Novavax, Inc. (NASDAQ:NVAX) Jefferies London Healthcare Conference November 15, 2023 4:00 AM ET
Company Participants
Roger Song – Jefferies
Conference Call Participants
John Jacob – President & CEO
Filip Dubovsky – President of Research and Development
Jim Kelly – EVP & CFO
Roger Song
All right. Good morning, everyone. Welcome to day two at Jefferies Healthcare Conference in London. My name is Roger Song, one of the senior analysts cover biotech at Jefferies in the U.S. Next, presenting company is Novavax. Welcome, John, Filip and Jim.
John Jacob
Thank you, Roger.
Filip Dubovsky
Hey Roger.
Question-and-Answer Session
Q – Roger Song
Awesome. So maybe we kick this off right now. So maybe John, as a relatively new CEO, but, you have been with Novavax for a couple of months already. What is your updated elevator pitch for Novavax? What’s the recent kind of a strategic priority you lay out for the company?
John Jacob
Well, look, we’ve had — we have three strategic priorities for the company and first and foremost was launching our updated vaccine in line with regulatory authority requirements in the U.S., Europe and other key markets and we’re proud to say we’ve done that with key authorizations in the U.S. and in Europe and pending filings that are all completed in other key markets, including Australia, New Zealand, Israel, etcetera. So we’re very excited about that.
And the second key priority was to stabilize the company financially to make sure that we could reduce current liabilities and build enough cash runway to really keep the company more steady and so we can focus on the launch and the growth of our product market share.
So we were able to reduce current liabilities by over $1 billion, operating expenses by over $1 billion since 2022 and actually, we’re $100 million ahead on our initial cost reduction targets and just announced another $300 million plus out of SG&A, R&D and our manufacturing supply chain network and so — and we’ve shown we can do that, Roger, without cutting our capabilities.
It was really important that we looked across the company to say, what are the key capabilities we need at Novavax from strain selection to shots and arms? We’ve got to do that really well with one product. So we’re just scaling that according to the emerging global opportunity for the company.
And third, and certainly not least with Dr. Dubovsky here, he’ll talk about it a bit later, but bringing forward our organic pipeline. We’re sitting on quite a unique technology platform with our matrix and adjuvant and our protein based vaccine, the nanoparticle.
We think the market’s headed toward combination respiratory vaccines. You’ve got RSV, you’ve got flu, you’ve got COVID for the first time in the U.S. market and there’s a there’s a real convenience play there and importantly, a reactogenicity play and our vaccine may have advantage on side effects when you combine multiple antigens. So we think we have a potentially game changing vaccine. So it’s important that we are planning to launch our Phase 3 clinical program for that asset next year on an accelerated pathway that Filip will address in a little bit.
Roger Song
Excellent. Okay. So we’ll make sure this conversation will cover everything you just mentioned, but I think with the focus of the COVID vaccine. So maybe we start from the current this COVID for this season. How do you view 2023, 2024 season, particularly U.S. as the first commercial market and how you think this, the first kind of dynamic and translating into the future season?
John Jacob
And this is clearly a transitional year. I think everyone was thinking about 80 million doses to 100 million doses or so for COVID and right now, I know there was some recent data from CDC that led to a little confusion, but that’s a projection based on a phone survey.
So when you look at IQVIA data and claims data, you’re 17 million doses to 18 million doses so far into the COVID season. It’s looking like a 30 million dose to 50 million dose season this year in the United States, but again, a transitional year, first time from pandemic to endemic, first time into a commercial model and we feel the season may be toward midpoint, not quite at midpoint yet. So still room to grow.
Something we didn’t expect was to see was about 90% retail by this point and flu is about 65% retail, 35% non-retail channel. So you see IDNs and physician groups picking that up. We’re not seeing that yet here, but we do think there’s an opportunity, especially for our vaccine platform, which is refrigerator stable and so it has some advantages, we believe, for distribution across the IDN networks.
We have a team working on that. We’re starting to see that pop a little bit, but still expect that that’s something yet to come potentially between now and January, actually.
