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

Hey, everyone. Good afternoon, and welcome to Day 2 of the 2024 Bank of America Healthcare Conference. Thanks for joining this session with Novavax. My name is Alec Stranahan. I'm Vice President and senior biotech analyst covering Novavax here at BofA. And I'm pleased to be joined by John Jacobs, President and Chief Executive Officer of Novavax; Filip Dubovsky, President and -- of Research and Development; as well as Jim Kelly, Chief Financial Officer. Thanks for being here, guys.

Thank you, Alec.

I appreciate you having us.

Yes. Great. So John, maybe you just want to give a brief introduction. You reported earnings on Friday. You also reported your collaboration with Sanofi. Maybe you can kick things off and then we can jump to...

Thank you, Alec. We couldn't be more excited. But first, if you didn't notice, we dressed for the role. So you can tell who the CFO, the scientist and the CEO is. By the way, we're dressed. So just a little bit of here, we're going to kick things off. Thanks for having us, Alec. We've enjoyed the conference so far and really our first conference since the news on Friday. So we couldn't be more excited as an executive team for our company, for our future, for the amazing partners in Sanofi, just a global leader in vaccine development and commercialization who have really validated our technology further through the recognition they provided us in the construct of this deal. Couldn't be more excited about what it means for our future as a company and for consumers because our mission is to bring vaccines forward to help the world take on tough diseases using our technology. If we had kept it all to ourselves, we could have done a few more. But with Sanofi by our side, we think that the opportunity is really limitless and what's possible to take on serious diseases around the world. And certainly for our shareholders, we really are working hard to earn the trust back from, and we think this is a step at least in that right direction to begin doing so.

Perfect. Well, maybe we can start. Any updates on your execution of your -- the three priorities that you've been working towards? And how does the Sanofi deal help in redirecting the company?

It's a great question. And if I could just for a moment, take us back to January of last year when I first joined the company. So about 15 months now in the role, it's been a blink of an eye, actually. It feels like [ last. ] It's been so exciting. And we set together as a management team and our Board that first month on the job are three priorities that you just mentioned, and the three priorities for our corporate strategy. And the first one was to bring forward our vaccine to show we could update the strain that had not been done before yet by the company and that we could do so in season alongside mRNAs, which everyone knows as a tech platform can be faster than a protein-based vaccine. So how are we going to achieve that? Had to prove we could. Number two, really clean up the balance sheet and significantly improve our cash position with about $2.5 billion in current liabilities as I entered the company in January last year, we were able to remove well over $1.5 billion in current liabilities in the last 15 months, including over $800 million in the first quarter of this year alone, settle a $700 million dispute with Gavi, bringing hundreds of millions in cash prepayments from our APAs and put the company in a much better position from a cash flow and economic perspective. The success we had on those first two priorities, Alec, then enabled what we've just seen with Sanofi, which was priority number three since last February to extract value beyond COVID alone from this technology platform. And the reason I came to the company was because of my belief in this company's belief in this proven technology platform and what it's possible to do. So this is the first of a Pillar 3 success, and we're so proud of that, and that's the update. There was that 15 months of work on those first two priorities to put us in a position of leverage, not weakness. So we could negotiate a fair deal, a win-win deal with a significant party like Sanofi.

Yes. I agree. It is a win for both of you guys. And it sounds like Sanofi will be taking over the COVID launch starting next year.

In January, correct.

In January of next year, okay. I guess what makes Sanofi the ideal partner? Obviously, they are leaders in flu. What makes them the ideal partner for you guys to now drive the COVID launch?

And COVID launch as well as perhaps build out a portfolio of new assets beyond what would have been possible if we kept it all to ourselves, as I said earlier. But COVID launch, [ you have a ] world leader in vaccine development and commercialization and specifically, respiratory vaccines, specifically in flu. When you look at their high dose flu for 65 and older and then you look at their other flu programs that cover different age groups, they're the leader in flu and they've proven that over time. So we now get to join them on that journey and have economics from that multibillion-dollar flu franchise as well as our COVID vaccine, scope, scale, market presence, experience, pull-through and channel strength are very important in vaccine sales. You have to be able to distribute the vaccine. You have to have the leverage to negotiate good access in the U.S. market through contracting with key national pharmacy chains. And we've seen the COVID market, surprising, I think, to everyone, over 90% was retail. We didn't see the physician component that everyone anticipated. Sanofi also has their own distribution facility and company on U.S. soil and they're able to help with distribution and channel access. So we think for many reasons, guys, did you want to add anything to that? They're just an ideal partner for the COVID launch itself next year, but then also for combination products, and for new products with Matrix-M, et cetera, which we can get into. Jim, [indiscernible]

That's right. I think, in particular, on that Matrix piece, the breadth of their portfolio and the ability to either or leverage Matrix to improve COGS in their existing portfolio or apply Matrix to novel new vaccines. My goodness, there are so many places just could go, so many patients that can be helped .

