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

All right, okay. We'll get started here. I'm Eric Joseph, senior biotech analyst with J.P. Morgan and our next presenting company is Novavax. Presenting on behalf of the company is CEO, John Jacobs. There's going to be a Q&A session after the presentation so just raise your hand, we'll bring a mic around for those of you who have questions and for those tuning in via webcast, you can submit questions there as well. So with that, John? Please.

Thank you, Eric. Good evening, everyone. Thank you for joining us tonight at this late hour and we're probably standing between you and dinner and a cocktail or for some of you that I know maybe a good cigar and that kind of thing, but really appreciate you joining us this evening. I'm CEO of Novavax, John Jacobs, and I'm joined tonight by several colleagues who will be joining me for the Q&A session, Dr. Filip Dubovsky, our President of R&D; John Trizzino, our President and Chief Operating Officer; and Jim Kelly, our CFO. Let me find a clicker here sorry about that. So just a cautionary note, we will be making forward-looking statements this evening, so please make sure you read our cautionary note that's available on the J.P. Morgan portal along with our deck and any other disclosures we have on our corporate website and in our materials that we've shared with the public domain. So look, we're going to be seeing a lot of numbers in the next few days at JPM. P&Ls, investments, headcount, opportunities, market shares. So I figured I'd get that out of the way and start with a few numbers. So I'll open up with numbers, and I want each of you in the audience to think about 2 important things. What are the 2 things that these numbers have in common? If anyone can figure it out, you've won the prize already, that will be available out back. So we'll let you know, let's see. And beyond the color of the font, there's a couple of important things that these numbers have in common so just think about it for a moment. Other than people in my team, any guesses or thoughts? Let's start with 1,300 that involves children in Africa. Shocking statistic, but every day 1,300 children in Africa die of malaria that's the equivalent of 2 United States elementary schools every day worth of children. In fact, globally, 630,000 people die of malaria every year, mostly in Africa. The second set of numbers 41 million, 710,000 and 52,000, that's flu. Over the last 5 years, peak incidence of flu in one given year was 41 million, 710,000 hospitalizations, 52,000 deaths. Anyone of a guess as to what the 3 million number represents? Clue, Novavax has a COVID vaccine in the market. No prize for that one. 3 million deaths to COVID in 2020 alone, not including '21, '22 or the prior season. In 2023, and some people think COVID has gone away, it has not. We lost my father-in-law last July to COVID-induced pneumonia. So for me, it's really personal, for my wife, it's really personal. It's here to stay. So the 2 things these have in common, number one, these numbers can be prevented through vaccination and number 2, Novavax is in all 3 of these markets. In fact, the CDC and other sources say that tens of millions of lives can be saved by vaccination. That's what we do. What we do matters as an industry. What we do matters as Novavax and if you're in the financial industry, if you're an analyst, if you're a banker, if you're lending money out and you're supporting the biotech industry and companies like Novavax, what you do matters a lot. You're providing us with the equity capital to bring assets like this forward to save millions of lives. What we do collectively makes a big difference, that's our mission at Novavax and will never rest in our quest to protect health of people everywhere around the world. So that's our mission. That's why we exist. Let's talk about who we are and our capabilities. Novavax is a fully integrated commercial stage biotech company focused exclusively on the development of life-saving vaccines. We have our first product out, our commercial product, that's our COVID-19 vaccine, and we have our updated version for the XBB1.5 strain in market today around the world. We have a unique and differentiated technology platform with 2 key components, our protein-based technology and our Matrix-M adjuvant, we'll talk about that in a few slides. And we're rapidly advancing our next asset out of our pipeline. That's our combination flu COVID vaccine with an anticipated launch in 2026 and we believe that positions our company for significant and remarkable growth opportunity. We'll talk about that also in a few slides. Importantly, we've established a global footprint. We have manufacturing, commercial operations and strategic partnerships, including SK Bio, some of the members of whom are in the audience with us tonight, I appreciate your partnership, SK Bio. Takeda and Serum Institute of India who helped us manufacture our product. This enables us to both commercialize and distribute our vaccines to people around the world. And our tech platform. I think any vaccine company in the world would love to have either one of