Roger Song
Okay. Awesome. So obviously, the Novavax is the third kind of vaccine approved in the US and also across the world, many countries. So how do you think? First of all, what is your expectation for the market share for Novavax for this season, maybe in the future coming? And also, what is the key factors give you the confidence you can compete in this market? We know we have the big player out there. So how do you think you will be competitive and you mentioned one refrigerator stable. Any other factors you want to point to the investors?
John Jacob
So a key profile that we’re targeting is to have a unit dose presentation. So either pre-filled syringe or unit dose file. So we intend to — strongly intend to have that ready for next year and are already working on that now. We have a five dose filed this year, which it’s good that we’re out, but that’s less convenient and it may have a return component to it that we have to account for. So it’s really important for us to have that unit dose file pre-filled syringe next year.
Also, we’re currently authorized under an emergency use authorization, as you know, Roger. We’re targeting a BLA for next year and also that next age cohort of six year olds to 11 year olds to expand our label and then finally, becoming more of a household name. So in the first three weeks of our campaign, our PR and marketing campaign, we drove aided awareness with physicians and non-retail channel from 47% to over 70%.
So going into next year, we intend to have pivotal awareness levels that lead to action by all benchmarks, a single dose presentation under a BLA and with an expanded label to include six year olds to 11 year olds and that would be our ideal positioning going into next year with a higher awareness level in our second season.
Roger Song
So maybe just remind us, what is your current guidance for the US market and then, in the future, how do you think about the — again, the market share and the potential kind of sales for the US?
John Jacob
Sure, go ahead, Jim.
Jim Kelly
All right, Roger, happy to cover that. And beginning first with the market itself and noting and reinforcing it’s a transition market. We’re talking about 30 million doses to 50 million doses for an annual or seasonal basis in the US. Remember, flu runs around 120 to 150 and you start by asking yourself, hey, why are these two not closer together? We would expect some migration of the COVID market towards flu over time, but we’re not banking on it, right?
We’re somewhere we’re going to build from here and so with that as a entree, our guidance for the US market this season is 50 million to 150 million. That will occur across both the fourth quarter and first quarter and across those scenarios, we’re talking about single digit share; from low, mid to high single digit and viewing it in the context of, hey, this is a launch, third to market and as we collectively along with the other manufacturers help this market transition to commercial and grow the market, we certainly see with our favourable profile the ability to grab share and grow share over time. So we think we have a lean, sustainable, profitable US business ahead of us.
Roger Song
Got it. And I think you did a couple market research in terms of the awareness, maybe the preference share for non-mRNA vaccine and talking about like a 20, 25, maybe even higher preference share. How do you think about the future? Maybe focus on the US first and then we’ll move on to the ex-US. How do you think about the future market share for Novavax? What’s your aiming for?
John Jacob
Well, the preference share indicated over 30% preference for a non-mRNA option, which was really important and that was across both consumers and healthcare providers. Now preference share, you need to discount that and move toward peak market share. We haven’t disclosed forward-looking guidance on share projections yet, Roger, but you can look at typical analogs time to peak share, third to market differentiated biologic or vaccine product and get a relative modelling perspective on where we might land on that for now.
Roger Song
Okay. Awesome. We talk a little bit a lot about the US market, but also we know ex-US particularly where in Europe, UK and then so how do you think about the current EU market is still kind of APA-driven, but in the future it will maybe similar to US we’re moving to the commercial market. How do you think about the dynamic will look like? How much we can apply the learning experience from the US to ex-US particularly in Europe?
John Jacob
Definitely different markets. I think they’re trending in a similar way when it comes to ratio of COVID to flu vaccination, those rates and things. So there’s certainly learnings that can be applied in modelling and if you look at the European market, you had Pfizer successfully renegotiated their APA roughly 60 million doses or so over three seasons. So that locks up a fair portion of the foreseeable market demand in COVID for the European continent, but still there remains opportunity in the private market.
