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

Welcome to Jefferies London Healthcare Conference 2025. My name is Roger Song, one of the senior analysts cover semicap biotech in the U.S. It is my pleasure to have my next fireside chat with Novavax. Welcome, Jim and Ruxa.

Very nice to be here.

Thanks for having us again this year.

Absolutely. Welcome you. Okay. So Jim, if you can just give us a little bit kind of an overview of the Novavax today. I think it's different from last year for sure, and then the very big strategic focus for the new Novavax. And then why don't you give us an overview?

Right. Fantastic. So thanks, everyone, for joining us today. For many of you, you may be familiar with Novavax from our most recent history during the pandemic. One of the very few companies that cracked the code actually created a highly efficacious COVID vaccine. And you might be asking yourself, how did this company achieve that when so many big pharma couldn't do it? And the answer is our technology. Our core technology based on subunit protein nano-based technology for antigen creation when combined with what we believe is the most effective adjuvant Matrix-M. And we think that, that's been critical to our success that you will see in the form of both our COVID vaccine but also in terms of products on the market today, an exceptional malaria vaccine, our license partner, Serum used our Matrix-M in a game-changing malaria vaccine, and we can talk a little bit about that in a minute. But when you think about our company and chapters, and that's something we outlined and John Jacobs, our CEO, outlined on our most recent earnings call, you have that chapter, which is the pandemic chapter that, seeking to address a world pandemic is a huge deal, but transitioning the company to be an endemic-based vaccine manufacturer, a different story. And as we executed across that chapter, partnering with Sanofi, the world leader in vaccines to take that COVID-19 vaccine, Nuvaxovid and drop it into their portfolio of market-leading respiratory and other vaccines is the absolute right move, both for patients to have access but also for Novavax in terms of the economic interest. And so -- but that's just the first piece of a groundbreaking partnership we have with Sanofi. In addition to that and during what we're calling really a transition period, we're reducing our cost structure, strengthening our balance sheet and then seeking through additional partnerships and advancement of our pipeline to truly highlight this game-changing technology. And so that's the next few years, that's what we're doing. We're sort of assisting Sanofi to execute commercially, while we, in parallel, advance our technology and partner. Then the end game, which is a few years out, is to drive profitability of the company. So think about a diversified top line, multiple partners, a lean infrastructure and then an emerging, both in our hands and in the hands of our partners, a portfolio of projects moving forward in vaccines that are game changers. And that's the unlock -- the full unlock for the value creation.

Excellent. I think that's a good kind of set up for the growth strategy across different prongs of the strategy. So maybe we are still going to start with the commercial part, and I understand your partner with Sanofi right now, which is a major player for the vaccine and then the leader -- one of the leaders. And then Sanofi has been guiding the 2025, 2026 season is a learning year. So as the first year, they start to do this. And then how should we interpret that, right? So -- and then what's the expectation for the first learning year and then we talk about the coming years?

All right. Excellent. And so what I like about your question is when we think about the layers of value to unlock here, you've got sort of layer 1 is the Sanofi agreement. Layer 2 is additional matrix deals. And then layer 3 is our early-stage emerging pipeline currently on partnered but with great opportunities to partner. When we unpack the first layer, which is the Sanofi agreement, think at a minimum about 3 layers for that one. You've got the ability to commercialize our COVID vaccine beginning this year, and I'll come back to your specific point around the COVID market and sort of their transition year. Part 2 is the ability to take Nuvaxovid, our COVID-19 vaccine and combine it with their market-leading flu franchise with not just one but two. They have 2 combination products in development, right? And by the way, for folks who are watching the evolution of the combination flu and COVID-19 markets, and I'm going to point to an Air Genesis report from World Vaccine Congress, you're talking about a market that could be as big as $8 billion a year. We've got the market-leading flu vaccines, high-dose Fluzone and FluBlock, where Sanofi has just announced that they had positive Phase I/II data and they're working with agencies to advance those programs into pivotals. Now under that part of our agreement, we're eligible for up to $350 million in milestones and then royalties, high single digits to low teens. So exceptional opportunity for value creation. And then three, under the Sanofi agreement, is the ability to leverage our Matrix-M in their portfolio, and there'll be certainly many opportunities to do so. A recent announcement was that Sanofi received a BARDA agreement with their H5N1, their pandemic flu vaccine with our Matrix. So you're beginning to see that layer of the agreement come to fruition as well. So I'll answer the specific question around the market, and then Rux can give some updates on the CIC market and then right, the H5N1, that's an exceptionally big deal, right? So in terms of the market and Sanofi's work with COVID, the 2026 season is their full launch season, all right? This year, it's a transition year. And so when we look at the 2026 season, we see the following. We see the ability to do the full cycle of contracting in the U.S. market, which occurs in the January through April time period, with in hand, Sanofi, we put all these items in hand this year, a BLA, which we got in June of this year and at least 6 months dating. So you had to have both those things in hand to be able to go ahead and do those negotiation contracts. And so that is going to mean that in the coming contracting cycle is when you're going to see the full strength of Sanofi's commercialization effort come into play for the 2026 season. And that is why for this season, 2025, they've said, listen, transition year. We're just going to do some spot marketing efforts, make some of the vaccine available through outlets and really use it as something of a learning year to prepare for '26. All right. And then, Rux?