these pieces of technology, we have both and we think that makes what we do at Novavax, very differentiated and very special. We have our nanoparticle protein-based vaccine technology, which delivers significant performance characteristics in the vaccines we develop, including high immunogenic and efficacious responses, refrigerator stability, and it's well suited importantly for the development of combination vaccines, a key advantage we think we have on the development side. Matrix-M adjuvant is designed to boost the immune system response, and it also has significant dose sparing activity, antigen sparing, which is very helpful as you develop vaccines, especially when you're putting a lot of different antigen in and combinations, trivalent, quadrivalent, et cetera, very helpful. Now we're leveraging this technology to advance our pipeline beyond a single product company. You can see off top on the pipeline slide our coronavirus vaccine and our updated strain. Our top priority moving forward is our combination vaccine, flu-COVID or CIC, as we call it for short. So when I say CIC, I mean our combo vaccine that includes our proven COVID vaccine and our flu vaccine where we have positive Phase III data and outstanding data from our most recent Phase II trial that we'll share with you today. Another vaccine, we're very proud of that we did not develop but includes our technology and showcases the capability of our adjuvant is the malaria vaccine R21, developed by a collaboration between Novavax Oxford University and Serum Institute of India using our Matrix-M technology. In fact, R21 was just prequalified by the WHO last month and you can see here noted as a vital tool by the WHO Director General with 75% efficacy results in the Phase III trial that exceeds current standard of care. We talked earlier about 1,300 children a day, 1,300 sentient beings lives and experiences wasted every single day. 50-60 kids a minute or more dropping dead of malaria. In fact, by the end of this presentation, we would have already lost many more children in Africa and all of those deaths can be prevented. We're proud of our participation in this, we do get a low single-digit royalty on sales of this vaccine, I encourage all of you to go to Gavi's website where they indicate projections of purchases of this vaccine and intend to launch it this year in Africa. Let's take a moment in one slide to do a year in review. Talk about anniversaries, this is my one-year anniversary as CEO of Novavax. It was last year this week at Stan Erck, our prior CEO, who stayed with the company for decades and helped to bring that R21 vaccine to fruition that's a big part of his legacy, step down from his role and the company invited me to take on the challenge of CEO and join this amazing executive team and this company for this journey. The primary reason I came was the technology platform here and the ability to change lives. This company should be very successful. We have something special here, and we can help change the world and it's about mission. Let's talk about a year in review. What did we achieve in '23 that was important? And obviously, Novavax rapidly expanded as did other companies to take on a global pandemic that meant hiring thousands of people from a company of roughly 100 to 2,500 or so in a very short period of time, purchasing manufacturing capability around the world to hit what was thought to be potentially an $8 billion dose marketplace. As COVID emerges into an endemic from a pandemic, it's important to rescale the company to reduce the scope and scale to match that opportunity and to make sure that the cash on hand that we have and the runway we have can help us bring these vaccines forward and be successful, stable and robust business over time. So the management team and I are very decisive in 2023. We took rapid, thoughtful steps to significantly reduce our expense footprint and reshape this organization to give us the best chance for success. That included the restructuring of the management team, creating new roles, new positions and bringing in new executives from outside, putting people in different roles where we think they can make a bigger impact. It included in 2023, one out of 5 employees departing. We reduced by 20% head count. It included knocking out $1 billion of current liabilities and reducing our OpEx by almost as much and we're on track with SG&A by over 25% reduction in '23 and to hit over a 55% reduction from this time last year, this calendar year in 2024 on expenses and our overhead. We also streamlined the way we manufacture the vaccine, our strain selection process, bringing multiple variants forward at once. One of the challenges with our remarkable technology is, it does take about 6 months to make the vaccine once you know the strain you need to target. Now if they were notified in June about what the strain was for COVID, we wouldn't have a vaccine that out until November or December. So what did we do together in Novavax? We thought about it, we can track the strains that are developing and what we did was bring multiple trains forward at the same time with a minimal impact