And our market reach -- research tells us. Upwards a 25%, 30% preference share when asked, whether it's individuals or health care providers, they've got a, I'll call it, a preference share. It's different than market share. They got a preference for a tried and true protein-based technology, and that's us. And so that's the backbone of our go-to-market, I'll call it, differentiation strategy that builds on top of get the label, get the recommendation, have all the pull-through ready to go, but at the point of vaccination, that's our point of differentiation in terms of being non-mRNA. And then we do think we have some exceptional product attributes that will build out on our label over time, we'll seek to over time that we're hopeful we'll differentiate it. We don't have head-to-head studies today. But Bob, maybe you'd like to talk about just some of that medical research we're doing, we think could differentiate.

Yes. I mean, so we're trying to nail down some of the attributes that may help differentiate us out in the marketplace. One of those is reactogenicity, how do we compare to the mRNAs. And so we're collecting that information now, and we're actually going to be presenting a poster at the Elsevier conference next week that shows some of those data. And bottom line is we continue to look favorable compared to the mRNAs in terms of local reactogenicity as well as systemic symptoms post-vaccination. That's true with the first vaccination and it's true with the booster vaccinations. The other, I think, major differentiator is our formulation presentation, right? So we're a refrigerator stable and we're a one size fits all. So we don't have to distinguish between adults or pediatrics or primary or a booster. So it's the same volume. It's the same valid antigen, and it's the same for any age. And then some of the attributes, I suppose, of technology, right, protein plus adjuvant, suggests that the immune response will be different in terms of engaging not just the humoral but also the T cell side and the potential duration of that immune response. So those are things that, again, we're not in a position to be able to claim anything today, but we're actively in the clinic chasing those.

Okay. That makes sense. And thinking about market share, even -- I mean the 25% of preference shares is really striking. And I think even working up to that over time could be really meaningful to Novavax. And I'm just curious, like I think some people -- some investors may have the impression that maybe Pfizer and Moderna get nearly 100% of the market. Are there things in place or aspects that give you confidence that Novavax can get some market share this season even if it's not quite 25% or more where the preference shares at this time?

Yes, certainly. The point that I think I would draw folks' attention to is that historically, when you look at either our label or a recommendation prior seasons, we weren't necessarily in most markets on par. We weren't. There would be a preferred recommendation for mRNA. And then as a secondary basis, hey, maybe you can consider Novavax. What we're driving to this year is on par label, on par recommendations. And so now you're starting to see for the first time, "hey, how does a protein-based vaccine compete on a level playing field." Examples of where that level playing field is coming into focus, Germany, Switzerland. Some of the European countries are now beginning to put out their recommendations where they're saying, "Hey, listen, forget about preferencing leaning one way or another, go get vaccinated, Novavax is a great choice on par with others. It's really in that environment where we've seen -- or we would expect to have great uptake. We have had some markets and select markets where we've had, I'd say, last year, I'd say, more aligned recommendations like in South Korea. That was a good example. But I think the ones to watch this year in particular or I'd say, Germany and the United States, we're watching very closely.

Terrific. That's really helpful to hear. And I'm curious in kind of examining the preference share more closely. And just from a sense I think oftentimes with vaccines, when a patient goes to get vaccinated. They may not be choosing which vaccine they get. But are there opportunities, whether it be with patients or providers or somehow else to actually convert that really meaningful preference share into market share over time?

Yes. So it does turn into, a, let's make sure you're there. And so an example might be making sure for retail pharmacies, you've contracted to ensure your vaccine is there or in health care providers who want to have it in their fridge and with our vaccine that can be in the fridge, right, not the freezer. Are you there? That's step 1. And then what we're doing is we're doing a focused digital advertising, both to consumers and to health care providers to help them think through what it means to have the option for Novavax so that they can vocalize as a potential receiver of vaccine that you want a protein choice in that moment. What I would differentiate in COVID versus flu, flu people tend not to know the different vaccines. But in COVID, they know them by name. I mean, it's unbelievable. It's just the world over the past 3 years has created amazing brand awareness by company, right? The company is the vaccine. And so people know us. And so as we continue to leverage, I'd say, digital marketing programs so that individuals are empowered going into that setting to ask for Novavax, to ask for a vaccine, that's the strategy at point of vaccination.

Terrific. So maybe I'd be interested to focus on the emerging COVID variance. There's a lot of focus on how this still seems to be a rapidly evolving virus. Can you talk about how that impacts the rollout of Euro vaccine and how well your vaccine is performing against the variants that are currently circulating.