Yes. Just a few words. So for those who don't know, CIC means combination influenza COVID vaccine. So Sanofi has just announced positive data from their Phase I/II, both for FluBlcok and Fluzone high dose. And for both of the programs, the FDA granted to Sanofi the Fast Track designation. So obviously, that entails a much faster review of the dossier when that would come to pan. For the BARDA, as Jim was mentioning, that is a big deal because while for the moment, human-to-human transmission have not been actually described for the current H5N1 strain of flu. For global health security purposes, having a stockpile of vaccine is really absolutely necessary and having Matrix, so our adjuvant combined with Sanofi's pandemic flu actually offers both companies to capitalize on the strength of the technologies. So that's a little bit of nuance to what Jim has been saying.

Yes, absolutely. I think 3 layer for the Sanofi and then from commercial and the and then CIC, even earlier pipeline. So just to also remind the investors how that will impact your balance sheet. I think the CIC is $350 million. But I think Matrix-M is also is an additional...

It's an additional.

That's exactly right. So under the agreement, Sanofi made a $70 million investment in our company. We received $500 million upfront -- and then in addition to that, $700 million eligibility for milestones split equally across both the COVID performance and then also the CIC. So exceptional value on upfront and investment and milestones. This year alone, we earned $225 million in milestones, really proud on the execution against that. And then in addition to the milestones, as you move forward, royalties. So you got the ability to have high teens, low 20s royalties on the COVID sales globally. And then on the combination CIC vaccine, COVID plus flu, you've got the ability to have high single digits, low teens. And while a lower number, what we'd remind folks of is that flu vaccine, that franchise, the market-leading franchise, $3 billion plus for Sanofi, the expectation is that's got a high percentage migrate over into a combination setting, and we have the opportunity to have royalties on that. So we're thrilled. And so that's an exceptional opportunity for not just cash through upfronts and milestones but long-term durable growing royalties. And what we're seeking to do as a company, and this is the value creation on a cash flow basis is to drive a lean cost structure as those royalties come in and grow so that, right, we can be capital independent and grow shareholder value.

And how about the Matrix-M? So that's additional, right?

That's exactly right. And forgive me for not hitting that harder. The Matrix-M is a nonexclusive right that Sanofi has, and we purposely made it nonexclusive because we believe Matrix-M as an adjuvant can be the engine of innovation across the vaccine industry, an industry that currently in 2024 was $57 billion. McKinsey study noting it could go as high as $75 billion plus by 2030. And that this adjuvant, we think, could be a critical driver of innovation for new vaccines or improving existing vaccines. Okay, in terms of the economics there. So mid-single-digit royalties for up to 20 years from launch on any new vaccine developed by Sanofi with our Matrix-M. And then in addition to that, up to $200 million in milestones, each new product. So we couldn't be happier with both the partnership and the structure of the agreement.

