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

Can you touch on Sanofi's expertise and capabilities that could be leveraged to help distribute Nuvaxovid into the market?

Well, certainly. And maybe I'll point to where they are with the enhanced flu vaccine business. We're looking at with their high-dose Fluzone even with their Flublok in older adults, they have 2/3 market share in the U.S. They are the lead respiratory vaccine company globally and have a dominant position in the U.S. And this is a function not only of the strength of the products, but also their portfolio. I think you know how important contracting is. But in addition to that, they have an exceptional proprietary distribution, a distribution that they use not only for themselves, but frankly, other pharma companies leverage it. It's firewalled off in a manner. We couldn't have a better partner. So we believe we're our vaccine, Nuvaxovid and future vaccines are in great hands. What they have said about this coming season, because, of course, we can't speak for them, is that it's a learning year for them, and I should probably clarify that. We got a lot of questions about that. In order to be prepared for any given season, the contracting occurs, gosh, it begins in the prior fourth quarter through about April. For our vaccine as we're transitioning to Sanofi this year, well, we didn't have our BLA yet during that contracting window. And you might have seen in our most recent authorization, hey, we got that 6-month dating on our product. That was critical. So Sanofi is coming into this here saying, "Great, this is the learning year for us. We'll just kind of get all those things lined up, we'll get ready. 2026 is their year where they've got the time, they got the product profile. And so we're really looking forward to not just what they're doing this year, but when they've got the full strength of their capabilities to put towards the '26 and beyond.

Yes, the conversations getting ready for '26 begin in the next few weeks to prepare for the next season. And now under full licensure with the full product profile in hand and approved and this was the first time, by the way, a couple of first for Novavax. We got our BLA licensure that no longer under emergency use authorization. And it's the first time with our COVID vaccine, we were approved at the same time as mRNAs by the regulatory authority heading into the season. So again, learning year for Sanofi, baton hand off here, we just got all those pieces in place now, but next year will be their full showcase on what they're capable of from the very beginning of the start to the finish on a season.

So even 5-plus years after the onset of COVID, what do you see as the market opportunity for these vaccines, both in the U.S. and the rest of the world? And I'm not talking specific to yours, but overall, broadly?

Yes. Overall, I mean, I think you saw the U.S. stabilize the last couple of seasons around that high 30s to low 40 regarding millions of people getting the shot, and that's stabilized. And the global market was roughly $9 billion or so, Jim, in value most recent season. But what we're really excited about is combination therapy,Pete, where we see -- and if you look at some of Sanofi's comments in the public domain and others Moderna, et cetera, about combination therapy, strong consumer preference and physician preference in our own research for having combination options and frankly, non-mRNA options as well. We offer a protein-based non-mRNA option. And the only one on the COVID side. As Jim mentioned before, Sanofi is the global leader in the flu. They know how to do it, they're world leaders in vaccine technology and development. We're so excited to be able to ride on that journey with them in combination with that world-leading flu vaccine, in fact, my mother-in-law gets their vaccine every year. She's 82 years old, right, that high dose from Sanofi, and she feels protected and she is protected by it. We get to ride with them in combination vaccines potentially out into the future. And as so many consumers go every year to get that flu shot, up to 50% of folks who got a COVID shot or so got a flu shot according to the U.S. database. When you lift COVID by attaching it to flu, as you get that option to have it all in one shot studied as a combination specifically for that purpose. So Sanofi is projecting significant growth in the COVID marketplace based on that. And we couldn't have, as Jim said, a better partner with a world-leading flu vaccine to put our differentiated protein-based COVID vaccine together with for that future. And we think that bodes well for growth in the COVID market in your come. Very hard to put a crystal ball on that and give you numbers and percentages today with everything going on, but we're excited about the potential of combination of what that may do in the future.

The 2030 $75 billion vaccine market is partially built to that. We need to remember that 2030 is not very far away. We are almost in 2026. So it's going to take only about 4 years or 5 years to get from where we are today to that potential growth -- of the global market. So -- and we do believe very strongly that this combination vaccines, and the fact that several of these vaccines are getting approved are going to be part of that solution.

Thank you, Rux and Jim has something to add.

So one thing I think that we might be able to share it's out there in the public domain, just sort of the dimensions of our royalty rates. And so I just want to give you order of magnitude, what does it mean cash flow-wise, both the COVID market and the combination market to us as Sanofi executes, right? So we know the COVID market last year was approximately $9 billion. U.S. market was likely $3.5 billion, $4 billion of that, all right? For each billion of sales by Sanofi of our COVID vaccine. We're able to receive royalties, approximately $200 million. right? So you just got to ask yourselves where are they going to play in terms of order of magnitude. When you look at the combination marketplace, great update from this firm called Air Genesis at the World Vaccine Congress in D.C. in April. They estimate that the combination flu and COVID market, point estimate, at $8 billion, all right? So for each $1 billion that Sanofi sells of their combination in of their flu and our COVID, we're eligible for about $100 million in royalties. So we're talking about the flu -- enhanced flu leader who has 2/3 market share. And I'm not saying that's going to be their kick market share, but you're getting order of magnitude counted in the hundreds of millions of dollars of opportunity of cash flow coming to us.