to our P&L, which we can do in the lab and bring to an initial stage for commercial scale and development. That allowed us to have the right strain in our hands at the right time and be on the market at the same time as the mRNAs. We also delivered then on all of our APA commitments around the world and still have substantial APAs remaining for the next 2 years, and we gained critical experience in the U.S. market as it converted for the first time to a commercial opportunity. And very importantly, we outlined a faster path pulling forward by about a year on our initial estimates, our combination vaccine should we succeed in that clinical program. Quite a remarkable year, quite a ride for the management team, very exciting and at times very challenging, but we did it, and we achieved what we wanted to in 2023 to set us up for a successful '24, '25 and even a brighter future beyond. So let's take a look at the next couple of chapters of Novavax's future. Chapter 2 then, we should think about as the next 2 COVID seasons. We should be a stand-alone COVID company in 2024 and 2025 and should be able to launch a combo vaccine in 2026. So how do we drive further performance and success for Novavax in the next 2 seasons. In the U.S. market, as it converted to commercial, we've learned a lot, and we're improving our product position and presentation. So on the left side of the slide, you see the key attributes to a successful product launch in the U.S. marketplace, starting with product presentation. In '23, we had a 5-dose file, not ideal. Our competitors had a prefilled syringe. We intend on having a single dose presentation in the form of a prefilled syringe in 2024, putting us on an even playing field there. Secondly, we were authorized by FDA and improved our relationship with FDA, become an outstanding partner in bringing our vaccine forward but currently under an emergency use authorization. As some of you may or may not know, that prevents a company from doing a full marketing or promotional campaign about their vaccine. And frankly, we could talk about Novavax during the year, but not about our vaccine, not until we were authorized under an EUA in October after the season had already started. We intend to be unlicensed under a BLA in 2024, opening that up for our team to communicate and market appropriately and be on an even playing field with the competition. Our label is expanding to include the next age cohort, that's what we're seeking is 6 plus instead of 12 plus, which helps us with vaccine for children's program and to be more competitive in the marketplace and an earlier approval is what we're anticipating instead of October, September or earlier. Importantly, if you ask someone who Novavax was or what they did this time last year, if you weren't directly in the industry, you wouldn't often get and I know. They might even confuse us with a component of SpaceX or someone else. What's Novavax, right? Very low awareness levels in the U.S. We were known around the world elsewhere, where we sold in through our APAs, but not really in the U.S. marketplace, not to a high level. By midyear, John Trizzino and his team were able to drive our awareness to about 46% aided awareness with healthcare providers and as I stand here today in January '24, we're at 80% awareness with healthcare providers. So what we have done is made ourselves aware and healthcare providers are aware of our technology, who we are and what we have to offer. And finally, market access. We were not quite on an equal footing in all retail chains, not necessarily on all the schedulers and the daily workflow this year or in every retail outlet. We were in many, but not all. That's changing. We've been working with retailers already and deploying our forces more toward retail. Everyone anticipated the COVID market to be roughly a 60-40 or 70-30 split between retail and nonretailer IDN and healthcare provider offices that mimics flu. It was surprising to see well over 90% of all COVID doses administered are through retail, almost zero through nonretail channel. So we're going to redeploy and access retail, we've already engaged with them in Q4 to make a better 2024. So the future looks bright for the next 2 years in the U.S. and then let's talk about what's next, Chapter 3. So we have 2 more seasons to drive results, 2 more seasons to build awareness, build market share and become a household name. Why are we excited about 2026 and beyond? First and foremost, the market is migrating towards a desire for combination respiratory vaccines that are seasonal in fall, especially flu and COVID combination. Our market research shows that there's a high demand for that combination and that illustrative on the right is that pie chart, we're not sharing our data specifically for competitive reasons, but well beyond half of the market is anticipated to convert to combination. Now COVID is not at its peak where it was in the pandemic. We're anticipating 30 million to 35 million doses in the U.S. market this year. But flu, traditionally, you're rolling 4 year average is 130 to 140 million doses in the United States. We've got an outstanding