We’ve already been approached by several governments about opening up private markets and they really like our refrigerator stable product, especially where there’s independent pharmacies. You look at the UK, you look at France and other markets like that that have opportunity and then there’s also still government purchase opportunity in Europe.
The key for us will be to do that with a very lean and focused structure and to make sure we’re managing the cost investment over the next 36 months in Europe. We close out our APAs and intend to fully deliver all of the scheduled doses for our APA this year and close that out and we have remaining APAs over the next two years from Australia, New Zealand, Canada and perhaps Jim, you could just talk about before we transition further beyond the European question, the next two years of runway before we get to our combination vaccine and the cash flow we have there.
Jim Kelly
Certainly. Ensuring we have the financial strength as we build out this transition to commercial markets is really important. And what we outlined and I outlined on our call last week is that we could see forward to cash, expected cash and sales, APA sales through 2025 of approximately $2 billion and so exceptionally important because that is the cash and sales runway to enable what will be this transition to commercial markets in the US and then selectively across the world in a highly efficient and focused manner.
And to give you a sense of when I say $2 billion, where does that come from? We’re talking about cash on hand, receivable from Canada, another $175 million, from our guidance Q4, Q1, another $600 million and then after this season, which ends at the end of Q1, another $750 million for the markets that John just mentioned, Australia, New Zealand, Canada.
So we have a very fortunate position of having both this cash position plus APAs ahead of us to help solidify our foundation as we build, build in a focused and efficient way these commercial markets.
John Jacob
And our plan includes an independent pathway to engaging in our Phase 3 clinical program and getting to a launch of our KICK [ph], we call it, but our combination COVID influenza product in 2026 would be the target for that.
Roger Song
Yeah, we will talk about the CIC in a moment. So maybe just clarify for the rest of the year, you have around $600 million revenue to deliver across 4Q and the 1Q next year.
John Jacob
Yeah, that’s correct.
Roger Song
And then that’s mostly driven by the APA, ex-US APA and the $50 million to $150 million for the US and then you have another $750 million ex-US and ex-EU APA to be delivered across 2024 and 2025. That’s the revenue.
Jim Kelly
That’s exactly right. And to, I guess, further reinforce the remaining guidance at midpoint, its $600 million split across both quarters. We’ve got grant revenue about $30 million midpoint of US about is $100 million. So that means you got APAs of $470 million and over $300 million of that is this important European APA and as you know, we have the authorization, delivery schedules, and then for the remainder, Australia, New Zealand, primarily, what we’re really doing is working through those regulatory filings, their southern hemisphere. So arriving in the first quarter is really consistent with their demands. So we’re well-positioned to get these APAs and put us on that path towards our guidance.
John Jacob
Yeah, and I think importantly, Roger, quickly, if I could build upon what Jim said, that $2 billion runway after Q1 of this coming year, that doesn’t include anything above and beyond for US? For Europe, for other markets like Korea, potentially a deal with UNICEF for low-income countries and other things that are all potential opportunities for our company as it go forward. So that platform we thought was mostly securitized cash flows puts us in a very good and strong position, managing our expenses the right way, and making those cuts as we said we would make to get us through to our combo program.
Roger Song
Yeah, that’s why I clarified. Basically, this $2 billion cash runway is almost secured kind of revenue to be delivered, of course, depending on the regulatory and the schedule, but that’s relatively, you have a high availability and the confidence you will be delivered.
John Jacob
That’s exactly right.
Roger Song
Yeah, okay. And maybe just, we know you haven’t really delivered the APA for this year and the coming year. So what are the key gating factors for investors to say, okay, so we are very confident or comfortable you will be delivered? I know you are confident, but in terms of, what are the key steps you need to kind of step into? I know the EU just got approval and then some other countries, and what are waiting for the EU delivery?
Jim Kelly
So I’m happy to cover that one. So the EU in particular, because we’re right here, is a well-prescribed country-by-country delivery schedule that we’ve had in hand since, goodness, renegotiated that in January and therefore, it’s more of a logistical effort now. Doses are in country, meaning they’re in our warehouse, they’re going through the release process, and we just have a week-by-week delivery schedule, country-by-country basis. Its logistics and execution right now.