Right. And you do get upside economics as part of the deal terms for any additional assets using your Matrix down there?

Yes.

Can we talk about that for a moment? I think that's really important because the deal has many layers of value opportunity for us. Obviously, you have $0.5 billion upfront payment within 10 days of signing the investment in our equity, 4.9% stake, they took roughly $70 million. Those are the table stakes upfront. But then you have another roughly $700 million in near-term milestones, Alec, associated with operationalizing the deal, handing over the marketing license, right, making that transfer, completing a tech transfer, so they can take over manufacturing, right? Early clinical milestones as they begin to develop their CIC program, right? This is execution that we would need to do go forward with the deal, and there are significant milestone value associated with that. A lot of the headlines in the newspaper quick grab $1.2 billion deal or so in Sanofi, that's only the beginning of the actual value of this deal. This is truly a multibillion-dollar opportunity for Novavax. So beyond the initial upfront and those milestones that are roughly $1.2 billion to $1.3 billion, if you include the equity piece, we have anticipated royalties for many sales of our COVID vaccine. They can also then and intend to put that in conjunction with their flu vaccine for a combination that will have royalties. And they can also make other combination products using our COVID vaccine, all of which would be subject to royalties go forward. And then there's a very important component beyond that, which you mentioned, Alec, Matrix-M, our adjuvant technology platform. Through the deal, Sanofi has access to create any new vaccine they would like to using our Matrix-M adjuvant, and/or improve anything they have in their pipeline, but the exception of their stand-alone flu, that's the only exception, using Matrix-M. Each new product they would develop using Matrix-M is eligible for up to $200 million in additional milestones, development and sales milestone and ongoing mid-single-digit royalties for up to potentially two decades follow on. So if you look at all the different components from the upfront, the equity investment, another $700 million in near-term milestones that are available to us, anticipated and potential royalties from sales of our COVID vaccine stand-alone, their COVID flu combination, any other combinations. Just an example, you need [indiscernible] RSV plus, right, et cetera, royalties there. And then in addition, any new product with Matrix-M, up to $200 million in milestones each plus royalties. The last piece of value from the deal are cost synergies, roughly $300 million to $400 million we're currently estimating, maybe even beyond that as we are able to shrink down SG&A to market our COVID vaccine and focus more on the core of what we're really good at, which is R&D. Novavax in 2-plus decades had never commercialized anything before. And when you try to go up against big pharma who's done that for decades, it has scope, scale and leverage, and you're a tiny biotech who grew up overnight, you're going up against Goliath as David, right? So much better for us to focus on the core of what we're great at. Last point, we maintain full independence and ability to operate, meaning we have our own CIC vaccine. With our COVID and our flu, we just changed that study design to include in addition, a second potentially registrational product in our stand-alone flu. So now we have two shots on goal versus one in that program, which starts second half of this year. We turn those data cards over mid next year, and we can choose to license that out to anyone else we want to, partner those assets with anyone else that we want to, and we also can partner out our Matrix-M to any other company we wish to, to build out their own portfolios. And now we've set a bar on anticipated value for those types of things.

Yes. Gentlemen, anything to add on that context?

I'd tell you what, multiple ways to win. It really is. And not just for the Sanofi opportunity in all the just incredibly promising sides to it. But also, this, as John noted, renewed focus on our pipeline, creating value, new transactions. We can just have so many different programs come forward from our portfolio to create value.

Right. And that [indiscernible] operating model, it's so important for us to get that. It was $1.7 billion cost structure when I joined the company. We're now targeting below $750 million prior to this deal. And Jim, I think we can get that well below, we've said in our earnings call starting next year and then even beyond that.

Well, that's exactly right. I mean, we're targeting $500 million next year, a significant portion to be reimbursed by Sanofi, maybe somewhere between $50 and $100 million. But as we get past the tech transfer, certainly the ability to go even further and appropriately scale to the opportunity. We've shown that we've been nimble and we act with the urgency to do so. In the near term, let's not get there too fast. We have to ensure we get Sanofi where they need to be to succeed.

Yes. Filip, you wanted to add a comment?