flu vaccine candidate, positive Phase III data and in a revised version positive Phase II data, you'll see in a moment on a slide here that we get to introduce in the form of a combination, which is going to be highly desired. So if we all agree that combination vaccine is most likely the wave of the future, what about Novavax, are we positioned to get our fair piece of that? We believe we're well positioned to do so for several reasons. Our technology platform, we get to leverage a proven COVID vaccine or trivalent in this case, influenza vaccine with positive Phase III data, positive Phase II data and Matrix-M adjuvant. Secondly, there's a strong preference here. This is our internal data, but 25% to 30% of healthcare professional surveyed actually prefer a protein-based option in the form of a combination. We will be the only company from what we can see who would have that on the market in 2026 as an alternative to mRNA vaccines, and I talked about our growing awareness level. People know who we are and they're starting to learn about the value of our technology platform. What else? We talked about our data. This is from our combination vaccine Phase II study, you can see summary observations. Very importantly, if you look down at the bottom left, that last bullet, HAI geometric mean ratio is in line with a licensure criteria. So we're hitting ratios on key metrics that meet the standards for regulatory approval. That's very important and encouraging data in our Phase II, and you take a look at our flu. Second bullet, HAI response is 31% to 56% higher for all 4 strain study compared to FLUAD. 44% to 89% higher for A strains compared to Fluzone High-Dose. It's impressive data. It's exciting data for us and it encourages us to keep moving forward and bring our vaccine forth. And the company is better positioned now after what we've accomplished in 2023 to bring that forward independently. When I first joined the thought was we would need to have a partner to help finance that program. But based on the significant improvements we've made on our P&L, on our balance sheet, on our cash position and on our focus and energy is a culture and a company, we're able to bring that forward and we'll be initiating a Phase III registration trial for the product. Our plan is to do that second half of this year with a potential launch in 2026. This next slide, R&D and SG&A expense guidance that we've provided is just to illustrate the significant reduction in our cost footprint that we've executed and plan to execute in '23 and '24. Again, last year, when I first joined the company, $1.7 billion was our SG&A and R&D footprint in 2022. We took that down in '23. We were actually $100 million ahead of our stated targets for the 2023 cost reductions and very importantly, the team and I did so without hurting our capabilities to identify the appropriate strain, develop the vaccine and get shots in arms. That's what we do. That's the heartbeat of Novavax. So we took that as a key filter on any decision that we made. We were able to make those reductions. And now we're targeting below 750, over a 55% reduction in where we started. Very importantly, last bullet on the bottom left. This includes prioritizing improvements to the long-term supply chain efficiency, and that includes the contemplation of selling our manufacturing facility in the Czech Republic, which if we're successful doing so, would give us a significant amount of cash up front and also reduce operating expenses significantly on a go-forward basis each year. So in summary, we've made a lot of progress in 2023. We're not all the way where we would like to be yet as a company, but significant step forward to set up a better and stronger foundation for 2024 forward in those next 2 chapters I talked to you about. We created a more lean and focused organization, restructured the management team, significantly reduced our expenses and took out a lot of the overhangs and taken pay contracts, either renegotiated, pull forward cash from APAs and other things to bring in nondilutive capital for the company over the course of the year. We evolved our corporate culture to be lean and focused on the task at hand. We're well positioned to advance the pipeline and focus on our CIC or combination program. We identified a faster pathway forward and we'll be speaking with FDA in the near term to get that authorized and plan on assuming approval there, kicking off that trial second half of this year and can do so independently. We hope to launch that vaccine in 2026, and it is certainly a large market with lots of potential. So again, our mission will never rest in our quest to protect the health of people everywhere. Our employees believe in our technology. We're proud of what we have to offer. We really can't wait to see how that Matrix-M based R21 vaccine can work in Africa to save those innocent children's lives and give them a future that they deserve and that's what this in the end is all about. So thank you very much for your time today. I'd like to welcome the members of our executive team up to the stage here to help me address your questions. Thank you.