That's for one combination, Jim.

And that's just for one combination. And it is for this reason that when we talk about our lean and agile operating model, I think John described it as a unicorn where you get pharma light performance on the top line, Rux driving, innovation in our pipeline, but we're driving towards non-GAAP profitability as quickly as possible. You're seeing the orders of magnitude. We're saying it could be as early as 2027, but gated by, of course, market performance by Sanofi, including launch timing for their combination products.

And imagine a world in a market of combination flu COVID vaccines where you have a Moderna out there and successful in this scenario, where Sanofi has potentially 2 combination vaccines, each of which have our Nuvaxovid and are eligible for royalties. And then you have hours potentially out-license to a third party, which we're in discussions for and hope to achieve. So should we achieve that. In that scenario, you'd have 4 combination flu COVID vaccines, 2 by the world leader in flu with our Nuvaxovid in it, one with our flu and Nuvaxovid by a third party who would have the scale, scope and desire to do that, and one by Moderna. So every time I add that up in my simple view, that's 3 out of 4 shots on goal for us to get a check when someone gets one of those shots, right?

So there is CDC data that sort of suggests that 50% of the people didn't receive the COVID vaccine also had the other flu in the same visit. And so do you expect that to sort of increase since they are actually 2 separate shots?

So again, if you're looking at the combination vaccines, both the general public and the health care professionals do prefer them. So more than 60% of the general public and more than 80% of health care professionals actually prefer combination vaccines. And as John has mentioned before, the advantage of actually designing from the very beginning combination vaccines is that we are undertaking clinical trials, a very rigorous clinical trials, with that combination in one shot. So it's to the point where we are getting in on our vaccine in the other arm, the other, which is more ad hoc combination if you wish. We are actually now very rigorously undertaking those clinical trials that can build that set of data that will enable that choice from both the public and the healthcare professionals.

And our Matrix-M adjuvant can be helpful in facilitating combination vaccine development because it allows for a greater immune response with less antigen. And as you know, Pete, with your background in education, as you layer on more antigen, you potentially get more side effects, becomes more expensive also to manufacture for a company more difficult to execute those trials. So by lowering the required antigen count, boosting immunity Matrix-M can hopefully help to facilitate multiple combination vaccines across different vaccine platforms, not just in the flu and COVID, which makes it exciting for partnering and which further facilitates that second pillar of our growth strategy, which is additional partnerships. Rux and her team had generated data. We call her Rux, by the way. It's Ruxandra, and her team have generated data showing that Matrix-M could have utility across multiple vaccine platforms, polysaccharide protein, mRNA attenuated, et cetera. It doesn't mean it will work every time someone works with it. Of course, nothing will, but it has the potential to have utility across all those platforms, making it even a better asset to potentially partner with.

All right. So from a regulatory standpoint, what would a kick -- what would you -- what would a Phase III sort of look for a kick? Would it be based on immunogenicity or efficacy or both?

Most probably both, again, we are -- what we have done with our kick combination at the end of last year have enrolled actually a first cohort about 2,000 individuals to really build both the safety database for this type of combination and actually generate more of the immunogenicity data that could help us in the design exactly as you were mentioning of a potential clinical trial that we would undertake together with a potential partner. So one needs to generate both immunogenicity data. And obviously, the proof is in pudding, you really need to show that your vaccine is safe and efficacious.

But again, the key for us and well said, Ruxandra, thank you. The key for us -- yes, I called you Ruxandra, that, right? The key for us is that this will be in the hands of a partner, that's our intention right? So whatever that takes, that should be in the hands of a partner that has substantial resources and the know-how, combined with our capabilities, and we're maintaining, as we drive down our cost and infrastructure while maintaining our capabilities. We leverage our technology to drive value in the hands of others who have the capital and the resources to drive that effectively. And again, we can help. We have the expertise and the know-how on this vaccine and this attack on how to get things into development, how to take it through development, strain selection and other things, we maintain capabilities, but with a much more lean infrastructure and a more stabilized cash runway.

Okay. What are the next steps for the in-house kick? And...

The next steps are find a partner. And as we've said publicly, we're in active discussions on that. And when we get one, if we get one, we'll let you know. That's about all we can say there.

So we have about 3, 4 minutes left. What are the key sort of in-house early-stage programs that you're most excited about?