Sure. So our President of Research and Development, Filip Dubovsky is going to be presenting those data momentarily at ACIP. Basically, what you're going to see is that our XBB.1.5-vaccine. So the monovalent vaccine that's been recommended for this season, induces neutralizing the antibodies in both mice and non-human primates to essentially the full spectrum of emerging variants that are circulating today, right? So not just XBB.1.5 and 1.16, but these sublineages, right, EG.5 and [ FL 1.21 ] and XBB.1.16.6. So the ones that you're reading about and hearing about that CDC and WHO are actively tracking. We continue to induce very robust responses. We're very reassured and very optimistic that the vaccine is going to perform equally well in the clip. These tests have correlated previous in past seasons with vaccine performance. And I think we all expect that that's going to be the case this year as well.

Terrific. Could you tell us about the supply of the vaccine and what's available?

Yes, certainly. We have vaccine supply in market in the U.S. and also in Europe, ready for authorizations to start shipping, all right? So that's -- we're ready to go. Our vaccine folks might know we partner with Serum Institute in India, 100% of our vaccines coming from there. That site has been validated and inspected by important regulatory authorities. So it's ready to go. And then we have manufactured tens of millions of doses. We have ample supply. We're ready for the market demand. So that's our supply chain. That's where we are in the major markets. And then we -- that's what we've reiterated through our financial guidance.

Got it. Yes. So on that guidance, I believe the full year revenue guidance is $1.3 billion to $1.5 billion. Could you discuss what's included in your guidance and how Novavax is positioned to achieving it?

Yes, certainly. So when we gave that guidance, what we said was through the middle part of the year, which is the end of, I'll call it, the Wuhan delivery era. So this is before starting the new variant deliveries, we thought we'd do about $500 million of that guidance. We did $505 through midyear. We're literally right on track at midyear where we thought we'd be in setting up for the fall, Midpoint of the remaining $900 million. So that consists of about $125 million remaining on a government contract. This is where I say how great the U.S. government has been, $1.8 billion operation warp speed, we're seeing this about $125 million remaining this year. So that's the first one, $25 million. Then on top of that, we got about $425 million in secured advanced purchase agreements, the biggest of which is Europe, okay? And so that's deliveries in the back half of the year. And so the remaining $350 million U.S. market estimate. And at that kind of number, $350 million U.S. market, we're talking single-digit market penetration. Why? Well, we recognize we're third to market. So you got to come at this with a certain pragmatism and humility. But frankly, we expect to do better over time. We can't wait to compete this year.

Is there a timing that you may need to be approved by to be able to address the market? Or is there a point where it gets to be too late? Or is this kind of such a rapidly evolving market that's really hard to pinpoint that.

Certainly. So I'm going to start first with some of the commentary that we're hearing about COVID, then we'll talk about the flu, hey, what's their cycle look like and then come back to what might this year look like? All right. So what we're hearing in the commentary are things like, hey, listen, you don't want to get vaccinated too early because you want to make sure you get it in time so you have a good immune response for the season. So we would expect that the biggest bolus of vaccines is probably going to be in the sort of October into October time frame, right? And then you say, well, how does that line up with what you see with flu Well, flu has already kicked off, right? ACIP already had their meeting. Traditionally, flu has run from, call it, about now through just after Thanksgiving. That's where the vast majority of flu vaccine is given, okay? Now let's think about COVID. Well, my goodness, story is yet to be written on COVID, how the vaccination cycle is going to go. We think it's going to be analogous to flu, but what we know is that people get vaccinated when they get scared, like when there's an outbreak. And if you think back to Omicron which hit in sort of the Thanksgiving time period in early December, my that season, people are getting vaccinated all the way through January. So the point is, at a minimum, we expect to be ready for what might have been the traditional flu period, but we have ample supply in market and excess supply, should there be bigger demand in extended period. And so that's how we're viewing it because, frankly, we're still all learning how the COVID market, including its time period of relevance is going to play out.

That makes a lot of sense. So maybe circling back to financial guidance. Part of that, as you mentioned at the beginning, is the Novavax is focused on a reduced rate of spend for the year. It seems like you've made some progress over the course of the year to -- and could you describe maybe kind of what's been achieved and how that leaves the cash runway at this time?

Yes, certainly. So we entered the year with $2.6 billion in current liabilities. And again, this was linked to pandemic era company really driving, right, to build up supply networks. And we need to transition to a successful endemic company, we had to clean up our balance sheet. And we've knocked out about $1 billion of those liabilities, including a $350 million convert payment to the U.K. of over $100 million and then a $200 million settlement with SK Bio that we settled for $65 million cash and an equity investment of $13 per share, which was an over 70% premium to the prior day close. So we've done really important negotiation and cleaning up of our balance sheet, these onetime items. So we're at about $1.6 billion now. The biggest component is our Gavi liability. And I'd tell you, we continue to work through that matter. It's going to be an important matter put behind us. And then if you look at the remaining of the $1.6 billion, you get $700 million for Gavi, $300 million for deferred revenue. Those are upfronts we got from different APA holders in advance of deliveries. And then the remaining $600 million is about $200 million for additional manufacturing in classic AP and other. So lots of details I just gave you there, takeaway should be, we've knocked it down by $1 billion. We're approaching more of a traditional balance sheet for our go-forward key to resolve the Gavi issue. That's it. Oh, cash runway. Midyear, we had $900 million between cash on hand and $400 million receivable. We're exceptionally well capitalized going into this fall season. So we're coming at this from a position of financial strength.