Thanks, John. Just by way of starting the Q&A session. Expanding brand awareness, product awareness is obviously one of the objectives here with your COVID vaccine. I'm curious to know where you are in that awareness expansion effort and some of the feedback that you are getting in the types of messaging that seems to resonate and lead to your product being the vaccine of choice, recognizing that in addition to awareness, there's knowing the product, but also having to select it over some competing options.

John, do you want to handle that?

Yes, sure. Thanks, Eric. So I think it's important to understand the history of where we are today. And so it's not simply just a data point in time, but it's all of the experiences that we undertook during the pandemic period. The development of our vaccine program, the spectacular results we had during our clinical trials and then advancing into the post-pandemic period and which we demonstrated and communicated to the general public our ability to manufacture the product, our ability to go from the original Wuhan strain to the updated strain XBB that's how we entered the market this year and communicated that to the entire investment community, the consumer community, the distribution community to become aware of what our capabilities were as an organization. We took that strain change into emergency use authorization. We then had access into a large percentage of all of the vaccinating pharmacy some 70% of vaccinating pharmacies were stocking our product. And then we created overall awareness in the consumer community. But we're a little bit hamstrung by some of the things that John mentioned in his presentation. So what are we doing about that? I think as we look forward to '24, it's clear that we need to have a BLA license product. It's clear we need to be in a prefilled syringe. It's clear that we need to be early to market. We need to be there when ACIP makes their recommendation and the season initiates that we're in market and available. Of course, what that means is that a communication education campaign to healthcare providers as well as to consumers and then coordination with the CDC through our policy teams and government affairs teams to make sure that all of those initiatives are being effectively communicated out throughout the entire market. So the lessons learned in '23, the seeding of the marketplace that took place during the pandemic is really going to set the stage well for the '24 season.

Thank you, John. You're providing updated guidance on the OpEx side. John here today. And I appreciate that, that's certainly a focus for the business. On the top line side, are you in a place to sort of guide or yes, provide a little bit of an outlook. I mean certainly, it's hard to do in the commercial setting right now in the U.S. and sure right now kind of early days, and obviously, it's a delayed COVID season at the moment. But there is also still a fair amount of APA, perhaps related revenue that might perhaps pull through. So is there some component of the top line that can be sort of a forecast as a base case here?

Jim Kelly, would you like to handle that? I think we can comment on the committed APA contracts that remain over the next 2 years.

Certainly. When you look at the way we have presented our company today, I think core to our story is that we fully transformed the size and scope of this company from a pandemic era company to one that is far more lean, focused and prepared to compete in the competitive commercial marketplace. The OpEx update that we shared with you today, the guidance, it's really a repeat of what we said on our Q3 call, namely that from 2022 as compared to where we're about to go in 2024, we're reducing our operating expense, R&D plus SG&A by almost $1 billion, over 55%. And we've done so by maintaining the important capabilities we need to advance both our commercial capabilities and also advance our pipeline, namely CIC. So that's of key importance. One of the things as we move forward, which is critical, is financial stability. And when we look at our pathway to financial stability as we build these new commercial markets and advance our combination CIC program, some important points I just reemphasize from our Q3 call. We see a pathway to approximately $2 billion in revenue and cash and I'll tell you exactly what I mean. At 09/30, we had $960 million in cash, receivables and also an expected payment from Canada that we're literally waiting on any day now, now that we've delivered that APA doses in December. In addition to that $960 million and looking to the full season guidance, midpoint of $1.3 billion, we had a remaining $600 million outstanding. That's virtually all 500 of the 600 really government-based across the completion of Operation Warp Speed plus delivering upon these APAs you mentioned. Then when you look past this season, another $750 million in committed APAs through 2024 and 2025. So in total, you get to about $2.3 billion adjusted for upfront, it's about $2 billion and it's an important component of, I'll call it foundational cash and future revenue that when coupled with the cost containment, namely getting R&D and SG&A below $750 million sets the stage to be able to build out those important commercial markets like the U.S., like what we're seeking to do in Europe and then select great opportunities that have come our way, like in Korea. And as we look to work potentially with UNICEF in some of the low and middle-income countries through their RFP process. So those are going to be upside to what we've just described. So hopefully, that gives you a little bit of perspective of what lies ahead.