And from the science, Song, I have to mention that in our own labs, we have tested matrix in combination not only with different antigens for us and for some of our partners, but with different vaccine platforms. And we have noticed that breadth of immune response, enhancement of immune responses, indicators of durability of protection across different platforms. So this is, as Jim was mentioning, with the nonexclusive license to Sanofi opens the door of other deals, other actually collaborations where we can be the engine of innovation behind different new or improved vaccines.

Yes. That's a perfect segue to the next layer of the growth driver, which is the partnership and then using the Matrix-M. I believe you have a couple of relatively recent master contract, so just get access to your technology and then use that in the test in the lab. Just remind us of what's that any updates from those relationships and then how likely they will materialize into the formal partnership?

Sure. So a couple of points there. The first one I'd make is that you heard me mention before, a growing vaccine industry going up to $75 billion plus. But what we recognize is we work with Matrix across different modalities in different vaccine categories is that it has such high utility that if we try to control it 100% and do it all ourselves, we'd actually thwart innovation, right? Because we have limitations to capital and the ability to advance. By making Matrix available on a nonexclusive basis to others, we really see an ability to be -- it's almost like an Intel inside strategy where you're going to be, right, the key driver inside to drive innovation. Maybe I'll say NVIDIA chip instead, right, and maybe a little more current. So -- but that's exactly what we're seeking to do. And so then you say, okay, I wonder if some of the major pharma players are familiar with what Matrix can do. And the answer is they all know, right? The data that either we're generating ourselves is out there and they can see it. And we often do these proof points where we've shared, oh, here's what the data looks like and it's our business development sales brochures, right, for them to go in. But nobody is going to believe you unless they tinker with it themselves. And so you're correct. We have 2 top 10 pharma who are under MTAs who are doing just that. They're taking Matrix and they're tinkering with it in their labs. The way BD works, at least with disclosures with us, we'll tell you when we got something, right? So I can't give an update, but this is core to our strategy. We have every expectation that there's going to be matrix deals, not just with the ones that I just mentioned, but multiple over time. And so we're really looking forward to that. And then in terms of -- I mentioned 2 major pharmas, vaccine players, MTAs, plus you add to that Sanofi, plus in addition to that, we also mentioned we're working with an oncology player with a new innovative approach to oncology vaccines that we think could be a game changer. We're not going to be an oncology company but we might have an adjuvant that's precedent for using adjuvants in that setting. And we think there could be an opportunity to unlock that part of the business. And maybe, Rux, maybe you want to speak about what we're doing there?

Yes. So we have made comparisons with other adjuvants that are currently using vaccines. So if compared, for instance, alum with Matrix and for those who are scientifically inclined, Matrix is actually fostering a very balanced immune response. So alum engages 2, so predominantly antibody responses, which are very good for specific applications. With Matrix, we see a balanced Th1, Th2 response and you have CD4 positive cells, you have CD8 positive cells. So we thought that the type of immune response that is generated adjuvating with Matrix can be used not only for vaccines that are suitable for infectious diseases, but also for oncology vaccines. And to the point, we are actually working in collaboration to generate proof points with somebody else's peptides, yes. So somebody else's technologies plus our Matrix and other formulations, including we are envisioning tweaking a little bit Matrix because now we know how to do it and generate more type or another of immune response. So really making it tailor-made to the needs of that particular vaccine. So it's very exciting. There is a lot of AI machine learning also involved in all this modeling work, but that is something that aside from our infectious disease early programs, is very appealing.

And then in terms of market sizing there, in addition to the $75 billion size ID right vaccine market, this oncology market, we're speaking about is growing to over $40 billion. So now you've pushed the combined over $100 billion. As I mentioned, hey, we're not going to be an oncology company, but for a targeted low investment, we can do a proof of principle here, and let's figure out if there's an unlock.

Got it. So I think this is new information to a lot of people, including myself. And you do have an earlier pipeline. So that's mostly focused on the infectious disease and then sugar and then the flu and RSV. So are you actively working on this oncology with your partner? Or that's something you take that internally as well?