Roger Song
Got it, okay. So we’re just waiting for more updates from you. And then, so I understand you’re not providing too much kind of forward-looking projection, but when and if you will provide us the 2024 guidance and maybe a little bit future kind of estimates, and have you kind of just launched the drug, launched the vaccine a couple of weeks in the US and not yet delivering the EU?
Jim Kelly
Well, what we’re very cognizant of is the speed at which we’re learning and this season is an incredibly important transition to commercial season in the US. We want to make sure that we’re extracting all the learnings on the market, the tactics that are successful, what we’re seeing with uptake in every pocket across distribution that can inform that guidance and that’s happening right now. It’s going to be happening certainly through December and into January and so, we look forward to spending more time on our forward-looking as we get closer to that Q4 call.
John Jacob
Okay. And I think we’ve indicated clearly our cost targets. Right, so we’ve given that piece of the platform and then you’ve got the $2 billion that’s primarily secured cash flows coming into the company, right? So there are those additional elements of US, Europe, other markets that are yet unfolding. So we want to get a sense for demand and we’ve heard anywhere from our competition, 50 million doses, 57 million doses. We made the call 30 million doses to 50 million doses for the US this year.
If you look at the current trends on shots and arms on a daily basis on the IQV runway, you project that out, unless there’s a trend break, you’re probably between 30 million doses and 40 million doses right now, right? You can see that. You guys publish the data every week. So as that unfolds, we’re learning with each week that goes by on this market, how long will it be, right and what can we learn from what comes through here today? Do the non-retail channel, do they start to open up?
Does that start to open up in the US? What does that look like on a go-forward basis? So as we get those elements, and its weeks, not months, to really learn a lot more about that, we’ll be in a better position to provide even more clear guidance. And one other point, when you look at our 2022 baseline on expenses, we’re approaching with the recently announced targets, a 60% reduction from that cost basis in annualized 2024.
Jim Kelly
Yeah and to put the math on that 60%, R&D plus SG&A, 2022 over $1.7 billion. We’re targeting $750 million or less. So you’re seeing how fast, how nimble we are in sizing the company to the opportunity, and the opportunity is significant, but we just got to be nimble and focused in how we address it.
John Jacob
And again, without cutting capabilities, that we need to operate from strain selection to shots in arms to make sure we can perform and we’ve shown we can do it, that’s the key. Its one thing to say it, Roger, but it’s another thing to be $100 million plus ahead on the targets we announced previously, and we got the vaccine launched.
Roger Song
Yeah, so I think maybe we can talk about, I think this is your second pillar in terms of the financial health and the condition. So recently, just as you said, maybe just to set the stage for the investors, in for 2023, you add additional $100 million cost reduction on top of what you already announced for 2023, and then you also say you will save additional $300 million for the 2024 on top of what you have guided before. So maybe the first question is, well, what prompt this kind of additional cost reduction and how you’re going to make sure your current operational plan will be still kind of perfectly executed?
John Jacob
So what has prompted our thinking, and I’ll start with, hey, listen, we’re always looking ahead. We knew that this launch in the United States, understanding the market size as we went to commercial would be something that we’d need to, I’ll say, flex to, to be prepared to adjust the size and scope of the company as we better understood the market. These past four weeks, six weeks, happened very rapidly in the US market, watching that transition, that is what spurred our thinking.
That’s what spurred our preparedness to take action, because we have to make sure that that runway we talked about, that over $2 billion, is there for us to efficiently build this market in a, I’ll call it a capital efficient and an operationally efficient manner while we maintain these capabilities. So that’s what it is. It’s applying the market, the opportunity, and being flexible in how we do so.
Jim Kelly
And we targeted very specific ratios based on benchmarks and where we want to be from a drive to profitability in the future. So we backed into that. We didn’t just start cutting to see how far we could go. We started with a target in mind and built into that while not hurting capabilities. And then as the market size changes, we can flex the structure to match that and align with that to keep those ratios in mind.
