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

Well, good afternoon, and welcome back to TD Cowen's 46th Annual Healthcare Conference. We're delighted today to be hosting Novavax. And joining me from the company is CEO, John Jacobs; CFO, Jim Kelly; and Head of R&D, Ruxandra Draghia.

So John, maybe to kick off Q&A. The company is successfully executing its growth strategy. But maybe for investors that are less familiar with that, can you provide a high-level overview of what the company is doing there?

Yes. Thank you, Chris. In the last 3 years, we've executed a successful pivot away from a company that was solely focused on COVID-19 with our one asset made from our technology platform to a company now that's focused on out-licensing that technology, partnering it out with the goal of exponentially seeing the impact of that technology on society and on value in the future for our company and then supporting that with R&D, Chris. And we do that through 3 key pillars Rux can touch on later on today. But first and foremost, generating data as further proof points of our technology, also working on expanding the utility of our unique Matrix-M adjuvant Matrix platform. We're working on new formulations of Matrix, for instance, like dry powder. We're also working on a completely new set of Matrix-based adjuvants with the goal of having a portfolio of adjuvants in the future that can be targeted and selected -- selectively targeted to very difficult-to-treat diseases, including beyond infectious disease into oncology, which we're currently exploring. Last but not least, we also have an early-stage pipeline of assets we intend to bring through Phase I, potentially Phase II, with the intent of partnering those out and using that also to generate that data and learn more about where we want to take Matrix-M in the future. So exciting times, proven out by, first and foremost, Sanofi, but then more recently, Pfizer, which we just announced in Q1 this year. Very exciting to have Pfizer on board with up to 2 assets that they can use our Matrix in. We also have a potential pipeline of partners behind Pfizer, as we started that journey of reaching out and letting companies explore with our Matrix technology through material transfer agreements and providing supplies of Matrix, so they can see what it can do to unlock potential in their own portfolios of vaccines. We have numerous parties. In fact, we're seeing more interest than I can recall in the last 3 years since I started in our technology right now today than before. Very exciting.

With so much opportunity ahead, what are you looking forward to in 2026? What -- which data points or readouts or update should investors hone in on?

Well, obviously, continued execution of our new strategy post pivot here. That's really important. And that includes the furthering of our current partnership plans. So looking for Sanofi for feedback on when they're going to initiate clinical trials for their potential CIC vaccines. That's the combination of their world-leading flu vaccines and our proven Nuvaxovid COVID vaccine. In addition, other milestones from a partner like Sanofi and royalties from this fall season for COVID, where Sanofi has the first opportunity for a full cycle launch of our COVID vaccine, starting with early retail negotiations at the end of last year through now under a BLA with all of the pieces they need in place to leverage their know-how and expertise appropriately. Looking for Pfizer to take initial steps with the one area they have selected to explore Matrix-M in and select that second field that they're eligible for and make that announcement. And last but not least, very important, new partnership announcements, which we're intending to be able to deliver should we continue to succeed on that front as well as data coming out of our pipeline from Ruxandra.

You touched a bit on this topic, and this is one topic we get a lot of investor questions on. What are the key success factors for winning share in the U.S. COVID vaccine market? And in what ways is Nuvaxovid really well positioned in the hands of Sanofi going into the 2026?

Good question. Jim?

Certainly. So as we enter into the fall season of '26, '27, especially in the U.S. market, really excited to have Sanofi at the lead, commercializing with what is effectively their first full year being able to use all the key commercial tools at their disposal. Sanofi has made it no secret that one of the things that they really appreciate about Nuvaxovid beyond the efficacy is the tolerability profile. And so you should certainly expect to hear more about that in their efforts. But importantly, 3 things come to mind as they embark on this first full year. One, the importance of contracting. I think what folks know about the COVID season, it takes a significantly long contracting cycle. It usually goes about from January through March, April each year to be prepared for the fall. And finally, this year, over the first year, they're able to negotiate with under a full BLA, a 6-month shelf life and integrate it into their core contracting platform. So that's part one. Part two and related to the profile, I mentioned a moment ago, Sanofi had the ability to pilot some commercial messaging in select markets that last year that they can now pull through as a part of their go-to-market strategy. And then a third piece to watch out for is Sanofi has likely -- the best proprietary distribution network for non-retail in the industry. And so the ability to take full advantage of that network as well. When it comes to expectations, we, of course, can't speak with them in what they do. But what we know from their flu business, the market-leading enhanced flu business is that they're a methodical competitor, and just watch and it would be our expectation that they seek to build share methodically over time as they unlock the full value of Nuvaxovid.

And just for the benefit of investors, the royalty rate you have on that opportunity is?

Yes. So on the Nuvaxovid sales, it's high teens to low 20s on net sales.