Yes. So on the -- and we should talk about both, of course, both the guiding principles around our early stage and what we're doing, plus this work that we're doing in oncology. We've got a specific partner we're working with at this time on this proof of principle. And so some really fascinating work. Look forward to sharing some updates with you. I think you've heard from us in coming quarters. We're going to be walking through both the latest information of our preclinical early-stage programs, and it would be inclusive, for example, of some updates on this oncology collaboration as well.

Excellent.

And then as we think about what we're working on in our early stage, I'm going to start with maybe the end market in mind and then kind of dial back to, hey, where are we in terms of working on it? So what we recognize is that there are many markets out there with exceptional high unmet need. So we do a combination of, I'll call it, markets with economic promise, but also high unmet need. And I need only point to our license partner, Serum in the R21 malaria. That's not a big economic boom but that is a great, great vaccine for world health. And so we'll continue to kind of keep that mindset as we move forward, right, the ability to do good, do right and then also play in the important markets, right, commercial markets. As we look at some of the early-stage vaccines we're creating, it includes categories where, hey, nobody could crack the code, much like COVID once upon a time. And what can we do there? We'll talk a bit about C. diff, the vaccine in that area. Then you look at major markets where you'd say, hey, this is a great market. We got incumbents but they have flaws and you can potentially do better. Shingles is a really good example. High efficacy, tolerability, kind of tough. What can you do to address that? And then you look at pandemic areas, areas where governments may want to be a part of solving problems. I think the H5N1 pandemic flu is a really good example. And then one more category, combinations, much like the pediatric market that went through a consolidation in combinations because, frankly, kids just didn't have enough arms, right? You couldn't vaccinate enough. You need only go into any pharmacy today and they ask you, which one of our 18 vaccines would you like to get today? And you realize the ability to create combination vaccines matters. It genuinely does. And so our platform protein nanoparticle with our adjuvanted technology is really good for layering on multiple vaccines. And we're able to show we can do this with on par tolerability of the stand-alone vaccines. And the RSV combo is a third example that we're talking about. So that's more of the framing. But in terms of, hey, why believe this? Why should we be able to do it? I mean maybe, Rex, you could share some thoughts.

Yes. So taking it from the top, so C. diff, there have been spectacular failures in Phase III. From the very beginning, we decided to take a very different approach. And instead of designing a toxin-based vaccine, we have used, again, AI machine learning to identify specific antigens that might confer a higher immune response and the different type of immune response. Obviously, there, you are looking at mucosal immunity and something that works well in the gut. There, the unmet medical need is really big in particular, in hospitalized patients. So a specific category that is totally unaddressed. For the next example, which was VZV, so shingles, we have a very efficacious vaccine. The issue there, the unmet need is the tolerability. 40% of patients that are getting the first shot of shingles don't go back to get the second shot, because of this tolerability reactogenicity issues. So we thought that, again, we can design a vaccine that is equally effective but much more tolerable based on the Matrix-M adjuvant. For the RSV combination, we have quite efficacious RSV vaccines there. There, if you wish, unmet need is twofold. Number one, that we don't know exactly the durability of protection but it's not extraordinary long. And the vaccines up to now have proved to not be able to be boostable. Yes. So at the second administration, you don't get the same return on investment as your prime. So there, that's one issue. The second one, as Jim was mentioning, is that you might be able to combine different respiratory pathogens and create a vaccine that addresses a multitude of diseases. So RSV, HMPV, PIV and this is our desire. For the pandemic flu, we have a different pandemic flu than our colleagues at Sanofi but not less interesting. So we have preclinical data that we have published that shows that we actually -- the vaccine can be delivered either intramuscularly or intranasally, intranasally means possibility of self-administration, number one. And number two, we have demonstrated at least in our friends the mice and nonhuman primates that intranasal administration results in mucosal IgAs, which translate to lower viral loads. Lower viral loads, if we see them in humans, mean less transmission. So in the case of a pandemic, that is one of the essentials when we are talking again about this global health security. We really need something that is efficacious, that at the population level can cover it much better than classical vaccines. So that's in a nutshell where we are with our pipeline.

Excellent. I think we went through every -- the growth factor and the drivers. Thank you for the time with us today, and then thank you, everyone.

All right. Thank you all for joining.

Thank you.