I cannot say which child I prefer. So I can actually talk a little bit about the programs, building on the respiratory pathogen we do actually have an early RSE combination. We've talked about combinations, so I'm not going to dwell on to why we have chosen that and an early program in pandemic flu. By the way, for the pandemic flu, we just published some of the preclinical data, both in rodents and nonhuman primates, intramuscular and intranasal in nature communication. So that's a very good reference. And then we do have an early program in C. diff. where obviously, the unmet medical need is very significant. And we have seen quite a number of failures as of lately, but we think that based on those --

Other companies targeting...

Other companies -- thank you, John, making clear, it is about other companies using a lot of the AI machine learning modeling work. We think that we're going to have a product that is well differentiated and hopefully much more successful. And then we are working on a shingles vaccine there. Obviously, on the market, very big market, a very efficacious vaccine. Unfortunately, it is linked to a significant reactogenicity, maybe about 40% of individuals who are getting the first dose of that particular vaccine are not coming to get their second dose, which is obligatory in that particular regimen. So we hope to have a vaccine that is similar in efficacy, but with a much milder reactogenicity based on the work that we have done in Matrix-M.

Yes. So we're targeting multibillion-dollar market opportunities here, Pete, the top 3 to 5 areas in vaccine potential that feed into the market that Jim and Ruxandra were describing earlier on that potential growth. That's what we're targeting with our technologies. So you look at Shingles, excellent vaccine out there now regarding efficacy, it does have a high reactogenicity profile. So if we -- one can improve on that, you might have a very competitive asset. So should we succeed there that could be a really strongly competitive entry into that marketplace that we would intend to partner out and monetize as early as possible with some early results coming out of the laboratory. Secondly, C. diff, there's no vaccine out there right now, and the Pfizer is developing one that they're excited about. Companies are trying because unfortunately, my sister and Las best friend died from C. diff after a routine surgery at 59 years old. It woke me up to it several months ago and how serious that really is. And there's nothing out there right now that's really effective. So we would hope if we can generate a vaccine that can be preventative on that or help someone after a surgery with us a huge public health benefit, multibillion dollar opportunity. We're targeting that. When you look at RSV, a $1 billion-plus marketplace right now, and as we've said earlier, combination is the way of the future. As Rux said, there's a high preference share in market research interviews and studies with both consumers and physicians for more convenience in the vaccine. Finding the right combinations that make sense is an art, and we're working on that. And also, we have our beautiful matrix and adjuvant, not perfect, but very nice asset, certainly helpful in development for combination vaccine. We believe, as we've said before, and excited about looking at multiple opportunities, doubles and triples on RSV and what might make sense. And then H5N1, pandemic flu, we're applying for grants. The U.S. government is still open for business there and does have money to deploy. So we're in active discussions with them about potential grant opportunities to develop an asset to protect the U.S. population, also in discussions with the European authorities, they're very interested in our technology platform, frankly, for many reasons. So very exciting there. Last but not least, oncology. And that's a platform play we're looking at. We're targeting platform approaches that could be more than half of tumors that lead to death. So if we're able to show some positive results there, we could have multiple opportunities and open up the doorway for the creation of potentially multiple cancer vaccines in the future with a non-mRNA option. A lot of the mRNA companies, and thankfully, and we hope they succeed as well because cancer is devastating, are working on excellent vaccines. We hope that come out and help public health. We'd like to be able to do that as well with the non-mRNA option. So that's the goal. We're excited about the future at Novavax. Thank you for your time today.

Yes, one minute. So it's great, a lot of opportunity internally. You can also basically utilize licensing deals with Matrix-M, leveraging -- it has a very large safety database. So excited about that. But before we do leave, Jim, you made big strides in cost cutting and debt management. How close are you to having the structure in place to actually have a sustainable and cash flow positivity?

Well, certainly. As we've highlighted here today, we've got a great technology platform to invest around. And we also have exceptional partner in Sanofi, but more to come to bring cash flows into the company. We've shared with investors that we're looking and driving the non-GAAP profitability as early as 2027, and we're doing so by both supporting our partner, Sanofi and what they do, and you heard the orders of magnitude of potential cash flow in both milestone and royalties. Then we are driving down our cost structure. And a couple of important points on that. We're targeting one combined R&D and SG&A by 2027 of $250 million. That would reflect an 85% reduction from our peak. We have done an exceptional job driving down our cost structure. Then in addition to that, our liabilities, our short-term liabilities, our peak $2.6 billion, last quarter below $400 million. So you're watching us just literally shed cost structure, shed liabilities and with our most recent announcement, I think you know we refinanced our convert, took $175 million that was sitting there in 2027, took $150 million of it and pushed it out to 2031. We've got a lean agile operating model, great investments, but we're doing it in an agile way. And through some of our important nondilutive cash raises through milestones plus some this refinancing, extending our runway along the path to that profitability. So that's what we're doing. But it's all about creating value, creating life-saving vaccines.

All right. Well, thank you very much for attending the Cantor Healthcare Conference and enjoyed the conversation.