Makes sense. Great. So I think maybe for the remainder of the conversation, I'd be interested to address the combination COVID, flu vaccine and the potential for that. I think many great things about Novavax is there's a long history of vaccine development and having -- developing a flu vaccine even prior to COVID hitting as opposed to a lot of companies that kind of jumped into infectious disease after the pandemic hit. So in any case, could you provide an update on the potential for a combination for COVID, flu vaccine?

Yes. I mean maybe what I'll do is, at least talk for a moment about where we see the market going. And then, Bob, if you want to cover sort of the data we've seen today, which is great. We're really excited what we think is going to happen in seasonal respiratory is that the market will increasingly go to combination. I mean it's just like this year, you're hearing from CDC, it's sort of the try season of flu, COVID and RSV. And by the way, when you combine them all together, it's about a $40 billion marketplace globally. I mean it's an exceptionally important area. So what we think is going to happen over time is that the market preference and where we're pushing our technology is towards combination vaccines. And we think we may be advantaged. We could have some advantage with our technology platform to actually put in these different antigens in size to be very competitive. So we've got a platform that I'll say is accommodating. And then importantly, it's not just being able to do it, what your efficacy look like? Well, our COVID vaccine efficacy speaks for itself. This early data in flu really encouraging. So we think we've got both the technology platform that is appropriate for a combination business. And on top of that, we've got really good efficacy that leads us to say it makes sense to continue investing in this. And Bob, maybe you can share a little bit on the data.

Yes. I would just also add that remember Novavax cut its teeth as an RSV company and the expertise that resides at the company is aligned with respiratory viruses in general. So I mean this kind of plays to our strengths, the combination concept for respiratory viruses. So we prioritize in terms of our pipeline, the combination of flu, COVID vaccine. And we, in a previous earnings call, announced results -- preliminary results from our Phase Ia that we did in Australia in adults. And basically, what we did is we compared our flu stand-alone to our combination flu, COVID and to market leaders in the flu alone space, right? So that was a Phase IIa. We're primarily looking at immune readouts and safety. And what we saw was that our flu stand-alone product actually did better. And it wasn't designed for superiority. So [indiscernible] and these were not statistically better by the formal statistical definitions. But if you look at the numbers, the numbers were consistently higher compared to the market leaders. And our combination vaccine showed that both the flu and the COVID components produced equivalent immune responses to what you saw when you did either one alone. So that's great news for the combination. And we're now investing further into developing a co-formulated product. So instead of mixing them at the website, we'll have one model that you just pull from and administer the vaccine. And we will recapitulate we hope the safety and the immunogenicity that we saw in the Phase Ia in a much larger Phase IIb. And with those data, we can then approach regulators like FDA about the size and scope of the base story exactly. That would lead to [indiscernible]. That's kind of where we are in the process.

Yes. And in the meantime, we'll watch at others and see, hey, are they able to do what we're doing. So we're monitoring that closely.

It's terrific. And you mentioned the comparison with a leading flu vaccine. I just wonder is that...

It's in there -- so we've looked at Fluzone High-Dose and Fluad. Yes. So we're looking at the preferential vaccines that are recommended for the elderly.

Right. And that data, if folks want to see it, it's on our website. So you'll see our corporate presentation and this flu data, and you can take a look at all the -- as Bob described it, data.

The Fluzone, especially Fluzone HD, I think the market share in the U.S. is really striking.

That's exactly right. And what we note is that having a stand-alone fleet program could be critical, not just for the obvious reasons that we're discussing right now with respect to the flu business, but also pandemic. and our ability to have a full platform that could be constructive and valuable in like, I think, H5N1 environment, we want to continue to move down that path as well. It could have great utility globally.

Terrific.

Or that we -- our intention is to start the Phase IIb in 2024. And also to come back to the combination concept, we hope to build on a COVID flu combination towards maybe a trivalent at some point. Flu, COVID and RSV sort of be the next step that we would envision ourselves.

Great. It's a great vision to look forward to. And I know based on what we've seen in the past Novavax can move quickly. So I'd like to look forward to in the studies ahead. It looks like we'll reach our time. So I'll leave it to you any closing remarks.

First and foremost, I just want to thank you, again, for having us, your timing was excellent. All this long-term vision is combined with near-term execution. And so while we've got a great platform with an eye towards long-term value creation, you're hearing resizing the company to be there, we're also hyper-focused on making sure we're ready, we're relevant. We deliver this fall. And so looking forward to doing so and providing updates.

Terrific. Thank you.

All right. Take care.