Roger Song
Yeah, okay, good. That’s a very healthy way to structure the financials, but before we move on to exciting pipeline, I know Filip here is eager to talk about that.
Filip Dubovsky
Can anyone tell who the scientist is on our panel here today?
Roger Song
Yes, before I do that, I think one of the questions you may not want to talk about it every time, but it’s on top of the investor’s mind is you still want to maintain this going concern in your financials. So maybe just under what condition you will potentially be able to remove that going concern, but right now you say, if all the operational plan execute as planned, as expected, you will be able to sustain the business, kind of remove the going concern. So maybe just tell us what are the key components you need to execute and then to be able to remove that kind of issue there.
John Jacob
And I think we were very clear in our disclosures about the elements or the pillars that went behind that going concern and for me coming in as new CEO, working with our board and management team, our auditor team, it was very important that we’re building credibility with the investor community and the company had significant risk when I came in and we worked really hard to begin that turnaround and to be decisive and make tough decisions to bring down the expenses, right and to really work hard to work differently and get the vaccine out in a more timely manner, in line, be able to compete and drive more revenue, become an efficient operating vehicle to then bring forward this pipeline and technology.
It was very important that we called out that risk to investors in as clear a manner as possible as things began to emerge. And what emerged right as I was joining, you had a change in the timing of government grants. There were a couple of years to pull down several hundred million and remaining operation warp speed grants. That time was shortened to just this year and that puts significant risk.
In addition, after I joined, Gavi filed an arbitration with us, right? That was a new development. So those new developments on top of the company’s position coming into this year, collectively led to adding that going concern on top. I think hopefully what everyone sees is we’re starting to build a much better cash runway and a much more efficient business model to be able to deliver our pipeline and technology. We still want to resolve the Gavi issue and put that behind us. We’ve actually done a very good job, Filip and his team this year in pulling down the vast majority, if not almost all of that grant money, which helped us to have a good performance in Q3. I don’t know, Jim, if you want to add anything on going concern.
Jim Kelly
Well, certainly, I think the two key dimensions on the going concern is our operating plan, just sort of the basic operating plan for which we see sufficient capital for 12 months and for it as outlined here. And then when it does come to Gavi, while it’s a legal matter, what we see is that there’s every reason that we should be doing business together, given our shared mission.
And I think that recent examples that highlight that are the, for example, R21 approval for malaria through our partners that can save millions of lives in Africa. What a great example of the shared mission, leveraging our matrix technology to bring a life-saving treatment to Africa for malaria. And then what you’re seeing with UNICEF with their continued RFP for COVID vaccine. So we look forward to, call it, continuing to advance our shared mission with Gavi. I think there’s great opportunity to do so.
Roger Song
Yeah, very interesting. You have many different kind of partnership with Gavi and simultaneously you also have this kind of arbitration with them. Yeah, so I understand this is a legal issue. You don’t have any, too much comment, but in terms of timeline, the next time you will update us, that’s kind of after hearing July next year, is that where you will be able to address that?
Jim Kelly
The formal hearing is scheduled for July of next year, of course, and in any, and this is not Novavax specific. I can’t comment specifically on the case, but what I can say is that any parties in this type of discussion at any time can choose to find a settlement if they wish to in good faith and good partnership.
Roger Song
Yeah, sure. Let’s bring Filip to the spotlight. So for the CIC, maybe just what is the key strategy here and what is the — seems you get some alignment with the FDA in terms of moving to the Phase 3 as a single pivotal study, and then potentially you will get approval in 2026, which is a very accelerated pass. So Filip, what have you done to bring the CIC to such a kind of quick kind of pass?
Filip Dubovsky
Yeah, so pretty much three things changed between our previous guidance and last week’s. One of them is that influenza vaccines have gone to a trivalent format and that made our job a lot easier from a formulation perspective. The other one is we got our complete data set from our previous Phase 2 study, and it allowed us to actually understand if we could achieve accelerated approval pathway endpoints and we had a lot of confidence looking at our data that we could do that and finally, we saw some of the other sponsors put forward plans where they had gotten regulatory concurrence with their plan, which was very similar to what we were thinking.