Great. Maybe looking at Novavax' internal pipeline and technology, you've talked about partnering as a core part of that strategy. Can you share some of the recent updates and highlights on your partnering efforts?

Yes. What we had shared publicly, Chris, is that we had in Q4 of last year, another MTA signed by a large pharmaceutical partner in that regard. And then just before earnings in the relatively early time frame this year, we had 2 additional MTAs. One was an extension of an existing MTA with a large top 10 pharmaceutical company who came back to Novavax and asked to expand their exploration of our Matrix-M into another field. So we amended that and had a second field allowed there. And most recently, an oncology company signed up with us also through an MTA. And that's a key point in our process, again, it gives potential partners the chance to experiment with Matrix-M in their own laboratory with their own assets and technology platforms, and a chance to see what we believe it can do with their own eyes, with their own scientists. And we saw that with Pfizer, and they came back and signed a meaningful deal with us for years to come now with potential opportunity that's significant, and we intend to have others come on board as well through that process.

Maybe digging into that a bit more, what types of questions or hypotheses could be evaluated under an MTA? And how does that differ from the questions that Pfizer could explore under its full formal collaboration?

So when we are talking about MTA, so material transfer agreement, typically, the partner [indiscernible] they are using it in conjunction with their vaccines, be it vaccines where they are facing a lot of competition or maybe things that have been put on a high shelf and now they are to get a new life on a new vaccine platform or with new adjuvants being -- new -- sorry, antigens being viral or bacterial or now in the oncology field. So there are a multitude of areas where that early exploration typically in animal experiments is happening. If the data is turning out to be positive, both from the point of view of immunogenicity, maybe efficacy, if they would run a challenge study, safety, of course, Matrix has a very good safety, reactogenicity tolerability profile, then they can move to the next step where they would explore the use of Matrix potentially in human clinical trials.

And that would be covered under a more formal collaboration like Pfizer?

In a more formal collaboration indeed.

Great. Maybe going back to your Q4 earnings call, you highlighted plans to develop a portfolio of new adjuvants. What's the rationale for doing that? And can you provide any update on timing for those efforts?

Yes, it's a very good question. So of course, we do have Matrix-M. Matrix-M has, again, a very nice safety tolerability profile. But moving into new applications, for instance, on oncology, one might want to tweak the type of immune responses that are generated, for instance, more CD8 positive cells or cell-mediated immunity that would be important for some hard-to-treat infectious diseases and in oncology. And that was the purpose of even asking the question, can we actually do some tweaking to the Matrix platform to the adjuvant platform in order to be able to generate other types of immune responses that might be used in these new applications.

And I believe you mentioned the dry powder inhaler formulation longer term. Could you provide any color on that?

Yes, surely. So aside from the new adjuvants that we referred to in the previous question, we thought that Matrix-M as it is, can be delivered in different other formulations. So for instance, one would need a dry powder, if one envisions an intranasal administration, for instance, of a vaccine or an oral administration of a vaccine or where that vaccine would have to be delivered in climatic conditions that call for prolonged thermostability. And all those can be achieved potentially through a dry powder formulation.

Very interesting. Maybe moving to oncology. You mentioned this is a specific area of exploration. Can you expand upon this and kind of put some time lines around those efforts?

So we are actually exploring the use of Matrix and this new Matrix-based adjuvants in oncology together with partners. So to be very clear, as John likes to say many times, we are not going to be the next oncology company. But there are many partners out there that, again, have not seen maybe the full potential of their antigens. They are hard-to-treat tumors. The type of immune response might not be ideal or one might have to go to a personalization. Yes. So really develop an antigen for each and every one of the patients. We believe that using our technology, we can again target the platforms that would enable to target some different types of tumors and different categories of patients.

Maybe moving to Novavax' internal pipeline. You highlighted your C. diff vaccine. Can you maybe just touch upon the unmet need for a vaccine like C. diff?

So C. difficile is an infection that occurs typically in hospitalized patients, typically in individuals that are 65 and older, and they're going in a hospital to have a specific surgery. Unfortunately, they can be either -- typically, you have already colonized your intestinal tract with C. diff, but it can either reactivate or really one can have these hypervirulent strains that are actually acquired in the hospital, which of course, are treatable with antibiotics, but the problem is that this bug likes to create spores. Spores are not actually responding to antibiotics. So they are colonizing further the colon and it entails repeat and repeat and repeat infections. So a vaccine in this case, would be extraordinarily useful because it would prevent either the primary infection and/or the recurrence of the disease. And currently, there is no such vaccine in the market.

And you touched upon some of the data you're seeing for your candidate vaccine. Could you maybe talk about what makes you excited in the data that you're seeing?

So the data from our early preclinical studies is very exciting for a scientist like I am. So it's hard to say, I love this one more than the other.

This just makes her more productive day, by the way.