On the OpEx side, it seems -- I was going to ask whether maybe perhaps unpack a little bit where you are getting a little more where you're seeing efficiencies on the spend side of things. But I want to dig in a little bit more on manufacturing capabilities. Just looking at your slide here where that possibly a sale of your Czech Republic manufacturing facility might be on the table, suggesting that perhaps building out your internal manufacturing capability isn't necessarily a priority going forward here. Is that the understanding that investors should carry going forward? And is it really the Serum Institute we should think of as the primary supplier of antigen or vaccine product for both COVID and for CIC?

So perhaps I can break this into 2 pieces. I'll take one and John may have you take the supply piece. One of the pieces that you're asking is, help us understand this improvement in your cost structure as you drive R&D and SG&A below $750 million and what we shared in November was that we're prepared to take action with urgency and the expectation new investors should have is that in the very near future, we're going to come back to you with some more specifics around exactly how we're going to further drive down that cost structure. So we got an earnings call, for example, coming up in 2 months. It's our expectation to provide more detailed guidance. You should expect either there or prior to that, additional feedback on more specifics around it. And it's important because it's not just to say, oh, your cost structure is lower. What is critical is where are your investment? How are you driving performance. So we want to combine those 2 together. So stay tuned for near-term feedback and then, John, perhaps you would take that.

Yes. I think what's important to understand is, first, we've got 2 world-class facilities, both the Serum facility and the CZ facility. Both have just done an amazing job during our growth cycle here and these are facilities that make a safe, effective complicated biologics. So you get to a point where you say, what is the global vaccine market and what it was during the pandemic is not what it is during the commercial period. So those numbers have changed pretty dramatically. As we saw at the beginning of the '23 season, we had over 100 million doses of expected demand in the marketplace that changed down to 70%, and then it changed down to 50 and then right now, at the end of December, based upon IQVIA data, we're seeing something like 28 million doses going through the retail channel. So based upon that, we have to modify our supply models and of course, that meant that we didn't need the capacity of those 2 facilities and not to make a very difficult decision about where to focus our time and attention, at least in the short term. So I think this is a market-driven decision. It's a cost efficiency-driven decision and obviously, it's steeped in global market demand and supply.

And very importantly, in the build-out of our CZ facility in the Czech Republic, we built over time a regulatory capacity in Europe that's a critical center of excellence for us there and also a team that does the assays and testing and country and those types of things. So those types of capabilities are critical to us moving forward as we compete for tenders and we can keep that expertise on European soil as part of Novavax even if we sell the CZ facility and other employees that would go with.

Important to note, this is something we're exploring any definitive decision would be pending, of course.

My name is Holmes (sic) from Kenup (sic). You have a gem in your portfolio with the Matrix adjuvant series and as you know better than anybody, most competing products like some of the characteristics, and there's a huge scarcity. So I assume there's a business development opportunity on the Matrix side for Novavax. Could you allude a little bit to that, please?

Well, I'll ask Filip to add a little extra color and context. But during the course of '23, we signed an agreement with the Bill & Melinda Gates Foundation to explore several early-stage programs using our Matrix-M. There are multiple collaborations around the world, Filip with universities and countries around the world using Matrix-M, maybe you'd like to add a little extra context there.