So we believe that there’s now an accelerated approval pathway that’s open to us, and we can get that study launched next year. And we have a high degree of confidence that we’ll achieve those endpoints because they hit the non-inferiority margins that have been previously used in Phase 3 studies. So we’re forging ahead. So what’s left now, we need to complete our formulation development and finalize our manufacturing strategy to bring a Phase 3 ready material into that study, and then we’re off to the races.
John Jacob
Awesome. And I guess the other point is that, for a while we pulled back on the R&D effort, but because of the financial strength we’ve kind of we garnered over the last two quarters, this is an effort we’re supporting internally, and it’s going to, in my opinion, going to be a huge value driver for the company.
Roger Song
Yeah, absolutely.
Jim Kelly
And Filip, incredibly more efficient, capital efficient path to filing for this indication in an accelerated basis, so that means a lot.
Filip Dubovsky
And just back on the accelerated approval, this company has trod this path before. There was a Phase 3 study with influenza alone that was granted an accelerated approval pathway by the FDA. So I think we know pretty well what needs to be done to get it through the hoop.
Roger Song
Got it. So just to clarify, I understand you want to launch or sustain the COVID business on your own, but for the CIC, do you see, would you see kind of partnership down the road after Phase 3 or maybe later stage of the Phase 3, you will start to do some partnership?
John Jacob
Okay, right now it’s our plan to independently bring forward this trial in through the next stage gates, and we’re always open to the appropriate pathway, what’s best for our investors and the company to bring forward anything we’re planning on doing. So we never say no to a potential pathway, but right now it’s our job. We’re cutting the expenses down, focused investments where it matters and one of the questions we often get is, well, if you have to reduce expenses, how can you still perform?
Hopefully everyone sees we’ve done that this year, and we’re $100 million ahead on that previously stated target. So we know how to do this, and we’re going to be making specific and focused investments where it matters, like in that program, in a more efficient program, a more effective program in our mind for an accelerated pathway for Kick, but we’ll keep our mind open to potential, but coming at that from a position of strength is what’s important to me and the management team. That if you must have a partner to bring something forward, you have less leverage. If it’s an option, that’s the position we’d like to be in.
Roger Song
Yeah, absolutely. Okay, so it seems we covered a lot of ground here within the 25 minutes and any other things you want to discuss we haven’t really touched on?
John Jacob
No, look, I think we’ve covered a lot of ground here. I’d ask Filip anything else you wanted to comment on from the science side?
Filip Dubovsky
Just a couple of things. One of them is that Gavi has announced there’s a multi-year agreement for the R21 malaria vaccine. And obviously we receive revenues and royalties for that, for providing the adjuvant to that and it also strikes me that, that plays into some features of the adjuvant that I think are important.
We’ve taken our COVID vaccine down to babies as young as six months of age, the malaria vaccines authorized now to children as young as five months of age. And with this adjuvant system, we can really pile in the antigens without really impacting reactogenicity. We’re comparable to licensed influenza vaccines and that means that the pathway open for a broader combination vaccine is wide open. This company has played aggressively in the RSV space. That’s the one where there’s other licensed products. I think the pathway is pretty clear for that. So I think that kind of a more aggressive respiratory portfolio may well be in our future if the finances hold up.
John Jacob
I think that’s very important to say that we’re not a COVID company. We’re a biologics company and a vaccine and infectious disease company sitting on an amazing technology platform, including that adjuvant and our protein-based approach to generating vaccines. Our first product happens to be COVID. And so we’re going to optimize that and run an efficient business model to generate the right revenue and value structure, so we can bring forward organically the rest of that pipeline. And then to seek inorganic growth, leveraging that success to build out a more broad portfolio and become a leader in vaccines and infectious disease.
Roger Song
That’s great. Thank you. Thanks for the time.
John Jacob
Thank you, Roger.
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