We have is, yes. But we have actually took the learnings from previous work done by the scientific community when they've designed their own C. diff vaccines, and we've looked at different antigens to incorporate. We've asked the question, can we possibly generate mucosal immunity? Can we have some durability of our immune responses? So all that was actually taken into account when designing our programs.

That's well said, Rux. I mean I think very importantly, we put a lot of time and energy and effort into deciding where to make these lean bets in our pipeline. And one thing that we all said to our scientific team is tell us why, convince us as a management team, why we should pursue C. diff where others have failed with the vaccine? And what do you know about or suspect about why those vaccines might have failed in the past? And how can we apply those learnings, clinical trial design, approach to antigens, approach to toxins, the way that we're putting together the antigen, what Matrix might be able to do differently, et cetera. And we're convinced by Rux and her team that there's a shot on goal here that's worth trying. And we're very excited about what we're seeing early on. We're being careful about what we share and how much we put on the table, because we think we found an interesting path forward to continue working on, but we're very excited so far about what we're seeing, and we'll keep you informed as we can over time.

Great. Well, it seems like a major unmet medical need, hopefully to see some good progress there. Maybe moving to the financials. Novavax is in a much stronger financial position today. Can you remind us of your cash runway?

Certainly. So when we provided an update just last week, we shared that we've got an expected cash runway into 2028, so over 2 years. And that's quite a journey since where we were just a few years ago. And the importance on how we characterize that runway is that, that is based on our year-end cash and receivables, our Q1 non-dilutive cash generated from the Pfizer deal and from a new credit facility, plus, of course, reimbursements from partners in the future. But, that said, no incremental cash to the company. right? So no new BD deals, no royalties, no milestones. So we believe we've put the company on a very good financial footing to now enable us and investors to really focus on the value creation to occur that lies ahead of us.

Maybe looking out to some of the financial outlook you've given, what are the pushes and pulls to achieving non-GAAP profitability as early as 2028?

Right. The significance of that goal of achieving non-GAAP profitability is profound. I mean we are super excited about all the things we can do in R&D for our technology, but we also recognize we have shareholders and that we anticipate that over time, we're going to be able to generate orders of magnitude more cash flow into the company through royalties and milestones versus this lean infrastructure that we're maintaining to drive innovation. And as you look at the -- as early as 2028, 8 primary contributor, and there's multiple contributors that get you there. A primary is, for example, Sanofi's advancement to market of their CIC vaccines. It might be 1, it might be 2. That is a $225 million milestone. To offer context, we recently guided that 2028, our target is $200 million or below R&D and SG&A. And so you get a picture of exactly what a P&L breakeven might look like. And so part one is the potential milestone from CIC, but also consider royalties growing from the Nuvaxovid sales. look at the potential for royalties from a CIC vaccine. Think about new partnerships and different milestones and cash flows that can come from there. So we are certainly looking forward to driving to this not just profitability, but throwing off cash as a company beyond that point.

Great. Do we have any questions from the room? If not, maybe as we close every panel at our conference, what could be the biggest surprise or change at Novavax over the next decade, maybe from a financial standpoint, R&D standpoint, and then overall corporate strategy standpoint?

We're intending for it not to be a surprise. I think the biggest change is what Jim just finished saying, which is that throwing off cash orders of magnitude greater than the lean infrastructure we're building and targeting in. For the last 3 years, we've told our investors that we're reducing costs. We came from a 1.7 -- roughly $1.7 billion SG&A and R&D number. And even if you take out reimbursements from APA contracts about $1.4 billion to $1.5 billion range roughly, all the way down to this target in '28, which we're on track for right now to $200 million or below in SG&A and R&D minus reimbursement from partners. So certainly, that lean infrastructure puts us in a good position, Chris, and we're looking to put multiple shots on goal through multiple partners with multiple portfolios of products that incorporate our technology platform really throughout licensure and partnering over time. So you've got Sanofi, you've got Pfizer. We intend to put new partnerships with both large, mid- and small-sized pharma companies on the table there, each potentially with multiple assets. So even if some don't work out, some might and then you have lots of shots on goal there to generate revenue. And we're bridging that with milestones, some upfront payments, we would like to consider in the vast majority of contracts that we would put forward. And then milestones for clinical development, regulatory success, commercial and sales success, and royalties for a long period of time trailing. That's the goal. I think it might come as a surprise to some investors that we announce a deal because we can't really say much about these things as they're underway behind the scenes in the negotiation stage and really can only announce them, obviously, once they're inked. But hopefully, people start to see this is something we're going to be able to do. That's our intention over and over, and it shouldn't be a surprise that we achieve that over time.

Looking forward to seeing all the progress along the way. Thank you.

Thank you, Chris. Thanks, everyone. Appreciate it.

Thank you.