Yes. I mean, you touched on this, but one thing I find interesting is to think about how the adjuvant, how Matrix can be used to improve their currently commercialized vaccines, right? We know it's profoundly [ dose bearing ], which could have huge implications for COGS, especially for difficult to -- or expensive to manufacture vaccines. We also now provide a T cell response as well as a [indiscernible] response, which may be lacking some of their current vaccines. We also know that the reactogenicity profile is very favorable. And we've shown over and over again that even with high levels of antigen, we're clinically [ indistinguishable ] from licensed flu vaccines. So we think there's a real potential. Now you have to approach that with a lot of forethought because it may cost you time and effort to redevelop a vaccine. On the other hand, it might be worth independent [ sales ].

Right. That makes sense. And John, I want to drill down on a point you made. The setup before the Sanofi deal was David versus Goliath, like you said, but now you're riding on the shoulder of a giant, which is Sanofi. One question I've been getting is you have 20% economics from COVID as a royalty, correct?

It's high teens to low 20s.

Yes. Yes. Tiered. Sure. But there could be a volume or increased demand component with Sanofi at the rains, right? So I think what people are trying to wrap their head around is what does the demand kinetic look like with Sanofi driving the ship? Any forward-looking color that you can provide there?

Well, I think as a good partner and to take a step in the direction of our new partner, Sanofi, I don't want to project guidance for them in the conversation. But I'll ask Jim if he wants to add anything else to that.

Well, just two comments without, of course, guiding on their behalf. The first comment would be, my goodness, [ there that ] demonstrated a global leader in vaccines and respiratory vaccines. And it could -- our COVID program and future development programs couldn't be in better hands. It certainly couldn't. And so our expectation is that they will do better in their hands. From a top line perspective, certainly from a bottom line perspective, meaning cash flow from our franchise, we believe through this transaction, the cash flow is better than if we had sold these ourselves. We are in a better position.

Okay. And maybe one follow-up for that since you guys will be doing the majority of the launch work for this season.

Correct.

You've already talked about JN.1 as sort of the variant that you're going after. We've talked about single dose presentation. We've talked about getting a greater foothold with pharmacies. We talked about ELA. What's sort of the progress on all those fronts? And how does that feed in -- even without Sanofi, how does that feed into a stronger demand kinetic this fall?

Yes. I mean, we believe we can have a much superior performance in the U.S. market, for example, than we did last year. You know, Alec, we're on track with a prefilled syringe actually, which is really important and helps us to be more competitive, JN.1 strain and good cross-functional data that Filip presented on the emerging strains that emerged from JN.1, so we're very confident about that. And we have a dual pathway, right, BLA and EUA. We did that by choice in consultation with the FDA to give us a much better chance to be on time at the beginning of the season. So last season, we were a few weeks behind mRNAs, [ we were ] close, but half the market occurs in the first month, right? So that's opportunity we do not intend to miss this year. That's our intention. So with the dual path, we completed our BLA filing, and we expect an answer on the BLA this year from FDA. In parallel, for the prefilled syringe and only for the variant towards choosing the EUA pathway together with FDA because that gives us the best chance to be on time at the start of the season in that prefilled syringe with JN.1. And we've had excellent conversations so far with retailers. I can't provide you more context than that, but we're confident that we're set up in a much better position this year to perform in the U.S. market that before.

Fantastic. Maybe we can shift now to the combo vaccine. Maybe we can talk through the decision to add in the flu monovalent within that. And I also -- I'm curious, what is the comparator arm that you're considering? Is it Sanofi's flu?

We have not been specific on that arm beyond age designation, but I'll hand it over to Dr. Dubovsky to comment.

Yes. So what we said is the comparators for both of those arms of the study, both the CIC and the standalone flu are going to be age recommended vaccines, right? And there are only three of those in the U.S., but we haven't disclosed which of the three we're going to use as a comparator. We think it's important to use that age recommended vaccine. It's relatively trivial to have a successful study against standard dose, but that is [indiscernible] really help you unless you get the [indiscernible] recommendations and it probably wouldn't allow you to be competitive in the marketplace. So that's why we took that decision. And we're going in with a lot of confidence. We've presented this data previously. At the earnings calls, we have, in my opinion, obviously excellent influenza vaccine, which looks superior at least [indiscernible]. And for the combination product, it's at least not inferior [ than their ].

Okay. Any updates that you're making to your flu stand-alone? Or is it...

I mean, the only update is that -- well, clearly, the strains are going to be in there. And as the world has migrated to [ try billing vaccine ], we've also done that. I was in discussions with [indiscernible]

Okay. And then I think the other question I've been getting, you guys will have a Matrix-M [ CIC ]. Sanofi will have a Matrix-M [ CIC. ]